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non-u.s. gaap financial measures to provide investors with additional information regarding our financial results , we have presented adjusted ebitda and adjusted net income ( loss ) , non-u.s. gaap financial measures defined below . adjusted ebitda is a non-u.s. gaap financial measure defined by us as net loss before interest expense , net , provision for income taxes , depreciation and amortization expense , stock-based compensation expense , restructuring charges , costs related to the financial restatement and related activities described in the explanatory paragraph and note 2 : – restatement in our annual report on form 10-k for the year ended march 31 , 2019 , and other non-recurring expenses . adjusted net income ( loss ) is a non-u.s. gaap financial measure defined by us as net loss before restructuring charges , stock-based compensation expense , costs related to the financial restatement and related activities described in the explanatory paragraph and note 2 : – restatement in the annual report on form 10-k for the year ended march 31 , 2019 and other non-recurring ( income ) expenses . the company calculates adjusted net income ( loss ) per basic and diluted share using the company 's above-referenced definition of adjusted net income ( loss ) . the company considers non-recurring expenses to be expenses that have not been incurred within the prior two years and are not expected to recur within the next two years . such expenses include certain strategic and financial restructuring expenses . we have provided below a reconciliation of adjusted ebitda and adjusted net income ( loss ) to net income ( loss ) , the most directly comparable u.s. gaap financial measure . we have presented adjusted ebitda because it is a key measure used by our management and the board of directors to understand and evaluate our core operating performance and trends , to prepare and approve our annual budget and to develop short and long-term operating plans . in particular , we believe that the exclusion of the amounts eliminated in calculating adjusted ebitda can provide a useful measure for period-to-period comparisons of our core business performance . we believe adjusted net income ( loss ) and adjusted net income ( loss ) per basic and diluted share serve as appropriate measures to be used in evaluating the performance of our business and help our investors better compare our operating performance over multiple periods . accordingly , we believe that adjusted ebitda and adjusted net income ( loss ) provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and our board of directors . our use of adjusted ebitda and adjusted net income ( loss ) have limitations as analytical tools , and you should not consider them in isolation or as a substitute for analysis of our financial results as reported under u.s. gaap . some of these limitations are as follows : although depreciation and amortization expense are non-cash charges , the assets being depreciated and amortized may have to be replaced in the future , and adjusted ebitda does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements ; adjusted ebitda does not reflect : ( 1 ) interest and tax payments that may represent a reduction in cash available to us ; ( 2 ) capital expenditures , future requirements for capital expenditures or contractual commitments ; ( 3 ) changes in , or cash requirements for , working capital needs ; ( 4 ) the potentially dilutive impact 33 of stock-based compensation expense ; ( 5 ) loss on debt extinguishment or ( 6 ) potential future restructuring expenses ; adjusted net income ( loss ) does not reflect : ( 1 ) potential future restructuring activities ; ( 2 ) the potentially dilutive impact of stock-based compensation expense ; ( 3 ) loss on debt extinguishment ; or ( 4 ) potential future restructuring expenses ; and other companies , including companies in our industry , may calculate adjusted ebitda , adjusted net income ( loss ) or similarly titled measures differently , which reduces its usefulness as a comparative measure . because of these and other limitations , you should consider adjusted ebitda and adjusted net income ( loss ) along with other u.s. gaap-based financial performance measures , including various cash flow metrics and our u.s. gaap financial results . the following is a reconciliation of adjusted ebitda to the most comparable u.s. gaap financial measure , net income ( loss ) ( dollars in thousands ) : replace_table_token_3_th 34 story_separator_special_tag style= '' line-height:120 % ; padding-bottom:6px ; padding-top:6px ; text-align : left ; font-size:10pt ; '' > in fiscal 2019 , product revenue decreased $ 23.9 million , or 9 % , as compared to fiscal 2018. primary storage systems represented $ 19.2 million of the decrease , driven by declines in lower margin disk business in our u.s. domestic market . devices and media decreased $ 9.9 million driven by a legal dispute , which caused a constraint on lto tape supply between the two principal suppliers in the market . these were offset in part by secondary storage systems which increased $ 5.1 million driven by growth with our hyperscale customers . service revenue service revenue was relatively flat , decreasing 1 % in fiscal 2019 compared to fiscal 2018. this decrease was due to a combination of reduced new customer installations and reduced support renewals from our legacy customers . royalty revenue we receive royalties from third parties that license our lto media patents through our membership in the lto consortium . royalty revenue decreased $ 9.2 million , or 28 % , in fiscal 2019 as compared to fiscal 2018 due to overall declines in market unit volumes as the primary use of tape transitions from backup to archive workflows . story_separator_special_tag 38 gross profit and margin replace_table_token_12_th product gross margin product gross margin increased 320 basis points in fiscal 2019 , as compared with fiscal 2018. this increase was due primarily to cost reductions across a wide range of product offerings , and a mix weighted towards more profitable products . service gross margin service gross margin increased 210 basis points in fiscal 2019 , as compared with fiscal 2018. this increase was due primarily to reductions in cost of service . royalty gross margin royalties do not have significant related cost of sales . operating expenses replace_table_token_13_th in fiscal 2019 , research and development expense decreased $ 6.4 million , or 17 % , as compared with fiscal 2018. this decrease was partially attributable to a decrease in research and development headcount and professional services cost as we drove efficiencies throughout the business . in fiscal 2019 , sales and marketing expenses decreased $ 32.8 million , or 32 % , as compared with fiscal 2018. this decrease was driven by a decrease in compensation and benefits as the result of lower headcount and a decrease in marketing programs and professional services costs . in fiscal 2019 , general and administrative expenses increased $ 13.1 million , or 25 % , as compared with fiscal 2018. this increase was driven primarily by higher costs in fiscal 2019 related to our prior financial restatement and related activities . and increases in stock compensation expense . in fiscal 2019 , restructuring expenses decreased $ 2.9 million , or 34 % , as compared with fiscal 2018. this decrease was primarily due to the high level of headcount reductions that occurred during fiscal 2018 . 39 other income ( expense ) replace_table_token_14_th in fiscal 2019 , other ( income ) expense , net increased $ 2.1 million or 275 % , compared to fiscal 2018. the increase was primarily due to a gain of $ 2.8 million on the disposal of an investment in fiscal 2019 , offset by a $ 0.6 million reduction in foreign exchange gain as compared to fiscal 2018. in fiscal 2019 , interest expense increased $ 9.4 million , or 81 % , as compared with fiscal 2018. this increase was primarily due to a higher average principal balance . loss on debt extinguishment increased $ 10.5 million or 152 % in fiscal 2019 compared to fiscal 2018. the fiscal 2019 loss on debt extinguishment included $ 14.9 million related to the august 2018 modification of our tcw term loan , $ 1.8 million related to the august 2018 amendment to the pnc credit facility , and $ 0.8 million related to the december 2018 amendment to the pnc credit facility . during fiscal 2018 , we recorded a loss on debt extinguishment of $ 6.9 million related to the february 2018 amendment to our tcw term loan . replace_table_token_15_th our income tax provision is primarily influenced by foreign and state income taxes . in fiscal 2019 , our income tax provision ( benefit ) increased $ 5.5 million or 176 % , compared to fiscal 2018. the increase was primarily due to fiscal 2018 benefitting from a $ 2.1 million reserve release resulting from an audit settlement with a foreign taxing authority and a $ 2.9 million refundable tax credit resulting from the repeal of the corporate alternative minimum tax enacted as part of the tax cuts and jobs act in 2017 . 40 quarterly results of operations and key business metrics the following tables set forth our unaudited quarterly statements of operations data for the most recent eight quarters , as well as the percentage that each line item represents of our revenue for each quarter presented . the information for each quarter has been prepared on a basis consistent with our consolidated financial statements and reflect , in the opinion of management , all adjustments of a normal , recurring nature that are necessary for a fair presentation of the financial information contained in those statements . the following quarterly financial data should be read in conjunction with item 7 , `` management 's discussion and analysis of financial condition and results of operations , '' our audited consolidated financial statements included in item 8 , `` financial statements and supplementary data '' and other financial information included elsewhere in this annual report on form 10-k. replace_table_token_16_th liquidity and capital resources we consider liquidity in terms of the sufficiency of internal and external cash resources to fund our operating , investing and financing activities . our principal sources of liquidity include cash from operating activities , cash and cash equivalents on our balance sheet and amounts available under our amended pnc credit facility ( as defined below ) . we require significant cash resources to meet obligations to pay principal and interest on our outstanding debt , provide for our research and development activities , fund our working capital needs , and make capital expenditures . our future liquidity requirements will depend on multiple factors , including our research and development plans and capital asset needs . we are subject to the risks arising from covid-19 which have caused substantial financial market volatility and have adversely affected both the u.s. and the global economy . we believe that these social and economic impacts have had a negative effect on sales due to the decline in our customers ' ability or willingness to purchase our products and services . the extent of the impact will depend , in part , on how long the negative trends in customer demand and supply chain levels will continue . we expect the impact of covid-19 to have a significant impact on our liquidity and capital resources . we believe that our existing sources of liquidity including the amended pnc credit facility will be sufficient to fund our cash flow requirements for at least the next 12 months . we may need or decide to seek additional funding through equity or debt financings but can not guarantee that additional funds would be available on terms 41 acceptable to us , if at all .
| gross profit and margin replace_table_token_7_th product gross margin product gross margin increased 190 basis points in fiscal 2020 , as compared with fiscal 2019. this increase was due primarily to cost reductions across a wide range of product offerings , and a mix weighted towards more profitable products . service gross margin 36 service gross margin increased 230 basis points for fiscal 2020 , as compared with the same period in 2019. this increase was due primarily to reductions in cost of service . royalty gross margin royalties do not have significant related cost of sales . operating expenses replace_table_token_8_th in fiscal 2020 , research and development expense increased $ 4.2 million , or 13 % , as compared with fiscal 2019. this increase was partially attributable to an increase in research and development headcount and professional services cost related to new product development . in fiscal 2020 , sales and marketing expenses decreased $ 9.9 million , or 14 % , as compared with fiscal 2019. this decrease was driven by a decrease in compensation and benefits as the result of lower headcount and a decrease in marketing programs and professional services costs . in fiscal 2020 , general and administrative expenses decreased $ 10.8 million , or 17 % , as compared with fiscal 2019. this decrease was driven primarily by lower costs related to our prior financial restatement and related activities , which we primarily incurred in fiscal 2019 compared to fiscal 2020 , lower software expenses as we streamline our processes and tools throughout the company , decreased facilities expenses as we consolidate our physical footprint , and decreased bank fees . these decreases were partially offset by increases to stock compensation expense . in fiscal 2020 , restructuring expenses decreased $ 4.5 million , or 82 % , as compared with fiscal 2019. this decrease was primarily due to the higher level of headcount reductions that occurred during fiscal 2019. other income ( expense ) replace_table_token_9_th in fiscal 2020 , other ( income ) expense , net decreased $ 3.1 million or 109 % , compared to fiscal 2019. the decrease was primarily related to a gain on the disposal of an investment
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we were able to continue our implementation efforts remotely , and service our clients efficiently and in a timely manner , while our sales team shifted from in-person meetings with prospective and existing clients to engaging with them virtually . our teams also quickly mobilized to analyze the various state and federal legislative changes enacted by the government in response to the covid-19 crisis , including the coronavirus aid , relief , and economic security ( “ cares ” ) act and the families first coronavirus response act ( “ ffcra ” ) legislation and added automated functionality and reporting to our systems for our clients . we also introduced several new product features and resources to help prospects and clients rethink how they recruit , rehire and engage their workforce in this new environment . to help clients maintain a safe work environment we released mobile attestation , which allows employers to configure punch-in prompts to answer questions to help identify potential covid symptoms in their employees and our newly released time and labor scheduling reinforcement allows administrators to manage shift capacity to abide by cdc social distancing guidelines . we also launched new courses within our learning management module to support remote engagement for managers and their teams . to help recruit and rehire candidates , our clients can now launch virtual rehire events using our recruiting and onboarding modules by automatically changing the status of furloughed employees and inviting past employees to submit applications for rehire . to expedite the onboarding process for rehires , paylocity rolled out geolocation enhancements to immediately validate state and local taxes based on employees ' home and work addresses . the duration and severity of the covid-19 pandemic , and the long-term effects the pandemic will have on our clients and general economic conditions , remains uncertain and difficult to predict . many of our prospective and existing clients ' businesses have been impacted by stay-at-home , business closure and other restrictive orders , which has resulted in reduced employee headcount , temporary and permanent business closures , and or delayed sales/starts . our business and financial performance may continue to be unfavorably impacted in future periods if a significant number of our clients are unable to continue as viable businesses or reduce headcount , the macro-economic environment continues to experience worsening unemployment , there is a reduction in business confidence and activity , a decrease in government and consumer spending , a decrease in payroll and hcm solutions spending by medium-sized organizations , a decrease in growth in the overall market or a further decline of interest rates , among other factors . therefore , we expect covid-19 to continue to have an unfavorable impact on the growth in both recurring and other revenue and interest income on funds held for clients in future periods . refer to “ item 1a . risk factors ” in this annual report on form 10-k for risks related to the covid-19 pandemic to our business and financial performance . key metrics we regularly review a number of metrics , including the following key metrics , to evaluate our business , measure our performance , identify trends affecting our business , formulate financial projections and make strategic decisions . revenue growth our recurring revenue model and high annual revenue retention rates provide significant visibility into our future operating results and cash flow from operations . this visibility enables us to better manage and invest in our 39 business . total revenues increased from $ 377.5 million in fiscal 2018 to $ 467.6 million in fiscal 2019 , representing a 24 % year-over-year increase . total revenues increased from $ 467.6 million in fiscal 2019 to $ 561.3 million in fiscal 2020 , representing a 20 % year-over-year increase . while we experienced total revenue growth during fiscal 2020 , much of it took place in the first nine months of the fiscal year as the effects of covid-19 impacted our revenue starting in the latter half of march and throughout the fourth quarter of fiscal 2020. during the fourth quarter of fiscal 2020 , total revenue growth was impacted by reductions in client employee counts , a more challenging environment for new sales and client starts and interest rate reductions as interest income on funds held for clients declined due to interest rate reductions enacted by the federal reserve . we expect covid-19 to continue to unfavorably impact our revenue growth rates in future periods as we anticipate the future potential for a lower client employee count environment , increases in client losses , less demand for new services , a continued low interest rate environment and a decrease in the growth of the overall market , among other factors . client count growth we believe there is a significant opportunity to grow our business by increasing our number of clients . excluding clients acquired through acquisitions , we have increased the number of clients using our payroll and hcm software solutions from approximately 16,700 as of june 30 , 2018 to approximately 24,450 as of june 30 , 2020 , representing a compound annual growth rate of approximately 21 % . the table below sets forth the total number of clients using our payroll and hcm software solutions for the periods indicated , rounded to the nearest fifty . replace_table_token_3_th the rate at which we add clients is highly variable period-to-period and highly seasonal as many clients switch solutions during the first calendar quarter of each year . although many clients have multiple divisions , segments or locations , we only count such clients once for these purposes . annual revenue retention rate our annual revenue retention rate has been in excess of 92 % during each of the past three fiscal years . story_separator_special_tag we calculate our annual revenue retention rate as our total revenue for the preceding 12 months , less the annualized value of revenue lost during the preceding 12 months , divided by our total revenue for the preceding 12 months . we calculate the annualized value of revenue lost by summing the recurring fees paid by lost clients over the previous twelve months prior to their termination if they have been a client for a minimum of twelve months . for those lost clients who became clients within the last twelve months , we sum the recurring fees for the period that they have been a client and then annualize the amount . we exclude interest income on funds held for clients from the revenue retention calculation . we believe that our annual revenue retention rate is an important metric to measure overall client satisfaction and the general quality of our product and service offerings . adjusted gross profit and adjusted ebitda we use adjusted gross profit and adjusted ebitda to evaluate our operating results . we prepare adjusted gross profit and adjusted ebitda to eliminate the impact of items we do not consider indicative of our ongoing operating performance . however , adjusted gross profit and adjusted ebitda are not measurements of financial performance under generally accepted accounting principles in the united states , or gaap , and these metrics may not be comparable to similarly titled measures of other companies . we define adjusted gross profit as gross profit before amortization of capitalized internal-use software costs and stock-based compensation expense and employer payroll taxes related to stock releases and option exercises . we define adjusted ebitda as net income before interest expense , income tax expense ( benefit ) , depreciation and amortization expense , stock-based compensation expense and employer payroll taxes related to stock releases and option exercises , and other items as defined below . 40 we disclose adjusted gross profit and adjusted ebitda , which are non-gaap measures , because we believe these metrics assist investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance . we believe these metrics are commonly used in the financial community to aid in comparisons of similar companies , and we present them to enhance investors ' understanding of our operating performance and cash flows . adjusted gross profit and adjusted ebitda have limitations as analytical tools . some of these limitations include the following : ● adjusted ebitda does not reflect our ongoing or future requirements for capital expenditures ; ● adjusted ebitda does not reflect changes in , or cash requirements for , our working capital needs ; ● adjusted ebitda does not reflect our income tax expense or the cash requirement to pay our taxes ; ● although depreciation and amortization are non-cash charges , the assets being depreciated and amortized may have to be replaced in the future , and adjusted ebitda does not reflect any cash requirements for such replacements ; and ● other companies in our industry may calculate adjusted gross profit and adjusted ebitda differently than we do , limiting their usefulness as a comparative measure . additionally , stock-based compensation will continue to be an element of our overall compensation strategy , although we exclude it from adjusted gross profit and adjusted ebitda as an expense when evaluating our ongoing operating performance for a particular period . because of these limitations , you should not consider adjusted gross profit as an alternative to gross profit or adjusted ebitda as an alternative to net income or net cash provided by operating activities , in each case as determined in accordance with gaap . we compensate for these limitations by relying primarily on our gaap results , and we use adjusted gross profit and adjusted ebitda only as supplemental information . directly comparable gaap measures to adjusted gross profit and adjusted ebitda are gross profit and net income , respectively . we reconcile adjusted gross profit and adjusted ebitda as follows : replace_table_token_4_th replace_table_token_5_th 41 replace_table_token_6_th * represents nonrecurring costs including lease exit and acquisition-related costs of $ 2.5 million , $ 0.4 million and $ 1.6 million incurred during the years ended june 30 , 2018 , 2019 and 2020 , respectively , and the settlement of a certain legal matter and related litigation costs of $ 2.1 million during the year ended june 30 , 2020 . basis of presentation revenues recurring and other revenue beginning in fiscal 2020 , we simplified the presentation of revenue . recurring fees and implementation services and other have been combined into one revenue line : recurring and other revenue . we changed the presentation of revenue as implementation services and other has become a smaller component of our overall revenue mix as our hcm suite has become a larger part of the portfolio . previously reported results for the years ended june 30 , 2018 and 2019 have been reclassified to conform to the current presentation . we derive the majority of our revenues from recurring fees attributable to our cloud-based payroll and hcm software solutions . recurring fees for each client generally include a base fee in addition to a fee based on the number of client employees and the number of products a client uses . we also charge fees attributable to our preparation of w-2 documents and annual required filings on behalf of our clients . we charge implementation fees for professional services provided to implement our payroll and hcm solutions . implementations of our payroll solutions typically require only three to four weeks at which point the new client 's payroll is first processed using our solution . we implement additional hcm products as requested by clients and leverage the data within our payroll solution to accelerate our implementation processes .
| starting july 1 , 2018 , we concluded that implementation fees related to our proprietary products are not separate performance obligations , and as a result , the related implementation fees are deferred and amortized generally over a period up to 24 months . 45 interest income on funds held for clients interest income on funds held for clients for the year ended june 30 , 2020 decreased by $ 4.8 million , or 24 % , to $ 15.1 million from $ 19.9 million for the year ended june 30 , 2019. interest income on funds held for clients decreased primarily as a result of lower average interest rates gradually throughout the year ended june 30 , 2020 with the most significant interest rate cuts taking place in march 2020 in light of the global economic impact of the covid-19 pandemic . the impact from the reduction in interest rates was partially offset by higher average daily balances for funds due to the addition of new clients to our client base . interest income on funds held for clients for the year ended june 30 , 2019 increased by $ 10.8 million , or 119 % , to $ 19.9 million from $ 9.1 million for the year ended june 30 , 2018. interest income on funds held for clients increased primarily as a result of higher average interest rates , increased average daily balances for funds held due to the addition of new clients to our client base and interest income from investing a larger portion of our funds held for clients in marketable securities . cost of revenues ( $ in thousands ) replace_table_token_11_th cost of revenues for the year ended june 30 , 2020 increased by $ 28.2 million , or 18 % , to $ 182.0 million from $ 153.9 million for the year ended june 30 , 2019. cost of revenues increased primarily as a result of the continued growth of our business , in particular , $ 19.2 million in additional employee-related costs resulting from additional personnel necessary to provide services to new and existing clients , $ 4.0 million
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our net sales consist of our billings for products and services , less revenue that will be deferred until future recognition and a provision for product returns . deferred revenues primarily derive from work-texts , workbooks , online interactive digital content , digital and online learning components . the work-texts and workbooks are deferred until delivered , which often extends over the life of the contract and the online and digital content is typically recognized ratably over the life of the contract . the digitalization of education content and delivery is driving a substantial shift in the education market . an increasing number of schools are utilizing digital content in their classrooms and implementing online or blended learning environments , which is altering the historical mix of print and digital educational materials in the classroom . as a result , our business model has shifted to more digital and online learning components to address the needs of the education marketplace ; thus , resulting in an increase in our net sales being deferred . basal programs , which represent the most significant portion of our education segment net sales , cover curriculum standards in a particular k-12 academic subject and include a comprehensive offering of teacher and student materials required to conduct the class throughout the school year . products and services in basal programs include print and digital offerings for students and a variety of supporting materials such as teacher 's 33 editions , formative assessments , whole group instruction materials , practice aids , educational games and professional services . the process through which materials and curricula are selected and procured for classroom use varies throughout the united states . nineteen states , known as adoption states , approve and procure new basal programs usually every six to eight years on a state-wide basis , before individual schools or school districts are permitted to schedule the purchase of materials . in all remaining states , known as open states or open territories , each individual school or school district can procure materials at any time , though usually according to a five to ten year cycle . the student population in adoption states represents over 50 % of the u.s. elementary and secondary school-age population . many adoption states provide categorical funding for instructional materials , which means that state funds can not be used for any other purpose . our basal programs , primarily in adoption states , typically have higher deferred sales than other parts of the business . the higher deferred sales are primarily due to the length of time that our programs are being delivered , along with greater component and digital product offerings . a significant portion of our education segment net sales is dependent upon our ability to maintain residual sales , which are subsequent sales after the year of the original adoption , and our ability to continue to generate new business . in addition , our market is affected by changes in state curriculum standards , which drive instruction , assessment and accountability in each state . changes in state curriculum standards require that instructional materials be revised or replaced to align to the new standards , which historically has driven demand for basal programs . we also derive our education segment net sales from the sale of summative , formative or in-classroom and cognitive assessments to districts and schools in all 50 states . summative assessments are concluding or final exams that measure students ' proficiency in a particular academic subject or group of subjects on an aggregate level or against state standards . formative assessments are on-going , in-classroom tests that occur throughout the school year and monitor progress in certain subjects or curriculum units . additionally , our offerings include supplemental products that target struggling learners through comprehensive intervention solutions aimed at raising student achievement by providing solutions that combine technology , content and other educational products , as well as consulting and professional development services . we also offer products targeted at assisting english language learners . in international markets , we predominantly export and sell k-12 books to premium private schools that utilize the u.s. curriculum , which are located primarily in asia , the pacific , the middle east , latin america , the caribbean and africa . our international sales team utilizes a global network of distributors in local markets around the world . our trade publishing segment sells works of fiction and non-fiction in the general interest and young reader 's categories , dictionaries and other reference works . while print remains the primary format in which trade books are produced and distributed , the market for trade titles in digital format , primarily e-books , has developed rapidly over the past several years , as the industry evolves to embrace new technologies for developing , producing , marketing and distributing trade works . factors affecting our net sales include : education state or district per student funding levels ; federal funding levels ; the cyclicality of the purchasing schedule for adoption states ; student enrollments ; adoption of new education standards ; technological advancement and the introduction of new content and products that meet the needs of students , teachers and consumers , including through strategic agreements pertaining to content development and distribution ; and 34 the amount of net sales subject to deferrals which is impacted by the mix of product offering between digital and non-digital products , the length of programs and the mix of product delivered immediately or over time . trade publishing consumer spending levels as influenced by various factors , including the u.s. economy and consumer confidence ; the transition to e-books and any resulting impact on market growth ; the publishing of bestsellers along with obtaining recognized authors ; and movie tie-ins to our titles that spur sales of current and backlist titles , which are titles that have been on sale for more than a year . story_separator_special_tag state or district per-student funding levels , which closely correlate with state and local receipts from income , sales and property taxes , impact our sales as institutional customers are affected by funding cycles . most public school districts , the primary customers for k-12 products and services , are largely dependent on state and local funding to purchase materials . recently , total educational materials expenditures by institutions in the united states have been rebounding in the wake of the economic recovery . globally , education expenditures are projected to grow at 7 % through 2018 , according to gsv asset management . we monitor the purchasing cycles for specific disciplines in the adoption states in order to manage our product development and to plan sales campaigns . our sales may be materially impacted during the years that major adoption states , such as florida , california and texas , are or are not scheduled to make significant purchases . for example , florida implemented a language arts adoption in 2014 and is scheduled to adopt social studies materials in 2016 , for purchase in 2017. texas school districts purchased mathematics and science materials in 2014 , and adopted social studies and high school math materials for purchase in 2015. california adopted math materials in 2013 , with purchases spread over 2014-15 , and is scheduled to adopt english language arts materials in 2015 for purchase beginning in 2016. both florida and texas , along with several other adoption states , provide dedicated state funding for instructional materials and classroom technology , with funding typically appropriated by the legislature in the first half of the year in which materials are to be purchased . texas has a two-year budget cycle and in the 2015 legislative session appropriated funds for purchases in 2015 and 2016. california funds instructional materials in part with a dedicated portion of state lottery proceeds and in part out of general formula funds , with the minimum overall level of school funding determined according to the proposition 98 funding guarantee . nationally , total state funding for public schools has been trending upward as state revenues recover from the lows of the 2008-2009 economic recession . while we do not currently have contracts with these states for future instructional materials adoptions and there is no guarantee that we will continue to capture the same market share in the future , we have historically captured approximately 50 % of the market share in these states in the years that they adopt educational materials for various subjects . long-term growth in the u.s. k-12 market is positively correlated with student enrollments , which is a driver of growth in the educational publishing industry . although economic cycles may affect short-term buying patterns , school enrollments are highly predictable and are expected to trend upward over the longer term . according to nces , student enrollments are expected to increase from 54.7 million in 2010 , to over 57.0 million by the 2022 school year . outside the united states , the global education market continues to demonstrate strong macroeconomic growth characteristics . population growth is a leading indicator for pre-primary school enrollments , which have a subsequent impact on secondary and higher education enrollments . globally , according to unesco , rapid population growth has caused pre-primary enrollments to grow by 44.5 % worldwide over the 10-year period from 2003 to 2013. additionally , according to the united nations , the world population of 7.2 billion in 2013 is projected to increase by 1 billion by 2025 and reach 9.6 billion by 2050 , as countries develop and improvements in medical conditions increase the birth rate . 35 the digitalization of education content and delivery is also driving a substantial shift in the education market . as the k-12 educational market transitions to purchasing more digital solutions , we believe our ability to offer embedded assessments , adaptive learning , real-time interaction and student specific personalization in addition to our core educational content in a platform- and device-agnostic manner will provide new opportunities for growth . our trade publishing segment is heavily influenced by the u.s. and broader global economy , consumer confidence and consumer spending . as the economy continues to recover , both consumer confidence and consumer spending have increased and are at their highest level since 2008. while print remains the primary format in which trade books are produced and distributed , the market for trade titles in digital format , primarily e-books , has developed over the past several years , as the industry evolves to embrace new technologies for developing , producing , marketing and distributing trade works . we continue to focus on the development of innovative new digital products which capitalize on our strong content , our digital expertise and the growing consumer demand for these products . in the trade publishing segment , annual results can be driven by bestselling trade titles . furthermore , backlist titles can experience resurgence in sales when made into films . over the past several years , a number of our backlist titles such as the hobbit , the lord of the rings , life of pi , extremely loud and incredibly close , the giver and the time traveler 's wife have benefited in popularity due to movie releases and have subsequently resulted in increased trade sales . we employ several pricing models to serve various customer segments , including institutions , consumers , other government agencies ( e.g . , penal institutions , community centers , etc . ) and other third parties .
| the increase was largely driven by higher net sales of $ 13.0 million from the heinemann business , primarily related to the leveled literacy intervention product line along with $ 13.0 million of higher assessment net sales driven by the release of a new version of the woodcock johnson program and higher sales directly to consumers . additionally , there were net sales of $ 230.0 million during 2014 that were deferred , compared to net sales of $ 2.0 million in the prior year primarily due to large texas math and science adoptions and , to a lesser extent , adoptions in california and florida . the deferred revenue is being recognized over seven years rather than immediately due to the increase in digital and subscription components within our programs along with the length of our programs . partially offsetting the increase were lower net sales of professional development and professional services , primarily due to the prior year period benefitting $ 8.0 million from the completion of a contract that led to the recognition of revenue previously deferred , coupled with lower learning management system sales and services as we have exited those offerings . further , there was a $ 9.0 million decrease in net sales of traditional print supplemental products due to an aging product base and a $ 3.0 million decline in international sales due to a decline in licensing revenue . our education segment cost of sales for the year ended december 31 , 2015 , decreased $ 3.1 million , or 0.4 % , from $ 705.8 million for the same period in 2014 , to $ 702.7 million . the decrease was attributed to a $ 32.0 million reduction in net amortization expense related to publishing rights and pre-publication costs primarily due to our use of accelerated amortization methods . partially offsetting the aforementioned reductions was an increase in our cost of sales , excluding publishing rights and pre-publication amortization of $ 28.9
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in connection with the cares act , the company recorded net discrete income tax benefits of $ 9.3 million in 2020 , associated with the additional deductibility of certain expenses combined with provisions which enable companies to carry back tax losses to years prior to the enactment of the tax cuts and jobs act ( “ tax reform ” ) , when the federal statutory income tax rate was 35 % . non-gaap financial measures in addition to reporting financial results in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) , the company also provides information regarding adjusted operating earnings , adjusted earnings from continuing operations , and adjusted earnings before interest , taxes , depreciation and amortization ( “ adjusted ebitda ” ) . these are non-gaap financial measures , as defined below , and are used by management to allocate resources , assess performance against its peers and evaluate overall performance . the company believes these measures provide useful information for both management and its investors . the company believes these non-gaap measures are useful to investors because they provide additional understanding of the trends and special circumstances that affect its business . these measures provide useful supplemental information that helps investors to establish a basis for expected performance and the ability to evaluate actual results against that expectation . the measures , when considered in connection with gaap results , can be used to assess the overall performance of the company as well as assess the company 's performance against its peers . these measures are also used as a basis for certain compensation programs sponsored by the company . in addition , securities analysts , fund managers and other shareholders and stakeholders that communicate with the company request its financial results in these adjusted formats . -24- current year adjusted operating earnings , adjusted earnings from continuing operations , and adjusted ebitda exclude “ fresh cut operating losses ” subsequent to the decision to exit these operations during the first quarter , severance associated with cost reduction initiatives , organizational realignment costs and fees paid to a third-party advisory firm associated with project one team , the company 's initiative to drive growth while increasing efficiency and reducing costs . adjusted earnings from continuing operations also exclude p ension termination income related to refund s from the annuity provider associated with the final reconciliation of participant data , as well as net tax benefits associated with the cares act . prior year adjusted operating earnings , adjusted earnings from continuing operations and adjusted ebitda exclude “ fresh kitchen operating losses ” subsequent to the decision to exit these operations at the beginning of the third quarter , costs associated with organizational realignment , which include significant changes to the company 's management team , and fees paid to a third-party advisory firm associated with project one team . pension termination costs , primarily related to non-operating settlement expense associated with the distribution of pension assets , are excluded from adjusted earnings from continuing operations , and to a lesser extent adjusted operating earnings . in 201 8 , adjusted operating earnings , adjusted earnings from continuing operations , and adjusted ebitda exclude start-up costs associated with the first year of fresh kitchen operation s , which concluded during the first quarter of 2018 . these measures were adjusted for the impact of the 53 rd week in 2020 to provide better comparability to prior years . each of t he adjusted items are considered “ non-operational ” or “ non-core ” in nature . adjusted operating earnings adjusted operating earnings is a non-gaap operating financial measure that the company defines as operating earnings plus or minus adjustments for items that do not reflect the ongoing operating activities of the company and costs associated with the closing of operational locations . the company believes that adjusted operating earnings provide a meaningful representation of its operating performance for the company as a whole and for its operating segments . the company considers adjusted operating earnings as an additional way to measure operating performance on an ongoing basis . adjusted operating earnings is meant to reflect the ongoing operating performance of all of its distribution and retail operations ; consequently , it excludes the impact of items that could be considered “ non-operating ” or “ non-core ” in nature , and also excludes the contributions of activities classified as discontinued operations . because adjusted operating earnings and adjusted operating earnings by segment are performance measures that management uses to allocate resources , assess performance against its peers and evaluate overall performance , the company believes it provides useful information for both management and its investors . in addition , securities analysts , fund managers and other shareholders and stakeholders that communicate with the company request its operating financial results in an adjusted operating earnings format . adjusted operating earnings is not a measure of performance under gaap and should not be considered as a substitute for operating earnings , and other income statement data . the company 's definition of adjusted operating earnings may not be identical to similarly titled measures reported by other companies . -25- following is a reconciliation of operating earnings to adjusted operating earnings for 2020 , 2019 and 2018. replace_table_token_10_th -26- replace_table_token_11_th -27- adjusted earnings from continuing operations adjusted earnings from continuing operations is a non-gaap operating financial measure that the company defines as earnings from continuing operations plus or minus adjustments for items that do not reflect the ongoing operating activities of the company and costs associated with the closing of operational locations . the company believes that adjusted earnings from continuing operations provide a meaningful representation of its operating performance for the company . the company considers adjusted earnings from continuing operations as an additional way to measure operating performance on an ongoing basis . story_separator_special_tag adjusted earnings from continuing operations is meant to reflect the ongoing operating performance of all of its distribution and retail operations ; consequently , it excludes the impact of items that could be considered “ non-operating ” or “ non-core ” in nature , and also excludes the contributions of activities classified as discontinued operations . because adjusted earnings from continuing operations is a performance measure that management uses to allocate resources , assess performance against its peers and evaluate overall performance , the company believes it provides useful information for both management and its investors . in addition , securities analysts , fund managers and other shareholders and stakeholders that communicate with the company request its operating financial results in adjusted earnings from continuing operations format . adjusted earnings from continuing operations is not a measure of performance under gaap and should not be considered as a substitute for earnings from continuing operations and other income statement data . the company 's definition of adjusted earnings from continuing operations may not be identical to similarly titled measures reported by other companies . -28- following is a reconciliation of earnings from continuing operations to adjusted earnings from continuing operations for 2020 , 2019 and 2018. replace_table_token_12_th ( a ) the income tax effect on adjustments is computed by applying the applicable tax rate to the adjustments . ( b ) the company realized income tax benefits related to remeasuring its deferred tax assets and liabilities to reflect the change in the federal statutory rate resulting from the tax cuts and jobs act . includes $ 1.1 million of tax benefits attributable to tax planning strategies related to the tax cuts and jobs act for 2018 . ( c ) represents tax impacts attributable to the coronavirus aid , relief and economic security ( “ cares ” ) act , and related tax planning , primarily related to additional deductions and the utilization of net operating loss carryback . adjusted ebitda adjusted earnings before interest , taxes , depreciation and amortization ( “ adjusted ebitda ” ) is a non-gaap operating financial measure that the company defines as net earnings plus interest , discontinued operations , depreciation and amortization , and other non-cash items including share-based payments ( equity awards measured in accordance with asc 718 , stock compensation , which include both stock-based compensation to employees and stock warrants issued to non-employees ) and the lifo provision , as well as adjustments for items that do not reflect the ongoing operating activities of the company and costs associated with the closing of operational locations . the company believes that adjusted ebitda provides a meaningful representation of its operating performance for the company as a whole and for its operating segments . the company considers adjusted ebitda as an additional way to measure operating performance on an ongoing basis . adjusted ebitda is meant to reflect the ongoing operating performance of all of its distribution and retail operations ; consequently , it excludes the impact of items that could be considered “ non-operating ” or “ non-core ” in nature , and also excludes the contributions of activities classified as discontinued operations . because adjusted ebitda and adjusted ebitda by segment are performance measures that management uses to allocate resources , assess performance against its peers and evaluate overall performance , the company believes it provides useful information for both management and its investors . in addition , securities analysts , fund managers and other shareholders and stakeholders that communicate with the company request its operating financial results in an adjusted ebitda format . -29- adjusted ebitda and adjusted ebitda by segment are not measures of performance under gaap and should not be considered as a substitute for net earnings , cash flows from operating activities and other income or cash flow statement data . the company 's definitions of adjusted ebitda and adjusted ebitda by segment may not be identical to similarly titled measures reported by other companies . following is a reconciliation of net earnings to adjusted ebitda for 2020 , 2019 and 2018. replace_table_token_13_th -30- following is a reconciliation of operating earnings ( loss ) to adjusted ebitda by segment for 2020 , 2019 and 2018. replace_table_token_14_th -31- replace_table_token_15_th critical accounting policies and estimates the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources . based on the company 's ongoing review , the company makes adjustments it considers appropriate under the facts and circumstances . the company believes these accounting policies , and others set forth in note 1 , in the notes to the consolidated financial statements , should be reviewed as they are integral to understanding the company 's financial condition and results of operations . the company has discussed the development , selection and disclosure of these accounting policies with the audit committee of the board of directors . an accounting estimate is considered critical if : a ) it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made , and b ) different estimates that reasonably could have been used , or changes in the accounting estimates that are reasonably likely to occur periodically , could materially impact the company 's consolidated financial statements . the company considers the following accounting policies to represent the more critical estimates and assumptions used in the preparation of its consolidated financial statements : -32- customer exposure and credit risk allowance for doubtful accounts . the company evaluates the collectability of its accounts and notes receivable based on a combination of factors .
| profitability will also be impacted by unfavorable sales comparisons , primarily in the retail segment . the company anticipates that savings generated through certain initiatives will be more than offset by investments the company is making in its people and supply chain capabilities . results of operations the current year results of operations are presented in comparison to the prior year within the section below . for a discussion of the results of fiscal 2019 operations in comparison to fiscal 2018 , refer to the management 's discussion and analysis of financial condition and results of operations within the prior year annual report on form 10-k. certain prior year amounts have been adjusted to reflect recently adopted accounting standards , which are described within note 1 , in the notes to the consolidated financial statements . the following table sets forth items from the company 's consolidated statements of earnings as a percentage of net sales and the percentage change from the preceding year : replace_table_token_7_th note : certain totals do not sum due to rounding . -22- net sales – the following table presents net sales by segment and variances in net sales : replace_table_token_8_th net sales increased $ 812.4 million , or 9.5 % , to $ 9.35 billion in 2020 from $ 8.54 billion in 2019. the increase in net sales was driven primarily by continued growth with existing food distribution customers , increased consumer demand associated with the covid-19 pandemic in the retail and food distribution segments , and sales of $ 158.9 million in the 53 rd week in 2020 , partially offset by the exit of the company 's fresh production operations and lower comparable sales for the military segment . food distribution net sales increased $ 594.6 million , or 14.9 % , to $ 4.58 billion in 2020 from $ 3.98 billion in the prior year . the increase was due to sales growth with existing customers , as well as incremental volume
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our production continues to grow through drilling success as we place new wells into production and through additions from acquisitions , partially offset by the natural decline of our oil and natural gas sales from existing wells . for 2012 , our production volumes increased 95 % as compared to 2011. for 2011 , our production volumes increased 117 % as compared to 2010. the production primarily increased due to the addition of 48.3 and 32.3 net productive wells in 2012 and 2011 , respectively . our production for each of the last three years is set forth in the following table : replace_table_token_17_th ( 1 ) represents volumes sold . ( 2 ) natural gas and ngls are converted to boe at the rate of one barrel equals six mcf based upon the approximate relative energy content of oil and natural gas , which is not necessarily indicative of the relationship of oil and natural gas prices . derivative instruments we enter into derivative instruments to manage the price risk attributable to future oil production . for 2012 , we incurred a loss on settled derivatives of $ 0.4 million , compared to $ 13.4 million in 2011 and $ 0.5 million in 2010. our average realized price ( including all derivative settlements ) received during 2012 was $ 78.79 per boe compared to $ 75.85 per boe in 2011 and $ 66.39 per boe in 2010. our average realized price ( including all derivative settlements ) calculation includes all cash settlements for derivatives . mark-to-market derivative gains and losses were gains of $ 15.1 million in 2012 compared to a $ 3.1 million gain in 2011 and a $ 14.5 million loss in 2010. our derivatives are not designated for hedge accounting and are accounted for using the mark-to-market accounting method whereby gains and losses from changes in the fair value of derivative instruments are recognized immediately into earnings . mark-to-market accounting treatment creates volatility in our revenues as unrealized gains and losses from derivatives are included in total revenues and are not included in accumulated other comprehensive income in the accompanying balance sheets . as commodity prices increase or decrease , such changes will have an opposite effect on the mark-to-market value of our derivatives . any gains on our derivatives will be offset by lower wellhead revenues in the future or any losses will be offset by higher future wellhead revenues based on the value at the settlement date . at december 31 , 2012 , all of our derivative contracts are recorded at their fair value , which was a net asset of $ 3.3 million , an increase of $ 15.2 million from the $ 11.9 million net liability recorded as of december 31 , 2011. our open oil derivative contracts are summarized in “ item 7a . quantitative and qualitative disclosures about market risk— commodity price risk. ” 38 production expenses production expenses were $ 32.4 million in 2012 compared to $ 13.0 million in 2011 and $ 3.3 million in 2010. we experience increases in operating expenses as we add new wells and maintain production from existing properties . on an absolute dollar basis , our spending for production expenses for 2012 was 148 % higher when compared to 2011 due to production levels increasing 95 % , as well as higher water hauling and disposal costs and higher servicing expenses . production expenses are generally higher during a well 's first year of operations due to higher levels of servicing activities associated with managing production levels during a well 's steepest period of decline . since 44 % of our net wells have produced for less than twelve months , we believe the high level of servicing activities will decline as our property base matures . on an absolute dollar basis , our spending for production expenses for 2011 was 297 % higher when compared to 2010 due to production levels increasing 117 % and higher water hauling and disposal costs and servicing expenses . on a per unit basis , production expenses per boe increased from $ 6.77 per barrel sold in 2011 to $ 8.61 in 2012. on a per unit basis , production expenses per boe increased from $ 3.70 per barrel sold in 2010 to $ 6.77 in 2011. production taxes we pay production taxes based on realized oil and natural gas sales . these costs were $ 28.5 million in 2012 compared to $ 14.3 million in 2011 and $ 5.5 million in 2010. our average production tax rates were 9.6 % , 9.0 % and 9.2 % in 2012 , 2011 and 2010 , respectively . the 2012 average production tax rate was higher than the 2011 average due to well additions that qualified for reduced rates/or tax exemptions during 2011. certain portions of our production occurs in montana and north dakota jurisdictions that have lower initial tax rates for an established period of time or until an established threshold of production is exceeded , after which the tax rates are increased to the standard tax rate . the 2011 average production tax rate was lower than the 2010 average due to the well additions that qualified for reduced rates for tax exemptions during 2011. the majority of our production is located in north dakota which imposes a standard 11.5 % tax on our production revenues except for where properties qualify for reduced rates . general and administrative expense general and administrative expense was $ 22.6 million for 2012 compared to $ 13.6 million for 2011 and $ 7.2 million in 2010. the 2012 increase of $ 9.0 million when compared to 2011 is due to higher base salaries , cash bonuses and benefits ( $ 1.7 million ) , increased share based compensation expense ( $ 1.9 million ) , increased travel expenses ( $ 0.2 million ) and partially offset by lower office and other administrative expenses ( $ 0.3 million ) . story_separator_special_tag additionally , 2012 general and administrative expenses include $ 5.5 million of severance charges in connection with the departures of our former president and former chief operating officer . our personnel costs continue to increase as we invest in our technical teams and other staffing to support our growth . share based compensation expense represents the amortization of restricted stock grants granted to our employees and directors as part of compensation as well as fully vested share grants to employees and directors throughout the year . the 2011 increase of $ 6.4 million when compared to 2010 is due to higher base salaries and benefits ( $ 0.9 million ) , increased share based compensation expense ( $ 2.6 million ) , higher legal and professional expenses ( $ 1.3 million ) , increased travel expenses ( $ 0.5 million ) and higher office and other administrative expenses due to the addition of more employees ( $ 1.1 million ) . depletion , depreciation and amortization depletion , depreciation and amortization ( “ dd & a ” ) was $ 98.9 million in 2012 compared to $ 41.2 million in 2011 and $ 17.1 million in 2010. depletion expense , the largest component of dd & a , was $ 26.18 per boe in 2012 compared to $ 21.20 per boe in 2011 and $ 18.99 per boe in 2010. we have historically adjusted our depletion rates in the fourth quarter of each year based on the year end reserve report and other times during the year when circumstances indicate there has been a significant change in reserves or costs . the aggregate increase in depletion expense for 2012 compared to 2011 was driven by a 95 % increase in production . additionally , depletion rates rose in 2012 due to an increase in our future development cost estimates to reflect the changes in well completion methodologies ( e.g . more stimulation costs per well due to longer lateral extensions ) and increased production expenses . depletion rates in new plays tend to be higher in the beginning as increased initial outlays are amortized over proved reserves based on early stages of evaluations . as these plays mature , new technologies , well completion methodologies and additional historical operating information impact the reserve evaluations . the increase in depletion expense for 2011 compared to 2010 was driven by a 117 % increase in production . depreciation , amortization and accretion was $ 0.5 million in 2012 compared to $ 0.4 million in 2011 and $ 0.2 million in 2010. the following table summarizes dd & a expense per boe for 2012 , 2011 and 2010 : 39 replace_table_token_18_th interest expense interest expense was $ 13.9 million for 2012 compared to $ 0.6 million in 2011. interest expense was $ 0.6 million for 2011 compared to $ 0.6 million in 2010. in may 2012 , we issued $ 300 million of 8 % senior unsecured notes . the increase in interest expense for 2012 as compared to 2011 was primarily due to different weighted average debt amounts outstanding between years , as well as the higher interest rate applicable to the senior notes . interest income interest income was $ 1,000 for 2012 compared to $ 0.6 million in 2011. interest income for 2012 decreased $ 0.6 million as compared to 2011 because of lower levels of cash and short term investments . in 2011 , the higher amount of cash and short term investments resulted from the sale of common stock in november 2010. interest income was $ 0.6 million for 2011 compared to $ 0.5 million in 2010. interest income for 2011 increased $ 0.1 million as compared to 2010 due to higher levels of cash and short term investments that resulted from the sale of common stock . income tax provision the provision for income taxes was $ 43.0 million in 2012 compared to $ 26.8 million in 2011 and $ 4.4 million in 2010. the effective tax rate in 2012 was 37.3 % compared to an effective tax rate of 39.8 % in 2011. the effective tax rate was different than the statutory rate of 35 % primarily due to state tax rates . the 2011 effective tax rate was 39.8 % compared to an effective tax rate in 2010 of 39.0 % . due to higher pre-tax income levels , we increased our federal statutory rate from 34 % to 35 % in 2011. the effective tax rate was different than the statutory rate of 35 % primarily due to state tax rates . net income net income was $ 72.3 million in 2012 compared to $ 40.6 million in 2011 and $ 6.9 million in 2010. the increases in net income were driven by higher production levels and higher average sales prices received during each successive period . partially offsetting the higher oil and gas revenues were increased production expense , production taxes , general and administrative expenses , depletion expenses , and interest expense in each of the respective periods as described above . higher net income levels increased diluted net income per common share to $ 1.15 , $ 0.65 and $ 0.14 in 2012 , 2011 and 2010 , respectively . non-gaap financial measures we define adjusted net income as net income excluding ( i ) unrealized gain ( loss ) on derivative instruments , net of tax and ( ii ) severance expenses in connection with the departures of our former president and former chief operating officer , net of tax .
| average realized prices on a boe basis ( including all realized derivative settlements ) were 4 % higher in 2012 compared to 2011. as discussed elsewhere in this report , significant changes in oil and natural gas prices can have a material impact on our results of operations and our balance sheet , including the fair value of our derivatives . source of our revenues we derive our revenues from the sale of oil , natural gas and ngls produced from our properties . revenues are a function of the volume produced , the prevailing market price at the time of sale , oil quality , btu content and transportation costs to market . we use derivative instruments to hedge future sales prices on a substantial , but varying , portion of our oil production . we expect our derivative activities will help us achieve more predictable cash flows and reduce our exposure to downward price fluctuations . the use of derivative instruments has in the past , and may in the future , prevent us from realizing the full benefit of upward price movements but also mitigates the effects of declining price movements . our average realized price calculations include the effects of the settlement of all derivative contracts regardless of the accounting treatment . 34 principal components of our cost structure · oil price differentials . the price differential between our williston basin well head price and the nymex wti benchmark price is driven by the additional cost to transport oil from the williston basin via train , barge , pipeline or truck to refineries . · unrealized gain ( loss ) on derivative instruments . we utilize commodity derivative financial instruments to reduce our exposure to fluctuations in the price of oil . this account activity represents the recognition of gains and losses associated with our outstanding derivative contracts as commodity prices and commodity derivative contracts change on contracts that have not been designated for hedge accounting . · realized gain ( loss ) on derivative instruments . this account activity represents our realized gains and losses on the settlement of commodity derivative instruments . · production expenses . production expenses are daily costs incurred to bring oil and natural gas out of the ground and
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as of december 31 , 2019 , the company 's rate base is estimated to be $ 5,000,000 , which is comprised of : $ 4,600,000 filed with respective state utility commissions or local regulatory authorities ; and $ 400,000 not yet filed with respective state utility commissions or local regulatory authorities . our water and wastewater operations are composed of 47 rate divisions , each of which requires a separate rate filing for the evaluation of the cost of service and recovery of investments in connection with the establishment of tariff rates for that rate division . when feasible and beneficial to our utility customers , we have sought approval from the applicable state utility commission to consolidate rate divisions to achieve a more even distribution of costs over a larger customer base . all of the eight states in which we operate currently permit us to file a revenue requirement using some form of consolidated rates for some or all of the rate divisions in that state . revenue surcharges – seven states in which we operate water utilities , and six states in which we operate wastewater utilities , permit us to add an infrastructure rehabilitation surcharge to their respective bills to offset the additional depreciation and capital costs associated with capital expenditures related to replacing and rehabilitating infrastructure systems . in our other states , water and wastewater utilities absorb all of the depreciation and capital costs of these projects between base rate increases without the benefit of additional revenues . the gap between the time that a capital project is completed and the recovery of its costs in rates is known as regulatory lag . this surcharge is intended to substantially reduce regulatory lag , which often acts as a disincentive for water and wastewater utilities to rehabilitate their infrastructure . in addition , some states permit our subsidiaries to use a surcharge or credit on their bills to reflect allowable changes in costs , such as changes in state tax rates , other taxes and purchased water costs , until such time as the new costs are fully incorporated in base rates . effects of inflation – recovery of the effects of inflation through higher water and wastewater rates is dependent upon receiving adequate and timely rate increases . however , rate increases are not retroactive and often lag increases in costs caused by inflation . on occasion , our regulated utility companies may enter into rate settlement agreements , which require us to wait for a period of time to file the next base rate increase request . these agreements may result in regulatory lag whereby inflationary increases in expenses may not yet be reflected in rates , or a gap may exist between 31 ( in thousands of dollars , except per share amounts ) when a capital project is completed and the start of its recovery in rates . even during periods of moderate inflation , the effects of inflation can have a negative impact on our operating results . growth-through-acquisition strategy part of our strategy to meet the industry challenges is to actively explore opportunities to expand our utility operations through acquisitions of water and wastewater and other utilities either in areas adjacent to our existing service areas or in new service areas , and to explore acquiring market-based businesses that are complementary to our regulated water and wastewater operations . to complement our growth strategy , we routinely evaluate the operating performance of our individual utility systems , and in instances where limited economic growth opportunities exist or where we are unable to achieve favorable operating results or a return on equity that we consider acceptable , we will seek to sell the utility system and reinvest the proceeds in other utility systems . consistent with this strategy , we are focusing our acquisitions and resources in states where we have critical mass of operations in an effort to achieve economies of scale and increased efficiency . our growth-through-acquisition strategy allows us to operate more efficiently by sharing operating expenses over more utility customers and provides new locations for future earnings growth through capital investment . another element of our growth strategy is the consideration of opportunities to expand by acquiring other utilities , including those that may be in a new state if they provide promising economic growth opportunities and a return on equity that we consider acceptable . our ability to successfully execute this strategy historically and to meet the industry challenges has largely been due to our core competencies , financial position , and our qualified and trained workforce , which we strive to retain by treating employees fairly and providing our employees with development and growth opportunities . on october 22 , 2018 , we entered into a purchase agreement to acquire , from ldc funding llc , the parent company of png companies , a natural gas distribution company consisting of peoples natural gas company llc , peoples gas company llc , peoples gas west virginia , inc. , peoples gas kentucky , inc. , and delta natural gas company inc. ( “ peoples ” ) to expand the company 's regulated utility business to include natural gas distribution . peoples serves approximately 747,000 gas utility customers in western pennsylvania , west virginia , and kentucky . the peoples gas acquisition , once consummated , will expand our regulated utility business to include natural gas distribution . at the closing of the peoples gas acquisition , the company will pay $ 4,275,000 in cash , subject to adjustments for working capital , certain capital expenditures , transaction expenses and closing indebtedness as set forth in the acquisition agreement . story_separator_special_tag the company expects to assume approximately $ 1,106,000 of peoples ' indebtedness upon the closing of the peoples gas acquisition , which would reduce the cash purchase by approximately $ 1,106,000. the acquisition is subject to customary closing conditions set forth in the acquisition agreement , and is expected to close on march 16 , 2020. during 2019 , we completed eight acquisitions , which along with the organic growth in our existing systems , represents 21,613 new customers . during 2018 , we completed nine acquisitions , which along with the organic growth in our existing systems , represents 22,741 new customers . during 2017 , we completed four acquisitions , which along with the organic growth in our existing systems , represents 10,584 new customers . we believe that utility acquisitions , organic growth , and a potential expansion of our market-based business will continue to be the primary sources of growth for us . with approximately 50,000 community water systems in the u.s. , 81 % of which serve less than 3,300 customers , the water industry is the most fragmented of the major utility industries ( telephone , natural gas , electric , water , and wastewater ) . in the states where we operate regulated water utilities , we believe there are approximately 14,000 community water systems of widely-varying size , with the majority of the population being served by government-owned water systems . although not as fragmented as the water industry , the wastewater industry in the u.s. also presents opportunities for consolidation . according to the u.s. environmental protection agency 's ( “ epa ” ) most recent survey of wastewater treatment facilities ( which includes both government-owned facilities and regulated utility systems ) in 2012 , there were approximately 15,000 such facilities in the nation serving approximately 76 % of the u.s. population . the remaining population represents individual homeowners with their own treatment facilities ; for example , community on-lot disposal systems and septic tank systems . the vast majority of wastewater facilities are government-owned rather than regulated utilities . the epa survey also indicated that , in 2012 , there were approximately 4,000 wastewater facilities in operation in the states where we operate regulated utilities . 32 ( in thousands of dollars , except per share amounts ) because of the fragmented nature of the water and wastewater utility industries , we believe that there are many potential water and wastewater system acquisition candidates throughout the united states . we believe the factors driving the consolidation of these systems are : the benefits of economies of scale ; the increasing cost and complexity of environmental regulations ; the need for substantial capital investment ; the need for technological and managerial expertise ; the desire to improve water quality and service ; limited access to cost-effective financing ; the monetizing of public assets to support , in some cases , the declining financial condition of municipalities ; and the use of system sale proceeds by a municipality to accomplish other public purposes . we are actively exploring opportunities to expand our water and wastewater utility operations through regulated utility acquisitions or otherwise , including the management of publicly-owned facilities in a public-private partnership . we intend to continue to pursue acquisitions of government-owned and regulated water and wastewater utility systems that provide services in areas near our existing service territories or in new service areas . it is our intention to focus on growth opportunities in states where we have critical mass , which allows us to improve economies of scale through spreading our fixed costs over more customers – this cost efficiency should enable us to reduce the size of future rate increases . currently , the company seeks to acquire businesses in the u.s. regulated sector , which includes water and wastewater utilities and other regulated utilities , and to pursue growth ventures in market-based activities , by acquiring businesses that provide water and wastewater or other utility-related services and investing in infrastructure projects . sendout sendout represents the quantity of treated water delivered to our distribution systems . we use sendout as an indicator of customer demand . weather conditions tend to impact water consumption , particularly during the late spring , summer , and early fall when discretionary and recreational use of water is at its highest . consequently , a higher proportion of annual operating revenues are realized in the second and third quarters . in general , during this period , an extended period of hot and dry weather increases water consumption , while above-average rainfall and cool weather decreases water consumption . conservation efforts , construction codes that require the use of low-flow plumbing fixtures , as well as mandated water use restrictions in response to drought conditions can reduce water consumption . we believe an increase in conservation awareness by our customers , including the increased use of more efficient plumbing fixtures and appliances , may continue to result in a long-term structural trend of declining water usage per customer . these gradual long-term changes are normally taken into account by the utility commissions in setting rates , whereas significant short-term changes in water usage , resulting from drought warnings , water use restrictions , or extreme weather conditions , may not be fully reflected in the rates we charge between rate proceedings . in illinois , our operating subsidiary has adopted a revenue stability mechanism which allows us to recognize state puc-authorized revenue for a period which is not based upon the volume of water sold during that period , and effectively lessens the impact of weather and consumption variability . on occasion , drought warnings and water use restrictions are issued by governmental authorities for portions of our service territories in response to extended periods of dry weather conditions , regardless of our ability to meet unrestricted customer water demands . the timing and duration of the warnings and restrictions can have an impact on our water revenues and net income .
| two segments are not quantitatively significant to be reportable and are composed of aqua resources and aqua infrastructure . these segments are included as a component of “ other , ” in addition to corporate costs that have not been allocated to the regulated water segment , because they would not be recoverable as a cost of utility service , and intersegment eliminations . corporate costs include general and administrative expenses , and interest expense . 37 ( in thousands of dollars , except per share amounts ) the following table provides the regulated water segment and consolidated information for the years ended december 31 , 2019 , 2018 , and 2017 : replace_table_token_8_th 38 ( in thousands of dollars , except per share amounts ) consolidated results of operations comparison for 2019 and 2018 for the comparison of fiscal years 2018 and 2017 , refer to part ii , item 7 “ management 's discussion and analysis of financial condition and results of operations ” in our annual report on form 10-k for our fiscal year ended december 31 , 2018 , filed with the sec on february 26 , 2019. operating revenues – operating revenues totaled $ 889,692 in 2019 , $ 838,091 in 2018 , and $ 809,525 in 2017. our regulated water segment 's revenues totaled $ 886,430 in 2019 , $ 834,638 in 2018 , and $ 804,905 in 2017. the growth in our regulated water segment 's revenues over the past three years is a result of increases in our water and wastewater rates and our customer base . rate increases implemented during the past three years have provided additional operating revenues of $ 55,658 in 2019 , $ 8,362 in 2018 , and $ 6,143 in 2017. in 2019 , we experienced a decrease in water and wastewater revenues of $ 1,419 as a result of a do not consume advisory we initiated in 2019 for some of our customers served by our illinois subsidiary , which we expect to continue into the second
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we believe that our cash and cash equivalents on hand will be sufficient to fund our anticipated level of operations for at least the next twelve months . the timing and amount of any additional funding the company may require to broaden the commercial expansion of melafind ® will be affected by the commercial success of the product . the funding could be in the form of either additional equity or debt financing . most of our expenditures to date have been for research and development activities and general and administrative expenses . research and development expenses represent costs incurred for product development , clinical trials and activities relating to regulatory filings and manufacturing development efforts . we expense all of our research and development costs as they are incurred . our research and development expenses incurred for the year ended december 31 , 2011 were related primarily to the development of melafind ® and review of the melafind ® pma by the fda . we expect to continue to incur certain additional research and development expenses relating to melafind ® . additional r & d charges may be incurred for complementary technologies . these additional expenses could exceed our estimated amounts , possibly materially . general and administrative expenses consist primarily of salaries and related human resources expenses , legal expenses , including litigation expenses and general corporate activities and costs associated with our efforts toward development of a commercial infrastructure to market and sell melafind ® . we expect selling , general and administrative expenses to increase as we build our sales and marketing capabilities to support placing melafind ® systems in selected markets inside and outside the u.s. at december 31 , 2011 , we had available income tax benefit from net operating loss carryforwards for federal income tax reporting purposes of approximately $ 47 million . the net operating loss carryforwards may be available to offset future taxable income expiring at various dates through the year 2031. the company 's ability to utilize its net operating losses may be significantly limited due to future changes in the company 's ownership as defined by federal income tax regulations . 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 accounting principles generally accepted in the us . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods . on an ongoing basis , we evaluate our judgments related to accounting estimates . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 1 to our financial statements included in this annual report , we believe that the following accounting policies and significant judgments and estimates relating to revenue recognition , stock-based compensation charges , and accrued expenses are most critical to aid you in fully understanding and evaluating our reported financial results . 42 revenue recognition the company considers revenue to be earned when all of the following criteria are met : persuasive evidence a sales arrangement exists ; delivery has occurred or services have been rendered ; the price is fixed or determinable ; and collectability is reasonably assured . the company 's agreements with dermatologists regarding the melafind ® system combines the elements noted above with a future service obligation . while the company is required to place the melafind ® system with dermatologists for their exclusive use , ownership of the melafind ® system remains with the company . the company generates revenue primarily from the sale of single-use electronic record cards . these cards activate the melafind ® system , capture digital data and store the data for each patient visit . in addition , the company charges an initial installation fee for each melafind ® system which covers training , delivery and supplies . in accordance with the accounting guidance regarding multiple-element arrangements , the company defers revenue for the undelivered service element based upon the relative standalone selling prices , and recognizes the associated revenue over the related service period , generally expected to be two years . prior to the installation of the first commercial melafind ® system in the first quarter of 2012 , the company had no revenues from products since 2005 when it discontinued its difoti operations . stock-based compensation we account for non-employee stock-based awards in which goods or services are the consideration received for the equity instruments issued based on the fair value of the equity instruments issued in accordance with fasb asc 505-50 , equity based payments to non-employees. we record compensation expense associated with stock options and other forms of equity compensation in accordance with fasb asc 718 , compensation-stock compensation , as interpreted by sec staff accounting bulletins no . 107 and no . 110. a compensation charge is recorded , when it is probable that performance conditions will be satisfied , over the period estimated to satisfy the performance condition . the probability of vesting is updated at each reporting period and compensation is adjusted prospectively . accrued expenses as part of the process of preparing financial statements , we are required to estimate accrued expenses . story_separator_special_tag this process involves identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for such service where we have not been invoiced or otherwise notified of the actual cost . examples of estimated accrued expenses include : professional service fees ; contract clinical and regulatory related service fees ; fees paid to contract manufacturers in conjunction with the production of melafind ® components or materials ; and fees paid to third party data collection organizations and investigators in conjunction with the clinical trials and fda and other regulatory review . in connection with such service fees , our estimates are most affected by our projections of the timing of services provided relative to the actual level of services provided by such service providers . the majority of our service providers invoice us monthly in arrears for services performed . in the event that we do not identify certain costs that have begun to be incurred or we under or over estimate the level of services performed or the costs of such services , our actual expenses could differ from such estimates . the date on which certain services commence , the level of services performed on or before a given date , and the cost of such services are often 43 subjective determinations . we make these judgments based upon the facts and circumstances known to us and accrue for such costs in accordance with accounting principles generally accepted in the us . this is done as of each balance sheet date in our financial statements . results of operations ( in thousands ) year ended december 31 , 2011 compared to year ended december 31 , 2010 research and development expense research and development expense decreased by $ 1,841 to $ 9,656 for the year ended december 31 , 2011 from $ 11,497 for the year ended december 31 , 2010. r & d costs at askion decreased by $ 1,434 primarily in labor and product improvement materials while u.s. development costs decreased by $ 717 , which was primarily related to decreased product improvement , software development and subcontract design activities . clinical spending decreased $ 283 , technical support decreased $ 87 , and quality/regulatory decreased $ 103. non-cash share-based compensation expense in r & d , resulting from vesting associated with the achievement of performance and time-based milestones and from the granting of options , increased by $ 783. story_separator_special_tag agreement approximating $ 62,000 have been deferred and will be charged to equity as a reduction of proceeds from the ceff or operations should management decide to abandon the ceff . in may 2010 , the company filed a form s-3 shelf registration statement for an indeterminate number of shares of common stock , warrants to purchase shares of common stock and units consisting of a combination thereof having an aggregate initial offering price not to exceed $ 75 million . the registration statement was declared effective by the sec on june 1 , 2010 ( file no . 333-167113 ) . on june 30 , 2010 , the company entered into an underwriting agreement , relating to the public offering of 2,200,000 shares of the company 's common stock , at a price to the public of $ 7.50 per share less underwriting discounts and commissions . the common stock was offered and sold pursuant to the company 's prospectus dated june 1 , 2010 and the company 's prospectus supplement filed with the securities and exchange commission ( the sec ) on june 30 , 2010 , in connection with a takedown from the company 's effective shelf registration statement . the gross proceeds to the company from the sale of the common stock totaled $ 16.5 million . after deducting the underwriters ' discounts and commissions and other offering expenses payable by the company , net proceeds were approximately $ 15.2 million . this offering closed on july 6 , 2010. on december 15 , 2011 , the company entered into an underwriting agreement , relating to the public offering of 5,000,000 shares of the company 's common stock , at a price to the public of $ 3.25 per share , except for an officer and a director of the company who collectively purchased 42,915 shares at the closing market price of $ 3.97 , less underwriting discounts and commissions . the common stock was offered and sold pursuant to the company 's prospectus dated june 1 , 2010 and the company 's prospectus supplement filed with the securities and exchange commission ( the sec ) on december 16 , 2011 , in connection with a takedown from the company 's effective shelf registration statement . the gross proceeds to the company from the sale of the common stock totaled approximately $ 16.3 million . after deducting the underwriters ' discounts and commissions and other offering expenses payable by the company , net proceeds were approximately $ 15 million . this offering closed on december 21 , 2011. approximately $ 42.2 million remains available under the company 's 2010 shelf registration statement as of december 31 , 2011. cash flows from operating activities net cash used in operations was $ 17,458 for the year ended december 31 , 2011. for the year ended december 31 , 2010 , the net cash used in operations was $ 18,820. for both periods , cash used in operations was attributable primarily to net losses after adjustment for non-cash charges related to non-cash compensation , depreciation and other changes in operating assets and liabilities . cash flows from investing activities net cash used in our investing activities was $ 104 for the year ended december 31 , 2011 principally relating to the purchase of fixed assets . for the year ended december 31 , 2010 net cash provided by investing activities was $ 1,034 principally relating to the purchase of fixed assets net of disposals .
| as kavo has not re-launched difoti as of 2011 year end , the company earned the minimum annual royalty of $ 20 in both 2011 and 2010. year ended december 31 , 2010 compared to year ended december 31 , 2009 research and development expense research and development expense increased by $ 547 to $ 11,497 for the year ended december 31 , 2010 from $ 10,950 for the year ended december 31 , 2009. this was primarily attributable to increased costs at askion of $ 300 in r & d labor and $ 456 in product improvements offset by a $ 192 reduction of our clinical trial costs following completion of the pivotal trial related activities . general and administrative expense general and administrative expense increased by $ 1,107 to $ 8,738 for the year ended december 31 , 2010 from $ 7,631 for the year ending december 31 , 2009. significant to this overall g & a increase were increases of 44 $ 293 in outsourced professional costs , $ 182 in supplies and other costs , $ 169 in facility costs , $ 130 in travel and conferences , and $ 333 in non-cash items including depreciation/amortization of $ 236 and share-based compensation of $ 97. interest ( income ) /expense interest income for the year ended december 31 , 2010 was $ 32 compared to $ 45 for the year ended december 31 , 2009. the decrease reflected significantly lower interest rates available in 2010. other income , net other income for the year ended december 31 , 2010 increased from the comparable period in 2009 by $ 197. in 2010 the company received a r & d grant from the federal government for $ 245 offset by a reduction in other income from the l'oreal feasibility study and provision of kavo transitional services both of which concluded in 2009. in accordance with the terms of our difoti sale and licensing agreement , kavo will pay us an annual royalty based on the number of difoti related systems sold per calendar year following commercial re-launch . as kavo has not re-launched difoti as of 2010 year end , the company earned the minimum annual royalty of $ 20 in both 2010 and 2009. there was a gain of $ 9 on the disposal of fixed assets in 2010. liquidity and capital resources ( in thousands ) from inception , we have financed our operations primarily through the use of working capital from the sale of equity securities . to date , we have not borrowed ( other than by
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many of our residents utilize our web-based resident portal which allows them to review their account and make payments , provide feedback and make service requests on-line . we seek to maximize capital appreciation of our properties by investing in markets that are characterized by conditions favorable to multifamily property appreciation . these markets generally feature one or more of the following : n high barriers to entry where , because of land scarcity or government regulation , it is difficult or costly to build new apartment properties leading to low supply ; n high single family home prices making our apartments a more economical housing choice ; n strong economic growth leading to household formation and job growth , which in turn leads to high demand for our apartments ; and n an attractive quality of life leading to high demand and retention and allowing us to more readily increase rents . acquisitions and developments may be financed from various sources of capital , which may include retained cash flow , issuance of additional equity and debt securities , sales of properties , joint venture agreements and collateralized and uncollateralized borrowings . 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 . eqr may also acquire land parcels to hold and or sell based on market opportunities . 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 . the company has also , in the past , converted some of its properties and sold them as condominiums but is not currently active in this line of business . the company primarily sources the funds for its new property acquisitions in its core markets with the sales proceeds from selling assets that are older or located in non-core markets . during the last five years , the company has sold over 97,000 apartment units for an aggregate sales price of $ 7.2 billion and acquired nearly 25,000 apartment units in its core markets for approximately $ 5.5 billion . we are currently acquiring and developing assets primarily in the following targeted metropolitan areas : boston , new york , washington dc , south florida , southern california , san francisco , seattle and to a lesser extent denver . we also have investments ( in the aggregate about 18 % of our noi ) in other markets including atlanta , phoenix , portland , oregon , new england excluding boston , tampa , orlando and jacksonville but do not intend to acquire or develop assets in these markets . as part of its strategy , the company purchases completed and fully occupied apartment properties , partially completed or partially unoccupied properties or land on which apartment properties can be constructed . we intend to hold a diversified portfolio of assets across our target markets . currently , no single metropolitan area accounts for more than 17 % of our noi , though no guarantee can be made that noi concentration may not increase in the future . 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 the equipment and appliances on our property sites . 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 . 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 and hvac improvements at our properties that will reduce energy and water consumption . current environment through much of 2009 , the company assumed a highly cautious outlook given uncertainty in the general economy and the capital markets and expected reduction in our property operations . in late 2009 , the company saw that occupancy was 33 firming . this was an especially encouraging sign as it came during the company 's seasonally slower fourth quarter . at the same time , the company also saw marked improvement in the capital markets . in response , the company began acquiring assets and increasing rents for both new and renewing residents , which led to better operating and investment performance for the company . 2010 was characterized by higher occupancy and rent levels than 2009. the company increased rents to a greater extent in markets like the northeast , where the economy was stronger and multifamily operating conditions were better . in 2010 , the company ceased to hold the large cash balances ( often $ 1.0 billion or more ) that it held in 2009 in anticipation of debt maturities in an unsure capital markets climate . this had the result of increasing the company 's earnings by decreasing debt prefunding costs . story_separator_special_tag finally , the company was aggressive in acquiring $ 1.5 billion of assets in its target markets in 2010. improvement materialized throughout 2010 and as we enter 2011 , we expect strong growth in same store revenue ( anticipated increases ranging from 4.0 % to 5.0 % ) and noi ( anticipated increases ranging from 5.0 % to 7.5 % ) and are optimistic that the improvement realized in 2010 will be sustained for the foreseeable future . we currently have access to multiple sources of capital including the equity markets as well as both the secured and unsecured debt markets . in july 2010 , the company completed a $ 600.0 million unsecured ten year notes offering with a coupon of 4.75 % and an all-in effective interest rate of 5.09 % . the all-in rate combined with its accretive nature compared to maturing 2011 fixed rate debt led the company to pursue this transaction . the company also raised $ 291.9 million in equity under its atm common share offering program in 2010 and has raised an additional $ 154.5 million under this program thus far in 2011. given the strong market for many of our disposition assets and increased competition for assets in our target markets , we expect to be a net seller of assets in 2011 in contrast to being a net buyer of assets in 2010. the company acquired 16 consolidated properties consisting of 4,445 apartment units for $ 1.5 billion and six land parcels for $ 68.9 million during the year ended december 31 , 2010. while competition for the properties we were interested in acquiring increased as 2010 progressed due to the overall improvement in market fundamentals , we were able to close several , of what we believe are , long-term , value added acquisition opportunities . our acquisition pipeline has moderated and we expect a greater concentration of our 2011 acquisitions to occur in the latter half of the year . 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 . during the year ended december 31 , 2010 , the company sold 35 consolidated properties consisting of 7,171 apartment units for $ 718.4 million and 27 unconsolidated properties consisting of 6,275 apartment units generating cash proceeds to the company of $ 26.9 million , as well as 2 condominium units for $ 0.4 million and one land parcel for $ 4.0 million . we expect to continue strategic dispositions and see an increase in dispositions in 2011 as we believe there is currently a robust market and favorable pricing for certain of our non-strategic assets . our dispositions in 2010 were at higher capitalization ( cap ) rates ( see definition in results of operations ) than the acquisitions we completed . we expect this to continue in 2011 and expect to experience dilution from past and future transactions . we believe that cash and cash equivalents , securities readily convertible to cash , current availability on our revolving credit facility and disposition proceeds for 2011 will provide sufficient liquidity to meet our funding obligations relating to asset acquisitions , debt maturities and existing development projects through 2011. we expect that our remaining longer-term funding requirements will be met through some combination of new borrowings , equity issuances ( including the company 's atm share offering program ) , property dispositions , joint ventures and cash generated from operations . there is significant uncertainty surrounding the futures of fannie mae and freddie mac . any changes to their mandates could have a significant impact on the company and may , among other things , lead to lower values for our disposition assets and higher interest rates on our borrowings . such changes may also provide an advantage to us by making the cost of financing single family home ownership more expensive and provide us a competitive advantage given the size of our balance sheet and the multiple sources of capital to which we have access . we believe that the company is well-positioned as of december 31 , 2010 ( our properties are geographically diverse and were approximately 94.1 % occupied ( 94.5 % on a same store basis ) ) , little new multifamily rental supply will be added to most of our markets over the next several years and the long-term demographic picture is positive . we believe our strong balance sheet and ample liquidity will allow us to fund our debt maturities and development fundings in the near term , and should also allow us to take advantage of investment opportunities in the future . as economic conditions continue to improve , the short-term nature of our leases and the limited supply of new rental housing being constructed should allow us to realize revenue growth and improvement in our operating results . the company anticipates that 2011 same store expenses will only increase 1.0 % to 2.0 % primarily due to modest increases in payroll expenses , real estate tax rates and utility cost growth ( same store expenses increased 0.9 % for 2010 when compared with the same period in the prior year ) . this follows three consecutive years of excellent expense control ( same store expenses declined 0.1 % between 2009 and 2008 and grew 2.2 % between 2008 and 2007 and 2.1 % between 2007 and 2006 ) . the current environment information presented above is based on current expectations and is forward-looking . 34 story_separator_special_tag a > for the year ended december 31 , 2010 , loss from continuing operations increased approximately $ 22.8 million when compared to the year ended december 31 , 2009. the decrease in continuing operations is discussed below . revenues from the 2010 same store properties decreased $ 2.1 million primarily as a result of a decrease in average rental rates charged to residents , partially offset by an increase in occupancy .
| these properties were valued in their entirety at $ 417.8 million which results in an implied weighted average cap rate of 7.5 % ( generating cash to the company , net of debt repayments , of $ 26.9 million ) . year ended december 31 , 2009 : n acquired $ 145.0 million of apartment properties consisting of two properties and 566 apartment units ( excluding the company 's buyout of its partner 's interest in one previously unconsolidated property ) and a long-term leasehold interest in a land parcel for $ 11.5 million , all of which we deem to be in our strategic targeted markets ; and n sold $ 1.0 billion of apartment properties consisting of 60 properties and 12,489 apartment units ( excluding the company 's buyout of its partner 's interest in one previously unconsolidated property ) , as well as 62 condominium units for $ 12.0 million , the majority of which was in exit or less desirable markets . 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 . properties that the company owned for all of both 2010 and 2009 ( the 2010 same store properties ) , which represented 112,042 apartment units , impacted the company 's results of operations . properties that the company owned for all of both 2009 and 2008 ( the 2009 same store properties ) , which represented 113,598 apartment units , also impacted the company 's results of operations . both the 2010 same store properties and 2009 same store properties are
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invoice selling margins increased by 45 basis points due to increased demand for higher margin products such as software . 24 selling , general and administrative expenses in 2015 increased in dollars and remained unchanged as a percentage of net sales compared to the prior year . sg & a expenses attributable to our three op erating segments and the remaining unallocated headquarters/other group expenses are summarized below ( dollars in millions ) : replace_table_token_12_th · sg & a expenses for the smb segment increased slightly in dollars and as a percentage of net sales . both increased due to incremental variable compensation associated with higher gross profits and greater usage of h eadquarter services , but w ere partially offset by reduced advertising expense . the increase in headquarter services was partly related to additional technical and engineering support provided to the smb segment . · sg & a expenses for the large account segment increased in dollars and as a percentage of net sales . the increase in sg & a dollars and as a percentage of net sales was due to investments in solution sales and services , incremental variable compensation associated with higher gross profits , and higher usage of h eadquarter services . the increase in headquarter services was partly related to additional technical and engineering support provided to the large account segment . · sg & a expenses for the public sector segment decreased in dollars and as a percentage of net sales due to a reduction in advertising expense and credit card fees . · sg & a e xpenses for the headquarters/other group increased due to an increase in unallocated personnel and other related costs , including higher executive management oversight costs associated with our improved operating results in 2015. the headquarters/other group provides services to the three segments in areas such as finance , human resources , it , marketing , and product management . most of the operating costs associated with such corporate headquarters services are charged to the operating segments based on their estimated usage of the underlying services . the amounts shown above represent the remaining unallocated costs . income from operations increased by $ 7.1 million to $ 78 . 6 million in 2015 , from $ 71.5 million in 2014. income from operations as a percentage of net sales increased to 3 . 0 % for 2015 from 2.9 % in 2014. the increase in operating income resulted primarily from an increase in net sales . income taxes . our effective tax rate was 40.3 % for the year ended december 31 , 2015 , compared to 40.2 % for the year ended december 31 , 2014 . our tax rate will vary based on income apportionment to certain jurisdictions , valuation reserves , and accounting for uncertain tax positions . however , we do not expect these variations to be significant in 201 6 . net income increased by $ 4.1 million to $ 46.8 million in 2015 from $ 42.7 million in 2014 , principally due to the increase in operating income . 25 year ended december 31 , 2014 compared to year ended december 31 , 2013 net sales increased by 10.9 % to $ 2,463.3 million in 2014 from $ 2,221.6 million in 2013. changes in net sales and gross profit by operating segment are shown in the following table ( dollars in millions ) : replace_table_token_13_th · net sales for the smb segment increased due to our focus on growing technical solution sales and the expiration in april 2014 of support for the windows xp operating system , which generated increased demand for desktops , notebooks , and software products . · net sales for the large account segment increased due to our focus on growing technical solution sales , our acquisition of new customers , and the expiration in april 2014 of support for the windows xp operating system . in addition , sales increased due to the release of pent-up corporate refresh demand for it product rollouts that were delayed from 2013 . · net sales to the public sector segment increased due to a 24 % increase in sales to state and local governments and educational institutions and a 14 % increase in sales to the federal government . sales of notebooks and tablets increased to k-12 educational customers due to higher demand associated with the implementation of standardized digital testing requirements . federal government sales increased due to the expiration in april 2014 of support for the windows xp operating system , as well as increased sales of wireless and other net/com products . gross profit for 2014 increased year over year in dollars , but decreased as a percentage of net sales ( gross margin ) , as explained below : · gross profit for the smb segment increased due to an increase in net sales . gross margin decreased year over year due to lower invoice selling margins ( 42 basis points ) realized on increased sales of lower-margin desktops and notebooks but was partially offset by higher agency revenues ( 7 basis points ) that have no corresponding cost of goods sold , and accordingly such fees have a positive impact on gross margin . · gross profit for the large account segment increased due to higher net sales and gross margin , which increased due to improved invoice selling margins ( 52 basis points ) and higher agency revenues ( 15 basis points ) . · gross profit for the public sector segment increased due to an increase in net sales . invoice selling margins decreased by 54 basis points due to increased demand for lower margin products such as notebooks and desktops . 26 selling , general and administrative expenses in 2014 increased in dollars , but decreased as a percentage of net sales compared to the prior year . story_separator_special_tag sg & a expenses attributable to our three operating segments and the remaining unallocated headquarters/other group expenses are summarized below ( dollars in millions ) : replace_table_token_14_th · sg & a expenses for the smb segment increased in dollars , but decreased as a percentage of net sales . the dollar increase was attributable to investments in solution sales and services and incremental variable compensation associated with higher gross profits , but was partially offset by reduced advertising expense . the decrease in sg & a as a percentage of net sales was due to the leveraging of fixed costs over larger net sales . · sg & a expenses for the large account segment increased in dollars , but was unchanged as a percentage of net sales due to the leveraging of fixed costs over larger net sales . the dollar increase was attributable to investments in solution sales and services and incremental variable compensation associated with higher gross profits . · sg & a expenses for the public sector segment increased in dollars , but decreased as a percentage of net sales . the dollar increase was due to higher credit card fees and incremental variable compensation associated with higher gross profits . the decrease in sg & a as a percentage of net sales was due to the leveraging of fixed costs over larger net sales . · sg & a e xpenses for the headquarters/other group increased due to an increase in unallocated personnel and other related costs , including higher executive management oversight costs associated with our improved operating results in 2014. income from operations increased by $ 12.1 million to $ 71.5 million in 2014 , from $ 59.4 million in 2013. income from operations as a percentage of net sales increased to 2.9 % for 2014 from 2.7 % in 2013. the increase in operating income resulted from an increase in sales and gross margin . income taxes . our effective tax rate was 40.2 % for the year ended december 31 , 2014 , compared to 39.8 % for the year ended december 31 , 2013. our tax rate will vary based on income apportionment to certain jurisdictions , valuation reserves , and accounting for uncertain tax positions . net income increased by $ 7.0 million to $ 42.7 million in 2014 from $ 35.7 million in 2013 , principally due to the increase in operating income . liquidity and capital resources liquidity overview our primary sources of liquidity have historically been internally generated funds from operations and borrowings under our bank line of credit . we have used those funds to meet our capital requirements , which consist primarily of working capital for operational needs , capital expenditures for computer equipment and software used in our business , repurchases of common stock for treasury , dividend payments , and as opportunities arise , possible acquisitions of new businesses . 27 we believe that funds generated from operations , together with available credit under our bank line of credit , will be sufficient to finance our working capital , capital expenditures , and other requirements for at least the next twelve calendar months . we expect our capital needs for the next twelve months to consist primarily of capital expenditures of $ 10 .0 to $ 12.0 million and payments on leases and other contractual obligations of approximately $ 3.5 million . we have undertaken a comprehensive review and assessment of our entire business software needs , including commercially available software that meets , or can be configured to meet , those needs better than our existing software . while we have not finalized our decisions regarding the areas of future investment in our it infrastructure , the incremental capital costs of such a project , if fully implemented , would likely exceed $ 20.0 million over the next t wo to f our years . we expect to meet our cash requirements for 201 6 through a combination of cash on hand , cash generated from operations , and borrowings on our bank line of credit , as follows : · cash on hand . at december 31 , 2015 , we had $ 80.2 million in cash and cash equivalents . · cash generated from operations . we expect to generate cash flows from operations in excess of operating cash needs by generating earnings and managing net changes in inventories and receivables with changes in payables to generate a positive cash flow . · credit facilities . as of december 31 , 2015 , no borrowings were outstanding against our $ 50.0 million bank line of credit , which is available until february 24 , 2017. accordingly , our entire line of credit was available for borrowing at december 31 , 2015 . this line of credit can be increased , at our option , to $ 80.0 million for approved acquisitions or other uses authorized by the bank . borrowings are , however , limited by certain minimum collateral and earnings requirements , as described more fully below . our ability to continue funding our planned growth , both internally and externally , is dependent upon our ability to generate sufficient cash flow from operations or to obtain additional funds through equity or debt financing , or from other sources of financing , as may be required . while we do not anticipate needing any additional sources of financing to fund our operations at this time , if demand for it products declines , our cash flows from operations may be substantially affected . see also related risks listed under “ item 1a . risk factors. ” summary sources and uses of cash the following table summarizes our sources and uses of cash over the last three years ( in millions of dollars ) : replace_table_token_15_th cash provided by operating activities totaled $ 30.9 million in 2015 . operating cash flow in 2015 resulted primarily from net income before depreciation and amortization and an increase in accounts payable offset partially by increases in accounts receivable and inventory .
| operating expenses the following table reflects our more significant operating expenses for the last three years ( in millions of dollars ) : replace_table_token_10_th personnel costs increased in 2015 compared to 2014 due to investments in our sales force and solution sales support , in addition to increased variable compensation associated with higher gross profits . facilities operations increased year over year in 2015 due to the mid-year opening of our new distribution center , as lease expense for the previous facilities continued through the end of 2015. we will not incur any lease expense in 2016 for the previous facilities . 23 year-over-year comparisons year ended december 31 , 2015 compared to year ended december 31 , 2014 net sales increased by 4.5 % to $ 2,574.0 million in 2015 from $ 2 , 463.3 million in 2014 . changes in net sales and gross profit by operating segment are shown in the following table ( dollars in millions ) : replace_table_token_11_th · net sales for the smb segment increased slightly due to higher notebooks/mobility sales . sales of desktops in 2014 were high due to the expiration of support for windows xp software in april 2014. increased sales of notebooks/mobility , servers/storage , and net/com products for this segment offset the year-over-year de cline in desktops . · net sales for the large account segment increased due to our focus on growing advanced solution sales including software and servers/storage products . software and servers/storage product sales for this segment increased year over year by 27 % and 14 % , respectively , due to our investment in technical solution engineers and the completion of large software deals . servers sales increased in part due to the expiration in july 2015 of support for windows server 2003 software . · net sales to the public sector segment decreased by 0.4 % or $ 2.5 million . sales to the federal government increased by 8.7 % due to higher sales made under federal government contracts , while state and local government and educational institutions decreased by 4.0 % due to lower sales to k-12 customers . sales of notebooks/mobility increased in this segment , offset by decreased sales of net/com products . gross profit
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the 11.0 % increase in total bookings was primarily driven by increases in total customers and domains under management , increased aftermarket domain sales , broadened customer adoption of non-domain products and acquisitions completed in 2020 , partially offset by the negative impact the economic disruption resulting from the covid-19 pandemic had on subscriptions for certain of our higher-priced services as well as the adverse impact of movements in foreign currency exchange rates . 61 costs and operating expenses cost of revenue costs of revenue are the direct costs incurred in connection with selling an incremental product to our customers . substantially all cost of revenue relates to domain registration fees , payment processing fees , third-party commissions and licensing fees for third-party productivity applications . similar to our billing practices , we pay domain costs at the time of purchase for the life of each subscription , but recognize the costs of service ratably over the term of our customer contracts . the terms of registry pricing are established by agreements between registries and registrars , and can vary significantly depending on the top-level domain . we expect cost of revenue to increase in absolute dollars in future periods related to the expansion of our domains business , higher sales of third-party productivity applications and growth in our customer base . however , cost of revenue may fluctuate as a percentage of total revenue , depending on the mix of products sold in a particular period . subsequent to our acquisition of the registry operations of neustar in august 2020 , we no longer incur domain registration fees on purchases of former neustar tlds . replace_table_token_7_th the 12.8 % increase in cost of revenue was primarily attributable to higher domain costs driven by increases in domains under management and aftermarket domain sales , increased software licensing fees resulting from higher sales of productivity solutions and increased payment processing fees resulting from our bookings growth . technology and development technology and development expenses represent the costs associated with the creation , development and distribution of our products and websites . these expenses primarily consist of personnel costs associated with the design , development , deployment , testing , operation and enhancement of our products , as well as costs associated with the data centers and systems infrastructure supporting those products , excluding depreciation expense . we expect technology and development expense to increase in absolute dollars as we continue to invest in product development and migrate our infrastructure to a cloud-based third-party provider . technology and development expenses may fluctuate as a percentage of total revenue depending on our level of investment in additional personnel and the pace of our infrastructure transition . replace_table_token_8_th as discussed in our 2019 form 10-k , we recorded a $ 7.2 million reduction in equity-based compensation expense in 2019 to correct an error related to the accounting for certain psus in prior periods . excluding this correction , technology and development expenses increased 12.1 % , primarily as a result of increased personnel costs driven by higher average headcount associated with our continued investment in product development and increased technology costs associated with the growth of our business and our migration to a cloud-based infrastructure . marketing and advertising marketing and advertising expenses represent the costs associated with attracting and acquiring customers , primarily consisting of fees paid to third parties for marketing and advertising campaigns across a variety of channels . these expenses also include personnel costs and affiliate program commissions . we expect marketing and advertising expenses to fluctuate depending on both the mix of internal and external marketing resources used , the size and scope of our future campaigns and the level of discretionary investments we make in marketing to drive future sales . replace_table_token_9_th 62 the 26.9 % increase in marketing and advertising expenses was primarily attributable to increased discretionary spending and personnel costs associated with additional marketing investments we made in 2020 to capture increased demand for certain of our products during the covid-19 pandemic . customer care customer care expenses represent the costs to guide and service our customers , primarily consisting of personnel costs . we expect customer care expenses to fluctuate depending on the level of personnel required to support our business . replace_table_token_10_th the 9.1 % decrease in customer care expenses was primarily due to the headcount reductions related to the restructuring plan implemented during the second quarter of 2020 , as further discussed below , in conjunction with operating efficiencies gained as we scale our business and increase our use of alternative methods of customer interaction . we expect these expenses to remain lower in the short-term as a result of the headcount reductions associated with the restructuring . general and administrative general and administrative expenses primarily consist of personnel costs for our administrative functions , professional service fees , office rent for all locations , all employee travel expenses , acquisition-related expenses and other general costs . we expect general and administrative expenses to fluctuate depending on the level of personnel and other administrative costs required to support our business as well as the significance of any strategic acquisitions we choose to pursue . replace_table_token_11_th the following items are included in general and administrative expenses in the periods indicated : as discussed in note 12 to our financial statements , we recorded an $ 18.1 million legal settlement accrual in 2019. during 2020 , we reduced the settlement accrual by an aggregate of $ 10.0 million . as discussed in our 2019 form 10-k , we recorded a $ 6.1 million reduction in equity-based compensation expense in 2019 to correct an error related to the accounting for certain psus in prior periods . excluding the items described above , the 4.7 % decrease in general and administrative expenses was primarily driven by lower travel and other general costs , partially offset by an increase in acquisition-related expenses . story_separator_special_tag restructuring charges the $ 43.6 million in restructuring charges in 2020 were incurred pursuant to a restructuring plan implemented in june 2020 , as further discussed in note 13 to our financial statements . we implemented the restructuring to address the sustainability of our u.s. outbound sales and operations , which faced challenges with respect to soft customer demand for certain higher-priced , do-it-for-you services such as godaddy social . these challenges were exacerbated by the economic disruption resulting from the covid-19 pandemic . restructuring charges included : ( i ) $ 14.6 million in severance and related benefits to be paid to , or on behalf of , the approximately 470 employees who were involuntarily terminated and the approximately 110 employees who voluntarily did not accept alternate roles with us , as well as professional fees incurred in connection with the restructuring ; ( ii ) a $ 27.9 million impairment of operating lease assets associated with the closure of our leased offices in austin , texas ; and ( iii ) $ 1.1 million of accelerated depreciation and operating lease assets amortization related to the office closures . we do not expect to incur any significant additional charges related to this restructuring . 63 depreciation and amortization depreciation and amortization expenses consist of charges relating to the depreciation of the property and equipment used in our operations and the amortization of acquired intangible assets . these expenses may increase or decrease in absolute dollars in future periods depending on our future level of capital investments in hardware and other equipment as well as the significance of any future acquisitions . replace_table_token_12_th the 3.3 % decrease in depreciation and amortization expenses resulted from assets that became fully depreciated , partially offset by the impact of increased amortization expense related to acquisitions completed in 2020. interest expense replace_table_token_13_th the 0.9 % decrease in interest expense was driven by more favorable effective interest rates on our variable rate borrowings , partially offset by the issuance of additional long-term debt in august 2020. loss on debt extinguishment in 2019 , we recognized a loss on debt extinguishment of $ 14.8 million , primarily related to the $ 600.0 million partial prepayment of term loan borrowings with the proceeds of the issuance of the senior notes . see note 9 to our financial statements for additional discussion . tax receivable agreements liability adjustment in 2020 , we recorded a $ 674.7 million charge as a result of the settlement of our obligations under the tras , as further described below and in note 16 to our financial statements . liquidity and capital resources overview our principal sources of liquidity have been cash flow generated from operations , long-term debt borrowings and stock option exercises . our principal uses of cash have been to fund operations , acquisitions and capital expenditures , as well as to make mandatory principal and interest payments on our long-term debt and to repurchase shares of our class a common stock . in general , we seek to deploy our capital in a prioritized manner focusing first on requirements for our operations , then on growth investments , and finally on equity holder returns . our strategy is to deploy capital from any potential source , whether debt , equity or internally generated cash , depending on the adequacy and availability of the source of capital and which source may be used most efficiently and at the lowest cost at such time . therefore , while cash from operations is our primary source of operating liquidity and we believe our internally-generated cash flows are sufficient to support our day-to-day operations , we may use a variety of capital sources to fund our needs for less predictable investment decisions such as strategic acquisitions and share repurchases . we have incurred significant long-term debt to fund acquisitions and the settlement of the tras ( as further discussed below ) as well as for our working capital needs , and as a result , we are limited as to how we conduct our business and may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities , strategic acquisitions or share repurchases . however , the restrictions under our long-term debt agreements are subject to a number of qualifications and may be amended with the consent of the lenders and the holders of the senior notes , as applicable . 64 we believe our existing cash and cash equivalents and cash generated by operating activities will be sufficient to meet our anticipated operating cash needs for at least the next 12 months . however , our future capital requirements will depend on many factors , including our growth rate , macroeconomic activity , the length and severity of business disruptions associated with the covid-19 pandemic , the timing and extent of spending to support domestic and international development efforts , continued brand development and advertising spend , the level of customer care and general and administrative activities , the introduction of new and enhanced product offerings , the costs to support new and replacement capital equipment , the completion of strategic acquisitions or share repurchases and other factors . some of the factors that may influence our operations are not within our control , such as general economic conditions and the length and severity of the ongoing covid-19 pandemic . although there is uncertainty related to the potential impact of covid-19 on our future results , we believe our business model and the strength of our balance sheet have well positioned us to manage our business through this crisis . however , we will continue to monitor our liquidity position . should we pursue additional strategic acquisitions or share repurchases , we may need to raise additional capital , which may be in the form of long-term debt or equity financings . credit facility and senior notes our long-term debt obligations consist of the credit facility and the senior notes .
| we believe the breadth and depth of our product offerings and the high quality and responsiveness of our customer care team build strong relationships with our customers and are key to our high level of customer retention . we generate bookings and revenue from sales of product subscriptions , including domain products , hosting and presence products and business applications products . we offer our subscriptions on a variety of terms , which average approximately one year , but can range from monthly to multi-annual terms of up to ten years depending on the product . we monitor total bookings as we typically collect payment at the time of sale and recognize revenue ratably over the term of our customer contracts . accordingly , we believe total bookings is an indicator of the expected growth in our revenue and is a supplemental measure of the operating performance of our business . see `` reconciliation of bookings '' below for a reconciliation of total bookings to total revenue . domains . we generated 46 % of our 2020 total revenue from the sale of domain products , primarily from domain registrations and renewals , aftermarket domain sales and domain add-ons such as domain protection . total revenue from domain products grew at a cagr of 12.7 % over the three years ended december 31 , 2020. hosting and presence . we generated 36 % of our 2020 total revenue from the sale of hosting and presence products , primarily from a variety of website hosting products , website security products and website building products , which generally have higher margins than conventional domain registrations . total revenue from hosting and presence products grew at a cagr of 12.3 % over the three years ended december 31 , 2020. business applications . we generated 18 % of our 2020 total revenue from the sale of business applications products , primarily from third-party productivity applications , which generally also have higher margins than conventional domain registrations . total revenue from business applications products grew at a cagr of 22.5 % over the three years ended december 31 , 2020. revenue derived from each
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as a result of our strategy to increase our investments in research and development , sales , marketing , support and international expansion , we expect to continue to incur operating losses and negative cash flows from operations in the near future and may require additional capital resources to execute strategic initiatives to grow our business . our business model we sell our data platform predominantly through a high touch , channel-fulfilled model . our sales force works collaboratively with our channel partners and is responsible for large account penetration , global account coordination and overall market development . our channel partners help market and sell our products , typically with assistance from our sales force . this joint sales approach provides us with the benefit of direct relationships with substantially all of our customers and expands our reach through the relationships of our channel partners . our channel partners typically place orders with us upon receiving an order from a customer and do not stock inventory . our sales organization is supported by systems engineers with deep technical expertise and responsibility for pre-sales technical support and engineering for our customers . we support our channel partners through product education and sales and support training . we intend to continue to invest in the channel to add more partners and to expand our reach to customers through our channel partners ' relationships . no channel partner represented over 10 % of revenue for the years ended january 31 , 2015 and 2016 . one channel partner represented over 10 % of revenue for the year ended january 31 , 2017 . our business model enables customers to broadly adopt flash for a wide variety of workloads in their data center , with some of our most innovative customers adopting all-flash data centers . we do not charge separately for software , meaning that when a customer buys a flasharray , all software functionality is included in the base purchase price , and the customer is entitled to updates and new features as long as the customer maintains an active maintenance and support agreement . product revenue is recognized at the time title and risk of loss have transferred . support revenue is recognized ratably over the term of the related maintenance and support agreement , generally ranging from 1 to 5 years . by keeping our business model simple and efficient , we allow customers to buy more products and expand their footprint more easily while allowing us to reduce our sales and marketing costs . to deliver on the next level of operational simplicity and support excellence , we designed pure1 , our integrated cloud-based management and support . pure1 enables our customers , support staff and partners to collaborate to achieve the best customer experience and is included with an active maintenance and support agreement . in addition , our evergreen storage program provides our customers who continually maintain active maintenance and support for three years with an included controller refresh with each additional three year maintenance and support renewal . in this way , our customers improve and extend the service life of their arrays , we reduce our cost of support by keeping the array modern and we encourage capacity expansion . in accordance with multiple-element arrangement accounting guidance , we recognize the allocated revenue of the controllers and expense the related cost in the period in which we ship these controllers . the combination of our high-performance , all-flash products , our exceptional support and our innovative business model has had a substantial impact on customer success and loyalty and are strong drivers of both initial 33 purchase and additional purchases of our products . for all customers that have been with us for at least 12 months as of january 31 , 2017 , for every $ 1 of initial product purchase , our top 25 customers on average spent approximately $ 12 on new product purchases in the first 18 months following their initial purchase . trends in our business and industry demand for data in the cloud era in today 's digital economy , we believe that data is key . data is the strategic core that enables competitiveness and differentiation for businesses in the cloud era -- collecting vast amounts of data , analyzing it rapidly , discovering new insights , and ultimately delivering new innovations and experiences otherwise impossible without data . we continue to make significant investments in our business to develop and deliver a data platform to support today and tomorrow 's volume and velocity of data and to ensure the performance required for new data-driven applications , while substantially reducing costs and complexity for our customers . our ability to deliver new and enhanced products will be a key factor in capturing mindshare with our target customers to become their data platform of choice . adoption of all-flash storage systems organizations are increasingly replacing traditional disk-based systems with all-flash storage systems , due to their higher performance , reliability and efficiency . flash is expected to penetrate the data center at a rapid rate , and our success depends on the adoption of all-flash storage systems . to the extent more organizations recognize the benefits of all-flash storage and the adoption of all-flash storage increases , our target customer base will expand , and demand for all-flash storage will rise . adding new customers and expanding sales to our existing customer base we believe that all-flash storage market is still in the early stages of adoption . in order to capture long-term strategic opportunities , we intend to continue to target new customers , including large enterprises , service providers and government organizations , by continuing to invest in our field sales force and extending our relationships with key channel partners . we also expect that a substantial portion of our future sales will continue to be sales to existing customers , including expansion of existing arrays . story_separator_special_tag seasonality in our business operations consistent with the seasonality of the enterprise it as a whole , we generally experience the lowest demand for our products and services in the first quarter of our fiscal year and the greatest demand for our products and services in the last quarter of our fiscal year . furthermore , we typically focus investments into our sales organization , along with significant product launches , in the first half of our fiscal year . as a result , we expect that our business and results of operations will fluctuate from quarter to quarter , reflecting seasonally softer revenue and operating margin in the first half of our fiscal year , followed by stronger second half , the relative impact of which will grow as we operate at a larger scale . components of results of operations revenue we derive revenue from the sale of our storage products and support services . provided that all other revenue recognition criteria have been met , we typically recognize product revenue upon shipment , as title and risk of loss are transferred to our channel partners at that time . products are typically shipped directly by us to customers , and our channel partners do not stock our inventory . we expect our product revenue may vary from period to period based on , among other things , the timing and size of orders and delivery of products and the impact of significant transactions . we provide our support services pursuant to maintenance and support agreements , which involve customer support , hardware maintenance and software upgrades for a period of generally 1 to 5 years . we recognize revenue from maintenance and support agreements ratably over the contractual service period . we expect our support revenue to increase as we add new customers and our existing customers renew maintenance and support agreements . cost of revenue 34 cost of product revenue primarily consists of costs paid to our third-party contract manufacturer , which includes the costs of our components , and personnel costs associated with our manufacturing operations . personnel costs consist of salaries , bonuses and stock-based compensation expense . our cost of product revenue also includes freight , allocated overhead costs and inventory write-offs . allocated overhead costs consist of certain facilities and it costs . we expect our cost of product revenue to increase in absolute dollars , as our product revenue increases . cost of support revenue includes personnel costs associated with our customer support organization and allocated overhead costs . cost of support revenue also includes parts replacement costs . we expect our cost of support revenue to increase in absolute dollars , as our support revenue increases . operating expenses our operating expenses consist of research and development , sales and marketing and general and administrative expenses . salaries and personnel-related costs , including stock-based compensation expense , are the most significant component of each category of operating expenses . operating expenses also include allocated overhead costs for facilities and it costs . research and development . research and development expense consists primarily of employee compensation and related expenses , prototype expenses , depreciation associated with assets acquired for research and development , third-party engineering and contractor support costs , as well as allocated overhead . we expect our research and development expense to increase in absolute dollars and may decrease as a percentage of revenue , as we continue to invest in new products and existing products and build upon our technology leadership . sales and marketing . sales and marketing expense consists primarily of employee compensation and related expenses , sales commissions , marketing programs , travel and entertainment expenses as well as allocated overhead . marketing programs consist of advertising , events , corporate communications and brand-building activities . we expect our sales and marketing expense to increase in absolute dollars and may decrease as a percentage of revenue , as we expand our sales force and increase our marketing resources , expand into new markets and further develop our channel program . general and administrative . general and administrative expense consists primarily of compensation and related expenses for administrative functions including finance , legal , human resources and fees for third-party professional services , as well as allocated overhead . we expect our general and administrative expense to increase in absolute dollars and may decrease as a percentage of revenue , as we continue to invest in the growth of our business . other income ( expense ) , net other income ( expense ) , net consists primarily of interest income earned on cash , cash equivalents and marketable securities and gains and losses from foreign currency transactions . provision for income taxes provision for income taxes consists primarily of income taxes in certain foreign jurisdictions in which we conduct business and state income taxes in the united states . we have recorded no u.s. federal income tax and provided a full valuation allowance for u.s. deferred tax assets , which includes net operating loss , carryforwards and tax credits related primarily to research and development . we expect to maintain this full valuation allowance for the foreseeable future as it is more likely than not that the assets will not be realized based on our history of losses . story_separator_special_tag style= '' font-family : arial ; font-size:10pt ; '' > january 31 , 2015 to january 31 , 2016 . the increase in stock-based compensation expense from the increased headcount was partially offset by an additional expense of $ 9.5 million recognized for the repurchase of common stock in connection with a tender offer during the year ended january 31 , 2015 . there was no similar repurchase during the year ended january 31 , 2016 . the remainder of the increase was primarily attributable to $ 13.2 million in depreciation expense mostly related to test equipment , $ 6.2 million in professional services , and $ 3.5 million in prototype expenses .
| total revenue increased by $ 265.9 million , or 152 % , during the year ended january 31 , 2016 compared to the year ended january 31 , 2015 . the increase in product revenue was driven by sales of our flasharray//m that was launched in june 2015 and sales of our 400-series product to a growing number of new and existing customers . the number of customers grew from approximately 700 as of january 31 , 2015 to over 1,650 as of january 31 , 2016 . the increase in support revenue was driven primarily by an increase in maintenance and support agreements sold with increased product sales , as well as the full year revenue impact from such agreements sold in the previous year . cost of revenue and gross margin 37 replace_table_token_8_th cost of revenue increased by $ 84.4 million , or 50 % , for the year ended january 31 , 2017 compared to the year ended january 31 , 2016 . the increase in product cost of revenue was primarily driven by increased product sales and , to a lesser extent , by the increased costs in our manufacturing operations , including increased personnel costs associated with increased headcount . the increase in support cost of revenue was primarily attributable to higher costs from the continued growth of our customer support organization . these costs are primarily driven by increased personnel costs associated with increased headcount and an increase in parts replacement associated with a higher number of maintenance and support agreements . total headcount in these functions increased 34 % from january 31 , 2016 to january 31 , 2017 . total gross margin increased from 62 % during the year ended january 31 , 2016 to 65 % during the year ended january 31 , 2017 . product gross margin increased 2 points from the year ended january 31 , 2016 to the year ended january 31 , 2017 , primarily driven by a shift in the mix of
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for the year ended december 31 , 2016 , we recorded a net loss of $ 2.6 million under derivatives and foreign currency transaction gains ( losses ) . to comply with obligations under their respective ppas , certain of our project subsidiaries are structured as special purpose , bankruptcy remote entities and their assets and liabilities are ring-fenced . such assets are not generally available to pay our debt other than debt at the respective project subsidiary level . however , these project subsidiaries are allowed to pay dividends and make distributions of cash flows generated by their assets to us subject in some cases to restrictions in debt instruments , as described below . electricity segment revenues are also subject to seasonal variations and can be affected by higher-than-average ambient temperatures , as described below under “ seasonality ” . revenues attributable to our product segment are based on the sale of equipment , epc contracts and the provision of various services to our customers . product segment revenues may vary from period to period because of the timing of our receipt of purchase orders and the progress of our equipment manufacturing and execution of the relevant project . our management assesses the performance of our two operating segments differently . in the case of our electricity segment , when making decisions about potential acquisitions or the development of new projects , management typically focuses on the internal rate of return of the relevant investment , technical and geological matters and other business considerations . management evaluates our operating power plants based on revenues , expenses , and ebitda , and our projects that are under development based on costs attributable to each such project . management evaluates the performance of our product segment based on the timely delivery of our products , performance quality of our products , revenues and costs actually incurred to complete customer orders compared to the costs originally budgeted for such orders . trends and uncertainties trends , factors and uncertainties may impact our operations and financial condition , including many that we do not or can not foresee , we believe that our results of operations and financial condition for the foreseeable future will be primarily affected by the following trends , factors and uncertainties that are from time to time subject to market cycle : ● there has been increased demand for energy generated from geothermal and other renewable resources in the u.s. as costs for electricity generated from renewable resources have become more competitive . much of this is attributable to legislative and regulatory requirements and incentives , such as state rps and federal tax credits such as ptcs or itcs ( which are discussed in more detail in the section entitled “ government grants and tax benefits ” below ) . we believe that future demand for energy generated from geothermal and other renewable resources in the u.s. will be driven mainly by further commitment and implementation of state rps and greenhouse gas initiatives . 96 ● we accelerated our efforts to expand business development activities in developing countries where geothermal is considered a local resource that can provide stable and cost effective solution to increase access to power . we expect that a variety of local governmental initiatives will create new opportunities for the development of new projects , as well as create additional markets for our products . these initiatives include the award of long-term contracts to independent power generators , the creation of competitive wholesale markets for selling and trading energy , capacity and related energy products and the adoption of programs designed to encourage “ clean ” renewable and sustainable energy sources . ● we expect to continue to generate the majority of our revenues from our electricity segment through the sale of electricity from our power plants . all of our current revenues from the sale of electricity are derived from payments under long-term ppas related to fully-contracted power plants . we also intend to continue to pursue opportunities , as they arise in our recovered energy business , in the solar pv sector , in the energy storage market and in other forms of clean energy . in addition , pursuant to our strategic plan , we acquired a business in the demand response and energy storage that generates revenues derived mainly from software license fee and services , and we are also pursuing ppas with enterprises that will increase our potential customer base . ● we have adopted a new strategic plan for growth of our company , in terms of geographic scope , customer base , and technology platforms covered by our product and service offerings , with a focus on increasing net income from operations . under this plan , we will continue to focus on organic growth and increasing operational efficiency of our existing business lines . in addition , we are actively pursuing acquisition opportunities , both in our existing business lines and the solar power generation and energy storage businesses targeted as part of the plan . examples include our acquisition of the bouillante geothermal power plant on guadeloupe island and our recent entry into an agreement to acquire substantially all of the business and assets of vei , which we plan to operate in the demand response and storage markets . we will face a number of challenges and uncertainties in implementing this plan , including integration of recently acquired assets , and we may revise elements of the plan in response to market conditions or other factors as we move forward with the plan . ● in the electricity segment , we expect intense domestic competition from the solar and wind power generation industries to continue and increase . story_separator_special_tag while we believe the expected demand for renewable energy will be large enough to accommodate increased competition , any such increase in competition , including increasing amounts of renewable energy under contract as well as any further decline in natural gas prices due to increased production which can affect the market price for electricity may contribute to a reduction in electricity prices . however , despite increased competition from the solar and wind power generation industries , we believe that base load electricity , such as geothermal-based energy , will continue to be an important source of renewable energy in areas with commercially viable geothermal resources . also , we believe that geothermal power plants can positively impact electrical grid stability and provide valuable ancillary services because of their base load nature . in the geothermal industry , due to reduced competition for geothermal leases we have experienced a decrease in the upfront fee required to secure geothermal leases . ● in the product segment , we have experienced increased competition from binary power plant equipment suppliers including the major steam turbine manufacturers . while we believe that we have a distinct competitive advantage based on our accumulated experience and current worldwide share of installed binary generation capacity , an increase in competition may impact our ability to secure new purchase orders from potential customers . the increased competition may also lead to further reduction in the prices that we are able to charge for our binary equipment , which in turn may reduce our profitability . ● the 38 mw puna complex has three ppas , one of which ( the 25 mw ppa ) has a monthly variable energy rate based on the local utility 's avoided costs . a decrease in the price of oil as well as in other commodities will result in a decrease in the incremental cost that the power purchaser avoids by not generating its electrical energy needs from oil , which will result in a reduction of the energy rate that we may charge under this ppa . in order to reduce our exposure to oil we signed fixed rate ppas for the remaining 13 mw . ● since may 2012 , the pricing under our ppas for the ormesa , mammoth and heber complexes for a total of 161 mw were variable rate based on srac pricing that is impacted by natural gas prices . however , in 2013 and december 2015 , we signed new fixed rate ppas that reduced our current exposure to srac by 18 mw and 53 mw respectively , and recently we signed a fixed rate ppa that will reduce our exposure in november 2017 by an additional 40mw . in addition , to further reduce our exposure to natural gas prices , we enter , from time to time , into derivative transactions . in may 2015 we entered into a derivative transaction at a fixed price of $ 3.00 per mmbtu and reduced our exposure to srac in the period from june 1 , 2015 until december 31 , 2015. in february 2016 , we sold call options for total proceeds of $ 1.9 million at a fixed price of $ 2.00 per mmbtu to reduce our exposure to srac in the period from february 3 , 2016 until december 29 , 2016. in january 2017 we acquired put options at a strike price of $ 3 to hedge our exposure to decreasing natural gas prices below $ 3 per mmbtu . 97 ● the amounts that we are paid under our ppas for electricity , capacity and other energy attributes vary for a number of reasons , including : ○ market conditions when the ppa is signed ; ○ the competitive environment in the power market where the plant is located and the power and other energy attributes are sold ; and ○ in the case of contracts described in the prior bullets with variable pricing components , current oil and natural gas prices . this means , among other things , that one of the metrics some investors may use to evaluate power plant revenues is an average price per mwh that can fluctuate from year to year . based on total electricity segment revenues for those years , we earned , on average , $ 80.84 and $ 77.75 per mwh in 2016 and 2015 , respectively . oil and natural gas prices , together with other factors that affect our electricity segment revenues , could cause changes in our average rate per mwh in the future . ● the viability of a geothermal resource depends on various factors such as the resource temperature , the permeability of the resource ( i.e. , the ability to get geothermal fluids to the surface ) and operational factors relating to the extraction and injection of the geothermal fluids . such factors , together with the possibility that we may fail to find commercially viable geothermal resources in the future , represent significant uncertainties that we face in connection with our growth expectations . ● as our power plants ( including their respective well fields ) age , they may require increased maintenance with a resulting decrease in their availability , potentially leading to the imposition of penalties if we are not able to meet the requirements under our ppas as a result of any decrease in availability . ● our foreign operations are subject to significant political , hostilities , economic and financial risks , which vary by country . as of the date of this annual report , those risks include security conditions in israel , the partial privatization of the electricity sector in guatemala and the political uncertainty currently prevailing in some of the countries in which we operate as further discussed above under “ risk factors ” . although we maintain among other things political risk insurance for most of our investments in foreign power plants to mitigate these risks , insurance does not provide complete coverage with respect to all such risks .
| the increase was partially offset by a reduction in revenues generated by some of our power plants due to lower oil and natural gas prices . 106 power generation in our power plants increased by 11.6 % from 4,835,109 mwh in the year ended december 31 , 2015 to 5,396,959 mwh in the year ended december 31 , 2016 , mainly due to commencement of commercial operation of the second phase of the mcginness hills power plant and don a. campbell power plant in nevada , and the commencement of operations of our plant 4 at the olkaria iii complex in kenya , as discussed above . product segment revenues attributable to our product segment for the year ended december 31 , 2016 were $ 226.3 million , compared to $ 218.7 million for the year ended december 31 , 2015 , which represented a 3.5 % increase . the increase in our product segment revenues was primarily due to the start of revenue recognition from a new geothermal project we build . we recognized approximately $ 58 million of revenue from this project in the year ended december 31 , 2016 , compared to approximately $ 34 million in the year ended december 31 , 2015. the total contract price for the project is approximately $ 99.0 million and it is scheduled to be completed in the first half of 2017. the increase was partially offset by a net decrease of approximately $ 11 million in revenues from projects we build in turkey , of which some were completed in the year ended december 31 , 2015 , and due to timing of revenue recognition and different product mix . total cost of revenues total cost of revenues for the year ended december 31 , 2016 was $ 391.8 million , compared to $ 376.4 million for the year ended december 31 , 2015 , representing a 4.1 % increase from the prior period . as a percentage of total revenues , our total cost of revenues for the year ended december 31 , 2016 decreased to 59.1 % , compared to 63.3 % for the year ended december
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we recognize revenue from product sales when persuasive evidence of an arrangement exists , title to product and associated risk of loss has passed to the customer , the price is fixed or determinable , collection from the customer is reasonably assured , and we have no further performance obligations . depending on these criteria , revenue is usually recorded upon receipt of the product by our customers . our customers are primarily comprised of distributors , pharmacies , hospitals , hospital buying groups , and other healthcare providers . in some cases , we may also sell to governments and government agencies . in addition to sales in countries where our products are commercially available , we have also recorded revenue on sales for patients receiving treatment through named-patient programs . the relevant authorities or institutions in those countries have agreed to reimburse for product sold on a named-patient basis where our products have not received final approval for commercial sale . because of factors such as the price of our products , the limited number of patients , the short period from product sale to patient infusion and the lack of contractual return rights , our customers often carry limited inventory . we also monitor inventory within our sales channels to determine whether deferrals are appropriate based on factors such as inventory levels compared to demand , contractual terms , financial strength of distributors and our ability to estimate returns . in some cases , exact quantities of inventory in the channel are not precisely known , requiring us to estimate these amounts . if actual amounts of inventory differ from these estimates , these adjustments could have an impact in the period in which these estimates change . historically , we deferred revenue recognition for sales to certain international customers , mainly distributors , until the product was received by the end customer due to various factors , including our inability to estimate product returns . on a regular basis , we review revenue arrangements , including our distributor relationships , to determine whether any changes in these arrangements or historical experience with these customers have an impact on revenue recognition . in the first quarter 2017 , we determined that we had sufficient sales experience with certain customers to estimate product returns from such customers . we accounted for this prospectively as a change in estimate and began to recognize revenue for these customers when title to the product and the associated risk of loss passed to the customer . some customers purchase larger quantities of product less frequently , which may result in revenue fluctuations from quarter to quarter . we do not believe these buying patterns increase the risk of product returns or our ability to estimate such returns . we record estimated rebates payable under governmental programs , including medicaid in the u.s. and other programs outside the u.s. , as a reduction of revenue at the time of product sale . our calculations related to these rebate accruals require analysis of historical claim patterns and estimates of customer mix to determine which sales will be subject to rebates and the amount of such rebates . we update our estimates and assumptions each period and record any necessary adjustments , which may have an impact on revenue in the period in which the adjustment is made . generally , the length of time 57 between product sale and the processing and reporting of the rebates is three to six months . we have entered into volume-based arrangements with governments in certain countries in which reimbursement is limited to a contractual amount . under this type of arrangement , amounts billed in excess of the contractual limitation are repaid to these governments as a rebate . we estimate incremental discounts resulting from these contractual limitations , based on estimated sales during the limitation period , and we apply the discount percentage to product shipments as a reduction of revenue . our calculations related to these arrangements require estimation of sales during the limitation period , and adjustments in these estimates may have a material impact in the period in which these estimates change . we have provided balances and activity in the rebates payable account for the years ended december 31 , 2017 , 2016 and 2015 as follows : replace_table_token_5_th current provisions relating to sales in the current year increased by $ 79.2 in 2017 compared to 2016 and $ 25.3 in 2016 compared to 2015 . these increases were primarily due to increased unit volumes in the u.s. and europe which were subject to rebates . the increase in 2017 was also attributable to increases in rebate rates in certain geographical regions and on certain product sales as compared to the prior year . we record distribution and other fees paid to our customers as a reduction of revenue , unless we receive an identifiable and separate benefit for the consideration and we can reasonably estimate the fair value of the benefit received . if both conditions are met , we record the consideration paid to the customer as an operating expense . these costs are typically known at the time of sale , resulting in minimal adjustments subsequent to the period of sale . we enter into foreign exchange forward contracts to hedge exposures resulting from portions of our forecasted revenues , including intercompany revenues , that are denominated in currencies other than the u.s. dollar . these hedges are designated as cash flow hedges upon inception . we record the effective portion of these cash flow hedges to revenue in the period in which the sale is made to an unrelated third party and the derivative contract is settled . amounts collected from customers and remitted to governmental authorities , such as value-added taxes ( vat ) in foreign jurisdictions , are presented on a net basis in our consolidated statements of operations and do not impact net product sales . we evaluate the creditworthiness of customers on a regular basis . story_separator_special_tag in certain european countries , sales by us are subject to payment terms that are statutorily determined . this is primarily the case in countries where the payer is government-owned or government-funded , which we consider to be creditworthy . the length of time from sale to receipt of payment in certain countries exceeds our credit terms . in countries in which collections from customers extend beyond normal payment terms , we seek to collect interest . we record interest on customer receivables as interest income when collected . for non-interest bearing receivables with an estimated payment beyond one year , we discount the accounts receivable to present value at the date of sale , with a corresponding adjustment to revenue . subsequent adjustments for further declines in credit rating are recorded as bad debt expense as a component of selling , general and administrative expense . we also use judgments as to our ability to collect outstanding receivables and provide allowances for the portion of receivables if and when collection becomes doubtful , and we also assess on an ongoing basis whether collectibility is reasonably assured at the time of sale . we continue to monitor economic conditions , including volatility associated with international economies and the associated impacts on the financial markets and our business . for additional information related to our concentration of credit risk associated with certain international accounts receivable balances , refer to the “ financial condition , liquidity and capital resources ” section below . 58 contingent liabilities we are currently involved in various claims and legal proceedings . on a quarterly basis , we review the status of each significant matter and assess its potential financial exposure . if the potential loss from any claim , asserted or unasserted , or legal proceeding is considered probable and the amount can be reasonably estimated , we accrue a liability for the estimated loss . because of uncertainties related to claims and litigation , accruals are based on our best estimates based on available information . on a periodic basis , as additional information becomes available , or based on specific events such as the outcome of litigation or settlement of claims , we may reassess the potential liability related to these matters and may revise these estimates , which could result in a material adjustment to our operating results and liquidity . inventories inventories are stated at the lower of cost or estimated realizable value . we determine the cost of inventory on a standard cost basis , which approximates average costs . we capitalize inventory produced for commercial sale , which may include costs incurred for certain products awaiting regulatory approval . we capitalize inventory produced in preparation of product launches sufficient to support estimated initial market demand . capitalization of such inventory begins when we have ( i ) obtained positive results in clinical trials that we believe are necessary to support regulatory approval , ( ii ) concluded that uncertainties regarding regulatory approval have been sufficiently reduced , and ( iii ) determined that the inventory has probable future economic benefit . in evaluating whether these conditions have been met , we consider clinical trial results for the underlying product candidate , results from meetings with regulatory authorities , and the compilation of the regulatory application . if we are aware of any material risks or contingencies outside of the standard regulatory review and approval process , or if there are any specific negative issues identified relating to the safety , efficacy , manufacturing , marketing or labeling of the product that would have a significant negative impact on its future economic benefits , the related inventory would not be capitalized . products that have been approved by the fda or other regulatory authorities are also used in clinical programs to assess the safety and efficacy of the products for usage in diseases that have not been approved by the fda or other regulatory authorities . the form of product utilized for both commercial and clinical programs is identical and , as a result , the inventory has an “ alternative future use ” as defined in authoritative guidance . raw materials and purchased drug product associated with clinical development programs are included in inventory and charged to research and development expense when the product enters the research and development process and no longer can be used for commercial purposes and , therefore , does not have an “ alternative future use ” . for products which are under development and have not yet been approved by regulatory authorities , purchased drug product is charged to research and development expense when the inventory passes quality inspection and ownership transfers to us . nonrefundable advance payments for research and development activities , including production of purchased drug product , are deferred and capitalized until the goods are delivered . we also recognize expense for raw materials purchased when the raw materials pass quality inspection , and we have an obligation to pay for the materials . we analyze our inventory levels to identify inventory that may expire prior to sale , inventory that has a cost basis in excess of its estimated realizable value , or inventory in excess of expected sales requirements . although the manufacturing of our product is subject to strict quality control , certain batches or units of product may no longer meet quality specifications or may expire , which would require adjustments to our inventory values . we also apply judgment related to the results of quality tests that we perform throughout the production process , as well as our understanding of regulatory guidelines , to determine if it is probable that inventory will be saleable . these quality tests are performed throughout the pre- and post-production process , and we continually gather information regarding product quality for periods after the manufacturing date . our products currently have a maximum estimated life range of 36 to 48 months and , based on our sales forecasts , we expect to realize the carrying value of the product inventory .
| the components of this increase in revenues for the year ended december 31 , 2016 as compared to the same period in 2015 are as follows : the increase in net product sales for fiscal year 2016 as compared to the same period in 2015 was primarily due to an increase in unit volumes of 21.8 % due to increased demand globally for soliris therapy for patients with pnh or ahus and sales of strensiq and kanuma during 2016. the positive impact of volume on net product sales was offset by the negative impact on foreign exchange of 2.9 % , for the year ended december 31 , 2016 , as compared to the same period in 2015 . the negative impact on foreign exchange of $ 74.2 , or 2.9 % , was due to changes in foreign currency exchange rates ( inclusive of hedging activity ) versus the u.s. dollar for the year ended december 31 , 2015 . the negative impact was primarily due to the weakening of the euro , japanese yen , russian ruble , and the british pound . we recorded a gain in revenue of $ 73.0 and $ 117.9 related to our foreign currency cash flow hedging program , for the years ended december 31 , 2016 and 2015 , respectively . 66 we have historically deferred revenue recognition for sales to certain international customers , mainly distributors , until the product was received by the end customer due to various factors , including our inability to estimate product returns . on a regular basis , we review revenue arrangements , including our distributor relationships , to determine whether any changes in these arrangements or historical experience with these customers have an impact on revenue recognition . in the first quarter 2017 , we determined that we had sufficient sales experience with certain customers to estimate product returns from such customers . as a result , we began to recognize revenue for these customers when title to the product and the associated risk of loss passed to the customer . some customers may purchase larger quantities of product less frequently , which may result in revenue fluctuations from quarter to quarter . cost of sales cost of sales includes manufacturing costs as well as actual and estimated royalty expenses associated with sales of our products . the following table summarizes cost of sales for the years ended december 31 , 2017 , 2016
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contributing to the decrease in net income was the increase in the provision for credit losses as the provision for credit losses was $ 117.3 million in 2009 compared to $ 56.2 million in 2008 and $ 22.7 million in 2007. net charge-offs also increased to $ 78.2 million , or 0.76 % of average loans and leases in 2009 , compared to $ 38.2 million , or 0.40 % of average loans and leases in 2008. the increase in the provision for credit losses in 2009 was primarily reflective of the cumulative pressure that the extended economic downturn in the bank 's markets has had on established customers that were performing well prior to and earlier in the slowing economic environment . the company has taken steps in the past that have diversified its revenue stream by increasing the amount of revenue received from mortgage lending operations , insurance agency activities , brokerage and securities activities and other activities that generate fee income . management believes this diversification is important to reduce the impact of fluctuations in net interest revenue on the overall operating results of the company . noninterest revenue for 2009 was $ 275.3 million , compared to $ 245.6 million for 2008 and $ 232.2 million in 2007. one of the primary contributors to noninterest revenue in 2009 was the increase in mortgage lending revenue . mortgage lending revenue increased to $ 32.2 million in 2009 compared to $ 2.1 million in 2008. the increase in mortgage lending revenue was primarily a result of the increase in mortgage originations , the majority of which 22 were refinancings in the first half of 2009 resulting from historically low mortgage interest rates . also contributing to the increase in mortgage lending revenue was the $ 2.4 million increase in the value of the bank 's mortgage servicing rights in 2009 compared to a $ 10.5 million decline in the value in 2008. noninterest revenue was negatively impacted by the 6.6 % decrease in insurance commissions in 2009 compared to 2008 , resulting from the soft market cycle experienced in the insurance industry . contributing to the increase in noninterest revenue during 2009 compared to 2008 , the company recorded interest on tax refunds of $ 2.8 million , a gain of $ 3.7 million from the sale of student loans , a gain of $ 1.8 million on the sale of the company 's remaining shares of mastercard , inc. common stock , an insurance recovery of $ 1.3 million related to a casualty loss and gains on claims related to bank-owned life insurance of $ 1.4 million . noninterest expense for 2009 was $ 490.0 million , an increase of 7.5 % from $ 455.9 million for 2008 , which was an increase of 6.4 % from $ 428.4 million for 2007. the increases in noninterest expense included the incremental costs related to banking locations and facilities added in 2009 , coupled with the significant increase in deposit insurance assessments in 2009 compared to 2008. despite being assessed at the fdic 's lowest rate , deposit insurance assessments increased $ 16.8 million during 2009 which included a $ 6.1 million special fdic assessment during the second quarter of 2009 as part of the fdic 's restoration plan for the deposit insurance fund . income tax expense decreased in 2009 and 2008 primarily as a result of the decrease in pretax income in both years . the major components of net income are discussed in more detail in the various sections that follow . the company 's capital and liquidity remained strong during 2009 as its total shareholders ' equity to total assets ratio increased to 9.69 % from 9.20 % in 2008. also , demand deposits increased 10.7 % contributing to an overall deposit increase of 9.94 % in 2009 compared to 2008. this increase in deposits allowed the company to reduce its reliance on short-term borrowings , which decreased 60.8 % to $ 743.4 million at december 31 , 2009 compared to $ 1.9 billion at december 31 , 2008. critical accounting policies and estimates the company 's consolidated financial statements are prepared in accordance with u.s. gaap , which require the company to make estimates and assumptions ( see note 1 to the company 's consolidated financial statements included elsewhere in this report ) . the company believes that its determination of the allowance for credit losses , the assessment for other-than-temporary impairment of securities , the valuation of mortgage servicing rights and the estimation of pension and other post retirement benefit amounts involve a higher degree of judgment and complexity than the company 's other significant accounting policies . further , these estimates can be materially impacted by changes in market conditions or the actual or perceived financial condition of the company 's borrowers , subjecting the company to significant volatility of earnings . allowance for credit losses the allowance for credit losses is established through the provision for credit losses , which is a charge against earnings . provisions for credit losses are made to reserve for estimated probable losses on loans and leases . the allowance for credit losses is a significant estimate and is regularly evaluated by the company for adequacy by taking into consideration factors such as changes in the nature and volume of the loan and lease portfolio ; trends in actual and forecasted portfolio credit quality , including delinquency , charge-off and bankruptcy rates ; and current economic conditions that may affect a borrower 's ability to pay . in determining an adequate allowance for credit losses , management makes numerous assumptions , estimates and assessments . the use of different estimates or assumptions could produce different provisions for credit losses . see item 7. management 's discussion and analysis of financial condition and results of operations results of operations provisions for credit losses and allowance for credit losses included herein for more information . story_separator_special_tag at december 31 , 2009 , the allowance for credit losses was $ 176.0 million , representing 1.80 % of total loans and leases at year-end . other real estate owned other real estate owned , consisting of assets that have been acquired through foreclosure or in satisfaction of loans , is carried at the lower of cost or fair value , less estimated selling costs . fair value is based on independent appraisals and other relevant factors . other real estate owned is revalued on an annual basis or more often if market conditions necessitate . valuation adjustments required at foreclosure are charged to the allowance for credit losses . subsequent valuation adjustments on the periodic revaluation of the property are charged to net income as noninterest expense . there is a valuation allowance recorded based on recent property disposition experience . significant judgments and complex estimates are required in estimating the fair value of other real estate owned , 23 and the period of time within which such estimates can be considered current is significantly shortened during periods of market volatility , as experienced during 2009. as a result , the net proceeds realized from sales transactions could differ significantly from appraisals , comparable sales , and other estimates used to determine the fair value of other real estate owned . assessment for other-than-temporary impairment of securities securities are evaluated periodically to determine whether a decline in their value is other-than-temporary . the term other-than-temporary is not intended to indicate a permanent decline in value . rather , it means that the prospects for near term recovery of value are not necessarily favorable , or that there is a lack of evidence to support fair values equal to , or greater than , the carrying value of the investment . management reviews criteria such as the magnitude and duration of the decline , as well as the reasons for the decline , to predict whether the loss in value is other-than-temporary . once a decline in value is determined to be other-than-temporary , the impairment is separated into ( a ) the amount of the impairment related to the credit loss and ( b ) the amount of the impairment related to all other factors . the value of the security is reduced by the other-than-temporary impairment with the amount of the impairment related to credit loss recognized as a charge to earnings and the amount of the impairment related to all other factors recognized in other comprehensive income . mortgage servicing rights the company recognizes as assets the rights to service mortgage loans for others , known as mortgage servicing rights ( msrs ) . the company records msrs at fair value on a recurring basis with subsequent remeasurement of msrs based on change in fair value in accordance with financial accounting standards board ( fasb ) accounting standards codification ( asc ) 860 , transfers and servicing ( fasb asc 860 ) . an estimate of the fair value of the company 's msrs is determined utilizing assumptions about factors such as mortgage interest rates , discount rates , mortgage loan prepayment speeds , market trends and industry demand . because the valuation is determined by using discounted cash flow models , the primary risk inherent in valuing the msrs is the impact of fluctuating interest rates on the estimated life of the servicing revenue stream . the use of different estimates or assumptions could also produce different fair values . the company does not hedge the change in fair value of msrs and , therefore , the company is susceptible to significant fluctuations in the fair value of its msrs in changing interest rate environments . at december 31 , 2009 , the company 's mortgage servicing asset was valued at $ 35.6 million . pension and postretirement benefits accounting for pension and other postretirement benefit amounts is another area where the accounting guidance requires management to make various assumptions in order to appropriately value any related asset or liability . estimates that the company makes to determine pension-related assets and liabilities include actuarial assumptions , expected long-term rate of return on plan assets , rate of compensation increase for participants and discount rate . estimates that the company makes to determine asset and liability amounts for other postretirement benefits include actuarial assumptions and a discount rate . changes in these estimates could impact earnings . for example , lower expected long-term rates of return on plan assets could negatively impact earnings , as would lower estimated discount rates or higher rates of compensation increase . in estimating the projected benefit obligation , actuaries must make assumptions about such factors as mortality rate , turnover rate , retirement rate , disability rate and the rate of compensation increases . the company accounts for the over-funded or under-funded status of its defined benefit and postretirement plans as an asset or liability in its consolidated balance sheets and recognizes changes in that funded status in the year in which the changes occur through comprehensive income as required by fasb asc 715 , compensation retirement benefits ( fasb asc 715 ) . in accordance with fasb asc 715 , the company calculates the expected return on plan assets each year based on the balance in the pension asset portfolio at the beginning of the year and the expected long-term rate of return on that portfolio . in determining the reasonableness of the expected rate of return , the company considers a variety of factors including the actual return earned on plan assets , historical rates of return on the various asset classes of which the plan portfolio is comprised and current/prospective capital market conditions and economic forecasts . the company used an expected rate of return of 8 % on plan assets for 2009. the discount rate is the rate used to determine the present value of the company 's future benefit obligations for its pension and other postretirement benefit plans .
| ( 5 ) includes taxable equivalent adjustment to interest of approximately $ 1,827,000 , $ 2,265,000 and $ 2,168,000 in 2009 , 2008 and 2007 , respectively , using an effective tax rate of 35 % . 26 net interest revenue-fte increased 0.9 % to $ 455.2 million in 2009 from $ 451.2 million in 2008 , which represented an increase of 4.2 % from $ 432.9 million in 2007. the slight increase in net interest revenue-fte for 2009 compared to 2008 was a result of rates paid on interest bearing liabilities declining at a faster rate than rates earned on interest earning assets . the decline in rates paid on interest bearing liabilities was a result of the increase in low cost demand deposits coupled with the decline in other time deposits and short-term borrowing rates . the declining loan yields experienced by the company was a result of reduced interest rates with this decline being somewhat offset by the impact of the interest rate floors evident on a portion of the company 's variable rate loans . the effect of the interest rate floors on the company 's variable rate loans is more fully discussed in item 7. management 's discussion and analysis of financial condition and results of operations results of operations interest rate sensitivity. the increase in net interest revenue-fte for 2008 compared to 2007 was related to the combination of growth in loans and the company 's focus on funding the growth with maturing investment securities and lower-cost liabilities . interest revenue-fte decreased 12.6 % to $ 625.8 million in 2009 from $ 715.8 million in 2008 , which represented a decrease of 11.8 % from $ 811.2 million in 2007. the decrease in interest revenue-fte in 2009 and 2008 was primarily a result of the declining loan yields as interest rates were at historically low levels resulting in an overall decrease in the yield on average interest earning assets of 76 basis points during 2009 and 95 basis points during 2008. average interest earning assets increased $ 41.8
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this venture owned a portfolio of 13 centers of which four are located in texas , three each in georgia and tennessee , two in florida and one in north carolina . the transaction was completed through the distribution of five centers to us and eight centers to our partner . we strive to maintain a strong , conservative capital structure which provides ready access to a variety of attractive long and short-term capital sources . we carefully balance lower cost short-term financing with long-term liabilities associated with acquired or developed long-term assets . during 2013 , we issued $ 300 million of 3.5 % and $ 250 million of 4.45 % senior unsecured notes maturing in 2023 and 2024 , respectively . we also paid off all amounts outstanding under our revolving credit facility , redeemed $ 75 million of our 6.75 % series d cumulative redeemable preferred shares and $ 200 million of our 6.5 % series f cumulative redeemable preferred shares and paid down $ 173.6 million of fixed-rate medium term notes . in anticipation of potential volatility and uncertainty in the capital markets , $ 250 million of 4.45 % senior unsecured notes were issued in october to essentially pre-fund our january 2014 debt maturities totaling $ 285 million . in 2013 , we amended and extended our $ 500 million unsecured revolving credit facility . the amendment reduces the borrowing margin and facility fee , which are priced off a grid that is tied to our senior unsecured credit ratings , by 10 and five basis points , respectively . in addition , the unsecured revolving credit facility 's maturity date has been extended to 2017 with options to extend up to an additional year . these transactions continue to strengthen our consolidated balance sheet and further enhance our access to various sources of capital , while reducing our cost of capital . while the availability of capital has improved over the past few years , there can be no assurance that favorable pricing and availability will not deteriorate in the future . operational metrics in assessing the performance of our centers , management carefully monitors various operating metrics of the portfolio . below are performance metrics associated with our signed occupancy , same property net operating income ( `` spnoi '' ) growth and leasing activity on a pro rata basis . replace_table_token_14_th replace_table_token_15_th _ ( 1 ) see non-gaap financial measures for a definition of the measurement of spnoi and a reconciliation to operating income within this section of item 7 . 30 replace_table_token_16_th _ ( 1 ) average external lease commissions per square foot for the three and twelve months ended december 31 , 2013 were $ 5.52 and $ 4.78 , respectively . the operating metrics of our portfolio strengthened in 2013 as we focused on increasing occupancy and spnoi . our portfolio delivered solid operating results with : improved occupancy to 94.8 % , including an increase of .8 % in small shop occupancy over 2012 , primarily as a result of our disposition program and lack of new available retail space in the market ; an increase of 4.2 % in spnoi for the year ended december 31 , 2013 over the same period of 2012 ; and rental rate increases of 12.7 % for new leases during 2013. while we will continue to monitor the economy and the effects on our tenants , we believe the significant diversification of our portfolio , both geographically and by tenant base , and the quality of our portfolio will allow us to further increase occupancy levels as we move through 2014 , albeit at a lesser rate than the previous year , assuming , among other things , no bankruptcies by multiple national or regional tenants . a reduction in quality retail space available contributed to the increase in overall rental rates on a same-space basis as we completed new leases and renewed existing leases . leasing volume is anticipated to decline as we have less vacant space available for leasing . while we have achieved strong growth in spnoi during 2013 , maintaining this level of positive operating performance in 2014 is not assured . our expectation is that spnoi will average between 2.5 % to 3.5 % for 2014. new development at december 31 , 2013 , we had two properties in various stages of construction and development . we have funded $ 71.5 million to date on these projects , and we estimate our aggregate net investment upon completion to be $ 97.5 million . overall , the average projected stabilized return on investment for these properties is approximately 8.0 % upon completion . we have approximately $ 116.9 million in land held for development at december 31 , 2013 . while we are experiencing a greater interest from retailers and other market participants in our land held for development , opportunities for economically viable developments remain scarce . we continue to pursue additional development and redevelopment opportunities in multiple markets ; however , finding the right opportunities remains very challenging . acquisitions and joint ventures acquisitions are a key component of our long-term growth strategy . the availability of quality acquisition opportunities in the market remains sporadic . competition for the highest quality core properties in our key growth markets is intense , which has in many cases , driven pricing to pre-recession highs . we remain disciplined in approaching these opportunities , pursuing only those that provide appropriate risk-adjusted returns . 31 dispositions dispositions are also a key component of our ongoing management process where we selectively prune properties from our portfolio that no longer meet our geographic or growth targets . dispositions provide capital , which may be recycled into properties that have high barrier-to-entry locations within high growth metropolitan markets , and thus have higher long-term growth potential . additionally , proceeds from dispositions may be used to reduce outstanding debt , further deleveraging our consolidated balance sheet . story_separator_special_tag as we have demonstrated in 2013 , this transformative initiative will produce a portfolio with higher occupancy rates and stronger revenue growth . summary of critical accounting policies our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and contingencies as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods . we evaluate our assumptions and estimates on an ongoing basis . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies require more significant judgments and estimates used in the preparation of our consolidated financial statements . property acquisitions of properties are accounted for utilizing the acquisition method and , accordingly , the results of operations of an acquired property are included in our results of operations from the date of acquisition . estimates of fair values are based upon future cash flows and other valuation techniques in accordance with our fair value measurements accounting policy . fair values are used to record the purchase price of acquired property among land , buildings on an “ as if vacant ” basis , tenant improvements , other identifiable intangibles and any goodwill or gain on purchase . other identifiable intangible assets and liabilities include the effect of out-of-market leases , the value of having leases in place ( “ as is ” versus “ as if vacant ” and absorption costs ) , out-of-market assumed mortgages and tenant relationships . depreciation and amortization is computed using the straight-line method , generally over estimated useful lives of 40 years for buildings and over the lease term which includes bargain renewal options for other identifiable intangible assets . the impact of these estimates , including incorrect estimates in connection with acquisition values and estimated useful lives , could result in significant differences related to the purchased assets , liabilities and resulting depreciation or amortization . acquisition costs are expensed as incurred . real estate joint ventures and partnerships to determine the method of accounting for partially owned real estate joint ventures and partnerships , management evaluates the characteristics of associated entities and determines whether an entity is a variable interest entity ( “ vie ” ) and , if so , determines which party is the primary beneficiary by analyzing whether we have both the power to direct the entity 's significant economic activities and the obligation to absorb potentially significant losses or receive potentially significant benefits . significant judgments and assumptions inherent in this analysis include the design of the entity structure , the nature of the entity 's operations , future cash flow projections , the entity 's financing and capital structure , and contractual relationships and terms . we consolidate a vie when we have determined that we are the primary beneficiary . primary risks associated with our vies include the potential funding of the entities ' debt obligations or making additional contributions to fund the entities ' operations . partially owned , non-variable interest real estate joint ventures and partnerships over which we have a controlling financial interest are consolidated in our consolidated financial statements . in determining whether we have a controlling financial interest , we consider factors such as ownership interest , authority to make decisions , kick-out rights and substantive participating rights . partially owned real estate joint ventures and partnerships where we do not have a controlling financial interest , but have the ability to exercise significant influence , are accounted for using the equity method . management continually analyzes and assesses reconsideration events , including changes in the factors mentioned above , to determine if the consolidation treatment remains appropriate . decisions regarding consolidation of partially owned entities frequently require significant judgment by our management . errors in the assessment of consolidation could result in material changes to our consolidated financial statements . 32 impairment our property is reviewed for impairment if events or changes in circumstances indicate that the carrying amount of the property , including any capitalized costs and any identifiable intangible assets , may not be recoverable . if such an event occurs , a comparison is made of the current and projected operating cash flows of each such property into the foreseeable future , with consideration of applicable holding periods , on an undiscounted basis to the carrying amount of such property . if we determine the carrying amount is not recoverable , our basis in the property is reduced to its estimated fair value to reflect impairment in the value of the asset . fair values are determined by management utilizing cash flow models , market capitalization and discount rates , or by obtaining third-party broker or appraisal estimates in accordance with our fair value measurements accounting policy . we review current economic considerations each reporting period , including the effects of tenant bankruptcies , the suspension of tenant expansion plans for new development projects , declines in real estate values and any changes to plans related to our new development projects including land held for development , to identify properties where we believe market values may be deteriorating . determining whether a property is impaired and , if impaired , the amount of write-down to fair value requires a significant amount of judgment by management and is based on the best information available to management at the time of evaluation .
| 34 interest expense , net net interest expense decreased $ 9.4 million or 8.8 % . the components of net interest expense were as follows ( in thousands ) : replace_table_token_18_th gross interest expense totaled $ 110.2 million in 2013 , down $ 2.3 million or 2.1 % from 2012. the decrease in gross interest expense results primarily from a reduction in interest rates , offset by an increase in the weighted average debt outstanding . in 2013 , the weighted average debt outstanding was $ 2.2 billion at a weighted average interest rate of 5.06 % as compared to $ 2.1 billion outstanding at a weighted average interest rate of 5.12 % in 2012. the increase in the weighted average debt outstanding results primarily from our net capital activity , including the issuances of unsecured notes , the redemption of preferred shares , acquisition and disposition activity and the pay down of medium-term notes and other notes , while the reduction in the weighted average interest rate is primarily attributable to the refinancing of notes and mortgages with proceeds from dispositions and note issuances . the increase in the over-market mortgage adjustment of $ 7.8 million is attributable to the write-off of net above-market mortgage intangibles associated with the early payoff of the related mortgage in both 2013 and 2012. gain on sale and acquisition of real estate joint venture and partnership interests the gain in 2013 is attributable to the liquidation of an unconsolidated real estate joint venture that owned industrial properties of $ 11.5 million , the acquisition of an unconsolidated real estate joint venture interest totaling $ 20.2 million and the sale of an interest in four unconsolidated real estate joint ventures of $ 1.9 million , while the gain in 2012 was associated with the sale of an interest in six unconsolidated real estate joint ventures . equity in earnings ( losses ) of real estate joint ventures and partnerships , net the increase
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the external program costs reflect external costs attributable to our clinical development candidates and preclinical candidates selected for further development . such expenses include third-party costs for preclinical and clinical studies and research services , and other consulting costs . replace_table_token_6_th 90 general and administrative our general and administrative expenses consist primarily of personnel costs , expenses for outside professional services , including legal , human resource , audit , accounting and tax services and allocated facilities-related costs . personnel costs include salaries , employee benefits and stock-based compensation . we expect to incur additional expenses operating as a public company , including expenses related to compliance with the rules and regulations of the sec and listing standards applicable to companies listed on the nasdaq global market , additional insurance expenses , investor relations activities and other administrative and professional services . we also expect to increase the size of our administrative function to support the anticipated growth of our business . interest income interest income consists primarily of interest received on our invested funds . interest expense interest expense includes interest incurred on our debt and amortization of debt issuance costs . other income ( expense ) , net other income ( expense ) , net primarily includes gains and losses from the remeasurement of our liabilities related to our redeemable convertible preferred stock warrants . we adjusted the liability for changes in estimated fair value until the earlier of the exercise of the warrants , expiration of the warrants , or conversion of the redeemable convertible preferred stock warrants upon the completion of our ipo , into common stock warrants . with the completion of our ipo on october 1 , 2018 , the redeemable convertible preferred stock warrant liability was reclassified to additional paid-in-capital and we will no longer record any related periodic fair value adjustments . comparison of the years ended december 31 , 2018 and 2017 replace_table_token_7_th * percentage not meaningful 91 revenue we have recognized revenue as follows during the periods indicated : replace_table_token_8_th ( 1 ) includes $ 5.0 million of collaboration revenue and $ 3.9 million of other revenue from celgene as related party revenue . celgene was a related party through september 30 , 2018 as it held more than 10 % of our common stock for the periods presented until the closing of our ipo . * percentage not meaningful total revenue decreased by $ 13.2 million , or 26 % , during year ended december 31 , 2018 compared to the year ended december 31 , 2017 , due to the decline in collaboration revenue of $ 19.4 million , offset partially by a $ 6.0 million increase in other revenue-related parties . the decline in collaboration revenue was due primarily to a net decrease of $ 27.9 million in revenues related to lower revenue from the 2017 celgene agreement as compared to revenue earned under the 2014 celgene agreement . the up-front payment under the 2017 celgene agreement , together with the remaining deferred revenue balance of the 2014 celgene agreement , are being recognized ratably , commencing in august 2017 and estimated to be completed in september 2020. the decline was partially offset by a $ 8.5 million increase in research and development services provided to merck and the recognition of c ollaboration revenue from the up-front nonrefundable payment of $ 60.0 million received in 2018. under the 2018 merck agreement , the upfront fee is being recognized as revenue on a proportion of performance basis , using full-time equivalents ( ftes ) as the basis of measurement . other revenue in 2018 was due primarily to development and clinical manufacturing services and supplies provided to celgene for $ 4.5 million and supplies and other revenue related to sutrovax for $ 1.5 million . there were no such services during the year ended december 31 , 2017 . 92 research and development expense research and development expense remained flat during the year ended december 31 , 2018 compared to the year ended december 31 , 2017. lower overall spending on manufacturing materials of $ 3.4 million , a $ 2.7 million impairment cost taken in 2017 , and the $ 0.7 million inclusion of personnel-related costs previously in research and development expense , were offset by a $ 2.9 million increase in compensation-related expenses due to higher headcount , a $ 2.2 million increase in external services attributable to clinical trial costs related to stro-001 and stro-002 , and a $ 1.4 million increase in consulting services related to supply chain management . general and administrative expense general and administrative expense increased by $ 5.0 million , or 31 % , during the year ended december 31 , 2018 compared to the year ended december 31 , 2017. the increase was due primarily to increases of $ 2.6 million in personnel-related expenses , $ 1.0 million in legal , insurance and audit fees , a $ 0.4 million fee related to the merck transaction , $ 0.2 million of fees paid to a third party in relation to the celgene milestone payment , and $ 0.7 million from the inclusion of personnel-related costs previously in research and development expense effective in january 2018. interest income interest income increased by $ 1.3 million during the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , due primarily to a higher cash balance resulting from the proceeds from the may 2018 and july 2018 closings of the series e financing , the up-front payment of $ 60.0 million received under the 2018 merck agreement , and the combined net proceeds of $ 84.4 million from the completion of our ipo and the concurrent private placement of common stock to merck . story_separator_special_tag interest expense interest expense increased by $ 1.0 million during the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , due to interest incurred under a loan and security agreement that we entered into with oxford and svb in august 2017. other income ( expense ) , net other income ( expense ) , net changed by $ 2.0 million during the year ended december 31 , 2018 compared to the year ended december 31 , 2017. the change was primarily due to a $ 1.0 million increase in the estimated fair value and conversion of our redeemable convertible preferred stock warrants during the year ended december 31 , 2018 upon the completion of our initial public offering , and a $ 0.9 million increase in connection with the associated income attributable to the arrangement with the leukemia & lymphoma society , inc. comparison of the years ended december 31 , 2017 and 2016 replace_table_token_9_th * percentage not meaningful 93 collaboration revenue we have recognized revenue from our collaboration agreements as follows during the periods indicated : replace_table_token_10_th * percentage not meaningful revenue decreased by $ 8.0 million , or 13 % , during the year ended december 31 , 2017 compared to the year ended december 31 , 2016. the decrease was due to the decline in collaboration revenue of $ 11.0 million recognized from the up-front nonrefundable payment of $ 83.1 million received in 2014 under the 2014 celgene agreement , as the remaining deferred revenue balance , as of the effective date of the 2017 celgene agreement , along with the payments under the 2017 celgene agreement , are being recognized ratably starting in august 2017 and ending in september 2020. the decrease was partially offset by a $ 1.0 million increase in revenue recognized from milestones and contingent payments from celgene and an increase of an aggregate of $ 2.1 million in research and development services for celgene and emd serono . research and development expense research and development expense increased by $ 11.1 million , or 25 % , during the year ended december 31 , 2017 compared to the year ended december 31 , 2016. the increase was due to an increase of $ 3.4 million in personnel-related expenses due to headcount growth , an increase of $ 2.4 million in consulting and other external services , an increase of $ 1.7 million in facilities-related costs , as a result of increased research and development activities in support of our own product development efforts and those of our collaborators , and a net increase of $ 0.9 million in preclinical and pharmacology research spending as well as manufacturing supplies and production materials . the increase in research and development expense also reflects an impairment charge of $ 2.7 million pertaining to certain custom-built manufacturing equipment that failed to meet our acceptance criteria . general and administrative expense general and administrative expense increased by $ 1.6 million , or 11 % , during the year ended december 31 , 2017 compared to the year ended december 31 , 2016. the increase was due to an increase of $ 0.5 million in equipment-related expenses and an increase of $ 0.7 million in personnel-related expenses due to higher headcount . in addition , we incurred an additional $ 0.4 million related to external investor relations services and professional services fees . interest expense interest expense increased by $ 0.6 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016. the increase was due to the interest incurred under a loan and security agreement that we entered into in august 2017. we had no outstanding debt in 2016 . 94 other income ( expense ) , net other income ( expense ) , net changed by $ 0.2 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016. the change was primarily due to the change in estimated fair value of our series b and series c redeemable convertible preferred stock warrants . liquidity and capital resources sources of liquidity to date , we have incurred significant net losses , except for 2016 , and negative cash flows from operations . our operations have been funded primarily by payments received from our collaborators , and net proceeds from equity sales and debt . as of december 31 , 2018 , we had $ 204.5 million in cash , cash equivalents and marketable securities , and outstanding debt of $ 14.7 million , which is net of $ 0.3 million in unamortized debt discount , and an accumulated deficit of $ 150.3 million . funding requirements based upon our current operating plan , we believe that our existing capital resources will enable us to fund our operating expenses and capital expenditure requirements through at least the next twelve months after the date of this filing . we have based this estimate on assumptions that may prove to be wrong , and we could utilize our available capital resources sooner than we currently expect . we will continue to require additional financing to advance our current product candidates into and through clinical development , to develop , acquire or in-license other potential product candidates , pay our obligations and to fund operations for the foreseeable future . we may seek to raise any necessary additional capital through a combination of public or private equity offerings , debt financings , collaborations , strategic alliances , licensing arrangements , marketing and distribution arrangements , or other sources of financing . adequate additional funding may not be available to us on acceptable terms , or at all .
| once identified , production of protein drug candidates can be rapidly and predictably scaled in our current good manufacturing practices compliant manufacturing facility . we have the ability to manufacture our cell-free extract that supports our production of proteins on a large scale using a semi-continuous fermentation process . our two most advanced product candidates are wholly owned : stro-001 , an adc directed against cd74 , for patients with multiple myeloma and non-hodgkin lymphoma , or nhl , and stro-002 , an adc directed against folate receptor-alpha , or folrα , for patients with ovarian and endometrial cancers . stro-001 is currently enrolling patients in a phase 1 trial , with initial safety data expected in mid-2019 and initial efficacy data expected by year end 2019. in october 2018 , we were granted orphan drug designation by the u.s. food and drug administration ( “ fda ” ) , for stro-001 for the treatment of multiple myeloma . we began enrolling patients in a stro-002 phase 1 trial focused on ovarian and endometrial cancers in march 2019 , with initial safety data expected by year end 2019. we have also entered into multi-target , product-focused collaborations with leaders in the field of oncology , including a cytokine derivatives collaboration with merck sharp & dohme corp. , a subsidiary of merck & co. , inc. , kenilworth , nj , usa , or merck , a b cell maturation antigen , or bcma , and an immuno-oncology directed alliance with celgene corporation , or celgene , and an oncology-focused collaboration with merck kgaa , darmstadt , germany ( operating in the united states and canada under the name “ emd serono ” ) . since the commencement of our operations , we have devoted substantially all of our resources to performing research and development and manufacturing activities in support of our own product development efforts and those of our collaborators , raising capital to support and expand such activities and providing general and administrative support for these operations . we have funded our operations to date primarily from upfront , milestone and other payments under our collaboration
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on january 2 , 2018 , the company granted mr. tchelet a stock option to purchase story_separator_special_tag the following discussion and analysis of financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements appearing in this annual report . some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks , assumptions and uncertainties . 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 include , but not limited to those set forth in “ item 1a . risk factors ” in this annual report . all forward-looking statements included in this annual report are based on information available to us as of the time we file this annual report and , except as required by law , we undertake no obligation to update publicly or revise any forward-looking statements . overview description of business 32 dyadic international , inc. ( “ dyadic ” , “ we ” , or the “ company ” ) is a global biotechnology platform company based in jupiter , florida with operations in the united states , a satellite office in the netherlands and research organizations performing services under contract to dyadic in finland and spain . over the past two decades , the company has developed a gene expression platform for producing commercial quantities of industrial enzymes and other proteins , and has previously licensed this technology to third parties , such as abengoa bioenergy , basf , codexis and others , for use in industrial ( non-pharmaceutical ) applications . this technology is based on the myceliophthora thermophila fungus , which the company named c1 . the c1 technology is a robust and versatile fungal expression system for the development and production of enzymes and other proteins . on december 31 , 2015 , the company sold its industrial technology business to dupont danisco ( “ dupont ” ) , the industrial biosciences business of dupont ( nyse : dd ) for $ 75.0 million ( the “ dupont transaction ” ) . as part of the dupont transaction , dyadic retained co-exclusive rights to the c1 technology for use in all human and animal pharmaceutical applications , and currently has the exclusive ability to enter into sub-license agreements ( subject to the terms of the license and certain exceptions ) . dupont retained certain rights to utilize the c1 technology in pharmaceutical applications , including the development and production of pharmaceutical products , for which it will be required to make royalty payments to dyadic upon commercialization . in certain circumstances , dyadic may owe a royalty to either dupont or certain licensors of dupont , depending upon whether dyadic elects to utilize certain patents either owned by dupont or licensed in by dupont . after the dupont transaction , the company has been focused on the biopharmaceutical industry , specifically in further improving and applying the proprietary c1 technology into a safe and efficient gene expression platform to help speed up the development , lower production costs and improve the performance of biologic vaccines and drugs at flexible commercial scales . we believe that the c1 technology could be beneficial in the development and manufacturing of human and animal vaccines ( such as virus-like particles ( vlps ) and antigens ) , monoclonal antibodies ( mabs ) , bi-specific antibodies , fab antibody fragments , fc-fusion proteins , and other therapeutic enzymes and proteins . the company is aiming to develop such products as innovative vaccines and drugs , biosimilars and or biobetters . additionally , in early 2018 , we began to conduct certain funded research activities to further understand if , or how the c1 technology may be applied for use in developing and manufacturing certain metabolites . the initial data from this metabolite project , where the phase i data milestone was achieved , demonstrated that c1 has the potential to be engineered to produce certain metabolites . in the first quarter of 2019 , the company initiated two new internal research projects , including engineering c1 to express adeno-associated viral vectors ( aav ) which has been reported as expensive and in short supply . critical accounting policies , estimates , and judgments the preparation of these consolidated financial statements in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) requires management to make estimates and judgments that affect the reported amount of assets and liabilities and related disclosure of contingent assets and liabilities at the date of our consolidated financial statements and the reported amounts of revenues and expenses during the applicable period . actual results may differ from these estimates under different assumptions or conditions . such differences could be material to the consolidated financial statements . we define critical accounting policies as those that are reflective of significant judgments and uncertainties and which may potentially result in materially different results under different assumptions and conditions . in applying these critical accounting policies , our management uses its judgment to determine the appropriate assumptions to be used in making certain estimates . these estimates are subject to an inherent degree of uncertainty . our critical accounting policies include the following : revenue recognition the company has no pharmaceutical products approved for sale at this point , and all of our revenue to date has been research revenue from third party collaborations and government grants . story_separator_special_tag the company may generate future revenue from license agreements and collaborative arrangements , which may include upfront payments for licenses or options to obtain a license , payment for research and development services , milestone payments , and royalties . the company typically performs research and development services as specified in each respective agreement on a best efforts basis , and recognizes revenue from research funding under collaboration agreements in accordance with the 5-step process outlined in topic 606 : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) the entity satisfies a performance obligation . we recognize revenue when we satisfy a performance obligation 33 by transferring control of the service to a customer in an amount that reflects the consideration that we expect to receive . since the performance obligation under our collaboration agreements is generally satisfied over time , we elected to use the input method under topic 606 to measure the progress toward complete satisfaction of a performance obligation . under the input methods , revenue will be recognized on the basis of the entity 's efforts or inputs to the satisfaction of a performance obligation ( e.g. , resources consumed , labor hours expended , costs incurred , or time elapsed ) relative to the total expected inputs to the satisfaction of that performance obligation . the company believes that the cost-based input method is the best measure of progress to reflect how the company transfers its performance obligation to a customer . in applying the cost-based input method of revenue recognition , the company uses actual costs incurred relative to budgeted costs to fulfill the performance obligation . these costs consist primarily of full-time equivalent effort and third-party contract costs . revenue will be recognized based on actual costs incurred as a percentage of total budgeted costs as the company completes its performance obligations . a cost-based input method of revenue recognition requires management to make estimates of costs to complete the company 's performance obligations . in making such estimates , significant judgment is required to evaluate assumptions related to cost estimates . the cumulative effect of revisions to estimated costs to complete the company 's performance obligations will be recorded in the period in which changes are identified and amounts can be reasonably estimated . a significant change in these assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods . we invoice customers based on our contractual arrangements with each customer , which may not be consistent with the period that revenues are recognized . when there is a timing difference between when we invoice customers and when revenues are recognized , we record either a contract asset ( unbilled accounts receivable ) or a contract liability ( deferred research and development obligations ) , as appropriate . the company adopted the following practical expedients and exemptions : we generally expense sales commissions when incurred because the amortization period would be one year or less . we do not disclose the value of unsatisfied performance obligations for ( i ) contracts with an original expected length of one year or less and ( ii ) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed . provision for contract losses the company assesses the profitability of our collaboration agreements to provide research services to our contracted business partners and identifies those contracts where current operating results or forecasts indicate probable future losses . if the anticipated contract cost exceeds the anticipated contract revenue , a provision for the entire estimated loss on the contract is recorded and then accreted into the statement of operations over the remaining term of the contract . the provision for contract losses is based on judgment and estimates , including revenues and costs , where applicable , the consideration of our business partners ' reimbursement , and when such loss is deemed probable to occur and is reasonable to estimate . accrued research and development expenses in order to properly record services that have been rendered but not yet billed to the company , we review open contracts and purchase orders , communicate with our personnel and we estimate the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost . the majority of our service providers invoice us monthly or quarterly in arrears for services performed or when contractual milestones are met . we make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary . examples of accrued research and development expenses include amounts owed to contract research organizations , to service providers in connection with commercialization and development activities . stock-based compensation we have granted stock options and restricted stock to employees , directors and consultants . the fair value of each option award is estimated on the date of grant using the black-scholes option-pricing model . the black-scholes model considers volatility in the price of our stock , the risk-free interest rate , the estimated life of the option , the closing market price of our stock and the exercise price .
| the decrease primarily reflects reductions in litigation costs of $ 541,000 , legal costs of $ 236,000 and share-based compensation expenses of $ 158,000 , partially offset by increases in business development and investor relationship costs of $ 217,000 , and sec registration related costs of $ 215,000 . foreign currency exchange loss ( gain ) foreign currency exchange loss for the year ended december 31 , 2018 , was approximately $ 21,000 compared to a gain of $ 249,000 for the year ended december 31 , 2017 . the change reflects the reduction in cash balance carried in euro and the currency fluctuation of the euro in comparison to the u.s. dollar . interest income interest income for the year ended december 31 , 2018 , increased 58.1 % to approximately $ 895,000 compared to $ 566,000 for the year ended december 31 , 2017 . the increase in interest income reflects higher yield on the company 's investment grade securities , which are classified as held-to-maturity . income taxes the company had net operating loss ( “ nol ” ) carryforwards available in 2018 that will begin to expire in 2036. as of december 31 , 2018 , and 2017 , the company had nols in the amount of approximately $ 9.1 million and $ 2.9 million , respectively . 36 for the year ended december 31 , 2018 , the company 's current income tax benefit of $ 1.0 million was generated from the corporate alternative minimum tax credit refund under the tax cuts and jobs act . the company expects to receive a 50 % refund in 2018 through 2020 , and a 100 % refund in 2021. net loss net loss for the year ended december 31 , 2018 was approximately $ 5.7 million compared to a net loss of $ 2.1 million for the year ended december 31 , 2017 . the change was primarily due to the receipt of a litigation settlement of $ 4.4 million in 2017. liquidity and capital resources our primary source of cash has been the cash received from the dupont transaction in december 2015 , interest income received from investment grade securities , and funding from
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we also expect the following key trends , once economic conditions improve , to affect our industry positively : the rebuilding of inventory levels by manufacturers and distributors ; the continued restructuring of corporate supply chains which may impact local demand for distribution space as companies relocate their operations consistent with their particular requirements or needs ; the continued long-term growth in international trade which necessitates the increased import and export of products in the u.s. and mexico ; and the growth or continuing importance of industrial markets located near major transportation hubs including seaports , airports and major intermodal facilities . inflation although the u.s. economy has been experiencing relatively flat inflation rates , and a wide variety of industries and sectors are affected differently by changing commodity prices , inflation has not had a significant impact on us in our markets of operation . most of our leases require the tenants to pay their share of operating expenses , including common area maintenance , real estate taxes and insurance , thereby reducing our exposure to increases in costs and operating expenses resulting from inflation . in addition , many of the outstanding leases expire within five years which enables us to replace existing leases with new leases at the then-existing market rate . 41 significant transactions during 2009 summary of the year ended december 31 , 2009 the following further describes certain significant transactions that occurred during the year ended december 31 , 2009. public offering in june 2009 , we issued 27.6 million shares of common stock in a public offering at a public offering price of $ 4.25 per share . the total net proceeds of this public offering were $ 111.4 million . debt repayment in september 2009 , we repaid approximately $ 52.1 million of fixed rate mortgage notes scheduled to mature on january 1 , 2010. in january 2010 , we repaid $ 42.0 million of $ 112.0 million of debt previously scheduled to mature in 2012. the remaining balance of $ 70.0 million was refinanced at a fixed rate of 6.11 % and a new maturity of 2020 and a release of mortgages on 5 properties . in february 2010 , we repaid $ 49.9 million of $ 102.9 million of debt previously scheduled to mature in 2011. the remaining balance of $ 53.0 million was refinanced at a fixed rate of 6.17 % and a new maturity of 2019 and a release of mortgages on 11 properties . the debt repayments were funded using cash provided from our public offering in june 2009 , borrowings under our credit facility and cash provided from operations . major activities with development joint ventures in february 2009 , the scla venture sold 53.4 acres of land . we entered into the scla venture with stirling airports international , llc , to be the master developer of over 4,000 acres in victorville , california in 2006. the development project is located at the former george air force base which closed in 1992 and is now known as southern california logistics airport , or scla . for further discussion on the scla joint venture , see notes to consolidated financial statements , note 4 investments in and advances to unconsolidated joint ventures. during the year ended 2009 , we acquired the third-party equity interests of three of our previously unconsolidated joint ventures , such that as of december 31 , 2009 , we wholly owned each venture . two of these acquisitions were treated as business combinations and the net assets of each venture were recorded on our consolidated balance sheets at their acquisition date fair values . as a result of this accounting we recorded an aggregate loss of $ 10.3 million on these transactions . for further discussion on these transactions , see notes to consolidated financial statements , note 4 investments in and advances to unconsolidated joint ventures. in conjunction with these transactions , we funded the repayment of approximately $ 60.7 million of indebtedness associated with these ventures . acquisition activity during the year ended december 31 , 2009 , we acquired three development properties located in monterrey , mexico , comprised of approximately 0.4 million square feet for a total cost of approximately $ 13.0 million , which includes acquisition costs . in addition , we acquired two parcels of land comprised of approximately 12.3 acres for an aggregate cost of approximately $ 0.6 million , also including acquisitions costs which represent land available for expansion adjacent to existing properties . all of these properties were acquisitions of assets from unrelated third parties using existing cash balances . disposition activity during the year ended december 31 , 2009 , we sold three operating properties comprised of approximately 0.9 million square feet and two land parcels comprised of approximately 4.3 acres to unrelated third parties for total gross proceeds of approximately $ 30.7 million , which resulted in a gain of approximately $ 0.9 million . 42 critical accounting policies 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 , or 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 . story_separator_special_tag because of adverse conditions that exist in the real estate markets , as well as the credit and financial markets , it is possible that the estimates and assumptions that have been utilized in the preparation of the consolidated financial statements could change materially during the time span associated with the continued weakened state of these markets . 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 judgments . principles of consolidation we hold interests in both consolidated and unconsolidated joint ventures . all joint ventures over which we have financial and operating control and variable interest entities , or vie 's , in which we have determined that we are the primary beneficiary are included in our consolidated financial statements . all intercompany balances and transactions have been eliminated in consolidation . we use the equity method of accounting for all other joint ventures and include our share of earnings of these joint ventures in our consolidated net income . our judgment with respect to our level of influence or control over an entity and whether we are the primary beneficiary of a variable interest entity involve consideration of various factors including the form of our ownership interest , our representation on the entity 's board of directors , the size of our investment ( including loans ) and our ability to participate in policy making decisions . our ability to correctly assess our influence or control over an entity affects the presentation of these investments in our consolidated financial statements and , consequently , our financial position and specific items in our results of operations that are used by our stockholders , lenders and others in their evaluation of us . capitalization of costs we capitalize costs directly related to the development , predevelopment , redevelopment or improvement of our investments in properties . costs associated with our development 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 , insurance and leasing costs if appropriate . we capitalize indirect costs such as personnel , office , and administrative expenses that are directly related to our development projects based on time spent on the development activities . interest is capitalized based on actual capital expenditures from the period when development or redevelopment commences until the asset is substantially complete based on our current weighted average borrowing rates . costs incurred for maintaining and repairing our properties , which do not extend their useful lives , are expensed as incurred . we also capitalize interest on our investments in unconsolidated joint ventures . interest is capitalized based on the average capital invested in a venture during the period when development or predevelopment begins until planned principle operations commence at our current weighted average borrowing rates . 43 fair value in september 2006 , the financial accounting standards board , or fasb , issued guidance related to accounting for fair value measurements which defines fair value , establishes a framework for measuring fair value and expands disclosures about fair value measurements . fair value is defined as the exit price or price at which an asset ( in its highest and best use ) would be sold or liability assumed by an informed market participant in a transaction that is not distressed and is executed in the most advantageous market . while this guidance does not impose any new fair value requirements , it provides guidance on how to determine such measurements on reported balances which are required or permitted to be measured at fair value under existing accounting pronouncements and emphasizes that fair value is a market-based rather than an entity-specific measurement . therefore , our fair value measurement is determined based on the assumptions that market participants would use in pricing the asset or liability . as a basis for considering market participant assumptions in fair value measurements , this guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity ( observable inputs that are classified within levels 1 and 2 of the hierarchy ) and the reporting entity 's own assumptions about market participant assumptions based on the best information available in the circumstances ( unobservable inputs classified within level 3 of the hierarchy ) . level 1 inputs utilize quoted prices ( unadjusted ) in active markets for identical assets or liabilities . level 2 inputs are inputs other than quoted prices included in level 1 that are observable for the asset or liability , either directly or indirectly . level 2 inputs may include quoted prices for similar assets and liabilities in active markets , as well as inputs that are observable for the asset or liability ( other than quoted prices ) , such as interest rates , foreign exchange rates and yield curves that are observable at commonly quoted intervals . level 3 inputs are unobservable inputs for the asset or liability , that are typically based on an entity 's own assumptions , as there is little , if any , related market activity . in instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy , the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety . our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment , and considers factors specific to the asset or liability . currently , we use interest rate swaps to manage certain interest rate risk .
| further , our property noi may not be comparable to that of other real estate companies , as they may use different methodologies for calculating property noi . therefore , we believe net income , as defined by gaap , to be the most appropriate measure to evaluate our overall financial performance . for a reconciliation of our property net operating income to our reported income ( loss ) from continuing operations , see notes to consolidated financial statements , note 15segment information. the following table reflects our total assets , net of accumulated depreciation and amortization , by property segment ( in thousands ) . replace_table_token_16_th 50 ( 1 ) reflects reclassifications for properties classified as discontinued operations at december 31 , 2009 . ( 2 ) other non-segment assets primarily consists of corporate assets including investments in unconsolidated joint ventures , notes receivable , certain loan costs , including loan costs associated with our financing obligations , and deferred acquisition costs . comparison of the year ended december 31 , 2009 compared to the year ended december 31 , 2008 the following table illustrates the changes in rental revenues , rental expenses and real estate taxes , property net operating income , other income and other expenses for the year ended december 31 , 2009 compared to the year ended december 31 , 2008. our same store portfolio includes all operating properties that we owned for the entirety of both the current and prior year reporting periods for which the operations had been stabilized . non-same store operating properties include properties not meeting the same-store criteria and by definition exclude development and redevelopment properties . the same store portfolio for the periods presented totaled 362 operating properties and was comprised of 49.9 million square feet . a discussion of these changes follows the table ( in thousands ) . replace_table_token_17_th ( 1 ) for a discussion as to why we view property net operating income to be an appropriate supplemental performance measure see page 50 , above . for a reconciliation of our property net operating income to our reported income ( loss ) from continuing operations , see notes
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million , respectively , for the same periods in 2019. cash expenditures related to transaction costs associated with the tetraphase acquisition were zero and $ 0.9 million for the three and twelve months ended december 31 , 2020 , respectively . cash used for investing activities was $ 30.9 million and $ 0.7 million for the years ended december 31 , 2020 and 2019 , respectively . the increase in cash used for investing activities resulted primarily from the acquisition of tetraphase , net of cash , cash equivalents and restricted cash acquired , partially offset by proceeds from the sale of property and equipment . cash provided by financing activities was $ 1.1 million and $ 0.9 million for the year ended december 31 , 2020 and 2019 , respectively . the increase in cash provided by financing activities was primarily the result of net proceeds from issuance of common stock under employee stock plans . since january 2012 , when the company was effectively restarted , through december 31 , 2020 , our cash used in operating activities was $ 463.5 million . as of december 31 , 2020 , we had an accumulated deficit of $ 1,076.8 million and have financed our operations through public and private offerings of securities , a royalty financing , revenues from net product sales , interest income on invested cash balances and other income . 43 contractual obligations healthcare royalty partners royalty agreement in may 2018 , we closed a $ 125.0 million royalty financing agreement ( the “ royalty agreement ” ) with healthcare royalty partners ( “ hcr ” ) . under the terms of the royalty agreement , we received $ 125.0 million in exchange for tiered royalty payments on worldwide net sales of giapreza . hcr is entitled to receive quarterly royalties on worldwide net sales of giapreza beginning april 1 , 2018. quarterly payments to hcr under the royalty agreement start at a maximum royalty rate , with step-downs based on the achievement of annual net product sales thresholds . through december 31 , 2021 , the royalty rate will be a maximum of 10 % . starting january 1 , 2022 , the maximum royalty rate may increase by 4 % if an agreed-upon , cumulative net product sales threshold has not been met , and , starting january 1 , 2024 , the maximum royalty rate may increase by an additional 4 % if a different agreed-upon , cumulative net product sales threshold has not been met . the royalty agreement is subject to maximum aggregate royalty payments to hcr of $ 225.0 million . the royalty agreement expires upon the first to occur of january 1 , 2031 or when the maximum aggregate royalty payments have been made . the royalty agreement was entered into by our wholly owned subsidiary , la jolla pharma , llc , and hcr has no recourse under the royalty agreement against la jolla pharmaceutical company or any assets other than giapreza . in-license agreements george washington university license in december 2014 , the company entered into a patent license agreement with george washington university ( “ gw ” ) , which was subsequently amended and restated ( the “ gw license ” ) and assigned to la jolla pharma , llc . pursuant to the gw license , gw exclusively licensed to the company certain intellectual property rights relating to giapreza , including the exclusive rights to certain issued patents and patent applications covering giapreza . under the gw license , la jolla pharma , llc is obligated to use commercially reasonable efforts to develop , commercialize , market and sell giapreza . the company has paid a one-time license initiation fee , annual maintenance fees , an amendment fee , additional payments following the achievement of certain development and regulatory milestones and royalties . as a result of the european commission 's approval of giapreza in august 2019 , the company made a milestone payment to gw in the amount of $ 0.5 million in the first quarter of 2020. the company is obligated to pay a 6 % royalty on net sales of giapreza and 15 % on payments from sublicensees . the obligation to pay royalties under this agreement extends through the last-to-expire patent covering giapreza . harvard university license in august 2006 , tetraphase entered into a license agreement with harvard university ( “ harvard ” ) , which was subsequently amended and restated ( the “ harvard license ” ) . pursuant to the harvard license , harvard exclusively licensed to the company certain intellectual property rights relating to tetracycline-based products , including xerava , including the exclusive rights to certain issued patents and patent applications covering such products . under the harvard license , the company is obligated to use commercially reasonable efforts to develop , commercialize , market and sell tetracycline-based products , including xerava . for each product covered by the harvard license , the company is obligated to make certain payments for the following : ( i ) up to approximately $ 15.1 million upon the achievement of certain clinical development and regulatory milestones ; ( ii ) a 5 % royalty on direct u.s. net sales of xerava ; ( iii ) a single-digit tiered royalty on direct ex-u.s. net sales of xerava , starting at a minimum royalty rate of 4.5 % , with step-ups to a maximum royalty of 7.5 % based on the achievement of annual net product sales thresholds ; and ( iv ) 20 % on payments received from sublicensees . the obligation to pay royalties under this agreement extends through the last-to-expire patent covering tetracycline-based products , including xerava . 44 paratek pharmaceuticals , inc. license in march 2019 , tetraphase entered into a license agreement with paratek pharmaceuticals , inc. ( “ paratek ” ) , which was subsequently amended and restated ( the “ paratek license ” ) . story_separator_special_tag pursuant to the paratek license , paratek non-exclusively licensed to the company certain intellectual property rights relating to xerava , including non-exclusive rights to certain issued patents and patent applications covering xerava . the company is obligated pay paratek a 2.25 % royalty based on direct u.s. net sales of xerava . the company 's obligation to pay royalties with respect to the licensed product is retroactive to the date of the first commercial sale of xerava and shall continue until there are no longer any valid claims of the paratek patents , which will expire in october 2023. out-license agreements paion ag license on january 12 , 2021 , la jolla pharmaceutical company and certain of its wholly owned subsidiaries , including la jolla pharma , llc and tetraphase , entered into an exclusive licensing agreement with paion ag and its wholly owned subsidiary ( collectively , “ paion ” ) ( the “ paion license ” ) . pursuant to the paion license , la jolla granted paion an exclusive license to commercialize giapreza and xerava in the european economic area , the united kingdom and switzerland ( collectively , the “ paion territory ” ) . la jolla is entitled to receive an upfront cash payment of $ 22.5 million plus potential commercial milestone payments of up to $ 109.5 million and double-digit tiered royalty payments . in addition , royalties payable under the paion license will be subject to reduction on account of generic competition and after patent expiration in a jurisdiction . pursuant to the paion license , paion will be solely responsible for the future development and commercialization of giapreza and xerava in the paion territory . paion is required to use commercially reasonable efforts to commercialize giapreza and xerava in the paion territory . the company agreed to use commercially reasonable efforts to negotiate and enter into a separate commercial supply agreement to manufacture drug product for commercial supply . the company has not yet entered into a commercial supply agreement with paion , which would set the quantity and timing of commercial supply . the company has not received any payments from paion related to either royalties or commercial milestones . everest medicines limited license in february 2018 , tetraphase entered into a license agreement with everest medicines limited ( “ everest ” ) , which was subsequently amended and restated ( the “ everest license ” ) . pursuant to the everest license , tetraphase granted everest an exclusive license to develop and commercialize xerava for the treatment of ciai and other indications in mainland china , taiwan , hong kong , macau , south korea , singapore , the malaysian federation , the kingdom of thailand , the republic of indonesia , the socialist republic of vietnam and the republic of the philippines ( collectively , the “ everest territory ” ) . the company is eligible to receive up to an aggregate of $ 11.0 million in future clinical development and regulatory milestone payments and up to an aggregate of $ 20.0 million in sales milestone payments . the company is also entitled to receive tiered royalties from everest at percentages in the low double digits on sales , if any , in the everest territory of products containing eravacycline . royalties are payable with respect to each jurisdiction in the everest territory until the latest to occur of : ( 1 ) the last-to-expire of specified patent rights in such jurisdiction in the everest territory ; ( 2 ) expiration of marketing or regulatory exclusivity in such jurisdiction in the everest territory ; or ( 3 ) 10 years after the first commercial sale of a product in such jurisdiction in the everest territory . in addition , royalties payable under the everest license will be subject to reduction on account of generic competition and after patent expiration in a jurisdiction , with any such reductions capped at certain percentages of the amounts otherwise payable during the applicable royalty payment period . pursuant to the everest license , everest will be solely responsible for the development and commercialization of licensed products in the everest territory . the company agreed to use commercially reasonable efforts to manufacture drug product for clinical development , which will be paid by everest at the cost to manufacture , as well as manufacture drug product for commercial supply , which will be paid by everest at cost plus a reasonable margin . the company has not yet entered into a commercial supply agreement with everest , which would set the 45 quantity and timing of commercial supply . subsequent to july 28 , 2020 and through december 31 , 2020 , the company has not received any payments from everest related to either royalties or clinical development and regulatory milestones . off−balance sheet arrangements we have no off−balance sheet arrangements that have , or are reasonably likely to have , a current or future effect on our financial condition , changes in our financial condition , expenses , results of operations , liquidity , capital expenditures or capital resources . critical accounting estimates the discussion and analysis of our financial condition and results of operations are based on our audited consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . the preparation of these audited consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . we evaluate our estimates on an ongoing basis . we base our estimates on historical experience and on 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 materially from these estimates under different assumptions or conditions .
| for the year ended december 31 , 2020 , cost of product sales also included charges resulting from the reserve of short-dated giapreza inventory of $ 0.8 million . 40 selling , general and administrative expense selling , general and administrative expense consists of non-personnel and personnel expenses . non-personnel-related expense includes expense related to : ( i ) professional fees for legal , patent , consulting , accounting and audit services ; ( ii ) sales and marketing costs such as speaker programs and medical communications ; ( iii ) facilities and information technology ; and ( iv ) insurance . personnel-related expense includes expense related to salaries , benefits and share-based compensation for personnel engaged in sales , finance and administrative functions . we expect selling , general and administrative expense to decrease in the near term . the following table summarizes these expenses for each of the periods below ( in thousands ) : replace_table_token_3_th during the year ended december 31 , 2020 , total selling , general and administrative non-personnel expense decreased primarily as a result of decreases in sales and marketing-related expenses primarily due to reduced travel , speaker programs and other marketing activities ; partially offset by : ( i ) increases in professional fee-related expenses , including $ 0.9 million of one-time acquisition-related expenses ; and ( ii ) increases in facility-related and other expenses primarily as a result of an increase of overhead expenses allocated to selling , general and administrative activities . during the year ended december 31 , 2020 , total selling , general and administrative personnel expense decreased as a result of decreases in salaries , bonuses and benefits and share-based compensation expense as a result of reduced headcount in 2020 ; partially offset by increases of one-time charges in 2020 resulting from : ( i ) a reduction of headcount from a company-wide realignment in may 2020 ; and ( ii ) a reduction in headcount as a result of combining la jolla and tetraphase personnel in july 2020 . 41 research and development expense research and development expense
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we are a party to a cross-licensing agreement with cercacor , which was amended and restated effective january 1 , 2007 ( the cross-licensing agreement ) , which governs each party 's rights to certain intellectual property held by the two companies . see note 3 to our accompanying consolidated financial statements included in part iv , item 15 ( a ) of this annual report on form 10-k for additional information related to cercacor . 69 story_separator_special_tag development expenses for fiscal years 2020 and 2019 were as follows ( dollars in thousands ) : replace_table_token_8_th research and development expenses increased $ 25.4 million , or 27.2 % , to $ 118.7 million for the year ended january 2 , 2021 from $ 93.3 million for the year ended december 28 , 2019 , primarily due to higher compensation-related costs of approximately $ 19.8 million , higher professional fees of approximately $ 1.5 million , higher office equipment-related expenses of approximately $ 1.3 million and higher occupancy and facilities-related expense of approximately $ 1.0 million . non-operating income . non-operating income consists primarily of interest income , interest expense and foreign exchange losses . non-operating income for fiscal years 2020 and 2019 was as follows ( dollars in thousands ) : replace_table_token_9_th non-operating income was $ 7.9 million for the year ended january 2 , 2021 , as compared to $ 13.0 million of non-operating income for the year ended december 28 , 2019. this net decrease of approximately $ 5.0 million was primarily due to approximately $ 8.4 million in lower interest income , which was offset by approximately $ 3.3 million of net realized and unrealized gains on foreign currency denominated transactions during the year ended january 2 , 2021. provision for income taxes . our provision for income taxes for fiscal years 2020 and 2019 was as follows ( dollars in thousands ) : replace_table_token_10_th our provision for income taxes was $ 23.5 million for the year ended january 2 , 2021 compared to $ 38.0 million for the year ended december 28 , 2019. our effective tax rate was 8.9 % for the year ended january 2 , 2021 compared to 16.2 % for the year ended december 28 , 2019. this decrease in our effective tax rate for the year ended january 2 , 2021 resulted primarily from an increase in the amount of excess tax benefits realized from stock-based compensation pursuant to asu no . 2016-09 , compensation—stock compensation ( topic 718 ) : improvements to employee share-based payment accounting ( asu 2016-09 ) of approximately $ 14.5 million compared to the year ended december 28 , 2019 , an increase in r & d tax credits , and a decrease in nondeductible compensation related expenses . we have made no provision for u.s. income taxes or foreign withholding taxes on approximately $ 142.8 million in accumulated earnings from our foreign subsidiaries as we expect that such amounts will continue to be indefinitely reinvested in operations outside the u.s. our effective tax rate was lower than the u.s. federal statutory rate primarily due to a portion of our earnings being generated from countries other than the u.s. , where such earnings are generally subject to lower tax rates than the u.s. , excess tax benefits from u.s. stock-based compensation and research and development tax credits . while we expect our worldwide consolidated effective tax rate will continue to be lower than the u.s. federal statutory rate , our actual future effective income tax rate will depend on various factors , including the geographic composition of our pre-tax income , the amount of excess tax benefits realized from u.s. stock-based compensation , the amount of our research and development tax credits , the deductibility of executive compensation , changes in tax laws , changes in deferred tax asset valuation allowances and the recognition and derecognition of tax benefits associated with uncertain tax positions . 72 comparison of the year ended december 28 , 2019 to the year ended december 29 , 2018 for a discussion regarding our financial condition and results of operations for the year ended december 28 , 2019 as compared to the year ended december 29 , 2018 , please refer to the discussion under the heading “ comparison of the year ended december 28 , 2019 to the year ended december 29 , 2018 ” in item 7 of our annual report on form 10-k for the fiscal year ended december 28 , 2019 , filed with the securities and exchange commission on february 19 , 202 0. liquidity our principal sources of liquidity consist of our existing cash and cash equivalent balances , future funds expected to be generated from operations and available borrowing capacity under our credit facility . as of january 2 , 2021 , we had approximately $ 867.3 million in working capital , of which approximately $ 641.4 million was cash and cash equivalents . in addition to net working capital , we had approximately $ 148.3 million of available borrowing capacity ( net of outstanding letters of credit ) under our credit agreement ( credit facility ) as compared to approximately $ 823.8 million in working capital , approximately $ 567.7 million in cash and cash equivalents and $ 120.0 million in short-term investments at december 28 , 2019. in managing our day-to-day liquidity and capital structure , we generally do not rely on foreign earnings as a source of funds . as of january 2 , 2021 , we had cash totaling $ 71.7 million held outside of the u.s. , of which approximately $ 32.8 million was accessible without additional tax cost and approximately $ 38.9 million was accessible at an incremental estimated tax cost of up to $ 0.4 million . we currently have sufficient funds on-hand and cash held outside the u.s. that is available without additional tax cost to fund our global operations . story_separator_special_tag in the event funds that are treated as permanently reinvested are repatriated , we may be required to accrue and pay additional u.s. taxes to repatriate these funds . cash flows replace_table_token_11_th operating activities . cash provided by operating activities for the year ended january 2 , 2021 was $ 211.0 million and was primarily driven by net income including noncontrolling interests of $ 240.3 million . this was increased by non-cash activities including stock-base d compensation of $ 42.2 million , depreciation and amortization of $ 29.3 million and a deferred income tax benefit of $ 5.0 million . additional increases in operating cash resulted from increases in accrued compensation , deferred revenue and other contract-related liabilities , accrued liabilities and accounts payable of $ 15.5 million , $ 10.9 million , $ 9.4 million and $ 7.6 million , respectively , primarily due to the timing of payments . partially offsetting this was $ 94.4 million of purchases of inventory to both increase finished goods days on hand as well as secure raw material supply to ensure we are able to support higher customer demand during the covid-19 pandemic , and to support product launches . additional reductions to net income including noncontrolling interests were changes in operating assets , including an increase in other current assets of $ 30.0 million , primarily due to the timing of various tax payments and refunds , and an increase in lease receivables of $ 7.7 million . cash provided by operating activities for the year ended december 28 , 2019 was $ 221.6 million and was driven primarily by net income of $ 196.2 million . non-cash activity included stock-based compensation of $ 39.2 million , depreciation and amortization of $ 23.5 million and a deferred income tax benefit of $ 6.0 million . additional sources of cash related to changes in operating assets and liabilities included increases in accounts payable , deferred revenue and other contract-related liabilities , and accrued compensation of $ 9.9 million , $ 7.7 million and $ 5.3 million , respectively , primarily due to the timing of payments . these sources of cash were partially offset by other changes in operating assets and liabilities related to increases in accounts receivable and lease receivable of $ 23.6 million and $ 12.0 million , respectively , primarily due to the timing of cash receipts , an increase in inventory of $ 21.3 million , primarily due to the growth in our business and the timing of shipments , and an increase in other current assets of $ 8.5 million , primarily due to the timing of various tax payments and refunds . 73 investing activities . cash used in investing activities for the fiscal year ended january 2 , 2021 was $ 82.8 million , consisting primarily of $ 120.0 million for maturities of short-term investments , $ 112.71 million of business combinations , $ 72.5 million for purchases of property and equipment of which $ 16.4 million related to the purchase of a building , $ 6.8 million related to the acquisition of a strategic investment and $ 7.4 million for intangible assets related to capitalized patent and trademark costs . cash used in investing activities for the fiscal year ended december 28 , 2019 was $ 197.7 million , consisting primarily of $ 280.0 million for purchases of short-term investments , $ 68.4 million for purchases of property and equipment of which $ 35.6 million related to the purchase of two buildings , $ 5.2 million related to the acquisition of a strategic investment and $ 4.1 million for intangible assets related to capitalized patent and trademark costs , which were offset by $ 160.0 million of maturities of short-term investments . financing activities . cash used in financing activities for the fiscal year ended january 2 , 2021 was $ 54.3 million , resulting primarily from cash paid for common stock repurchase transactions that settled during the year of $ 110.5 million , which were partially offset by proceeds from the issuance of common stock ( upon exercise of options ) of $ 58.4 million . cash used in financing activities for the fiscal year ended december 28 , 2019 was $ 9.3 million , resulting primarily from cash paid for common stock repurchase transactions that settled during the year of $ 37.6 million , which were partially offset by proceeds from the issuance of common stock ( upon exercise of options ) of $ 28.3 million . capital resources and prospective capital requirements we currently maintain a credit agreement ( credit facility ) with jpmorgan chase bank , n.a. , as administrative agent and a lender , and bank of the west , as a lender ( collectively , the initial lenders ) . the credit facility provides for up to $ 150.0 million of unsecured borrowings , with an option , subject to certain conditions , for us to increase the aggregate borrowing capacity to up to $ 550.0 million in the future with the initial lenders and additional lenders , as required . the credit facility also provides for a sublimit of up to $ 25.0 million for the issuance of letters of credit and a sublimit of $ 75.0 million for borrowings in specified foreign currencies . all unpaid principal under the credit facility will become due and payable on december 17 , 2023. proceeds from the credit facility are expected to be used for general corporate , capital investment and working capital needs . for additional information regarding the credit facility , see note 15 to our accompanying consolidated financial statements included in part iv , item 15 ( a ) of this annual report on form 10-k. in july 2018 , our board approved the 2018 repurchase program , authorizing us to purchase up to 5.0 million additional shares of its common stock over a period of up to three years . the 2018 repurchase program became effective in september 2018 upon the expiration of our previous repurchase program .
| 70 product revenue generated through our direct and distribution sales channels increased $ 142.0 million , or 17.4 % , to $ 958.8 million for the year ended january 2 , 2021 , compared to $ 816.8 million for the year ended december 28 , 2019. revenues from our oem channel increased $ 65.4 million , or 54.7 % , to $ 185.0 million for the year ended january 2 , 2021 as compared to $ 119.6 million for the year ended december 28 , 2019. royalty and other revenue historically consisted primarily of royalties received from medtronic plc ( medtronic ) and revenue from non-recurring engineering services for a certain oem customer . for the year ended january 2 , 2021 , there was no royalty and other revenue compared to $ 1.4 million of royalty and other revenue reported for the year ended december 28 , 2019 , primarily due to a reduction in royalties from medtronic as a result of the expiration of its obligation to pay us sales-based royalties after october 6 , 2018. we received our final royalty payment from medtronic during the three months ended march 30 , 2019. we currently do not expect any significant royalty or other revenue in the future . gross profit . gross profit consists of total revenue less cost of goods sold . our gross profit for fiscal years 2020 and 2019 was as follows ( dollars in thousands ) : replace_table_token_6_th cost of goods sold includes labor , material , overhead and other similar costs related to the production , supply , distribution and support of our products and the rendering of non-recurring engineering ( nre ) services . cost of goods sold increased $ 92.0 million to $ 400.7 million for the year ended january 2 , 2021 , from $ 308.7 million for the year ended december 28 , 2019 , primarily due to higher material , manufacturing and distribution costs associated with the increase in product sales volumes , product mix , and increased manufacturing complexity associated with the impact of covid-19 . product gross margins decreased to 65.0 % for the year ended january 2 , 2021 from 67.1 % for the year ended december 28 , 2019 , primarily due to unfavorable product mix associated with the increase in board and monitor sales , increased manufacturing complexity associated with the impact of covid-19 , and
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other significant expenses include trade show expenses , sales samples , insurance , professional fees for our outside legal counsel and independent auditors , litigation expenses , patent application expenses and consulting expenses . story_separator_special_tag style= '' line-height:120 % ; padding-top:12px ; text-align : left ; text-indent:30px ; font-size:10pt ; '' > fiscal year ended december 31 , 2014 compared to december 31 , 2013 revenue , cost of sales and gross profit product revenue increased $ 100.0 million to $ 257.1 million for the twelve months ended december 31 , 2014 , compared to $ 157.1 million for the twelve months ended december 31 , 2013 based primarily on increased sales volume of our durable systems and disposable sensors , due to the continued growth of our installed base of customers using our g4 platinum system . revenue attributable to our disposable sensors and durable systems was approximately 70 % and 30 % , respectively , of total product revenue , for each of the twelve months ended december 31 , 2014 and 2013. sales of the seven plus represented less than 1 % of our revenues for the twelve months ended december 31 , 2014 and approximately 9 % of our revenues for the twelve months ended december 31 , 2013. product cost of sales increased $ 24.2 million to $ 82.3 million for the twelve months ended december 31 , 2014 compared to $ 58.1 million for the twelve months ended december 31 , 2013 primarily due to increased sales volume . the product gross profit of $ 174.8 million for the twelve months ended december 31 , 2014 increased $ 75.8 million compared to $ 99.0 million for the same period in 2013 , primarily due to increased revenue and the greater sales mix of our higher margin g4 platinum system compared to our seven plus system . revenue from products shipped to our drop-ship distributors ' customers was $ 31.8 million , or 12 % , of our total revenues for the twelve months ended december 31 , 2014 , compared to $ 23.4 million , or 15 % , of our total revenues for the twelve months ended december 31 , 2013. revenue from the shipment of products to stocking distributors was $ 143.2 million , or 55 % , of our total revenues for the twelve months ended december 31 , 2014 , compared to $ 70.5 million , or 44 % , of our total revenues for the twelve months ended december 31 , 2013. development grant and other revenues decreased $ 0.8 million to $ 2.1 million for the twelve months ended december 31 , 2014 , compared to $ 2.9 million for the twelve months ended december 31 , 2013. development and other cost of sales decreased $ 1.2 million to $ 0.6 million for the twelve months ended december 31 , 2014 , compared to $ 1.8 million for the twelve months ended december 31 , 2013. the decrease in development grant and other revenues during the twelve months ended december 31 , 2014 was primarily due to the termination of a research and development agreement with roche diagnostics operations , inc. in february 2013 and the completion of development activities under the collaboration agreement with edwards , partially offset by the $ 1.0 million milestone received in july 2014 from tandem related to their regulatory submission to the fda of a cgm- enabled insulin pump . the decrease in costs associated with development was primarily due to fewer development obligations during the period with respect to our collaboration and development arrangements . research and development . research and development expense increased $ 24.6 million to $ 69.4 million for the twelve months ended december 31 , 2014 , compared to $ 44.8 million for the twelve months ended december 31 , 2013. the increase was primarily due to additional non-cash share-based compensation costs and additional headcount and consulting costs to support development of future products . significant elements of the increase in research and development costs included $ 8.5 million in additional share-based compensation , $ 8.2 million in additional consulting costs , and $ 6.2 million in additional salaries , bonus and payroll related costs , partially offset by $ 2.8 million in lower non-cash charges related to fair value adjustments of the sweetspot acquisition contingent consideration resulting from updates to assumed probability of achievement of milestones and adjustments to the discount periods . selling , general and administrative . selling , general and administrative expense increased $ 44.2 million to $ 128.4 million for the twelve months ended december 31 , 2014 , compared to $ 84.2 million for the twelve months ended december 31 , 2013. the increase was primarily due to higher headcount related selling costs and information technology infrastructure costs to support revenue growth and the continued commercialization of our products . significant elements of the increase in selling , general , and administrative expenses included $ 15.0 million in additional share-based compensation costs , $ 10.7 million in additional salaries , bonus , and payroll related costs , $ 4.6 million in additional sales commissions , and $ 1.5 million in additional temporary labor costs . 49 interest expense . interest expense was $ 0.8 million and $ 0.9 million for the twelve months ended december 31 , 2014 and 2013 , respectively , and is related to our loan agreement . income tax expense/benefit . income tax expense was $ 0.1 million for the twelve months ended december 31 , 2014 , compared to a benefit of $ 12,000 for the twelve months ended december 31 , 2013. the increase in income tax expense was due to increases in state minimum taxes and foreign income taxes related to our subsidiary in sweden . liquidity and capital resources we have incurred losses since our inception in may 1999. as of december 31 , 2015 , we had an accumulated deficit of $ 555.4 million and had working capital of $ 164.4 million . story_separator_special_tag our cash , cash equivalents and short-term marketable securities totaled $ 115.2 million . to date , we have funded our operations primarily through offerings of equity securities and debt , and the sales of our products . in july 2013 , we were awarded the helmsley grant from the helmsley trust to accelerate the development of our gen 6 sensor . the funding was milestone based and was contingent upon our meeting specific development milestones related to the gen 6 sensor over a period of several years . all such milestones have now been met . upon the successful commercialization of the gen 6 sensor , we are obligated to either ( 1 ) make royalty payments of up to $ 2.0 million per year for four years , or ( 2 ) at our sole election , make a one-time $ 6.0 million royalty payment . as of december 31 , 2015 , we have received the full $ 4.0 million of the helmsley grant funds . cash flow summary replace_table_token_4_th net cash provided by operating activities . the increase in cash provided by operations for the twelve months ended december 31 , 2015 , compared to the twelve months ended december 31 , 2014 was primarily due to $ 72.2 million in higher non-cash charges primarily comprised of share-based compensation and the issuance of shares associated with the verily collaboration agreement , partially offset by $ 35.2 million in higher net loss , and an additional $ 11.6 million cash outflow from changes in operating assets and liabilities . the main drivers in the change in operating assets and liabilities included increases in accounts receivable , inventory , and accounts payable and accrued liabilities , all as a result of our growth . the increase in cash provided by operations for the twelve months ended december 31 , 2014 , compared to the twelve months ended december 31 , 2013 was primarily due to $ 23.8 million in higher non-cash charges primarily comprised of share-based compensation and $ 7.4 million in lower net loss , partially offset by an additional $ 10.0 million cash outflow from changes in operating assets and liabilities . the main drivers in the change in operating assets and liabilities included increases in accounts receivable , inventory , and accounts payable and accrued liabilities , all as a result of our growth . net cash used in/provided by investing activities . the change in cash used in investing activities for the twelve months ended december 31 , 2015 , compared to the twelve months ended december 31 , 2014 was primarily due to a $ 31.4 million increase in cash used to purchase short-term marketable securities and by the use of $ 33.3 million to purchase equipment to support manufacturing improvements and information technology infrastructure for the twelve months ended december 31 , 2015 , compared to $ 16.2 million for the twelve months ended december 31 , 2014 , partially offset by a $ 14.3 million increase in proceeds from the maturity of short-term marketable securities . the change in cash used in investing activities for the twelve months ended december 31 , 2014 , compared to the twelve months ended december 31 , 2013 was primarily due to a $ 31.9 million decrease in proceeds from the maturity of short-term marketable securities and by the use of $ 16.2 million to purchase equipment to support manufacturing improvements and information technology infrastructure for the twelve months ended december 31 , 2014 , compared to $ 7.9 million for the twelve months ended december 31 , 2013 , partially offset by a $ 2.5 million decrease in cash used to purchase short-term marketable securities . for the twelve months ended december 31 , 2015 , 2014 and 2013 , we invested $ 33.3 million , $ 16.2 million and $ 7.9 million , respectively , to purchase equipment to support manufacturing improvements and information technology infrastructure . 50 net cash provided by financing activities . the change in cash provided by financing activities for the twelve months ended december 31 , 2015 , compared to the twelve months ended december 31 , 2014 was due to a $ 4.9 million decrease in proceeds from the issuance of common stock pursuant to the exercise of then-outstanding stock options . the change in cash provided by financing activities for the twelve months ended december 31 , 2014 , compared to the twelve months ended december 31 , 2013 was due to a $ 12.0 million increase in proceeds from the issuance of common stock pursuant to the exercise of then-outstanding stock options , partially offset by the repayment of long-term debt of $ 2.2 million for the twelve months ended december 31 , 2014. operating capital and capital expenditure requirements we anticipate that we will continue to incur net losses as we incur expenses and expand the commercialization of our approved products , develop additional continuous glucose monitoring products , and expand our marketing , manufacturing and corporate infrastructure . we believe that our cash , cash equivalents , short-term marketable securities balances , and projected cash contributions from our commercial operations will be sufficient to meet our anticipated cash requirements with respect to the continued scale-up of our commercialization activities , research and development activities , including clinical trials , the expansion of our marketing , manufacturing and corporate infrastructure , and to meet our other anticipated cash needs through at least december 31 , 2016 . if our available cash , cash equivalents and short-term marketable securities are insufficient to satisfy our liquidity requirements , or if we develop additional products or new markets for our existing products , we may seek to sell additional equity or debt securities or obtain an additional credit facility . the sale of additional equity and debt securities may result in additional dilution to our stockholders .
| revenue from products shipped to our drop-ship distributors ' customers was $ 39.0 million , or 10 % , of our total revenues for the twelve months ended december 31 , 2015 compared to $ 31.8 million , or 12 % , of our total revenues for the twelve months ended december 31 , 2014 . revenue from products shipped to stocking distributors was $ 244.0 million , or 61 % , of our total revenues for the twelve months ended december 31 , 2015 compared to $ 143.2 million , or 55 % , of our total revenues for the twelve months ended december 31 , 2014 . development grant and other revenues decreased $ 0.8 million to $ 1.3 million for the twelve months ended december 31 , 2015 compared to $ 2.1 million for the twelve months ended december 31 , 2014 . we did not incur any development and other cost of sales during the twelve months ended december 31 , 2015 . development and other cost of sales was $ 0.6 million during the twelve months ended december 31 , 2014 . the decrease in development grant and other revenues during the twelve months ended december 31 , 2015 was primarily due to the completion of development activities with edwards . the decrease in costs associated with development was primarily due to fewer development obligations during the period with respect to our collaboration and development arrangements . research and development . research and development expense increased $ 68.1 million to $ 137.5 million for the twelve months ended december 31 , 2015 , compared to $ 69.4 million for the twelve months ended december 31 , 2014 . the increase was primarily due to the upfront fee related to verily collaboration agreement costs , additional headcount and costs to support development of future products . significant elements of the increase in research and development costs included $ 36.5 million in non-cash expense associated with the issuance of 404,591 shares in august 2015 related to the verily
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continued successful implementation of our raw material strategy , including key investments in dri production , coupled with the scrap brokerage and processing services performed by our team at djj , give us greater control over our metallic inputs and thus also helps us to mitigate this risk . during periods of stronger or improving steel market conditions , we are more likely to be able to pass through to our customers , relatively quickly , the increased costs of ferrous scrap and scrap substitutes , protecting our gross margins from significant erosion . during weaker or rapidly deteriorating steel market conditions , weak steel demand , low industry utilization rates and the impact of imports create an even more intensified competitive environment and increased pricing pressure . all of those factors , to some degree , impact pricing , which increases the likelihood that nucor will experience lower gross margins . although the majority of our steel sales are to spot market customers in north america who place their orders each month based on their business needs and our pricing competitiveness compared to both domestic and global producers and trading companies , we also sell contract tons , most notably in our sheet operations . approximately 75 % of our sheet sales were to contract customers in 2019 and 2018 , with the balance in the spot market at the prevailing prices at the time of sale . steel contract sales outside of our sheet operations are not significant . the amount of tons sold to contract customers depends on the overall market conditions at the time , how the end-use customers see the market moving forward and the strategy that nucor management believes is appropriate to the upcoming period . nucor management considerations include maintaining an appropriate balance of spot and contract tons based on market projections and appropriately supporting our diversified customer base . the percentage of tons that is placed under contract also depends on the overall market dynamics and customer negotiations . in years of strengthening demand , we typically see an increase in the percentage of sheet sales sold under contract as our customers have an expectation that transaction prices will rapidly rise , and available capacity will quickly be sold out . to mitigate this risk , customers prefer to enter into contracts in order to obtain committed volumes of supply from the mills . our contracts include a method of adjusting prices on a periodic basis to reflect changes in the market pricing for steel and or scrap . market indices for steel generally trend with scrap pricing changes but during periods of steel market weakness the more intensified competitive steel market environment can cause the sales price indices to decrease resulting in reduced gross margins and profitability . furthermore , since the selling price adjustments are not immediate , there will always be a timing difference between changes in the prices we pay for raw materials and the adjustments we make to our contract selling prices . generally , in periods of increasing scrap prices , we experience a short-term margin contraction on contract tons . conversely , in periods of decreasing scrap prices , we typically experience a short-term margin expansion . contract sales typically have terms ranging from six to 12 months . our strengths and opportunities we are north america 's most diversified steel producer . as a result , our short-term performance is not tied to any one market . we have numerous , large , strategic capital projects at various stages of progress that will help us further diversify our product offerings and expand the markets that we serve . we expect these investments to grow our long-term earnings power by increasing our channels to market , expanding our product portfolio into higher value-added offerings that are less vulnerable to imports , improving our cost structure and further building upon our market leadership positions . nucor 's raw material supply chain is another important strength . our investment in dri production facilities and scrap brokerage and processing businesses provides nucor with significant flexibility in optimizing our raw materials costs . additionally , having a significant portion of our raw materials supply under our control reduces risk associated with the global sourcing of raw materials , particularly since a considerable portion of scrap substitutes comes from regions of the world that historically have experienced greater political turmoil . 25 our highly variable , low-cost structure , combined with our financial strength and liquidity , has allowed us to successfully navigate cyclical , severely depressed steel industry market conditions in the past . in such times , our incentive-based pay system reduces our payroll costs , both hourly and salary , which helps to offset lower selling prices . our pay-for-performance system that is closely tied to our levels of production also allows us to keep our highly experienced workforce intact and to continue operating our facilities when some of our competitors with greater fixed costs are forced to shut down some of their facilities . because we use eafs to produce our steel , we can easily vary our production levels to match short-term changes in demand , unlike our blast furnace-based integrated competitors . we believe these strengths also provide us further opportunities to gain market share during such times . evaluating our operating performance we report our results of operations in three segments : steel mills , steel products and raw materials . most of the steel we produce in our mills is sold to outside customers ( 80 % in both 2019 and 2018 ) , but a significant percentage is used internally by many of the facilities in our steel products segment ( 20 % in both 2019 and 2018 ) . we begin measuring our performance by comparing our net sales , both in total and by individual segment , during a reporting period with our net sales in the corresponding period in the prior year . story_separator_special_tag in doing so , we focus on changes in and the reasons for such changes in the two key variables that have the greatest influence on our net sales : average sales price per ton during the period and total tons shipped to outside customers . we also focus on both dollar and percentage changes in gross margins , which are key drivers of our profitability , and the reasons for such changes . there are many factors from period to period that can affect our gross margins . one consistent area of focus for us is changes in “ metal margins , ” which is the difference between the selling price of steel and the cost of scrap and scrap substitutes . increases or decreases in the cost of scrap and scrap substitutes that are not offset by changes in the selling price of steel can quickly compress or expand our margins and reduce or increase our profitability . changes in marketing , administrative and other expenses , particularly profit sharing and other variable incentive-based payment costs , can have a material effect on our results of operations for a reporting period as well . these costs vary significantly from period to period as they are based upon changes in our pre-tax earnings and other profitability metrics that are a reflection of our pay-for-performance system that is closely tied to our levels of production . evaluating our financial condition we evaluate our financial condition each reporting period by focusing primarily on the amounts of and reasons for changes in cash provided by operating activities , our current ratio , the turnover rate of our accounts receivable and inventories , the amounts of and reasons for changes in cash used in or provided by investing activities and financing activities and our cash and cash equivalents and short-term investments position at period end . our conservative financial practices have served us well in the past and are serving us well today . as a result , our financial position remains strong . comparison of 2019 to 2018 results of operations nucor reported consolidated net earnings of $ 4.14 per diluted share in 2019. though this year 's results decreased from record consolidated net earnings of $ 7.42 per diluted share reported in 2018 , we view this as solid performance given the more challenging environment when compared to the prior year . nucor 's record-setting profitability in 2018 was fueled by a strong domestic economy driving domestic steel demand , the adoption of tax reform and the ongoing efforts to reform federal regulations . also benefitting 2018 were reductions in unfairly traded imports entering our country as a result of years of successful trade cases and broad-based tariffs imposed under section 232 , which were announced in 26 march 2018. these conditions and our execution of strong operating performance continued for the remainder of 2018 , making it the most profitable year in nucor 's history . we believe that as story_separator_special_tag normal ; font-family : 'times new roman ' ; font-size:10pt ; '' > the primary driver for the decrease in gross margin in 2019 as compared to 2018 was decreased metal margins in the steel mills segment . metal margin is the difference between the selling price of steel and the cost of scrap and scrap substitutes . the average scrap and scrap substitute cost per gross ton used decreased 13 % from $ 361 in 2018 to $ 314 in 2019. despite the decrease in average scrap and scrap substitute cost per gross ton used , metal margin in the steel mills segment decreased due to lower average selling prices and the decrease in tons sold to external customers in 2019 as compared to 2018. scrap prices are driven by the global supply and demand for scrap and other iron-based raw materials used to make steel . scrap prices decreased during most of 2019. as we enter 2020 , we see a more stable price environment as scrap prices have increased , a trend that began in late 2019. pre-operating and start-up costs of new facilities increased to approximately $ 103 million in 2019 as compared to $ 36 million in 2018. the increase in pre-operating and start-up costs was due to increased costs at the bar mills being built in missouri and florida , increased costs for the cold mill expansion at our sheet mill in arkansas and increased costs related to the expansion at our sheet mill in kentucky . nucor defines pre-operating and start-up costs , all of which are expensed , as the losses attributable to facilities or major projects that are either under construction or in the early stages of operation . once these facilities or projects have attained a utilization rate that is consistent with our similar operating facilities , they are no longer considered by nucor to be in start-up . gross margins in the steel products segment for 2019 increased as compared to 2018 primarily due to the increased profitability of our deck , rebar fabrication , building system and joist operations , partially offset by the decreased profitability of our tubular products , grating and cold finish operations . 28 g ross margins in the raw materials segment for 2019 decreased as compared to 2018 p rimarily due to the decreased profitability of our dri facilities , which experienced severe margin compression caused by lower average selling prices and increased iron ore costs in 2019. in 2019 , our louisiana dri facility experienced a planned 70-day outage that began in early september and was completed in mid-november that replaced the convection section of the facility 's process gas heater and relined the reactor 's refractory . gross margins related to djj 's scrap processing operations decreased significantly in 2019 as compared to 2018 due to margin compression and decreased volumes . gross margins for djj 's brokerage operations also decreased in 2019. included in 2018 gross margins of the raw materials segment was a $ 27.6 million benefit related to insurance recoveries .
| our dri facility in louisiana also experienced a planned 70-day outage in 2019 that began in early september and was completed in mid-november . the profitability of djj 's brokerage and scrap processing operations also decreased in 2019 as compared to 2018. the following discussion will provide greater quantitative and qualitative analysis of nucor 's performance in 2019 as compared to 2018. net sales – net sales to external customers by segment for 2019 and 2018 were as follows ( in thousands ) : replace_table_token_3_th net sales for 2019 decreased 10 % from the prior year . average sales price per ton decreased 5 % from $ 899 in 2018 to $ 851 in 2019. total tons shipped to outside customers decreased 5 % from 27,899,000 tons in 2018 to 26,532,000 in 2019. in the steel mills segment , sales tons were as follows ( in thousands ) : replace_table_token_4_th net sales for the steel mills segment decreased 14 % in 2019 from the prior year due to an 8 % decrease in the average sales price per ton , from $ 817 in 2018 to $ 748 in 2019 , as well as a 7 % decrease in total tons shipped to outside customers . in 2019 , average selling prices and volumes decreased across all product groups within the steel mills segment . 27 outside sales tonnage for the steel products segment was as follows ( in thousands ) : replace_table_token_5_th net sales for the steel products segment increased 3 % in 2019 from the prior year due to a 4 % increase in the average sales price per ton , from $ 1,402 in 2018 to $ 1,452 in 2019 , which was partially offset by a 1 % decrease in volume . in 2019 , average selling prices increased across all businesses within the steel products segment , except for our tubular products businesses . the largest decrease in volume for 2019 as compared to 2018 was in our cold finished products business . net sales for the raw materials segment decreased
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we were incorporated in nevada in 2001 , and we have a wholly owned subsidiary in israel called pluristem ltd. and a wholly owned subsidiary in germany called pluristem gmbh . results of operations – year ended june 30 , 2020 compared to year ended june 30 , 2019. revenues revenues for the year ended june 30 , 2020 were $ 23,000 and revenues for the year ended june 30 , 2019 were $ 54,000. all revenues in the years ended june 30 , 2020 and june 30 , 2019 were related to the sale of our plx cells for research use . cost of revenues cost of revenues for the year ended june 30 , 2019 were $ 2,000 compared to no cost of revenues for the year ended june 30 , 2020. all cost of revenues are related to the royalties we are obligated to pay to the iia . research and development , net research and development net costs ( costs less participation and grants by the iia , horizon 2020 and other parties ) for the year ended june 30 , 2020 decreased by 18 % to $ 21,577,000 from $ 26,427,000 for the year ended june 30 , 2019. the decrease is mainly attributed to ( 1 ) our increasingly efficient production activities that resulted in a decrease in materials consumption , ( 2 ) a decrease in payroll expenses related to a decrease in the average number of employees and temporary salary deductions during april and may 2020 ( as part of our expense reduction strategy due to covid-19 ) , ( 3 ) a decrease in stock-based compensation expenses related to the amount of restricted stock units , or rsus , granted and their vesting schedules , ( 4 ) a decrease in expenses related to clinical site initiation and ( 5 ) a decrease in rent expenses due to the implementation of accounting standards update no . 2016-02 , “ leases , ” which resulted in a reduction of $ 160,000 ( for further information please refer to note 7 in the accompanying financial statements to this annual report ) . the decrease was partially offset by lower participation by the european union with respect to the horizon 2020 grants , which was primarily utilized in the first year of the projects , and a lower participation by the iia due to a decrease in the grant obtained in calendar year 2020 compared to calendar year 2019 and to calendar year 2018 . 38 story_separator_special_tag pluristem gmbh , entered into the eib agreement with the eib , pursuant to which we can obtain a loan in the amount of euro 50 million , or the loan , payable in tranches , subject to the achievement of certain clinical , regulatory and scale up milestones . each of the company and pluristem ltd. are guarantors under the finance contract . the loan is not secured and will be disbursed in three tranches consisting of one tranche of euro 20 million , or the first tranche , a second tranche of euro 18 million , or the second tranche , and a third tranche of euro12 million , or the third tranche , each as may be requested by us , subject to the achievement of clinical , regulatory and scale up milestones . the tranches will be treated independently , each with its own interest rate and maturity period . the fixed interest rate is 0 % per annum for the first tranche and 1.00 % for each of the second tranche and third tranche . the deferred interest rate is 4 % per annum for the first tranche , 3 % for the second tranche and 2 % for the third tranche . we are required to repay the first tranche and the second tranche , with all other amounts owed thereunder , in a single installment on the maturity date of that tranche , following the five-year anniversaries from each of the first tranche and the second tranche disbursements . we are required to repay the third tranche , with all other amounts owed thereunder , in two equal installments , with the first such payment following the fourth anniversary of the disbursement date and the last repayment on a date not later than five years from the disbursement date . to date , we have not yet received a disbursement pursuant to the eib agreement . during the year ended june 30 , 2020 , we received cash of approximately $ 23,000 from third parties from the sale of our plx cells for research use . our cash and cash equivalents and restricted cash as of june 30 , 2019 amounted to $ 5,186,000. this is a decrease of $ 4,701,000 from the $ 9,887,000 reported as of june 30 , 2018. cash balances decreased in the year ended june 30 , 2019 for the reasons presented below . 40 operating activities used cash of $ 29,453,000 in the year ended june 30 , 2019. cash used by operating activities in the year ended june 30 , 2019 primarily consisted of payments to subcontractors , suppliers , and professional services providers primarily related to our ongoing phase iii clinical trials and payments of salaries to our employees , offset by participation of the iia , horizon 2020 and other grants . story_separator_special_tag investing activities provided cash of $ 1,170,000 in the year ended june 30 , 2019. the investing activities in the year ended june 30 , 2019 consisted primarily of cash provided from repayment of short term deposits of $ 1,415,000 , offset by payments of $ 239,000 related to investments in property and equipment and investment in restricted bank deposits of $ 6,000. financing activities generated cash in the amount of $ 23,582,000 during the year ended june 30 , 2019. the cash generated in the year ended june 30 , 2019 from financing activities is related to net proceeds , after deducting underwriting commissions and discounts , and other offering expenses , of $ 19,464,000 from issuing shares of our common stock in the public offering and registered direct offering ( as defined below ) , aggregate net proceeds of $ 4,003,000 from issuing shares of our common stock under our ( 1 ) at market sales agreement , or the atm agreement , with fbr capital markets & co. , mlv & co. llc and oppenheimer & co. inc. , and ( 2 ) the sales agreement , proceeds of $ 107,000 related to a grant received from the israel-united states binational industrial research and development foundation and net proceeds of $ 8,000 from the exercise of options . in july 2017 , we entered into the atm agreement with fbr capital markets & co. , mlv & co. llc and oppenheimer & co. inc. , each an agent , which provided that , upon the terms and subject to the conditions and limitations set forth in the atm agreement , we could elect , from time to time , to issue and sell shares of common stock having an aggregate offering price of up to $ 80,000,000 through any of the agents . we were not obligated to make any sales of common stock under the atm agreement . from july 2017 through february 4 , 2019 , we sold an aggregate of 530,541 shares of common stock pursuant to the atm agreement at an average price of $ 13.70 per share . on february 4 , 2019 , we notified the agents of the termination of the atm agreement . from february 6 , 2019 through june 30 , 2019 , we sold an aggregate of 236,800 shares of common stock pursuant to the sales agreement at an average price of $ 9.70 per share . on april 8 , 2019 , we sold , pursuant to an underwriting agreement relating to the 2019 public offering , an aggregate of 2,857,143 shares of common stock and warrants to purchase up to 2,857,143 shares of common stock , inclusive of the underwriter 's over-allotment option which was exercised in full , for aggregate gross proceeds of $ 20,000,000. the warrants issued in the public offering are exercisable for a period of five years from issuance and have an exercise price of $ 7.00 per share . in addition , on april 8 , 2019 , we sold , pursuant to a subscription agreement with a certain investor in a registered direct offering , or the registered direct offering , 142,857 shares of common stock , for aggregate gross proceeds of $ 1,000,000. the net proceeds from the public offering and the registered direct offering , after deducting underwriting commissions and discounts , and other offering expenses , were $ 19,464,000. during the year ended june 30 , 2019 , we received cash of approximately $ 54,000 from third parties from the sale of our plx cells for research use . during the years ended june 30 , 2020 and 2019 , we received total cash grants of approximately $ 1,227,000 and $ 1,374,000 , respectively , from the european union research and development consortiums relating to the horizon 2020 program . non-dilutive grants the iia has supported our activity during the past 14 years . our last program was approved by the iia in 2019 and relates to a grant of approximately $ 500,000. the grant was used to cover research and development expenses for the period january 1 , 2019 to december 31 , 2019 . 41 according to the iia grant terms , we are required to pay royalties at a rate of 3 % on sales of products and services derived from technology developed using this and other iia grants until 100 % of the dollar-linked grants amount plus interest are repaid . in the absence of such sales , no payment is required . during the year ended june 30 , 2020 , no royalties were paid to the iia . the iia may impose certain conditions on any arrangement under which the iia permits the company to transfer technology or development out of israel or outsource manufacturing out of israel . while the grant is given to the company over a certain period of time ( usually a year ) , the requirements and restrictions under the israeli law for the encouragement of industrial research and development , 1984 continue and do not have a set expiration period , except for the royalties , which requirement to pay them expires after payment in full . in may 2020 , we were selected as a member of the crispr-il consortium , a group funded by the iia . crispr-il brings together the leading experts in life science and computer science from academia , medicine , and industry , to develop ai based end-to-end genome-editing solutions . crispr-il is funded by the iia with a total budget of approximately $ 10,000,000 of which , an amount of approximately $ 480,000 is a direct grant allocated to us , for a period of 18 months , with a potential for extension of an additional 18 months and additional budget from the iia .
| per share , as compared to $ 2.90 per share for the year ended june 30 , 2019. the net loss per share decreased mainly as a result of an increase in our weighted average number of shares due to the issuance of additional shares issued during fiscal year 2020 , and by a decrease in the net loss . liquidity and capital resources as of june 30 , 2020 , our total current assets were $ 48,461,000 and our total current liabilities were $ 7,987,000. on june 30 , 2020 , we had a working capital surplus of $ 40,474,000 and an accumulated deficit of $ 280,156,000. as of june 30 , 2019 , our total current assets were $ 26,371,000 and our total current liabilities were $ 8,158,000. on june 30 , 2019 , we had a working capital surplus of $ 18,213,000 and an accumulated deficit of $ 251,004,000. our cash and cash equivalents and restricted cash as of june 30 , 2020 amounted to $ 9,229,000. this is a decrease of $ 4,043,000 from the $ 5,186,000 reported as of june 30 , 2019. cash balances decreased in the year ended june 30 , 2020 for the reasons presented below . operating activities used cash of $ 26,369,000 in the year ended june 30 , 2020. cash used by operating activities in the year ended june 30 , 2020 primarily consisted of payments to subcontractors , suppliers , and professional services providers primarily related to our ongoing clinical trials and payments of salaries to our employees , offset by participation of the iia , horizon 2020 and other grants . investing activities used cash of $ 30,458,000 in the year ended june 30 , 2020. the investing activities in the year ended june 30 , 2020 consisted primarily of cash used for investment in short-term deposits of $ 17,949,000 , investment in long-term deposits of $ 12,239,000 and payments of $ 270,000 related to
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on october 1 , 2018 , the company acquired the bates companies , headquartered in rockford , illinois . the acquisition enhanced the wealth management services of the company by adding approximately $ 704 million of assets under management as of october 1 , 2018. gaap to non-gaap reconciliations the following table presents certain non-gaap financial measures related to the “ tce/ta ratio ” , “ adjusted net income ” , “ adjusted net income attributable to qcr holdings , inc. common stockholders ” , “ adjusted eps ” , “ adjusted roaa ” , “ nim ( tey ) ” , “ adjusted nim ” and “ efficiency ratio ” . in compliance with applicable rules of the sec , all non-gaap measures are reconciled to the most directly comparable gaap measure , as follows : · tce/ta ratio ( non-gaap ) is reconciled to stockholders ' equity and total assets ; · adjusted net income , adjusted net income attributable to qcr holdings , inc. common stockholders , adjusted eps and adjusted roaa ( all non-gaap measures ) are reconciled to net income ; · nim ( tey ) ( non-gaap ) and adjusted nim ( non-gaap ) are reconciled to nim ; and · efficiency ratio ( non-gaap ) is reconciled to noninterest expense , net interest income and noninterest income . the tce/ta non-gaap ratio has been a focus for investors and management believes that this ratio may assist investors in analyzing the company 's capital position without regard to the effects of intangible assets . the table below also includes the following “ adjusted ” non-gaap measurements of financial performance : adjusted net income , adjusted net income attributable to qcr holdings , inc. common stockholders , adjusted earnings per share and adjusted return on average assets . the company 's management believes that these measures are important to investors as they exclude non-recurring income and expense items ; therefore , they provide a better comparison for analysis and may provide a better indicator of future results . nim ( tey ) is a financial measure that the company 's management utilizes to take into account the tax benefit associated with certain loans and securities . it is standard industry practice to measure net interest margin using tax-equivalent measures . in addition , the company calculates nim without the impact of acquisition accounting net accretion ( adjusted nim ) , as accretion amounts can fluctuate a great deal , making comparisons difficult . the efficiency ratio is a ratio that management utilizes to compare the company to peers . it is standard in the banking industry and widely utilized by investors . non-gaap financial measures have inherent limitations , are not required to be uniformly applied , and are not audited . although these non-gaap financial measures are frequently used by investors to evaluate a company , they have 32 limitations as analytical tools and should not be considered in isolation , or as a substitute for analyses of results as reported under gaap . replace_table_token_16_th replace_table_token_17_th * nonrecurring items ( after-tax ) are calculated using an estimated effective tax rate of 35 % for each year including and prior to december 31 , 2017 and 21 % for each period after december 31 , 2017 . 33 net interest income and margin ( tax equivalent basis ) ( non-gaap ) as part of the tax act , the company 's federal income tax rate was reduced from 35 % down to 21 % effective january 1 , 2018. in order to compare periods before and after the effective date of the tax act , it 's important to note the difference in the federal income tax rate and the impact on the company 's tax exempt earning assets ( loans and securities ) and the related tax equivalent yield reporting . net interest income , on a tax equivalent basis , increased 19 % to $ 149.0 million for the year ended december 31 , 2018 , compared to the prior year . excluding the tax equivalent adjustments , net interest income increased 23 % for the year ended december 31 , 2018 compared to the prior year . net interest income improved due to several factors : · the merger with springfield bancshares in the third quarter of 2018 and the acquisition of guaranty bank in the fourth quarter of 2017 ; · organic loan growth has been strong over the past 12 months pushing loans/leases up to 75.4 % of total assets ; and · the company 's continued strategy to redeploy funds from cash and lower yielding taxable securities portfolio into higher yielding loans and municipal bonds , especially with the company 's most recent acquisitions of sfc bank and guaranty bank . a comparison of yields , spread and margin on a tax equivalent and gaap basis is as follows : replace_table_token_18_th acquisition accounting net accretion can fluctuate mostly depending on the payoff activity of the acquired loans . in evaluating net interest income and nim , it 's important to understand the impact of acquisition accounting net accretion when comparing periods . the above table reports nim with and without the acquisition accounting net accretion to allow for more appropriate comparisons . a comparison of acquisition accounting net accretion included in nim is as follows : replace_table_token_19_th excluding acquisition accounting net accretion , nim was down four basis points on a linked-year basis . this margin compression was primarily due to the following : · increases in the cost of funds due to both mix and rate as the company continues to grow larger commercial and public deposit relationships which tend to have higher interest rate sensitivity ; · with the flat yield curve and continued competition in our markets , loan pricing continues to be pressured . story_separator_special_tag the company has had success in widening spreads as core loan yields increased over the year ; however , the pace and magnitude of the widening has been offset by the increasing cost of funds ; and · the addition of sfc bank and its nim was expansive to the company 's nim , though only for half of 2018 . 34 the company 's management closely monitors and manages nim . from a profitability standpoint , an important challenge for the company 's subsidiary banks and leasing company is focusing on quality growth in conjunction with the improvement of their nims . management continually addresses this issue with pricing and other balance sheet management strategies which included better loan pricing , reducing reliance on very rate-sensitive funding , closely managing deposit rate increases and finding additional ways to manage cost of funds through derivatives . the company 's average balances , interest income/expense , and rates earned/paid on major balance sheet categories are presented in the following table : replace_table_token_20_th ( 1 ) interest earned and yields on nontaxable investment securities and loans are determined on a tax equivalent basis using a 35 % tax rate in each years including and prior to december 31 , 2017 and using a 21 % tax rate for each year after december 31 , 2017 . ( 2 ) loan/lease fees are not material and are included in interest income from loans/leases receivable in accordance with accounting and regulatory guidance . ( 3 ) non-accrual loans/leases are included in the average balance for gross loans/leases receivable in accordance with accounting and regulatory guidance . 35 the company 's components of change in net interest income are presented in the following table : replace_table_token_21_th ( 1 ) the column `` inc/ ( dec ) from prior year '' is segmented into the changes attributable to variations in volume and the changes attributable to changes in interest rates . the variations attributable to simultaneous volume and rate changes have been proportionately allocated to rate and volume . ( 2 ) interest earned and yields on nontaxable investment securities and loans are determined on a tax equivalent basis using a 35 % tax rate in each year including and prior to december 31 , 2017 and using a 21 % tax rate in each year after december 31 , 2017 . ( 3 ) loan/lease fees are not material and are included in interest income from loans/leases receivable in accordance with accounting and regulatory guidance . the company 's operating results are also impacted by various sources of noninterest income , including trust department fees , investment advisory and management fees , deposit service fees , gains from the sales of residential real estate loans and government guaranteed loans , earnings on boli , and other income . offsetting these items , the company incurs noninterest expenses , which include salaries and employee benefits , occupancy and equipment expense , professional and data processing fees , fdic and other insurance expense , loan/lease expense , and other administrative expenses . the company 's operating results are also affected by economic and competitive conditions , particularly changes in interest rates , income tax rates , government policies , and actions of regulatory authorities . critical accounting policies the company 's financial statements are prepared in accordance with accounting principles generally accepted in the united states of america . the financial information contained within these statements is , to a significant extent , financial information that is based on approximate measures of the financial effects of transactions and events that have already occurred . based on its consideration of accounting policies that involve the most complex and subjective decisions and assessments , management has identified the following as critical accounting policies : go odwill the company records all assets and liabilities purchased in an acquisition , including intangibles , at fair value . goodwill is not amortized but is subject , at a minimum , to annual tests for impairment . in certain situations , interim impairment tests may be required if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . the initial recognition of goodwill and subsequent impairment analysis requires us to make subjective judgments concerning estimates of how the acquired assets will perform in the future using valuation methods , which may include using the current market price of stock or discounted cash flow analyses . additionally , estimated cash flows may extend 36 beyond five years and , by their nature , are difficult to determine over an extended timeframe . events and factors that may significantly affect the estimates include , among others , competitive forces , customer behaviors , changes in revenue growth trends , cost structures , technology , changes in discount rates and market conditions . in determining the reasonableness of cash flow estimates , the company reviews historical performance of the underlying assets or similar assets in an effort to assess and validate assumptions utilized in its estimates . in assessing the fair value of reporting units , we may consider the stage of the current business cycle and potential changes in market conditions . we may also utilize other information to validate the reasonableness of our valuations , including public market comparables and multiples of recent mergers and acquisitions of similar businesses . valuation multiples may be based on tangible capital ratios of comparable companies and business segments . these multiples may be adjusted to consider competitive differences , including size , operating leverage and other factors . the carrying amount of a reporting unit is determined based on the capital required to support the reporting unit 's activities , including its tangible and intangible assets . the determination of a reporting unit 's capital allocation requires judgment and considers many factors , including the regulatory capital regulations and capital characteristics of comparable companies in relevant industry sectors .
| the company reported adjusted net income ( non-gaap ) of $ 46.4 million , with diluted adjusted eps of $ 3.08. see section titled “ gaap to non-gaap reconciliations ” for additional information . adjusted net income for the year excludes a number of non-recurring items , most significantly $ 3.3 million of after-tax acquisition and post-acquisition related costs . the tax act was enacted in december 2017 and reduced the federal corporate tax rate from 35 % to 21 % . as a result , the company revalued the deferred tax assets and liabilities to reflect the lower federal corporate tax rate , which resulted in the company recognizing a benefit of $ 2.9 million in the fourth quarter of 2017. see note 13 to the consolidated financial statements for additional information regarding the impact of the tax act on deferred tax assets and income tax expense . 29 following is a table that represents the major income and expense categories . replace_table_token_14_th the following are some noteworthy developments in the company 's financial results : · net interest income grew $ 26.3 million , or 23 % in 2018 , compared to the prior year . net interest income for 2017 grew $ 21.5 million , or 23 % , compared to 2016. the increase in 2018 was primarily due to strong organic loan and lease growth and recent acquisitions . · provision increased $ 4.2 million when comparing 2018 to 2017 , while provision increased $ 992 thousand when comparing 2017 to 2016. the increase in 2018 was primarily attributable to loans to two unrelated borrowers as well as to strong loan growth and accounting for acquired loans ( as acquired loans renew , the discount associated with those loans is eliminated and the company must establish an allowance ) . · noninterest income increased $ 11.1 million , or 36 % , when compared to the prior year . noninterest income decreased $ 555 thousand , or 2 % , when comparing 2017 to 2016. the
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emphasizing one factor over another , or considering additional factors that may be relevant in determining the risk rating of a particular loan but which are not currently an explicit part of our methodology , could impact the risk rating assigned to that loan . three times a year , management conducts a thorough review of adversely risk rated commercial and commercial real estate exposures exceeding certain thresholds to re-evaluate the risk rating and identify impaired loans . this extensive review takes into account the obligor 's repayment history and financial condition , collateral value , guarantor support , local economic and industry trends , and other factors relevant to the particular loan relationship . because the methodology is based upon historical experience and trends as well as management 's judgment , factors may arise that result in different estimations . significant factors that could give rise to changes in these estimates may include , but are not limited to , changes in economic conditions in our market area , concentration of risk , declines in local property values , and the results of regulatory examinations . while management 's evaluation of the all as of december 31 , 2017 determined it to be appropriate , under adversely different conditions or assumptions , we may need to increase the all . monthly , management reviews the all to assess recent asset quality trends and impact on the company 's financial condition . quarterly , the all is reviewed and approved at the bank 's board of directors meeting . the adequacy of the reserve for unfunded commitments is determined in a similar manner as the all , with the exception that management must also estimate the likelihood of these commitments being funded and becoming loans . this is accomplished by evaluating the historical utilization of each type of unfunded commitment and estimating the likelihood that the historical utilization rates could change in the future . purchase price allocation and impairment of goodwill and identifiable intangible assets . we record all acquired assets and liabilities at fair value , which is an estimate determined by the use of internal valuation techniques . we also may engage external valuation services to assist with the valuation of material assets and liabilities acquired , including , but not limited to , loans , core deposit intangibles and or other intangible assets , real estate and time deposits . as part of purchase accounting , we typically acquire goodwill and other intangible assets as part of the purchase price . these assets are subject to ongoing periodic impairment tests under differing accounting models . we did not acquire any other company or assets for the year ended december 31 , 2017 or 2016. goodwill impairment evaluations are required to be performed at least annually , but may be required more frequently if certain conditions indicate a potential impairment may exist . our policy is to perform the goodwill impairment analysis annually as of november 30 th , or more frequently as warranted . the goodwill impairment evaluation is required to be performed at the reporting unit level and is performed using the two-step process outlined in asc 350-20 , goodwill ( `` asc 350-20 '' ) . the company 's reporting units are banking and financial services . the banking reporting unit is representative of our core banking business line , while the financial services reporting unit is representative of our wealth management and trust services business line . 31 for the year ended december 31 , 2017 , we performed the annual impairment tests for each reporting unit as of november 30 , 2017. for the banking reporting unit , we used the qualitative analysis ( i.e . `` step zero '' ) outlined in asc 350-20 to test the reporting unit 's goodwill for impairment , and considered such factors as the macroeconomic environment ; overall industry environment and performance ; company specific factors , including , but not limited to , competition , performance and personnel . through completion of our analysis , we concluded it was not more-likely-than-not that the banking reporting unit 's carrying value exceeded its fair value . for the financial services reporting unit , we used the quantitative analysis ( i.e . `` step one '' ) outlined in asc 350-20 to test the reporting unit 's goodwill for impairment . in doing so , we concluded that the estimated fair value of the financial services reporting unit exceeded its carrying value and goodwill was not impaired as of november 30 , 2017. furthermore , we are not aware of any indications and or triggers subsequent to our goodwill impairment analysis performed as of november 30 , 2017 that would lead us to believe there may be subsequent impairment of goodwill . for the year ended december 31 , 2016 , we performed the annual impairment tests for each reporting unit as of november 30 , 2016 using quantitative analysis , and concluded that neither reporting unit 's goodwill was impaired . core deposit intangible assets have a finite life and are amortized over their estimated useful lives . core deposit intangible assets are subject to impairment tests if events or circumstances indicate a possible inability to realize the carrying amount . core deposit intangible assets are measured for impairment utilizing a cost recovery model . we did not identify any events or circumstances that occurred for the year ended december 31 , 2017 or 2016 that would indicate that our core deposit intangible assets may be impaired and should be evaluated for such . otti of investments . we record an investment impairment charge at the point we believe an investment has experienced a decline in value that is other-than-temporary . in determining whether an otti has occurred , we review information about the underlying investment that is publicly available , analysts ' reports , applicable industry data and other pertinent information , and assess our intent and ability to hold the security for the foreseeable future until recovered . story_separator_special_tag the investment is written down to its current fair value at the time the impairment is deemed to have occurred . future adverse changes in market conditions , continued poor operating results of underlying investments or other factors could result in further losses that may not be reflected in an investment 's current carrying value , possibly requiring an additional impairment charge in the future . income taxes . we account for income taxes by deferring income taxes based on the estimated future tax effects of differences between the book and tax bases of assets and liabilities considering the provisions of enacted tax laws . these differences result in deferred tax assets and liabilities , which are included in the consolidated statements of condition . we must also assess the likelihood that any deferred tax assets will be recovered from future taxable income and establish a valuation allowance for those assets determined not likely to be recoverable . judgment is required in determining the amount and timing of recognition of the resulting deferred tax assets and liabilities , including projections of future taxable income . although we have determined a valuation allowance is not required for our deferred tax assets , there is no guarantee that these assets will be realized . on december 22 , 2017 , the tax act was enacted reducing the federal corporate income tax rate from 35.0 % to 21.0 % , effective january 1 , 2018. in accordance with asc 740 , income taxes , we revalued our deferred tax assets and liabilities as of the enactment date , and , as a result , we recorded additional income tax expense for the year ended december 31 , 2017 of $ 14.3 million . refer to `` —results of operations—income tax expense '' for further discussion . as of december 31 , 2017 , our federal income tax returns for the year ended december 31 , 2016 and 2015 were open to audit by federal authorities , and our state income tax returns for the year ended december 31 , 2016 , 2015 and 2014 were open to audit by various state authorities . if , as a result of an audit , we were assessed interest and penalties , the amounts would be recorded through other non-interest expense on the consolidated statements of income . in 2017 , the irs completed its examination of our 2014 and 2013 federal income tax returns , which resulted in no material changes to the company 's consolidated financial statements . 32 non-gaap financial measures and reconciliation to gaap in addition to evaluating the company 's results of operations in accordance with gaap , management supplements this evaluation with an analysis of certain non-gaap financial measures , such as adjusted net income , adjusted diluted eps , adjusted return on average assets , adjusted return on average equity and average tangible equity ; the efficiency ratio ; tax equivalent net interest income ; tangible book value per share ; and tangible common equity ratio . we utilize these non-gaap financial measures for purposes of measuring our performance against our peer group and other financial institutions and analyzing our internal performance . we also believe these non-gaap financial measures help investors better understand the company 's operating performance and trends and allow for better performance comparisons to other banks . in addition , these non-gaap financial measures remove the impact of unusual items that may obscure trends in the company 's underlying performance . these disclosures should not be viewed as a substitute for gaap operating results , nor are they necessarily comparable to non-gaap performance measures that may be presented by other financial institutions . adjusted net income , adjusted diluted eps and adjusted return on average assets . the following tables provide a reconciliation of net income , diluted eps , and return on average assets to adjusted net income , adjusted diluted eps and adjusted return on average assets . certain transactions have been excluded to calculate adjusted net income , adjusted diluted eps and adjusted return on average assets . we believe the following adjusted financial metrics assist users of our financial statements with their financial analysis period-over-period as it adjusts for certain non-recurring items . replace_table_token_3_th ( 1 ) assumed a 35 % tax rate for deductible expenses , with the exception of goodwill impairment as this was a non-taxable event . 33 adjusted return on average equity and average tangible equity . the following tables provide a reconciliation of net return on average equity to adjusted return on average equity and average tangible equity . certain transactions have been excluded to calculate adjusted return on average equity and tangible equity . we believe the following adjusted financial metrics assist users of our financial statements with their financial analysis period-over-period as it adjusts for certain non-recurring items . replace_table_token_4_th ( 1 ) assumed a 35.0 % tax rate for deductible expenses , with the exception of goodwill impairment as this was a non-taxable event . 34 efficiency ratio . the efficiency ratio represents an approximate measure of the cost required for the company to generate a dollar of revenue . this is a common measure within our industry and is a key ratio for evaluating company performance . the efficiency ratio is calculated as the ratio of ( i ) total non-interest expense , adjusted for certain operating expenses to ( ii ) net interest income on a tax equivalent basis ( assumed 35 % tax rate ) plus total non-interest income , adjusted for certain other income items . replace_table_token_5_th ( 1 ) revenue is defined as net interest income plus non-interest income . tax equivalent net interest income . tax-equivalent net interest income is net interest income plus the taxes that would have been paid had tax-exempt securities been taxable ( assuming a 35 % tax rate ) . this number attempts to enhance the comparability of the performance of assets that have different tax liabilities . replace_table_token_6_th 35 tangible book value per share and tangible common equity ratio .
| adjusted net income 1 and adjusted diluted eps 1 of $ 40.6 million and $ 2.61 increased 44 % and 12 % , respectively , over 2015. the increase highlights the benefits of the acquisition of sbm and our successful execution of our merger strategies , including an efficiency ratio 1 of 57.53 % , an adjusted return on average assets 1 of 1.06 % , and an adjusted return on average tangible equity 1 of 14.96 % for 2016. financial condition total assets at december 31 , 2017 of $ 4.1 billion increased $ 201.2 million , or 5 % , since december 31 , 2016 driven by loan growth of $ 187.9 million , or 7 % , for the year . 1 the following was not calculated in accordance with gaap . refer to the `` — non-gaap financial measures and reconciliation to gaap '' within item 7 . 28 for 2017 , our loan growth was driven by commercial real estate with growth of $ 113.2 million , or 11 % , followed by residential real estate of $ 55.9 million , or 7 % , and commercial of $ 39.8 million , or 12 % . at december 31 , 2017 , our commercial loan portfolio ( includes commercial real estate and commercial loans ) totaled $ 1.6 billion and represented 57 % of total loans , whereas our retail loan portfolio ( includes residential real estate , consumer and home equity ) totaled $ 1.2 billion and represented 43 % of total loans . in comparison , at december 31 , 2016 , our commercial loan portfolio represented 56 % of total loans , while our retail loan portfolio represented 44 % of total loans . 29 total deposits at december 31 , 2017 grew $ 172.0 million , or 6 % , over last year to $ 3.0 billion . the increase in deposits was driven by low cost deposits growth ( including demand , interest checking , saving and money market ) of $ 232.0 million , or 11 % to $ 2.3 billion . at december 31 , 2017 , low cost deposits as a percentage of total funding was 64 % , compared to 61 % at december 31 , 2016 and our loan-to-deposit ratio was 93 % at december 31 , 2017 , compared to 92 % at december 31 , 2016. critical accounting policies critical accounting policies are defined as those that are reflective of significant judgments and uncertainties , and could
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during 2015 , the drr methodology was expanded to additional components of the investment properties commercial real estate portfolio totaling approximately $ 155 million , which resulted in a decrease to the provision for loan losses and the allowance for loan losses of approximately $ 250 thousand for the year ended december 31 , 2015. at december 31 , 2015 , the drr methodology is utilized to calculate the allowance for loan losses for 36.7 % of the commercial loan portfolio and 29.8 % of the total loan portfolio . management currently expects to implement the drr methodology for additional components of the commercial loan portfolio over the next few years . the implementation is expected to be in multiple phases , with each component determined based primarily on loan type and size . the timing of future implementations will depend upon completion of applicable data analysis and model assessment . once full implementation is completed , management estimates that the drr methodology will be utilized to calculate the allowance for loan losses on commercial loans amounting to approximately 35 % of the total loan portfolio . fair value measurements synovus evaluates assets , liabilities and other financial instruments that are either required or elected to be carried , reported , or disclosed at fair value , and determines the valuation of these instruments in accordance with fasb asc topic 820 , fair value measurements , which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date . synovus assesses the fair value measurements of each instrument on a periodic basis , but no less than quarterly . synovus determines the fair value of its financial instruments based on the fair value hierarchy established under asc 820 , which provides a three-level framework for determining the appropriate fair value for a particular asset or liability . fair value may be based on quoted market prices for identical assets or liabilities traded in active markets ( level 1 valuations ) . if market prices are not available , quoted prices for similar instruments in active markets , quoted prices in markets that are not active or model- 46 based valuation techniques for which all significant assumptions are derived principally from or corroborated by observable market data are used ( level 2 valuations ) . where observable market data is not available , the valuation is generated using pricing models , discounted cash flow models and similar techniques , and may also include the use of market prices of financial instruments that are not directly comparable to the subject instrument . these methods of valuation may result in a significant portion of the fair value being derived from unobservable assumptions that reflect synovus ' own estimates for assumptions that market participants would use in pricing the financial instrument ( level 3 valuations ) . the fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities ( level 1 ) and the lowest priority to unobservable inputs ( level 3 ) . a financial instrument 's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the financial instrument 's fair value measurement in its entirety . synovus selects the most appropriate technique for determining the fair value of the asset or liability . the degree of management judgment involved in determining fair value is dependent upon the availability of quoted prices or observable market data . there is minimal subjectivity involved in measuring the fair value of financial instruments based on quoted market prices ; however , when quoted prices and observable market data are not available , synovus would use a valuation technique requiring more management judgment to estimate the appropriate fair value . fair value is measured either on a recurring basis , in which the fair value is the primary measure of accounting , or on a non-recurring basis , to measure items for potential impairment , or for disclosure purposes . assets , liabilities and other financial instruments classified as level 3 in the fair value hierarchy are generally less liquid and estimating their value requires inputs that are unobservable and require the application of significant judgment on behalf of management in order to determine the appropriate fair value of each of these instruments . as of december 31 , 2015 , synovus reported $ 28.9 million of assets ( or 0.1 % of total assets ) classified as level 3 , of which $ 27.1 million consisted of private equity investments . also , as of december 31 , 2015 , synovus reported $ 1.4 million of liabilities ( or 0.01 % of total liabilities ) classified as level 3. see `` part ii - item 8. financial statements and supplementary data - note 14 - fair value accounting '' of this report for further discussion of synovus ' use of the various fair value methodologies and the types of assets and liabilities in which fair value accounting is applied . discussion of financial condition and results of operations investment securities available for sale the investment securities portfolio consists principally of debt securities classified as available for sale . investment securities available for sale provide synovus with a source of liquidity and a relatively stable source of income . the investment securities portfolio also provides management with a tool to balance the interest rate risk of its loan and deposit portfolios . see table 13 for maturity and average yield information of the investment securities available for sale portfolio . the investment strategy focuses on the use of the investment securities portfolio to generate interest income and to assist in the management of interest rate risk . synovus moderately increased portfolio duration during 2015 while the average balance of the portfolio increased at a pace similar to overall earning asset growth . story_separator_special_tag the average duration of synovus ' investment securities portfolio was 2.9 years at december 31 , 2015 compared to 2.7 years at december 31 , 2014 . synovus also utilizes a significant portion of its investment portfolio to secure certain deposits and other liabilities requiring collateralization . at december 31 , 2015 , $ 2.43 billion of these investment securities were pledged to secure certain deposits and securities sold under repurchase agreements as required by law and contractual agreements . the investment securities are primarily mortgage-backed securities issued by u.s. government agencies and gses , both of which have a high degree of liquidity and limited credit risk . a mortgage-backed security depends on the underlying pool of mortgage loans to provide a cash flow pass-through of principal and interest . at december 31 , 2015 , all of the collateralized mortgage obligations and mortgage-backed pass-through securities held by synovus were issued or backed by federal agencies or gses . as of december 31 , 2015 and 2014 , the estimated fair value of investment securities available for sale as a percentage of their amortized cost was 99.8 % and 100.7 % , respectively . the investment securities available for sale portfolio had gross unrealized gains of $ 19.3 million and gross unrealized losses of $ 27.3 million , for a net unrealized loss of $ 8.0 million as of december 31 , 2015 . the investment securities available for sale portfolio had gross unrealized gains of $ 32.9 million and gross unrealized losses of $ 12.4 million , for a net unrealized gain of $ 20.5 million as of december 31 , 2014 . shareholders ' equity included net unrealized losses of $ 18.2 million and net unrealized losses of $ 713 thousand on the available for sale portfolio as of december 31 , 2015 and 2014 , respectively . the average balance of investment securities available for sale increased to $ 3.26 billion at december 31 , 2015 from $ 3.09 billion at december 31 , 2014 . synovus earned a taxable-equivalent rate of 1.82 % and 1.88 % for 2015 and 2014 , respectively , on 47 its investment securities available for sale portfolio . for the years ended december 31 , 2015 and 2014 , investment securities available for sale represented 12.55 % and 12.71 % , respectively , of interest earning assets . the following table shows investment securities available for sale by type as of december 31 , 2015 and 2014 . replace_table_token_9_th the calculation of weighted average yields for investment securities available for sale displayed below is based on the amortized cost and effective yields of each security . the yield on state and municipal securities is computed on a taxable-equivalent basis using the statutory federal income tax rate of 35 % . maturity information is presented based upon contractual maturity . actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties . 48 replace_table_token_10_th 49 loans the following table shows loans by portfolio class and as a percentage of total loans , net of deferred fees and costs , as of december 31 , 2015 and 2014 . replace_table_token_11_th * loan balance in each category is before net deferred fees and costs and is expressed as a percentage of total loans , net of deferred fees and costs . nm - not meaningful total loans ended the year at $ 22.43 billion , a $ 1.33 billion or 6.3 % increase from a year ago . the increase was driven by well balanced growth across the entire loan portfolio - a $ 448.9 million or 6.5 % increase in commercial real estate loans , a $ 523.7 million or 5.1 % increase in commercial and industrial loans , and a $ 358.6 million or 9.1 % increase in retail loans . annual loan growth for 2016 is currently expected to be in the mid single-digits . commercial loans the commercial loan portfolio consists of commercial and industrial loans and commercial real estate loans . total commercial loans at december 31 , 2015 were $ 18.17 billion , or 80.9 % of the total loan portfolio , and grew $ 972.6 million or 5.7 % from december 31 , 2014 . the corporate banking group provides lending solutions to larger corporate clients and includes specialty commercial loan units such as loan syndications , corporate real estate , senior housing , middle market , equipment finance , and healthcare banking . these units partner with synovus ' local bankers to build relationships across the five-state footprint , as well as selected other areas in the southeastern and southwestern united states . to date , loan syndications consist primarily of loans where synovus is participating in the credit . senior housing loans are typically extended to borrowers primarily in the assisted living , independent living , or memory care facilities sectors . synovus has continued to develop its middle market lending program by enhancing its focus on this program and reallocating lending resources while sustaining momentum from investments made in other specialty lines such as healthcare banking . the corporate banking group also originates direct loans to well-capitalized public companies and larger private companies that operate predominantly in the five-state footprint and other southeastern states . at december 31 , 2015 and 2014 , synovus had 24 and 25 commercial loan relationships with total commitments of $ 50 million or more ( including amounts funded ) , respectively . the average funded balance of these relationships at december 31 , 2015 and 2014 was approximately $ 35 million and $ 36 million , respectively .
| the increase in adjusted pre-tax , pre-credit costs income was driven by a $ 8.0 million , or 1.0 % , increase in net interest income resulting mainly from a 5.6 % increase in average loans , net , of $ 1.14 billion , and a $ 10.2 million , or 4.0 % , increase in adjusted non-interest income , partially offset by a $ 2.1 million , or 0.3 % , increase in adjusted non-interest expense and a decline of 19 basis points in the net interest margin . see `` part ii - item 7. management 's discussion and analysis of financial condition and results of operations - non-gaap financial measures '' of this report for further information . the net interest margin declined 19 basis points to 3.19 % for the year ended december 31 , 2015 compared to the prior year . the yield on earning assets declined 19 basis points to 3.64 % and the effective cost of funds was unchanged at 0.45 % , in each case for the year ended december 31 , 2015 and december 31 , 2014 . total loans ended the year at $ 22.43 billion , a $ 1.33 billion , or 6.3 % , increase from a year ago . the increase was driven by a $ 448.9 million , or 6.5 % , growth in cre loans , a $ 523.7 million , or 5.1 % , increase in c & i loans , and a $ 358.6 million , or 9.1 % , increase in retail loans . total deposits of $ 23.24 billion at december 31 , 2015 increased $ 1.71 billion , or 7.9 % , from a year ago . average total deposits grew $ 1.58 billion , or 7.6 % , and average core deposits increased $ 1.60 billion , or 8.2 % , from a year ago , driven by an increase in average non-interest bearing deposits and average money market deposits . see `` part ii - item 7. management 's discussion and analysis of financial condition and results of operations - non-gaap financial measures '' of this report for further information . on december 7 , 2015 , synovus issued in a public offering $ 250 million aggregate principal amount of subordinated debt due in 2025 , for aggregate proceeds of $ 246.6 million , net of debt issuance costs . also during the fourth quarter of 2015 ,
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( ii ) blizzard entertainment , inc. blizzard entertainment , inc. ( `` blizzard '' ) is a leader in online pc gaming , including the subscription-based massively multi-player online role-playing game ( `` mmorpg '' ) category in terms of both subscriber base and revenues generated through its world of warcraft® franchise . blizzard also develops , markets , and sells role-playing action and strategy games for the pc , console , mobile and tablet platforms , including games in the multiple-award winning diablo® , starcraft® , hearthstone® : heroes of warcraft and heroes of the storm franchises . in addition , blizzard maintains a proprietary online gaming service , battle.net® , which facilitates the creation of user-generated content , digital distribution and online social connectivity across all blizzard games . blizzard distributes its 47 products and generates revenues worldwide through various means , including : subscriptions ; sales of prepaid subscription cards ; in-game purchases and services ; retail sales of physical `` boxed '' products ; online download sales of pc products ; purchases and downloads via third-party console , mobile and tablet platforms ; and licensing of software to third-party or related party companies that distribute blizzard products . ( iii ) other we also engage in other business opportunities that include : the activision blizzard media networks ( `` media networks '' ) business announced in 2015 which builds on our efforts in competitive gaming and the growing esports industry . the activision blizzard studios ( `` studios '' ) business announced in 2015 which is devoted to creating original film and television content based on the company 's extensive library of iconic and globally-recognized intellectual properties . the activision blizzard distribution ( `` distribution '' ) business which consists of operations in europe that provide warehousing , logistical , and sales distribution services to third-party publishers of interactive entertainment software , our own publishing operations , and manufacturers of interactive entertainment hardware . story_separator_special_tag noshade= '' '' / > retail distribution channels in one year may impact our revenues through digital online channels in the subsequent year . for the year ended december 31 , 2015 , net revenues through digital online channels increased by $ 605 million , as compared to 2014 , and represented 54 % of our total consolidated net revenues , as compared to 43 % in 2014. on a non-gaap basis ( which excludes the impact of deferred revenues ) , net revenues through digital online channels for the year ended december 31 , 2015 increased by $ 430 million , as compared to 2014 , and represented 57 % of our total non-gaap net revenues , as compared to 46 % in 2014. please refer to the reconciliation between gaap and non-gaap financial measures later in this document for further discussions of retail and digital online channels . console platform transition in november 2013 , sony released the ps4 and microsoft released the xbox one , their respective next-generation game consoles and entertainment systems . according to the npd group and gfk chart-track in north america and europe , as of december 31 , 2015 , the combined installed base of ps4 and xbox one hardware was approximately 43 million units , representing growth of approximately 82 % over the combined installed base of approximately 24 million units as of december 31 , 2014. while the combined installed base of ps3 and xbox 360 hardware was approximately 124 million units as of december 31 , 2015 , at the comparable point in their release cycle , the prior-generation platforms had only 28 million units installed . when new console platforms are announced or introduced into the market , consumers reduce their purchases of game console software products for prior-generation console platforms in anticipation of new platforms becoming available . during these periods , sales of the game console software products we publish slow or even decline until the new platforms introduced achieve wide consumer acceptance , which we believe had largely occurred with respect to the next-generation platforms by the end of 2015. we believe that for 2016 , the sales impact from the console transition will not be a meaningful driver of the business . during platform transitions , we simultaneously incur costs to develop and market new titles for prior-generation video game platforms and to develop and market products for next-generation platforms . we continually monitor console hardware sales and manage our product delivery on each of the prior- and next-generation platforms in a manner we believe to be most effective to maximize our revenue opportunities and achieve the desired return on our investments in product development . concentration of top titles the concentration of retail revenues among key titles has continued as a trend in the overall interactive software industry . according to the npd group , the top 10 titles accounted for 33 % of the retail sales in the u.s. interactive entertainment industry in 2015. similarly , a significant portion of our revenues has historically been derived from video games based on a few popular franchises and these video games are responsible for a disproportionately high percentage of our profits . for example , the call of duty , world of warcraft , skylanders , and destiny franchises combined accounted for 71 % , 72 % , and 80 % of our consolidated net revenues for the years ended december 31 , 2015 , 2014 , and 2013 , respectively , and a significantly higher percentage of our operating income . as a result , successful competition against these titles can significantly impact our performance . notably in 2015 , the toys to life category became more competitive with a new entrant competing directly with us and other incumbents . we are continually exploring additional investments in existing and future franchises . during 2015 , we released heroes of the storm , as well as call of duty online in china . story_separator_special_tag in the fourth quarter of 2015 , 50 we released overwatch into closed beta with an anticipated game release in spring of 2016. there is no guarantee these investments will result in an established franchise . additionally , on february 23 , 2016 , we completed the king acquisition , diversifying our portfolio of key franchises . overall , we do expect that a limited number of popular franchises will continue to produce a disproportionately high percentage of our , and the industry 's , revenues and profits in the near future . seasonality while our business is transitioning to a year-round engagement model , the interactive entertainment industry remains highly seasonal . we have historically experienced our highest sales volume in the year-end holiday buying season , which occurs in the fourth quarter . we defer the recognition of a significant amount of our net revenues , related to our software titles containing online functionality that constitutes a more-than-inconsequential separate service deliverable , over an extended period of time ( i.e. , typically less than a year ) . as a result , the quarter in which we generate the highest sales volume may be different than the quarter in which we recognize the highest amount of net revenues . our results can also vary based on a number of factors including , but not limited to , title release date , consumer demand , market conditions and shipment schedules . outlook for 2016 , our results will include the operations of king , beginning on february 23 , 2016 , the date the king acquisition closed . our earnings under accounting principles generally accepted in the united states of america ( `` gaap '' ) are expected to be down versus prior-year , as the expected results will be impacted by additional accounting charges associated with the king acquisition , which include , among other things , integration and acquisition-related costs , the amortization of intangible assets resulting from purchase price accounting adjustments , and the related tax impact from the king acquisition . the majority of these gaap accounting charges will not impact the economics or operating cash flows of our business , although they will have a material impact on our 2016 gaap results . for activision , we expect to deliver multiple map packs to call of duty : black ops iii , along with additional in-game content , during 2016. for the destiny franchise , activision expects to deliver a new expansion in 2016 with the full-game destiny sequel to come in 2017. also in the fourth quarter of 2016 , activision plans to release new call of duty and skylanders games . blizzard plans to release overwatch in the spring of 2016 , as well as world of warcraft : legion in the summer of 2016. in addition , hearthstone : heroes of warcraft and heroes of the storm will have ongoing content updates throughout the year . 51 consolidated statements of operations data the following table sets forth consolidated statements of operations data for the periods indicated in dollars and as a percentage of total net revenues ( amounts in millions ) : replace_table_token_6_th operating segment results our operating segments are consistent with our internal organizational structure , the manner in which our operations are reviewed and managed by our chief executive officer , who is our chief operating decision maker ( `` codm '' ) , the manner in which we assess operating performance and allocate resources , and the availability of separate financial information . currently , we have two reportable operating segments ( see note 1 of the notes to consolidated financial statements ) . previously , we reported `` distribution '' as a reportable segment . in the current period , this was no longer deemed a reportable segment and is included in `` other '' along with our recently announced media networks and studios businesses . we do not aggregate operating segments . the codm reviews segment performance exclusive of the impact of the change in deferred revenues and related cost of sales with respect to certain of our online-enabled games , stock-based compensation expense , amortization of intangible assets as a result of purchase price accounting , and fees and other expenses ( including legal fees , costs , expenses and accruals ) related to acquisitions and the purchase transaction . the codm does not review any information regarding total assets on an operating segment basis , and accordingly , no disclosure is made with respect thereto . information on the operating segments and reconciliations of total segment net revenues and total segment operating income to consolidated net revenues from external customers and consolidated income before income 52 tax expense for the years ended december 31 , 2015 , 2014 , and 2013 are presented in the table below ( amounts in millions ) : replace_table_token_7_th ( 1 ) other includes other income and expenses from operating segments managed outside the reportable segments , including our media networks , studios , and distribution businesses . other also includes unallocated corporate income and expenses . for a better understanding of the differences in presentation between our segment results and the consolidated results , the following explains the nature of each reconciling item . net effect from deferral of net revenues and related cost of sales we have determined that some of our titles ' online functionality represents an essential component of gameplay and as a result , represents a more-than-inconsequential separate deliverable . as such , we are required to recognize revenues from these titles over the estimated service periods , which are generally less than one year . the related costs of sales are deferred and recognized when the related revenues are recognized . in the operating segment results table , we present the amount of net revenues and related costs of sales separately for each period as a result of this accounting treatment . 53 stock-based compensation expense we expense our stock-based awards using the grant date fair value over the vesting periods of the stock awards .
| on february 2 , 2016 , activision released call of duty : black ops iii awakening , the first downloadable content pack for call of duty : black ops iii on the ps4 , with an expected release date to other platforms of march 3 , 2016. international operations international sales are a fundamental part of our business . net revenues from international sales accounted for approximately 48 % , 50 % , and 47 % of our total consolidated net revenues for the years ended december 31 , 2015 , 2014 , and 2013 , respectively . in addition to our united states ( `` u.s. '' ) operations , we maintain significant operations in australia , canada , china , france , germany , ireland , italy , the netherlands , south korea , spain , sweden and the united kingdom ( `` u.k. '' ) . an important element of our international strategy is to develop content that is specifically directed toward local cultures and customs . our international business is subject to risks typical of an international business , including , but not limited to , foreign currency exchange rate volatility and changes in local economies . accordingly , our future results could be materially and adversely affected by changes in foreign currency exchange rates and changes in local economies . management 's overview of business trends digital revenues we provide our products through both retail and digital distribution channels . many of our video games that are available through retailers as physical `` boxed '' software products are also available digitally ( from our websites and from websites and digital distribution channels owned by third parties ) . in addition , we offer players digital downloadable content as add-ons to our products ( e.g . , new multi-player content packs or in-game microtransactions ) , generally for a one-time fee . we also offer subscription-based services and other value-added services for world of warcraft , all of which are digitally delivered and hosted by battle.net . we currently define sales via digital online channels as revenues from digitally distributed subscriptions , licensing royalties , value-added services , downloadable content , microtransactions , and products . this definition may differ from that used by our competitors or other companies . according to activision blizzard internal estimates , digital gaming revenues for the interactive entertainment industry in 2015 , increased by
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at the end of the calendar year , cal water files with the cpuc to refund or collect the balance in the accounts . most undercollected net wram and mcba receivable balances are collected over 12 and 18 months . cal water defers any net wram and mcba revenues and associated costs whenever the net receivable balances are estimated to be collected more than 24 months after the respective reporting period in which it was recorded . the deferred net wram and mcba revenue and associated costs were determined using forecasts of rate payer consumption trends in future reporting periods and the timing of when the cpuc will authorize cal water 's filings to recover unbilled balances . deferred revenues and associated costs are recorded in future periods as the collection becomes within 24 months of the respective reporting period . flat rate customers are billed in advance at the beginning of the service period . the revenue is prorated so that the portion of revenue applicable to the current period is included in that period 's revenue , with the balance recorded as unearned revenue on the balance sheet and recognized as revenue when earned in the subsequent accounting period . our unearned revenue liability was $ 1.5 million as of december 31 , 2014 and 2013. this liability is included in `` other accrued liabilities '' on our consolidated balance sheets . regulated utility accounting because we operate extensively in a regulated business , we are subject to the accounting standards for regulated utilities . the commissions in the states in which we operate establish rates that are designed to permit the recovery of the cost of service and a return on investment . we capitalize and record regulatory assets for costs that would otherwise be charged to expense if it is probable that the incurred costs will be recovered in future rates . regulatory assets are amortized over the future periods that the costs are expected to be recovered . if costs expected to be incurred in the future are currently being recovered through rates , we record those expected future costs as regulatory liabilities . in addition , we record regulatory liabilities when the commissions require a refund to be made to our customers over future periods . 43 determining probability requires significant judgment by management and includes , but is not limited to , consideration of testimony presented in regulatory hearings , proposed regulatory decisions , final regulatory orders , and the strength or status of applications for rehearing or state court appeals . we also record a regulatory asset when a mechanism is in place to recover current expenditures and historical experience indicates that recovery of incurred costs is probable , such as the regulatory assets for pension benefits ; and deferred income tax . if we determine that a portion of our assets used in utility operations is not recoverable in customer rates , we would be required to recognize the loss of the assets disallowed . goodwill accounting and evaluation for impairment in november of 2014 and 2013 , we performed annual impairment tests of the remaining goodwill balance of $ 2.6 million by comparing the fair value of hawaii water , the reporting unit , with its carrying amount , including goodwill and no impairment was recorded . our analysis considered the approval of future rate case proceedings for the various operations of hawaii water based on historical rate of return filings allowed by the hawaii public utilities commission . to the extent the approved rate of return filings allowed by the hawaii public utilities commission are less than expected an impairment of the recorded goodwill may occur . income taxes we account for income taxes using the asset and liability method . deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . we measure deferred tax assets and liabilities at enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . we recognize the effect on the deferred tax assets and liabilities of a change in tax rate in the period that includes the enactment date . we must also assess the likelihood that deferred tax assets will be recovered in future taxable income and , to the extent recovery is not probable , a valuation allowance would be recorded . in management 's view , a valuation allowance was not required at december 31 , 2014 or december 31 , 2013. we anticipate that future rate actions by the regulatory commissions will reflect revenue requirements for the tax effects of temporary differences recognized , which have previously been passed through to customers . the regulatory commissions have granted the company permission to reflect the normalization of the tax benefits of the federal accelerated methods and available investment tax credits ( itcs ) for all assets placed in service after 1980. itcs are deferred and amortized over the lives of the related properties for book purposes . the commission requires flow-through accounting for state deferred taxes . during 2012 , we filed an application for a change in tax accounting method with the internal revenue service ( irs ) to implement tangible property regulations specifically in regards to repairs and maintenance deductions . in september 2013 , the u.s. department of the treasury ( u.s. treasury ) and irs issued the final tangible property regulations for repairs and maintenance deductions with an effective date of january 1 , 2014. in august 2014 , the u.s. treasury and irs issued the final regulations regarding dispositions of tangible property with an effective date of january 1 , 2014. these tax regulations allowed the company to deduct a significant amount of linear asset costs previously capitalized for book and tax purposes . story_separator_special_tag the company filed a tax accounting method change on its 2013 tax return for the repair and maintenance of linear assets within the guidance of the tangible property regulations . in 2013 , we recorded $ 4.0 million net of any unrecognized tax benefit of state of california enterprise zone ( ez ) credits for sales and use taxes and hiring incentives for the period from 2008 to 2013 based on an analysis of all district operations . the company filed amended state income tax returns for tax years 2008 , 2009 , 2010 , and 2011. unused state of california ez credits can carry-forward ten years . the company has a carry-forward california ez credits at $ 2.3 million net of any unrecognized tax benefit . 44 the american taxpayer relief act of 2012 was enacted on january 2 , 2013 , and extended the termination date of additional 50 percent first-year bonus depreciation ( bonus depreciation ) by one year . as a result , qualified property placed in service through the end of 2013 was eligible for bonus depreciation . on december 19 , 2014 , president obama signed in to law the tax increase prevention act of 2014 , which , among other provisions , retroactively extended the application of bonus depreciation to qualified property placed in service through the end of 2014. the company 's total federal net operating loss ( nol ) carry-forward was $ 43.8 million and state nol carry-forward was $ 49.9 million net of any unrecognized tax benefit as of december 31 , 2014. the nol carry-forward amounts are more likely than not to be recovered and therefore require no valuation allowance . the nol carry-forward does not begin to expire until 2033. as of december 31 , 2014 we had unrecognized tax benefits of approximately $ 7.9 million . included in the balance of unrecognized tax benefits is approximately $ 1.6 million of tax benefits that , if recognized , would result in an adjustment to the company 's effective tax rate . the company does not expect its unrecognized tax benefits to change significantly within the next twelve months . the state of hawaii department of taxation is presently auditing the company 's 2010 , 2011 and 2012 hawaii state income tax returns . the state of california board of equalization is presently auditing the company 's 2010 , 2011 , and 2012 sales and use tax filings . the state of california franchise tax board is presently auditing the company 's 2008 through 2011 enterprise zone filings . it is uncertain when the state audits will be completed . the company believes that the final resolution of the state audits will not have a material impact on its financial condition or results of operations . pension benefits we incur costs associated with our pension and postretirement health care benefits plans . to measure the expense of these benefits , our management must estimate compensation increases , mortality rates , future health cost increases and discount rates used to value related liabilities and to determine appropriate funding . different estimates used by our management could result in significant variances in the cost recognized for pension benefit plans . the estimates used are based on historical experience , current facts , future expectations , and recommendations from independent advisors and actuaries . we use an investment advisor to provide advice in managing the plan 's investments . we anticipate any increases in funding for the pension benefits plans will be recovered in future rate filings , thereby mitigating the financial impact . we believe it is probable that future costs will be recovered in future rates and therefore have recorded a regulatory asset in accordance with generally accepted accounting principles . workers ' compensation and other claims we are self-insured for a portion of workers ' compensation and other claims . excess amounts are covered by insurance policies . for workers ' compensation , we work with an independent actuary firm to estimate the discounted liability associated with claims submitted and claims not yet submitted based on historical data . these estimates could vary significantly from actual claims paid , which could impact earnings and cash flows . for other claims , management estimates the cost incurred but not yet paid using historical information . actual costs could vary from these estimates . management believes actual costs incurred would be allowed in future rates , mitigating the financial impact . 45 story_separator_special_tag their ability to pass the costs to us in their approved tariffs . these items are not known at this time . administrative and general expenses administrative and general expenses include payroll related to administrative and general functions , all employee benefits charged to expense accounts , insurance expenses , legal fees , expenses associated with being a public company , and general corporate expenses . during 2014 , administrative and general expenses decreased $ 0.7 million or 0.7 % , as compared to 2013. the decrease was mostly due to decreases in employee pension benefit costs which were partially offset by increases to health care costs , outside service fees , and business insurance costs . employee pension benefit expenses are fully recovered in rates and are tracked in a balancing account , such that revenues are recovered on a dollar-for-dollar basis up to the amounts authorized in the 2012 grc . employee and retiree medical expenses are recovered in rates up to 85 % of adopted values and are tracked in a balancing account as authorized in the 2012 grc . during 2013 , administrative and general expenses increased $ 4.1 million , or 4.4 % , as compared to 2012. the increase was due primarily to increases in employee payroll costs , health care , pension and other employee benefit costs . these increases were partially offset by a reduction to outside service costs .
| the health care balancing account was authorized by the cpuc in the 2012 grc in california , effective january 1 , 2014. water production expenses water production expenses , which consist of purchased water , purchased power , and pump taxes , comprise the largest segment of total operating expenses . water production costs accounted for 43.4 % , 44.3 % , and 41.6 % , of total operating costs in 2014 , 2013 , and 2012 , respectively . the rates charged for wholesale water supplies , electricity , and pump taxes are established by various public agencies . as such , these rates are beyond our control . 46 the table below provides the amount of increases and percent changes in water production costs during the past two years : replace_table_token_10_th the principal factors affecting water production expenses are the quantity , price and source of the water . generally , water from wells costs less than water purchased from wholesale suppliers . the table below provides the amounts , percentage change , and source mix for the respective years : replace_table_token_11_th purchased water expenses are affected by changes in quantities purchased , supplier prices , and cost differences between wholesale suppliers . the mcba mechanism is designed to recover all incurred purchase water expenses . for 2014 , the $ 5.2 million decrease in purchased water is due to 1.0 % decrease in purchased quantities . on an overall blended basis , wholesale water rates increased 7.9 % on a cost-per- million-gallon basis in 2014. purchased water expense for 2014 was partially offset by lease water rights credits of $ 0.7 million . for 2013 , the $ 21.8 million increase in purchased water is due to wholesaler water rate increases between 3 % and 12 % and a 4 % increase in purchased quantities . on an overall blended basis , wholesale water rates increased 8 % on a cost-per- million-gallon basis in 2013. purchased water expense for 2013 was partially offset by lease water rights credits of $ 1.0 million . for 2012 , the $ 18.7 million increase in purchased water is due to wholesaler water rate increases between 3 % and 12 % and a 6 % increase in purchased quantities . on an overall blended basis , wholesale water
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our vision is to be the leading innovative , growth oriented , and high technology materials solutions provider for our selective markets . to achieve this vision , we must have an organization that can cost effectively develop , produce and market products and services that provide clear advantages for our customers and markets . 2012 executive summary 2012 was a year of transition for rogers corporation . under the direction of our management team , led by our new president and ceo , bruce hoechner , we implemented several measures to streamline our organization and rationalize our cost structure in order to better position the company for profitable growth in the future . the goal of these actions is to become a more streamlined company , both from an organizational and cost perspective , that is focused on customer needs , with efficient manufacturing capabilities and an empowered workforce . the initiatives we implemented occurred over the course of 2012 and touched all areas of the company . these initiatives included the following : ( i ) implementation of an early retirement program for certain eligible employees ; ( ii ) realignment of our organizational structure by consolidating a number of senior executive positions , reorganizing certain business functions and redeploying resources across the company ; ( iii ) shutting down the power distribution systems start-up operation in north america ; ( iv ) liquidating the outstanding auction rate security investments ; ( v ) beginning to close down and relocate certain production at the high performance foams manufacturing facility in bremen , germany ( to be completed in the first quarter of 2013 ) ; ( vi ) shutting down the operations of the non-woven composite materials product lines in rogers , connecticut ; and ( vii ) initiating a plan to relocate the final inspection operations of the curamik electronics solutions ' operating segment from its facility in eschenbach , germany to a lower cost region in hungary . we also introduced internal programs for our employees to help build a culture of accountability that we believe will drive us to higher levels of employee and customer satisfaction . as a result of these streamlining and rationalization initiatives , we have incurred approximately $ 20.4 million of net pre-tax charges in 2012. we initially anticipated that these actions would result in annualized cost savings of approximately $ 13.0 million by the end of 2012. however , actual savings began to exceed those projections in the third quarter of 2012 , and we now estimate that annualized savings as a result of these initiatives will approach $ 20.0 million . some of these savings will be used to reinvest in certain areas of the company , such as research and development , and in adding resources in strategic areas of the company , such as sales and marketing , in order to drive future growth . however , we believe that our overall cost structure will remain lower than it was prior to the implementation of these initiatives . going forward , we will continue to pursue other initiatives aimed at further streamlining our business and reducing our overall cost structure , enabling us to continue to profitably grow the company . from an operations perspective , net sales were $ 498.8 million in 2012 , a decline of 9.0 % from $ 548.3 million in 2011. these results are primarily attributable to the decline in sales in the power electronics solutions operating segments , as the curamik electronics solutions ( ces ) operating segment achieved sales of $ 92.4 million in 2012 , a decline of 30.5 % from $ 132.9 million of net sales in 2011 , and the power distribution systems ( pds ) operating segment had net sales in 2012 of $ 41.9 million , an 11.5 % decline from $ 47.3 million in 2011. these declines are primarily attributable to the slowdown of capital infrastructure spending in mass transit , wind energy , and industrial motor drive markets , primarily in europe and china . we anticipate that these markets will remain at these levels in the near term , but the long term outlook remains positive . net sales in the high performance foams ( hpf ) operating segment increased by 1.0 % to $ 179.4 million in 2012 from $ 177.6 million in 2011 , while net sales in the printed circuit materials ( pcm ) operating segment declined by 2.7 % from $ 166.4 million in 2011 to $ 161.9 million in 2012. we believe that the long term outlook for these segments remains strong as spending in wireless infrastructure and other key markets is projected to increase in the future . over the course of 2012 , we experienced a steady increase in sales volumes over the first nine months of the year , and achieved improved profitability performance over that time as our streamlining initiatives lowered our overall cost structure , enabling greater profitability per sales dollar . these results were tempered by a decline in sales in the fourth quarter , as we experienced a considerable drop off in orders across all of our businesses at the end of the year . we believe that this decrease in demand was likely related to the broader economic environment , including concerns over the u.s. fiscal cliff issues . the market indices appear to be more positive as we enter 2013 , and we believe we will see improved growth as the year unfolds . the outlook for 2013 remains strong , particularly with the build out of 4g/lte in the telecom space and as the china stimulus package benefits the mass transit and energy markets . going forward , we will continue to pursue initiatives aimed at further controlling our cost structure in order to maintain our improved operating leverage . we will also continue to focus on profitable growth as we focus on expanding our application base for current products , while pursuing new opportunities externally . story_separator_special_tag we believe that the actions taken in 2012 , as well as our internal initiatives and focus , will enable us to achieve our strategic goals to grow the company , while increasing value to our shareholders . 25 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > equity income in unconsolidated joint ventures was $ 4.7 million in 2012 , a decrease of 13.0 % from $ 5.5 million in 2011. the decline is driven primarily by the softening in certain domestic and export markets in japan , particularly in lcd televisions , domestic mobile phones and general industrial applications . other income ( expense ) , net other income ( expense ) , net was an expense of $ 0.2 million in 2012 as compared to income of $ 1.9 million in 2011 . 2011 results included a gain of $ 1.9 million on the sale of a building in china . excluding this gain , results were relatively consistent year over year . realized gain ( loss ) realized gain ( loss ) represents the portion of the auction rate security impairment that relates to credit losses and is required to be recorded in the consolidated statements of income ( loss ) . the amount of loss recognized in 2012 was $ 3.2 million as compared to a loss of $ 0.2 million in 2011. the increase in the loss in 2012 is due to the liquidation of the auction rate securities portfolio in the first quarter of 2012 , which resulted in the company receiving net cash proceeds of approximately $ 25.4 million . interest income ( expense ) , net interest income ( expense ) , net was expense of $ 4.3 million in 2012 as compared to expense of $ 4.9 million in 2011. this expense relates to the interest expense on our long-term debt , as well as the interest expense on the long term obligation related to the leased facility in eschenbach , germany that contains most of the ces manufacturing operations . the overall decline in the expense is driven by a decline in the long term debt during 2012 , as we paid down the facilities by $ 24.5 million from $ 122.5 million at december 31 , 2011 to $ 98.0 million at december 31 , 2012 . 27 income tax expense ( benefit ) our effective tax rate was ( 205.2 % ) in 2012 and 20.7 % in 2011. in both 2012 and 2011 , our tax rate was favorably impacted by the tax benefit associated with certain discrete rate items recorded during the year and also benefited from favorable tax rates on certain foreign business activity . in 2012 , the rate was primarily impacted by the following items : ( i ) 232.5 % benefit related to the reversal of the valuation allowance on the us deferred tax assets ; and ( ii ) 15.1 % benefit related to foreign source income which is taxed at lower rates than income generated in the us . in 2011 , the rate was primarily impacted by the following items : ( i ) 8.3 % benefit related to the international tax rate differential ; ( ii ) 3.6 % benefit related to changes in the valuation allowance on the us deferred tax assets ; ( iii ) 1.8 % benefit related to foreign source income that is tax at lower rates than income generated in the us ; and ( iv ) 1.5 % benefit from other general business credits . in 2009 , we established a valuation allowance against substantially all of our u.s. deferred tax assets as we concluded that we did not have sufficient evidence to support the position that these assets would be utilized in the future . this conclusion was reached primarily due to the presence of recent cumulative losses in the us and upon consideration of all other available evidence , both positive and negative , using a “ more likely than not standard ” in accordance with applicable accounting guidance . as of the end of the third quarter of 2012 , we concluded that a valuation allowance against these assets is no longer necessary as we are no longer in , nor are we expecting to be in , a cumulative loss in the forseeable future . also , in appropriate circumstances we have the opportunity to undertake a tax planning strategy to ensure that our deferred tax assets do not expire unutilized . this strategy is based upon our ability to make a tax election to capitalize certain expenses that will result in generating taxable income to allow us to utilize our deferred tax assets before they expire . we would undertake such a strategy to realize these deferred tax assets prior to expiration only if we determined it was reasonable , prudent , and feasible . this , along with other positive evidence , such as our recent history of positive taxable income , led us to conclude in 2012 that it is more likely than not that we will ultimately be able to realize our deferred tax assets . in 2012 , we incurred a $ 2.0 million net operating loss for german income tax purposes . under german law , tax losses may be carried forward indefinitely . we also incurred a $ 1.0 million net operating loss in one of our chinese entities which has a 5 year life . we believe that we will generate sufficient taxable income in both jurisdictions such that both of these carryforwards should be fully realized .
| this decline was partially offset by improved operating leverage on sales as a result of the streamlining activities that occurred throughout 2012. these activities favorably impacted margins by approximately 70 basis points in 2012. we expect that margins will continue to improve as the impacts of the streamlining initiatives are realized , particularly when and if sales volumes increase . selling and administrative expenses selling and administrative ( s & a ) expenses were $ 99.7 million in 2012 , a decrease of 3.7 % from $ 103.5 million in 2011 . 2012 s & a expenses included approximately $ 5.8 million of special charges comprised primarily of a $ 2.9 million charge taken as a result of increasing the forecast period on asbestos related liabilities from 5 to 10 years during the fourth quarter of 2012 , as well as a charge of $ 2.0 million related to the settlement of a pension obligation with the former chief executive officer of the company . 2011 results included approximately $ 3.1 million of special charges primarily associated with the acceleration of compensation 26 expense related to the change of chief executive officers during the year . the overall decline in spending , excluding these charges , of $ 6.8 million can be attributed primarily to a reduction of $ 8.8 million of incentive and equity compensation costs due to the lower level of performance of the business in 2012 as compared to 2011. this decline was partially offset by a $ 4.2 million increase in costs related to the defined benefit pension and retiree medical plans in 2012 as compared to 2011 as the projected long term liability on the benefit plans increased as a result of unfavorable market conditions . excluding these charges , s & a as a percentage of sales increased slightly from 18.2 % in 2011 to 18.7 % in 2012 , mainly due to the decline in sales volumes experienced during 2012 , partially offset by cost savings from our streamlining initiatives , which did not fully impact results until the second half of 2012. research and development expenses research and development ( r & d ) expenses were
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the impact of the acquisition on our net income , net operating income and funds from operations will depend on rental rates , occupancy and the overall performance of the property . despite the significance of the acquisition of springfield town center , we have not included separate financial statements related to springfield town center in this annual report on form 10-k because springfield town center has been undergoing a multi-year redevelopment , during which the entire mall was demolished and rebuilt , with the exception of certain anchor stores . accordingly , the financial statements for springfield town center during the period of renovation are not reflective of springfield town center 's historical or expected future performance . the fashion outlets of philadelphia joint venture in july 2014 , we entered into a 50/50 joint venture with the macerich company ( “ macerich ” ) to redevelop the gallery at market east in philadelphia , pennsylvania into the fashion outlets of philadelphia ( the “ fashion outlets of philadelphia ” ) . in connection therewith , we contributed and sold real estate assets to the venture , and macerich acquired its interest in the venture and real estate from us for $ 106.8 million in cash . it is expected that both parties will make additional investments in the project . net proceeds after closing costs from the sale of the interests were $ 104.0 million . we used $ 25.8 million of such proceeds to repay a mortgage loan secured by 801 market street , philadelphia , pennsylvania , a property that is part of the fashion outlets of philadelphia , $ 50.0 million to repay the outstanding balance on our 2013 revolving facility , and the remaining proceeds for general corporate purposes . as we redevelop the fashion outlets of philadelphia , operating results in the short term , as measured by sales , occupancy and net operating income , will likely be negatively affected until the newly constructed space is completed , leased and occupied . acquisitions and dispositions see note 2 to our consolidated financial statements for a description of our dispositions and acquisition in 2015 , 2014 and 2013 . current economic conditions and our near term capital needs the conditions in the economy have caused fluctuations and variations in retail sales , business and consumer confidence and consumer spending on retail goods . as a result , the sales and profit performance of certain retailers has fluctuated , and in some cases , has led to bankruptcy filings . we continue to adjust our plans and actions to take into account the current environment . in particular , we continue to contemplate ways to maintain or reduce our leverage through a variety of means available to us , subject to and in accordance with the terms of our credit agreements . these steps might include ( i ) sales of properties or interests in properties with values in excess of their mortgage loans ( if applicable ) and application of the excess proceeds to debt reduction , or by obtaining capital from joint ventures or other partnerships or arrangements involving our contribution of assets with institutional investors , private equity investors or other reits , and ( ii ) obtaining equity capital , including through the issuance of common or preferred equity securities if market conditions are favorable , or through other actions . capital improvement projects and development we might engage in various types of capital improvement projects at our operating properties . such projects vary in cost and complexity , and can include building out new or existing space for individual tenants , upgrading common areas or exterior areas such as parking lots , or redeveloping the entire property , among other projects . project costs are accumulated in “ construction in progress ” on our consolidated balance sheet until the asset is placed into service , and amounted to $ 64.0 million as of december 31 , 2015 . we are also engaged in several types of projects at our development properties . however , we do not expect to make any significant investment in these projects in the short term other than the fashion outlets of philadelphia . the joint venture we formed with macerich to develop the fashion outlets of philadelphia has committed to commence and complete a 46 comprehensive redevelopment of that property costing not less than $ 300.0 million within 48 months after commencement of construction . our operating partnership , preit associates , and macerich have jointly and severally guaranteed this obligation . we have also committed to significant redevelopment projects at exton square mall , plymouth meeting mall and cumberland mall . the following table sets forth key information regarding our largest current development and redevelopment projects . name of project location preit 's projected share of cost total project cost preit 's investment to date expected return on incremental investment construction start date expected completion date year of stabilization ( in millions of dollars ) fashion outlets of philadelphia , philadelphia , pennsylvania $ 160.0- $ 190.0 $ 320.0- $ 380.0 $ 31.9 8-9 % 2016 2018 2020 -complete overhaul of the former gallery at market east , spanning three city blocks in downtown philadelphia . project will offer a fusion of luxury and moderate outlet shops , flagship retail and destination dining and entertainment experiences . exton square mall - phase i , exton , pennsylvania $ 30.0- $ 33.0 $ 30.0- $ 33.0 $ 3.9 9-10 % 2016 2017 2018 -55,000 square foot whole foods to open on site of k-mart in 2017 ; -addition of first to market entertainment complex , round 1 , in the former jcpenney anchor store location . plymouth meeting mall , plymouth meeting , pennsylvania $ 6.6- $ 7.3 $ 6.6- $ 7.3 $ 0.1 8-9 % 2016 2017 2018 -addition of 33,000 square foot legoland discovery center , one of nine in the united states . story_separator_special_tag cumberland mall , vineland , new jersey $ 7.5- $ 8.3 $ 7.5- $ 8.3 $ 0.1 10-11 % 2016 2016 2018 -opening a dick 's sporting goods in the former jcpenney anchor store location in early 2017. as of december 31 , 2015 , we had unaccrued contractual and other commitments related to our capital improvement projects and development projects at our consolidated properties of $ 31.8 million in the form of tenant allowances and contracts with general service providers and other professional service providers . critical accounting policies critical accounting policies are those that require the application of management 's most difficult , subjective , or complex judgments , often because of the need to make estimates about the effect of matters that are inherently uncertain and that might change in subsequent periods . in preparing the consolidated financial statements , management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements , and the reported amounts of revenue and expenses during the reporting periods . in preparing the consolidated financial statements , management has utilized available information , including our past history , industry standards and the current economic environment , among other factors , in forming its estimates and judgments , giving due consideration to materiality . management has also considered events and changes in property , market and economic conditions , estimated future cash flows from property operations and the risk of loss on specific accounts or amounts in determining its estimates and judgments . actual results may differ from these estimates . in addition , other companies may utilize different estimates , which may affect comparability of our results of operations to those of companies in a similar business . the estimates and assumptions made by management in applying critical accounting policies have not changed materially during 2015 , 2014 and 2013 , except as otherwise noted , and none of these estimates or assumptions have proven to be materially incorrect or resulted in our recording any significant adjustments relating to prior periods . we will continue to monitor the key factors underlying our estimates and judgments , but no change is currently expected . set forth below is a summary of the accounting policy that management believes is critical to the preparation of the consolidated financial statements . this summary should be read in conjunction with the more complete discussion of our accounting policies included in note 1 to our consolidated financial statements . asset impairment real estate investments and related intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the property might not be recoverable . a property to be held and used is considered impaired only if management 's estimate of the aggregate future cash flows , less estimated capital expenditures , to be generated by the property , undiscounted and without interest charges , are less than the carrying value of the property . this estimate takes 47 into consideration factors such as expected future operating income , trends and prospects , as well as the effects of demand , competition and other factors . the determination of undiscounted cash flows requires significant estimates by management , including the expected course of action at the balance sheet date that would lead to such cash flows . subsequent changes in estimated undiscounted cash flows arising from changes in the anticipated action to be taken with respect to the property could impact the determination of whether an impairment exists and whether the effects could materially affect our net income . to the extent estimated undiscounted cash flows are less than the carrying value of the property , the loss will be measured as the excess of the carrying amount of the property over the estimated fair value of the property . assessment of our ability to recover certain lease related costs must be made when we have a reason to believe that the tenant might not be able to perform under the terms of the lease as originally expected . this requires us to make estimates as to the recoverability of such costs . an other than temporary impairment of an investment in an unconsolidated joint venture is recognized when the carrying value of the investment is not considered recoverable based on evaluation of the severity and duration of the decline in value . to the extent impairment has occurred , the excess carrying value of the asset over its estimated fair value is charged to income . if there is a triggering event in relation to a property to be held and used , we will estimate the aggregate future cash flows , less estimated capital expenditures , to be generated by the property , undiscounted and without interest charges . in addition , this estimate may consider a probability weighted cash flow estimation approach when alternative courses of action to recover the carrying amount of a long-lived asset are under consideration or when a range of possible values is estimated . in determining the estimated undiscounted cash flows of the property or properties that are being analyzed for impairment of assets , we take the sum of the estimated undiscounted cash flows , generally assuming a holding period of 10 years , plus a terminal value calculated using the estimated net operating income in the eleventh year and terminal capitalization rates , which in 2013 ranged from 6.25 % to 12.0 % and in 2014 ranged from 5.25 % to 12.5 % and in 2015 ranged from 4.5 % to 15.5 % . in 2015 , as a result of our analysis , we determined that seven properties had incurred impairment of assets . the fair values of the properties ( gadsden mall , new river valley mall , wiregrass commons mall , voorhees town center , lycoming mall , uniontown mall and palmer park mall ) were determined based on negotiated sale prices of the properties as discussed further in note 2 to our consolidated financial statements .
| occupancy the tables below set forth certain occupancy statistics for our retail properties , including properties held for sale , as of december 31 , 2015 , 2014 and 2013 : replace_table_token_16_th ( 1 ) occupancy for all periods presented includes all tenants irrespective of the term of their agreement . ( 2 ) combined occupancy is calculated by using occupied gross leasable area ( “ gla ” ) for consolidated and unconsolidated properties and dividing by total gla for consolidated and unconsolidated properties . from 2014 to 2015 , total occupancy for our retail portfolio decreased 230 basis points to 95.0 % , and mall occupancy decreased 230 basis points to 94.9 % , including consolidated and unconsolidated properties ( and including all tenants irrespective of the term of their agreement ) . same store occupancy for our retail portfolio decreased 160 basis points to 95.7 % and same store mall occupancy decreased 180 basis points to 95.4 % , including consolidated and unconsolidated properties ( and including all 49 tenants irrespective of the term of their agreement ) . during 2015 , we experienced closings related to tenant bankruptcies and anchor store closings amounting to 404,764 square feet , or 2.1 % of our same store portfolio . leasing activity the table below sets forth summary leasing activity information with respect to our properties for the year ended december 31 , 2015 , including anchor and non anchor space at consolidated , unconsolidated and held for sale properties : replace_table_token_17_th ( 1 ) new rent is the initial amount payable upon rent commencement . in certain cases , a lower rent may be payable until certain conditions in the lease are satisfied . 50 ( 2 ) these leasing costs are presented as annualized costs per square foot and are spread uniformly over the initial lease term . ( 3 ) this category includes newly constructed and recommissioned space . ( 4 ) this category includes leases for reconfigured spaces and lease extensions . see “ item 2. properties—retail lease expiration schedule ” for information regarding average minimum rent on expiring leases . the following table sets forth our results of operations for the
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- 30 - line of credit ; loans we are a guarantor for and making payments with respect to a note payable by wbe to security national bank of $ 1,394,044 at december 31 , 2009. a principal payment of $ 500,000 was made in february 2009. pursuant to an amendment executed during the first quarter of 2009 , principal and interest payments of $ 17,560 are due to be made from march 2009 until the maturity date of march 2010 , which may be extended on an annual basis if the company is in compliance with the note terms . this note bears interest at 6.5 % and is secured by substantially all of the assets of wbe and guaranteed by certain wbe members and the company . we had a line of credit with wells fargo for borrowings up to $ 250,000 with an interest rate of the prime rate used by wells fargo plus 0.5 % . this line of credit was personally guaranteed by certain officers of the company . at december 31 , 2009 this line of credit has matured and was paid off in 2009 by a company payment of $ 175,000 ( plus interest ) and by the proceeds from a line of credit of $ 75,000 extended to us , by a current shareholder and officer of the company , which was paid in full in june 2009. the interest rate with respect to borrowed amounts was the prime rate used by wells fargo plus 0.5 % . this line of credit was personally guaranteed by certain officers of the company . we had a subordinated unsecured note payable to a current shareholder and former officer of the company totaling $ 560,000 and $ 600,000 at december 31 , 2009 and 2008 , respectively . this note has a variable interest rate , which was 5 % at december 31 , 2009 and 2008 , respectively , with interest paid quarterly . this note was unsecured and did not have a specified due date . in february 2009 , the note was modified to require principal payments of $ 10,000 per month , beginning september 2009 , over a 60 month term . the principal payments are scheduled to be $ 120,000 in each of 2010 , 2011 , 2012 , 2013 , and $ 80,000 in 2014. as security for our obligations under this note , we granted to the lender a security interest in our current and future accounts receivable . in addition , if the company receives additional equity financing , we are obligated to pay 5 % of such proceeds towards principal payments on this note . as of december 31 , 2009 , this obligation amounted to $ 142,500 and is included in current maturities of subordinated debt-related party in the consolidated balance sheets . we also have a secured promissory note payable to lansing securities corp. in the amount of $ 250,000 at 10 % interest . the maturity date of this loan has passed and has been temporarily waived by lansing securities until further notice . we had total current liabilities of approximately $ 6,805,000 at december 31 , 2009 , which included short-term borrowings of $ 250,000 , current maturities of long-term debt of approximately $ 1,601,000 and current maturities of subordinated debt – related party of $ 262,000 , billings in excess of costs and estimated earnings on uncompleted contracts of $ 1,641,000 , accounts payable of $ 1,672,000 , accrued payroll of approximately $ 203,000 , other liabilities of $ 770,000 ( primarily professional fees payable to niton capital of an estimated $ 420,000 and legal and audit fees of $ 97,000 ) as well as current liabilities of discontinued operations of approximately $ 357,000. we had total long-term liabilities of approximately $ 307,000 at december 31 , 2009 , which included long-term debt of approximately $ 9,000 and long-term subordinated debt - related party of $ 298,000. our total liabilities were approximately $ 7,112,000 as of december 31 , 2009. on october 9 , 2008 , we entered into a term loan agreement ( “ o2d loan ” ) with o2diesel corporation ( “ o2d ” ) , formerly a publically traded company , pursuant to which we agreed to provide o2d with up to $ 1,000,000 for o2d 's working capital purposes . o2d is a commercial developer of cleaner-burning diesel fuel alternatives , including o2diesel , an ethanol-diesel additive . we previously licensed certain technology to o2d under a technology license and services agreement , dated march 6 , 2008 ( the `` license agreement '' ) . the o2d loan provided an initial loan of $ 250,000 in the form of a secured promissory note ( the “ note ” ) with an annual interest rate of 10 % . as of march 31 , 2009 , o2d defaulted on this note and , due to o2diesel 's financial condition , the company determined it would not make any additional loans to o2d and reserved for the entire amount of the note . the company sold this note at face value to a third party ( the `` note purchaser '' ) in april 2009. subsequently , o2d declared bankruptcy and the note purchaser acquired o2d out of bankruptcy . the company acquired the license agreement from the note purchaser in exchange for a payment of $ 150,000 in october 2009 and the company 's agreement to negotiate a new license for limited territories with the note purchaser . - 31 - we have provided substantial funding for wbe , a 64 % owned subsidiary of ours , relating to the demonstration of our cellulosic technology . as of december 31 , 2009 , wbe owed us approximately $ 8,821,000 through a senior secured note which includes the company 's payments on the security national bank loan of $ 1,984,949 to wbe ( with a balance of $ 1,394,044 as of december 31 , 2009 ) . story_separator_special_tag there is currently no specific repayment schedule for these debts owed to the company by wbe . net cash from continuing operations – operating activity our cash flow from operations has been negative since the inception of the company . we do not anticipate that we will have a positive cash flow from operations in 2010. whether we have positive cash flow in 2010 depends on whether we are able to realize engineering design and licensing revenue from new cbe projects ( expected to start in the last half of 2010 ) and other operational revenue . a significant piece of our business is still in the research and development phase and we expect to continue to incur losses until we have sold licenses or have our own plant ( s ) operating . we are in the process of implementing cost control measures that should help us reach our technology and business goals more efficiently . we have implemented a strict budgetary and financial control process . we have also re-focused our human and financial resources towards the goal of being a technology provider and owner/operator of cbe plants and eliminated positions that are not critical to this business mission . during the period from our inception to december 31 , 2009 , we have incurred significant net losses . at december 31 , 2009 and december 31 , 2008 , we had negative working capital ( i.e . current assets less current liabilities ) of approximately $ 6.4 million and $ 5.3 million , respectively . total liabilities exceeded total assets by approximately $ 3.2 million and $ 2.0 million at december 31 , 2009 and 2008 , respectively . during the year ended december 31 , 2009 , our operating activities used a net of approximately $ 5.0 million of cash . this reflected a loss of approximately $ 7.0 million from continuing and discontinued operations and decreases in noncontrolling interests ( $ 1.3 million ) , accounts payable ( $ 390,000 ) and current liabilities of discontinued operations ( $ 13,000 ) which were largely offset by depreciation of approximately $ 2.0 million , allowances for doubtful accounts of approximately $ 438,000 , a decrease of approximately $ 432,000 in prepaid expenses and other current assets ( primarily deferred issuance costs of $ 320,000 ) and an increase of approximately $ 1.1 million in accrued payroll and other liabilities ( of which an estimated $ 420,000 was attributable to niton capital consulting fees ) . during the year ended december 31 , 2008 , our operating activities used a net of $ 4,114,000 of cash . this reflected a loss of $ 7,493,000 before noncontrolling interests , which was increased by a decrease in accounts payable of $ 932,000 , a decrease in billings in excess of costs and estimated earnings on uncompleted contracts of $ 811,000 , offset by depreciation of $ 1,792,000 , amortization of derivative liability of $ 1,150,000 , amortization of debt issuance costs of $ 305,000 , a decrease in net trade receivables of $ 1,042,000 , an increase in accrued payroll and other liabilities of $ 369,000 , a decrease in costs and estimated earnings in excess of billings on uncompleted contracts of $ 169,000 , a decrease in inventories of $ 104,000 , and a decrease in prepaid expenses and other assets of $ 150,000 , and a loss on the sale of fixed assets of $ 40,000 . - 32 - net cash from continuing operations - investing activities net cash used in investing activities of approximately $ 252,000 for the year ended december 31 , 2009. these funds were primarily used for the purchase of property , plant , and equipment for the wbe facility . for the year ended december 31 , 2008 , net cash used in investing activities was $ 156,000. these funds were used primarily for approximately $ 845,000 in wbe plant improvements offset by the sale of our airplane and other equipment that netted $ 689,000. net cash from continuing operations – financing activity net cash provided by our financing activities was approximately $ 4.6 million for the year ended december 31 , 2009. during this period , we received approximately $ 5.8 million in net proceeds from the private placement of common stock offset by approximately $ 1.2 million of reductions in short-term borrowings and long-term debt . net cash provided by our financing activities was $ 4,777,000 for the year ended december 31 , 2008. during this period , we received $ 6,100,000 in convertible debt that was converted into common stock in connection with the merger . in addition , we received $ 250,000 in notes payable and $ 25,000 in proceeds of a common stock private placement . these amounts were reduced by debt issuance costs for convertible debt of $ 612,000 , payments on long-term debt principle of $ 856,000 and net payments on lines of credit and short-term borrowings of $ 130,000. story_separator_special_tag and mr. harstad on february 15 , 2010 , the company entered into amended and restated employment agreements with each of mr. corcoran , mr. litzen and mr. harstad that provide for their employment as president and chief executive officer , vice president of engineering and chief technology officer and vice president of plant operations , respectively , which agreements replaced each of their prior employment agreements and have a term through february 15 , 2013. at the same time , the company entered into an employee proprietary information and inventions agreement and a noncompetition agreement with each of these executive officers . under the employment agreements , mr. corcoran 's base salary is at an annual rate of $ 147,019 , mr. litzen 's base salary is at an annual rate of $ 139,725 , and mr. harstad 's base salary is at an annual rate of $ 130,500 , for the term of employment , each subject to annual increases at the discretion of the company .
| the increase is primarily related to our efforts at enhancing technology and process improvements at the wbe plant and includes increases in equipment repairs ( $ 91,000 ) , utilities ( $ 60,000 ) , enzymes and other feedstocks ( $ 137,000 ) , depreciation ( $ 156,000 ) , rental equipment ( $ 101,000 ) and employee benefits ( $ 28,000 ) . - 33 - other income and expense other income was approximately $ 136,000 for the year ended december 31 , 2009 compared to approximately $ 2.1 million in other expense for the year ended december 31 , 2008. this $ 2.2 million improvement was primarily due to the absence of approximately $ 1.9 million in amortization of debt issuance costs and debt discounts in 2009. in addition , the company recorded approximately $ 433,000 of other income in 2009 resulting from the settlement of the willmark arbitration . subsequent developments unregistered sale of securities on january 6 , 2010 , the company entered into a securities purchase agreement with a certain investor . pursuant to the terms of the purchase agreement , the investor paid $ 1.5 million on that date , representing 50 % of the investor 's commitment to purchase 2,000,000 shares of the company 's common stock , and if the investor does not pay the remaining $ 1.5 million within 14 days of receiving a written demand from the company , the shares held by a third party holder and related to the first payment will be cancelled . we expect the pricing of these shares to be reduced to $ 1.10 per share based on certain subsequent events . this purchase agreement provides for : ( i ) piggyback registration rights allowing the investor to participate in registration statements filed by the company and ( ii ) participation rights allowing the investor to purchase its pro rata share of equity securities issued by the company for cash , with certain exceptions including , without limitation , issuances relating to compensation , commercial credit arrangements , and strategic transactions involving ongoing business relationships . the shares will be issued in reliance on the exemption provided by regulation s
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for example , skyhook can provide customers with an understanding of the type of location ( e.g. , a fast-food restaurant or an airport ) , the ability to provide notifications and triggers upon the entry or exit of a device from a pre-defined location , and insights based on historical device locations . these location-based context solutions provide a way for application developers , enterprises , and advertisers to understand consumers ' mobile behavior and to improve their user experience , while also providing companies with the ability to reach and measure their audiences in new and relevant ways . in 2015 , one of skyhook holding , inc. 's customers , a wireless carrier utilizing the legacy u-tdoa service which accounted for approximately 80 % - 90 % of consolidated revenue at the time , gave notice that it planned to discontinue use of the u-tdoa service and did not intend to renew its contract , which expired on december 31 , 2015. the loss of this customer had a material adverse effect on skyhook holding , inc. 's business . as a result of the loss of this wireless carrier customer , changes in the regulatory environment and a shift in the overall market for the legacy u-tdoa service , skyhook holdings inc. ceased making further investment in its u-tdoa products . in 2016 , skyhook holding , inc. and skyhook wireless , inc. combined operations in order to focus on the development and sale of the suite of location and context products and are referred to collectively herein as “ skyhook. ” for both its location and context solutions , skyhook earns revenue from device makers , application providers , enterprises and advertising companies through the integration of skyhook 's technology , the provision of location services and via the sale of data . skyhook also earns revenue through entering into licensing agreements with companies to utilize its software . although the revenue generated from license agreements has thus far been one-time in nature , skyhook anticipates a recurring revenue stream from its licensing agreements in future periods . charter is the second largest cable operator in the united states and a leading broadband communications services company providing video , internet and voice services to approximately 26.2 million residential and business customers at december 31 , 2016. in addition , charter sells video and online advertising inventory to local , regional and national advertising customers and fiber-delivered communications and managed information technology ( “ it ” ) solutions to large enterprise customers . liberty acquired its interest in charter on may 1 , 2013. at december 31 , 2016 , liberty broadband owned approximately 54.1 million shares of charter class a common stock , representing an approximate 20 % ownership interest in the issued and outstanding shares . upon the closing of the time warner cable merger , the second amended and restated stockholders agreement , dated as of may 23 , 2015 , by and among legacy charter , charter , liberty broadband and a/n , as amended ( the “ stockholders agreement ” ) , became fully effective . under the stockholders agreement , we have the right to designate three directors to the charter board of directors , subject to certain exclusions and requirements . charter has agreed to cause the appointment of at least one of our designees to serve on the nominating and corporate governance , finance , audit and compensation and benefits committees of the board , provided they meet the independence and other qualifications for membership on those committees . ii-5 key drivers of revenue skyhook earns revenue from device makers , application providers , enterprises and advertising companies through the integration of its software and technology , the provision of location services and through the sale of data . in addition , skyhook earns revenue from licensing its intellectual property to other enterprises . prior to 2016 , skyhook also earned significant revenue from the sale of hardware and the licensing of associated software required to operate a passive network overlay system for generating location records for wireless devices using u-tdoa technology , and from professional and support services related thereto . these services were primarily sold to wireless carriers to provide e-9-1-1 services domestically and to enhance services in support of commercial applications , national security and law enforcement worldwide . charter 's revenue is derived principally from the monthly fees customers pay for the residential and commercial video , internet and voice services provided . charter also earns revenue from one-time installation fees and advertising sales . charter expects to continue to grow revenue by increasing the number of products in the company 's current customer homes and obtaining new customers with an improved value offering . in addition , charter expects to increase revenue by expanding the sales of services to its commercial customers . current trends affecting our business skyhook 's location determination services compete against ( 1 ) other satellite and terrestrial based location technology offerings , such as gps , ( 2 ) other providers of wi-fi and cell-based positioning , such as google , inc. ( “ google ” ) and here , a former subsidiary of nokia ; and ( 3 ) other commercial enterprises ' in-house developed location solutions . there are also a number of new location technologies in development which may further increase competition to be a location solution for new devices and which may require skyhook to meet more stringent accuracy standards . in addition , skyhook 's context services compete against other geofencing and location data offerings from other niche location companies , such as factual and foursquare . charter faces intense competition for residential customers , both from existing competitors and , as a result of the rapid development of new technologies , services and products , from new entrants . with respect to its residential business , charter competes with other providers of video , high-speed internet access , telephone services , and other sources of home entertainment . story_separator_special_tag specifically , newer categories of competitors include virtual multichannel video programming distributors such as at & t 's “ directv now , ” dish network corporation 's “ sling tv , ” and sony corporation 's “ playstation vue. ” in the broadband communications industry , charter 's principal competitors for video services are dbs and telephone companies that offer video services . charter 's principal competitors for high-speed internet services are the broadband services provided by telephone companies , including both traditional dsl , fiber-to-the-node , and fiber-to-the-home offerings . a growing number of commercial areas , such as retail malls , restaurants and airports , offer wi-fi internet service . numerous local governments are also considering or actively pursuing publicly subsidized wi-fi internet access networks . these options offer alternatives to cable-based internet access . charter 's principal competitors for telephone services are established telephone companies , other telephone service providers , and other carriers , including voip providers . the increase in the number of different technologies capable of carrying voice services and the number of alternative communication options available to customers as well as the replacement of wireline services by wireless have intensified the competitive environment in which charter operates its residential voice service . skyhook and charter must stay abreast of rapidly evolving technological developments and offerings to remain competitive and increase the utility of their products and services . these companies must be able to incorporate new technologies into their products and services in order to address the needs of their customers . ii-6 results of operations—consolidated story_separator_special_tag on september 10 , 2010 , skyhook filed a patent infringement lawsuit in the u.s. district court for the district of massachusetts against google . in march 2013 , skyhook amended its lawsuit to add additional claims . the case had been scheduled to be tried before a jury commencing march 9 , 2015 , with skyhook alleging at that time that google infringed on eight skyhook patents involving location technology and seeking an injunction and or award of damages in an amount to be determined at trial . however , on march 5 , 2015 , the parties advised the district court that the case had been settled and thereby dismissed the action without costs and without prejudice to the right , upon good cause shown within 45 days , to reopen the action if settlement was not consummated . on march 27 , 2015 , the parties consummated a final settlement agreement and on april 24 , 2015 , google paid skyhook settlement consideration of $ 90 million . in return for payment of the settlement consideration , google received dismissal of the action with prejudice , a license to the existing skyhook patents and patent applications ( and their continuations , divisionals , continuations-in-part ) , a three-year covenant not to sue ( subject to limited exceptions ) and a mutual release of claims . as a result of the settlement , skyhook realized a net gain , after legal fees , of approximately $ 60.5 million during the first quarter of 2015. impairment of intangible assets during september 2015 , skyhook 's largest customer ( at & t ) gave notice that it did not intend to renew its contract related to skyhook 's legacy u-tdoa service , which expired on december 31 , 2015. the company believed that the receipt of the notification represented a significant change in circumstances since we last performed our annual goodwill impairment test . accordingly , we performed a goodwill impairment test upon receipt of the notification . at that time , the estimated fair value of ii-8 the reporting unit was primarily determined based on the cash and cash equivalents held by the reporting unit , and when compared to its carrying value , it was concluded that a goodwill impairment did not exist . as previously discussed , the carrying value of skyhook included a $ 35.5 million deferred revenue liability related to the contract with at & t . upon expiration of the contract on december 31 , 2015 , the deferred revenue was recognized , as all contractual obligations were satisfied at that time . the recognition of this deferred revenue liability increased the reporting unit carrying value . as a result , the company determined the fair value of skyhook . as the reporting unit 's carrying value now exceeded the fair value , we performed a step 2 impairment test and recorded a $ 20.7 million impairment loss related to skyhook 's goodwill during december 2015 . see note 7 in the accompanying consolidated financial statements for additional discussion regarding this impairment loss . in november 2014 , skyhook was notified that one of its significant customers was not expected to renew its contract related to its wi-fi location software solution for 2015. as a result , 30-40 % of skyhook 's wi-fi location software solution revenue was not expected to recur in 2015. due to this anticipated decline in skyhook 's operations , the company determined the fair value of skyhook and performed a step 2 impairment test , which resulted in a $ 35.2 million impairment loss recorded to skyhook 's goodwill and intangible assets during december 2014. see note 7 in the accompanying consolidated financial statements for additional discussion regarding this impairment loss . operating income ( loss ) operating income ( loss ) declined $ 80.1 million and improved $ 101.9 million for the years ended december 31 , 2016 and 2015 , respectively , as compared to the corresponding prior year periods , due to the items discussed above . adjusted oibda we define adjusted oibda as revenue less operating expenses and selling , general and administrative expenses ( excluding stock compensation ) . our chief operating decision maker and management team use this measure of performance in conjunction with other measures to evaluate our businesses and make decisions about allocating resources among our businesses .
| exclusive of the recognition of the deferred revenue associated with this contract during 2015 , revenue decreased $ 13.4 million from the prior year , primarily as a result of reduced domestic software and maintenance license fees due to a reduction in the size of the deployed base of skyhook 's legacy u-tdoa service . operating , research and development , and selling , general and administrative expenses operating , research and development , and selling , general and administrative expenses , decreased collectively by $ 17.5 million and $ 13.2 million for december 31 , 2016 and 2015 , respectively , as compared to the corresponding prior year periods . the decrease in 2016 was due to headcount reductions and other cost containment measures taken by skyhook in 2016 and 2015 , upon combining the operations of its businesses , coupled with lower legal expenses , and lower corporate selling general and administrative expenses during the year . the decrease in 2015 was largely due to a full year implementation of cost reduction measures at skyhook and lower legal expenses , partially offset by higher corporate selling , general and administrative costs during the current year . legal expenses decreased $ 3.8 million and $ 10.1 million in the years ended december 31 , 2016 and 2015 , respectively , as compared to the corresponding prior years . the decrease in legal expenses during 2016 is a result of the settlement of skyhook 's patent infringement lawsuit during the first quarter of 2015 , lower costs to maintain the patent portfolio ii-7 and the resolution of various other legal matters , offset by legal costs associated with the license agreement entered into by skyhook and corporate legal expenses related to the time warner cable merger . the decrease in legal expenses during 2015 is due to the settlement during the third quarter of 2014 of skyhook 's antitrust lawsuit arising from the standard setting processes for lte wireless data communication technology as it pertains to location technology and the settlement of skyhook 's patent infringement lawsuit against google during the first quarter of 2015. additionally , lobbying
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( 6 ) the estimated and actual production figures shown for wassa is payable gold in doré . ( 7 ) the estimated and actual gold and silver production figures shown for peñasquito are payable gold and silver in concentrate and doré . the estimated and actual lead and zinc production figures shown are payable lead and zinc in concentrate . covid-19 and current economic environment several of our operating counterparties announced temporary operational curtailments or the withdrawal or review of previously disclosed guidance due to the ongoing covid-19 pandemic . the economic and societal impacts associated with covid-19 are fluid and changing rapidly , and we are currently unable to predict the nature or extent of any impact on our results of operations and financial condition . we will continue to monitor any further developments that the covid-19 pandemic may have on stream or royalty interests as part of our regular asset impairment analysis . historical production the following table discloses historical production for the past two fiscal years for the principal producing properties that are subject to our stream and royalty interests , as reported to us by the operators of the mines . we do not participate in the preparation or calculation of the operators ' production reports and have not independently assessed or verified , and disclaim all responsibility for , the accuracy of such information . historical production ( 1 ) by stream and royalty interest principal producing properties for the fiscal years ended june 30 , 2020 and 2019 replace_table_token_12_th ( 1 ) historical production for our stream interests relates to the amount of stream metal sales for each fiscal year presented and may differ from stream deliveries discussed in item 2 , properties , or from the operators ' public reporting . for our royalty interests , historical production relates to the payable metal amounts as reported to us by the operators of the mines subject to our royalty rate for each fiscal year presented . critical accounting policies listed below are the accounting policies we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset , liability , revenue or expense being reported . please also refer to note 2 of the notes to consolidated financial statements for a discussion on recently adopted and issued accounting pronouncements . 31 use of estimates the preparation of our financial statements , in conformity with u.s. generally accepted accounting principles ( “ u.s . gaap ” ) , requires management to make estimates and assumptions . these estimates and assumptions affect the reported amounts of assets and liabilities , at the date of the financial statements , as well as the reported amounts of revenues and expenses during the reporting period . we rely on reserve estimates reported by the operators of the properties on which we hold stream and royalty interests . these estimates and the underlying assumptions affect the potential impairments of long-lived assets and the ability to realize income tax benefits associated with deferred tax assets . these estimates and assumptions also affect the rate at which we recognize revenue or charge depreciation , depletion and amortization to earnings . on an ongoing basis , management evaluates these estimates and assumptions ; however , actual amounts could differ from these estimates and assumptions . differences between estimates and actual amounts are adjusted and recorded in the period that the actual amounts are known . stream and royalty interests in mineral properties and related depletion stream and royalty interests include acquired stream and royalty interests in production , development and exploration stage properties . the costs of acquired stream and royalty interests are capitalized as tangible assets as such interests do not meet the definition of a financial asset under u.s. gaap . production stage stream and royalty interests are depleted using the units of production method over the life of the mineral property ( as stream sales occur or royalty payments are recognized ) , which are estimated using proven and probable reserves as provided by the operator . development stage mineral properties , which are not yet in production , are not depleted until the property begins production . exploration stage mineral properties , where there are no proven and probable reserves , are not depleted . at such time as the associated exploration stage mineral interests are converted to proven and probable reserves , the mineral property is depleted over its life , using proven and probable reserves . exploration costs are expensed when incurred . asset impairment we evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts of an asset or group of assets may not be recoverable . the recoverability of the carrying value of stream and royalty interests in production and development stage mineral properties is evaluated based upon estimated future undiscounted net cash flows from each stream and royalty interest using estimates of proven and probable reserves and other relevant information received from the operators . we evaluate the recoverability of the carrying value of royalty interests in exploration stage mineral properties in the event of significant decreases in the price of gold , silver , copper and other metals , and whenever new information regarding the mineral properties is obtained from the operator indicating that production will not likely occur or may be reduced in the future , thus potentially affecting the future recoverability of our stream or royalty interests . impairments in the carrying value of each property are measured and recorded to the extent that the carrying value in each property exceeds its estimated fair value , which is generally calculated using estimated future discounted cash flows . story_separator_special_tag estimates of gold , silver , copper , and other metal prices , and operators ' estimates of proven and probable reserves or mineralized material related to our stream or royalty properties are subject to certain risks and uncertainties which may affect the recoverability of our investment in these stream and royalty interests in mineral properties . it is possible that changes could occur to these estimates , which could adversely affect the net cash flows expected to be generated from these stream and royalty interests . refer to note 4 to consolidated financial statements for a discussion of the impairment assessment results for the fiscal year ended june 30 , 2020. revenue under u.s. gaap , a performance obligation is a promise in a contract to transfer control of a distinct good or service ( or integrated package of goods and or services ) to a customer . a contract 's transaction price is allocated to each distinct 32 performance obligation and recognized as revenue when , or as , a performance obligation is satisfied . in accordance with this guidance , revenue attributable to our stream interests and royalty interests is generally recognized at the point in time that control of the related metal production transfers to our customers . the amount of revenue we recognize further reflects the consideration to which we are entitled under the respective stream or royalty agreement . a more detailed summary of our revenue recognition policies for our stream and royalty interests is discussed below . stream interests a metal stream is a purchase agreement that provides , in exchange for an upfront deposit payment , the right to purchase all or a portion of one or more of the metals produced from a mine , at a price determined for the life of the transaction by the purchase agreement . gold , silver and copper received under our metal streaming agreements are taken into inventory , and then sold primarily using average spot rate gold , silver and copper forward contracts . the sales price for these average spot rate forward contracts is determined by the average daily gold , silver or copper spot prices during the term of the contract , typically a consecutive number of trading days between ten days and three months ( depending on the frequency of deliveries under the respective streaming agreement and our sales policy in effect at the time ) commencing shortly after receipt and purchase of the metal . we settle our forward sales contracts via physical delivery of the metal to the purchaser ( our customer ) on the settlement date specified in the contract . under our forward sales contracts , there is a single performance obligation to sell a contractually specified volume of metal to the purchaser , and we satisfy this obligation at the point in time of physical delivery . accordingly , revenue from our metal sales is recognized on the date of settlement , which is the date that control , custody and title to the metal transfer to the purchaser . royalty interests royalties are non-operating interests in mining projects that provide the right to a percentage of revenue or metals produced from the project after deducting specified costs , if any . we are entitled to payment for our royalty interest in a mining project based on a contractually specified commodity price ( for example , a monthly or quarterly average spot price ) for the period in which metal production occurred . as a royalty holder , we act as a passive entity in the production and operations of the mining project , and the third-party operator of the mining project is responsible for all mining activities , including subsequent marketing and delivery of all metal production to their ultimate customer . in all of our material royalty interest arrangements , we have concluded that we transfer control of our interest in the metal production to the operator at the point at which production occurs , and thus , the operator is our customer . we have further determined that the transfer of each unit of metal production , comprising our royalty interest , to the operator represents a separate performance obligation under the contract , and each performance obligation is satisfied at the point in time of metal production by the operator . accordingly , we recognize revenue attributable to our royalty interests in the period in which metal production occurs at the specified commodity price per the agreement , net of any contractually allowable offsite treatment , refining , transportation and , if applicable , mining costs . metal sales gold , silver and copper received under our metal streaming agreements are taken into inventory , and then sold primarily using average spot rate gold , silver and copper forward contracts . the sales price for these average spot rate forward contracts is determined by the average daily gold , silver or copper spot prices during the term of the contract , typically a consecutive number of trading days between 10 days and three months ( depending on the frequency of deliveries under the respective streaming agreement and our sales activity in effect at the time ) commencing shortly after receipt and purchase of the metal . temporary modifications may be made to our metal sales guidelines from time to time as required to meet our needs . revenue from gold , silver and copper sales is recognized on the date of the settlement , which is also the date that title to the metal passes to the purchaser . cost of sales cost of sales , which excludes depreciation , depletion and amortization , is specific to our stream agreements and is the result of our purchase of gold , silver and copper for a cash payment .
| we believe we will be able to fund all current obligations from net cash provided by operating activities . off-balance sheet arrangements we do not have any off-balance sheet arrangements . results of operations fiscal year ended june 30 , 2020 , compared with fiscal year ended june 30 , 2019 for the fiscal year ended june 30 , 2020 , we recorded net income attributable to royal gold stockholders of $ 199.3 million , or $ 3.04 per basic share and $ 3.03 per diluted share , as compared to net income attributable to royal gold stockholders of $ 93.8 million , or $ 1.43 per basic and diluted share , for the fiscal year ended june 30 , 2019. the increase in our earnings per share was primarily attributable to ( i ) an increase in revenue , ( ii ) a decrease in our interest expense and ( iii ) discrete income tax benefits recognized , primarily attributable to recent swiss tax reform during the quarter ended september 30 , 2019 and the release of an uncertain tax liability resulting from a settlement agreement with a foreign tax authority . each are discussed further below . for the fiscal year ended june 30 , 2020 , we recognized total revenue of $ 498.8 million , which is comprised of stream revenue of $ 359.9 million and royalty revenue of $ 138.9 million , at an average gold price of $ 1,560 per ounce , an average silver price of $ 16.90 per ounce and an average copper price of $ 2.57 per pound , compared to total revenue of $ 423.1 million , which is comprised of stream revenue of $ 305.8 million and royalty revenue of $ 117.2 million , at an average gold price of $ 1,263 per ounce , an average silver price of $ 15.00 per ounce and an average copper price of $ 2.79 per pound , for the fiscal year ended june 30 , 2019 . 36 revenue and the corresponding production , attributable to our stream and royalty interests , for the fiscal
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if any cancellation or termination charges become due from the customer as a result of early cancellation or termination of a service contract , those amounts are calculated pursuant to a formula specified in each contract . recurring costs relating to supply contracts are recognized ratably over the term of the contract . 16 non-recurring fees , deferred revenue . non-recurring fees for data connectivity typically take the form of one-time , non-refundable provisioning fees established pursuant to service contracts . the amount of the provisioning fee included in each contract is generally determined by marking up or passing through the corresponding charge from the company 's supplier , imposed pursuant to the company 's purchase agreement . non-recurring revenue earned for providing provisioning services in connection with the delivery of recurring communications services is recognized ratably over the contractual term of the recurring service starting upon commencement of the service contract term . fees recorded or billed from these provisioning services are initially recorded as deferred revenue then recognized ratably over the contractual term of the recurring service . installation costs related to provisioning incurred by the company from independent third party suppliers , directly attributable and necessary to fulfill a particular service contract , and which costs would not have been incurred but for the occurrence of that service contract , are recorded as deferred contract costs and expensed proportionally over the contractual term of service in the same manner as the deferred revenue arising from that contract . deferred costs do not exceed deferred upfront fees . the company believes the initial contractual term is the best estimate of the period of earnings . other revenue . from time to time , the company recognizes revenue in the form of fixed or determinable cancellation ( pre-installation ) or termination ( post-installation ) charges imposed pursuant to the service contract . this revenue is earned when a customer cancels or terminates a service agreement prior to the end of its committed term . this revenue is recognized when billed if collectability is reasonably assured . in addition , the company from time to time sells equipment in connection with data networking applications . the company recognizes revenue from the sale of equipment at the contracted selling price when title to the equipment passes to the customer ( generally f.o.b . origin ) and when collectability is reasonably assured . estimating allowances and accrued liabilities the company employs the “ allowance for bad debts ” method to account for bad debts . the company states its accounts receivable balances at amounts due from the customer net of an allowance for doubtful accounts . the company determines this allowance by considering a number of factors , including the length of time receivables are past due , previous loss history , and the customer 's current ability to pay . in the normal course of business from time to time , the company identifies errors by suppliers with respect to the billing of services . the company performs bill verification procedures to attempt to ensure that errors in its suppliers ' billed invoices are identified and resolved . the bill verification procedures include the examination of bills , comparison of billed rates to rates shown on the actual contract documentation and logged in the company 's operating systems , comparison of circuits billed to the company 's database of active circuits , and evaluation of the trend of invoiced amounts by suppliers , including the types of charges being assessed . if the company concludes by reference to such objective factors that it has been billed inaccurately , the company will record a liability for the amount that it believes is owed with reference to the applicable contractual rate and , in the instances where the billed amount exceeds the applicable contractual rate , the likelihood of prevailing with respect to any dispute . these disputes with suppliers generally fall into four categories : pricing errors , network design , start of service date or disconnection errors , and taxation and regulatory surcharge errors . in the instances where the billed amount exceeds the applicable contractual rate the company does not accrue the full face amount of obvious billing errors in accounts payable because to do so would present a misleading and confusing picture of the company 's current liabilities by accounting for liabilities that are erroneous based upon a detailed review of objective evidence . if the company ultimately pays less than the corresponding accrual in resolution of an erroneously over-billed amount , the company recognizes the resultant decrease in cost of revenue in the period in which the resolution is reached . if the company ultimately pays more than the corresponding accrual in resolution of an erroneously billed amount , the company recognizes the resultant cost of revenue increase in the period in which the resolution is reached and during which period the company makes payment to resolve such account . although the company disputes erroneously billed amounts in good faith and historically has prevailed in most cases , it recognizes that it may not prevail in all cases ( or in full ) with a particular supplier with respect to such billing errors or it may choose to settle the matter because of the quality of the supplier relationship or the cost and time associated with continuing the dispute . careful judgment is required in estimating the ultimate outcome of disputing each error , and each reserve is based upon a specific evaluation by management of the merits of each billing error ( based upon the bill verification process ) and the potential for loss with respect to that billing error . in making such a case-by-case evaluation , the company considers , among other things , the documentation available to support its assertions with respect to the billing errors , its past experience with the supplier in question , and its past experience with similar errors and disputes . as of december 31 , 2012 , the company had $ 4.1 million in disputed billings from suppliers . story_separator_special_tag in instances where the company has been billed less than the applicable contractual rate , the accruals remain on the company 's consolidated financial statements until the vendor invoices for the under-billed amount or until such time as the obligations related to the under-billed amounts , based upon applicable contract terms and relevant statutory periods in accordance with the company 's internal policy , have passed . if the company ultimately determines it has no further obligation related to the under-billed amounts , the company recognizes a decrease in expense in the period in which the determination is made . 17 goodwill and intangible assets goodwill is the excess purchase price paid over identified intangible and tangible net assets of acquired companies . goodwill is not amortized , and is tested for impairment at the reporting unit level annually or when there are any indications of impairment , as required by the financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) topic 350 , intangibles — goodwill and other . asc topic 350 provides guidance on financial accounting and reporting related to goodwill and other intangibles , other than the accounting at acquisition for goodwill and other intangibles . a reporting unit is an operating segment , or component of an operating segment , for which discrete financial information is available and is regularly reviewed by management . we have one reporting unit to which goodwill is assigned . in september 2011 , the fasb issued asu no . 2011-08 , intangibles—goodwill and other ( topic 350 ) : testing goodwill for impairment . asu 2011-08 is intended to simplify how entities , both public and nonpublic , test goodwill for impairment . asu 2011-08 permits an entity to first assess qualitative factors to determine whether it is “ more likely than not ” that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in topic 350 , intangibles-goodwill and other . the first step tests for impairment by applying fair value-based tests . the second step , if deemed necessary , measures the impairment by applying fair value-based tests to specific assets and liabilities . application of the goodwill impairment test requires significant judgments including estimation of future cash flows , which is dependent on internal forecasts , estimation of the long-term rate of growth for the company , the useful life over which cash flows will occur , and determination of the company 's cost of capital . changes in these estimates and assumptions could materially affect the determination of fair value and conclusions on goodwill impairment . the company performs its annual goodwill impairment testing in the third quarter of each year , or more frequently if events or changes in circumstances indicate that goodwill may be impaired . the company tested its goodwill during the third quarter of 2012 and 2011 and concluded that no impairment existed . intangible assets are assets that lack physical substance , and are accounted for in accordance with asc topic 350 and asc topic 360-10-35 , impairment or disposal of long-lived assets . asc topic 360-10-35 provides guidance for recognition and measurement of the impairment of long-lived assets to be held , used and disposed of by sale . intangible assets arose from business combinations and consist of customer contracts , acquired technology and restrictive covenants related to employment agreements that are amortized , on a straight-line basis , over periods of up to five years . intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable . during the third quarter of 2012 and 2011 , the company performed a qualitative assessment and concluded that no impairment existed . income taxes the company accounts for income taxes in accordance with asc topic 740 , income taxes . under asc topic 740 , deferred tax assets are recognized for future deductible temporary differences and for tax net operating loss and tax credit carry-forwards , and deferred tax liabilities are recognized for temporary differences that will result in taxable amounts in future years . deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled . a valuation allowance is provided to offset the net deferred tax asset if , based upon the available evidence , management determines that it is more likely than not that some or all of the deferred tax asset will not be realized . in june 2006 , the fasb issued interpretation no . 48 , accounting for uncertainty in income taxes ( “ fin 48 ” ) . fin 48 was codified into asc topic 740 , which clarifies the accounting for uncertainty in income taxes recognized in an enterprise 's financial statements , and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return . asc topic 740 also provides guidance on de-recognition , classification , interest and penalties , accounting in interim periods , disclosure and transition . the adoption of the new fasb asc topic did not have a material effect on the company 's consolidated financial statements . we may from time to time be assessed interest and or penalties by taxing jurisdictions , although any such assessments historically have been minimal and immaterial to our financial results . the company 's federal , state and international tax returns for 2008 , 2009 , 2010 and 2011 are still open . in the event we have received an assessment for interest and or penalties , it has been classified in the statement of operations as other general and administrative costs .
| depreciation and amortization expense increased $ 3.4 million , or 87 % , to $ 7.3 million for the year ended december 31 , 2012 , compared to the year ended december 31 , 2011. the increase was due primarily to the network assets and intangible assets added in the packetexchange and nlayer acquisitions , intangible assets added through the novations of customer relationships , and increased levels of capital expenditures in 2012 on network routing gear . interest expense . interest expense increased $ 2.2 million , or 88 % , to $ 4.7 million for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. the increase was due to the additional debt incurred in connection with the nlayer and packetexchange acquisitions . other expense . other expense increased $ 0.8 million to $ 1.1 million for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. the increase is due to the warrant liability that was marked to market in 2012 , which resulted in a loss of $ 1.0 million . liquidity and capital resources ( amounts in thousands ) december 31 , 2012 december 31 , 2011 cash and cash equivalents and short-term investments $ 4,726 $ 3,249 debt $ 42,829 $ 27,989 management monitors cash flow and liquidity requirements . based on the company 's cash , the silicon valley bank credit facility , and analysis of the anticipated working capital requirements , management believes the company has sufficient liquidity to fund the business and meet its contractual obligations for 2013. the company 's current planned cash requirements for 2013 are based upon certain assumptions , including its ability to manage expenses and the growth of revenue from service arrangements . in connection with the activities associated with the services , the company expects to incur expenses , including provider fees , employee compensation and consulting fees , professional fees , sales and marketing , insurance and interest expense . should the expected cash flows not be available , management believes it would have the ability to revise its operating plan and make reductions in expenses . the company believes that
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the tanks are used in a variety of end markets such as petrochemical , waste management and oil and gas drilling . crane and machinery , inc. ( “ c & m ” ) is a distributor of the company 's products as well as terex corporation 's ( “ terex ” ) rough terrain and truck cranes . crane and machinery leasing , inc. ( “ c & m leasing ” ) rents equipment manufactured by the company as well as a limited amount of equipment manufactured by third parties . although c & m is a distributor of terex rough terrain and truck cranes , c & m 's primary business is the distribution of products manufactured by the company . consolidated variable interest entity even though it had no ownership interest in svw crane & equipment company ( together with its wholly owned subsidiary , rental consulting service company , “ svw ” ) , the company had the power to direct the activities that most significantly impact svw 's economic performance . additionally , the company was the primary beneficiary of the svw relationship . svw obtained third party financing , which was effectively guaranteed by the company , on specific cranes the company manufactured and remitted the loan proceeds to the company . other than its business transactions described herein , svw had no other substantial business operations . the company had determined that svw is a variable interest entity ( “ vie ” ) that under current accounting guidance needed to be consolidated in the company 's financial results . svw was consolidated into the company 's financial results beginning in the first quarter of 2016 through the fourth quarter of 2017. by december 31 , 2017 , svw had ceased operations and is therefore not a consolidated vie after december 31 , 2017. income and losses related to vie 's are typically shown in a company 's financial statements as being attributed to a non-controlling interest . other than its transactions between svw and the company , svw had no other substantial business operations . furthermore , the company exercised control and absorbed all losses and received all the income from svw operations . therefore , the company has concluded that income and losses related to the vie are attributable to the shareholders of the company . 21 economic conditions in 2016 , we noted that the selloff by energy companies of excess equipment that began in 2015 continued through much of the year . this selloff dampened demand for new equipment in both the energy market and the other markets we serve with our boom trucks . we did note that oil prices did begin to increase and by the beginning of june 2016 were approaching $ 50 per barrel . additionally , the oil rig count began to increase again and by year end totaled 525 oil rigs . late in the year , orders received began to increase and included orders for a number of cranes in a multitude of markets that the company serves . the company continues to aggressively pursue multiple markets including the tree , utility , general construction and energy markets . in 2017 , oil prices remained relatively stable through the first nine months of the year , before the prices began to strengthen considerably during the fourth quarter of the year . oil prices at the end of 2017 topped $ 61 per barrel . the oil rig count declined during the first half of the year to 431 before rebounding to 658 by the end of 2017. in early 2018 , the oil rig count continued to increase and at the end of march 2018 increased to over 800. the sell-off of used equipment continued through most of the year but the effects diminished throughout the year . the market for boom trucks continued to improve throughout the year but remained below normal levels . orders , however , increased significantly in the fourth quarter of 2017 and going into 2018 demand for boom trucks continued to increase . the market for pm knuckle boom cranes was not significantly affected by decrease in oil prices . the markets for these products have been more stable . the north american market for knuckle boom cranes is growing . pm currently has a small share of the market for knuckle boom cranes in north america . the company has started to manufacture knuckle boom cranes on a limited basis in the united states and is marketing them through the company 's current distribution channels . the company currently has a strong presence in north america for its boom trucks . the company believes that it can significantly increase the company 's share for knuckle boom cranes in north america . the company believes this is an immediate opportunity that will continue to grow over time . in 2017 , the demand for knuckle boom cranes was up modestly in all the markets that pm sells into except for the middle east . the demand from the middle east market was consistent with the prior year but remains significantly depressed . in 2017 , western and north europe were pm 's largest markets . although there was growth in the other pm markets , the demand from such other markets has not returned to levels achieved in the past . during 2018 , demand for boom trucks continued to be significantly above 2017 levels with industry shipments increasing 19 % versus 2017. the general economic environment in the united states during 2018 was favorable . story_separator_special_tag during 2018 , the united states economy was strong , oil prices strengthened , and u.s. oil rig count increased to 1,083 at december 28 , 2018 from 929 at december 31 , 2017. the company currently expects the favorable environment that it is currently operating to continue through 2019. during 2018 , the demand for knuckle boom cranes was steady in all the markets that pm sells into except for some markets in latin america where local currency turbulence with strong devaluations towards the euro and us dollar affected the local demand . the demand from the middle east market was consistent with 2017 but remained significantly slow . during 2018 , demand from western and northern europe , pm 's largest markets , remained at a solid level . although there was light growth in the other pm markets , the demand from such other markets was still lower than the levels achieved in the past . pm 's markets appeared to be stable or growing moving into 2019. factors affecting revenues and gross profit the company derives most of its revenue from purchase orders from dealers and distributors . the demand for the company 's products depends upon the general economic conditions of the markets in which the company competes . the company 's sales depend in part upon its customers ' replacement or repair cycles . adverse economic conditions , including a decrease in commodity prices , may cause customers to forego or postpone new purchases in favor of repairing existing machinery . gross profit varies from period to period . factors that affect gross profit include product mix , production levels and cost of raw materials . margins tend to increase when production is skewed towards larger capacity cranes . 22 the following table sets forth certain financial data for the three years ended december 31 , 201 8 , 201 7 and 201 6 : story_separator_special_tag losses related to the argentinian peso . as previously stated , the company has not been able to identify a strategy to effectively hedge currency risks related to the argentinian peso . other ( loss ) income — for the years ended december 31 , 2018 and 2017 , the company had other loss of $ 0.4 million and other income of $ 0.4 million , respectively . for the year ended december , 31 , 2018 , the other loss was related to the increase in the fair market value of a contingent liability associated with the pm acquisition based on a revaluation that used updated information . for the year ended december 31 , 2017 , other income is the result of revaluing a contingent acquisition liability related to an option to acquire certain pm bank debt . 24 change in fair value of securities held — - for the year ended december 3 1 , 2018 , the company had losses of $ 5.5 million . losses for the year ended december 3 1 , 2018 were due to a change in the fair value of securities held in asv ( see notes 11 and 26 in the accompanying consolidated financial statements ) . income tax — on december 22 , 2017 , the tax cuts and jobs act ( the “ jobs act ” ) was enacted into law . the jobs act makes comprehensive changes to the u.s. tax code , including , but not limited to , reducing the u.s. federal corporate tax rate from 35 % to 21 % , changes to the rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after december 31 , 2017 , immediate expensing of certain qualified property , creation of a new limitation on deductible interest expense , repeal of the u.s. corporate minimum tax ( “ amt ” ) , and changes in the manner in which international operations are taxed in the u.s. although the majority of the changes resulting from the jobs act are effective beginning in 2018 , u.s. gaap requires that certain impacts of the jobs act be recognized in the income tax provision in the period of enactment . in response to the enactment of the jobs act , the sec issued staff accounting bulletin ( “ sab ” ) 118 , which provides guidance on accounting for the tax effects of the jobs act . sab 118 provides a measurement period that should not extend beyond one year from the jobs act enactment date for companies to complete the accounting under asc 740. to the extent that a company 's accounting for certain income tax effects of the jobs act is incomplete but is able to determine a reasonable estimate , it must record a provisional estimate in the financial statements . in accordance with sab 118 , the company recorded a provisional increase to its net deferred tax asset of $ 0.4 million , which is primarily attributable to deferred tax liabilities related to indefinite lived intangible assets that became available as a source of taxable income to offset existing deferred tax assets and for the recognition of refundable alternative minimum tax credits as provided for in the jobs act . the jobs act includes a mandatory one-time transition tax on accumulated earnings of foreign subsidiaries . as a result , all previously unremitted earnings for which no u.s. deferred tax liability had been accrued are now subject to u.s. tax . the company recorded a provisional amount for the one-time transition tax liability for all of its foreign subsidiaries resulting in an income tax expense of approximately $ 0.5 million , which was offset by a reduction in the valuation allowance . during the year ended december 31 , 2018 , we increased our one-time transition tax on accumulated earnings of foreign subsidiaries by $ 0.3 million , which was offset by a reduction in the valuation allowance . due to our net loss position , we were not subject to us federal and state taxes in connection with the deemed repatriation of foreign earnings . the company completed its analysis of the jobs act during 2018.
| gross profit as a percent of sales was 17.3 % for the year ended december 31 , 2017. for 2018 , revenues increased $ 29.0 million or 13.6 % from $ 213.1 million for 2017 to $ 242.1 million for 2018. the increase is primarily due to an increase in straight mast cranes revenues and specialized mobile tank revenues . the company also had increases from all other business units for the year . the revenues for the year ended december 31 , 2018 were also favorably impacted by a stronger euro , which accounted for approximately $ 3.7 million of the increase in revenue . gross profit as a percent of net revenues was 18.2 % for the year ended december 31 , 2018 , which increased from 17.3 % for the year ended december 31 , 2017. the improvement in the gross profit percentage is primarily due to an increase in the gross margin percentage generated on the sale of straight mast cranes and specialized mobile tanks . boom truck margins were favorably impacted by an increase in production volume and improved pricing . pricing improved in 2018 , largely the result of a decrease in discounts being offered during 2018. the gross margin percent for the year ended december 31 , 2017 was affected by $ 1.7 million in inventory reserve adjustments in the third and fourth quarters of 2017. research and development —research and development for the year ended december 31 , 2018 was $ 2.8 million compared to $ 2.6 million for the comparable period in 2017. research and development expenditures were relatively consistent with the prior period . the company 's research and development spending continues to reflect our commitment to develop and introduce new products that give the company a competitive advantage . selling , general and administrative expense —selling , general and administrative expense for the year ended december 31 , 2018 was $ 41.5 million compared to $ 34.5 million for the comparable period in 2017 , an increase of $ 7.0 million . approximately $ 5.8 million was
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of $ 422,000 that was recorded in other income in 2016. other income ( expense ) also included rental income , net of associated expenses , from leasing space in buildings adjacent to the company 's corporate headquarters . fewer tenants occupied this space in 2017 , resulting in lower non-operating rental income . income tax expense the company 's effective tax rate was 34 % of the company 's pre-tax income in 2017 compared to 11 % in 2016. on december 22 , 2017 , the united states congress passed and the president signed into law the tax cuts and jobs act of 2017 ( the `` tax act '' ) . the tax act includes a number of changes that impact the company 's deferred tax positions , with the primary impact resulting from a decrease in the u.s. federal statutory corporate tax rate from 35 % to 21 % . the company has remeasured its deferred tax positions as of december 31 , 2017 at the new enacted tax rate , and accordingly , has recognized tax expense of $ 12,523,000 from the write-down of deferred tax assets in 2017. in addition , the tax act subjects unrepatriated foreign earnings to a one-time transition tax , regardless of the company 's financial statement assertion related to indefinite reinvestment or whether the company ultimately repatriates any of the foreign earnings , for which the company has recorded estimated tax expense of $ 101,379,000 in 2017. furthermore , the tax act replaces the current system of taxing u.s. corporations on repatriated foreign earnings with a partial territorial system that provides a 100 % dividends-received deduction to domestic corporations for foreign-source dividends received from 10 % or more owned foreign corporations . the company has recorded a decrease in tax expense of $ 3,843,000 in 2017 from the reversal of the tax effect of a 2016 dividend paid in 2017 from a wholly-owned foreign subsidiary to its domestic entity . in addition to the 2017 impact of the tax act , the effective tax rate included a decrease in tax expense of $ 38,569,000 in 2017 and $ 11,889,000 in 2016 from the excess tax benefit arising from the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes from stock option exercises . the company can not predict the level of stock option exercises by employees in future periods . remaining discrete tax events resulted in a decrease in tax expense of $ 2,502,000 in 2017 , consisting primarily of the final true-up of the prior year 's tax accrual upon filing the actual tax returns and the expiration of the statutes of limitations for certain reserves for income tax uncertainties , and an increase in tax expense of $ 475,000 in 2016. the majority of income earned outside of the united states is indefinitely reinvested to provide funds for international expansion . the company is tax resident in numerous jurisdictions around the world and has identified its major tax jurisdictions as the united states , ireland , and china . the statutory tax rate is 12.5 % in ireland and 25 % in china . international rights to certain of the company 's intellectual property are held by a subsidiary whose legal jurisdiction does not tax this income , resulting in a foreign effective tax rate lower than the above mentioned statutory rates . however , this income has been included in the provisional estimate of the one-time transitional tax on unrepatriated foreign earnings under the tax act . the company has not yet determined how the tax act will impact its financial statement assertion related to indefinite reinvestment in future years . year ended december 31 , 2016 compared to year ended december 31 , 2015 revenue revenue for the year ended december 31 , 2016 increased by $ 70,196,000 , or 16 % , from the prior year . changes in foreign currency exchange rates did not have a material impact on revenue . revenue from factory automation customers increased by $ 70,737,000 , or 17 % , while revenue from semiconductor and electronics capital equipment manufacturers , which represented only 4 % of revenue in 2016 and 5 % of revenue in 2015 , decreased by $ 541,000 , or 2 % , from the prior year . the increase in factory automation revenue was due in part to higher revenue from a material customer in the consumer electronics industry . revenue from all other factory automation customers increased from the prior year by 15 % due to a higher volume of machine vision products sold . this increase from all other factory automation customers came from all major regions , including a 12 % increase from customers based in the americas , a 17 % increase from customers based in europe , and a 19 % increase from customers based in asia . gross margin gross margin as a percentage of revenue was 78 % in 2016 compared to 77 % in 2015. the increase in gross margin was due primarily to the favorable impact of material cost reductions and volume purchasing , as well as manufacturing efficiencies achieved from a higher revenue level as fixed manufacturing costs were spread over a larger revenue base . these increases were partially offset by a trend toward higher hardware content in our product sales as we 21 move away from software-only solutions , higher inventory charges , and an increased level of projects in the logistics industry that require installation services with lower margins . operating expenses research , development , and engineering expenses research , development , and engineering ( rd & e ) expenses in 2016 increased by $ 8,478,000 , or 12 % , from the prior year as detailed in the table below ( in thousands ) . replace_table_token_9_th rd & e expenses increased due to higher personnel-related costs resulting primarily from headcount additions to support new product initiatives and the higher business level . story_separator_special_tag these headcount additions included engineering talent from four business acquisitions completed in the last few months of 2016 that are expected to help accelerate the development of future products . in addition , higher incentive compensation plan accruals were recorded in 2016 as a result of higher achievement levels based upon the company 's performance . stock-based compensation expense was also higher than the prior year . selling , general , and administrative expenses selling , general , and administrative ( sg & a ) expenses in 2016 increased by $ 9,436,000 , or 6 % , from the prior year as detailed in the table below ( in thousands ) . replace_table_token_10_th sg & a expenses increased due to higher incentive compensation plan accruals , including sales commission plans and bonus plans as a result of higher achievement levels based upon the company 's performance . in addition , personnel-related costs were higher in 2016 resulting from headcount additions , principally sales personnel . the company also increased its spending on sales demonstration equipment related to new products and incurred higher depreciation expense related primarily to information technology and facilities investments . offsetting these increases was the settlement of patent litigation actions with microscan systems , inc. in 2015. the company recorded legal fees of $ 3,190,000 and a settlement expense of $ 1,833,000 related to these actions in 2015. non-operating income ( expense ) the company recorded foreign currency gains of $ 101,000 in 2016 and $ 1,122,000 in 2015. the foreign currency gains in each period resulted primarily from the revaluation and settlement of accounts receivable , accounts payable , and intercompany balances that are reported in one currency and collected in another . investment income increased by $ 3,365,000 , or 92 % , from the prior year . in 2016 , the company received $ 2,257,000 in cash distributions from its limited partnership investment , of which $ 942,000 was accounted for as a return of capital , reducing the carrying value of this investment to zero , with the remaining $ 1,315,000 recorded as investment income . future distributions will be recorded as investment income as they occur . the remaining increase in investment income was due to increased funds available for investment , as well as higher yields on the company 's portfolio of debt securities . the company recorded other income of $ 871,000 in 2016 and $ 645,000 in 2015. other income included a benefit of $ 463,000 in 2016 and $ 790,000 in 2015 resulting from a decrease in the fair value of the contingent consideration liability that arose from a 2015 business acquisition ( refer to note 20 to the consolidated financial statements in part ii - item 8 of this annual report on form 10-k for further information ) . other income also included a foreign government 22 subsidy of $ 422,000 in 2016 and $ 268,000 in 2015. in addition , other income ( expense ) included rental income , net of associated expenses , from leasing space in buildings adjacent to the company 's corporate headquarters . rental expenses declined from the prior year , while rental income was relatively flat . income tax expense the company 's effective tax rate was 11 % of the company 's pre-tax income in 2016 compared to 15 % in 2015. the effective tax rate for 2016 included a decrease in tax expense of $ 11,889,000 from the excess tax benefit arising from the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes from stock option exercises . in 2016 , the company adopted accounting standards update 2016-09 , `` improvements to employee share-based payment accounting , '' which was issued by the financial accounting standards board in march 2016. this update requires excess tax benefits to be recognized as income tax benefit in the income statement . previous guidance required excess tax benefits to be recognized as additional paid-in-capital in shareholders ' equity on the balance sheet . the effective tax rate for 2016 also included the impact of the following additional discrete tax events : ( 1 ) a decrease in tax expense of $ 893,000 from the expiration of the statutes of limitations for certain reserves for income tax uncertainties , ( 2 ) a decrease in tax expense of $ 439,000 from the final true-up of the prior-year 's tax accrual upon filing the actual tax returns , ( 3 ) an increase in tax expense of $ 547,000 from a 5 % withholding tax triggered by the movement of intellectual property purchased as part of a foreign business acquisition , and ( 4 ) an increase in tax expense of $ 1,260,000 from the write-off of a deferred tax asset related to foreign branches resulting from an irs rule change . the effective tax rate for 2015 included the impact of the following discrete tax events : ( 1 ) a decrease in tax expense of $ 1,105,000 from the final true-up of the prior year 's tax accrual upon filing the actual tax returns , ( 2 ) a decrease in tax expense of $ 975,000 from the expiration of statutes of limitations for certain reserves for income tax uncertainties , ( 3 ) a decrease in tax expense , net of reserves , of $ 910,000 from the retroactive application of the 2015 research and development tax credit passed by congress in december 2015 and applied retroactively to january 1 , 2015 , and ( 4 ) an increase in tax expense of $ 65,000 from the write down of a deferred tax asset . excluding the impact of these discrete tax events , the company 's effective tax rate was 18 % in both 2016 and 2015. the majority of income earned outside of the united states is indefinitely reinvested to provide funds for international expansion . the company is tax resident in numerous jurisdictions around the world and has identified its major tax jurisdictions as the united states , ireland and china . the statutory tax rate is 12.5
| gross margin gross margin as a percentage of revenue was 77 % in 2017 compared to 78 % in 2016. the decrease in gross margin was due primarily to higher revenue from a material customer in the consumer electronics industry under a preferred pricing arrangement , and to a lesser extent , an increased level of projects in the logistics industry that require installation services with lower margins . these decreases were partially offset by the favorable impact of material cost reductions and volume purchasing , as well as manufacturing efficiencies achieved from a higher revenue level as fixed manufacturing costs were spread over a larger revenue base . operating expenses research , development , and engineering expenses research , development , and engineering ( rd & e ) expenses in 2017 increased by $ 20,936,000 , or 27 % , from the prior year as detailed in the table below ( in thousands ) . 19 replace_table_token_7_th rd & e expenses increased due to higher personnel-related costs resulting primarily from headcount additions , which included engineering talent from six business acquisitions completed since august 2016. the company also incurred higher spending on outsourced engineering to support new product initiatives . stock-based compensation expense was higher than the prior year due to a higher valuation of stock options granted early in 2017. rd & e expenses as a percentage of revenue was 13 % in 2017 compared to 15 % in 2016. we believe that a continued commitment to rd & e activities is essential in order to maintain or achieve product leadership with our existing products and to provide innovative new product offerings , as well as to provide engineering support for large customers . in addition , we consider our ability to accelerate time to market for new products to be critical to our revenue growth . therefore , we expect to continue to make significant rd & e investments in the future , and we target our annual rd & e spending to be between 10 % and 15 % of revenue . this percentage is impacted by revenue levels and investing cycles . selling , general , and administrative expenses selling , general , and administrative ( sg & a ) expenses in 2017 increased by $ 54,618,000 , or 33 % , from the prior year as detailed in the table below ( in
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to support the commercial launch of prosigna , we are establishing a dedicated oncology sales force . as a result , we expect sales and marketing expenses and operating losses to increase as we market the product . in addition , we expect sales to grow gradually as more systems are installed , prosigna gains inclusion in important breast cancer treatment guidelines and to the extent reimbursement by third-party payors becomes more broadly available . we use third-party contract manufacturers to produce the two instruments comprising the ncounter analysis system . we manufacture consumables at our seattle , washington facility . this operating model is designed to be capital efficient and to scale efficiently as our product volumes grow . we focus a substantial portion of our resources on developing new products and solutions . we invested $ 15.0 million , $ 11.6 million and $ 9.0 million in 2013 , 2012 and 2011 , respectively , in research and development and intend to continue to make significant investments in research and development . in the future , we intend to collaborate with biopharmaceutical companies to develop companion diagnostic assays that may be used to select patients for specific drug therapies . under such collaborations , we would expect to develop , seek regulatory approval for , and commercialize the diagnostic assay . we would also expect to receive development funding and potential milestone payments from our collaborators . upon approval of the diagnostic assay , we would expect to generate revenues from the sale of the resulting in vitro diagnostic kits . our total revenue increased to $ 31.4 million in 2013 from $ 23.0 million in 2012 and $ 17.8 million in 2011 , which was driven by the sale of additional ncounter analysis systems and consumables for use on our growing installed base of instruments . historically , we have generated a substantial majority of our revenue from sales to customers in north america ; however , we expect sales in other regions to increase over time . we have never been profitable and had net losses of $ 29.3 million , $ 17.7 million , and $ 10.9 million in 2013 , 2012 and 2011 , respectively . as of december 31 , 2013 , our accumulated deficit was $ 126.8 million . key financial metrics we are organized as , and operate in , one reportable segment , which is the development , manufacture and commercialization of instruments , consumables and services for efficiently profiling the activity of hundreds of genes simultaneously from a single tissue sample . our chief operating decision maker is the chief executive officer , who manages our operations and evaluates our financial performance on a total company basis . our principal operations and decision-making functions are located at our corporate headquarters in the united states . until the fourth quarter of 2013 , we operated in two reportable segments , our life sciences business and our diagnostics business . in november 2013 , our ncounter dx analysis system with flex configuration was launched , enabling customers to perform both research and clinical testing on the same instrument . we have one sales force that now sells these systems to both research and diagnostic testing labs , and we launched our first product that can be used for both research and diagnostic testing , ncounter elements gprs . as a result of these fundamental changes to our business , we began operating the company as a single reportable segment during the fourth quarter of 2013. revenue we generate revenue from the sale of our products and related services . for a description of our revenue recognition policies , see the section of this report captioned critical accounting policies and significant estimatesrevenue recognition. -61- product revenue our products consist of our ncounter analysis system and related consumables . our ncounter analysis system typically consists of one ncounter digital analyzer and one ncounter prep station . the u.s. list price of one research use only ncounter analysis system is $ 235,000. outside the united states , depending on the country , the list price is generally higher . the u.s. list price of one ncounter dx analysis system is $ 285,000. systems are sold to distributors at a discount to list price . our customer base is primarily composed of academic institutions , government laboratories , biopharmaceutical companies and clinical laboratories that perform analyses or testing using our ncounter analysis system and purchase related consumables , potentially including prosigna kits . for our research customers , related consumables include ( 1 ) panels , which are standard pre-manufactured codesets , ( 2 ) custom codesets , which we manufacture to the specific requirements of an individual researcher , ( 3 ) ncounter elements gprs , and ( 4 ) master kits , which are ancillary reagents , cartridges , tips and reagent plates required to setup and process samples in our instruments . product revenue also includes payments for instrument installation . in 2013 , 2012 and 2011 , our average consumables revenue per system exceeded $ 100,000 per year . for our clinical laboratory customers , related consumables include prosigna in vitro diagnostic kits and ncounter elements gprs . we sell our ncounter dx analysis systems to clinical laboratory customers or offer to lease them under reagent rental arrangements where an instrument is placed at a customer location at minimal direct cost and the customer commits to purchase a minimum volume of consumable products over a period of time . to date , all clinical laboratory customers have elected to purchase instruments ; however , we expect that in the future , certain customers will elect to lease them . the list price of a prosigna test in the united states and europe is $ 2,080 and 1,550 per patient , respectively . story_separator_special_tag although the price of prosigna and our additional future diagnostic products will depend on many factors , including whether and how much third-party payors will reimburse laboratories for conducting such tests , we expect that the gross margin for our diagnostic kits will be higher than for our research consumables . we sell prosigna kits to our lab customers , who will be responsible for providing the testing service and contracting and billing payors . prosigna kits are sold to clinical laboratories on a fixed dollars-per-kit basis , which does not expose us to direct third-party payor reimbursement risk . however , we provide customary volume discounts , and in some cases , introductory pricing during the period in which third-party payor reimbursement is being established . as a result , we expect the average selling price per prosigna test to be between $ 1,500 and $ 2,000. service revenue service revenue consists of fees associated with extended service contracts and conducting proof-of-principle studies . we include a one-year warranty with the sale of our instruments and offer extended service contracts , which are purchased by a majority of our customers . we selectively provide proof-of-principle studies to prospective customers in order to help them better understand the benefits of the ncounter analysis system . revenue by geography we sell our products through our own sales forces in the united states , canada , singapore , israel and certain european countries . we sell through distributors in other parts of the world . as we have expanded our european direct sales force and entered into agreements with distributors of our products in europe , the middle east , asia pacific and south america , the amount of revenue generated outside of north america has generally increased , although there have been significant quarter-to-quarter fluctuations . in the future , we intend to expand our sales force and establish additional distributor relationships outside the united states to better access international markets . -62- the following table reflects product revenue by geography and as a percentage of total product revenue , based on the billing address of our customers . north america consists of the united states , canada and mexico ; and asia pacific includes japan , china , south korea , singapore , malaysia and australia . replace_table_token_4_th most of our revenue is denominated in u.s. dollars . our expenses are generally denominated in the currencies in which our operations are located , which is primarily in the united states . changes in foreign currency exchange rates have not materially affected us to date ; however , they may become material to us in the future as our operations outside of the united states expand . cost of revenue cost of revenue consists primarily of costs incurred in the production process , including costs of purchasing instruments from third-party contract manufacturers , consumable component materials and assembly labor and overhead , installation , warranty , service and packaging and delivery costs . in addition , cost of revenue includes royalty costs for licensed technologies included in our products , provisions for slow-moving and obsolete inventory and stock-based compensation expense . we provide a one-year warranty on each ncounter analysis system sold and establish a reserve for warranty repairs based on historical warranty repair costs incurred . we expect the average unit costs of our instruments to decline in future periods as a result of our ongoing efforts to develop a lower-cost ncounter analysis system to expand our market opportunity among smaller research laboratories . we expect the unit costs of consumable products to decline as a result of our ongoing efforts to improve our manufacturing processes and expected increases in production volume and yields . although the unit costs of our custom codesets vary , they are generally higher as a percentage of the related revenue than our panels , in vitro diagnostic kits and ncounter elements gprs . operating expenses research and development research and development expenses consist primarily of salaries and benefits , occupancy , laboratory supplies , contract services , consulting fees and related costs , costs associated with licensing molecular diagnostics rights and clinical study expenses ( including the cost of tissue samples ) to support the regulatory approval or clearance of diagnostic products . we have made substantial investments in research and development since our inception . our research and development efforts have focused primarily on the tasks required to enhance our technologies and to support development and commercialization of new and existing products and applications . we believe that our continued investment in research and development is essential to our long-term competitive position and expect these expenses to increase in future periods . given the relatively small size of our research and development staff and the limited number of active projects at any given time , we have found that , to date , it has been effective for us to manage our research and development activities on a departmental basis . accordingly , we do not require employees to report their time by project nor do we allocate our research and development costs to individual projects . the following table shows the composition of total research and development expense by functional area for the periods indicated . prior to 2012 , research and development expense related to our core ncounter platform technology and diagnostic product development were combined . -63- replace_table_token_5_th our clinical studies employ a retrospective / prospective design , which means that we use samples that were previously collected from patients and for which the treatment regimen and ultimate patient outcome is known . such studies are capital efficient as they do not require recruiting new patients and they can be completed much more quickly than typical prospective clinical trials . we intend to use a similar approach whenever possible for the additional clinical studies we intend to conduct in support of our future regulatory submissions to expand the indications for prosigna and for future diagnostic products .
| selling , general and administrative expense replace_table_token_9_th -67- the increase for the year was primarily attributable to $ 6.8 million of increased staffing and personnel-related costs to support sales and marketing and administration ; $ 2.8 million of increased external marketing and other consulting costs related to the commercial launch of prosigna ; $ 2.5 million of increased legal costs , $ 0.5 million of increased facility-related costs , and $ 1.1 million of increased corporate professional fees and other public company costs . other income ( expense ) replace_table_token_10_th the increase in interest expense was driven by increased borrowing under our credit facility during 2012 and 2013 , from $ 1.5 million as of december 31 , 2011 to $ 13.0 million as of december 31 , 2012 and to $ 18.0 million as of december 31 , 2013. the increase in other income from the revaluation of the preferred stock warrant liability resulted from a re-measurement of the fair value of preferred stock warrants using the black-scholes option pricing model , which was primarily impacted by a decrease in the valuation of the underlying stock . upon closing of our initial public offering in july 2013 , all outstanding warrants to purchase preferred stock converted into warrants to purchase common stock . as a result , the preferred stock warrant liability was reclassified to stockholders ' equity . comparison of years ended december 31 , 2012 and 2011 revenue ; cost of revenue ; gross profit replace_table_token_11_th the increase in instrument revenue was attributable to an increase in the number of systems sold , primarily related to an increase in sales outside of the united states . the net selling price of our instruments was relatively flat . the increase in consumable revenue was related to our increased instrument installed base . overall , we derived $ 3.3 million in incremental revenue from customers outside of north america as a result of the expansion of our overseas sales and marketing efforts . -68- the increase in cost of revenue was attributable to an increase in the number of systems sold , as well as the increased costs associated with higher volumes of consumables sold . gross margin was relatively flat , consistent with the relatively constant product mix in the two years . research and development expense
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one pivotal trial that has resulted from this effort is cosmic-311 , our ongoing phase 3 pivotal trial evaluating cabozantinib versus placebo in patients with rai-refractory dtc who have progressed after up to two vegf receptor-targeted therapies . we are particularly interested in examining cabozantinib 's potential in combination with icis to determine if such combinations further improve outcomes for patients . building on preclinical and clinical observations that cabozantinib may promote a more immune-permissive tumor environment potentially resulting in cooperative activity of cabozantinib in combination with these products , we are evaluating cabozantinib in combination with a variety of icis . the most advanced of these combination studies include checkmate 9er , a phase 3 pivotal trial evaluating cabozantinib in combination with nivolumab in previously untreated advanced or metastatic rcc , for which our collaboration partner bms has announced top-line results are expected in the first half of 2020 , and checkmate 040 , a phase 1/2 trial evaluating cabozantinib in combination with nivolumab and in combination with both nivolumab and ipilimumab in patients with previously treated or previously untreated advanced hcc , also in collaboration with bms and for which initial clinically meaningful results were presented at asco 's gastrointestinal cancers symposium in january 2020. additionally in may 2019 , as part of our clinical collaboration with bms , we initiated cosmic-313 , a phase 3 pivotal trial evaluating the triplet combination of cabozantinib , nivolumab and ipilimumab versus the combination of nivolumab and ipilimumab in patients with previously untreated advanced intermediate- or poor-risk rcc . we expect to complete enrollment for cosmic-313 in early 2021 and to report top-line results of the event-driven analyses from the trial in the 2022 timeframe . we also intend to evaluate the combination of cabozantinib and nivolumab , with or without ipilimumab , in other phase 3 trials in various other tumor types . in an effort to diversify our exploration of combinations with icis , we also initiated cosmic-312 , a phase 3 pivotal trial evaluating cabozantinib in combination with the roche 's ici , atezolizumab , versus sorafenib in previously untreated advanced hcc , and cosmic-021 , a broad phase 1b study evaluating the safety and tolerability of cabozantinib in combination with atezolizumab in patients with locally advanced or metastatic solid tumors . cosmic-021 is divided into two parts : a dose-escalation phase , which was completed in 2018 ; and an expansion phase , which is ongoing . findings from the dose-escalation stage of cosmic-021 demonstrated that the combination was well-tolerated and showed encouraging anti-tumor activity in patients with advanced rcc . the expansion phase of cosmic-021 comprises 24 total cohorts , with 20 cohorts evaluating the combination of cabozantinib and atezolizumab and four cohorts evaluating cabozantinib or atezolizumab as single-agent therapies . based on continuing encouraging efficacy and safety data certain cohorts have been or may be further expanded , including the cohorts of patients with nsclc who have been previously treated with an ici and mcrpc who have been previously treated with enzalutamide and or abiraterone acetate and experienced radiographic disease progression in soft tissue . we anticipate enrolling up to 1,732 patients in the trial in late 2020 , which timing is subject to the initiation of additional cohorts or expansion of selected existing cohorts . since its initiation , data from cosmic-021 have been instrumental in guiding our clinical development strategy for cabozantinib in combination with icis , including supporting planned pivotal trials in nsclc , mcrpc and rcc . encouraging results from an interim analysis of the mcrpc cohort of cosmic-021 were presented at asco 's genitourinary cancer symposium in february 2020. for additional information on the cosmic-021 results , see “ business—cabozantinib development program—trials conducted under our clinical collaboration agreements—combination studies with f. hoffmann-la roche ltd. ( roche ) ” in part i , item 1 of this annual report on form 10-k. based on regulatory feedback from the fda , and if supported by the clinical data , we intend to file with the fda for accelerated approval in an mcrpc indication as early as 2021. we also remain committed to building our product pipeline by discovering and developing new cancer therapies for patients . notably , these efforts are led by some of the same experienced scientists that led the efforts to discover cabozantinib , cobimetinib and esaxerenone , which have been approved for commercialization . using our expertise in medicinal chemistry , tumor biology and pharmacology , we are advancing drug candidates toward and through preclinical development . furthest along in these internal drug discovery efforts is xl092 , a next-generation oral tyrosine kinase inhibitor that is currently in a phase 1 clinical trial in patients with advanced solid malignancies . we anticipate that dose expansion cohorts and potential combination cohorts with icis of this phase 1 trial will begin to enroll in 2020. we augment these internal drug discovery activities with business development initiatives aimed at identifying and in-licensing promising , early-stage oncology assets and then further develop them utilizing our established clinical 58 development infrastructure . in furtherance of this strategy , in 2019 , we entered into collaboration and license agreements with aurigene , which is focused on the discovery and development of novel small molecules as therapies for cancer , and iconic , which is focused on the advancement of a next-generation adc program targeting the tissue factor in solid tumors . both the lead aurigene program targeting cdk7 and tissue factor adc program with iconic are in preclinical development and could result in ind filings in 2020. we have also made progress under our 2018 collaborations with invenra , which is focused on the discovery and development of multispecific antibodies for the treatment of cancer , and stemsynergy , which is focused on the discovery and development of novel oncology compounds aimed to inhibit tumor growth by targeting ck1α . to further enhance our early-stage pipeline , we expect to enter into additional , external collaborative relationships around assets and technologies that complement our internal drug discovery and development efforts . story_separator_special_tag for additional information regarding our business , see “ business ” in part i , item 1 of this annual report on form 10-k. 2019 business updates and financial highlights during 2019 , we continued to execute on our business objectives , generating significant revenue from operations and enabling us to continue to seek to maximize the clinical and commercial potential of our products and expand our product pipeline . significant business updates and financial highlights for 2019 and subsequent to year end include : business updates in january 2019 , the fda approved cabometyx as a treatment for patients with hcc who have been previously treated with sorafenib . in february 2019 , following the fda 's acceptance of our ind for xl092 , a next-generation oral tki , we initiated a phase 1 dose escalation trial , evaluating the pharmacokinetics , safety and tolerability of xl092 in patients with advanced solid tumors , with the primary objective of determining a dose for daily oral administration suitable for further evaluation . in april 2019 , takeda applied to the japanese mhlw for manufacturing and marketing approval of cabometyx as a treatment for patients with unresectable and metastatic rcc . in may 2019 , we announced the initiation of cosmic-313 , a phase 3 pivotal trial evaluating the triplet combination of cabozantinib , nivolumab and ipilimumab versus the combination of nivolumab and ipilimumab in patients with previously untreated advanced intermediate- or poor-risk rcc , which will be conducted in collaboration with bms . in may 2019 , following the japanese mhlw 's approval , we announced that daiichi sankyo launched minnebro as a treatment for patients with hypertension in japan . in may 2019 , we announced an exclusive option and license agreement with iconic to advance an innovative next-generation adc program for cancer . in june 2019 , genentech informed us that imspire170 , genentech 's phase 3 pivotal trial evaluating the combination of cobimetinib with atezolizumab in patients with previously untreated braf v600 wild-type advanced melanoma , did not meet its primary endpoint . in july 2019 , we announced an amendment to the protocol for cosmic-021 , the phase 1b trial of cabozantinib in combination with atezolizumab in patients with locally advanced or metastatic solid tumors , to expand patient enrollment in certain existing mcrpc and nsclc cohorts and to add new expansion and exploratory cohorts in mcrpc ( an aggregate of 24 total cohorts , with 20 expansion cohorts evaluating the combination of cabozantinib and atezolizumab and four exploratory cohorts evaluating cabozantinib or atezolizumab as single-agent therapies ) . in july 2019 , we announced an exclusive collaboration , option and license agreement with aurigene to in-license as many as six programs to discover and develop small molecules as therapies for cancer . in october 2019 , ipsen received regulatory approval from health canada for cabometyx for the first-line treatment of adults with advanced rcc . in october 2019 , we expanded our collaboration with invenra focused on the discovery and development of multispecific antibodies for the treatment of cancer to include the development of novel binders against six additional targets which we can use to generate multispecific antibodies based on invenra 's b-body technology platform , or with other platforms and formats at our option . in october 2019 , we filed a patent infringement lawsuit against msn , following receipt of a paragraph iv certification notice letter from msn that it had filed an anda with the fda requesting approval to market a generic version of cabometyx tablets , following expiration of the ‘ 473 patent , which expires on august 14 , 2026. for a 59 more detailed discussion of this litigation matter , see “ legal proceedings ” in part i , item 3 of this annual report on form 10-k. in november 2019 , daiichi sankyo reported positive results from a phase 3 pivotal trial of esaxerenone in patients with diabetic nephropathy . in november 2019 , ipsen received regulatory approval from health canada for cabometyx for treatment of patients with hcc who have been previously treated with sorafenib . in december 2019 , we announced that imspire150 , the phase 3 pivotal trial evaluating the combination of cobimetinib with atezolizumab and vemurafenib in patients with previously untreated braf v600 mutant melanoma , met its primary endpoint . results will be presented at an upcoming medical meeting and discussed with healthcare authorities around the world , including the fda and ema . in december 2019 , we announced a joint clinical research agreement with roche for the purpose of further evaluating the combination of cabozantinib with atezolizumab in patients with locally advanced or metastatic solid tumors , including in three planned phase 3 pivotal trials in advanced nsclc , mcrpc and rcc . in january 2020 , we announced an amendment to the protocol for cosmic-021 to further expand patient enrollment in an existing mcrpc cohort to up to 130 patients . in january 2020 , clinically meaningful data from checkmate 040 , the phase 1/2 trial evaluating cabozantinib in combination with nivolumab and in combination with both nivolumab and ipilimumab in patients with previously treated or previously untreated advanced hcc , were presented at asco 's gastrointestinal cancers symposium . for additional information on the checkmate 040 results , see “ business—cabozantinib development program—trials conducted under our clinical collaboration agreements—combination studies with bristol-myers squibb company ( bms ) ” in part i , item 1 of this annual report on form 10-k. in january 2020 , takeda applied to the japanese mhlw for approval to manufacture and sell cabometyx as a treatment for patients with unresectable hcc who progressed after prior systemic therapy in japan . in february 2020 , we presented clinically meaningful results from the mcrpc cohort of cosmic-021 at asco 's genitourinary cancers symposium .
| excluding the comparator purchase , cometriq sales volume has continued to decrease since the launch of cabometyx in april 2016. we expect our 2020 net product revenues to remain in-line with 2019 , reflecting the continued evolution of the metastatic rcc and hcc treatment landscapes . we recognize product revenues net of discounts and allowances as described in “ note 1. organization and summary of significant accounting policies ” to our “ notes to consolidated financial statements ” contained in part ii , item 8 of this annual report on form 10-k. the increase in discounts and allowances for the year ended december 31 , 2019 , as compared to 2018 , was primarily the result of the overall increase in product sales volume and increases in public health service hospital utilization and the dollar amount of the related chargebacks , and , to a lesser extent , increases in utilization and the dollar amount of chargebacks associated with veterans affairs hospitals and group purchasing organizations , as well as increases to other government and commercial rebates . we expect a moderate increase in our discounts and allowances as a percentage of gross product revenues during 2020 as the number of patients participating in government programs continues to increase , and as the discounts given and rebates paid to government payers also increase . collaboration revenues collaboration revenues were as follows ( dollars in thousands ) : replace_table_token_9_th license revenues license revenues include the recognition of the portion of milestone payments allocated to the transfer of intellectual property licenses for which it had become probable in the related period that the milestone would be achieved and a significant reversal of revenues would not occur , as well as royalty revenues . milestone revenues , which are allocated between license revenues and research and development services revenues , were $ 96.2 million for the year ended december 31 , 2019 , as compared to $ 164.4 million for the comparable periods in 2018. due to the nature and timing
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the following is a summary of factors that impacted our operating results and liquidity during the year ended december 31 , 2019 and other notable actions we have taken during the year : business transformation program launch - during the first quarter of 2019 , we initiated a comprehensive operational review to validate our long-term growth and margin targets and to refine our execution plans , which culminated in the launch of our business transformation program ( `` transformation program '' ) in may 2019 . we are currently in the midst of our transformation program which is structured in multiple phases extending through 2021 and is focused on specific areas of opportunity including strategic sourcing , manufacturing facility workflow redesign , distribution and administrative process efficiencies and optimizing our global brand platforms . we anticipate incurring consulting costs , restructuring charges , and other related transformation expenses of $ 75 to $ 85 million through 2021. in connection with the operational review and execution of the transformation program , we have incurred $ 35.3 million of expenses for the year ended december 31 , 2019 . we expect the remaining costs associated with the transformation program to be incurred mainly in 2020 with a lesser portion extending into 2021. we expect to settle these costs primarily in cash . we intend to continuously evaluate the total investment in , and financial benefits of , the various initiatives associated with the transformation program and are currently targeting annualized savings , including the realization of benefits from pricing optimization developed in conjunction with this program , in excess of $ 75 million by the second half of 2021. we realized actual annualized savings of approximately $ 3 million for the year ended december 31 , 2019 . the actual timing of future costs and realized savings of the program may differ materially from our current expectations and estimates . restructuring - during 2019 , we completed certain workforce reductions , limited management restructuring actions and plant closures and consolidations throughout our regions and corporate division as part of ongoing efforts to optimize and enhance operational efficiencies . as a result of these actions , we incurred costs of $ 9.8 million of which $ 9.4 million is recognized in `` restructuring expense '' and $ 0.4 million is recognized in `` cost of sales '' in the consolidated statements of operations for the year ended december 31 , 2019 . industry and business conditions on a global scale , the demand for affordable dining is expected to continue increasing . market growth is expected to be driven by , among other factors , disposable income , increased employment , investment in new establishments and the underlying trend for increased convenience . overall , we believe that longer-term growth in demand for foodservice equipment will result from the development of new restaurant concepts in the u.s. , the expansion of u.s. and foreign chains into additional international markets , the replacement and upgrades of existing equipment , and new equipment requirements resulting from menu changes , waste reduction and footprint reduction . we expect to benefit from these trends and grow market penetration alongside our customers as they expand into new service categories and geographies . we believe we are well-positioned to take advantage of worldwide growth opportunities with global and regional new product introductions , improvement in operational performance and other strategic initiatives . in the americas , we believe market conditions softened in the second half of 2019 and that modest declines in demand will continue into 2020. we expect general market conditions in apac to be favorable while the market in emea is expected to experience a general economic slowdown as well as the withdrawal of the united kingdom from the european union and organization for economic cooperation and development global tax initiatives . in 2020 , we expect our operating results to be impacted by general market conditions , the benefits of our pricing actions and our continued focus on driving our transformation program initiatives . although we anticipate incurring short-term operating inefficiencies in certain of our manufacturing plants , we expect overall savings from our transformation program initiatives to offset inflationary pressures in labor and material costs as well as tariffs as a result of the execution of our transformation program . as a result of the tax cuts and jobs act ( `` tax act '' ) , additional legislative and regulatory guidance has been and may continue to be issued , including final regulations that could impact our effective tax rate in future periods . refer to additional discussion of the impact of the tax act on the consolidated financial statements in the results of operations section of this management 's discussion and analysis of financial condition and results of operations . - 33 - business strategies we continue to focus on developing new product and system solutions to support future revenues , reducing long-term debt obligations and developing our acquisition pipeline . our specific strategic objectives include : achieve profitable growth ; create innovative products and solutions ; enhance customer satisfaction ; drive operational excellence ; and develop great people . we intend to achieve sustainable growth globally and drive increased profitability by leveraging our position as a leading commercial foodservice equipment provider , investing in product innovation including our digital controllers and connectivity initiatives , and pursuing customer-specific product solutions , while selectively pursuing strategic acquisitions and partnerships , continuing to attract and grow industry-leading talent and successfully executing our transformation program . story_separator_special_tag for the year ended december 31 , 2019 decreased by $ 7.4 million , or 9.4 % , which was primarily driven by : ( i ) higher material and other manufacturing costs of $ 8.2 million , ( ii ) an unfavorable foreign currency translation impact of $ 3.3 million and ( iii ) increased research and development costs totaling $ 2.8 million . story_separator_special_tag this unfavorable impact was partially offset by : ( i ) a $ 6.3 million favorable impact from net pricing and ( ii ) $ 1.1 million of lower net employee-related costs mainly resulting from reduced incentive compensation attributable to the segment 's operating results . adjusted operating ebitda in the apac segment for the year ended december 31 , 2019 increased by $ 9.8 million , or 31.4 % . this increase was primarily driven by : ( i ) $ 8.7 million of increased product volumes and mix , ( ii ) a $ 3.0 million decrease in research and development costs , ( iii ) $ 1.2 million of incremental earnings from crem operations and ( iv ) a favorable impact from net pricing of $ 1.1 million . these increases were partially offset by : ( i ) unfavorable material and other manufacturing costs of $ 2.0 million , ( ii ) a $ 1.3 million unfavorable impact of foreign currency translation and ( iii ) $ 1.2 million of higher employee-related costs . corporate and unallocated expenses reflect certain corporate-level expenses and eliminations , which are not allocated to the segments . for the year ended december 31 , 2019 , corporate and unallocated costs decreased by $ 3.8 million , or 7.2 % , compared to the same period of the prior year as a result of lower employee-related costs from reduced incentive compensation attributable to our consolidated operating results and a decrease in the elimination of profit in inventory attributable to lower intercompany inventory on hand as of december 31 , 2019 compared to december 31 , 2018 . analysis of non-operating income statement items for the year ended december 31 , 2019 , `` interest expense '' was $ 92.6 million , a $ 3.6 million increase as compared to the same period of the prior year , primarily driven by higher average borrowings outstanding partially offset by an overall decrease in weighted average interest rates . there were no modifications or extinguishment of debt during the year ended december 31 , 2019. the `` loss on modification or extinguishment of debt '' of $ 9.0 million recognized during the year ended december 31 , 2018 was related to the sixth amendment to our 2016 credit agreement and extinguishment losses associated with prepayments of the amended term loan b facility during the fourth quarter of 2018. for the year ended december 31 , 2019 , `` other expense — net '' was $ 5.6 million , a decrease of $ 24.2 million as compared to the same period of the prior year . the decrease is primarily the result of transactions that occurred during the year ended december 31 , 2018 which did not recur during the current year including a $ 10.0 million loss on a foreign currency hedge for the crem acquisition purchase price , a $ 9.1 million foreign currency transaction loss on debt and a $ 2.4 million loss on a pension settlement . - 36 - analysis of income taxes `` income taxes '' for the year ended december 31 , 2019 were $ 19.8 million , which was an increase of $ 9.0 million compared to the prior year . the increase was primarily driven by a $ 10.0 million tax benefit recorded for the year ended december 31 , 2018 for the update of the transition tax liability of the tax act which did not recur for the year ended december 31 , 2019 . our effective tax rate for the year ended december 31 , 2019 , was 26.2 % , compared to an effective tax rate of 12.1 % for the year ended december 31 , 2018. the increase in the effective tax rate for the year ended december 31 , 2019 compared to the same period of the prior year is primarily the result of a 11.2 % income tax benefit recorded for the year ended december 31 , 2018 to incorporate the impact of the tax act within the measurement period and a 1.9 % decrease in the tax benefit from manufacturing and research incentives . these increases were partially offset by 2.1 % of tax benefits for favorable audit settlements and the expiration of the statute of limitations of unrecognized tax benefits and a 1.9 % increase in tax benefits resulting from valuation allowance adjustments for the year ended december 31 , 2019 as compared to the same period of the prior year . taxes on foreign income unfavorably impacted the effective tax rate for both the years ended december 31 , 2019 and 2018 primarily as a result of earnings in high tax jurisdictions , including germany , china and canada , where the statutory rates range from 25 % to 30 % . for the year ended december 31 , 2019 , the effective tax rate varied from the 21.0 % statutory rate primarily due to the impact of taxes on income earned in foreign jurisdictions of 8.4 % and the global intangible low tax income rate of 2.0 % , which were partially offset by a 2.1 % benefit of adjustments for valuation allowances , a 1.9 % benefit related to unrecognized tax benefits and manufacturing and research incentives of 1.2 % . for the year ended december 31 , 2018 , the effective tax rate varied from the 21.0 % statutory rate primarily due to a 11.2 % tax benefit related to the repatriation of foreign income , and a 3.1 % benefit from manufacturing and research incentives , which were partially offset by the impact of taxes on income earned in foreign jurisdictions of 7.6 % and global intangible low taxed income of 1.5 % . as of december 31 , 2019 , we have determined that a valuation allowance is not required for the deferred tax asset for u.s. interest expense as the future reversals of existing taxable temporary differences are sufficient to realize the deferred tax asset .
| organic sales ( a non-gaap measure ) decreased 1.2 % for the year ended december 31 , 2019 compared to the same period of the prior year . net sales in the emea segment for the year ended december 31 , 2019 increased $ 7.6 million , or 2.0 % , compared to the same period of the prior year . the increase was primarily driven by higher third-party net sales of $ 5.8 million and a $ 1.8 million increase in intersegment sales . third-party net sales increased primarily due to $ 19.0 million of incremental net sales from crem products and increased net pricing . foreign currency translation negatively impacted third-party net sales for the year ended december 31 , 2019 by $ 17.8 million . organic sales ( a non-gaap measure ) increased 0.8 % for the year ended december 31 , 2019 compared to the same period of the prior year . net sales in the apac segment for the year ended december 31 , 2019 increased $ 23.2 million , or 10.1 % , compared to the same period of the prior year . the increase in net sales is primarily the result of a $ 13.6 million increase in third-party net sales and a $ 9.6 million increase in intersegment sales . third-party net sales increased primarily due to $ 5.0 million of incremental net sales from crem products , increased volumes in the general market and higher kitchencare aftermarket part sales . foreign currency translation negatively impacted third-party net sales for the year ended december 31 , 2019 by $ 3.7 million . organic sales ( a non-gaap measure ) increased 6.3 % for the year ended december 31 , 2019 compared to the same period of the prior year . analysis of earnings from operations gross profit `` gross profit '' for the year ended december 31 , 2019 totaled $ 566.9 million , a decrease of $ 2.3 million , or 0.4 % , compared to the same
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certain of our central american and caribbean markets have experienced some slowing of overall economic activity during the fiscal year which may continue to impact the level of consumer spending in the coming months . in particular , trinidad 's economy , with its dependence on oil and gas exports as a major source of income and resulting government policy to manage its foreign exchange reserves , has been experiencing overall difficult economic conditions with a corresponding impact on consumer spending . other countries where general market conditions have provided a difficult operating environment which we expect may continue into fiscal year 2018 include barbados , and usvi where hurricanes irma and maria had a severe impact on the infrastructure of the island . our capture of retail and wholesale sales can vary from market to market due to competition and the availability of other shopping options for our members . in larger , more developed countries , such as costa rica , panama and colombia , customers have many alternatives available to them to satisfy their shopping needs , and therefore , our market share is less than in other smaller countries , such as jamaica and nicaragua , where consumers have a limited number of shopping options . demographic characteristics within each of our markets can also affect both the overall level of sales and also future sales growth opportunities . island countries such as aruba , barbados and the u.s. virgin islands offer us limited upside for sales growth given their overall market size . countries with a smaller upper and middle class consumer population , such as honduras , el salvador , jamaica and nicaragua , also have a more limited potential opportunity for sales growth as compared to more developed countries with larger upper and middle class consumer population s . political and other factors in each of our markets may have significant effects on our business . for example , when national elections are being held , the political situation can introduce uncertainty about how the leadership change may impact the economy and affect near-term consumer spending . the need for increased tax revenue in certain countries can cause changes in tax policies affecting consumer 's personal tax rates , and or added consumption taxes , such as vat ( value-added taxes ) effectively raising the prices of various products . from time to time we have experienced a lack of availability of u.s. dollars in certain markets ( u.s. dollar illiquidity ) . this impedes our ability to convert local currencies obtained through warehouse sales into u.s. dollars to settle the u.s. dollar liabilities associated with our imported products , increasing our foreign exchange exposure to any devaluation of the local currency relative to the u.s. dollar . during fiscal year 2017 and continuing into fiscal year 2018 , we experienc ed this situation in trinidad ( “ tt ” ) . we have been and continue to work with our banks in trinidad to source tradable currencies ( including euros and canadian dollars ) , but until the central bank in trinidad makes more u.s. dollars available , this illiquidity condition is likely to continue . during part of the first half of fiscal year 2017 we limited shipments of merchandise to trinidad from our distribution center in miami to levels that generally aligned with our trinidad subsidiary 's ability to source u.s. dollars to pay for th at merchandise . this resulted in a reduced level of shipments , which negatively affected sales in the second quarter , particularly december , although by less than our initial estimate . these actions did not impact the level of merchandise we obtain locally in trinidad . starting in the third quarter of fiscal year 2017 , we were able to improve our sourcing of tradeable currencies , which , in addition to other steps we took , allowed for a more normalized flow of imported merchandise during the third and fourth fiscal quarters . a s of august 31 , 2017 , our trinidad subsidiary had net u.s. dollar denominated assets of approximately $ 4.0 million . however , the illiquidity situation remains in the trinidad market , and we could face similar issues in sourcing u.s. dollars during the first and second q uarters of fiscal year 2018 , which may require us to limit shipments from the u.s. to trinidad in line with our ability to exchange trinidad dollars for tradeable currencies to manage our exposure to a ny potential devaluation . 21 business strategy our business strategy is to operate membership warehouse clubs in latin america and the caribbean . we sell a limited number of high volume products and services across a broad range of categories to business and families at the lowest possible prices . pricesmart members pay an annual membership fee , and that fee , combined with volume purchasing and operating efficiencies throughout the supply chain , enable us to operate our business very efficiently with lower margins and prices than conventional retail stores and wholesale suppliers . while our traditional membership warehouse club strategy continues to work well in our markets , we recognize that technology is having an increasingly profound impact on shopping habits throughout the world . we believe our business strategy needs to be broadened to respond to changes in shopping habits so our members will have the shopping experience they desire . our longer range strategic objective is to combine the traditional membership warehouse club “ brick and mortar ” business with online shopping to provide the best shopping experience possible for our members . current and future management actions generally , our operating efficiencies , earnings and cash flow improve as sales increase . higher sales provide greater purchasing power which often translates into lower cost of merchandise from our suppliers and lower prices for our members . story_separator_special_tag higher sales , coupled with continuous efforts to improve efficiencies through our distribution network and within our warehouse clubs , also give us the opportunity to leverage our operating costs and reduce prices for our members . we seek to grow sales by increasing transaction size and shopping frequency of our members by providing high quality , differentiated merchandise at a good value . we also grow sales by attracting new members and improving the capacity of our existing warehouse clubs to serve the growing membership base and level of sales in those locations through physical expansions of the building or adding additional parking or improving the flow of merchandise to and within the warehouse club . sales growth is also achieved when we add new warehouse clubs with a corresponding increase in members in those markets that can support that growth . sales during fiscal year 2017 were positively impacted by the addition of a new warehouse club that opened in chia , colombia in s eptember 2016 , fiscal year 2017 . although we recognize that opening new warehouse club locations in certain existing markets can have adverse short-term implications for comparable store growth , as the new warehouse club will often attract sales from existing locations , each decision to add a location in an existing market is based on a long-term outlook . overall , for fiscal year 2017 , net warehouse sales increased 3.2 % when compared to fiscal year 2016. finally , in the future we believe that technology supported online sales will constitute a significant opportunity to grow sales . one of the distinguishing features of the warehouse club format is the role membership plays , both in terms of pricing and member loyalty . membership fees are considered a component of overall gross margin and therefore allow us to reduce merchandise prices . in most of our markets , the annual membership fee is the equivalent of u.s. $ 35 for both business members and non-business “ diamond ” members . in colombia , the membership fee has been 65,000 ( cop ) ( including vat ) since our initial entrance into the colombian market . the colombian peso ( cop ) was trading at approximately 2,000 cop to $ 1.00 us dollar at that time . more recently , the colombian peso has been trading at approximately 3,000 cop to $ 1.00 us dollar so that the converted membership price in u.s. dollars decreased from approximately u.s. $ 30 to approximately u.s. $ 20. in february , we raised the membership fee in colombia to 75,000 cop moving the converted membership price to approximately u.s. $ 25. in addition to the standard warehouse club membership , we have offered in costa rica what we call platinum membership since 2012 for $ 75. a platinum membership earns a 2 % rebate on annual purchases up to a maximum $ 500 rebate per year . in september , fiscal year 2018 , we introduced the platinum membership in panama and plan on adding a platinum membership level in the dominican republic in the next few months . we are considering expanding platinum membership to other pricesmart markets and may do so during fiscal year 2018. logistics and distribution efficiencies are an important part of what allows us to deliver high quality merchandise at low prices to our members . we acquire a significant amount of merchandise internationally , which we receive primarily at our miami distribution centers . in january 2017 , we purchased a distribution center in medley , miami-dade county , florida , into which we transferred our miami dry distribution center activities from a leased facility during the third quarter of fiscal year 2017. this new distribution facility will increase our ability to efficiently receive , handle and distribute merchandise.we then ship the merchandise either directly to our warehouse clubs or to regional distribution centers located in some of our larger markets . our ability to efficiently receive , handle and distribute merchandise to the point where our members put that merchandise into their shopping carts has a significant impact on our level of operating expenses and ultimately how low we can price our merchandise . we continue to explore ways to improve efficiency , reduce costs and ensure a good flow of merchandise to our warehouse clubs . as we continue to refine our logistics and distribution infrastructure , we are investing in regional distribution centers . we recently entered into a long-term lease for a 107,640 square foot distribution center in costa rica , with the expectation that this distribution center will improve the merchandise flow and in-stock conditions in our warehouse clubs , reduce merchandise costs and facilitate online sales to our members in costa rica . 22 purchasing land and constructing warehouse clubs is generally our largest ongoing capital investment . securing land for warehouse club locations is challenging within our markets , especially in colombia , because suitable sites at economically feasible prices are difficult to find . while our preference is to own rather than lease real estate , we have entered into real estate leases in certain cases ( most recently our bogota , colombia site ) and will likely do so in the future . real estate ownership provides a number of advantages as compared to leasing , including lower operating expenses , flexibility to expand or otherwise enhance our buildings , long-term control over the use of the property and the residual value that the real estate may have in future years . in order to secure warehouse club locations , we occasionally have purchased more land than is actually needed for the warehouse club facility . to the extent that we acquire property in excess of what is needed for a particular warehouse club , we generally have looked to either sell or develop the excess property . excess land at alajuela ( costa rica ) and brisas ( panama ) is being developed by joint ventures formed by us and the sellers of the property .
| low or negative comparable warehouse club sales growth , particularly in trinidad and costa rica , contributed to an overall increase in warehouse expense as a percent of sales in central america and the caribbean . colombia had a 50 basis point ( 0.50 % ) improvement in warehouse club operations expense as a percent of sales compared to fiscal year 2016. general and administrative expenses grew 8.8 % to 2.4 % of sales compared to a year ago at 2.2 % of sales resulting from increased staffing in our buying department , information technology costs and costs associated with the relocation of an executive to our san diego headquarters . expenses incurred before a warehouse club is in operation are captured in pre-opening expenses , which in fiscal year 2016 included the preopening expenses for chia , colombia and masaya , nicaragua . operating income of $ 136.2 million was $ 494,000 below last year . higher net warehouse sales and membership income and increased warehouse club gross margins resulted in a $ 10.3 million increase in operating profit in colombia compared to a 29 year ago . operating income decreased $ 406,000 in central america and $ 4.3 million in the caribbean on the low or negative sales growth experienced in those segments . comparison of 2016 to 201 5 for the twelve months ended august 31 , 2016 , total gross margin as a percent of sales was 40 basis points ( 0.40 % ) lower than the twelve months ended august 31 , 2015. total gross margin as a percent of total consolidated revenues d ecreased 41 basis points ( 0.41 % ) in colombia from the year ago period largely as a result of pricing actions we took during the year to provide value on imported goods to our members . total gross margin s as a percent of sales in the non-colombia markets were in aggregate 1 basis points ( 0.01 % ) higher . this was largely due to increased
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private acer was incorporated on december 26 , 2013 as part of a reorganization whereby acer therapeutics , llc was converted into a corporation organized under the laws of the state of delaware . on march 20 , 2015 , private acer acquired anchor therapeutics , inc. ( “ anchor ” ) , with anchor becoming a wholly-owned subsidiary of private acer . on august 19 , 2016 , anchor 's pepducin business reverted back to the pre-acquisition holders of anchor 's equity . revenue we have no products approved for commercial sale and have not generated any revenue from product sales . in the future , we may generate revenue by entering into licensing arrangements or strategic alliances . to the extent we enter into any license arrangements or strategic alliances , we expect that any revenue we generate will fluctuate from quarter-to-quarter as a result of the timing of achievement of pre-clinical , clinical , regulatory and commercialization milestones , if at all , the timing and amount of payments relating to such milestones , as well as the extent to which any products are approved and successfully commercialized . if our product candidates are not developed in a timely manner , if regulatory approval is not obtained for them , or if such product candidates are not commercialized , our ability to generate future revenue , and our results of operations and financial position , would be adversely affected . research and development expenses research and development expenses consist of costs associated with the development of our product candidates . our research and development expenses include : employee-related expenses , including salaries , benefits , and stock-based compensation ; external research and development expenses incurred under arrangements with third parties , such as contract research organizations , contract manufacturing organizations , consultants , and our scientific advisors ; and license fees . we expense research and development costs as incurred . we account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received . at any time , we are working on multiple programs , primarily within our therapeutic areas of focus . our internal resources , employees , and infrastructure are not directly tied to any one research or drug discovery project and are typically deployed across multiple projects . as such , we do not generate meaningful information regarding the costs incurred for these early stage research and drug discovery programs on a specific project basis . however , we are currently spending the vast majority of our research and development resources on our two lead development programs . 67 since private acer 's inception in december 2013 , we have spent a total of approximately $ 16.0 million in research and development expenses through december 31 , 2017. of the approximately $ 16.0 million in research and development expenses , approximately $ 13 .6 million is directly related to edsivo tm and approximately $ 2.3 million is directly related to acer-001 . other research and development costs , such as legal and travel costs , have not been identified as directly attributable to a specific research and de velopment project . we expect our research and development expenses to increase for the foreseeable future as we continue to conduct our ongoing regulatory activities , initiate new preclinical and clinical trials , and build upon our pipeline . the process of conducting clinical trials and pre-clinical studies necessary to obtain regulatory approval , preparing to seek regulatory approval , and preparing for commercialization in the event of regulatory approval , is costly and time-consuming . we may never succeed in achieving marketing approval for any of our product candidates . successful development of product candidates is highly uncertain and may not result in approved products . completion dates and completion costs can vary significantly for each product candidate and are difficult to predict . we anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to our ability to enter into new strategic alliances with respect to each program or potential product candidate , the scientific and clinical success of each product candidate , the timing and ability to obtain regulatory approval for our product candidates ( if any ) , and ongoing assessments as to each product candidate 's commercial potential . we will need to raise additional capital and may seek to do so through public or private equity or debt financings , government or other third-party funding , marketing and distribution arrangements and other collaborations , strategic alliances and licensing arrangements or a combination of these approaches . 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 as and when needed would have a negative impact on our financial condition and our ability to develop our product candidates and pursue regulatory approval . general and administrative expenses general and administrative expenses consist primarily of professional fees for legal , business consulting , auditing , and tax services . we expect that general and administrative expenses will increase in the future as we expand our operating activities . additionally , as we prepare for the filing of our application with the fda we expect to begin to incur significant expenses associated with preparing for the commercial launch of edsivo tm , or “ pre-commercial ” costs . we expect to incur significant additional costs associated with being a publicly-traded company . these increases will likely include legal fees , costs associated with sarbanes-oxley compliance , accounting fees , and directors ' and officers ' liability insurance premiums . other income ( expense ) , net other income ( expense ) , net consists primarily of interest income and expense , and various income or expense items of a non-recurring nature . story_separator_special_tag we earn interest income from interest-bearing accounts and money market funds for cash and cash equivalents . interest expense has historically been comprised of interest and other related non-cash charges incurred under convertible notes payable with our investors . additionally , we record as part of other income ( expense ) , net , transactional gains and losses on foreign currency denominated assets and liabilities when they are revalued each period due to changes in underlying exchange rates . critical accounting policies this management 's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . the preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses . on an ongoing basis , we evaluate these estimates and judgments . we base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances . these estimates and assumptions form the basis for making 68 judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources . actual results may differ materially from these estimates . we believe that the accounting policies discuss ed below are critical to understanding our historical and future performance , as these policies relate to the more significant areas involving our judgments and estimates . business combinations assets acquired and liabilities assumed as part of a business acquisition are generally recorded at their fair value at the date of acquisition . the excess of purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill . determining fair value of identifiable assets , particularly intangibles , and liabilities acquired also requires management to make estimates , which are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset . accounting for business acquisitions may require management to make judgments and estimates as to fair value of consideration transferred . this judgment and determination may affect the amount of consideration paid that is allocable to assets and liabilities acquired in the business purchase transaction . goodwill goodwill represents the excess of cost over fair value of net assets acquired in the merger and in our prior acquisition of anchor therapeutics , inc. ( “ anchor ” ) . we evaluate the recoverability of goodwill annually or more frequently , if events or changes in circumstances indicate that the carrying value of goodwill might be impaired . we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value . this step serves as the basis for determining whether it is necessary to perform the two-step goodwill impairment test . if we determine it is more likely than not that the fair value of a reporting unit is less than its carrying value , then we will perform the two-step test . the two-step test first compares the fair value of the reporting unit to its carrying value . if the fair value exceeds the carrying value , no impairment exists , and the second step is not performed . if the fair value of the reporting unit is less than its carrying value , an impairment loss is recorded as part of the second step of the test , to the extent that the implied fair value of the reporting unit goodwill is less than the carrying value . we review intangible assets annually to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment . if the carrying value of an asset exceeds its undiscounted cash flows , we write down the carrying value of the intangible asset to its fair value in the period identified . in-process research and development in-process research and development ( “ iprd ” ) represents the value of the three g-protein-coupled receptor targets ( the “ targets ” ) from the gpcr target pools of anchor that we obtained the rights to in the march 20 , 2015 , acquisition of anchor by private acer ( see note 3 to our consolidated financial statements ) . iprd was recorded at fair value in conjunction with the anchor acquisition during 2015 and is an indefinite-lived intangible asset . as such , it is tested at least annually for impairment . stock-based compensation we account for stock-based compensation expense related to stock options granted to employees and members of our board of directors under our 2013 stock incentive plan , as amended , and our 2010 stock incentive plan , as amended and restated , by estimating the fair value of each stock option or award on the date of grant using the black-scholes model . we recognize stock-based compensation expense on a straight-line basis over the vesting term . we account for stock options issued to non-employees by valuing the award using an option pricing model and re-measuring such awards to the current fair value until the awards are vested or a performance commitment has otherwise been reached . 69 research and development research and development costs are expensed as incurred and include compensation and related benefits , license fees and outside contracted research and manufacturing consultants . we often make nonrefundable advance payments for goods and services that will be used in future research and development activities . these payments are capitalized and recorded as an expense in the period that we receive the goods or when the services are performed . clinical trial and pre-clinical study accruals we make estimates of accrued expenses as of each balance sheet date in our consolidated financial statements based on certain facts and circumstances at that time .
| liquidity and capital resources we have never been profitable and have incurred operating losses in each year since inception . from inception to december 31 , 2017 , we have raised net cash proceeds of approximately $ 39.0 million , primarily from private placements of convertible preferred stock and common stock , and debt financings . as of december 31 , 2017 , we had approximately $ 15.6 million in cash and cash equivalents . our net loss for the years ended december 31 , 2017 and 2016 , was $ 14.2 million and $ 6.7 million , respectively . as of december 31 , 2017 , we had an accumulated deficit of approximately $ 25.6 million . substantially all of our operating losses resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations . the following table shows a summary of our cash flows for the years ended december 31 , 2017 , and 2016 : replace_table_token_3_th operating activities net cash used in operating activities was approximately $ 14.1 million for the year ended december 31 , 2017 , as compared to approximately $ 7.0 million for the year ended december 31 , 2016. the increase of approximately $ 7.1 million was principally the result of an increase in net loss due to increased research and development activities in advancing our product candidates and increased general and administrative activities . investing activities net cash provided by investing activities during the year ended december 31 , 2017 , relates to cash acquired in the merger . we had no significant cash generated from or used in investing activities during the year ended december 31 , 2016. financing activities net cash provided by financing activities during the year ended december 31 , 2017 , consisted of $ 21.5 million of net proceeds from the issuance of common stock and $ 5.5 million from the issuance of convertible notes payable ( which , together with $ 174,452
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acre originated a $ 30.3 million senior mortgage loan on a multifamily property located in pennsylvania . acre originated a $ 43.5 million senior mortgage loan on a multifamily property located in florida . acre amended the wells fargo facility ( as defined below ) , which has a commitment amount of $ 500.0 million , to extend the initial maturity date to december 14 , 2020 and decrease the interest rate on advances from a per annum rate equal to the sum of one-month libor plus a pricing margin range of 1.75 % to 2.35 % to a per annum rate equal to the sum of one-month libor plus a pricing margin range of 1.50 % to 2.25 % . the initial maturity date of the wells fargo facility is subject to three 12-month extensions , each of which may be exercised at acre 's option , subject to the satisfaction of certain conditions , including payment of an extension fee , which , if all three were exercised , would extend the maturity date of the wells fargo facility to december 14 , 2023. acre amended the citibank facility ( as defined below ) to increase the facility 's commitment amount from $ 250.0 million to $ 325.0 million and extend the initial maturity date to december 13 , 2021. the initial maturity date of the citibank facility is subject to two 12-month extensions , each of which may be exercised at acre 's option assuming no existing defaults under the citibank facility and applicable extension fees being paid , which , if both were exercised , would extend the maturity date of the citibank facility to december 13 , 2023. in addition , acre amended the citibank facility to decrease the interest rate on advances from a per annum rate equal to the sum of one-month libor plus an indicative pricing margin range of 2.25 % to 2.50 % , subject to certain exceptions , to a per annum rate equal to the sum of one-month libor plus an indicative pricing margin range of 1.50 % to 2.25 % , subject to certain exceptions . factors impacting our operating results the results of our operations are affected by a number of factors and primarily depend on , among other things , the level of our net interest income , the market value of our assets and the supply of , and demand for , commercial mortgage loans , cre debt and other financial assets in the marketplace . our net interest income , which reflects the amortization of origination fees and direct costs , is recognized based on the contractual rate and the outstanding principal balance of the loans we originate . interest rates will vary according to the type of investment , conditions in the financial markets , creditworthiness of our borrowers , competition and other factors , none of which can be predicted with any certainty . our operating results may also be impacted by credit losses in excess of initial anticipations or unanticipated credit events experienced by borrowers . changes in fair value of our assets . we originate cre debt and related instruments generally to be held for investment . loans that are held for investment are carried at cost , net of unamortized loan fees and origination costs , unless the loans are deemed impaired . impairment occurs when it is deemed probable that we will not be able to collect all amounts due according to the contractual terms of the loan . if a loan is considered to be impaired , we will record an allowance to reduce the carrying value of the loan to the present value of expected future cash flows discounted at the loan 's contractual effective rate . significant judgment is required when evaluating loans for impairment , therefore , actual results over time could be materially different . loans are generally collateralized by real estate and as a result , the extent and impact of any credit deterioration associated with the performance and or value of the underlying collateral property , as well as the financial and operating capability of the borrower , are regularly evaluated . we monitor performance of our investment portfolio under the following methodology : ( 1 ) borrower review , which analyzes the borrower 's ability to execute on its original business plan , reviews its financial condition , assesses pending litigation and considers its general level of responsiveness and cooperation ; ( 2 ) economic review , which considers underlying collateral ( i.e. , leasing performance , unit sales and cash flow of the collateral and its ability to cover debt service as well as the residual loan balance at maturity ) ; ( 3 ) property review , which considers current environmental risks , changes in insurance costs or coverage , current site visibility , capital expenditures and market perception ; and ( 4 ) market review , which analyzes the collateral from a supply and demand perspective of similar property types , as well as from a capital markets perspective . such impairment analyses are completed and reviewed by asset management and finance personnel who utilize various data sources , including periodic financial data such as property occupancy , tenant profile , rental rates , operating expenses , and the borrower 's exit plan , among other factors . other than as set forth in note 3 to our 53 consolidated financial statements included in this annual report on form 10-k , as of december 31 , 2018 and 2017 , all loans were paying in accordance with their contractual terms . there were no impairments during the years ended december 31 , 2018 , 2017 and 2016 . although we generally hold our target investments as long-term investments , we may occasionally classify some of our investments as held for sale . investments held for sale will be carried at fair value within loans held for sale in our consolidated balance sheets , with changes in fair value recorded through earnings . story_separator_special_tag the fees received are deferred and recognized as part of the gain or loss on sale . at this time , we do not expect to hold any of our investments for trading purposes . changes in market interest rates . with respect to our business operations , increases in interest rates , in general , may over time cause : the interest expense associated with our borrowings to increase , subject to any applicable ceilings ; the value of our mortgage loans to decline ; coupons on our floating rate mortgage loans to reset to higher interest rates ; and to the extent we enter into interest rate swap agreements as part of our hedging strategy where we pay fixed and receive floating interest rates , the value of these agreements to increase . conversely , decreases in interest rates , in general , may over time cause : the interest expense associated with our borrowings to decrease , subject to any applicable floors ; the value of our mortgage loan portfolio to increase , for such mortgages with applicable floors ; coupons on our floating rate mortgage loans to reset to lower interest rates , subject to any applicable floors ; and to the extent we enter into interest rate swap agreements as part of our hedging strategy where we pay fixed and receive floating interest rates , the value of these agreements to decrease . credit risk . we are subject to varying degrees of credit risk in connection with our target investments . our manager seeks to mitigate this risk by seeking to originate or acquire investments of higher quality at appropriate prices with appropriate risk adjusted returns given anticipated and unanticipated losses , by employing a comprehensive review and selection process and by proactively monitoring originated or acquired investments ( see the performance monitoring methodology above in changes in fair value of our assets ) . nevertheless , unanticipated credit losses could occur that could adversely impact our operating results and stockholders ' equity . market conditions . we believe that our target investments currently present attractive risk-adjusted return profiles , given the underlying property fundamentals and the competitive landscape for the type of capital we provide . we believe that growth in commercial real estate valuations has been supported by a lower supply of new properties , which broadly have remained below the long-term average since the onset of the global financial crisis . new additions to inventory have been limited given that new construction financing has been constrained by post-recession financial regulations . while the availability of debt capital for high quality assets has increased and led to more competitive pricing and terms , we continue to anticipate rising demand for the type of customized debt financing we provide from borrowers or sponsors . we also envision that demand for financing will be strong for situations in which a property is being acquired with plans to improve the net operating income through capital improvements , leasing , cost savings or other key initiatives and realize the improved value through a subsequent sale or refinancing . we believe market conditions continue to be favorable for disciplined and scaled direct lending with broad and flexible product offerings . however , we are mindful that rising interest rates and the removal of certain central banking monetary policies may impact asset values and could lead to periods of volatility . ultimately , during periods of sustained volatility , increased lending opportunities may arise for flexible capital providers like us . performance of commercial real estate related markets . our business is dependent on the general demand for , and value of , commercial real estate and related services , which are sensitive to economic conditions . demand for multifamily and other commercial real estate generally increases during periods of stronger economic conditions , resulting in increased property values , transaction volumes and loan origination volumes . during periods of weaker economic conditions , multifamily and 54 other commercial real estate may experience higher property vacancies , lower demand and reduced values . these conditions can result in lower property transaction volumes and loan originations . availability of leverage and equity . we expect to use leverage to make additional investments that may increase our potential returns . we may not be able to obtain the amount of leverage we desire and , consequently , the returns generated from our investments may be less than we currently expect . to grow our portfolio of investments , we also may determine to raise additional equity . our access to additional equity will depend on many factors , and our ability to raise equity in the future can not be predicted at this time . size of portfolio . the size of our portfolio of investments , as measured both by the aggregate principal balance and the number of our cre loans and our other investments , will also be an important factor in determining our operating results . generally , as the size of our portfolio grows , the amount of interest income we receive will increase and we may achieve certain economies of scale and diversify risk within our portfolio investments . a larger portfolio , however , may result in increased expenses ; for example , we may incur additional interest expense or other costs to finance our investments . also , if the aggregate principal balance of our portfolio grows but the number of our loans or the number of our borrowers does not grow , we could face increased risk by reason of the concentration of our investments . investment portfolio as of december 31 , 2018 , our portfolio included 44 loans held for investment , excluding 76 loans that were repaid or sold since inception . such investments are referred to herein as our investment portfolio . as of december 31 , 2018 , the aggregate originated commitment under these loans at closing was approximately $ 1.7 billion and outstanding principal was $ 1.5 billion .
| for the years ended december 31 , 2017 and 2016 , net interest margin was approximately $ 46.3 million and $ 45.1 million , respectively . for the years ended december 31 , 2017 and 2016 , interest income from loans held for investment of $ 97.5 million and $ 82.0 million , respectively , was generated by weighted average earning assets of $ 1.5 billion and $ 1.3 billion , respectively , offset by $ 51.2 million and $ 36.9 million , respectively , of interest expense , unused fees and amortization of deferred loan costs . the weighted average borrowings under the secured funding agreements and securitization debt and the secured term loan were $ 1.1 billion and $ 889.5 million for the years ended december 31 , 2017 and 2016 , respectively . the increase in interest income from loans held for investment and interest expense for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 primarily relates to an increase in our weighted average earnings assets and weighted average borrowings for the year ended december 31 , 2017 . 57 operating expenses the operating expenses below do not include expenses of acre capital . see note 13 to our consolidated financial statements included in this annual report on form 10-k for more information about the operating expenses of acre capital . replace_table_token_5_th for the years ended december 31 , 2018 and 2017 , we incurred operating expenses of $ 16.2 million an d $ 15.0 million , respectively . as discussed below , the in crease in operating expens es for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 primarily relates to an increase in incentive fees due to our manager , an increase in stock-based compensation expense and an increase in our use of third party professionals due to changes in transaction activity year over year . for the years ended december 31 , 2017 and 2016 , we incurred operating expenses of $ 15.0 million and $ 14.4 million , respectively . as discussed below ,
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% ) , lower production volumes in 2012 ( approximately 14.1 % ) and the $ 487 thousand of revenues in 2011 related to the resolution of certain royalty ownership issues in the second quarter 2011 ( approximately 3.8 % ) . our gross profit decreased 19.1 % in 2012 compared to 2011. gross profit from our lime and limestone operations in 2012 decreased 8.2 % compared to 2011 primarily due to outside contractor stripping costs of $ 2.6 million incurred primarily in the second and third quarters 2012 , compared to no such outside contractor stripping costs in 2011 , and decreased lime sales volumes to our customers , partially offset by the year-over-year price increases for the company 's lime and limestone products . we will incur additional stripping costs in the future , but at somewhat reduced rates . the timing and 23 amount of such additional stripping costs in the future will depend upon , among other things , the availability and cost-effective utilization of contractors and their equipment or our employees and equipment . our gross profit from our natural gas interests decreased 57.2 % in 2012 compared to 2011 due to reduced prices for both natural gas and natural gas liquids contained in our natural gas and decreased production volumes during 2012 compared to 2011 as well as the fact that 2011 included a $ 463 thousand contribution to gross profit from the resolution of the royalty ownership issues on unitized natural gas wells . these decreases in gross profit resulted in a $ 5.8 million , or 26.0 % , decrease in our net income in 2012 compared to 2011. cash flows from operations during 2012 enabled us to continue to service our bank debt , make $ 8.3 million of capital investments , invest $ 40.8 million to buy back over 700,000 shares of our common stock and leave us with cash balances of $ 29.8 million at december 31 , 2012 compared to $ 53.4 million at december 31 , 2011. lime and limestone operations . in our lime and limestone operations , we produce and sell pls , quicklime , hydrated lime and lime slurry . the principal factors affecting our success are the level of demand and prices for our products and whether we are able to maintain sufficient production levels and product quality while controlling costs . inclement weather conditions generally reduce the demand for lime and limestone products supplied to construction-related customers that account for a significant amount of our revenues . inclement weather also interferes with our open-pit mining operations and can disrupt our plant production , as in the case of winter ice storms . in addition to weather , various maintenance , environmental , accident and other operational issues can also disrupt our operations and increase our operating expenses . demand for our products in our market areas is also affected by general economic conditions , the pace of home and other construction , the demand for steel , and the level of oil and gas drilling in our markets , as well as the level of governmental and private funding for highway construction . demand for our lime products from our highway construction customers improved during 2012 , while demand from our steel and oil and gas services customers declined . we expect demand from our steel and oil and gas services customers to be lower in the first quarter 2013 , compared to the first quarter 2012 , although our diverse customer base for our lime and limestone products may provide opportunities to offset some of the anticipated reduced demand from those customers . the safe , accountable , flexible , and equitable transportation equity act ( `` safetea '' ) , which reauthorized the federal highway , public transportation , highway safety , and motor carrier safety programs for fiscal years 2005 through 2009 , expired on september 30 , 2009. the general provisions under safetea were retained under continuing resolutions , the latest of which expired on september 30 , 2012. on july 6 , 2012 , the president signed into law the moving ahead for progress in the 21 st century act ( `` map-21 '' ) , the first multi-year transportation authorization enacted since 2005. map-21 funds surface transportation programs at over $ 105 billion for fiscal years 2013 and 2014 , continuing the previous level of funding plus inflation . although governmental funding of public sector projects remains a concern , we continue to see an increase in the construction of tollroads in texas . our modernization and expansion projects in texas and arkansas , including the construction of a third kiln in arkansas ( completed in december 2006 ) , development projects in arkansas and our acquisitions of u.s. lime companyst . clair , our delta , colorado facilities and our texas slurry operations have positioned us to meet the demand for high-quality lime and limestone products in our markets , with our lime output capacity more than doubling since 2003. in addition , our distribution 24 terminal in shreveport , louisiana has expanded our market area for this additional output . our modernization and expansion and development projects have also equipped us with up-to-date , fuel-efficient plant facilities , which has resulted in lower production costs and greater operating efficiencies , thus enhancing our competitive position . all of our kilns are fuel-efficient preheater kilns , except for one kiln at st. clair . for our plants to operate at peak efficiency , we must meet operational challenges that arise from time to time , including bringing new facilities on line and refurbishing and or improving acquired facilities , such as st. clair , which we acquired with the intention of modernizing and expanding , subject to permitting and future economic outlook , as well as operating existing facilities efficiently . we also incur ongoing costs for maintenance and to remain in compliance with rapidly changing environmental laws and health and safety and other regulations . our primary variable cost is energy . story_separator_special_tag prices for coal , petroleum coke , diesel , electricity , transportation and freight have generally increased over the past few years . in addition , our freight costs , including diesel prices , to deliver our products can be high relative to the value of our products and have increased significantly in recent years . we have been able to mitigate to some degree the adverse impact of these energy cost increases by varying the mixes of fuel used in our kilns , and by passing on some of our increased costs to our customers through higher prices and or surcharges on certain products . we have not engaged in any significant hedging activity in an effort to control our energy costs , but may do so in the future . we financed our modernization and expansion and development projects and acquisitions through a combination of debt financing and cash flows from operations . given our level of debt , we must generate sufficient cash flows to cover ongoing capital and debt service needs . in june 2010 , we amended our credit agreement , securing a number of benefits that provide us with greater flexibility and extending the maturity of our revolving credit facility in exchange for a 0.625 % increase in our interest rates . our revolving credit facility matures june 1 , 2015 , and the remainder of our long-term debt becomes due at the end of 2015. absent a significant acquisition opportunity arising , we anticipate funding our capital requirements and continuing to pay down our debt in 2013 from our cash flows from operations . for us to increase our profitability in our lime and limestone operations in the face of our increased fixed and variable costs , including additional stripping costs , we must continue to improve our revenues and control our operational and selling , general and administrative expenses . given reduced demand for our lime products at the start of the recession , in the fourth quarter 2008 we began to take various steps to reduce our costs . these efforts , along with other operating efficiencies , continued into 2012. to maintain or improve our gross profit margins , we are focusing on maintaining , and increasing where possible , our lime and limestone prices to offset our increased costs , which is a challenging task in these difficult economic times that impact demand for our lime and limestone products . in addition , we will continue to explore ways to expand our operations and production capacity through major development projects , including the possible modernization and expansion of our st. clair plant , and acquisitions as conditions warrant or opportunities arise . we believe the enhanced production capacity resulting from our modernization and expansion and development projects at texas and arkansas , our acquisitions and the operational strategies we have implemented have allowed us to increase production , improve product quality , better serve existing customers , attract new customers and control our costs . there can be no assurance , however , that demand and prices for our lime and limestone products will be sufficient to fully utilize our additional production capacity and cover our additional depreciation , depletion and other fixed costs ; that our production will not be adversely affected by weather , maintenance , accident or other operational issues ; that we can successfully invest in improvements to our existing facilities ; that our results will not be adversely affected by continued increases in fuel , electricity , transportation and freight costs or new 25 environmental , health and safety or other regulatory requirements ; or that our revenues , gross profit , net income and cash flows can be maintained or improved . natural gas interests . in 2004 , we entered into the o & g lease with eog with respect to oil and gas rights on our cleburne , texas property , located in the barnett shale formation . pursuant to the o & g lease , we have royalty interests ranging from 15.4 % to 20 % in oil and gas produced from any successful wells drilled on the leased property and an option to participate in any well drilled on the leased property as a 20 % non-operating working interest owner . our overall average revenue interest is 34.7 % in the 33 wells drilled under the o & g lease that are currently producing . in november 2006 , we also entered into a drillsite agreement with xto that has an oil and gas lease covering approximately 538 acres of land contiguous to our johnson county , texas property . pursuant to this agreement , we have a 3 % royalty interest and an optional 12.5 % non-operating working interest , resulting in a 12.4 % interest in revenues in the six xto wells drilled and producing from a padsite located on our property . eight new wells were drilled in the fourth quarter 2009 and first quarter 2010 pursuant to the o & g lease , five of which were completed as producing wells during the fourth quarter 2010 , and three of which were completed as producing wells in late june 2011. in addition , two wells were drilled in the first quarter 2010 and completed as producing wells in the third quarter 2010 pursuant to the drillsite agreement . no new wells were drilled in 2012 or are currently being drilled . we can not predict the number of additional wells that ultimately will be drilled on the o & g properties , if any , or their results . the pricing of natural gas sales is primarily determined by supply and demand in the marketplace and can fluctuate considerably . the prices that the company receives for its natural gas production is also affected by the amount of natural gas liquids included in the natural gas and the prices for those liquids , which prices normally track the prices of crude oil and are also subject to supply and demand factors .
| the decrease in gross profit in 2012 compared to 2011 resulted primarily from outside contractor stripping costs of $ 2.6 million incurred principally in the second and third quarters 2012 , compared to no such outside contractor stripping costs in 2011. gross profit for 2012 also included $ 3.9 million from our natural gas interests , compared to $ 9.2 million in 2011 , a decrease of $ 5.3 million or 57.2 % . there were 39 producing wells at both december 31 , 2012 and 2011. production volumes for 2012 from our natural gas interests totaled 1.2 bcf , sold at an average price per mcf of $ 5.74 , compared to 2011 when 1.6 bcf was produced and sold at an average price of $ 8.27 per mcf . in addition , 2011 included a $ 463 thousand contribution to gross profit from the resolution of certain royalty ownership issues . 28 selling , general and administrative expenses ( `` sg & a '' ) increased to $ 9.2 million in 2012 from $ 8.8 million in 2011 , an increase of $ 347 thousand , or 3.9 % . as a percentage of revenues , sg & a increased to 6.6 % in 2012 from 6.2 % in 2011. the increase in sg & a in 2012 was primarily attributable to increased non-cash stock-based compensation costs , which increased $ 204 thousand , or 29.6 % , compared to 2011 , due to increases in the price per share of the company 's common stock on the most recent grant dates , compared to the prices per share on previous grant dates . interest expense in 2012 decreased to $ 2.2 million from $ 2.5 million in 2011 , a decrease of $ 332 thousand , or 13.3 % . interest expense in 2012 and 2011 included $ 1.3 million and $ 1.6 million , respectively , paid in aggregate quarterly settlement payments pursuant to our interest rate hedges . the decrease in interest expense in 2012 primarily resulted from decreased average outstanding debt . income tax expense decreased to $ 5.7 million in 2012 from $ 8.0 million in 2011 , a decrease of $ 2.3 million , or 28.6 % . the
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the alll is an amount that management believes will be adequate to absorb estimated losses on existing loans that may become uncollectible based on an evaluation of the collectability of loans and prior loan loss experience . this evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio , overall portfolio quality , review of specific problem loans , current economic conditions and certain other subjective factors that may affect the borrower 's ability to pay . while we use the best information available to make this evaluation , future adjustments to our alll may be necessary if there are significant changes in economic or other conditions that can affect the collectability in full of loans in our loan portfolio . we have two business segments , “ banking ” and “ investment management and wealth planning ” ( “ wealth management ” ) . banking includes the operations of ffb and ffis and wealth management includes the operations of ffa . the financial position and operating results of the stand-alone holding company , ffi , are included under the caption “ other ” in certain of the tables that follow , along with any consolidation elimination entries . 36 overview and recent developments we continued strong growth during 2018 with loan originations of $ 1.8 billion , and deposit growth , including the deposits acquired from pbb , of $ 1.1 billion . total revenues ( net interest income and noninterest income ) increased by 26 % . the results of operations for banking and wealth management reflect the benefits of this growth . income before taxes for banking increased $ 10.2 million from $ 53.5 million in 2017 to $ 63.7 million in 2018. income before taxes for wealth management increased from $ 3.1 million in 2017 to $ 3.6 million in 2018. on a consolidated basis , income before taxes increased $ 9.5 million from $ 50.6 million in 2017 to $ 60.1 million in 2018. on june 1 , 2018 we completed the acquisition of pbb . in connection with this acquisition , we issued an aggregate of 5,234,593 shares of ffi common stock , and acquired $ 523 million in loans , $ 478 million in deposits , and recorded a core deposit intangible of $ 6.7 million and goodwill of $ 60.9 million . the bank entered into two swap agreements in the fourth quarter of 2018 to reduce the interest rate risk of its portfolio of loans held for sale , which it expects to sell in the third quarter of 2019. ffb elected to utilize hedge accounting for these swaps , and as a result , recorded a liability related to the swaps of $ 5.2 million and an offsetting mark to market increase of $ 4.8 million in its loans held for sale as of december 31 , 2018. as required under hedge accounting guidelines , the difference of $ 0.4 million was recorded as a reduction of loan interest income . in the third quarter of 2018 we completed a remix of our balance sheet whereby we sold $ 622 million of multifamily loans through a securitization and separately purchased $ 331 million of securities issued in the securitization . as part of this process , to mitigate against increases in interest rates on these loans , we entered into a swap agreement , which was closed out upon completion of the sale of loans . as a result of the swap , our interest income on loans was reduced by $ 0.8 million for the period in which the swap was in place , while the value of the swap at close-out was $ 5.9 million , which offset decreases in the value of the loans sold during the period in which the swap was in place . on october 30 , 2018 , we announced the initiation of a stock repurchase program under which we can repurchase up to 2.2 million shares of our common stock , subject to certain regulatory restrictions . as a result , we will not be selling stock under the “ at-the-market ” equity offering while we are purchasing shares of our common stock under the stock repurchase program . during the first quarter of 2018 , the company sold 625,730 million shares of its common stock through the at-the-market offering at an average price of $ 18.46 per share , generating net proceeds of $ 11.3 million . during the fourth quarter of 2018 , the company purchased 35,300 shares at a cost of $ 0.5 million under the stock repurchase program . on january 29 , 2019 , the board of directors declared an initial quarterly cash dividend of $ 0.05 per common share to be paid on march 15 , 2019 to stockholders of record as of the close of business on march 1 , 2019. story_separator_special_tag to 1.92 % in 2018. the average balance outstanding under the holding company line of credit increased from $ 13.7 million in 2017 to $ 31.5 million i n 2018 , and the average rate increased by 82 basis points , resulting in a $ 1.1 million increase in corporate interest expense . provision for loan losses . the provision for loan losses represents our estimate of the amount necessary to be charged against the current period 's earnings to maintain the alll at a level that we consider adequate in relation to the estimated losses inherent in the loan portfolio . the provision for loan losses is impacted by changes in loan balances as well as changes in estimated loss assumptions and charge-offs and recoveries . the amount of the provision also takes into consideration such factors as changes in the nature and volume of the loan portfolio , overall portfolio quality , review of specific problem loans , current economic conditions and certain other subjective factors that may affect the ability of borrowers to meet their repayment obligations to us . story_separator_special_tag for 2018 and 2017 , we recorded provisions for loan losses of $ 4.2 million and $ 2.8 million , respectively . the increase in the provision for loan losses for 2018 as compared to 2017 reflects the increase in loan balances during 2018 when compared to the increase in loan balances during 2017. we recognized $ 3.6 million in loan chargeoffs , net of recoveries , in 2018 , as compared to $ 0.2 million in recoveries in 2017. noninterest income . noninterest income for banking includes fees charged to clients for trust services and deposit services , consulting fees , prepayment and late fees charged on loans , gain on sale of loans , gains and losses from capital market activities and insurance commissions . the following table provides a breakdown of noninterest income for banking for the years ended december 31 : replace_table_token_9_th noninterest income in banking in 2018 was $ 11.3 million as compared to $ 16.0 million in 2017 , as decreases in the gain on sale of loans was offset by higher loan , deposit and trust fees . in 2017 we realized a $ 7.0 million gain on sale of loans as compared to $ 0.4 million in 2018 as rising market interest rates resulted in lower gains on sale . as a result of increases related to the acquisitions of c1b and pbb , loan fees and deposit fees increased from $ 3.9 million in 2017 to $ 5.3 million in 2018. due to increased levels of aum , trust fees increased by $ 0.5 million in 2018 as compared to 2017. noninterest income for wealth management includes fees charged to high net-worth clients for managing their assets and for providing financial planning consulting services . the following table provides the amounts of noninterest income for wealth management for the years ended december 31 : ( dollars in thousands ) 2018 2017 noninterest income $ 25,247 $ 23,556 noninterest income for wealth management increased by $ 1.7 million in 2018 when compared to 2017 due to higher levels of aum . 40 noninterest expense . the following table provides a breakdown of noninterest expense for banking and wealth management for the years ended december 31 : replace_table_token_10_th noninterest expense in banking increased from $ 74.0 million in 2017 to $ 100.8 million in 2018 , due to increases in staffing and costs associated with the bank 's expansion , including the acquisition of c1b in november of 2017 and pbb in june of 2018 , and the growth of its balances of loans and deposits . compensation and benefits for banking increased $ 10.4 million or 26 % during 2018 as compared to 2017 due to salary increases and an increase in the number of fte in banking , which increased to 385.8 in 2018 from 310.9 in 2017 as a result of the increased staffing related to the acquisitions of c1b and pbb and additional personnel added to support the growth in loans and deposits . a $ 4.3 million increase in occupancy and depreciation for banking in 2018 as compared to 2017 was due to costs related to the acquisitions of c1b and pbb and increases in our data processing costs due to increased volumes and the implementation of enhancements . the $ 0.5 million increase in professional services and marketing in banking in 2018 as compared to 2017 was due to higher costs incurred in 2018 related to the integration of the operations of c1b and pbb which were partially offset by lower legal costs . customer service costs for banking increased $ 8.0 million in 2018 as compared to 2017 due primarily to increases in the earnings credit rates paid on the deposit balances , which reflect the increases in short term market rates during 2018 when compared to 2017. the $ 3.6 million increase in other expenses for banking in 2018 when compared to 2017 were due to the higher acquisition costs , as the $ 3.8 million of acquisition costs related to the pbb acquisition in 2018 were higher than the $ 2.6 million of acquisition costs related to the c1b acquisition in 2017 , and to additional activities related to the acquisitions , primarily amortization of core deposit intangibles and fdic insurance . the $ 1.2 million increase in noninterest expense for wealth management was due to salary increases , legal costs and increases in referral fees due to higher levels of aum . years ended december 31 , 2017 and 2016. our net income for 2017 was $ 27.6 million , as compared to $ 23.3 million for 2016. the primary sources of revenue for banking are net interest income , fees from its deposits , trust and insurance services , gains on sales of loans , certain loan fees , and consulting fees . the primary sources of revenue for wealth management are asset management fees assessed on the balance of aum . compensation and benefit costs , which represent the largest component of noninterest expense , accounted for 53 % and 78 % , respectively , of the total noninterest expense for banking and wealth management in 2017. the following tables show key operating results for each of our business segments for the years ended december 31 : replace_table_token_11_th 41 general . our net income and income before taxes in 2017 were $ 27.6 million and $ 50.6 million , respectively , as compared to $ 23.3 million and $ 38.3 million , respectively , in 2016. the increase in income before taxes was the result of a $ 13.4 million increase in income before taxes for banking and a $ 1.0 million increase in income before taxes for wealth management , which were partially offset by a $ 2.1 million increase in corporate expenses . the increase in banking was due to higher net intere st income , a lower provision for loan losses and higher noninterest income which were partially offset by higher noninterest expenses .
| our effective tax rate for 2018 was 28.5 % as compared to 45.5 % for 2017 , and as a result of reduced federal tax rates under the tax act , our statutory tax rate decreased from 41.5 % in 2017 to 29.0 % in 2018. in the fourth quarter of 2017 , we recorded a $ 5.4 million tax charge , attributable to the remeasurement of the net deferred tax asset as a result of the reduced corporate tax rate under the tax cuts and jobs act enacted in the fourth quarter of 2017 , that was partially offset by a 743 basis point reduction in our effective tax rate related to excess tax benefits resulting from the exercise of stock awards . 38 net interest income . the following tables set forth information regarding ( i ) the total dollar amount of interest income from interest-earning assets and the resultant average yields on those assets ; ( ii ) the total dollar amount of interest expense and the average rate of interest on our interest-bearing liabilities ; ( iii ) net interest income ; ( iv ) net interest rate spread ; and ( v ) net yield on interest-earning assets for the years ended december 31 : replace_table_token_7_th net interest income is impacted by the volume ( changes in volume multiplied by prior rate ) , interest rate ( changes in rate multiplied by prior volume ) and mix of interest-earning assets and interest-bearing liabilities . the following table provides a breakdown of the changes in net interest income due to volume and rate changes between 2018 as compared to 2017. replace_table_token_8_th net interest income for banking increased 38 % from $ 114.3 million in 2017 , to $ 157.4 million in 2018 due to a 34 % increase in interest-earning assets and an increase in the net yield on interest earning assets . on a consolidated basis our net yield on interest earning assets was 2.99 % for 2018 as compared to 2.93 % during 2017. this increase was due to a 41 % increase in noninterest bearing deposits and a 48 % increase in our average
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asu 2011-05 requires entities to present items of net income and other comprehensive income either in one story_separator_special_tag you should read the following discussion and analysis in connection with our financial statements and related notes beginning on page f-1 following part iii of this report . overview we are a company dedicated to helping people achieve their health , wellness and financial independence goals . we provide quality , scientifically validated products and a financially rewarding network marketing business opportunity to customers and independent distributors who seek a healthy lifestyle and financial freedom . we sell our products in the united states , japan , australia and mexico through a network of independent distributors , and to preferred and retail customers . we also sell our products directly to consumers located in canada for personal consumption . we engage in the identification , research , development , manufacture and distribution of advanced nutraceutical dietary supplements , including our flagship product , protandim ® , the nrf2 synergizer ® and our anti-aging skin care product , lifevantage truescience ® . we currently focus our ongoing internal research efforts on oxidative stress solutions , particularly the activation of nuclear factor ( erythroid-derived 2 ) -like 2 , also known as nrf2 , as it relates to health-related disorders . our products our products are protandim ® and lifevantage truescience ® . protandim ® is a proprietary blend of ingredients that has been shown to combat oxidative stress by increasing the body 's natural antioxidant protection at the genetic level , inducing the production of naturally-occurring protective antioxidant enzymes including superoxide dismutase , catalase , and glutathione synthase . lifevantage truescience ® is our science-based anti-aging skin care product , which incorporates some of the ingredients found in our protandim ® product with other proprietary ingredients . we sell our protandim ® and lifevantage truescience ® products primarily through network marketing to independent distributors and to our preferred and retail customers . to date , we have focused our research efforts on investigating various aspects and consequences of the imbalance of oxidants and antioxidants , an abnormality , which is a central underlying feature in many disorders . we intend to continue our research , development , and documentation of the efficacy of our protandim ® formula to provide credibility to the market . we also anticipate undertaking research , development , testing , licensing and acquisition efforts to be able to introduce additional products in the future , although we may not be successful in this endeavor . story_separator_special_tag of liquidity are cash flow from the sales of our products . at june 30 , 2012 , our cash and cash equivalents were $ 24,647,585. this represented an increase of $ 18,276,611 from the $ 6,370,974 in cash , cash equivalents and marketable securities as of june 30 , 2011. during the fiscal year ended june 30 , 2012 , our net cash provided by operating activities was $ 19,388,948 as compared to net cash provided by operating activities of $ 4,680,925 during the fiscal year ended june 30 , 2011. the increase in cash provided by operating activities during the fiscal year ended june 30 , 2012 is primarily due to an increase in revenues and operating income for the fiscal year ended june 30 , 2012. during the fiscal year ended june 30 , 2012 , our net cash used in investing activities was $ 1,896,272 , primarily due to purchases of fixed assets to support our continued growth . during the fiscal year ended june 30 , 2011 , our net cash used in investing activities was $ 88,967 , primarily due to the purchases of equipment and intangible assets offset by the redemption of available-for-sale marketable securities . -35- cash provided by financing activities during the fiscal year ended june 30 , 2012 was $ 745,449 , compared to cash provided by financing activities of $ 169,246 during the fiscal year ended june 30 , 2011. cash provided by financing activities during the fiscal year ended june 30 , 2012 was due to exercises of options and warrants offset by our repurchase of shares of our outstanding common stock and the repayment of our line of credit . cash provided by financing activities during the fiscal year ended june 30 , 2011 was primarily due to the exercise of options and warrants . at june 30 , 2012 , we had working capital ( current assets minus current liabilities ) of $ 22,800,185 compared to negative working capital of $ ( 3,105,045 ) at june 30 , 2011. the increase in working capital was due primarily to increases in cash , inventory and deferred tax assets and the elimination of short-term derivative liabilities . these increases were partially offset by increases in accrued expenses including commissions payable . based on our forecasted cash flow for fiscal 2013 we expect cash on hand will be sufficient to fund our operations through june 30 , 2013 and the foreseeable future thereafter . off-balance sheet arrangements we did not have any off-balance sheet arrangements as of the period ended june 30 , 2012. critical accounting policies we prepare our financial statements in conformity with accounting principles generally accepted in the united states of america . as such , we are required to make certain estimates , judgments , and assumptions that we believe are reasonable based upon the information available . these estimates and assumptions 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 periods presented . story_separator_special_tag actual results could differ from these estimates . our significant accounting policies are described in note 2 to our financial statements . certain of these significant accounting policies require us to make difficult , subjective , or complex judgments or estimates . we consider an accounting estimate to be critical if ( 1 ) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made , and ( 2 ) changes in the estimate that are reasonably likely to occur from period to period , or use of different estimates that we reasonably could have used in the current period , would have a material impact on our financial condition or results of operations . there are other items within our financial statements that require estimation , but are not deemed critical as defined above . changes in estimates used in these and other items could have a material impact on our financial statements . management has discussed the development and selection of these critical accounting estimates with the audit committee of our board of directors , and the audit committee has reviewed the following disclosures . allowances for product returns we record allowances for product returns at the time we ship the product based on estimated return rates . we offer a 30-day , money back unconditional guarantee to all customers . in addition , we allow terminating distributors to return 30 % of unopened unexpired product that they purchased within the prior twelve months , subject to certain consumption limitations . as of june 30 , 2012 , our shipments of products sold totaling approximately $ 13,755,361 were subject to the money back guarantee . we monitor our return estimate on an ongoing basis and revise the allowances to reflect our experience . our allowance for product returns was $ 862,602 on june 30 , 2012 , compared with $ 435,135 on june 30 , 2011. for the year ended june 30 , 2012 we reduced the amount of our reserve by approximately $ 300,000 to reflect historical return rates lower than our estimate at the beginning of the year . to date , product expiration dates have not played any role in product returns , and we do not expect they will in the future because it is unlikely that we will ship product with an expiration date earlier than the latest allowable product return date . -36- inventory valuation we state inventories at the lower of cost or market on a first-in first-out basis . from time to time , we maintain a reserve for inventory obsolescence and we base this reserve on assumptions about current and future product demand , inventory whose shelf life has expired , and market conditions . from time to time , we may be required to make additional reserves in the event any of these variables change . we have recorded $ 34,628 in reserves for obsolete inventory as of june 30 , 2012 primarily related to inventory of marketing materials . as of june 30 , 2011 we had recorded $ 74,943 in reserves for obsolete inventory . revenue recognition we ship the majority of our product directly to the consumer through network marketing sales via ups and we receive substantially all payment for these sales in the form of credit card charges . we recognize revenue from product sales to customers upon passage of title and risk of loss to customers when product ships from the fulfillment facility . sales revenue and estimated returns are recorded when product is shipped . derivative instruments in the past , in connection with the sale of debt or equity instruments , we sold options or warrants to purchase our common stock . prior to march , 31 , 2012 , these options or warrants were classified as derivative liabilities , rather than as equity . additionally , the debt or equity instruments contained embedded derivative instruments , such as conversion options , which in certain circumstances were required to be bifurcated from the associated host instrument and accounted for separately as a derivative instrument liability . we estimated fair values of derivative financial instruments using various techniques that are considered to be consistent with the objective measurement of fair values . in selecting the appropriate technique , we considered , among other factors , the nature of the instrument , the market risks that it embodies and the expected means of settlement . for less complex derivative instruments , such as freestanding warrants , we generally used the black scholes merton option valuation technique , adjusted for the effect of dilution , because it embodies all of the requisite assumptions ( including trading volatility , estimated terms , and risk free rates ) necessary to fair value these instruments . for embedded conversion features we generally used a lattice technique because it contains all the requisite assumptions to value these features . estimating fair values of derivative financial instruments required the development of significant and subjective estimates that may , and are likely to , change over the duration of the instrument with related changes in internal and external market factors . in addition , option-based techniques are highly volatile and sensitive to changes in the trading market price of our common stock . since derivative financial instruments are initially and subsequently carried at fair values , our income or loss would reflect the volatility in changes to these estimates and assumptions . as of june 30 , 2012 , we have eliminated the balances in both short- and long-term derivative liabilities . with a warrant modification approved in december 2011 , and the exercise of certain other warrants in march 2012 , we have removed all derivative warrant liabilities from the balance sheet and recognized the final changes in fair value of these warrants in the income statement . stock-based compensation we use the fair value approach to account
| we expect the gross margin percentage to remain in the current range for the foreseeable future due to relative stability of our inventory costs at present . economic conditions and changes in the supply of raw materials could negatively impact our gross margins in the future . operating expenses . total operating expenses for the year ended june 30 , 2012 were $ 86,674,313 as compared to operating expenses of $ 29,299,625 for the year ended june 30 , 2011. operating expenses consist of sales and marketing expenses , general and administrative , research and development , and depreciation and amortization . the majority of the increase of $ 57,374,688 in operating expenses is due to independent distributor commissions on our increased network marketing sales . sales and marketing . sales and marketing expense for the year ended june 30 , 2012 was $ 68,397,356 compared to $ 21,060,213 for the fiscal year ended june 30 , 2011 representing an increase of $ 47,337,143 in fiscal year 2012. this increase was due primarily to commissions incurred on increased sales as well as increased event and promotion costs and increased headcount related costs . we expect sales and marketing expenses to continue to increase relative to increases in sales and to remain relatively stable as a percentage of net sales . -34- general and administrative . our general and administrative expense for the year ended june 30 , 2012 was $ 16,396,631 compared to $ 7,516,106 for the fiscal year ended june 30 , 2011. the increase of $ 8,880,525 was primarily due to an increase in headcount related costs as well as increased professional fees , stock compensation expenses , insurance and travel . we expect our general and administrative expenses to increase as we experience continued growth . research and development . our research and development expense for the year ended june 30 , 2012 was $ 1,359,055 compared to $ 508,603 for the year ended june 30 , 2011 .
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we have complemented our direct sales efforts with sales to distributors and or corporate partners . in 2013 , we reached agreements with distributors in the united kingdom , ireland , turkey , russia , and the netherlands . in 2014 , we announced distribution of cytosorb in the middle east , including saudi arabia , the united arab emirates , kuwait , qatar , bahrain , and oman ( the gcc ) and yemen , iraq , and jordan through an exclusive agreement with techno orbits , we entered into an exclusive agreement with smart medical solutions s.r.l. , to distribute cytosorb for critical care applications in romania and the neighboring republic of moldova . in 2015 , we announced exclusive distribution agreements with aferetica srl to distribute cytosorb in italy , alphamedix ltd. to distribute cytosorb in israel , tekmed pty ltd. to distribute cytosorb in australia and new zealand , and hoang long pharma to distribute cytosorb in vietnam . in june 2016 , we announced an exclusive distribution agreement with palex medical sa to distribute cytosorb in spain and portugal . in september 2016 , we announced an exclusive agreement with armaghan salamat kish group ( arsak ) to distribute cytosorb in iran . in october 2016 , we announced an exclusive agreement with foxx medical chile spa to distribute cytosorb in chile . we have been working to expand the number and scope of our strategic partnerships . in september 2013 , we entered into a strategic partnership with biocon , ltd. , india 's largest biotech company , with an initial distribution agreement for india and select emerging markets , under which biocon has the exclusive commercialization rights for cytosorb initially focused on sepsis . in october 2014 , the biocon partnership was expanded to include all critical care applications and cardiac surgery . in addition , biocon committed to higher minimum purchases of cytosorb to maintain distribution exclusivity and to conduct and publish results from multiple investigator-initiated studies and patient case studies . in december 2014 , we entered into a multi-country strategic partnership with fresenius medical care ag & co kgaa to commercialize the cytosorb therapy . under the terms of the agreement , fresenius medical care has exclusive rights to distribute cytosorb for critical care applications in france , poland , sweden , denmark , norway , and finland . the partnership will allow fresenius medical care to offer an innovative and easy to use blood purification therapy for removing cytokines in patients that are treated in the icu . in january 2017 , the fresenius partnership was expanded . the terms of the revised three-year agreement extend fresenius ' exclusive distributorship of cytosorb for all critical care applications in their existing territories through 2019 and include guaranteed minimum quarterly orders and payments , evaluable every one and a half years . in addition , we have entered into a new comprehensive co-marketing agreement with fresenius . under the terms of the agreement , cytosorbents and fresenius will jointly market cytosorb and fresenius ' cytosorb compatible blood tubing sets to fresenius ' critical care customer base in all countries where cytosorb is being actively commercialized . cytosorb will continue to be sold by our direct sales force or through our international network of distributors and partners , while fresenius will sell all ancillary products to their customers . fresenius will also provide a written endorsement of cytosorb for use with their multifiltrate and multifiltratepro acute care dialysis machines that can be used by us and our distribution partners to promote cytosorb worldwide . training and preparation for this co-marketing program is ongoing and it is expected co-marketing activity will commence during the second half of 2017. in september 2016 , we entered into a multi-country strategic partnership with terumo cardiovascular group to commercialize cytosorb for cardiac surgery applications . under the terms of the agreement , terumo has exclusive rights to distribute the cytosorb cpb procedure pack for intra-operative use during cardiac surgery in france , sweden , denmark , norway , finland and iceland . terumo launched the product in these six countries in december 2016 . 63 we are currently evaluating other potential distributor and strategic partner networks in other major countries where we are approved to market the device . concurrent with our commercialization plans , we intend to conduct or support additional clinical studies in sepsis , cardiac surgery , and other critical care diseases to generate additional clinical data to expend the scope of clinical experience for marketing purposes , to increase the number of treated patients , and to support potential future publications . we have completed a single arm , dose ranging trial in germany amongst several clinical trial sites to evaluate the safety and efficacy of cytosorb when used 24 hours per day for seven days , each day with a new device , and are conducting final statistical analysis of the data . patients are being stratified for age , cytokine levels , and co-morbid illnesses in this matched pairs analysis . in addition , we now have more than 55 investigator-initiated studies planned , enrolling or completed in germany , austria , switzerland , the netherlands , hungary , the united kingdom , india , and the u.s. approximately 20 of these studies are currently enrolling patients . these trials , which are funded and supported by well-known university hospitals and kols , are the equivalent of phase ii clinical studies . they will provide invaluable information regarding the success of the device in the treatment of sepsis , cardiac surgery , trauma , and many other indications , and if successful , will be integral in helping to drive additional usage and adoption of cytosorb . in february 2015 , the fda approved our ide application to commence a planned u.s. cardiac surgery feasibility study called refresh i ( reduction of free hemoglobin ) amongst 20 patients and three u.s. clinical sites . story_separator_special_tag the fda subsequently approved an amendment to the protocol , expanding the trial to be a 40 patient randomized controlled study ( 20 treatment , 20 control ) in eight clinical centers . refresh i represents the first part of a larger clinical trial strategy intended to support the approval of cytosorb in the u.s. for intra-operative use during cardiac surgery . the refresh i study is designed to evaluate the safety of cytosorb when used intra-operatively in a heart-lung machine to reduce plasma free hemoglobin and other inflammatory mediators such as cytokines and activated complement in patients undergoing complex cardiac surgery . the length , complexity and invasiveness of these procedures cause hemolysis and inflammation , leading to high levels of toxic plasma free hemoglobin , cytokines , activated complement , and other substances . these inflammatory mediators directly correlate with the incidence of serious post-operative complications such as kidney injury and failure , hemodynamic instability , respiratory failure , and risk of stroke . the goal of cytosorb is to actively remove these inflammatory and toxic substances as they are being generated during the surgery and reduce complications . as of december 31 , 2016 , enrollment was complete with 46 patients . a total of 38 patients were evaluable and completed all aspects of the study . the primary safety and efficacy endpoints of the study were the assessment of serious device related adverse events and the change in plasma free hemoglobin levels , respectively . on october 5 , 2016 , the company announced positive top-line safety data . in addition , following a detailed review of all reported adverse events in a total of 46 enrolled patients , the independent dsmb found no safety concerns related to the cytosorb device , achieving the primary safety endpoint of the trial and fulfilling a key requisite to move forward with a larger , definitive pivotal study . in addition , the therapy was well-tolerated and technically feasible , implementing easily into the cardiopulmonary bypass circuit without the need for an additional external blood pump . this study represents the first randomized controlled trial demonstrating the safety of intra-operative cytosorb use in patients undergoing high risk cardiac operations . investigators of the refresh i trial have submitted an abstract with data , including free hemoglobin data , from the refresh i trial to the american association of thoracic surgery ( “ aats ” ) conference to held in late april 2017 , and a manuscript is being prepared for journal submission , in parallel , the company plans to meet with the fda to discuss the results of refresh i in anticipation of filing an ide application to initiate a pivotal refresh 2 trial in 2017. the market focus of cytosorb is prevention or treatment of organ failure in life-threatening conditions , including commonly seen illnesses in the icu such as infection and sepsis , trauma , burn injury , ards , and others . severe sepsis and septic shock , a potentially life-threatening systemic inflammatory response to a serious infection , accounts for approximately 10 % to 20 % of all icu admissions and is one of the largest target markets for cytosorb . sepsis is a major unmet medical need with no approved products in the u.s. or europe to treat it . as with other critical care illnesses , multiple organ failure is the primary cause of death in sepsis . when used with standard of care therapy , that includes antibiotics , the goal of cytosorb in sepsis is to reduce the excessive levels of cytokines and other inflammatory toxins , to help reduce the sirs response and either prevent or treat organ failure . 64 in addition to the sepsis indication , we intend to conduct or support additional clinical studies in sepsis , cardiac surgery , and other critical care diseases where cytosorb could be used , such as ards , trauma , severe burn injury , acute pancreatitis , and other acute conditions that may benefit by the reductions of cytokines in the bloodstream . some examples include the prevention of post-operative complications of cardiac surgery ( cardiopulmonary bypass surgery ) and damage to organs for transplant prior to organ harvest . we intend to generate additional clinical data to expand the scope of clinical experience for marketing purposes , to increase the number of treated patients , and to support potential future publications . our proprietary hemocompatible porous polymer bead technology forms the basis of a broad technology portfolio . some of our products include : · cytosorb - an extracorporeal hemoperfusion cartridge approved in the eu for cytokine removal , with the goal of reducing sirs and preventing or treating organ failure . · vetresq - a broad spectrum blood purification adsorber designed to help treat deadly inflammation and toxic injury in animals with critical illnesses such as septic shock , toxic shock syndrome , severe systemic inflammation , toxin-mediated diseases , pancreatitis , trauma , liver failure , and drug intoxication . · hemodefend – a development-stage blood purification technology designed to remove contaminants in blood transfusion products . the goal of hemodefend is to reduce transfusion reactions and improve the safety of older blood . · contrastsorb – a development-stage extracorporeal hemoperfusion cartridge designed to remove iv contrast from the blood of high risk patients undergoing ct imaging with contrast , or interventional radiology procedures such as cardiac catheterization . the goal of contrastsorb is to prevent contrast-induced nephropathy . · drugsorb – a development-stage extracorporeal hemoperfusion cartridge designed to remove toxic chemicals from the blood ( e.g. , drug overdose , high dose regional chemotherapy ) . · betasorb – a development-stage extracorporeal hemoperfusion cartridge designed to remove mid-molecular weight toxins , such as b 2-microglobulin , that standard high-flux dialysis can not remove effectively . the goal of betasorb is to improve the efficacy of dialysis or hemofiltration .
| this increase is related to an increase in product cost of revenue of approximately $ 1,198,000 attributable to increased sales in 2016. product gross margins were approximately 67 % for the year ended december 31 , 2016 , as compared to approximately 62 % for the year ended december 31 , 2015 due to a favorable mix of sales prices and , to a lesser extent , a reduction in our product costs . grant income related expenses increased by approximately $ 544,000 during the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 due to progress made in meeting grant milestones on both existing and new grants . research and development expenses : our research and development costs were approximately $ 4,783,000 and $ 3,871,000 for the years ended december 31 , 2016 and 2015 , respectively , an increase of approximately $ 912,000 , or 24 % . this increase in research and development expenditures is related to an increase in costs related to our various clinical studies and trials of approximately $ 833,000 , an increase in stock-based compensation of approximately $ 584,000 due to milestone options awarded to the company 's research and development employees during the year ended december 31 , 2016 , an increase in salaries related to non-clinical research and development activities of approximately $ 14,000 and an increase in supplies and other research and development expenses of approximately $ 25,000. these increases were offset by an increase in direct labor and other costs being deployed toward grant-funded activities of approximately $ 544,000 , which had the effect of decreasing the amount of our non-reimbursable research and development costs . legal , financial and other consulting expenses : our legal , financial and other consulting costs were approximately $ 1,185,000 and $ 1,089,000 for the years ended december 31 , 2016 and 2015 , respectively , an increase of approximately $ 96,000 , or 9 % . the increase of approximately $ 51,000 was due to an increase in accounting and auditing fees of approximately $ 65,000 due to fees incurred which were related to the audit of our internal controls as required by the sarbanes-oxley act of 2002 and increases in consulting fees of approximately $ 151,000. these increases were offset by
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we define economic fuel expense as raw fuel expense plus losses ( less gains ) realized through actual cash payments to ( receipts from ) hedge counterparties for fuel hedge derivatives settled in the period . economic fuel expense for 2010 , 2009 and 2008 was calculated as follows : replace_table_token_12_th see item 7a , quantitative and qualitative disclosures about market risk , for additional discussion of our jet fuel costs and related hedging program . wages and benefits wages and benefits increased from 2009 to 2010 by $ 24.9 million or 9.1 % due to several factors including the ratification of contract agreements with several of our organized labor groups during the first quarter of 2010 which included pay rate increases , increases in employer contributions to the 401k plans and increased employee eligibility for profit sharing program ; an increase in training and transition costs ; and an increase in flight activity due to our three new a330-200 aircraft which began service during april , may and november 2010. wages and benefits expense increased from 2008 to 2009 by $ 29.8 million or 12.3 % as a result of higher variable compensation due to our improved operating results and higher pension costs . the increase in pension costs was primarily due to lower than expected return on plan assets . aircraft rent aircraft rent expense increased in 2010 as compared to 2009 by $ 10.6 million or 10.4 % , primarily due to the commencement of leases on three new airbus a330-200 aircraft which were added to our fleet in april , may and november 2010. maintenance materials and repairs during 2010 , we experienced some improvements in our maintenance materials and repairs expense primarily as a result of a decrease in our heavy maintenance expense on our boeing 767 aircraft and decreases in rental loan charges . these decreases were slightly offset by maintenance costs associated with our three new airbus a330-200 aircraft , which we inducted into revenue service during 2010 , as well as an increase in our heavy maintenance expense on our boeing 717 aircraft due to the commencement of 10-year airframe checks on this fleet . we expect maintenance materials and repairs expense to increase in future years as we continue to take delivery of additional airbus aircraft and integrate them into revenue service , as well as a result of price escalation in certain of our power-by-the-hour ( pbh ) contracts . 34 maintenance materials and repairs increased from 2008 to 2009 due to several factors including the aging of our boeing fleet which corresponds to an increase in maintenance activity performed , the timing of certain periodic maintenance events , and increased pbh maintenance contract expenses . as more fully discussed in note 2 to our consolidated financial statements and critical accounting policies , we have made deposits to our aircraft lessors to cover a portion of our future maintenance costs . however , because these payments are recorded as a deposit , to the extent recoverable through future maintenance , and then recognized as maintenance expense when the underlying maintenance is performed , they do not affect the timing of our recognition of maintenance expense , which is recognized as expense when incurred . maintenance deposits totaled $ 17.3 million ( $ 15.7 million , net of unamortized fair value adjustments recorded in purchase accounting ) as of december 31 , 2010. commissions and other selling expenses commissions and other selling expenses increased $ 12.9 million or 19.8 % from 2009 to 2010 due to several factors including our increased revenues as well as increases in the volume of ticket sales through credit cards , higher global distribution system booking fee expenses and increased travel agency commissions primarily due to ticket sales for our international routes partially offset by a reduction in the frequent flyer liabilities due to a change in the estimated miles expected to break . commissions and other selling expenses increased $ 8.7 million or 15.4 % from 2008 to 2009. during 2008 , commission and other selling expenses benefited due to a reduction in the frequent flyer liabilities as a result of a revision of estimated breakage of frequent flyer miles . the absence of this credit in 2009 accounts for the primary increase in commission and other selling expenses from the prior year . other rentals and landing fees other rentals and landing fees increased $ 6.5 million or 12.7 % from 2009 to 2010 primarily due to an increase in available seat miles due to the expansion of our fleet and increased rates for space rents at airports in hawaii . the increase from 2008 to 2009 of $ 12.2 million or 31.3 % was due to the expansion of our services following the closure of aloha airlines in 2008 which included expansion in the amount of terminal space that we rent , primarily in airports in hawaii , as well as a 13 % increase in flights . in addition , rates for landing fees and space rents increased for airports in hawaii . nonoperating expense nonoperating expense , net was $ 9.3 million , $ 10.3 million , and $ 38.7 million for the years ended december 31 , 2010 , 2009 , and 2008 , respectively . the decrease in nonoperating expense from 2009 to 2010 is primarily due to the release of uncertain tax positions and its related interest expense of $ 2.5 million recorded as an offset to interest expense as well as $ 2.7 million of interest that we began capitalizing as part of our a330-200 aircraft fleet in 2010. the decrease in nonoperating expense from 2008 to 2009 is primarily due to the unrealized losses on fuel derivatives recognized during 2008 as a result of the decrease in fuel prices at the end of the year . in addition , during 2008 , we recognized $ 7.8 million of unrealized losses on our auction rate securities deemed to be other than a temporary impairment . story_separator_special_tag income tax ( benefit ) and expense we recorded an income tax benefit of $ 28.3 million , income tax benefit of $ 19.5 million and income tax expense of $ 24.6 million during 2010 , 2009 and 2008 , respectively . during 2009 , we released $ 25.0 million of our valuation allowance as well as recorded approximately $ 18.2 million of income tax benefits related to changes in our tax return accounting methods . during 2010 , we released the remaining valuation allowance which amounted to $ 57.5 million . 35 liquidity and capital resources our liquidity is dependent on the cash we generate from operating activities and our debt financing arrangements . these financing arrangements are described in more detail below and in note 7 to our consolidated financial statements . as of december 31 , 2010 , we had $ 285.0 million in cash and cash equivalents compared to $ 301.8 million of cash , cash equivalents and short-term investments at december 31 , 2009. we also had restricted cash of $ 5.2 million and $ 25.7 million as of december 31 , 2010 and 2009 , respectively , which consisted almost entirely of cash held as collateral by entities that process our credit card sales transactions for advance ticket sales . substantially all of the cash held as collateral for credit card sales transactions earns interest for our benefit and is released to us as the related travel is provided to our passengers . our cash flow from operations is typically higher in the second and third quarters , while the first and fourth quarters traditionally reflect reduced travel demand except for specific periods around holidays and spring break . on december 10 , 2010 , we entered into an amended and restated credit agreement ( credit agreement ) with wells fargo capital finance , inc. ( wfcf ) for a secured revolving credit facility ( the revolving credit facility ) in an amount of up to $ 75.0 million . the revolving credit facility amends and restates in its entirety our prior term a and revolving credit facilities . the revolving credit facility loans may be borrowed , repaid and reborrowed until december 10 , 2014 , at which time all amounts borrowed under the credit agreement must be repaid . on december 10 , 2010 , $ 60.0 million of revolving loans under the credit agreement were made to us , including $ 15.0 million for outstanding term loan obligations under the term a credit facility that were converted into outstanding revolving loans , approximately $ 5.25 million for letters of credit issued under the prior revolving credit facility that continue to be outstanding under the revolving credit facility , and approximately $ 39.75 million in additional revolving loans , which were used together with cash on hand , to repay in full , prior to the scheduled maturity in 2011 , outstanding obligations of approximately $ 59.08 million under the term b credit facility . as of december 31 , 2010 , hawaiian had $ 54.7 million of outstanding borrowings under the revolving credit facility and $ 6.0 million available ( net of various letters of credit held as reserve ) . cash flows net cash provided by operating activities was $ 150.3 million for 2010 , an increase of $ 13.8 million from 2009. the increase is primarily attributable to a decrease in our restricted cash balance offset by increases in our accounts payable and air traffic liability accounts . net cash used in investing activities was $ 108.7 million for 2010 compared to $ 35.9 million for 2009. during 2010 , we used $ 140.5 million of cash for purchases of property and equipment primarily related to pre-delivery payments for our airbus a330-200 aircraft to be delivered in 2011 and 2012 which was offset by net sales of investments of $ 31.8 million including a $ 4.1 million redemption payment and $ 26.7 million for the sale of our auction rate securities . during 2009 , we used $ 40.2 million of cash for purchase of property and equipment including pre-delivery payments which was offset by net sales of investments of $ 4.2 million . net cash used in financing activities was approximately $ 57.3 million for 2010 compared to $ 3.6 million in 2009. during 2010 , we used cash for repayments of long-term debt and capital lease obligations totaling $ 101.2 million which includes the refinancing of our term a and pay-off of our term b credit facilities in december 2010 totaling $ 75.2 million , and signed a new credit agreement in connection with the refinancing of our term a revolving credit facility under which we received $ 54.7 million in funds . in 2010 , we also used cash for our stock repurchase program totaling $ 10.0 million . in 2009 , we received a $ 24.1 million advance payment from our co-branded credit card partner for the forward sale 36 of miles . this was offset by $ 27.5 million of repayments on our long-term debt and capital lease obligations . capital expenditures in 2010 , we executed purchase agreements for seven additional a330-200 aircraft scheduled for delivery in 2011 to 2015 and accelerated the delivery date of one a330-200 aircraft from 2013 to 2011. as of december 31 , 2010 , our firm aircraft orders consisted of thirteen wide-body airbus a330-200 aircraft , six airbus a350xwb-800 aircraft and three rolls royce spare engines scheduled for delivery through 2020. in addition , we have purchase rights for an additional four a330-200 aircraft and six a350xwb-800 aircraft . committed expenditures for these aircraft , engines and related flight equipment , approximates $ 203 million in 2011 , $ 273 million in 2012 , $ 275 million in 2013 , $ 233 million in 2014 and $ 154 million in 2015. for 2011 , other capital expenditures which include software , improvements , ramp and maintenance equipment , is approximately $ 20 million to $ 40 million .
| interisland interisland revenue increased by $ 60.4 million in 2010 as compared to 2009 , and decreased by $ 23.0 million in 2009 as compared to 2008. the changes in our interisland passenger revenue for the past three years was primarily due to the changes in the competitive environment which stabilized in 2010. in 2008 and the majority of 2009 , the high level of competition resulted in discounted fares and decreased yields during this period . in october 2009 , two competitors , mesa and mokulele airlines announced a joint venture to provide interisland service under the go ! mokulele brand name and concurrently reduced the combined level of its capacity . separately , we reduced our capacity on the interisland routes in 2010. since the go ! mokulele merger there has been a reduction in the availability of discounted fares in 2010 as compared to 2009 , and the yields on our interisland routes have increased . pacific pacific revenue increased by $ 32.8 million from 2009 to 2010 and decreased $ 2.0 million from 2009 to 2008. the increase in passenger revenue in 2010 as compared to 2009 was due to increased traffic and yields . in november 2010 , we launched service to tokyo , japan . the decrease in 2009 as compared to 2008 passenger revenue was due to decreased yields partially offset by an increase in capacity . other revenue other operating revenue was $ 155.1 million , $ 143.2 million and $ 105.3 million for the years ended december 31 , 2010 , 2009 and 2008 , respectively . the increase in other revenue over the past three years is primarily due to an increase in checked baggage revenue . the increase from 2009 to 2010 is primarily due to the increase in checked baggage revenue partially offset by a decrease in our cancellation penalties revenue and a decrease in the marketing component of our frequent flyer revenue due to a change in our revenue deferral rate in 2010. the increase from 2008 to 2009 is primarily due to the increase in checked baggage revenue and the revenue recognized from our frequent flyer marketing component in 2009 . 32 operating expenses operating expenses were $ 1.2 billion , $ 1.1 billion , and $ 1.1 billion for the years ended december 31 , 2010 , 2009 and 2008 , respectively . increases
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changes in the price of crude oil and natural gas have a significant impact on the profitability of the company , especially the price of crude oil as oil represented approximately 57 % of the total hydrocarbons produced on an energy equivalent basis ( one barrel of oil equals six thousand cubic feet of natural gas ) by the company in 2011. in 2012 , the percentage of hydrocarbon production represented by oil is expected to remain relatively consistent with 2011. if the prices for crude oil and natural gas should weaken in 2012 or beyond , the company would expect this to have an unfavorable impact on operating profits for its exploration and production business . such lower oil and gas prices could , but may not , have a favorable impact on the company 's refining and marketing operating profits . 24 story_separator_special_tag in the first quarter 2011. income tax expense was $ 200.9 million more in 2011 than 2010 due to higher pretax income in 2011 plus higher exploration and impairment expenses in the year for which no tax benefit was recognizable by the company . the effective tax rate on a consolidated basis increased from 43.9 % in 2010 to 52.2 % in 2011 due to a larger percentage of earnings in higher tax jurisdictions in 2011 and due to higher exploration , impairment and other expenses in foreign jurisdictions where no income tax benefit can presently be recognized due to no assurance that these expenses would be realized in 2011 or future years to reduce taxes owed . the tax rates in both 2011 and 2010 were higher than the u.s. federal statutory rate of 35.0 % due to a combination of u.s. state income taxes , certain foreign tax rates that exceeded the u.s. federal tax rate , and certain exploration and other expenses in foreign taxing jurisdictions for which no income tax benefit is currently being recognized because of the company 's uncertain ability to obtain tax benefits for these expenses in 2011 or future years . income from discontinued operations was $ 113.2 million higher in 2011 than 2010 due to stronger u.s. refining margins in 2011 prior to the sale of the refineries near the end of the third quarter of 2011. additionally , 2011 discontinued operations included a pretax gain on sale of the two u.s. refineries of $ 18.7 million . 26 2010 vs. 2009 net income in 2010 was $ 798.1 million ( $ 4.13 per diluted share ) compared to $ 837.6 million ( $ 4.35 per diluted share ) in 2009. the 2010 and 2009 results included income from discontinued operations of $ 18.5 million ( $ 0.10 per diluted share ) and $ 123.8 million ( $ 0.64 per diluted share ) , respectively . the discontinued operations income in 2010 included the operating results of the meraux , louisiana , and superior , wisconsin , refineries and associated marketing assets that were sold in 2011. the 2009 discontinued operations income included the operating results of these two refineries plus properties in ecuador that were sold in march 2009 at an after-tax gain of $ 103.6 million . income from continuing operations in 2010 and 2009 were $ 779.6 million ( $ 4.03 per diluted share ) and $ 713.8 million ( $ 3.71 per diluted share ) , respectively . the higher 2010 income from continuing operations compared to 2009 was caused by higher earnings in both the e & p and r & m businesses , but these were partially offset by higher net costs for unallocated corporate activities . e & p income from continuing operations improved $ 115.1 million in 2010 , primarily due to a $ 10.70 per barrel higher realized sales price for crude oil in 2010. the 2009 results were impacted by two unusual items . first , an after-tax gain of $ 158.3 million in 2009 was derived from a recovery of certain deepwater gulf of mexico federal royalties paid in prior years . second , an after-tax charge of $ 58.4 million was recorded in 2009 associated with a required one-time working interest redetermination at the terra nova field , offshore eastern canada . the 2010 e & p results were also favorably affected , but in less significant measures , by higher sales volumes for crude oil and natural gas and higher sales prices for natural gas . e & p was unfavorably affected in 2010 compared to the prior year by higher expenses for exploration , production , depreciation and administration . income from r & m continuing operations was $ 85.6 million more in 2010 , with the improvement mostly attributable to slightly more than a $ 0.03 per gallon improvement in margins on sale of gasoline at u.s. retail marketing stations . this was partially offset by higher net losses in 2010 for u.k. r & m operations . the net costs of corporate activities were higher by $ 134.9 million in 2010 , mostly attributable to unfavorable effects of transactions denominated in foreign currencies . to a lesser degree , the 2010 corporate net costs were unfavorably affected by lower interest income and higher expenses for interest and administration . the unfavorable variance in foreign currency transactions in 2010 was primarily attributable to a strengthening of the malaysian ringgit versus the u.s. dollar and weakening of the british pound sterling against the u.s. dollar during the year . sales and other operating revenues grew $ 3.4 billion in 2010 compared to 2009 mostly due to higher sales prices for gasoline and other motor fuels in the later year . additionally , higher sales prices and sales volumes for crude oil and natural gas in the e & p segment contributed to the increase in 2010 revenue . gain on sale of assets was $ 2.8 million less in 2010 than 2009 because the earlier year included a $ 3.9 million gain on sale of a small canadian natural gas field . story_separator_special_tag interest and other operating income ( loss ) was unfavorable by $ 147.4 million in 2010 compared to 2009 mostly due to a $ 114.3 million unfavorable variance from the effects of transactions denominated in foreign currencies , plus nonrecurring interest income in 2009 of $ 42.0 million associated with a recovery of federal royalties paid in prior years for production at certain deepwater gulf of mexico fields . the expense associated with crude oil and product purchases increased by $ 2.5 billion in 2010 compared to 2009 due to higher average costs for wholesale gasoline and other motor fuels which were purchased for resale at the company 's retail fueling stations in the u.s. and u.k. and higher costs for crude oil feedstocks at the company 's u.k. refinery . operating expenses were $ 327.9 million higher in 2010 than 2009 due to a combination of higher oil and natural gas production costs and higher costs for u.s. retail gasoline station operations . exploration expenses rose $ 27.1 million in 2010 compared to 2009 due to higher geophysical costs in the gulf of mexico and republic of the congo , higher amortization expense for undeveloped leases in the eagle ford shale , and higher administrative office and study costs in foreign locations . exploration costs in 2010 included lower dry hole costs in malaysia , australia and the u.s. , which more than offset higher dry hole costs in republic of the congo , suriname and the u.k. selling and general expenses were $ 46.8 million more in 2010 than in 2009 primarily due to higher employee compensation costs . depreciation , depletion and amortization expense rose $ 243.5 million in 2010 versus 2009 due to higher natural gas and crude oil sales volumes in 2010 , higher e & p per-unit depreciation rates , and higher r & m depreciation that included a new ethanol production facility , more u.s. retail gasoline stations in operation and a crude unit expansion at the milford haven , wales , refinery that was completed in 2010. impairment of properties was nil in 2010 and $ 5.2 million in 2009 , with the earlier year costs related to write-off of an underperforming natural gas field in the gulf of mexico . accretion of asset retirement 27 obligations was $ 5.7 million more in 2010 than 2009 primarily due to higher discounted abandonment liabilities in 2010 for wells drilled in malaysia and for synthetic oil operations at syncrude . expense for redetermination of working interest at the terra nova field was $ 64.9 million less in 2010 than 2009 because the earlier year included cumulative costs for the period of december 2004 through 2009 , while 2010 costs related only to that year 's operations at terra nova . interest expense was $ 0.2 million higher in 2010 primarily due to nine months of interest in 2010 on nonrecourse debt associated with the hankinson , north dakota , ethanol production facility , compared to three months of interest on this debt in 2009 following the october 1 , 2009 acquisition date . the nonrecourse debt was paid off by the company in september 2010. the higher nonrecourse debt interest was mostly offset by lower interest expense on outstanding general bank financing balances in 2010. capitalized interest was $ 10.2 million less in 2010 than in the prior year due to interest amounts allocated to the sarawak natural gas development in 2009 prior to start-up of operations later that year , partially offset by higher interest allocated to the tupper west gas development in 2010. income tax expense in 2010 was $ 87.6 million more than 2009 due to higher pretax earnings and a slightly higher overall effective tax rate in the later year . the consolidated effective tax rate was 43.9 % in 2010 compared to 42.2 % in 2009 , with the rate increase in the later year caused by a larger percentage of earnings in higher tax jurisdictions in 2010 and due to higher current year exploration and other expenses in foreign jurisdictions where no income tax benefit can presently be recognized due to no assurance that these expenses will be realized in 2010 or future years to reduce taxes owed . the tax rates in both 2010 and 2009 were higher than the u.s. federal statutory tax rate of 35.0 % due to a combination of u.s. state income taxes , certain foreign tax rates that exceeded the u.s. federal tax rate , and certain exploration and other expenses in foreign taxing jurisdictions for which no income tax benefit is currently being recognized because of the company 's uncertain ability to obtain tax benefits for these costs in 2010 or future years . income from discontinued operations was $ 18.5 million ( $ 0.10 per diluted share ) in 2010 and $ 123.8 million ( $ 0.64 per diluted share ) in 2009. income from discontinued operations in both years included operating results for the two u.s. petroleum refineries sold in late 2011. income from discontinued operations in 2009 included an after-tax gain of $ 103.6 million on ecuador assets which were sold in march 2009. segment results in the following table , the company 's results of operations for the three years ended december 31 , 2011 , are presented by segment . more detailed reviews of operating results for the company 's exploration and production and refining and marketing activities follow the table . replace_table_token_11_th 28 exploration and production earnings from exploration and production ( e & p ) continuing operations were $ 625.7 million in 2011 , $ 806.9 million in 2010 and $ 691.8 million in 2009. e & p income in 2011 was $ 181.2 million less than in 2010 primarily due to a $ 368.6 million impairment charge in 2011 to reduce the carrying value of the azurite oil field to fair value .
| the results of discontinued operations in 2010 were associated with operating income of the two u.s. refineries and associated marketing assets that were sold in 2011 ; income from discontinued operations in 2009 primarily arose from a $ 103.6 million after-tax gain on disposal of all ecuador assets in march 2009 , but also included operating income of the u.s. refineries and marketing assets sold in 2011. income from continuing operations was $ 779.6 million ( $ 4.03 per diluted share ) in 2010 and $ 713.8 million ( $ 3.71 per diluted share ) in 2009. income in 2010 rose for both exploration and production ( e & p ) and refining and marketing ( r & m ) operations compared to the prior year . earnings for the company 's e & p operations increased in 2010 primarily due to higher sales prices and sales volumes of crude oil and natural gas . the company 's r & m earnings from continuing operations were higher in 2010 primarily due to stronger profits on u.s. retail gasoline fuel and merchandise sales . earnings in 2010 were unfavorably affected compared to 2009 by higher net costs associated with corporate activities that were not allocated to operating segments , with the higher costs primarily caused by an unfavorable variance for the effects of transactions denominated in foreign currencies . further explanations of each of these variances are found in the following sections . 2011 vs. 2010 net income in 2011 totaled $ 872.7 million ( $ 4.49 per diluted share ) compared to $ 798.1 million ( $ 4.13 per diluted share ) in 2010. these earnings included income from discontinued operations of $ 131.8 million ( $ 0.68 per diluted share ) in 2011 compared to income of $ 18.5 million ( $ 0.10 per diluted share ) in 2009. discontinued operations in both years were associated with the company 's two u.s. refineries which were sold in 2011. income from continuing operations amounted to $ 740.9 million ( $ 3.81 per diluted share ) in 2011 , down from $ 779.6 million ( $ 4.03 per diluted share ) in 2010. the lower earnings from continuing operations in 2011 was primarily attributable to a $
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allowance for loan losses . management believes the allowance for loan losses requires the most significant estimates and assumptions used in the preparation of the consolidated financial statements . the allowance for loan losses is based on management 's evaluation of the level of the allowance required in relation to the estimated loss exposure in the loan portfolio . management regularly evaluates the allowance , typically monthly , to determine the appropriate level by taking into consideration factors such as the size and growth trajectory of the portfolio , quality trends as measured by key indicators , prior loan loss experience in major portfolio segments , local and national business and economic conditions , the results of any stress testing undertaken during the period , and management 's estimation of potential losses . the use of different estimates or assumptions could produce different provisions for loan losses . fair value of securities . determining a market price for securities carried at fair value is a critical accounting estimate in the company 's financial statements . pricing of individual securities is subject to a number of factors including changes in market interest rates , changes in prepayment speeds and assumptions , changes in market tolerance for risk , and any changes in the risk profile of the security . the company subscribes to a widely recognized , independent pricing service and updates carrying values no less frequently than monthly . it also validates the values provided by the pricing service no less frequently than quarterly by measuring against security prices provided by a secondary source . results of the validation are reported to the bank 's asset liability committee each quarter and any variances between the two sources above defined thresholds are investigated by management . other-than-temporary impairment on securities . another significant estimate related to investment securities is the evaluation of other-than-temporary impairments . the evaluation of securities for other-than-temporary impairments is a quantitative and qualitative process , which is subject to risks and uncertainties and is intended to determine whether declines in the fair value of investments should be recognized in current period earnings . the risks and uncertainties include changes in general economic conditions , the issuer 's financial condition and or future prospects , the effects of changes in interest rates or credit spreads and the expected recovery period of unrealized losses . securities that are in an unrealized loss position are reviewed at least quarterly to determine if other-than-temporary impairment is present based on certain quantitative and qualitative factors and measures . the primary factors considered in evaluating whether a decline in value of securities is other-than-temporary include : ( a ) the length of time and extent to which the fair value has been less than cost or amortized cost and the expected recovery period of the security , ( b ) the financial condition , credit rating and future prospects of the issuer , ( c ) whether the debtor is current on contractually obligated interest and principal payments , ( d ) the volatility of the securities ' market price , ( e ) the intent and ability of the company to retain the investment for a period of time sufficient to allow for recovery , which may be at maturity , and ( f ) any other information and observable data considered relevant in determining whether other-than-temporary impairment has occurred , including the expectation of receipt of all principal and interest when due . goodwill . management utilizes numerous techniques to estimate the value of various assets held by the company , including methods to determine the appropriate carrying value of goodwill as required under fasb asc topic 350 `` intangibles – goodwill and other . '' in addition , goodwill from a purchase acquisition is subject to ongoing periodic impairment tests , which include an evaluation of the ongoing assets , liabilities and revenues from the acquisition and an estimation of the impact of business conditions . mortgage servicing rights . the valuation of mortgage servicing rights is a critical accounting policy which requires significant estimates and assumptions . the bank often sells mortgage loans it originates and retains the ongoing servicing of such loans , receiving a fee for these services , generally 0.25 % of the outstanding balance of the loan per annum . mortgage servicing rights are recognized at fair value when they are acquired through the sale of loans , and are reported in other assets . they are amortized into non-interest income in proportion to , and over the period of , the estimated future net servicing income of the underlying financial assets . the rights are subsequently carried at the lower of amortized cost or fair value . management uses an independent firm which specializes in the valuation of mortgage servicing rights to determine the fair value . the most important assumption is the anticipated loan prepayment rate , and increases in prepayment speed and amount result in lower valuations of mortgage servicing rights . the valuation also includes an evaluation for impairment based upon the fair value of the rights , which can vary depending upon current interest rates and prepayment expectations , as compared to amortized cost . impairment is determined by stratifying rights by predominant characteristics , such as interest rates and terms . the use of different assumptions could produce a different valuation . all of the assumptions are based on standards the company believes the first bancorp - 2020 form 10-k - page 23 would be utilized by market participants in valuing mortgage servicing rights and are consistently derived and or benchmarked against independent public sources . derivative financial instruments designated as hedges . the company recognizes all derivatives in the consolidated balance sheets at fair value . story_separator_special_tag on the date the company enters into the derivative contract , the company designates the derivative as a hedge of either a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability ( “ cash flow hedge ” ) , a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment ( “ fair value hedge ” ) , or a held for trading instrument ( “ trading instrument ” ) . the company formally documents relationships between hedging instruments and hedged items , as well as its risk management objectives and strategy for undertaking various hedge transactions . the company also assesses , both at the hedge 's inception and on an ongoing basis , whether the derivatives that are used in hedging transactions are effective in offsetting changes in cash flows or fair values of hedged items . changes in fair value of a derivative that is effective and that qualifies as a cash flow hedge are recorded in other comprehensive income ( loss ) and are reclassified into earnings when the forecasted transaction or related cash flows affect earnings . changes in fair value of a derivative that qualifies as a fair value hedge and the change in fair value of the hedged item are both recorded in earnings and offset each other when the transaction is effective . those derivatives that are classified as trading instruments , including customer loan swaps , are recorded at fair value with changes in fair value recorded in earnings . the company discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in the cash flows of the hedged item , that it is unlikely that the forecasted transaction will occur , or that the designation of the derivative as a hedging instrument is no longer appropriate . use of non-gaap financial measures certain information in management 's discussion and analysis of financial condition and results of operations and elsewhere in this report contains financial information determined by methods other than in accordance with accounting principles generally accepted in the united states of america ( `` gaap '' ) . management uses these `` non-gaap '' measures in its analysis of the company 's performance and believes that these non-gaap financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods as well as demonstrating the effects of significant gains and charges in the current period . the company believes that a meaningful analysis of its financial performance requires an understanding of the factors underlying that performance . management believes that investors may use these non-gaap financial measures to analyze financial performance without the impact of unusual items that may obscure trends in the company 's underlying performance . these disclosures should not be viewed as a substitute for operating results determined in accordance with gaap , nor are they necessarily comparable to non-gaap performance measures that may be presented by other companies . in several places in this report , net interest income is presented on a fully taxable equivalent basis . specifically included in interest income was tax-exempt interest income from certain investment securities and loans . an amount equal to the tax benefit derived from this tax exempt income has been added back to the interest income total , which adjustments increased net interest income accordingly . management believes the disclosure of tax-equivalent net interest income information improves the clarity of financial analysis , and is particularly useful to investors in understanding and evaluating the changes and trends in the company 's results of operations . other financial institutions commonly present net interest income on a tax-equivalent basis . this adjustment is considered helpful in the comparison of one financial institution 's net interest income to that of another institution , as each will have a different proportion of tax-exempt interest from its earning assets . moreover , net interest income is a component of a second financial measure commonly used by financial institutions , net interest margin , which is the ratio of net interest income to average earning assets . for purposes of this measure as well , other financial institutions generally use tax-equivalent net interest income to provide a better basis of comparison from institution to institution . the company follows these practices . the following table provides a reconciliation of tax-equivalent financial information to the company 's consolidated financial statements , which have been prepared in accordance with gaap . a federal income tax rate of 21.0 % was used in 2020 and 2019. replace_table_token_2_th the company presents its efficiency ratio using non-gaap information which is most commonly used by financial institutions . the gaap-based efficiency ratio is noninterest expenses divided by net interest income plus noninterest income from the consolidated statements of income and comprehensive income . the non-gaap efficiency ratio excludes securities losses from noninterest expenses , excludes securities gains from noninterest income , and adds the tax-equivalent adjustment to net interest income . the first bancorp - 2020 form 10-k - page 24 the following table provides a reconciliation between the gaap and non-gaap efficiency ratio : replace_table_token_3_th the company presents certain information based upon average tangible common shareholders ' equity instead of total average shareholders ' equity . the difference between these two measures is the company 's intangible assets , specifically goodwill from prior acquisitions . management , banking regulators and many stock analysts use the tangible common equity ratio and the tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets , typically stemming from the use of the purchase accounting method in accounting for mergers and acquisitions .
| non-interest expense in 2020 was $ 39.7 million , an increase of $ 4.5 million or 12.7 % from the $ 35.2 million reported in 2019. this increase was due to increased expense in salaries and employee benefits , furniture and equipment , acquisition-related costs and other operating expense including fees incurred in the restructure of several interest rate swap positions . income taxes on operating earnings were $ 5.1 million for the year ended december 31 , 2020 , up $ 386,000 from the same period in 2019. during 2020 , total assets increased $ 292.4 million or 14.1 % , ending the year at $ 2.361 billion . the loan portfolio increased $ 179.7 million or 13.9 % in 2020 , ending the year at $ 1.477 billion . the investment portfolio was up $ 38.4 million or 5.9 % for the year . on the liability side of the balance sheet , low-cost deposits increased $ 275.7 million or 34.5 % , totaling $ 1.08 billion as of december 31 , 2020. certificates of deposit decreased $ 84.4 million or 12.2 % from the end of 2019. local certificates of the first bancorp - 2020 form 10-k - page 25 deposit ( cds ) decreased $ 35.4 million and wholesale cds decreased $ 49.0 million at december 31 , 2020 compared to december 31 , 2019. the company achieved significant improvement in asset quality . non-performing loans stood at 0.46 % of total loans as of december 31 , 2020 - down from the 1.28 % level of non-performing loans a year ago primarily due to the resolution of a significant non-performing loan in the first quarter of 2020. net chargeoffs were $ 1.4 million , or 0.10 % of average loans in 2020 , up $ 593,000 over the year ended december 31 , 2019. the allowance as a percentage of loans outstanding stood at 1.10 % in 2020 , up from 0.90 % at december 31 , 2019. despite the improvement during 2020 in non-performing asset levels and stable levels of past due loans , the uncertainties resulting from covid-19 led
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cash and cash equivalents decreased $ 33.2 million to $ 79.8 million at december 31 , 2015 from $ 112.9 million at december 31 , 2014. the increase in assets was due to an increase in loans receivable , net of undisbursed loan funds and deferred fees and costs , of $ 155.4 million funded by increases in total deposits of $ 75.3 million and advances from the federal home loan bank of $ 38.4 million as well as from cash and cash equivalents . securities the securities portfolio decreased $ 3.0 million to $ 236.7 million at december 31 , 2015. the 2015 activity in the portfolio included $ 30.4 million of purchases , $ 719,000 of amortization and maturities , $ 31.3 million of principal pay-downs and $ 426,000 of securities being sold . there was a net decrease of $ 1.0 million in market value on available-for-sale securities . for additional information regarding first defiance 's investment securities see note 5 to the financial statements . loans loans receivable , net of undisbursed loan funds and deferred fees and costs , increased $ 155.4 million to $ 1.80 billion at december 31 , 2015. for more details on the loan balances , see note 7 – loans receivable in the notes to the financial statements . the majority of first defiance 's non-residential real estate and commercial loans are to small and mid-sized businesses . the combined commercial , non-residential real estate and multi-family real estate loan portfolios totaled $ 1.37 billion and $ 1.24 billion at december 31 , 2015 and 2014 , respectively , and accounted for approximately 73.1 % and 73.6 % of first defiance 's loan portfolio at the end of those respective periods . first defiance believes it has been able to establish itself as a leader in its market area in the commercial and commercial real estate lending area by hiring experienced lenders and providing a high level of customer service to its commercial lending clients . the one-to-four family residential portfolio totaled $ 205.3 million at december 31 , 2015 , compared with $ 206.4 million at the end of 2014. at the end of 2015 , those loans comprised 11.0 % of the total loan portfolio , down from 12.2 % at december 31 , 2014. construction loans , which include one-to-four family and commercial real estate properties , increased to $ 163.9 million at december 31 , 2015 compared to $ 112.4 million at december 31 , 2014. these loans accounted for approximately 8.7 % and 6.7 % of the total loan portfolio at december 31 , 2015 and 2014 , respectively . home equity and home improvement loans increased to $ 117.0 million at december 31 , 2015 , from $ 111.8 million at the end of 2014. at the end of 2015 , those loans comprised 6.3 % of the total loan portfolio , down slightly from 6.6 % at december 31 , 2014. consumer finance and mobile home loans were $ 16.3 million at december 31 , 2015 up from $ 15.5 million at the end of 2014. these loans comprised just 0.9 % of the total portfolio at both december 31 , 2015 and 2014. in order to properly assess the collateral dependent loans included in its loan portfolio , the company has established policies regarding the monitoring of the collateral underlying such loans . the company requires an appraisal that is less than one year old for all new collateral dependent real estate loans , and all renewed collateral dependent real estate loans where significant new money is extended . the appraisal process is handled by the credit department , which selects the appraiser and orders the appraisal . first defiance 's loan policy prohibits the account officer from talking or communicating with the appraiser to insure that the appraiser is not influenced by the account officer in any way in making a determination of value . - 37 - first federal generally does not require updated appraisals for performing loans unless significant new money is requested by the borrower . when a collateral dependent loan is downgraded to classified status , first federal reviews the most current appraisal on file and if appropriate , based on first federal 's assessment of the appraisal , such as age , market , etc . first federal will discount the appraisal amount to a more appropriate current value based on inputs from lenders and realtors . this amount may then be discounted further by first federal 's estimation of the selling costs . in most instances , if the appraisal is more than twelve to fifteen months old , a new appraisal may be required . finally , first federal assesses whether there is any collateral short fall , taking into consideration guarantor support and liquidity , and determines if a charge off is necessary . all loans over 90 days past due and or on non-accrual are classified as non-performing loans . non-performing status automatically occurs in the month in which the 90-day delinquency occurs . when a collateral dependent loan moves to non-performing status , first federal generally gets a new third party appraisal and charges the loan down appropriately based upon the new appraisal and an estimate of costs to liquidate the collateral . all properties that are moved into the other real estate owned ( “ oreo ” ) category are supported by current appraisals , and the oreo is carried at the lower of cost or fair value , which is determined based on appraised value less first federal 's estimate of the liquidation costs . first federal does not adjust any appraisals upward without written documentation of this valuation change from the appraiser . when setting reserves and charge offs on classified loans , appraisal values may be discounted downward based upon first federal 's experience with liquidating similar properties . appraisals are received within approximately 60 days after they are requested . story_separator_special_tag the first federal loan loss reserve committee reviews the amount of each new appraisal and makes any necessary charge off decisions at its meeting prior to the end of each quarter . any partially charged-off collateral dependent loans are considered non-performing , and as such , would need to show an extended period of time with satisfactory payment performance as well as cash flow coverage capability supported by current financial statements before first federal will consider an upgrade to performing status . first federal may consider moving the loan to accruing status after approximately six months of satisfactory payment performance . for loans where first federal determines that an updated appraisal is not necessary , other means are used to verify the value of the real estate , such as recent sales of similar properties on which first federal had loans as well as calls to appraisers , brokers , realtors and investors . first federal monitors and tracks its loan to value quarterly to determine accuracy and any necessary charge offs . based on these results , changes may occur in the processes used . loan modifications constitute a troubled debt restructuring ( “ tdr ” ) if first federal for economic or legal reasons related to the borrower 's financial difficulties grants a concession to the borrower that it would not otherwise consider . for loans that are considered tdrs , first federal either computes the present value of expected future cash flows discounted at the original loan 's effective interest rate or it may measure impairment based on the fair value of the collateral . for those loans measured for impairment utilizing the present value of future cash flows method , any discount is carried as a reserve in the allowance for loan and lease losses . for those loans measured for impairment utilizing the fair value of the collateral , any shortfall is charged off . as of december 31 , 2015 and december 31 , 2014 , first federal had $ 11.2 million and $ 24.7 million , respectively , of loans that were still performing and which were classified as tdrs . - 38 - allowance for loan losses the allowance for loan losses represents management 's assessment of the estimated probable incurred credit losses in the loan portfolio at each balance sheet date . management analyzes the adequacy of the allowance for loan losses regularly through reviews of the loan portfolio . consideration is given to economic conditions , changes in interest rates and the effect of such changes on collateral values and borrower 's ability to pay , changes in the composition of the loan portfolio and trends in past due and non-performing loan balances . the allowance for loan losses is a material estimate that is susceptible to significant fluctuation and is established through a provision for loan losses based on management 's evaluation of the inherent risk in the loan portfolio . in addition to extensive in-house loan monitoring procedures , the company utilizes an outside party to conduct an independent loan review of commercial loan and commercial real estate loan relationships . the goal is to have approximately 55 % to 60 % of the portfolio reviewed annually . this includes all relationships over $ 5.0 million with new exposure greater than $ 2.0 million and a sample of other relationships greater than $ 5.0 million ; loan relationships between $ 1.0 million and $ 5.0 million with new exposure greater than $ 750,000 and a sample of other relationships between $ 1.0 million and $ 5.0 million ; and a sample of relationships less than $ 1.0 million . management utilizes the results of this outside loan review to assess the effectiveness of its internal loan grading system as well as to assist in the assessment of the overall adequacy of the allowance for loan losses associated with these types of loans . the allowance for loan loss is made up of two basic components . the first component of the allowance for loan loss is the specific reserve in which the company sets aside reserves based on the analysis of individual impaired credits . in establishing specific reserves , the company analyzes all substandard , doubtful and loss graded loans quarterly and makes judgments about the risk of loss based on the cash flow of the borrower , the value of any collateral and the financial strength of any guarantors . if the loan is impaired and cash flow dependent , then a specific reserve is established for the discount on the net present value of expected future cash flows . if the loan is impaired and collateral dependent , then any shortfall is usually charged off . the company also considers the impacts of any small business association or farm service agency guarantees . the specific reserve was $ 437,000 at december 31 , 2015. the second component is a general reserve , which is used to record loan loss reserves for groups of homogenous loans in which the company estimates the losses incurred in the portfolio based on quantitative and qualitative factors . for purposes of the general reserve analysis , the loan portfolio is stratified into nine different loan pools based on loan type to allocate historic loss experience . the loss experience factor is then applied to the non-impaired loan portfolio . beginning june 30 , 2015 , the company refined the methodology to its allowance for loan loss calculation pertaining to the general reserve component for non-impaired loans . there was no change to the calculation of the component for reserves on impaired loans . within the general reserve , the determination of the historical loss component was modified from using a three-year average annual loss rate to a loss migration measurement . the loss migration measurement implemented june 30 , 2015 , utilizes an average of four ( 4 ) four-year loss migration periods for each loan portfolio segment with differentiation between loan risk grades .
| million for 2015 compared to $ 68.7 million in 2014 , which represents an increase of 6.8 % . - 44 - during the same period , the average balance of investment securities increased to $ 239.9 million for 2015 from $ 223.5 million for the year ended december 31 , 2014. interest income from investment securities increased to $ 6.8 million in 2015 compared to $ 6.6 million in 2014 , which represents an increase of 3.0 % . the overall duration of investments decreased to 4.2 years at december 31 , 2015 from 4.9 years at december 31 , 2014. interest expense increased by $ 222,000 in 2015 compared to 2014 , to $ 6.8 million from $ 6.6 million . this increase was mainly due to a one basis point increase in the average cost of interest-bearing liabilities in 2015. interest expense related to interest-bearing deposits was $ 5.3 million in 2015 and 2014. expenses on fhlb advances and other interest-bearing funding sources were $ 675,000 and $ 152,000 respectively in 2015 and $ 528,000 and $ 161,000 respectively in 2014. interest expense recognized by the company related to subordinated debentures was $ 613,000 in 2015 and $ 587,000 in 2014 due to rising rates . total interest income increased by $ 1.4 million or 2.0 % to $ 76.2 million for the year ended december 31 , 2014 from $ 74.8 million for the year ended december 31 , 2013. the increase in interest income was due to a volume increase in loans and investment securities in 2014. interest income from loans increased to $ 68.7 million for 2014 compared to $ 68.1 million in 2013 , which represents an increase of 0.9 % . during the same period , the average balance of investment securities increased to $ 223.5 million for 2014 from $ 191.0 million for the year ended december 31 , 2013. interest income from investment securities increased to $ 6.6 million
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the extent to which the covid-19 pandemic impacts our business , the business of our suppliers and other commercial partners , our corporate development objectives and the value of and market for our common stock , will depend on future developments that are highly uncertain and can not be predicted with confidence at this time , such as the ultimate duration of the pandemic , travel restrictions , quarantines , social distancing and business closure requirements in the united states and other countries , and the effectiveness of actions taken globally to contain and treat the disease . the global economic slowdown and the other risks and uncertainties associated with the pandemic could have a material adverse effect on our business , financial condition , results of operations and growth prospects . in addition , to the extent the ongoing covid-19 pandemic adversely affects our business and results of operations , it may also have the effect of heightening many of the other risks and uncertainties which we face . critical accounting policies and estimates management 's discussion and analysis discusses our consolidated financial statements which have been prepared in accordance with united states generally accepted accounting principles ( u.s. gaap ) . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the balance sheet date and reported amounts of revenue and expenses during the reporting period . on an ongoing basis , we evaluate our estimates and judgments . we base our estimates and judgments on historical experience and on various other factors that are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . -28- 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 to depict the transfer of promised goods to the customer in an amount the reflects the consideration to which we expect to be entitled in exchange for those goods in accordance with the provisions of asc 606 , revenue from contracts with customers . stock compensation we record stock-based compensation in accordance with the provisions set forth in asc 718. asc 718 requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based upon the grant date fair value of those awards . we , from time to time , may issue common stock to acquire services or goods from non-employees . common stock issued to persons other than employees or directors are recorded on the basis of their fair value . business combinations we account for business combinations under the acquisition method of accounting . under this method , acquired assets , including separately identifiable intangible assets , and any assumed liabilities are recorded at their acquisition date estimated fair value . the excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisition . determining the fair value of assets acquired and liabilities assumed involves the use of significant estimates and assumptions . goodwill goodwill is not amortized , but is reviewed for impairment at least annually , or more frequently when events or changes in circumstances indicate that the carrying value may not be recoverable . judgements regarding indicators of potential impairment are based on market conditions and operational performance of the business . if management concludes , based on its assessment of relevant events , facts and circumstances that it is more likely than not that a reporting unit 's carrying value is greater than its fair value , then a goodwill impairment charge is recognized for the amount in excess , not to exceed the total amount of goodwill allocated to that reporting unit . -29- our management determined that a triggering event to assess goodwill impairment occurred during the year ending june 30 , 2020 due to the separation of a key executive associated with the acquisition of concepts and solutions . while there was no single determinative event , the consideration in totality of several factors that developed during the year of 2020 led management to conclude that it was more likely than not that the fair values of certain intangible assets and goodwill acquired as part of that acquisition were below their carrying amounts . these factors included : a ) former key executive separating from us ; b ) respective former key executive violating his noncompete changing the use and value of it ; c ) sustained decrease in our share price which reduced market capitalization ; and d ) uncertainty in the united states and global economies beginning in march 2020 due to covid-19 . as a result of the impairment test , an impairment loss of approximately $ 2,000,000 , including $ 800,287 related to goodwill and $ 1,200,000 related to finite-lived intangible assets was recorded during the year ended june 30 , 2020. intangible assets intangible assets are stated at the lower of cost or fair value . intangible assets are amortized on a straight- line basis over periods ranging from two to five years , representing the period over which we expect to receive future economic benefits from these assets . as noted above , we determined certain intangible assets were impaired during the year ended june 30 , 2020. derivative liabilities we classify warrants and embedded conversion features on convertible debt as derivative liabilities due to protection provisions within the agreements . such financial instruments are initially recorded at fair value using the monte carlo model and subsequently adjusted to fair value at the close of each reporting period . the story_separator_special_tag the extent to which the covid-19 pandemic impacts our business , the business of our suppliers and other commercial partners , our corporate development objectives and the value of and market for our common stock , will depend on future developments that are highly uncertain and can not be predicted with confidence at this time , such as the ultimate duration of the pandemic , travel restrictions , quarantines , social distancing and business closure requirements in the united states and other countries , and the effectiveness of actions taken globally to contain and treat the disease . the global economic slowdown and the other risks and uncertainties associated with the pandemic could have a material adverse effect on our business , financial condition , results of operations and growth prospects . in addition , to the extent the ongoing covid-19 pandemic adversely affects our business and results of operations , it may also have the effect of heightening many of the other risks and uncertainties which we face . critical accounting policies and estimates management 's discussion and analysis discusses our consolidated financial statements which have been prepared in accordance with united states generally accepted accounting principles ( u.s. gaap ) . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the balance sheet date and reported amounts of revenue and expenses during the reporting period . on an ongoing basis , we evaluate our estimates and judgments . we base our estimates and judgments on historical experience and on various other factors that are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . -28- 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 to depict the transfer of promised goods to the customer in an amount the reflects the consideration to which we expect to be entitled in exchange for those goods in accordance with the provisions of asc 606 , revenue from contracts with customers . stock compensation we record stock-based compensation in accordance with the provisions set forth in asc 718. asc 718 requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based upon the grant date fair value of those awards . we , from time to time , may issue common stock to acquire services or goods from non-employees . common stock issued to persons other than employees or directors are recorded on the basis of their fair value . business combinations we account for business combinations under the acquisition method of accounting . under this method , acquired assets , including separately identifiable intangible assets , and any assumed liabilities are recorded at their acquisition date estimated fair value . the excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisition . determining the fair value of assets acquired and liabilities assumed involves the use of significant estimates and assumptions . goodwill goodwill is not amortized , but is reviewed for impairment at least annually , or more frequently when events or changes in circumstances indicate that the carrying value may not be recoverable . judgements regarding indicators of potential impairment are based on market conditions and operational performance of the business . if management concludes , based on its assessment of relevant events , facts and circumstances that it is more likely than not that a reporting unit 's carrying value is greater than its fair value , then a goodwill impairment charge is recognized for the amount in excess , not to exceed the total amount of goodwill allocated to that reporting unit . -29- our management determined that a triggering event to assess goodwill impairment occurred during the year ending june 30 , 2020 due to the separation of a key executive associated with the acquisition of concepts and solutions . while there was no single determinative event , the consideration in totality of several factors that developed during the year of 2020 led management to conclude that it was more likely than not that the fair values of certain intangible assets and goodwill acquired as part of that acquisition were below their carrying amounts . these factors included : a ) former key executive separating from us ; b ) respective former key executive violating his noncompete changing the use and value of it ; c ) sustained decrease in our share price which reduced market capitalization ; and d ) uncertainty in the united states and global economies beginning in march 2020 due to covid-19 . as a result of the impairment test , an impairment loss of approximately $ 2,000,000 , including $ 800,287 related to goodwill and $ 1,200,000 related to finite-lived intangible assets was recorded during the year ended june 30 , 2020. intangible assets intangible assets are stated at the lower of cost or fair value . intangible assets are amortized on a straight- line basis over periods ranging from two to five years , representing the period over which we expect to receive future economic benefits from these assets . as noted above , we determined certain intangible assets were impaired during the year ended june 30 , 2020. derivative liabilities we classify warrants and embedded conversion features on convertible debt as derivative liabilities due to protection provisions within the agreements . such financial instruments are initially recorded at fair value using the monte carlo model and subsequently adjusted to fair value at the close of each reporting period . the
| when excluding the non-cash impairment charge taken during the year ended june 30 , 2020 , general and administrative expenses increased to $ 3,090,814 from $ 5,838,270 for the year ended june 30 , 2019 , an increase of 19 % . the increase was due to the increase in the number of employees and therefore the increase in day to day operating and travel expenses . interest expense interest expense amounted to $ 5,113,902 and $ 333,851 for the years ended june 30 , 2020 and 2019 , respectively . the increase in interest expense was due to the increase in our debt . during the year ended june 30 , 2020 , we amortized $ 340,526 of debt discounts to interest expense . during the year ended june 30 , 2019 , we amortized $ 109,853 of debt discounts to interest expense . during the years ended june 30 , 2020 and 2019 , we amortized $ 1,825,506 and $ 644,055 of original issue debt discount on derivative instruments to interest accretion . other income ( expense ) the outstanding warrants and conversion features in convertible notes meet the definition of a derivative liability instrument because the exercise price of the warrants and the conversion rates are variable . as a result , the outstanding warrants and conversion features of the notes are recorded as a derivative liability at fair value and marked-to-market each period with the change in fair value charged or credited to income . a derivative liability of $ 246,612 and $ 1,025,944 is recorded at june 30 , 2020 and june 30 , 2019. a change in fair value of the derivative instruments was accreted by $ 2,651,957 and $ 89,198 during the years ended june 30 , 2020 and 2019 , respectively , due to the change in our stock price . these amounts do not impact cash . -32- net loss for the period as a result of the foregoing , net loss incurred for the years ended june 30 , 2020 and 2019 was $ 14,026,107 and $ 6,663,117 , respectively , an increase of 80 % . noncash contributing
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the sales price included ( 1 ) $ 119.7 million at closing , which included a $ 13.0 million note receivable that was subsequently paid and $ 10.0 million initially held in an indemnification-related escrow account that was released to us in cash on august 5 , 2013 , and ( 2 ) an additional $ 10.8 million in cash we received in the fourth quarter of 2012 upon the achievement of certain targets . for the year ended december 31 , 2012 , the results of these operations are reported within our income from discontinued operations category on our consolidated statements of operations . subject to the availability of capital at attractive terms and pricing , we plan to continue to evaluate and pursue a variety of activities , including : ( 1 ) the expansion of our point-of-sale finance products ; ( 2 ) the acquisition of additional financial assets associated with our point-of-sale finance activities as well as the acquisition of receivables portfolios ; ( 3 ) investments in other assets or businesses that are not necessarily financial services assets or businesses ; ( 4 ) the repurchase of our convertible senior notes and other debt or our outstanding common stock ; and ( 5 ) the servicing of receivables and related financial assets for third parties ( and in which we have limited or no equity interests ) to allow us to leverage our expertise and infrastructure . 21 story_separator_special_tag amounts to gradually diminish ( absent significant changes in the assumptions used to determine these fair values ) in the future . these amounts , however , are subject to potentially high levels of volatility if we experience changes in the quality of our credit card receivables or if there are significant changes in market valuation factors ( e.g. , interest rates and spreads ) in the future . such volatility will be muted somewhat , however , by the offsetting nature of the receivables and underlying debt being recorded at fair value and with the expected reductions in the face amounts of such outstanding receivables and debt as we experience further credit card receivables liquidations and associated debt amortizing repayments . servicing income . we earn servicing compensation by servicing loan portfolios for third parties ( including our equity-method investees ) . in 2013 , we entered into new servicing agreements with third parties , which resulted in higher 2013 servicing income compared to the prior year . offsetting the year over year increase is $ 10.0 million in reimbursements we received from a counterparty in the fourth quarter of 2012 to compensate us for excess costs we incurred for its benefit in servicing a credit card portfolio . however , unless and or until we grow the number of contractual servicing relationships we have with third parties or our current relationships grow their loan portfolios , we will not experience significant growth and income within this category , and we currently expect to experience future quarterly declines relative to our 2013 servicing income level . other income . historically included within our other income category are ancillary and interchange revenues , which are now relatively insignificant for us due to our credit card account closures and net credit card receivables portfolio liquidations . absent portfolio acquisitions , we do not expect significant ancillary and interchange revenues in the future . also included within our other income category are certain reimbursements we received in respect of one of our portfolios ; these other income inclusions were negligible in 2012 and in the second quarter of 2013 , but were more significant in the other quarters of 2013. this accounts for the respective year over year increases in other income . equity in income of equity-method investees . because our equity-method investees use the fair value option to account for their financial assets and liabilities , changes in fair value estimates can cause some volatility in the earnings of these investees as occurred in the first three quarters of 2013. although we increased our equity interest in one of our two equity-method investees in the second quarter of 2013 , because of continued liquidations in their financial assets ( a credit card receivables portfolio held by one equity-method investee and structured financing notes held by the other ) , absent additional 23 investments in our existing or in new equity-method investees in the future , we expect gradually declining effects from our equity-method investments on our operating results . losses upon charge off of loans and fees receivable recorded at fair value . this account reflects charge offs ( net of recoveries ) of the face amount of credit card receivables we record at fair value on our consolidated balance sheet . we have experienced a general trending decline in , and we expect future trending declines in , these charge offs as we continue to liquidate our credit card receivables . additionally , our lower net losses in 2013 reflect the effects of reimbursements received in respect of one of our portfolios . provision for losses on loans and fees receivable recorded at net realizable value . our provision for losses on loans and fees receivable recorded at net realizable value covers , with respect to such receivables , the aggregate loss exposures on ( 1 ) principal receivable balances , ( 2 ) finance charges and late fees receivable underlying income amounts included within our total interest income category , and ( 3 ) other fees receivable . we have experienced year-over-year increases in this category between 2012 and 2013 due to the effects of initial elevated losses incurred on new credit product testing and more recently growth in our new installment lending product lines . for the foreseeable future with the exception of the second quarter of 2014 as mentioned above , we expect growth in new product receivables recorded at net realizable value to exceed any further liquidations of our auto finance receivables recorded at net realizable value . story_separator_special_tag accordingly , we expect increases in our provisions for losses on loans and fees receivable recorded at net realizable value in future quarters—such increases predominantly expected to reflect the effects of volume associated with our point-of-sale finance product offering ( i.e. , growth of new product receivables ) , rather than credit quality changes or deterioration . however , continued testing associated with our credit card product in the u.k. is expected to result in slightly higher provisions through the first quarter of 2014. see note 2 , “ significant accounting policies and consolidated financial statement components , ” to our consolidated financial statements and the discussions of our credit and other investments and auto finance segments for further credit quality statistics and analysis . total other operating expense . total other operating expense variances for the year ended december 31 , 2013 relative to the year ended december 31 , 2012 reflect the following : modestly lower 2013 salaries and benefits costs resulting from 2012 cost-cutting efforts , offset by modest increases required to grow our new credit product offerings ; card and loan servicing expenses that are higher in 2013 based on new product efforts , the cost of such efforts overshadowing the cost effects of continuing credit card and auto finance receivables portfolio liquidations ; increased depreciation in 2013 primarily associated with our rent-to-own program , totaling $ 16.1 million for the twelve months ended december 31 , 2013 with no amounts in prior periods , offset , however , by an impairment charge in the third quarter of 2012 on certain fixed assets held by a small coal mining operation we are required to consolidate ; and increases in marketing and solicitation costs consistent with our aforementioned new product efforts . a large portion of our operating costs are variable based on the levels of accounts we market and receivables we service ( both for our own account and for others ) and the pace and breadth of our search for , acquisition of and introduction of new business lines , products and services . however , a number of our operating costs are fixed and until recently have comprised a larger percentage of our total costs based on the ongoing contraction of our credit card and auto finance loans and fees receivable levels . this trend is reversing , however , because we are now experiencing net growth in our earning assets ( including loans and fees receivable and rental merchandise ) based principally on growth of our point-of-sale finance product offerings and to a lesser extent , growth within our car operations . we continue to perform extensive reviews of all areas of our businesses for cost savings opportunities to better align our costs with our portfolio of managed receivables . notwithstanding our cost-control efforts and focus , we expect increased levels of expenditures associated with growth in our point-of-sale finance operations and while it is relatively easy for us to scale back our variable expenses , it is much more difficult ( to which we alluded above ) for us to appreciably reduce our fixed and other costs associated with an infrastructure ( particularly within our credit and other investments segment ) that was built to support growing managed receivables and levels of managed receivables that are significantly higher than both our current levels and the levels that we expect to see in the near future . at this point , our credit and other investments segment cash inflows are sufficient to cover its direct variable costs and a portion , but not all , of its share of overhead costs ( including , for example , corporate-level executive and administrative costs and our convertible senior notes interest costs ) . as such , if we are unable to contain overhead costs or expand revenue-earning activities to levels commensurate with such costs , then , depending upon the sufficiency of excess cash flows and earnings generated from our auto finance segment and those credit card portfolios that have repaid their underlying structured financing facilities and of liquidity we are able to obtain through debt and equity issuances , we may experience continuing pressure on our liquidity position and our ability to achieve profitability . 24 noncontrolling interests . we reflect the ownership interests of noncontrolling holders of equity in our majority-owned subsidiaries as noncontrolling interests in our consolidated statements of operations . unless we enter into significant new majority-owned subsidiary ventures with noncontrolling interest holders in the future , we expect to have negligible noncontrolling interests in our majority-owned subsidiaries and negligible allocations of income or loss to noncontrolling interest holders in future quarters . income taxes . computed considering results for only our continuing operations before income taxes , we experienced effective income tax benefit rates of 22.5 % and 35.6 % for the years ended december 31 , 2013 and 2012 , respectively . variations in our effective tax rates between the periods principally bear the effects of ( 1 ) changes in valuation allowances against income statement-oriented federal , foreign and state deferred tax assets and ( 2 ) intra-period tax allocations associated with our discontinued operations in 2012 as required under gaap . we recognize potential accrued interest and penalties related to unrecognized tax benefits in income tax expense . we recognized $ 3.1 million of potential interest and penalties associated with these uncertain tax positions during the year ended december 31 , 2013 , compared to $ 1.9 million during the year ended december 31 , 2012 . to the extent interest and penalties are not assessed as a result of resolution of an uncertain tax position , amounts accrued are reduced and reflected as a reduction of income tax expense . we recognized $ 1.0 million of such reductions in each of the years ended december 31 , 2013 and 2012 .
| given new borrowings as evidenced within note 10 , “ notes payable , ” to our consolidated financial statements , anticipated additional debt financing over the next few quarters , and the effects of our convertible senior notes issuance discount accretion in increasing monthly interest expense amounts in the future , we expect our 2014 quarterly interest expense to be slightly above those experienced in the current year . fees and related income on earning assets . the significant factors affecting our differing levels of fees and related income on earning assets include : the growth in rental revenue we experienced with the addition of our rent-to-own program , which began in earnest in the third quarter of 2013 ; our 2013 increases in fees on credit products , principally associated with billings on credit card accounts in the u.k. ; our $ 2.4 million second quarter 2013 write off of a note we had received from buyers of our jras buy-here , pay-here dealer operations that we sold in february 2011 , such write off being the primary cause of the 2013 loss reflected in the `` other '' category ; our 2012 `` other '' category losses principally being comprised of losses associated with our required consolidation of a small coal mining operation ; and the effects of changes in the fair values of credit card receivables recorded at fair value and notes payable associated with structured financings recorded at fair value as addressed below . as we continue to expand the rent-to-own product offerings , we expect to see continued increases in billings within the rental revenue category , although we expect reduced growth in rental revenues during the second quarter of 2014 ( when compared to the first quarter of 2014 ) due to shifts in our retail partner operations mentioned above . as for our fees on credit products category , which is primarily influenced by the level of our originated u.k. credit card receivables , we expect a
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as a result of our acquisitions of schc , syci and scrc , our historical consolidated financial statements and the information presented below reflects the accounts of schc , syci , scrc and dchc , the consolidated financial statements and the information presented below as of and for the year ended december 31,2016. the following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report . 40 story_separator_special_tag margin : 0pt 0 ; text-align : justify '' > the table below represents the major production cost components of bromine per ton sold for the respective periods : replace_table_token_21_th 45 crude salt segment for the fiscal year 2016 , the cost of net revenue for our crude salt segment was $ 8,187,291 , representing a decrease of $ 148,357 , or 2 % , over the same period in 2015. the decrease in cost was mainly due to the decrease in volume of crude salt sold and unit production cost . the significant costs were depreciation and amortization of $ 5,837,225 ( or 71 % ) , resource tax calculated based on the crude salt sold of $ 919,268 ( or 11 % ) and electricity of $ 437,453 ( or 5 % ) for the fiscal year 2016. the significant costs were depreciation and amortization of $ 5,839,694 ( or 70 % ) , resource tax calculated based on the crude salt sold of $ 1,060,665 ( or 13 % ) and electricity of $ 535,178 ( or 6 % ) for the fiscal year 2015. the table below represents the major production cost components of crude salt per ton sold for the respective periods : replace_table_token_22_th chemical products segment for the fiscal year 2016 , the cost of net revenue for our chemical products segment was $ 55,719,057 , representing a decrease of $ 8,388,353 , or 13 % , over the same period in 2015. this decrease was primarily attributable to the decrease in sales volume of all our chemical products . gross profit . gross profit was $ 54,489,331 , or 37 % , of net revenue for fiscal year 2016 as compared to $ 53,281,250 , or 33 % , of net revenue for fiscal year 2015. replace_table_token_23_th 46 bromine segment for the fiscal year 2016 , the gross profit margin for our bromine segment was 46 % , as compared to 30 % for the fiscal year 2015. this 16 % increase is mainly due to the selling price of bromine increased from $ 3,162 per tonne for the fiscal year 2015 to $ 3,799 per tonne for the same period in 2016 , an increase of 20 % . we expect that the average selling price and gross profit margin of bromine will remain at current levels through the first quarter of 2017 should the prc government 's macro-economic tightening policy remain in place . crude salt segment for the fiscal year 2016 , the gross profit margin for our crude salt segment was 9 % as compared to 21 % for the same period in 2015. this 12 % decrease is mainly attributable to the selling price decreased from $ 31.77 per tonne for the fiscal year 2015 to $ 28.42 per tonne for the same period in 2016 , a decrease of 11 % . chemical products segment the gross profit margin for our chemical products segment for the fiscal year 2016 was 33 % as compared to 36 % for the same period in 2015 , a decrease of 3 % . this 3 % decrease was primarily attributable to the increase in purchase cost of raw material . research and development costs the total research and development costs incurred for the fiscal years 2016 and 2015 were $ 261,931 and $ 230,590 , respectively , an increase of 14 % . research and development costs for the fiscal year 2016 and 2015 represented raw materials used by syci and scrc for testing the manufacturing routine . exploration costs the total exploration costs incurred for fiscal year 2016 and 2015 were $ 0 and $ 325,840. the company expenses exploration costs . when the financial viability of a project is proven , the company will capitalize all future expenses and allocate them to the business line of that project . prior to january 30 , 2015 , the company incurred a total of $ 7,848,873 in exploration costs for the drilling of natural gas and brine wells in daying county of sichuan province . these expenses were charged to the company 's bromine and crude salt segments . on january 30 , 2015 , the company announced that it found natural gas resources under its bromine well in sichuan . in early may 2015 , the company received a testing report that confirmed the economics of the natural gas under this well . since may 2015 , all cost related to the well are included in the segment for dchc . all related expenditures are being capitalized . write-off/impairment on property , plant and equipment . write-off on property , plant and equipment for the fiscal year 2016 and 2015 were $ 106,545 and $ 969,638 , respectively , a decrease of 89 % . write-off on property , plant and equipment of $ 106,545 for the fiscal year 2016 represented the write-off of ( i ) certain protective shells to transmission pipelines and ducts replaced of $ 90,395 during the enhancement project that started in august 2016 and completed in september 2016 ; and ( ii ) certain machinery and equipment replaced during the enhancement work to our bromine production facilities in factory no . story_separator_special_tag 7 of $ 16,150. write-off on property , plant and equipment of $ 969,638 for the fiscal year 2015 mainly represented the write-off of ( i ) certain protective shells to transmission pipelines and ducts replaced of $ 753,025 during the fourth phase enhancement project that started in august 2015 and completed in september 2015 ; and ( ii ) certain machinery and equipment replaced during the enhancement work to our bromine production facilities in factory no . 11 of $ 66,676 ; ( iii ) the dismantle cost of $ 149,937 due to part of the factory no.1 and 9 plant construction equipment did not meet the government 's safety and environmental standards . general and administrative expenses . general and administrative expenses were $ 5,434,755 for the fiscal year 2016 , a decrease of $ 1,234,083 ( or 19 % ) as compared to $ 6,668,838 for the same period in 2015. the decrease was primarily due to ( i ) the unrealized exchange gain in relation to the translation difference of inter-company balances in usd and rmb for the fiscal year 2016 in the amount of $ 1,702,728 , as compared to the unrealized exchange gain for the same period in 2015 in the amount of $ 1,575,397 ; ( ii ) a non-cash expense related to stock options granted to employees decreased from $ 374,600 for the fiscal year 2015 to $ 40,300 for the same period of 2016 ; and ( ii ) audit fee incurred in the amount of $ 115,000 related to the audit of scrc acquired in the fiscal year 2015 ; and ( iii ) incurred franchise tax fee in the amount of $ 241,081 for the fiscal year 2015 , with no such expense in 2016 due to the reincorporation of the company from delaware to nevada . other operating income . other operating income was $ 433,792 for the fiscal year 2016 , a decrease of $ 19,939 ( or 4 % ) as compared to $ 453,731 for the same period in 2015 for sales of wastewater . wastewater is generated from the production of bromine and eventually becomes crude salt when it evaporates . not all of our bromine production plants have sufficient area on the property to allow for evaporation of wastewater to produce crude salt . certain of our customers who have facilities located adjacent to our bromine production plants have agreed to allow us to channel our wastewater into brine pans on their properties for evaporation . these customers then are able to sell the resulting crude salt themselves . we signed agreements with four of our customers to sell them our wastewater at market prices . 47 income from operations . income from operations was $ 47,723,342 for the fiscal year 2016 ( or 32 % of net revenue ) , an increase of $ 2,558,632 ( or approximately 6 % ) over income from operations for the fiscal year 2015. this increase was primarily attributable to the increased bromine price and the decrease in general and administrative expense , reduced by the decrease in sales volume of the chemical products in fiscal year 2016 compared with the same period in 2015. replace_table_token_24_th bromine segment income from operations from our bromine segment was $ 21,224,862 for the fiscal year 2016 , an increase of $ 10,370,151 ( or approximately 96 % ) compared to the same period in 2016. this increase was mainly due to the increase in selling price of bromine from $ 3,162 per tonne in fiscal year 2015 to $ 3,799 per tonne in fiscal year 2016 and the decreased cost of revenue for the fiscal year 2016 compare for the same period in 2015 as mentioned in the cost of net revenue for our bromine segment . 48 crude salt segment income from operations from our crude salt segment was $ 9,076 for the fiscal year 2016 , a decrease of $ 1,174,679 ( or approximately 99 % ) as compared to the same period in 2015. this decrease is mainly attributable to decreased selling price of crude salt in the fiscal year 2016 compared to the same period in 2015. chemical products segment income from operations from our chemical products segment was $ 25,473,792 for the fiscal year 2016 , a decrease of $ 7,524,078 ( or approximately 23 % ) over same period in 2015. this decrease was primarily attributable to the decrease in sales volume of all of our chemical products . other income , net . other income , net , which represent bank interest income , net of capital lease interest expense was $ 312,696 for the fiscal year 2016 , an increase of $ 37,461 ( or approximately 14 % ) as compared to the same period in 2015. net income . net income was $ 36,225,831 for the fiscal year 2016 , an increase of $ 2,157,794 ( or approximately 6 % ) as compared to the same period in 2015. this increase was primarily attributable to the increased bromine price and the decrease in general and administrative expense , reduced by the decrease in sales volume of chemical products in fiscal year 2016 compared with the same period in 2015. effective tax rate . our effective tax rates for the fiscal years 2016 and 2015 were 25 % and 25 % , respectively . the effective tax rate of 25 % for the fiscal year 2015 and 2016 is consistent with the prc statutory income tax rate . liquidity and capital resources as of december 31 , 2016 , cash and cash equivalents were $ 163,884,574 as compared to $ 133,606,392 as of december 31 , 2015. the components of this increase of $ 30,278,182 are reflected below . replace_table_token_25_th for the fiscal years 2016 and 2015 , we met our working capital and capital investment requirements mainly by using cash flows from operations and cash on hand .
| the sales volume of crude salt decreased by 4 % from 330,373 tonnes for the fiscal year 2015 to 316,161 tonnes for the same period in 2016. the average selling price of crude salt decreased from $ 31.77 per tonne for the fiscal year 2015 to $ 28.42 per tonne for the same period in 2016 , a decrease of 11 % . the major reason for the decrease in the sales volume of crude salt was mainly due to the slowdown in the chinese economy and the financial tightening , which has affected our customers ' industries . the table below shows the changes in the average selling price and changes in the sales volume of crude salt for the fiscal year 2016 from the same period in 2015. fiscal year decrease in net revenue of crude salt as a result of : 2016 vs. 2015 decrease in average selling price $ ( 1,081,403 ) decrease in sales volume $ ( 427,684 ) total effect on net revenue of crude salt $ ( 1,509,087 ) 42 chemical products segment replace_table_token_15_th net revenue from our chemical products segment decreased from $ 99,436,690 for the fiscal year 2015 to $ 83,477,420 for the same period in 2016 , a decrease of approximately 16 % . this decrease was primarily attributable to the decreased sales volume of all our chemical products mainly due to the slowdown in the chinese economy and the financial tightening , which has affected our customers ' industries . net revenue from our oil and gas exploration chemicals contributed $ 19,914,575 ( or 24 % ) and $ 27,642,028 ( or 28 % ) of our chemical segment revenue for the fiscal year 2016 and 2015 , respectively , with a decrease of $ 7,727,453 , or 28 % . net revenue from our paper manufacturing additives decreased from $ 4,908,057 for the fiscal year 2015 to $ 3,456,932 for the same period in 2016 , a decrease of approximately 30 % . net revenue from our pesticides manufacturing additives decreased from $ 15,611,616 for the fiscal year 2015 to $ 11,194,214 for the same period in 2016 , a decrease of approximately 28 % . net revenue from our pharmaceutical intermediates decreased
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we launched six fixed income etfs focused on a potential rise in interest rates ; we launched five equity etfs to take advantage of a rising u.s. dollar ; we launched three dividend growth etfs and one emerging markets consumer etf . while these etfs have not gathered significant aum to date , we believe they better diversify us and have the potential to gather significant aum in future years . we invested significantly in marketing and sales related initiatives to support our existing etfs as well as new etf launches . our marketing and sales related spending increased 65 % or $ 5.8 million over 2012 levels . we added 22 new employees to our company in 2013 , predominantly in sales and other functions supporting sales including research and marketing . we believe these investments will pay off in the future with faster growth rates . 33 the following charts reflect certain key operating statistics of our business for the periods indicated : competitive environment the etf industry is becoming significantly more competitive as existing players compete on price and broaden their suite of products to different strategies that are , in some cases , similar to ours . for example , in august 2013 , charles schwab & co. launched six etfs using the russell fundamentally weighted indexes with fees generally equivalent with our comparable etfs . in september 2013 , ishares filed a registration statement for three currency hedged equity etfs including a japan hedged equity etf . those etfs launched in february 2014 with fees generally equivalent with comparable etfs . also , deutsche bank renamed five of their equity etfs to stress their currency hedging strategy and launched three additional currency hedged equity etfs . more recently , ishares launched a floating rate treasury etf on the same day as we launched our similar etf ; however , ishares waived fees for one year while we did not . we do not know what effect , if any , the launch of these etfs may have on our business . within the etf industry , being a first mover , or one of the first providers of etfs in a particular asset class , can be a significant advantage , as the first etf in a category to attract scale in aum and trading liquidity is generally viewed as the most attractive etf . we believe that our early launch of etfs in a number of asset classes or strategies , including fundamental weighting and currency hedging , positions us well to maintain our position as one of the leaders of the etf industry . 34 transfer of fund administration services in september , 2013 , we entered into an agreement with state street to transfer fund administration and custody services from bny mellon , effective april 1 , 2014. as a result of this change , we expect cost savings and an improvement in our gross margins . new office facilities in august 2013 , we entered into a 16 year lease for a new 38,000 square feet office space in new york city as our prior lease expired in january 2014. we increased the square footage of our office space in anticipation of future growth . in addition , the cost per square foot increased as compared to our then existing lease . we occupied the new space in january 2014 ; however , we incurred rent expense for the new office space beginning september 2013 in order to build out the new facility . as such , we incurred additional rent expense of $ 0.9 million in 2013. recent developments since 2013 , emerging markets have experienced significant weakness due to concerns over inflation and sustainability of growth rates . that weakness increased towards the second half of 2013 and into 2014. from january 1 , 2014 through february 27 , 2014 , we experienced overall net outflows of approximately $ 2.0 million primarily attributed to approximately $ 1.2 billion of outflows from our emerging markets equity , currency and fixed income etfs . offsetting this are net inflows of $ 1.0 billion , primarily into our european focused equity etfs as well as our japan hedged equity etf . european expansion in january 2014 , we announced our plans to expand into europe through a majority investment in u.k.-based etp provider boost . we expect to invest $ 20 million in working capital to fund the build-out of a local european fund platform and operations to be led by boost 's management team . through this platform we intend to launch a select range of ucits etfs under the wisdomtree brand and continue to manage and grow the boost portfolio of short and leveraged fully collateralized etps under the boost brand . under the terms of our agreement , we will own a 75 % of the new wisdomtree europe entity and existing boost shareholders will own 25 % . we will acquire remaining 25 % ownership from the existing boost shareholders at the end of four years . the payout formula is based on european aum at the end of the four year period and is tied to our enterprise value over global aum at the time of payout , and affected by profitability of the european business . the payout will be in cash over two years . subject to regulatory approval and other customary closing conditions , the transaction is expected to close in the first half of 2014. components of revenue etf advisory fees the majority of our revenues are comprised of advisory fees we earn from our etfs . we earn this revenue based on a percentage of the average daily value of aum . our average daily value of aum is the average of the daily aggregate aum of our etfs as determined by the then current net asset value ( as defined under investment company act rule 2a-4 ) of such etfs as of the close of business each day . our fee percentages for individual etfs range from 0.28 story_separator_special_tag % to 0.95 % . a summary of the average advisory fee we earned and average aum in 2013 by asset class is as follows : replace_table_token_5_th 35 we determine the appropriate advisory fee to charge for our etfs based on the cost of operating each particular etf taking into account the types of securities the etfs will hold , fees third party service providers will charge us for operating the etfs and our competitors ' fees for similar etfs . generally , our actively managed etfs , such as our alternative strategy and currency etfs , along with our emerging markets etfs , are priced higher than our other index based etfs as the former are more costly to operate . each of our etfs has a fixed advisory fee . in order to increase the advisory fee , we would need to obtain the approval from a majority of the etf shareholders which may be difficult or not possible to achieve . there may also be a significant cost in obtaining such etf shareholder approval . we do not need etf shareholder approval to lower our advisory fee . until the end of 2012 , the advisory fee charged for our currency etfs and one fixed income etf was subject to a joint venture with mellon capital and dreyfus as discussed below . we had determined that we were the principal participant for transactions under this collaborative arrangement and as such , the advisory fee above reflects the gross fee under this arrangementsee notes to the consolidated financial statements included in this report . our etf advisory fee revenue may fluctuate based on general stock market trends which include market value appreciation or depreciation , currency fluctuations against the u.s. dollar and level of inflows or outflows from our etfs . in addition , these revenues may fluctuate due to increased competition or a determination by the independent trustees of the wisdomtree etfs to terminate or significantly alter the funds ' investment management agreements with us . other income other income includes fees from licensing our indexes to third parties and interest income from investing our corporate cash . these revenues are immaterial to our financial results and we do not expect them to be material in the near term . components of expenses our operating expenses consist primarily of costs related to selling , operating and marketing our etfs as well as the infrastructure needed to run our business . compensation and benefits employee compensation and benefits expenses are expensed when incurred and include salaries , incentive compensation , and related benefit costs . virtually all our employees receive incentive compensation which is based on our operating results as well as their individual performance . therefore , a portion of this expense will fluctuate with our business results . in order to attract and retain qualified personnel , we must maintain competitive employee compensation and benefit plans . in normal circumstances , we expect to experience a general rise in employee compensation and benefit expenses over the long term as we grow ; however , the rate of increase should be less than the rate of increase in our revenues . also included in compensation and benefits are costs related to equity awards granted to our employees . our executive management and board of directors strongly believe that equity awards are an important part of our employees ' overall compensation package and that incentivizing our employees with equity in the company aligns the interest of our employees with that of our stockholders . we use the fair value method in recording compensation expense for restricted stock and options grants . we ceased granting options in favor of restricted stock beginning in 2012 and do not anticipate issuing options in the future unless industry pay practices change . under the fair value method , compensation expense is measured at the grant date based on the estimated fair value of the award and is recognized as an expense over the vesting period . we expect our total compensation and benefits expense will be between 20 % to 23 % of our revenues in 2014 . 36 fund management and administration fund management and administration expenses are expensed when incurred and are comprised of costs we pay third party service providers to operate our etfs . under our advisory agreement with the wisdomtree trust , the trustees have approved us and other third parties to provide essential management and administrative services to the trust and each etf in exchange for an advisory fee . the costs include : portfolio management of our etfs ( sub-advisory ) ; fund accounting and administration ; custodial services ; accounting and tax services ; printing and mailing of stockholder materials ; index calculation ; distribution fees ; legal and compliance services ; exchange listing fees ; trustee fees and expenses ; preparation of regulatory reports and filings ; insurance ; certain local income taxes ; and other administrative services . we are not responsible for extraordinary expenses , taxes and certain other expenses . bny mellon acts as sub-adviser for the majority our etfs and provide portfolio management , fund administration , custody and accounting related services for all the wisdomtree etfs . the fees we pay bny mellon and other sub-advisers have minimums per fund which range from $ 25,000 to $ 85,000 per year depending on the nature of the etf . in addition , we pay additional fees ranging between 0.015 % and 0.18 % of average daily aum at various breakpoint levels . the fees we pay for accounting , tax , index calculation and exchange listing are based on the number of etfs we have . the remaining fees are based on a combination of both aum and number of funds , or as incurred .
| cash and cash equivalents increased $ 63.1 million in 2013 primarily due to $ 70.1 million of cash flows generated by our operating activities as a result of higher revenues from higher average aum , $ 1.6 million received from the exercise of stock options and $ 2.8 million from the redemption of investments we held during the year . partly offsetting these increases was $ 6.2 million used for purchase of fixed assets and leasehold improvements for our new office space and $ 3.6 million used to purchase new investments . 51 cash and cash equivalents increased $ 15.6 million in 2012 primarily due to $ 11.2 million of cash flows generated by our operating activities as a result of higher revenues from higher average aum , $ 4.7 million received from the exercise of stock options and $ 4.3 million from the sale of our common stock . we also received $ 7.8 million from the redemption of investment we held during the year . partly offsetting these increases was $ 10.0 million used to purchase new investments . cash and cash equivalents increased $ 11.4 million in 2011 primarily due to $ 13.7 million of cash flows generated by our operating activities as a result of higher revenues from higher average aum offset by $ 2.2 million of cash flows used to repurchase our common stock . we also received $ 7.5 million from the redemption of investment we held during the year . partly offsetting these increases was $ 8.1 million net proceeds used to purchase new investments . capital resources currently , our principal source of financing is our operating cash flow . we believe that current cash flows generated by our operating activities and existing cash balances should be sufficient for us to fund our operations for at least the next 12 months . use of capital our business does not require us to maintain a significant cash position . we expect that our main uses of cash will be to fund the ongoing operations of our business , invest
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capital markets activities during the periods under review in may 2019 , we issued and sold ( i ) 2,760,000 shares of common stock in a registered public offering ( including 360,000 shares issued and sold upon the exercise in full of the underwriters ' option to purchase additional shares ) , at a price to the public of $ 83.50 per share ( the “ 2019 public offering ” ) and ( ii ) 119,760 shares of common stock ( the “ 2019 private placement shares ” ) in a concurrent private placement of common stock ( the “ 2019 concurrent private placement ” ) exempt from the registration requirements of the securities act of 1933 , as amended ( the “ securities act ” ) , at a purchase price per share equivalent to the price to the public set in the 2019 public offering and pursuant to a securities purchase agreement ( the “ 2019 securities purchase agreement ” ) that the company entered into with samsara biocapital , l.p. ( “ samsara ” ) , one of our existing stockholders . pursuant to the 2019 securities purchase agreement , we granted to samsara certain registration rights requiring us , upon request of samsara on or after july 9 , 2019 and subject to certain terms and conditions , to register the resale by samsara of its 2019 private placement shares . such registration rights expire upon the earlier of ( i ) may 8 , 2020 and ( ii ) the date that all of the 2019 private placement shares have been sold or can be sold publicly under rule 144 of the securities act on a single day . we received net proceeds from the 2019 public offering and the 2019 concurrent private placement of approximately $ 227.3 million , after deducting underwriting discounts , commissions and estimated offering expenses of approximately $ 13.9 million . in may 2019 , we also issued and sold $ 230.0 million aggregate principal amount of 2.00 % convertible senior notes due 2026 ( the “ 2026 convertible notes ” ) . we received net proceeds from the sale of the 2026 convertible notes of $ 223.4 million , after deducting underwriting discounts , commissions and estimated offering expenses of approximately $ 6.6 million . in april 2018 , we issued and sold ( i ) 2,695,313 shares of common stock in a registered public offering ( including 351,563 shares issued and sold upon the exercise in full of the underwriters ' option to purchase additional shares ) , at a price to the public of $ 64.00 per share ( the “ 2018 public offering ” ) and ( ii ) 1,562,500 shares of common stock ( the “ 2018 private placement shares ” ) in a concurrent private placement ( the “ 2018 concurrent private placement ” ) exempt from the registration requirements of the securities act , at a purchase price per share equivalent to the price to the public set in the 2018 public offering and pursuant to a securities purchase agreement ( the “ 2018 securities purchase agreement ” ) that we entered into with the purchasers in the 2018 concurrent private placement ( the “ 2018 private placement purchasers ” ) . pursuant to the 2018 securities purchase agreement , we granted to the 2018 private placement purchasers certain registration rights which expired on april 4 , 2019. we received net proceeds from the 2018 public offering and the 2018 concurrent private placement of approximately $ 261.4 million , after deducting underwriting discounts , commissions and estimated offering expenses of approximately $ 11.1 million . financial overview revenue we commenced our commercial launch of ocaliva for the treatment of pbc in the united states in june 2016. in december 2016 , the european commission granted conditional approval for ocaliva for the treatment of pbc and we commenced our european commercial launch in january 2017. since january 2017 , ocaliva has also received regulatory approval in several of our target markets outside the united states and europe , including canada , israel and australia . we sell ocaliva to a limited number of specialty pharmacies which dispense the product directly to patients . the specialty pharmacies are referred to as our customers . effective january 1 , 2018 , we began recognizing revenue under accounting standards codification ( “ asc ” ) topic 606 , revenue from contracts with customers ( “ asc 606 ” ) . the core principle of this revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the 86 consideration to which the company expects to be entitled in exchange for those goods or services . the following five steps are applied to achieve that core principle : ● step 1 : identify the contract with the customer ● step 2 : identify the performance obligations in the contract ● step 3 : determine the transaction price ● step 4 : allocate the transaction price to the performance obligations in the contract ● step 5 : recognize revenue when the company satisfies a performance obligation product revenue , net we provide the right of return to our customers for unopened product for a limited time before and after its expiration date . prior to july 2017 , given our limited sales history for ocaliva and the inherent uncertainties in estimating product returns , we determined that the shipments of ocaliva made to our customers did not meet the criteria for revenue recognition at the time of shipment . accordingly , we recognized revenue when the product was sold through by our customers , provided all other revenue recognition criteria were met . we invoiced our customers upon shipment of ocaliva to them and recorded accounts receivable , with a corresponding liability for deferred revenue equal to the gross invoice price . we then recognized revenue when ocaliva was sold through as specialty pharmacies dispensed product directly to the patients ( sell-through basis ) . story_separator_special_tag we re-evaluated our revenue recognition policy in the third quarter of 2017 , which included the accumulation and review of customer-related transactions since our commercial launch in the second quarter of 2016. we concluded we had accumulated sufficient data to reasonably estimate product returns and , therefore , began to recognize revenue at the time of shipment to our customers ( sell-in basis ) . under asc 606 , we have written contracts with each of our customers that have a single performance obligation — to deliver products upon receipt of a customer order — and these obligations are satisfied when delivery occurs and the customer receives ocaliva . we evaluate the creditworthiness of each of our customers to determine whether collection is reasonably assured . we estimate variable revenue by calculating gross product revenues based on the wholesale acquisition cost that we charge our customers for ocaliva , and then estimating our net product revenues by deducting ( i ) trade allowances , such as invoice discounts for prompt payment and customer fees , ( ii ) estimated government rebates and discounts related to medicare , medicaid and other government programs , and ( iii ) estimated costs of incentives offered to certain indirect customers including patients . we recognized net sales of ocaliva of $ 249.6 million , $ 177.8 and $ 129.2 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . licensing revenue in march 2011 , we entered into an exclusive license agreement ( the “ original sumitomo agreement ” ) with sumitomo dainippon pharma co. , ltd. ( “ sumitomo dainippon ” ) , pursuant to which we granted to sumitomo dainippon an exclusive license to research , develop and commercialize oca for the treatment of pbc and nash in japan and china ( excluding taiwan ) and an option to research , develop and commercialize oca in certain countries outside of such territories ( the “ country option ” ) . we received an upfront payment from sumitomo dainippon of $ 15.0 million under the terms of the original sumitomo agreement . in may 2014 , sumitomo dainippon exercised the country option in part to add korea as part of its licensed territories and paid us a $ 1.0 million upfront fee in connection therewith . in february 2018 , we and sumitomo dainippon entered into amendment no . 3 ( the “ sumitomo amendment ” ) to the original sumitomo agreement ( as amended , the “ sumitomo agreement ” ) , pursuant to which ( i ) sumitomo dainippon agreed to return the rights to develop and commercialize oca in japan and korea and waived its rights to the country option , ( ii ) we agreed to forego any further milestone or royalty payments relating to the development and commercialization of oca in japan and korea and ( iii ) certain milestone payment obligations with respect to the development and commercialization of oca were adjusted . in october 2019 , we and sumitomo dainippon mutually agreed to terminate with immediate effect the sumitomo agreement . in connection with the termination of the sumitomo agreement , sumitomo dainippon agreed to return to us the rights to develop and commercialize oca in china and we agreed to forego any further milestone or royalty payments relating to the development and commercialization of oca in china . no payment is due from us to sumitomo dainippon as a result of the termination of the sumitomo agreement . 87 as of december 31 , 2019 , we had achieved $ 6.0 million of development milestones under the sumitomo agreement . for accounting purposes , the upfront payments were recorded as deferred revenue and amortized over time and milestone payments are recognized once earned . for the years ended december 31 , 2019 , 2018 and 2017 , we recognized $ 2.4 million , $ 2.0 million and $ 1.8 million , respectively , in licensing revenue related to the amortization of the upfront payments under the sumitomo agreement . included in licensing revenue for the year ended december 31 , 2019 is $ 1.2 million related to the accelerated recognition of deferred revenue as a result of the agreement termination . included in licensing revenue for the year ended december 31 , 2018 is $ 0.4 million related to the accelerated recognition , as a result of the sumitomo amendment , of the remaining portion of deferred revenue associated with the $ 1.0 million upfront payment that we received under the original sumitomo agreement in connection with sumitomo dainippon 's exercise of the country option with respect to korea . selling , general and administrative expenses we have incurred and expect to continue to incur significant selling , general and administrative expenses as a result of , among other initiatives , the launch and commercialization of ocaliva for pbc in the united states , europe and our other target markets , the preparation for the potential commercialization of oca for liver fibrosis due to nash , if approved , and our other future approved products , if any , and the build-out of our general and administrative infrastructure in the united states and abroad . research and development expenses since our inception , we have focused significant resources on our research and development activities , including conducting preclinical studies and clinical trials , pursuing regulatory approvals and engaging in other product development activities . we recognize research and development expenses as they are incurred . we have incurred and expect to continue to incur significant research and development expenses as a result of , among other initiatives , our clinical development programs for oca for pbc and nash , our other earlier stage research programs and our regulatory approval efforts . story_separator_special_tag new roman ' ; font-size:10pt ; text-indent:0pt ; margin:0pt 0pt 12pt 0pt ; '' > selling , general and administrative expenses selling , general and administrative expenses were $ 255.5 million and $ 273.7 million for the years ended december 31 , 2018 and 2017 , respectively .
| research and development expenses research and development expenses were $ 242.8 million and $ 207.3 million for the years ended december 31 , 2019 and 2018 , respectively . the $ 35.5 million net increase between periods was primarily driven by increases in oca for liver fibrosis due to nash development program expenses and costs associated with the preparation of the nash nda submission . interest expense interest expense was $ 41.1 million and $ 30.5 million for the years ended december 31 , 2019 and 2018 , respectively . for the year ended december 31 , 2019 , interest expense related to the 2026 convertible notes that we issued in may 2019 and the $ 460.0 million aggregate principal amount of 3.25 % convertible senior notes due 2023 ( the “ 2023 convertible notes ” and together with the 2026 convertible notes , the “ convertible notes ” ) that we issued in july 2016. for the year ended december 31 , 2018 , interest expense related only to the 2023 convertible notes . other income , net other income , net was $ 8.9 million and $ 6.8 million for the years ended december 31 , 2019 and 2018 , respectively . such income is primarily attributable to interest income earned on cash , cash equivalents and investment debt securities . income taxes for the years ended december 31 , 2019 and 2018 , no income tax expense or benefit was recognized . our deferred tax assets are comprised primarily of net operating loss carryforwards . we maintain a full valuation allowance on our deferred tax assets since we have not yet achieved sustained profitable operations . as a result , we have not recorded any income tax benefit since our inception . 89 comparison of the years ended december 31 , 2018 and 2017 the following table summarizes our results of operations for the years ended december 31 , 2018 and 2017 : replace_table_token_7_th revenues product revenue , net was $ 177.8 million and $ 129.2 million for the years
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goodwill is the only intangible asset with an indefinite life on our balance sheets . based on the company 's annual impairment test , there was zero recorded impairment as of december 31 , 2016. other intangible assets consist of core deposit intangible assets arising from business combinations and are amortized using an accelerated method over their estimated useful lives . purchase credit impaired loans purchase credit impaired ( pci ) loans are those loans that we acquired in the san joaquin bank ( sjb ) acquisition for which we were covered for reimbursement for a substantial portion of any future losses under the terms of the federal deposit insurance corporation ( fdic ) loss sharing agreement . we account for pci loans under asc 310-30 , loans and debt securities acquired with deteriorated credit quality ( acquired impaired loan accounting ) when ( i ) we acquire loans deemed to be impaired when there is evidence of credit deterioration since their origination and it is probable at the date of acquisition that we would be unable to collect all contractually required payments and ( ii ) as a general policy election for non-impaired loans that we acquire in a distressed bank acquisition . acquired impaired loans are accounted for individually or in pools of loans based on common risk characteristics . the excess of the loan 's or pool 's scheduled contractual principal and interest payments over all cash flows expected at acquisition is the nonaccretable difference . the remaining amount , representing the excess of the loan 's cash flows expected to be collected over the fair value is the accretable yield ( accreted into interest income over the remaining life of the loan or pool ) . refer to note 6 acquired sjb assets and fdic loss sharing asset for pci loans by type . income taxes income taxes are accounted for under the asset and liability method . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character ( for example , ordinary income or capital gain ) within the carryback or carryforward periods available under the tax law . based on historical and future expected taxable earnings and available strategies , the company considers the future realization of these deferred tax assets more likely than not . the tax effects from an uncertain tax position are recognized in the financial statements only if , based on its merits , the position is more likely than not to be sustained on audit by the taxing authorities . interest and penalties related to uncertain tax positions are recorded as part of other operating expense . 37 use of fair value we use fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures . investment securities available-for-sale and interest-rate swaps are financial instruments recorded at fair value on a recurring basis . additionally , from time to time , we may be required to record at fair value other financial assets on a non-recurring basis , such as impaired loans and other real estate owned ( oreo ) , goodwill , and other intangible assets . these non-recurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write-downs of individual assets . further , we include in note 20 fair value information of the consolidated financial statements information about the extent to which fair value is used to measure assets and liabilities , the valuation methodologies used and its impact to earnings . additionally , for financial instruments not recorded at fair value we disclose the estimate of their fair value . stock-based compensation consistent with the provisions of asc 718 , stock compensation , we recognize expense for the grant date fair value of stock options and restricted shares issued to employees , officers and non-employee directors over the their requisite service periods ( generally the vesting period ) . the service periods may be subject to performance conditions . the fair value of each stock option grant is estimated as of the grant date using the black-scholes option-pricing model . management assumptions used at the time of grant impact the fair value of the option calculated under the black-scholes option-pricing model , and ultimately , the expense that will be recognized over the life of the option . the grant date fair value of restricted stock awards is measured at the fair value of the company 's common stock as if the restricted share was vested and issued on the date of grant . for complete discussion and disclosure of other accounting policies see note 3 story_separator_special_tag statements regarding core financial performance . the company did not incur debt termination expense during the year ended december 31 , 2014. replace_table_token_6_th 40 net interest income the principal component of our earnings is net interest income , which is the difference between the interest and fees earned on loans and investments ( interest-earning assets ) and the interest paid on deposits and borrowed funds ( interest-bearing liabilities ) . net interest margin is net interest income as a percentage of average interest-earning assets for the period . the level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities impact net interest income and net interest margin . the net interest spread is the yield on average interest earning assets minus the cost of average interest-bearing liabilities . story_separator_special_tag net interest margin and net interest spread are included on a tax equivalent ( te ) basis by adjusting interest income utilizing the federal statutory tax rate of 35 % . our net interest income , interest spread , and net interest margin are sensitive to general business and economic conditions . these conditions include short-term and long-term interest rates , inflation , monetary supply , and the strength of the international , national and state economies , in general , and more specifically , the local economies in which we conduct business . our ability to manage net interest income during changing interest rate environments will have a significant impact on our overall performance . we manage net interest income through affecting changes in the mix of interest-earning assets as well as the mix of interest-bearing liabilities , changes in the level of interest-bearing liabilities in proportion to interest-earning assets , and in the growth and maturity of earning assets . see item 7 management 's discussion and analysis of financial condition and results of operations asset/liability and market risk management interest rate sensitivity management included herein . 41 the table below presents the interest rate spread , net interest margin and the composition of average interest-earning assets and average interest-bearing liabilities by category for the periods indicated , including the changes in average balance , composition , and average yield/rate between these respective periods . interest-earning assets and interest-bearing liabilities replace_table_token_7_th ( 1 ) includes tax equivalent ( te ) adjustments utilizing a federal statutory rate of 35 % . non tax-equivalent ( te ) rate was 2.24 % , 2.38 % and 2.35 % for the years ended december 31 , 2016 , 2015 and 2014 , respectively . ( 2 ) includes loan fees of $ 3,953 , $ 3,922 and $ 3,078 for the years ended december 31 , 2016 , 2015 and 2014 , respectively . prepayment penalty fees of $ 3,479 , $ 4,920 and $ 2,983 are included in interest income for the years ended december 31 , 2016 , 2015 and 2014 , respectively . ( 3 ) includes interest-bearing demand and money market accounts . ( 4 ) includes a special dividend from the fhlb of $ 923,000 . 42 net interest income and net interest margin reconciliations ( non-gaap ) we use certain non-gaap financial measures to provide supplemental information regarding our performance . the 2016 , 2015 and 2014 net interest income and net interest margin include a yield adjustment of $ 2.5 million , $ 4.0 million and $ 5.8 million , respectively . these yield adjustments relate to discount accretion on pci loans , and are reflected in the company 's net interest margin . we believe that presenting net interest income and the net interest margin excluding these yield adjustments provides additional clarity to the users of financial statements regarding core net interest income and net interest margin . replace_table_token_8_th the following tables present a comparison of interest income and interest expense resulting from changes in the volumes and rates on average interest-earning assets and average interest-bearing liabilities for the periods indicated . changes in interest income or expense attributable to volume changes are calculated by multiplying the change in volume by the initial average interest rate . the change in interest income or expense attributable to changes in interest rates is calculated by multiplying the change in interest rate by the initial volume . the changes attributable to interest rate and volume changes are calculated by multiplying the change in rate times the change in volume . rate and volume analysis for changes in interest income , interest expense and net interest income replace_table_token_9_th 43 replace_table_token_10_th 2016 compared to 2015 net interest income , before recapture of provision for loan losses , of $ 257.1 million for 2016 increased $ 4.1 million , or 1.63 % , compared to $ 252.9 million for 2015. average interest-earning assets of $ 7.58 billion grew by $ 409.3 million , or 5.70 % , from $ 7.18 billion for 2015. our net interest margin tax equivalent ( te ) was 3.46 % for 2016 , compared to 3.62 % for 2015. total cost of funds decreased to 0.11 % for 2016 from 0.13 % for 2015. interest income for 2016 was $ 265.1 million , which represented a $ 3.5 million , or 1.35 % , increase when compared to 2015. interest income grew by $ 14.3 million as a result of the $ 409.3 million growth in earning assets , but the decline in the earning asset yield reduced interest income by $ 11.0 million . the tax equivalent yield on earning assets declined from 3.74 % in 2015 to 3.57 % in 2016 , primarily due to the 0.26 % decrease in loan yields . interest income and fees on loans for 2016 totaled $ 193.0 million which represented a $ 7.3 million , or 3.95 % , increase when compared to 2015. the low interest rate environment and competitive pricing pressures continued to impact both loan retention and loan yields during 2016. our average loan yield on loans ( excluding discount on pci loans ) was 4.53 % for 2016 , compared to 4.79 % for 2015. for the year ended december 31 , 2016 , there were four nonperforming , troubled debt restructuring ( tdr ) loans that were paid in full resulting in the recognition of $ 3.3 million of interest income . this compares to five nonperforming loans paid in full resulting in a $ 4.9 million increase in interest income in 2015. when this recaptured nonaccrued interest is excluded , the net increase margin ( te ) was 3.42 % for 2016 , compared to 3.55 % for 2015. interest income from prepayment penalties declined by $ 1.4 million from $ 4.9 million in 2015 to $ 3.5 million for 2016. the impact of loan repricing and lower prepayment penalties combined for an approximate 13 basis point decline in the net interest margin .
| transfers of securities into the htm category from the afs category are transferred at fair value at the date of transfer . the fair value of these securities at the date of transfer was $ 898.6 million . the unrealized holding gain or loss at the date of transfer is retained in accumulated other comprehensive income and in the carrying value of the held-to-maturity 38 securities . the net unrealized holding gain at the date of transfer was $ 3.9 million after-tax and will continue to be reported in accumulated other comprehensive income ( aoci ) and amortized over the remaining life of the securities as a yield adjustment . at december 31 , 2016 , investment securities afs totaled $ 2.27 billion , inclusive of a pre-tax unrealized gain of $ 14.6 million . total loans and leases , net of deferred fees and discount , of $ 4.40 billion at december 31 , 2016 , increased by $ 378.1 million , or 9.41 % , from $ 4.02 billion at december 31 , 2015. the increase in total loans included $ 143.2 million of loans acquired from ccb during the first quarter of 2016. the $ 378.1 million increase in total loans was principally due to increases of approximately $ 272.8 million in commercial real estate loans , $ 45.8 million in commercial and industrial loans , $ 32.9 million in dairy & livestock and agribusiness loans , $ 17.3 million in construction loans , $ 16.8 million in sfr mortgage loans , and $ 8.0 million in consumer loans . sba loans decreased by $ 9.7 million . noninterest-bearing deposits were $ 3.67 billion at december 31 , 2016 , an increase of $ 423.4 million , or 13.03 % , compared to $ 3.25 billion at december 31 , 2015. at december 31 , 2016 , noninterest-bearing deposits were 58.22 % of total deposits , compared to 54.93 % at december 31 , 2015. our average cost of total deposits was 9 basis points for 2016 and 2015. at december 31 , 2016 we had $ 603.0
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atlantic capital uses derivatives primarily to manage interest rate risk . the fair values of derivative financial instruments are determined based on quoted market prices , dealer quotes and pricing models that are primarily sensitive to observable market data . income taxes . atlantic capital recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled . in assessing the realizability of deferred tax assets , management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized . the realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible . management considers the scheduled reversal of deferred tax liabilities , projected future taxable income , and tax planning strategies by jurisdiction and entity in making this assessment . regulatory risk-based capital rules limit the amount of deferred tax assets that a bank or bank holding company can include in tier 1 capital . generally , deferred tax assets that arise from net operating loss and tax credit carryforwards , net of any related valuation allowances and net of deferred tax liabilities , are excluded from cet1 and tier 1 capital . deferred tax assets arising from temporary differences that could not be realized through net operating loss carrybacks , net of related valuation allowances and net of deferred tax liabilities , that exceed certain thresholds are excluded from cet1 and tier 1 capital . 39 results of operations net interest income and net interest margin taxable equivalent net interest income from continuing operations for 2018 totaled $ 76.6 million , a $ 12.9 million , or 20 % , increase from 2017. this increase was primarily driven by an $ 18.4 million , or 24 % , increase in taxable equivalent interest income from continuing operations . the interest income increase primarily resulted from the following : a $ 15.7 million , or 24 % , increase to $ 80.1 million in interest income on loans , resulting from increases in the fed funds rate and an increase in average loan balances ; and a $ 1.2 million , or 12 % , increase to $ 11.3 million in taxable equivalent interest income on investment securities , resulting from a 23 basis point increase in the yield on investment securities ; and a $ 1.3 million , or 145 % , increase to $ 2.2 million in interest income on deposits in other banks , resulting from increases in the fed funds rate . interest expense from continuing operations for the year ended december 31 , 2018 totaled $ 18.5 million , a $ 5.5 million , or 43 % , increase from 2017 , primarily due to a $ 4.6 million , or 58 % , increase in interest paid on deposits . the rate paid on interest bearing liabilities increased 42 basis points from 2017 to 2018 , driven by an increase in interest rates on deposits and other borrowings resulting from increases in the fed funds rate . taxable equivalent net interest margin from continuing operations increased to 3.50 % from 3.07 % for the year ended december 31 , 2018 compared to the year ended december 31 , 2017. the primary reason for the increase in taxable equivalent net interest margin for 2018 compared to 2017 was the higher interest rates on loans resulting from fed funds rate increases . net accretion income on acquired loans discount totaled $ 1.4 million for the year ended december 31 , 2018 , compared to $ 2.4 million for the same period in 2017. taxable equivalent net interest income from continuing operations increased $ 9.5 million , or 18 % , from $ 54.2 million in 2016 to $ 63.7 million in 2017. taxable equivalent net interest margin increased to 3.07 % in 2017 from 2.76 % in 2016 , primarily due to fed funds rate increases and increased investment in non-taxable investment securities . 40 the following table presents information regarding average balances for assets and liabilities , the total dollar amounts of interest income and dividends from average interest-earning assets , the total dollar amounts of interest expense on average interest-bearing liabilities , and the resulting average yields and costs . the yields and costs for the periods indicated are derived by dividing the income or expense by the average balances for assets or liabilities , respectively , for the periods presented . loan fees are included in interest income on loans . table 1 - average balance sheets and net interest analysis ( 1 ) ( dollars in thousands ; taxable equivalent ) twelve months ended december 31 , 2018 2017 2016 average balance interest income/expense yield/rate average balance interest income/expense yield/rate average balance interest income/expense yield/rate assets interest bearing deposits in other banks $ 104,145 $ 2,244 2.15 % $ 85,525 $ 916 1.07 % $ 92,744 $ 583 0.63 % other short-term investments 15,210 426 2.80 % 14,266 270 1.89 % 23,134 318 1.37 % investment securities : taxable investment securities 379,035 9,005 2.38 % 366,309 7,221 1.97 % 310,815 4,755 1.53 % non-taxable investment securities ( 2 ) 76,064 2,302 3.03 % 81,466 2,866 3.52 % 46,239 1,427 3.09 % total investment securities 455,099 11,307 2.48 % 447,775 10,087 2.25 % 357,054 6,182 1.73 % loans - continuing operations 1,600,257 80,110 5.01 % 1,507,453 64,436 4.27 % 1,472,548 55,837 3.79 % fhlb and frb stock 17,710 1,068 6.03 % 18,528 1,015 5.48 % 15,617 837 5.36 % total interest-earning assets - continuing operations 2,192,421 95,155 4.34 % 2,073,547 76,724 3.70 % 1,961,097 63,757 3.25 % loans held for sale - discontinued operations 376,757 18,224 4.84 % 428,656 20,453 4.77 % 513,934 24,943 4.85 % total interest-earning assets 2,569,178 113,379 4.41 % 2,502,203 story_separator_special_tag 97,177 3.88 % 2,475,031 88,700 3.58 % non-earning assets 211,393 217,455 234,107 total assets $ 2,780,571 $ 2,719,658 $ 2,709,138 liabilities interest bearing deposits : now , money market , and savings 1,001,025 10,627 1.06 % 868,999 5,921 0.68 % 795,175 3,836 0.48 % time deposits 10,046 115 1.14 % 11,345 53 0.47 % 14,842 50 0.34 % brokered deposits 84,105 1,764 2.10 % 168,685 1,960 1.16 % 207,543 1,574 0.76 % total interest-bearing deposits 1,095,176 12,506 1.14 % 1,049,029 7,934 0.76 % 1,017,560 5,460 0.54 % total borrowings 139,422 2,703 1.94 % 175,060 1,758 1.00 % 169,621 809 0.48 % total long-term debt 49,613 3,304 6.66 % 49,444 3,294 6.66 % 49,275 3,285 6.67 % total interest-bearing liabilities - continuing operations 1,284,211 18,513 1.44 % 1,273,533 12,986 1.02 % 1,236,456 9,554 0.77 % interest-bearing liabilities - discontinued operations 467,101 4,084 0.87 % 466,777 2,143 0.46 % 576,163 1,955 0.34 % total interest-bearing liabilities 1,751,312 22,597 1.29 % 1,740,310 15,129 0.87 % 1,812,619 11,509 0.63 % demand deposits 538,110 490,495 401,340 demand deposits - discontinued operations 137,905 140,551 158,422 other liabilities 37,991 29,497 35,314 shareholders ' equity 315,253 318,805 301,443 total liabilities and shareholders ' equity $ 2,780,571 $ 2,719,658 $ 2,709,138 net interest spread - continuing operations 2.90 % 2.68 % 2.48 % net interest income and net interest margin - continuing operations ( 3 ) $ 76,642 3.50 % $ 63,738 3.07 % $ 54,203 2.76 % net interest income and net interest margin ( 3 ) $ 90,782 3.53 % $ 82,048 3.28 % $ 77,191 3.12 % ( 1 ) on november 14 , 2018 , the bank entered into an agreement with firstbank to sell its tennessee and northwest georgia banking operations , including 14 branches and the mortgage business . the banking business and branches to be sold to firstbank are reported as discontinued operations . discontinued operations have been reported retrospectively for all periods presented . ( 2 ) interest income on tax-exempt securities has been increased to reflect comparable interest on taxable securities . the rate used was 21 % for the year ended december 31 , 2018 and 35 % for the years ended december 31 , 2017 and 2016 , reflecting the statutory federal income tax rates . ( 3 ) taxable equivalent net interest income divided by total interest-earning assets using the appropriate day count convention based on the type of interest-earning asset . for a reconciliation of non-gaap financial measures , see item 6. selected financial data - non-gaap performance measures reconciliation . 41 the following table shows the relative effect on taxable equivalent net interest income for changes in the average outstanding amounts ( volume ) of interest-earning assets and interest-bearing liabilities and the rates earned and paid on such assets and liabilities ( rate ) . variances resulting from a combination of changes in rate and volume are allocated in proportion to the absolute dollar amounts of the change in each category . table 2 - changes in net interest income ( in thousands ) 2018 compared to 2017 increase ( decrease ) due to changes in : 2017 compared to 2016 increase ( decrease ) due to changes in : volume yield/rate total change volume yield/rate total change interest earning assets interest bearing deposits in other banks $ 401 $ 927 $ 1,328 $ ( 77 ) $ 410 $ 333 other short-term investments 26 130 156 ( 168 ) 120 ( 48 ) investment securities : taxable investment securities 302 1,482 1,784 1,094 1,372 2,466 non-taxable investment securities ( 1 ) ( 163 ) ( 401 ) ( 564 ) 1,239 200 1,439 total investment securities 139 1,081 1,220 2,333 1,572 3,905 total loans 4,646 11,028 15,674 1,492 7,107 8,599 fhlb and frb stock ( 49 ) 102 53 159 19 178 total interest-earning assets - continuing operations 5,163 13,268 18,431 3,739 9,228 12,967 loans held for sale - discontinued operations ( 2,510 ) 281 ( 2,229 ) ( 4,069 ) ( 421 ) ( 4,490 ) total interest-earning assets 2,653 13,549 16,202 ( 330 ) 8,807 8,477 interest bearing liabilities interest bearing deposits : now , money market , and savings 1,402 3,304 4,706 503 1,582 2,085 time deposits ( 15 ) 77 62 ( 16 ) 19 3 internet and brokered deposits ( 1,774 ) 1,578 ( 196 ) ( 452 ) 838 386 total interest-bearing deposits ( 387 ) 4,959 4,572 35 2,439 2,474 total borrowings ( 691 ) 1,636 945 55 894 949 total long-term debt 11 ( 1 ) 10 11 ( 2 ) 9 total interest-bearing liabilities - continuing operations ( 1,067 ) 6,594 5,527 101 3,331 3,432 interest-bearing liabilities - discontinued operations 3 1,938 1,941 ( 502 ) 690 188 total interest-bearing liabilities ( 1,064 ) 8,532 7,468 ( 401 ) 4,021 3,620 change in net interest income - continuing operations $ 6,230 $ 6,674 $ 12,904 $ 3,638 $ 5,897 $ 9,535 change in net interest income $ 3,717 $ 5,017 $ 8,734 $ 71 $ 4,786 $ 4,857 ( 1 ) interest income on tax-exempt securities has been increased to reflect comparable interest on taxable securities . the rate used was 21 % for the year ended december 31 , 2018 and 35 % for the years ended december 31 , 2017 and 2016 , reflecting the statutory federal income tax rates . 42 provision for loan losses management considers a number of factors in determining the required level of the allowance for loan losses and the provision required to achieve what is believed to be appropriate reserve level , including historical loss experience , loan growth , credit risk rating trends , nonperforming loan levels , delinquencies , loan portfolio concentrations and economic and market trends . the provision for loan losses represents management 's determination of the amount necessary to be charged against the current period 's earnings to maintain the allowance for loan losses at a level that it considered adequate in relation to the estimated losses inherent in the loan portfolio . the provision for loan losses from continuing operations was $ 1.9
| taxable equivalent net interest income from continuing operations was $ 76.6 million for 2018 , compared to $ 63.7 million for 2017. taxable equivalent net interest margin increased to 3.50 % for the year ended december 31 , 2018 , from 3.07 % for 2017. the margin increase was primarily due to increases in the fed funds rate . taxable equivalent net interest income from continuing operations was $ 63.7 million for 2017 , compared to $ 54.2 million for 2016. taxable equivalent net interest margin increased to 3.07 % for the year ended december 31 , 2017 , from 2.76 % for 2016. the margin increase was primarily due to increases in the fed funds rate . provision for loan losses from continuing operations for the year ended december 31 , 2018 totaled $ 1.9 million , a decrease of $ 1.3 million , or 40 % , from the year ended december 31 , 2017 , due to lower net charge-offs . the company recorded negative provision for loan losses in 2018 totaling $ 3.1 million included in discontinued operations , primarily due to the classification of $ 373 million of loans to held for sale . provision expense decreased by $ 598,000 from $ 3.8 million in 2016 to $ 3.2 million in 2017 , primarily related to a reduction in loan growth noninterest income from continuing operations decreased $ 2.1 million , or 18 % , to $ 10.0 million for the year ended december 31 , 2018 from the year ended december 31 , 2017. the decrease was primarily due to a loss of $ 1.9 million on the sale of $ 63 million in investment securities to help fund the cash owed to the buyer at the closing of the upcoming branch sale . in addition , there was an $ 896,000 decrease in gains on sales of other assets and a $ 789,000 decrease in trust income from 2017 to 2018. these decreases were offset by a $ 1.7 million net gain on the sale of southeastern trust company in 2018. noninterest income from continuing operations increased $ 198,000 , or 2 % , to $ 12.2 million for the year ended december 31 , 2017 from the year ended december 31 , 2016. service charges increased $ 762,000 ,
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r & d spending for 2019 was primarily incurred in the first half of the year . these costs related to validating components and processes prior to making commercial product for the byrna product line . in june 2018 , we started development of finned tail ammunition which is designed to increase the distance and accuracy of our chemical irritant rounds . we expect r & d spending for this project to accelerate in q2 and q3 of 2020 as we plan to bring these products to market in q4 2020. this increase in sg & a was the primary reason for the $ 1,261,866 or 62 % increase in loss from operations , from $ 2,038,702 in 2018 to $ 3,300,568 in 2019. depreciation depreciation expense recorded in sg & a and related to non-revenue generating assets increased $ 10,662 to $ 30,054 in 2019 as compared to $ 19,392 in 2018 , primarily due to purchases of molds and our erp implementation and upgrades of computer related purchases in 2019. accretion of debt discounts and interest expense accretion of debt discounts increased by $ 966,444 in 2019 from $ 154,428 in 2018 to $ 1,120,872 in 2019 primarily due to the capital raises of $ 5,180,765 in 2019. interest expense increased $ 265,477 , from $ 148,887 in 2018 to $ 414,364 in 2019. the increase was due to $ 222,454 of interest expense associated with the 2019 capital raises . see note 15 , `` convertible notes payable and derivative liabilities , '' in the notes to consolidated financial statements included in item 8 of this report for additional information . change in fair value of derivative liabilities change in fair value of derivative liabilities increased $ 237,476 from $ 188,543 in 2018 to $ 426,019 in 2019. the amount expensed in 2019 relates to the canadian debentures which were repaid on may 31 , 2019. see note 15 , `` convertible notes payable and derivative liabilities , '' in the notes to consolidated financial statements included in item 8 of this report for additional information . income tax provision ( loss ) income before income taxes consists of the following : replace_table_token_4_th the company 's provision for income taxes was $ nil in each of the years ended november 30 , 2019 and november 30 , 2018 . 28 liquidity and capital resources cash flow summary cash and restricted cash at november 30 , 2019 was $ 1,173,900 , a decrease of $ 8,487 from the amount at november 30 , 2018 of $ 1,182,387. the decrease included $ 3,776,349 cash used in operating activities , $ 245,971 cash used in investing activities , partially offset by $ 4,032,335 cash provided by financing activities . additionally , as of the date hereof , we no longer have any outstanding notes payable . as of november 30 , 2019 , approximately $ 79,597 of cash was held by our international subsidiaries . our intent is to reinvest indefinitely substantially all our earnings in foreign subsidiaries outside of the us . however , if we decide to repatriate these earnings to the us , we may be required to accrue and pay additional taxes , including any applicable foreign withholding tax and us state income taxes . it is not practicable to estimate the amount of tax that may be due if these earnings were repatriated due to the complexity associated with the hypothetical calculation . we have incurred a cumulative loss of $ 37,662,123 from inception to november 30 , 2019 and have funded operations through the issuance of common stock , warrants , and convertible notes payable . we generate revenue from operations ; however , we still expect to incur significant losses before our revenues can sustain operations and planned growth . our future success is dependent upon our ability to raise sufficient capital or generate adequate revenue , to cover ongoing operating expenses , and also to continue to develop and be able to profitably market our products . our plans to continue operations include seeking to expand sales of the byrna ® hd in new marketing channels domestically and internationally , offering new products to drive revenue increases in the way that the april 2019 launch of the byrna ® hd drove the fiscal 2019 revenue increase . in addition , subsequent to year end , as discussed in the financing activities section below , we ( 1 ) raised approximately $ 3.2 million through early warrant exercises and ( 2 ) exchanged all outstanding convertible debt for preferred stock . we may explore other financing alternatives to raise capital , if needed . there can be no assurance that such revenue will be generated , or financing will be available at all or on favorable terms . based on these factors , there is substantial doubt about our ability to continue as a going concern . the financial statements do not include any adjustments that might result from the outcome of this uncertainty ; such adjustments could be material . operating activities cash used in operating activities was $ 3,776,349 in 2019 compared to $ 1,596,120 in the prior year . this increase was driven by sg & a expenses discussed above and the below changes in working capital , partially offset by noncash activity also discussed below : accounts receivable : accounts receivable at november 30 , 2019 were $ 438,255 compared to $ 18,914 at november 30 , 2018 , an increase of $ 419,341. the 2019 accounts receivable related to sales of the new byrna ® hd to several large distributors in the fourth quarter we launched our official dealer program for the new product . story_separator_special_tag inventory : inventory at november 30 , 2019 was $ 959,748 compared to $ 129,121 at november 30 , 2018 , an increase of $ 830,627 , or $ 875,413 before change inventory reserves of $ 44,786. the levels of component inventory were increased during the year for the manufacture of the byrna ® hd to ensure adequate parts inventory to meet sales projections as sales of the new product ramped up . the byrna ® hd contains over 100 component parts , sourced from multiple vendors in different countries . some component parts are custom made and some have long lead times . accounts payable : the commencement of production and increased activity in south africa as well as establishing and maintaining legal and regulatory infrastructure led to higher payables to component suppliers and professional service providers in 2019. noncash activity : the company 's non-cash activity primarily consisted of ( a ) $ 1,120,872 accretion of debt discounts in 2019 as compared to $ 154,428 in 2018 , ( b ) $ 314,339 issuances of common shares for services in 2019 as compared to $ 1,332,673 in 2018 inclusive of the $ 1,000,000 to fintekk , ( c ) $ 200,000 expense for shares issued to fintekk for services in 2019 as compared to $ 250,000 in 2018 , ( d ) $ 218,154 stock-based compensation expense in 2019 as compared to $ 128,799 in 2018 and ( d ) $ 112,500 issuance of notes payable for services in 2019 as compared to $ nil in 2018 . 29 investing activities cash used in investing activities was $ 245,971 in 2019 as compared to $ 421,523 in 2018. deposits for and purchases of property and equipment of $ 245,971 in 2019 as compared to $ 311,523 in 2018 , were to prepare for production of the new byrna ® hd products in south africa , including molds and tooling . purchases of patent rights were $ nil and $ 110,000 in 2019 and 2018 , respectively . we currently expect that capital expenditures for 2020 will be approximately $ 400,000. due to covid-19 , our estimate may be subject to change . financing activities our capital structure was as follows at november 30 , 2019 and 2018 : replace_table_token_5_th see note 15 , `` convertible notes payable and derivative liabilities , '' in the notes to consolidated financial statements included in item 8 of this report for information on the debt obligations . we also had $ 1,173,900 and $ 1,182,387 of cash and restricted cash at november 30 , 2019 and 2018 , respectively . we were in compliance with all applicable financial and non-financial covenants under our financing arrangements as of november 30 , 2019. on february 20 , 2020 , the october 2018 notes , april/may 2019 notes , july 2019 notes and september 2019 notes were amended by consent of all holders ( the `` amendment '' ) to waive all rights to receive interest in cash and to accept payment in kind of accrued interest . during march 2020 , the company raised approximately $ 3.2 million through early warrant exercises , where 19,979,107 warrants were exercised for 19,979,107 shares of common stock . the warrant exercise price was reduced from $ 0.25 to $ 0.16 per warrant to induce warrant holders to exercise on april 10 2020 , we exchanged an aggregate of approximately $ 6.95 million of all its outstanding october 2018 notes , april/may 2019 notes , july 2019 notes and september 2019 notes ( collectively the `` notes '' ) , representing principal and accrued interest , for 1,391 shares series a convertible preferred stock ( `` preferred stock '' ) . we no longer have any outstanding notes payable . at the closing , in accordance with the amendment and the security purchase agreements pursuant to which the notes were issued , we also issued 1,498,417 warrants to the holders reflecting 4,000 warrants for each $ 1,000 ( us dollars ) of unpaid interest accrued on the notes . each share of preferred stock has a $ 5,000 issue price . dividends accrue on the issue price at a rate of 10.0 % per annum and are payable to holders of preferred stock as , when and if declared by our board of directors . each share of preferred stock , is convertible into such number of shares of common stock equal to the issue price divided by the conversion price of $ 0.15. upon conversion of the preferred stock , all accrued and unpaid dividends will be converted to common stock utilizing the same conversion formula . the conversion price is subject to proportional adjustment for certain transactions relating to our common stock , including stock splits , stock dividends and similar transactions . holders of preferred stock are entitled to a liquidation preference in the event of any liquidation , dissolution or winding up of the corporation based on their shares ' aggregate issue price and accrued and unpaid dividends . holders may convert their shares of preferred stock into common stock at any time and we have the right to cause each holder to convert their shares of preferred stock at any time after the eighteen ( 18 ) month anniversary of the original issue date if the common stock has traded for more than twenty ( 20 ) consecutive trading days above $ 0.50 ( as adjusted for stock splits , stock dividends and similar transactions ) . holders of shares of preferred stock are not entitled to vote with the holders of common stock , however , for so long as there are 423 shares of preferred stock outstanding , we are required to obtain the consent of the holders of the preferred stock to take certain corporate actions , including to incur indebtedness in excess of $ 250,000 in the aggregate .
| we entered into the following transactions during the year ended november 30 , 2019 which impacted our results of operations and the comparability among the years , as discussed below : on september 16 , 2019 , we entered into a securities purchase agreement with two investors to sell a total of 818.0 of units , for aggregate principal of $ 818,000 , with each $ 1,000 of unit consisting of ( i ) a $ 1,000 10 % interest convertible promissory note due june 30 , 2021 , convertible into our common stock at a conversion price of $ 0.15 per share , and ( ii ) four thousand ( 4,000 ) warrants , each exercisable on or before january 22 , 2024 for one share of common stock at an exercise price of $ 0.25 per share . on april 10 , 2020 , the convertible promissory notes issued pursuant to this securities purchase agreement were exchanged for shares of the company 's series a convertible preferred stock . 25 on july 22 , 2019 , we entered into a securities purchase agreement with several investors to sell a total of 2,282.5 units , for aggregate principal of $ 2,282,500 , with each $ 1,000 of unit consisting of ( i ) a $ 1,000 10 % interest convertible promissory note due june 30 , 2021 , convertible into the company 's common stock at a conversion price of $ 0.15 per share , and ( ii ) four thousand ( 4,000 ) warrants , each exercisable on or before january 22 , 2024 for one share of common stock at an exercise price of $ 0.25 per share . on april 10 , 2020 , the convertible promissory notes issued pursuant to this securities purchase agreement were exchanged for shares of the company 's series a convertible preferred stock . in july 2019 , production of byrna ® hd was moved to roboro industries pty ltd ( `` roboro '' ) , which significantly improved the rate of production . at the end of april 2019 , we began shipments of our new product , the byrna ® hd which contributed to revenue growth in the second half of the year . the byrna ® hd is the company 's first product sold to the consumer ( home defense ) and private security markets . on april 22 , 2019 and may 20 , 2019 , we entered into a securities purchase agreement with several accredited investors to sell a total of 2,080.265 units , for aggregate principal of $ 2,080,265 , with each $ 1,000 unit consisting of ( i ) a $ 1,000 10 % interest convertible promissory note due april 15 , 2020 , convertible into our common stock at
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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 . the allowance is an amount that management believes is appropriate to absorb estimated losses relating to specifically identified loans , as well as probable credit losses inherent in the balance of the loan portfolio , based on an evaluation of the collectability of existing loans and prior loss experience . this evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio , overall portfolio quality , review of specific problem loans , and current economic conditions that may affect the borrower 's ability to pay . this evaluation does not include the effects of expected losses on specific loans or groups of loans that are related to future events or expected changes in economic conditions . the evaluation also considers the following risk characteristics of each loan portfolio : · residential 1-4 family mortgage loans include helocs and single family investment properties secured by first liens . the carry risks associated with owner-occupied and investment properties are the continued credit-worthiness of the borrower , changes in the value of the collateral , successful property maintenance and collection of rents due from tenants . the company manages these risks by using specific underwriting policies and procedures and by avoiding concentrations in geographic regions . · commercial real estate loans , including owner occupied and non-owner occupied mortgages , carry risks associated with the successful operations of the principal business operated on the property securing the loan or the successful operation of the real estate project securing the loan . general market conditions and economic activity may impact the performance of these loans . in addition to using specific underwriting policies and procedures for these types of loans , the company manages risk by avoiding concentrations to any one business or industry , and by diversifying the lending to various lines of businesses , such as retail , office , office warehouse , industrial and hotel . · construction and land development loans are generally made to commercial and residential builders/developers for specific construction projects , as well as to consumer borrowers . these carry more risk than real estate term loans due to the dynamics of construction projects , changes in interest rates , the long-term financing market and state and local government regulations . the company manages risk by using specific underwriting policies and procedures for these types of loans and by avoiding concentrations to any one business or industry and by diversifying lending to various lines of businesses , in various geographic regions and in various sales or rental price points . · second mortgages on residential 1-4 family loans carry risk associated with the continued credit-worthiness of the borrower , changes in value of the collateral and a higher risk of loss in the event the collateral is liquidated due to the inferior lien position . the company manages risk by using specific underwriting policies and procedures . · multifamily loans carry risks associated with the successful operation of the property , general real estate market conditions and economic activity . in addition to using specific underwriting policies and procedures , the company manages risk by avoiding concentrations to geographic regions and by diversifying the lending to various unit mixes , tenant profiles and rental rates . · agriculture loans carry risks associated with the successful operation of the business , changes in value of non-real estate collateral that may depreciate over time and inventory that may be affected by weather , biological , price , labor , regulatory and economic factors . the company manages risks by using specific underwriting policies and procedures , as well as avoiding concentrations to individual borrowers and by diversifying lending to various agricultural lines of business ( i.e. , crops , cattle , dairy , etc. ) . · commercial loans carry risks associated with the successful operation of the business , changes in value of non-real estate collateral that may depreciate over time , accounts receivable whose collectability may change and inventory values that may be subject to various risks including obsolescence . general market conditions and economic activity may also impact the performance of these loans . in addition to using specific underwriting policies and procedures for these types of loans , the company manages risk by diversifying the lending to various industries and avoids geographic concentrations . · consumer installment loans carry risks associated with the continued credit-worthiness of the borrower and the value of rapidly depreciating assets or lack thereof . these types of loans are more likely than real estate loans to be quickly and adversely affected by job loss , divorce , illness or personal bankruptcy . the company manages risk by using specific underwriting policies and procedures for these types of loans . · all other loans generally support the obligations of state and political subdivisions in the u.s. and are not a material source of business for the company . the loans carry risks associated with the continued credit-worthiness of the obligations and economic activity . the company manages risk by using specific underwriting policies and procedures for these types of loans . 26 while management uses the best information available to make its evaluation , future adjustments to the allowance may be necessary if there are significant changes in economic conditions . in addition , regulatory agencies , as an integral part of their examination process , periodically review the company 's allowance for loan losses , and may require the company to make additions to the allowance based on their judgment about information available to them at the time of their examinations . the allowance consists of specific , general and unallocated components . for loans that are also 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 . story_separator_special_tag the general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors . the unallocated component covers uncertainties the could affect management 's estimate of probable losses . 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 by either the present value of the expected future cash flows discounted at the loan 's effective interest rate , the loan 's obtainable market price , or the fair value of the collateral if the loan is collateral dependent . large groups of smaller balance homogeneous loans are collectively evaluated for impairment . accounting for certain loans acquired in a transfer financial accounting standards board ( fasb ) accounting standards codification ( asc ) 310 , receivables requires acquired loans to be recorded at fair value and prohibits carrying over valuation allowances in the initial accounting for acquired impaired loans . loans carried at fair value , mortgage loans held for sale , and loans to borrowers in good standing under revolving credit arrangements are excluded from the scope of fasb asc 310 which limits the yield that may be accreted to the excess of the undiscounted expected cash flows over the investor 's initial investment in the loan . the excess of the contractual cash flows over expected cash flows may not be recognized as an adjustment of yield . subsequent increases in cash flows to be collected are recognized prospectively through an adjustment of the loan 's yield over its remaining life . decreases in expected cash flows are recognized as impairments through the allowance for loan losses . the company 's acquired loans from the suburban federal savings bank ( sfsb ) transaction ( the purchased credit impaired or “ pci loans ” ) , subject to fasb asc topic 805 , business combinations , were recorded at fair value and no separate valuation allowance was recorded at the date of acquisition . fasb asc 310-30 , loans and debt securities acquired with deteriorated credit quality , applies to loans acquired in a transfer with evidence of deterioration of credit quality for which it is probable , at acquisition , that the investor will be unable to collect all contractually required payments receivable . the company is applying the provisions of fasb asc 310-30 to all loans acquired in the sfsb transaction . the company has grouped loans together based on common risk characteristics including product type , delinquency status and loan documentation requirements among others . the pci loans are subject to the credit review standards described above for loans . if and when credit deterioration occurs subsequent to the date the loans were acquired , a provision for loan loss for pci loans will be charged to earnings for the full amount . the company has made an estimate of the total cash flows it expects to collect from each pool of loans , which includes undiscounted expected principal and interest . the excess of that amount over the fair value of the pool is referred to as accretable yield . accretable yield is recognized as interest income on a constant yield basis over the life of the pool . the company also determines each pool 's contractual principal and contractual interest payments . the excess of that amount over the total cash flows that it expects to collect from the pool is referred to as nonaccretable difference , which is not accreted into income . judgmental prepayment assumptions are applied to both contractually required payments and cash flows expected to be collected at acquisition . over the life of the loan or pool , the company continues to estimate cash flows expected to be collected . subsequent decreases in cash flows expected to be collected over the life of the pool are recognized as an impairment in the current period through the allowance for loan loss . subsequent increases in expected or actual cash flows are first used to reverse any existing valuation allowance for that loan or pool . any remaining increase in cash flows expected to be collected is recognized as an adjustment to the accretable yield with the amount of periodic accretion adjusted over the remaining life of the pool . other real estate owned real estate acquired through , or in lieu of , loan foreclosure is held for sale and is initially recorded at the fair value of the at the date of foreclosure net of estimated disposal costs , establishing a new cost basis . subsequent to foreclosure , valuations are periodically performed by management and the assets are carried at the lower of the carrying amount or the fair value less costs to sell . revenues and expenses from operations and changes in the valuation allowance are included in other operating expenses . costs to bring a property to salable condition are capitalized up to the fair value of the property while costs to maintain a property in salable condition are expensed as incurred . 27 other intangibles the company is accounting for other intangible assets in accordance with fasb asc 350 , intangibles - goodwill and others .
| earnings ( loss ) per common share , basic and fully diluted , were $ ( 0.11 ) for the year ended december 31 , 2015 versus $ 0.33 for the same period in 2014. net interest income the company 's operating results depend primarily on its net interest income , which is the difference between interest income on interest earning assets , including securities and loans , and interest expense incurred on interest bearing liabilities , including deposits and other borrowed funds . net interest income is affected by changes in the amount and mix of interest earning assets and interest bearing liabilities , referred to as a “ volume change. ” it is also affected by changes in yields earned on interest earning assets and rates paid on interest bearing deposits and other borrowed funds , referred to as a “ rate change. ” for the 2016 year , net interest income increased $ 1.4 million , or 3.6 % , and was $ 41.5 million . the tax equivalent yield on earning assets was 4.50 % for 2016 compared with 4.57 % for 2015. interest and fees on loans of $ 36.0 million in 2016 was an increase of $ 4.0 million , or 12.5 % , compared with $ 32.0 million for 2015. interest and fees on pci loans declined $ 1.6 million over this same time frame . of that decline , $ 475,000 related to cash payments on adc loans related to pools previously written down to a zero carrying value received in 2015 versus no such payments in 2016. securities income declined $ 681,000 for 2016 compared 2015 , as securities balances have been liquidated to fund loan growth . interest expense of $ 7.8 million for 2016 represented an increase of $ 323,000 , or 4.31 % , compared with 2015. total average interest bearing liabilities increased $ 21.4 million , as loan growth has been fueled by this increase and an average balance increase of 23.0 % , or $ 21.7 million , in noninterest bearing deposits , coupled
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37 the table below illustrates the overall change in the number of our company-operated retail locations by type of store and reportable operating segment as of december 31 , 2015 and 2014 : replace_table_token_10_th the table below sets forth our comparable store sales by reportable operating segment for the year ended december 31 , 2015 as compared to the same period in 2014 : replace_table_token_11_th the table below sets forth direct to consumer ( `` dtc '' ) comparable stores sales , which includes our e-commerce and retail operating segments , for the year ended december 31 , 2015 as compared to the same period in 2014 : replace_table_token_12_th ( 1 ) comparable store status is determined on a monthly basis . comparable store sales begin in the thirteenth month of a store 's operation . stores in which selling square footage has changed more than 15 % as a result of a remodel , expansion or reduction are excluded until the thirteenth month in which they have comparable prior year sales . temporarily closed stores are excluded from the comparable store sales calculation during the month of closure . location closures in excess of three months are excluded until the thirteenth month post re-opening . comparable store sales exclude the impact of our internet channel revenues and are calculated on a currency neutral basis using historical annual average currency rates . ecommerce revenue is based on same site sales period over period . 38 ( 2 ) reflects quarter over quarter change on a `` constant currency '' basis , which is a non-gaap financial measure that restates current period results using prior year foreign exchange rates for the comparative period to enhance visibility of the underlying business trends , excluding the impact of foreign currency . comparable store sales decreased 2.8 % on a global basis for the year ended december 31 , 2015 , compared to a decrease of 3.7 % for the year ended december 31 , 2014. comparable store sales for our direct to consumer customers , which includes retail and ecommerce , increased 3.9 % on a global basis for the year ended december 31 , 2015 , compared to a decrease of 1.9 % for the year ended december 31 , 2014. the metric `` revenue adjusted for business model changes '' is used by management to assess period-over-period change in the performance of our continuing operations as compared to the same quarter of the previous year . this metric is calculated on a constant currency basis and removes the impact of store closures and eliminated product lines from prior period results . we believe this metric is useful in analyzing business trends related to our ongoing operations by excluding products and locations that have been eliminated and by removing foreign currency translation adjustments which can mask the underlying performance of the business . the table below sets forth revenues for the year ended december 31 , 2015 adjusted for the prior year impact of business model changes : replace_table_token_13_th replace_table_token_14_th ( 1 ) constant currency in a non-gaap measure that restates current period results using prior year average foreign exchange rates for the comparative period to enhance the visibility of the underlying business trends excluding the impact of foreign currency exchange rate fluctuations . revenue adjusted for business model changes increased 2.5 % for the year ended december 31 , 2015 compared to 5.1 % for the year ended december 31 , 2014 . 39 impact on revenues due to foreign exchange rate fluctuations . changes in average foreign currency exchange rates used to translate revenue from our functional currencies to our reporting currency during the year ended december 31 , 2015 resulted in a $ 85.3 million decrease in revenue compared to the same period in 2014. gross profit . during the year ended december 31 , 2015 , gross profit decreased $ 79.5 million , or 13.5 % , compared to the same period in 2014 , and was primarily attributable to the 9.0 % decrease in revenue partially offset by a decrease of $ 24.1 million , or 4.0 % to cost of sales compared to the same period in 2014 primarily due to foreign currency translation . gross margin percentage decreased 250 basis points compared to the same period in 2014. impact on gross profit due to foreign exchange rate fluctuations . changes in average foreign currency exchange rates used to translate revenue and costs of sales from our functional currencies to our reporting currency during the year ended december 31 , 2015 decreased our gross profit by $ 41.7 million , or 7.1 % , compared to the same period in 2014. selling , general and administrative expenses . sg & a expenses decreased $ 6.6 million , or 1.2 % , during the year ended december 31 , 2015 compared to the same period in 2014. this change was primarily driven by wage and salary decreases of $ 22.1 million , and a $ 17.0 million decrease in building expenses partially offset by a $ 13.6 million increase in marketing expenses , and a $ 13.6 million increase in bad debt expense , largely associated with our asia pacific operations relating to china . during the year ended december 31 , 2015 , our bad debt expense was $ 25.7 million compared to $ 12.1 million in the same period in the prior year . substantially all of this increase in bad debt expense is due to lower collections from our china operations , which is included in our asia pacific segment . we believe declining collections from our china operations is associated with deteriorating macro-economic conditions in china resulting in declining customer demand and the deteriorating working capital position of our distributors . we are unable to predict future economic conditions in china , but if economic conditions in china continue to decline , we may experience further reductions in consumer demand in our china markets . story_separator_special_tag as our china operations represent approximately 8 % of our total revenue in 2015 , the net impact of declining sales volumes in china could have a material adverse impact on our financial results in future periods . in addition to these fluctuations , we have identified certain selling , general and administrative expenses that affect the comparability or underlying business trends in our condensed consolidated financial statements . the following table summarizes these expenses and describes the additional drivers of the 40 increase above by reconciling our gaap selling , general and administrative expenses to non-gaap selling , general and administrative expenses : replace_table_token_15_th ( 1 ) this represents operating expenses related to the implementation of our new enterprise resource planning ( `` erp '' ) system and the termination of certain it contracts for better alignment with strategic initiatives as well as fees associated with the termination of certain royalty and other contracts . ( 2 ) this relates to severance expenses , bonuses , store closure costs , consulting fees and other expenses related to recent restructuring and reorganization activities and our investment agreement with blackstone . ( 3 ) expenses in 2015 relate primarily to legal expenses for matters surrounding disbursements to invalid vendors and california wage settlements . expenses in 2014 relate primarily to other legal settlements . ( 4 ) certain bad debt and impairment expenses were incurred in 2015 relating to the planned sale of operations in south africa . impact on selling , general , and administrative expenses due to foreign exchange rate fluctuations . changes in average foreign currency exchange rates used to translate expenses from our functional currencies to our reporting currency during the year ended december 31 , 2015 , negatively impacted , or increased , selling , general and administrative expenses by approximately $ 35.6 million compared to 2014. restructuring charges . during the years ended december 31 , 2015 and 2014 , we recorded $ 8.7 million and $ 24.5 million , respectively , in restructuring charges . these restructuring charges arose primarily as a result of our strategic plans for long-term improvement and growth of the business . restructuring charges for the years ended december 31 , 2015 and 2014 consisted of : $ 5.5 million and $ 12.5 million in severance costs during the years ended december 31 , 2015 and 2014 , respectively ; $ 2.6 million and $ 4.2 million in contract termination costs primarily related to the early termination of operating leases during the years ended december 31 , 2015 and 2014 , respectively ; and $ 0.6 million and $ 7.8 million in other restructuring charges primarily related to expenses to exiting stores and legal fees during the years ended december 31 , 2015 and included the write-off of obsolete inventory and store exiting and legal fees for the year ended december 31 , 2014 . 41 asset impairment charges . during the year ended december 31 , 2015 and 2014 , we incurred $ 15.3 million and $ 8.8 million , respectively , in asset impairment charges . for the year ended december 31 , 2015 , $ 9.6 million of this amount related to certain underperforming retail locations , primarily in our americas and europe segments , which were unlikely to generate sufficient cash flows to fully recover the carrying value of the stores ' assets over their remaining economic life and $ 5.7 million related to the impairment of our south africa asset group that is currently held for sale . foreign currency transaction loss , net . the line item entitled foreign currency transaction loss , net is comprised of foreign currency gains and losses from the re-measurement and settlement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreign currency derivative instruments . during the year ended december 31 , 2015 and 2014 , the effect of foreign currency transactions was a net loss of $ 3.3 million and $ 4.9 million , respectively . income tax expense . during the year ended december 31 , 2015 , we recognized income tax expense of $ 8.5 million on pre-tax book loss of $ 74.7 million , representing an effective tax rate of ( 11.3 ) % , compared to an income tax benefit of $ 3.6 million on pre-tax book loss of $ 8.5 million in 2014 , which represented an effective tax rate of 42.4 % . generally , our effective tax rate varies primarily based on our profitability level and the relative earnings of operations across multiple jurisdictions . beyond operating results , the most significant rate drivers relate to u.s. tax accrued on foreign unremitted earnings and continued varying need for valuation allowances . the following are key jurisdictions impacting our tax rate for 2015 and 2014 , respectively : replace_table_token_16_th replace_table_token_17_th ( 1 ) primarily driven by a $ 2.9 million net benefit related to a tax settlement with the canada revenue agency . the principal drivers impacting the rate other than the overall profitability or loss of the company disclosed in our rate reconciliation table in note 14income taxes includes : the tax effect of non-deductible/non-taxable items changes from a $ 9.9 million tax benefit in 2014 ( resulting in a favorable rate impact of 115.8 % ) to a $ 2.2 million tax benefit in 2015 ( resulting in a favorable rate impact of 2.9 % ) . the incremental benefit recognized in 2014 primarily related to the non-taxable nature of both foreign exchange gains and dividends in foreign jurisdictions . these benefits did not occur in the current year and are not anticipated to recur on an ongoing basis . the change in the 'effect of rate differences ' line of the rate reconciliation table is principally driven by differences in pre-tax book income between the periods compared , and the source of this income , which is subject to different jurisdiction tax rates .
| we incurred $ 15.3 million in asset impairment charges during 2015. of this amount , $ 5.7 million related to an impairment of our south africa asset group , currently , held for sale , and $ 9.6 million related to certain underperforming retail locations in our americas , europe , and asia pacific segments that were unlikely to generate sufficient cash flows to fully recover the carrying value of the stores ' assets over their remaining economic life . net income ( loss ) attributable to common stockholders decreased $ 79.0 million to a net loss of $ 98.0 million compared to net loss of $ 19.0 million for 2014. net loss per share was $ 1.30 during the year ended december 31 , 2015 compared to net loss per share of $ 0.22 during the year ended december 31 , 2014. these decreases are primarily the result of decreased gross profit and increased asset impairment charges offset by decreased restructuring charges and sg & a expense . we continued to slow the expansion of our retail channel and focus on the long-term profitability of current locations . we opened 42 company-operated stores during the year ended december 31 , 2015 , a quarter of which were outlet or low investment kiosk/store-in-store locations , and closed 68 company-operated stores . during 2015 , we repurchased approximately 6.5 million shares at an average price of $ 13.24 per share for a total value of $ 85.9 million , including related commission charges . as of december 31 , 2015 , we have remaining repurchase authorizations of $ 118.7 million . future outlook during 2016 , we will continue our strategic plans for long-term improvement and growth of the business . our plans comprise four key initiatives including ( 1 ) streamlining the global product and marketing portfolio , ( 2 ) reducing direct investment in smaller geographic markets , ( 3 ) creating a more efficient organizational structure by reducing excess overhead costs and enhancing the decision making process , and ( 4 ) closing
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as discussed in more detail below , for the year ended december 31 , 2016 , financial had net income of $ 3,286,000 , a decrease of $ 406,000 from net income of $ 3,692,000 , from the year ended december 31 , 2015 ; for the year ended december 31 , 2016 , earnings per basic and diluted common share was $ 0.75 , as compared earnings of $ 1.07 per basic and diluted common share for the year ended december 31 , 2015 ; net interest income increased to $ 19,224,000 for the current year from $ 17,611,000 for the year ended december 31 , 2015 ; noninterest income ( exclusive of net gains on sales and calls of securities ) increased to $ 4,301,000 for the year ended december 31 , 2016 from $ 4,144,000 for the year ended december 31 , 2015 ; total assets as of december 31 , 2016 were $ 574,195,000 compared to $ 527,143,000 at the end of 2015 , an increase of $ 47,052,000 or 8.93 % ; net loans ( excluding loans held for sale ) , net of unearned income and allowance for loan loss , increased to $ 464,353,000 as of december 31 , 2016 from $ 430,445,000 as of the end of december 31 , 2015 , an increase of 7.88 % ; and the net interest margin decreased 1 basis point to 3.77 % for 2016 , compared to 3.78 % for 2015 . 21 the following table sets forth selected financial ratios : replace_table_token_2_th effect of economic trends although the u.s. economy continued to improve in 2016 , the u.s. economy continued to experience slow growth . locally , real estate values appear stable and with some increase in valuation . region 2000 experienced positive trends in housing during 2015 and 2016. in 2016 , the bank continued to experience an increase in loan demand from small and medium size businesses . however , to date in 2017 , loan demand from these small and medium size businesses has diminished , which management believes is partially attributable to seasonal demand . management expects loan demand to increase slightly in the second quarter of 2017 and then remain steady throughout the rest of 2017. management is unsure what the impact that recent and potential rate increases will be on loan demand . due to increased asset growth , the bank 's capital levels decreased slightly , but the bank remains well-capitalized under regulatory standards . for additional information regarding the local economy and its impact on the company 's business refer to the business section in this 10-k under the caption location and market area ( part i. item 1. business section location and market area ) . management expects economic conditions to continue to improve in 2017 , which could result in increased competition for banking services . financial institutions also face continued heightened levels of scrutiny from federal and state regulators . financial institutions experienced , and are expected to continue to experience , pressure on credit costs , loan yields , deposit and other borrowing costs , liquidity , and capital . a variety and wide scope of economic factors affect financial 's success and earnings . although interest rate trends are one of the most important of these factors , financial believes that interest rates can not be predicted with a reasonable level of confidence and therefore does not attempt to do so with complicated economic models . management believes that the best defense against wide swings in interest rate levels is to minimize vulnerability at all potential interest rate levels . rather than concentrate on any one interest rate scenario , financial prepares for the opposite as well , in order to safeguard margins against the unexpected . the downward trend in short term interest rates which began in the last quarter of 2007 was due to the actions of the federal open market committee ( fomc ) resulting from a deteriorating economy . since december 2008 , the federal funds target rate set by the federal reserve had been set at 0.00 % to 0.25 % . this trend began to reverse in december 2015 when the fomc raised the target rate by 25 basis points and did so again in december 2016 and in march 2017 , which resulted in the current target rate of 0.75 % increasing to 1.00 % . long term interest rates have likewise begun to increase and the yield curve remains positively sloped . although it can not be certain , as discussed below under results of operationsnet interest income management believes that short term interest rates will either increase or remain stable for the foreseeable future . an increase in long-term interest rates would have an adverse impact on the mortgage division , primarily due to reduced refinancing opportunities . 22 critical accounting policies financial 's financial statements are prepared in accordance with accounting principles generally accepted in the united states ( gaap ) . the financial information contained within our statements is , to a significant extent , based on measures of the financial effects of transactions and events that have already occurred . a variety of factors could affect the ultimate value that is obtained either when earning income , recognizing an expense , recovering an asset or relieving a liability . the bank uses historical loss factors as one factor in determining the inherent loss that may be present in the loan portfolio . actual losses could differ significantly from the historical factors that the bank uses in estimating risk . in addition , gaap itself may change from one previously acceptable method to another method . although the economics of financial 's transactions would be the same , the timing of events that would impact the transactions could change . the allowance for loan losses is management 's estimate of the losses that may be sustained in our loan portfolio . story_separator_special_tag the allowance is based on two basic principles of accounting : ( i ) asc 450 , contingencies , which requires that losses be accrued when they are probable of occurring and are reasonably estimable and ( ii ) asc 310 , receivables , which requires that losses on impaired loans be accrued based on the differences between the value of collateral , present value of future cash flows or values that are observable in the secondary market and the loan balance . guidelines for determining allowances for loan losses are also provided in the sec staff accounting bulletin no . 102 selected loan loss allowance methodology and documentation issues and the federal financial institutions examination council 's interagency guidance , interagency policy statement on the allowance for loan and lease losses ( the ffiec policy statement ) . see management discussion and analysis results of operations allowance for loan losses and loan loss reserve below for further discussion of the allowance for loan losses . in situations where , for economic or legal reasons related to a borrower 's financial condition , management may grant a concession to the borrower that it would not otherwise consider , the related loan is classified as a troubled debt restructuring ( tdr ) . management strives to identify borrowers in financial difficulty early and work with them to modify their loan to more affordable terms before their loans reach nonaccrual status . these modified terms may include rate reductions , principal forgiveness , payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of collateral . in cases where borrowers are granted new terms that provide for a reduction of either interest or principal , management measures any impairment on the restructuring as noted above for impaired loans . the bank had loans totaling $ 455,000 and $ 646,000 that were classified as tdrs as of december 31 , 2016 and 2015 , respectively . management considers historical trends , industry trends , peer comparisons , as well as individual classified impaired loans , in addition to historical experience to evaluate the allowance for loan losses . our method for determining the allowance for loan losses is discussed more fully under provision and allowance for loan losses for the bank below . other real estate owned ( oreo ) consists of properties acquired through foreclosure or deed in lieu of foreclosure . these properties are carried at fair value less estimated costs to sell at the date of foreclosure establishing a new cost basis . these properties are subsequently accounted for at the lower of cost or fair value less estimated costs to sell . losses from the acquisition of property in full or partial satisfaction of loans are charged against the allowance for loan losses . subsequent write-downs , if any , are charged against expense . gains and losses on the sales of foreclosed properties are included in determining net income in the year of the sale . operating costs after acquisition are expensed . the bank had oreo totaling $ 2,370,00 and $ 1,965,000 as of december 31 , 2016 and 2015 , respectively . 23 story_separator_special_tag changes in components of net interest income on a taxable equivalent basis . replace_table_token_4_th noninterest income of financial noninterest income has been and will continue to be an important factor for increasing our profitability . our management continues to review and consider areas where noninterest income can be increased . noninterest income ( excluding securities gains and losses ) consists of income from mortgage originations and sales , service fees , distributions from a title insurance agency in which we have an ownership interest , income from credit and debit card transactions , and fees generated by the investment services of investment . service fees consist primarily of monthly service and minimum account balance fees and charges on transactional deposit accounts , treasury management fees , overdraft charges , and atm service fees . the bank , through the mortgage division originates both conforming , non-conforming consumer residential mortgage , and reverse mortgage loans primarily in the region 2000 area as well as in charlottesville , harrisonburg , and roanoke . as part of the bank 's overall risk management strategy , all of the loans originated and closed by the mortgage division are presold to mortgage banking or other financial institutions . the mortgage division assumes no credit or interest rate risk on these mortgages . the mortgage division originated 452 mortgage loans , totaling $ 84,743,000 during the year ended december 31 , 2016 as compared with 444 mortgage loans , totaling $ 78,549,000 in 2015. income improved with the increased origination volume . we continued to benefit from an improved pricing model that resulted from the migration of the mortgage division 's broker relationships to hybrid correspondent in 2013. the hybrid correspondent relationship allows the bank to close loans in its name before an investor 28 purchases the loan . by using the bank 's funds to close the loan ( as compared to a broker relationship in which loans are funded by the purchaser of the mortgage ) , the bank is able to obtain better pricing due to the slight increase in risk . in 2015 and 2016 , the mortgage division continued to operate in an environment in which real estate values continued to improve . loans for new home purchases comprised 57 % of the total volume in 2016 as compared to 66 % in 2015. for the year ended december 31 , 2016 , the mortgage division accounted for 9.32 % of financial 's total revenue as compared with 9.30 % of financial 's total revenue for the year ended december 31 , 2015. mortgage contributed $ 558,000 and $ 549,000 to financial 's pre-tax net income in 2016 and 2015 , respectively .
| compared to 0.74 % in 2015. net interest income the fundamental source of financial 's earnings , net interest income , is defined as the difference between income on earning assets and the cost of funds supporting those assets . the significant categories of earning assets are loans , federal funds sold , and investment securities , while deposits , fed funds purchased , and other borrowings represent interest-bearing liabilities . the level of net interest income is impacted primarily by variations in the volume and mix of these assets and liabilities , as well as changes in interest rates when compared to previous periods of operation . interest income increased to $ 21,568,000 for the year ended december 31 , 2016 from $ 20,302,000 for the year ended december 31 , 2015. this increase was due to the interest earned on the increase in loan balances and was mitigated by a decrease in the yields on average earning assets which primarily consist of loans and investment securities , as discussed below . net interest income for 2016 increased $ 1,613,000 to $ 19,224,000 or 9.16 % from net interest income of $ 17,611,000 in 2015. the growth in net interest income was due primarily to the interest generated from a slight increase in interest rates , increased loan balances and a decrease in our interest expense of $ 347,000 to $ 2,344,000 in 2016 from $ 2,691,000 in 2015. our interest expense decreased primarily because of the retirement of $ 10,000,000 in 6 % notes that were called in december 2015 and paid off in january 2016. this decrease in interest expense was offset by an increase in the average balances of our time deposits ( which typically pay depositors a higher rate of interest than demand accounts ) from $ 137,374,000 during 2015 to $ 155,346,000 in 2016. the increase was mitigated by the fact that the average interest rate paid on time deposits decreased by 1
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as a percentage of revenue , g & a expenses represented 15.1 % in 2018 versus 14.2 % in 2017. marketing and selling expenses : the increase in marketing and selling expenses was primarily a result of additional personnel and personnel related costs in 2018. total marketing and selling expenses represented 11.8 % of revenue for 2018 and 2017. research and development ( “ r & d ” ) : r & d expenses represented 3.6 % and 3.4 % of revenue for 2018 and 2017 , respectively . income taxes : during the year ended december 31 , 2018 , the company recorded a tax provision of $ 3.1 million representing a tax rate of 40 % compared to a tax rate of 25 % in 2017. approximately half of the tax provision in 2018 was attributed to domestic taxes , with the other half attributed to brazil . the increase in 2018 was primarily due a higher tax rate impact from brazil in 2018 and to the passing of the tax act in 2017. the tax act impacted 2017 with a benefit of $ 1.2 million and it also had the effect of increasing the brazil net tax rate , as the lower u.s. tax rate reduced the deductibility of brazil taxes . liquidity and capital resources the company had $ 7.3 million and $ 4.1 million of cash as of december 31 , 2019 and 2018 , respectively . the company also had $ 3.9 million of marketable securities as of december 31 , 2018. the company 's operating activities generated net cash of $ 4.3 million in 2019 , $ 7.9 million in 2018 and $ 9.1 million in 2017. investing activities provided $ 2.1 million in 2019 and used $ 5.4 million in 2018 and $ 1.2 million in 2017. financing activities used $ 3.0 million in 2019 , $ 5.6 million in 2018 and $ 3.5 million in 2017. operating cash flow of $ 4.3 million in 2019 primarily reflected net income of $ 1.5 million adjusted for depreciation and amortization of $ 2.9 million , stock compensation expense of $ 0.8 million , and a decrease in net deferred tax liabilities of $ 0.4 million . operating cash flow was affected by the following changes in assets and liabilities : a decrease in accounts receivable of $ 1.0 million , an increase in accounts payable of $ 0.5 million , an increase in accrued expenses of $ 0.7 million , and an increase in prepaid expenses ( and other current assets ) of $ 0.4 million . the operating cash flow was $ 3.6 million less than in 2018 which was primarily driven by lower net income . 15 operating cash flow of $ 7.9 million in 2018 primarily reflected net income of $ 4.6 million adjusted for depreciation and amortization of $ 3.1 million , stock compensation expense of $ 0.6 million , and a decrease in net deferred tax liabilities of $ 0.3 million . operating cash flow was affected by the following changes in assets and liabilities : an increase in accounts receivable of $ 0.4 million , an increase in accounts payable of $ 0.1 million , an increase in accrued expenses of $ 0.1 million , and a decrease in prepaid expenses ( and other current assets ) of $ 0.1 million . the operating cash flow was $ 1.2 million less than in 2018. operating cash flow of $ 9.1 million in 2017 primarily reflected net income of $ 6.1 million adjusted for depreciation and amortization of $ 2.8 million , stock compensation expense of $ 0.6 million , and an increase in net deferred tax liabilities of $ 1.5 million . the net deferred tax liability was significantly different than in prior years due to change in the tax law . see income tax discussion above . operating cash flow was affected by the following changes in assets and liabilities : a decrease in accounts receivable of $ 1.3 million , a decrease in accounts payable of $ 1.0 million , an increase in accrued expenses of $ 0.9 million , and an increase in prepaid expenses ( and other current assets ) of $ 0.1 million . the operating cash flow was $ 0.1 million less than in 2017. investing cash flow principally reflected investments in marketable securities and the purchase of capital expenditures . marketable securities transactions consisted of the sale of one cd for $ 3.8 million in 2019 and the purchase of one cd for $ 4.0 in 2018. capital expenditures were $ 1.7 million , $ 1.2 million and $ 1.2 million in 2019 , 2018 and 2017 , respectively . in 2019 , the expenditures related principally to laboratory equipment and computer software . capitalized patent costs and an increase in long term assets were $ 56 thousand , $ 133 thousand , and $ 49 thousand in 2019 , 2018 , and 2017 , respectively . during 2019 , 2018 and 2017 , the company did not repurchase any shares of common stock for treasury . the company has authorized 750,000 shares for repurchase since june of 1998 , of which 250,000 shares of common stock were authorized in march of 2008 for repurchase . since 1998 , a total of 550,684 shares have been repurchased . the company also distributed cash dividends to its shareholders of $ 4.0 million in 2019 , $ 3.8 million in 2018 and $ 3.3 million in 2017. at december 31 , 2019 , the company 's principal sources of liquidity included approximately $ 7.3 million of cash and availability under an equipment financing line of credit of approximately $ 1.8 million . story_separator_special_tag management currently believes that such funds , together with future operating profits , should be adequate to fund anticipated working capital requirements , including debt obligations , and capital expenditures for at least the next 12 months . depending upon the company 's results of operations , its future capital needs and available marketing opportunities , the company may use various financing sources to raise additional funds . such sources could include , issuance of common stock or debt financing , lines of credit , or equipment leasing , although there is no assurance that such financings will be available to the company on terms it deems acceptable , if at all . at december 31 , 2019 , the company has paid dividends over the past ninety-three quarters . it most recently declared a dividend on february 11 , 2020 with a payment date of march 3 , 2020 in the amount of $ 993 thousand . the company 's current intention is to continue to declare dividends to the extent funds are available and not required for operating purposes or capital requirements , and only then , upon approval by the board of directors . there can be no assurance that in the future the company will declare dividends . purchase commitment operating leases consist of rent obligations for the company 's facilities and data center . the company has no significant contractual obligation for supply agreements as of december 31 , 2019. critical accounting policies the company 's significant accounting policies are described in note 2 to the financial statements included in item 8 of this annual report . management believes the most critical accounting policies are as follows : revenue recognition the company is in the business of performing drug testing services and reporting the results thereof . the company 's services are primarily drug and alcohol testing for its customers for an agreed-upon fee per unit tested . the revenues are recognized when the drug test is performed and reported to the customer . the company records revenue for the shipping of samples from the customer or independent hair collection facility to the laboratory for customers that choose to use the company 's shipping account . the company also records revenue for the collection of the hair sample for customers that choose to have the company manage this process at the same time the sample test is completed and results reported to the customer . the associated costs incurred in connection with these services is recorded as costs of revenue . the company records revenue for these services on a gross basis as it has determined it is the principal under these arrangements . the company also provides expert testimony , when and if necessary , to support the results of the tests , which is generally billed separately and recognized as the services are provided . 16 estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates , including bad debts , long-lived asset lives , income tax valuation , stock based compensation 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 . capitalized development costs we capitalize costs related to significant software projects developed or obtained for internal use in accordance with u.s. generally accepted accounting standards . costs incurred during the preliminary project work stage or conceptual stage , such as determining the performance requirements , system requirements and data conversion , are expensed as incurred . costs incurred in the application development phase , such as coding , testing for new software and upgrades that result in additional functionality , are capitalized and are amortized using the straight-line method over the useful life of the software for 5 years . costs incurred during the post-implementation/operation stage , including training costs and maintenance costs , are expensed as incurred . we capitalized internally developed software costs of approximately $ 234 thousand , $ 299 thousand and $ 511 thousand during the years ended december 31 , 2019 , 2018 and 2017 , respectively . the software development is for primarily for two projects . determining whether particular costs incurred are more properly attributable to the preliminary or conceptual stage , and thus expensed , or to the application development phase , and thus capitalized and amortized , depends on subjective judgments about the nature of the development work , and our judgments in this regard may differ from those made by other companies . general and administrative costs related to developing or obtaining such software are expensed as incurred . allowance for doubtful accounts the allowance for doubtful accounts is based on management 's assessment of the ability to collect amounts owed to it by its customers . management reviews its accounts receivable aging for doubtful accounts and uses a methodology based on calculating the allowance using a combination of factors including the age of the receivable along with management 's judgment to identify accounts that may not be collectible . the company routinely assesses the financial strength of its customers and , as a consequence , believes that its accounts receivable credit risk exposure is limited . the company maintains an allowance for potential credit losses but historically has not experienced any significant losses related to individual customers or groups of customers in any particular industry or geographic area . bad debt expense has been within management 's expectations . income taxes the company accounts for income taxes using the liability method , which requires the company to recognize a current tax liability or asset for current taxes payable or refundable and a net deferred tax liability for the estimated future tax effects of temporary differences between the financial statement and tax reporting
| the following table sets forth , for the periods indicated , the selected statements of operations data as a percentage of total revenue : replace_table_token_4_th revenue by geographic region replace_table_token_5_th 13 results for the year ended december 31 , 2019 compared to results for the year ended december 31 , 2018 ( in thousands ) replace_table_token_6_th revenue : total revenue decline of 12 % was primarily due to an 11 % decrease in volume and a 1 % decrease in average revenue per sample . international revenue was down 23 % ( due to decline in volume from unfavorable market forces in brazil ) and domestic revenue was down 6 % from 2018 to 2019. see geographic breakdown of revenue above . it would appear that our brazil driver license business will continue to decline in 2020 unless changes in the brazilian law requiring more frequent professional driver testing that were due to go into effect in 2018 , go into effect in 2020 , of which there can be no assurance . gross profit : the decrease in gross profit was primarily due to lower sales volume . this lower volume was the primary factor in the gross margin reduction from 48 % in 2018 to 44 % in 2019. gross profit was also adversely impacted by higher foreign taxes on brazil revenue and additional costs related to the company 's new leased facility in california . general and administrative ( “ g & a ” ) expenses : g & a expenses included a one-time charge of $ 0.8 million of taxes related to the repatriation of cash from brazil to the united states . without this transaction , g & a expenses would have been down 1 % . marketing and selling expenses : the decrease in marketing and selling expenses was primarily a result of lower personnel related costs in 2019 , specifically lower recruiting fees and commissions . income taxes : during the year ended december 31 , 2019 , the company recorded a tax provision of $ 1.5 million representing a tax rate of 50 % compared to a tax rate of 40 % in 2018 .
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ophthalmology in genetic ophthalmologic diseases , we have conducted preclinical research into the development of stereopure compounds and tested the hypothesis that controlling the chirality of ps linkages in the backbones of oligonucleotides will provide benefits in potency , distribution and duration of effect in the eye . in these studies , we have employed malat1 as a surrogate target . we have evaluated lead stereopure oligonucleotides in vivo following single intravitreal injection in mouse and non-human primate ( “ nhp ” ) eyes . hepatic we are collaborating with pfizer to advance genetically defined targets for the treatment of metabolic diseases , bringing together our proprietary drug development platform across antisense and single-stranded rnai modalities , along with galnac and pfizer 's hepatic targeting technology for delivery to the liver . under the terms of the agreement , pfizer may select , and we will advance , up to five targets from discovery through the selection of clinical candidates , at which point pfizer may elect to exclusively license the programs and undertake further development and potential commercialization . two targets were declared upon initiation of the agreement , including apolipoprotein c-iii ( “ apoc3 ” ) . in q3 2016 , pfizer nominated its third target . per the terms of the agreement amended in november 2017 , pfizer is entitled to nominate up to two additional targets by may 2018. we have never been profitable , and since our inception , we have incurred significant operating losses . our net losses were $ 102.0 million in 2017 , $ 55.4 million in 2016 , and $ 19.2 million in 2015. as of december 31 , 2017 and 2016 , we had an accumulated deficit of $ 192.5 million and $ 90.5 million , respectively . we expect to incur significant expenses and increasing operating losses for the foreseeable future . recent developments in february 2018 , we entered into a global strategic collaboration ( the “ takeda collaboration ” ) that provides takeda pharmaceutical company limited ( “ takeda ” ) with the option to co-develop and co-commercialize our cns development programs in hd , als and ftd , as well as a discovery-stage program targeting atxn3 for the treatment of spinocerebellar ataxia type 3 ( “ sca3 ” ) . in addition , takeda has the right to license multiple preclinical programs for cns indications including alzheimer 's disease ( “ ad ” ) and parkinson 's disease ( “ pd ” ) . subject to customary closing conditions , including the expiration or early termination of the applicable waiting period under the hart-scott-rodino antitrust improvements act of 1976 ( the “ hsr act ” ) , the takeda collaboration is expected to become effective during q1 2018. a description of the takeda collaboration is included under “ business – licensing arrangements and research collaborations – our partnerships. ” 83 financial operations overview revenue we have not generated any product revenue since our inception and do not expect to generate any revenue from the sale of products for the foreseeable future . our revenue during the years ended december 31 , 2017 and 2016 represented revenue earned under the pfizer collaboration agreement that we entered into in may 2016. our revenue during the year ended december 31 , 2015 consisted of a payment received for research and development services under an agreement that was terminated in may 2015. except as described above , we are not a party to any other license or collaboration agreements that have generated revenue as of december 31 , 2017. operating expenses our operating expenses since inception have consisted primarily of research and development costs and general and administrative costs . research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including our discovery efforts , and the development of our product candidates , which include : compensation-related expenses , including employee salaries , bonuses , share-based compensation expense and other related benefits expenses for personnel in our research and development organization ; expenses incurred under agreements with third parties , including contract research organizations ( “ cros ” ) that conduct research , preclinical and clinical activities on our behalf , as well as contract manufacturing organizations ( “ cmos ” ) that manufacture drug product for use in our preclinical and clinical trials ; expenses incurred related to our internal manufacturing of drug product for use in our preclinical and clinical trials ; costs of third-party consultants , including fees , share based-compensation and certain travel expenses ; the cost of sponsored research , which includes laboratory supplies and facility-related expenses , including rent , maintenance and other operating costs ; and costs related to compliance with regulatory requirements . we recognize research and development costs as incurred . we recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors . payments for these activities are based on the terms of the individual agreements , which may differ from the pattern of costs incurred , and are reflected in our financial statements as prepaid or accrued expenses . our primary research and development focus since inception has been the development of our innovative and proprietary synthetic chemistry drug development platform . we are using our platform to design , develop and commercialize a broad pipeline of nucleic acid therapeutic candidates . our direct research and development expenses consist primarily of direct expenses related to our cros , cmos , consultants , other external vendors and fees paid to global regulatory agencies , in addition to compensation-related expenses , facility-related expenses and other general operating expenses . these expenses are incurred in connection with research and development efforts and our preclinical and clinical studies . story_separator_special_tag we track certain external expenses on a program-by-program basis , however , we do not allocate the cost of sponsored research on a program-by-program basis , because these costs are deployed across multiple product programs under research and development and , as such , are classified as costs of our research . the cost of sponsored research includes compensation-related expenses , laboratory supplies , equipment repairs and maintenance , facility-related expenses and other operating costs . this cost is included in the “ other discovery programs , platform development and identification of potential drug discovery candidates ” category . 84 the table below summarizes our research and development expenses incurred for the years ended december 31 , 2017 , 2016 and 2015. replace_table_token_4_th product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect that our research and development expenses will continue to increase in the foreseeable future as we continue to manage our existing clinical trials , initiate additional clinical trials for certain product candidates , pursue later stages of clinical development for certain product candidates , further develop our manufacturing capabilities and continue to discover and develop additional product candidates in areas including neurology , ophthalmology and hepatic . additionally , we expect our facility-related expenses to increase related to the lease we entered into in 2016 for space in lexington , massachusetts , which we intend to use primarily for our current good manufacturing practices ( “ cgmp ” ) manufacturing , as well as for additional laboratory and office space . general and administrative expenses general and administrative expenses consist primarily of compensation-related expenses , including salaries , bonuses , share-based compensation and other related benefits costs for personnel in our executive , finance , corporate , legal and administrative functions as well as compensation-related expenses for our board of directors . general and administrative expenses also include legal fees ; expenses associated with being a public company ; professional fees for accounting , auditing , tax and consulting services ; insurance costs ; travel expenses ; other operating costs ; and facility-related expenses . we anticipate that our general and administrative expenses will increase in the future , primarily due to additional compensation-related expenses , including salaries , benefits , incentive arrangements and share-based compensation awards , as we increase our employee headcount to support the expected growth in our research and development activities and the potential commercialization of our product candidates . other income ( expense ) , net other income ( expense ) , net consists primarily of dividend and interest income earned on cash and cash equivalents balances for the years ended december 31 , 2017 and 2016 , respectively . for the year ended december 31 , 2015 , other income ( expense ) , net was comprised of interest income earned on cash balances and reimbursement of research and development costs under a research and development grant awarded by the japanese ministry of economy , trade and industry . income taxes we are a singapore multi-national company subject to taxation in the united states and various other jurisdictions . in 2017 , 2016 and 2015 , our provision for income taxes was $ 0.7 million , $ 0.6 million and less than $ 0.1 million , respectively , on pre-tax loss of $ 101.3 million , $ 54.8 million and $ 19.2 million , respectively . as of december 31 , 2017 and 2016 , we had u.s. federal research and development tax credit carryforwards of approximately $ 2.8 million and $ 0.2 million , respectively , available to offset future u.s. federal income taxes . as of december 31 , 2017 and 2016 , we had state research and development tax credit carryforwards of approximately $ 1.1 million and $ 0.3 million , respectively , available to offset future state income taxes . the u.s. federal and state research and development tax credits will begin to expire in 2032. as of december 31 , 2017 , we had a u.s. orphan drug credit carryforward of $ 0.4 million , which will begin to expire in 2037. as of december 31 , 2017 and 2016 , we had net operating loss carryforwards in japan of $ 4.1 million and $ 5.3 million , respectively , which may be available to offset future income tax liabilities and which will begin to expire in 2021. as of december 31 , 2017 and 2016 , we also had net operating loss carryforwards in singapore of $ 149.2 million and $ 84.0 million , respectively , which may be available to offset future income tax liabilities and can be carried forward indefinitely . as of december 31 , 2017 , we also had net operating loss carryforwards in the uk of $ 10.5 million , which may be available to offset future income tax liabilities and which can be carried forward indefinitely . as of december 31 , 2017 , we have recorded a full valuation allowance against our net operating loss carryforwards due to uncertainty regarding future taxable income . 85 on october 1 , 2017 , we made changes to our corporate entity operating structure , including transferring our intellectual property from our japanese subsidiary to our singapore parent company and from our singapore parent company to our u.s. and uk subsidiaries , primarily to align our intellectual property holding and management structure with our business functions . the transfer of assets occurred between wholly-owned legal entities within the wave group that are all based in different tax jurisdictions . as the impact of the transfer was the result of an intra-entity transaction , any resulting gain or loss and immediate tax impact on the transfer is eliminated and not recognized in the consolidated financial statements under u.s. gaap . the recipient entities will receive a tax benefit associated with the future amortization of the intellectual property received in accordance with the applicable tax laws .
| in may 2016 , we established a wholly-owned subsidiary in ireland , however no income tax expense or benefit has been recorded during the years ended december 31 , 2017 and 2016. in april 2017 , we established a wholly-owned subsidiary in the uk and during the year ended december 31 , 2017 , we did not record any income tax benefit for the net operating losses incurred in the uk due to uncertainty regarding future taxable income in that jurisdiction . 87 comparison of the year ended december 31 , 2016 to the year ended december 31 , 2015 the following table summarizes our results of operations for 2016 and 2015 : replace_table_token_7_th revenue revenue was $ 1.5 million for the year ended december 31 , 2016 , which related to revenue earned in 2016 under the pfizer collaboration agreement , which was entered into in may 2016. revenue earned for the year ended december 31 , 2015 was earned for research and development performed under our collaboration agreement with a third party , which was entered into in 2014 and which was terminated in may 2015. research and development expenses the table below summarizes our research and development expenses incurred by program and on our platform for 2016 and 2015 : replace_table_token_8_th research and development expenses were $ 40.8 million for the year ended december 31 , 2016 , compared to approximately $ 9.0 million for the year ended december 31 , 2015. the increase of $ 31.8 million was due , in part , to the following : an increase of $ 5.8 million in preclinical research and development expenses related to our hd programs , wve-120101 and wve-120102 ; an increase of $ 1.7 million in preclinical research and development expenses related to our dmd program , wve-210201 ; and an increase of $ 24.3 million in research and development expenses related to other discovery programs , platform development and identification of potential drug discovery candidates , due to an increase of $ 7.8 million in salary , bonus and related benefits costs and an increase of $ 2.7 million in share-based compensation expense , both of which are the result of an increase in employee headcount , and an
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the terms of the royalty agreements generally require licensees to give notification of royalties due to us within 30 45 days of the end of the quarter during which their related sales occur . as we are unable to estimate the licensees ' sales in any given quarter to determine the royalties due to us , we recognize royalty revenues based on royalties reported by licensees during the quarter and when all revenue recognition criteria are met . we recognize fixed license fee revenue for licenses to our ip when earned under the terms of the agreements , which is generally recognized on a straight-line basis over the expected term of the license . certain royalties are based upon customer shipments or revenues and could be subject to change and may result in out of period adjustments . development contracts and other revenue development contracts and other revenue are comprised of engineering services ( engineering services and or development contracts ) and in very limited cases , post contract customer support ( pcs ) . engineering services revenues are recognized under the proportional performance accounting method based on physical completion of the work to be performed or completed performance method . a provision for losses on contracts is made , if necessary , in the period in which the loss becomes probable and can be reasonably estimated . revisions in estimates are reflected in the period in which the conditions become known . to date , such losses have not been significant . revenue from pcs is typically recognized over the period of the ongoing obligation , which is generally consistent with the contractual term . multiple element arrangements we enter into multiple element arrangements in which customers purchase time-based non-exclusive licenses that can not be resold to others , which include a combination of software and or ip licenses , engineering services , and in very limited cases pcs . for arrangements that are software based and include software and engineering services , the services are generally not essential to the functionality of the software , and customers may purchase engineering services to facilitate the adoption of our technology , but they may also decide to use their own resources or appoint other engineering service organizations to perform these services . for these arrangements , including those with pcs , revenue is recognized either over the period of the ongoing obligation which is generally consistent with the contractual term , or when deliverables have been completed . product sales we recognize revenue from the sale of products and the license of associated software , if any , and expense all related costs of products sold , once delivery has occurred and customer acceptance , if required , has been achieved . we have determined that the license of software for the medical simulation products is incidental to the product as a whole . we typically grant our customers a warranty which guarantees that our products will substantially conform to our current specifications for generally three to twelve months from the delivery date pursuant to the terms of the arrangement . historically , warranty-related costs have not been significant . cost of revenues cost of revenues includes both cost of product sales and cost of development contract revenues . cost of product sales consists primarily of contract manufacturing and other overhead costs . cost of development contract revenue includes primarily labor related costs relating to these contracts . stock-based compensation stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period , which is the vesting period . 32 valuation and amortization method we use the black-scholes-merton option pricing model ( black-scholes model ) , single-option approach to determine the fair value of stock options and employee stock purchase plan ( espp ) shares . all share-based payment awards are amortized on a straight-line basis over the requisite service periods of the awards , which are generally the vesting periods . stock-based compensation expense recognized at fair value includes the impact of estimated forfeitures . we estimate future forfeitures at the date of grant and revise the estimates if necessary , in subsequent periods if actual forfeitures differ from these estimates . the determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables . these variables include actual and projected employee stock option exercise behaviors that impact the expected term , our expected stock price volatility over the term of the awards , risk-free interest rate , and expected dividends . if factors change and we employ different assumptions for estimating stock-based compensation expense in future periods , or if we decide to use a different valuation model , the future periods may differ significantly from what we have recorded in the current period and could materially affect our operating results . the black-scholes model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable , characteristics not present in our option grants and espp shares . existing valuation models , including the black-scholes model , may not provide reliable measures of the fair values of our stock-based compensation . consequently , there is a risk that our estimates of the fair values of our stock-based compensation awards on the grant dates may bear little resemblance to the actual values realized upon the exercise , expiration , early termination , or forfeiture of those stock-based payments in the future . certain stock-based payments , such as employee stock options , may expire and be worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements . story_separator_special_tag alternatively , value may be realized from these instruments that are significantly higher than the fair values originally estimated on the grant date and reported in our financial statements . there currently is no market-based mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from these valuation models , nor is there a means to compare and adjust the estimates to actual values . see note 10 to the consolidated financial statements for further information regarding stock-based compensation . 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 . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized and are reversed at such time that realization is believed to be more likely than not . our judgments , assumptions , and estimates relative to the current provision for income tax take into account current tax laws , our interpretation of current tax laws , and possible outcomes of current and future audits conducted by foreign and domestic tax authorities . we have established reserves for income taxes to address potential exposures involving tax positions that could be challenged by tax authorities . although we believe our judgments , assumptions , and estimates are reasonable , changes in tax laws or our interpretation of tax laws and any future tax audits 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 inaccurate our current assumptions , judgments , and estimates of recoverable net deferred tax assets . any of the 33 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 . short-term investments our short-term investments consist primarily of u.s. treasury bills and government agency securities purchased with an original or remaining maturity of greater than 90 days on the date of purchase . we classify all debt securities with readily determinable market values as available-for-sale . even though the stated maturity dates of these debt securities may be one year or more beyond the balance sheet date , we have classified all debt securities as short-term investments as they are available for current operations and reasonably expected to be realized in cash or sold within one year . these investments are carried at fair market value , and using the specific identification method , any unrealized gains and losses considered to be temporary in nature are reported as a separate component of other comprehensive income ( loss ) within stockholders ' equity . for debt securities in an unrealized loss position , we are required to assess whether ( i ) we have the intent to sell the debt security or ( ii ) it is more likely than not that we will be required to sell the debt security before its anticipated recovery . if either of these conditions is met , an other-than-temporary impairment on the security must be recognized in earnings equal to the entire difference between its fair value and amortized cost basis . for debt securities in an unrealized loss position which are deemed to be other-than-temporary where neither of the criteria in the paragraph above are present , the difference between the security 's then-current amortized cost basis and fair value is separated into ( i ) the amount of the impairment related to the credit loss ( i.e. , the credit loss component ) and ( ii ) the amount of the impairment related to all other factors ( i.e. , the non-credit loss component ) . the credit loss component is recognized in earnings . the non-credit loss component is recognized in accumulated other comprehensive loss . the credit loss component is the excess of the amortized cost of the security over the best estimate of the present value of the cash flows expected to be collected from the debt security . the non-credit component is the residual amount of the other-than-temporary impairment . when calculating the present value of expected cash flows to determine the credit loss component of the other-than-temporary impairment , we estimate the amount and timing of projected cash flows on a security-by-security basis . these calculations reflect our expectations of the performance of the underlying collateral and of the issuer to meet payment obligations as applicable . the expected cash flows are discounted using the effective interest rate of the security prior to any impairment . the amortized cost basis of a debt security is adjusted for credit losses recorded to earnings . the difference between the cash flows expected to be collected and the new cost basis is accreted to investment income over the remaining expected life of the security . further information about short-term investments may be found in note 2 to the consolidated financial statements . patents and intangible assets we have acquired patents and other intangible assets . in addition , we capitalize the external legal , filing , and continuation or annuity fees associated with patents and trademarks . we assess the recoverability of our intangible assets , and we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets that affect our consolidated financial statements .
| cash used in operating activities during 2012 was primarily the result of our net loss of $ 5.6 million , a decrease of $ 3.2 million due to a change in deferred revenue and customer advances primarily due to recognition of deferred revenue , a decrease of $ 685,000 due to a change in accrued compensation and other current liabilities mainly from decreased activity from new leasehold construction at the end of 2011 , a decrease of $ 504,000 due to a change in accounts and other receivables from the timing of payment of receivables , and a decrease of $ 227,000 due to a change in prepaid expenses and other current assets . these decreases were partially offset by an increase of $ 374,000 primarily due to a change in other long-term liabilities due to an increase in deferred rent , and an 41 increase of $ 282,000 due to a change in inventories mainly due to shipments of our virtual iv product . cash used in operating activities during 2012 was also affected by noncash charges of $ 5.3 million , including $ 3.1 million of noncash stock-based compensation , $ 1.6 million in amortization , impairment , and abandonment of intangibles and $ 654,000 in depreciation and amortization . net cash provided by operating activities during 2011 was $ 2.4 million , an improvement of $ 4.2 million from the $ 1.8 million used in operating activities during 2010. cash provided by operating activities during 2011 was primarily the result of an increase of $ 3.3 million due to a change in prepaid expenses and other current assets primarily reflecting a tax refund received . cash provided by operating activities during 2011 was also affected by noncash charges and credits of $ 6.0 million , including $ 3.6 million of noncash stock-based compensation , $ 1.4 million in amortization and impairment or abandonment of intangibles , and $ 1.1 million in depreciation and amortization . these increases were partially offset by our net loss of $ 1.6 million , a decrease of $ 3.6 million due to
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actual results could materially differ from our current estimates , as a result of changing conditions and future events . several estimates are particularly critical and are susceptible to significant near-term change , including the allowance for credit losses , accounting for acquisitions and the review of goodwill and other identifiable intangible assets for impairment , valuation of other real estate owned , other-than-temporary impairment of investments , effectiveness of hedging derivatives , accounting for postretirement plans , stock-based compensation , and income taxes . our significant accounting policies and critical estimates are summarized in note 1 to the consolidated financial statements included in item 8 . “ financial statements and supplementary data ” . allowance for credit losses . management is committed to maintaining an allowance for loan losses ( “ all ” ) that is appropriate to absorb likely loss exposure in the loan portfolio . evaluating the appropriateness of the all is a key management function , one that requires the most significant amount of management estimates and assumptions . the all , which is established through a charge to the provision for credit losses , consists of two components : ( i ) a reduction to total gross loans in the asset section of the balance sheet , and ( ii ) the reserve for unfunded commitments included in other liabilities on the balance sheet . we regularly evaluate the all for adequacy by taking into consideration , among other factors , historical trends in charge-offs and delinquencies , overall risk characteristics and size of the portfolios , ongoing review of significant individual loans , trends in levels of watched or criticized assets , business and economic conditions , local industry trends , evaluation of results of examinations by regulatory authorities and other third parties , and other relevant factors . 24 in determining the appropriate level of all , we use a methodology to systematically measure the amount of estimated loan loss exposure inherent in the loan portfolio . the methodology focuses on four key elements : ( i ) identification of loss allocations for specific loans , ( ii ) loss allocation factors for certain loan types based on credit grade and loss experience , ( iii ) general loss allocations for other environmental factors , and ( iv ) the unallocated portion of the allowance . in accordance with gaap , a loan is impaired when it is probable we will be unable to collect all contractual payments as scheduled . we have concluded that loans that meet this definition are risk rated as substandard or doubtful . as such , quarterly we review individual loans with a carrying value greater than $ 250,000 and that are risk rated as substandard or doubtful or are on non-accrual status for impairment . if deemed impaired , an allowance is established for these loans to reduce the net carrying value of the loan to fair value . the fair value of an impaired loan is determined by one of three methods in accordance with gaap : ( i ) the present value of expected future cash flows , ( ii ) the observable market price , or ( iii ) , if the loan is collateral-dependent , the fair value of the collateral , less the estimated costs to sell the collateral . we use a risk rating system to determine the credit quality of our loans and apply the related loss allocation factors . in assessing the risk rating of a particular loan , we consider , among other factors , the obligor 's debt capacity , financial condition , the level of the obligor 's earnings , the amount and sources of repayment , the performance with respect to loan terms , the adequacy of collateral , the level and nature of contingent liabilities , management strength , and the industry in which the obligor operates . these factors are based on an evaluation of historical information , as well as a subjective assessment and interpretation of current conditions . emphasizing one factor over another , or considering additional factors that may be relevant in determining the risk rating of a particular loan but which are not currently an explicit part of our methodology , could impact the risk rating assigned to that loan . three times annually , management conducts a thorough review of adversely risk rated commercial and commercial real estate exposures exceeding certain thresholds to re-evaluate the risk rating and identify impaired loans . this extensive review takes into account the obligor 's repayment history and financial condition , collateral value , guarantor support , local economic and industry trends , and other factors relevant to the particular loan relationship . we periodically reassess and revise the loss allocation factors used in the assignment of loss exposure to appropriately reflect our analysis of loss experience . portfolios of more homogenous populations of loans including home equity and consumer loans are analyzed as groups taking into account delinquency rates and other economic conditions which may affect the ability of borrowers to meet debt service requirements , including interest rates and energy costs . an additional allocation is determined based on a judgmental process whereby management considers qualitative and quantitative assessments of other environmental factors . finally , an unallocated portion of the total allowance is maintained to allow for measurement imprecision attributable to uncertainty in the economic environment . because the methodology is based upon historical experience and trends as well as management 's judgment , factors may arise that result in different estimations . significant factors that could give rise to changes in these estimates may include , but are not limited to , changes in economic conditions in our market area , concentration of risk , declines in local property values , and the results of regulatory examinations . while management 's evaluation of the all as of december 31 , 2013 determined the allowance to be appropriate , under adversely different conditions or assumptions , we may need to increase the allowance . story_separator_special_tag monthly , management reviews the all to assess recent asset quality trends and impact on the company 's financial condition . quarterly , the all is brought before the bank 's board of directors for discussion , review , and approval . refer to item 7 . `` management 's discussion and analysis — financial condition — asset quality '' for further discussion of our all process . the adequacy of the reserve for unfunded commitments is determined in a similar manner as the all , with the exception that management must also estimate the likelihood of these commitments being funded and becoming loans . this is accomplished by evaluating the historical utilization of each type of unfunded commitment and estimating the likelihood that the historical utilization rates could change in the future . branch purchase price allocation and impairment of goodwill and identifiable intangible assets . we record all assets and liabilities acquired in purchase acquisitions at fair value , which is an estimate determined by the use of internal and other valuation techniques . we utilize third-party services for the valuation of real estate and core deposit intangibles . these valuation estimates result in goodwill and other intangible assets , which are subject to ongoing periodic impairment tests using various fair value techniques . goodwill impairment evaluations are required to be performed annually and may be required more frequently if certain conditions indicating potential impairment exist . our policy is to perform the goodwill impairment analysis as of november 30 of each year , or more frequently as warranted , at the reporting unit level - ( i ) banking and ( ii ) financial services . the banking reporting unit is representative of our core banking business line , while the financial services reporting unit is representative of our wealth management , trust and services business line . identifiable intangible assets are amortized over their estimated useful lives and are subject to impairment tests if events or circumstances indicate a possible 25 inability to realize the carrying amount . goodwill is evaluated for impairment using several standard valuation techniques including discounted cash flow analyses , as well as an estimation of the impact of business conditions . the use of different estimates or assumptions could produce different estimates of carrying value . in 2013 , goodwill impairment of $ 2.8 million was recorded related to the financial services reporting unit . this impairment was 42 % of the december 31 , 2012 goodwill balance attributable to the financial service reporting unit . we also performed the annual goodwill impairment analysis for the banking reporting unit and determined it was not impaired . valuation of oreo . periodically , we acquire property in connection with foreclosures or in satisfaction of debt previously contracted . the valuation of this property is accounted for individually based on its fair value on the date of acquisition . at the acquisition date , if the fair value of the property , less the costs to sell is less than the book value of the loan , a charge or reduction in the all is recorded . if the value of the property becomes permanently impaired , as determined by an appraisal or an evaluation in accordance with our appraisal policy , we will record the decline by charging against current earnings . upon acquisition of a property , we use a current appraisal or broker 's opinion to substantiate fair value for the property . otti of investments . we record an investment impairment charge at the point we believe an investment has experienced a decline in value that is other-than-temporary . in determining whether an otti has occurred , we review information about the underlying investment that is publicly available , analysts ' reports , applicable industry data and other pertinent information , and assess our ability to hold the securities for the foreseeable future . the investment is written down to its current market value at the time the impairment is deemed to have occurred . future adverse changes in market conditions , continued poor operating results of underlying investments or other factors could result in further losses that may not be reflected in an investment 's current carrying value , possibly requiring an additional impairment charge in the future . effectiveness of hedging derivatives . the company maintains an overall interest rate risk management strategy that incorporates the use of interest rate contracts , which are generally non-leveraged generic interest rate and basis swaps , to minimize significant fluctuations in earnings that are caused by interest rate volatility . interest rate contracts are used by the company in the management of its interest rate risk position . the company 's goal is to manage interest rate sensitivity so that movements in interest rates do not significantly adversely affect earnings and cash flows . when interest rates fluctuate , hedged assets and liabilities appreciate or depreciate in fair value or cash flows . gains or losses on the derivative instruments that are linked to the hedged assets and liabilities are expected to substantially offset this unrealized appreciation or depreciation or changes in cash flows . the company utilizes a third-party service to evaluate the effectiveness of its cash flow hedges on a quarterly basis . the effective portion of a gain or loss on a cash flow hedge is recorded in other comprehensive income , net of tax , and other assets or other liabilities on the consolidated statements of condition . the ineffective portions of cash flow hedging transactions are included in “ other income ” in the consolidated statements of income , if material . accounting for postretirement plans . we use a december 31 measurement date to determine the expenses for our postretirement plans and related financial disclosure information . postretirement plan expense is sensitive to changes in the number of eligible employees ( and their related demographics ) and to changes in the discount rate and other expected rates , such as medical cost trends rates .
| the increase in net interest income is reflective of 7 % growth in average interest-earning assets during 2013 partially offset by a 16 basis point decline in our net interest margin to 3.20 % in 2013 from 3.36 % in 2012. in the fourth quarter of 2012 , the company completed the branch acquisition that resulted in $ 287.6 million of deposits . the company 's long-term strategy is to leverage these deposits by funding loan growth in the new branch locations over a five-year period . in the short-term , the company reduced borrowings , lowered interest rates on our deposit base and purchased investment securities . as a result of the acquired deposits and strategies to deploy these funds , average investment balances for 2013 increased $ 124.9 million , or 18 % , average loan balances increased $ 45.2 million , or 3 % , and average deposits increased $ 230.5 million , or 15 % . the yield on our average earning assets decreased 41 basis points during 2013 compared to a 26 basis point decrease on our average cost of funding . yield on our earning assets averaged 3.73 % in 2013 compared to 4.14 % in 2012 as both the investment and loan portfolio yields continue to be impacted by the current low interest rate environment . the cost of funds averaged 0.55 % in 2013 , compared to 0.81 % in 2012 due to a shift in the funding mix to low cost deposits combined with the repricing of certificates of deposit and borrowings to lower interest rates . net interest income was $ 74.7 million on a fully-taxable equivalent basis for 2012 , compared to $ 76.4 million for 2011 , a decrease of $ 1.7 million , or 2 % . the decrease in net interest income is due to the 21 basis point decline in our net interest margin to 3.36 % in 2012 from 3.57 % in 2011. the yield on our average earning assets decreased 51 basis points during 2012 compared to a 31 basis
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in local currency , operating expenses increased 5.4 % primarily due to increased payroll and benefits costs driven by higher bonus expense , headcount and incremental costs for acquisitions made over the last year . non-payroll related expenses also increased driven by volume-related occupancy and warehouse costs . operating earnings of $ 107.6 million for 2011 were up $ 60.8 million , or 129.7 % , versus 2010 . in local currency , operating earnings increased 121.2 % due to higher sales , an improved gross profit margin and operating expenses increasing at a slower rate than sales . other businesses net sales for other businesses , which include the following significant operations : the fabory group , monotaro , mexico , china and colombia , were up 66.2 % for 2011 . daily sales increased 65.6 % . the increase in net sales was due primarily to the fabory group acquired on august 31 , 2011 , along with strong growth from all the other international businesses . operating earnings for other businesses were $ 31.0 million for 2011 compared to $ 11.7 million for 2010 . the increase was primarily driven by improved performance in japan and mexico . 14 other income and expense other income and expense was $ 0.9 million of expense in 2011 compared with $ 6.7 million in 2010. the following table summarizes the components of other income and expense ( in thousands of dollars ) : replace_table_token_7_th the reduction in net expense was primarily attributable to a gain of $ 7.6 million in the fourth quarter of 2011 related to the divestiture of grainger 's 49 % ownership in the mro korea co. , ltd. joint venture . income taxes income taxes of $ 385.1 million in 2011 increased 13.2 % as compared with $ 340.2 million in 2010 . grainger 's effective tax rates were 36.6 % and 39.8 % in 2011 and 2010 , respectively . the company settled various tax reviews providing a benefit to the 2011 effective tax rate . tax law changes in japan enacted in late november of 2011 also benefited the year . the 2010 effective tax rate included a tax expense related to the u.s. healthcare legislation enacted in the first quarter of 2010. excluding these items in both years , the effective tax rate for 2011 was 38.1 % compared to 39.1 % in 2010 , primarily the result of lower state tax expense and higher earnings in foreign jurisdictions with lower tax rates . for 2012 , grainger is estimating its effective tax rate to be approximately 37.9 % . 2010 compared to 2009 grainger 's net sales of $ 7,182.2 million for 2010 increased 15.4 % when compared with net sales of $ 6,222.0 million for 2009. there was one less selling day in 2010 versus 2009. daily sales were up 15.9 % . for 2010 , approximately 10 percentage points of the sales growth came from an increase in volume , 4 percentage points came from business acquisitions , and 2 percentage points due to foreign exchange . sales of products used to assist with the oil spill cleanup in the gulf of mexico and sales of seasonal products each contributed approximately 1 percentage point to the volume growth for 2010. sales to all customer end-markets increased for 2010. the overall increase in net sales was led by a 30 percent increase to reseller customers , driven by sales of products used in the oil spill cleanup , a high-teen percent increase to heavy manufacturing customers , followed by a low double-digit increase in light manufacturing . refer to the segment analysis below for further details . gross profit of $ 3,005.7 million for 2010 increased 15.7 % . the gross profit margin for 2010 was 41.8 % , flat versus 2009. the gross profit margin was favorably affected by flat prices while product costs decreased , offset by faster sales growth from the lower margin international businesses and by an increase in sales to large customers , which are generally at lower margins . operating expenses of $ 2,145.2 million for 2010 increased 11.0 % from $ 1,933.3 million for 2009. operating expenses increased primarily due to higher commissions , bonuses and profit sharing costs due to improved performance , partially offset by a $ 33.1 million benefit that resulted from a paid time off policy change , which reduced the related liability . operating earnings of $ 860.5 million for 2010 increased 29.4 % from $ 665.2 million for 2009. the increase in operating earnings was primarily due to the strong sales growth and operating expenses increasing at a slower rate than sales . 15 net earnings attributable to grainger for 2010 increased by 18.7 % to $ 510.9 million from $ 430.5 million in 2009. the increase in net earnings for 2010 primarily resulted from an increase in operating earnings . diluted earnings per share of $ 6.93 in 2010 were 23.3 % higher than $ 5.62 for 2009 , due to increased net earnings and fewer shares outstanding . there were two non-cash items included in 2010 earnings , a $ 0.28 per share benefit from a change to a paid time off policy and a $ 0.15 per share tax expense related to the tax treatment of retiree healthcare benefits following the passage of the patient protection and affordable care act , which when combined , resulted in a net benefit of $ 0.13 per share . results for 2009 included a $ 0.37 per share non-cash gain from the monotaro transaction in september 2009. excluding these items from both years , net earnings increased 29.4 % and earnings per share increased 29.5 % in 2010 versus 2009. segment analysis the following comments at the reportable segment and other business unit level include external and intersegment net sales and operating earnings . see note 17 to the consolidated financial statements . story_separator_special_tag united states net sales were $ 6,020.1 million for 2010 , an increase of $ 574.7 million , or 10.6 % , when compared with net sales of $ 5,445.4 million for 2009. daily sales in the united states were up 11.0 % . approximately 9 percentage points of the sales growth came from an increase in volume . in addition , acquisitions and price each added 1 percentage point . sales to all customer end-markets except contractor customers increased for 2010. the overall increase in net sales was led by a mid-20 percent increase to reseller customers driven by the sales of products used to assist in the oil spill cleanup , a high-teen percent increase to heavy manufacturing customers and a low double-digit increase to light manufacturing customers . the segment gross profit margin increased 0.6 percentage point in 2010 over 2009. the gross profit margin benefited from price increases exceeding product cost increases , partially offset by an increase in sales to large customers , which are generally at lower margins . operating expenses were up 6.0 % for 2010 versus 2009. operating expenses increased primarily due to higher commissions , bonus expense and profit sharing costs due to improved performance , partially offset by a $ 29.7 million benefit that resulted from a paid time off policy change , which reduced the related liability . for the segment , operating earnings of $ 920.2 million for 2010 increased 25.1 % over $ 735.6 million in 2009. the improvement in operating earnings for 2010 was primarily due to an increase in net sales and gross profit margin , and operating expenses increasing at a slower rate than sales . canada net sales were $ 820.9 million for 2010 , an increase of $ 169.7 million , or 26.1 % , when compared with $ 651.2 million for 2009. daily sales were up 26.6 % . in local currency , daily sales increased 14.9 % for 2010. contributing to the sales growth was 3 percentage points for acquisitions . the increase in net sales was led by growth to oil and gas , construction , and agriculture and mining customers . the gross profit margin increased 0.4 percentage point in 2010 over 2009 , primarily driven by lower product costs including the positive effect of foreign currency exchange on buying products in u.s. dollars . operating expenses increased 32.0 % in 2010. in local currency , operating expenses increased 19.7 % primarily due to increased payroll and benefits costs including higher commissions and bonus expense , increased volume-related headcount and incremental costs for acquisitions made over the last year . non-payroll related expenses also increased driven by higher travel , entertainment and advertising due to the sponsorship of the 2010 winter olympic games , and increased occupancy and warehouse costs driven in part by the incremental costs for a distribution center opened in the 2010 second quarter . operating earnings of $ 46.8 million for 2010 were up $ 3.1 million , or 7.1 % , versus 2009 due to the foreign exchange rate impact . in local currency , operating earnings decreased 1 % primarily due to increased operating expenses as discussed above . 16 other businesses net sales for other businesses , which include the following significant operations : monotaro , mexico , china and colombia , were up 136.1 % for 2010. daily sales increased 137.0 % . the increase in net sales was due primarily to the inclusion of a full year of results for japan after obtaining controlling interest in september 2009 and colombia , acquired in june 2010 , along with strong growth from all the other international businesses . operating earnings for other businesses were $ 11.7 million for 2010 compared to operating losses of $ 11.6 million for 2009. other income and expense other income and expense was $ 6.7 million of expense in 2010 compared with $ 42.1 million of income in 2009. the following table summarizes the components of other income and expense ( in thousands of dollars ) : replace_table_token_8_th the change from net income to net expense was primarily attributable to the non-cash gain of $ 47.4 million in 2009 from the step-up of the investment in monotaro after grainger became a majority owner . income taxes income taxes of $ 340.2 million in 2010 increased 23.0 % as compared with $ 276.6 million in 2009. grainger 's effective tax rates were 39.8 % and 39.1 % in 2010 and 2009 , respectively . the increase in the tax rate in 2010 was primarily driven by a one-time tax expense related to the u.s. healthcare legislation passed in the first quarter of 2010. excluding this tax expense , the 2010 effective tax rate was 39.1 % . 17 financial condition grainger expects its strong working capital position , cash flows from operations and borrowing capacity to continue , allowing it to fund its operations , including growth initiatives , capital expenditures , acquisitions and repurchase of shares , as well as to pay cash dividends . cash flow fiscal year 2011 compared with fiscal year 2010 cash from operating activities continues to serve as grainger 's primary source of liquidity . net cash flows from operations in 2011 were $ 746.1 million and increased $ 149.7 million from $ 596.4 million in 2010. the primary driver of the improvement was an increase in net earnings of $ 152.8 million . higher accounts receivable and inventory balances , driven by growth in sales volumes and a new distribution center in northern california , partially offset by an increase in accounts payable , reduced the operating cash flow from net earnings . net cash used in investing activities of $ 535.1 million in 2011 was driven by net cash expended for property , buildings , equipment and software of $ 189.7 million and net cash paid for business acquisitions of $ 359.3 million . additional information regarding capital spending is detailed in the capital expenditures section below .
| the 2011 year also included approximately $ 18 million of costs related to the closure of branches in the united states . in addition , 2010 benefited by $ 33.1 million from a paid time off policy change , which reduced the related liability . operating earnings of $ 1,052.4 million for 2011 increased 22.3 % from $ 860.5 million for 2010 . the increase in operating earnings was due to higher sales and an improved gross profit margin , partially offset by operating expenses increasing at a faster rate than sales . net earnings attributable to grainger for 2011 increased by 28.9 % to $ 658.4 million from $ 510.9 million in 2010 . the increase in net earnings for 2011 primarily resulted from an increase in operating earnings . diluted earnings per share of $ 9.07 in 2011 were 30.9 % higher than $ 6.93 for 2010 , due to increased net earnings and fewer shares outstanding . earnings for 2011 included a $ 0.16 per share expense for branch closures , a $ 0.07 per share gain on the sale of a joint venture investment , and a $ 0.12 per share benefit from the settlement of tax reviews , which when combined , resulted in a net benefit of $ 0.03 per share . there were two non-cash items included in 2010 earnings , a $ 0.28 per share benefit from a change to a paid time off policy and a $ 0.15 per share tax expense related to the tax treatment of retiree healthcare benefits following the passage of the patient protection and affordable care act , which when combined , resulted in a net benefit of $ 0.13 per share . excluding these items from both years , net earnings increased 30.8 % and earnings per share increased 32.9 % in 2011 versus 2010 . 13 segment analysis the following comments at the reportable segment and other business unit level include external and intersegment net sales and
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in march 2018 , the advisory board sold 3.0 million shares of the company 's class a common stock in a private sale ( the “ march 2018 private sale ” ) . the shares sold in the march 2018 private sale consisted of 1.2 million existing shares of the company 's class a common stock owned by the advisory board and 1.8 million newly-issued shares of the company 's class a common stock received by the advisory board pursuant to a class b exchange for all of its shares of the company 's class b common stock and class b common units of evolent health llc . the company did not receive any proceeds from the march 2018 private sale . subsequent to this class b exchange , in june 2018 , the advisory board sold all of their remaining shares of the company 's class a common stock and no longer owns any of the shares of our class a common stock , class b common stock or evolent health llc class b common units held by the advisory board at the time of the ipo . as a result of this class b exchange and evolent health llc 's cancellation of the class b common units during the march 2018 private sale , the company 's economic interest in evolent health llc increased from 96.6 % to 98.9 % immediately following the march 2018 private sale . in november 2018 , tpg sold 0.8 million shares of the company 's class a common stock in a number of private sales ( the “ november 2018 private sales ” ) . the shares sold in the november 2018 private sales consisted of 0.1 million existing shares of the company 's class a common stock owned by tpg and 0.7 million newly-issued shares of the company 's class a common stock received by tpg pursuant to class b exchanges . the company did not receive any proceeds from the november 2018 private sales . these sales represented all of tpg 's remaining equity interest in the company and tpg no longer owns any of the shares of the company 's class a common stock , class b common stock or evolent health llc class b common units held by tpg at the time of the ipo . as a result of these class b exchanges and evolent health llc 's cancellation of the class b common units during the november 2018 private sales , the company 's economic interest in evolent health llc increased from 95.3 % to 96.1 % immediately following the november 2018 private sales . 43 business overview we are a market leader in the new era of health care delivery and payment , in which leading health systems and physician organizations , which we refer to as providers , are taking on increasing clinical and financial responsibility for the populations they serve . we provide integrated , technology-enabled services to our national network of leading health systems , physician organizations and national and regional payers across medicare , medicaid and commercial markets . by partnering with providers to accelerate their path to value-based care , we enable our provider partners to expand their market opportunity , diversify their revenue streams , grow market share and improve the quality of the care they provide . we believe we are pioneers in enabling health systems to succeed in value-based payment models . we were founded in 2011 by members of our management team , upmc , an integrated delivery system based in pittsburgh , pennsylvania , and the advisory board , to enable providers to pursue a value-based business model and evolve their competitive position and market opportunity . we consider value-based care to be the necessary convergence of health care payment and delivery . we believe the pace of this convergence is accelerating , driven by price pressure in traditional ffs health care , a market environment that is incentivizing value-based care models and innovation in data and technology . we believe providers are positioned to lead this transition to value-based care because of their control over large portions of health care delivery costs , their primary position with consumers and their strong local brand . we manage our operations and allocate resources across two reportable segments , our services segment and our true health segment . the company 's services segment provides our customers , who we refer to as partners , with technology-enabled value-based care services , specialty care management services and comprehensive health plan administration services . together these services enable health systems to manage patient health in a more cost-effective manner . the company 's contracts are structured as a combination of advisory fees , monthly member service fees , percentage of plan premiums and shared medical savings arrangements . our true health segment consists of a commercial health plan we operate in new mexico that focuses on small and large businesses . all of our revenue is recognized in the united states and substantially all of our long-lived assets are located in the united states . services our services segment includes three types of services designed to help our partners manage patient health in a more cost-effective manner : ( 1 ) value-based care services , ( 2 ) specialty care management services and ( 3 ) comprehensive health plan administration services . our partners engage us to provide one type of service , or multiple types of services , depending on specific needs . core elements of our value-based care services include : ( 1 ) identifi® , our proprietary technology system that aggregates and analyzes data , manages care workflows and engages patients , ( 2 ) population health performance , which supports the delivery of patient-centric cost effective care , ( 3 ) delivery network alignment , comprising the development of high performance delivery networks and ( 4 ) integrated cost and revenue management solutions including pbm and patient risk scoring . story_separator_special_tag our specialty care management services support a broad range of specialty care delivery stakeholders during their transition from fee-for-service to value-based care , independent of their stage of maturation and specific market dynamics . we focus on the oncology and cardiology markets with the objective of helping providers and payers deliver higher quality , more affordable care and we provide comprehensive quality management , including diagnostics and treatment , for oncology and hematology patients . our comprehensive health plan administration services help providers assemble the complete infrastructure required to operate , manage and capitalize on a variety of financial and administrative management services , such as health plan services , risk management , analytics and reporting and leadership and management . a large portion of our services revenue is derived from our multi-year contracts , which are linked to the number of members that our partners are managing under a value-based care arrangement . this variable pricing model depends on the population being served as well as the number of services and technology applications that our partners utilize to advance their value-based care strategies and the number of members they are able to attract over time . in certain instances , we participate alongside our partners in risk-sharing arrangements whereby we share in a portion of the upside and downside performance of the value strategy . we expect to grow with current partners as they increase membership in their existing value-based operations , through expanding the number of services we provide to our existing partners , by adding new partners and by capturing value through risk-sharing arrangements . as of december 31 , 2018 , we had contractual relationships with over 35 operating partners . a significant portion of our revenue is concentrated with a single partner , passport , which comprised 17.5 % of our consolidated revenue for 2018. recent changes in the way the state of kentucky distributes federal medicaid benefits have had a significant negative impact on passport . on february 15 , 2019 , passport filed a lawsuit in franklin county circuit court against the kentucky cabinet for health and family services seeking immediate and long-term relief from a reduction in reimbursement rates that impact medicaid beneficiaries covered by passport . we are unable to predict the outcome of this matter , and this matter could result in significant reductions to the amount of revenue we receive from passport . see “ risk factors- recent rate changes in kentucky have negatively impacted passport , our largest partner in 44 terms of revenue for 2018 , and could significantly harm our business , financial condition and results of operations ” for additional information . we believe our services business model provides strong visibility and aligns our partners ' incentives with our own . we believe we are in the early stages of capitalizing on these aligned operating partnerships . we believe our health system partners ' current value-based care arrangements represent a small portion of the health system 's total revenue each year . we believe the proportion of value-based care related revenues to total health system revenues will continue to grow , driven by continued price pressure in ffs , new government payment programs , growth in consumer-focused insurance programs , such as medicare advantage and managed medicaid , and innovation in data and technology . our services business model benefits from scale , as we leverage our purpose-built technology-enabled solutions and centralized resources in conjunction with the growth of our partners ' membership base . while our absolute investment in our centralized resources and technologies will increase over time , we expect it will decrease as a percentage of revenue as we are able to scale this investment across a broader group of partners . over time , we expect to see a shift away from our traditional fee-for-service provider sponsored health plan business toward different service arrangements and opportunities . true health true health is a physician-led health plan in new mexico available through the commercial market for employer-sponsored health coverage . on january 2 , 2018 , evolent acquired certain assets from new mexico health connections-one of the first consumer operated and oriented plans established following the implementation of the aca-including a commercial plan and health plan management services organization . the acquired assets were contributed to a new entity , true health new mexico , inc. , a wholly-owned subsidiary of evolent . our true health segment derives revenue from premiums earned over the terms of the related insurance policies . true health also derives revenue from reinsurance premiums assumed from nmhc under the terms of the reinsurance agreement . our true health segment operates a commercial health plan in new mexico . we believe true health provides an opportunity for us to leverage our services offerings to support true health and transform the health plan into a value-based provider-centric model of care . we have incurred operating losses since our inception , as we have invested heavily in resources to support our growth . we intend to continue to invest aggressively in the success of our partners , expand our geographic footprint and further develop our capabilities . we also expect to continue to incur operating losses for the foreseeable future and may need to raise additional capital through equity and debt financings in order to fund our operations . additional funds may not be available on terms favorable to us or at all . if we are unable to achieve our revenue growth and cost management objectives , we may not be able to achieve profitability . as of the date the financial statements were available to be issued , we believe we have sufficient liquidity for the next 12 months . critical accounting policies and estimates we have identified the accounting policies below as critical to the understanding of our results of operations and our financial condition .
| our operating cash outflows were affected by the timing of our customer and vendor payments . a decrease in accrued compensation and employee benefits , combined with increases in accounts receivable , prepaid expenses and contract cost assets , contributed approximately $ 65.0 million to our cash outflows . those cash outflows were partially offset by increases in accounts payable , accrued liabilities , claims reserves and other long-term liabilities of approximately $ 32.0 million . cash flows used in operating activities of $ 28.0 million in 2017 were due primarily to our net loss of $ 69.8 million , partially offset by non-cash items , including depreciation and amortization expenses of $ 32.4 million and stock-based compensation expense of $ 20.4 million . our operating cash outflows were affected by the timing of our customer and vendor payments . decreases in accrued liabilities , accrued compensation and employee benefits and other long-term liabilities , combined with an increase in accounts receivable , contributed approximately $ 19.1 million to our cash outflows . those cash outflows were partially offset by increases in deferred revenue and accounts payable , combined with a decrease in prepaid expenses and other current assets , of approximately $ 11.8 million . cash flows used in operating activities of $ 35.5 million in 2016 , were due primarily to our net loss of $ 226.8 million , partially offset by non-cash items , including goodwill impairment of $ 160.6 million , stock-based compensation expense of $ 18.6 million , depreciation and amortization expenses of $ 17.2 million and a $ 6.5 million loss related to the abandonment of the 14 th floor space lease . our operating cash flows were affected by the timing of customer billings and vendor payments . investing activities cash flows used in investing activities of $ 160.4 million in 2018 , primarily relate to cash paid for asset acquisitions or business combinations of $ 130.2 million , investments in internal-use software and purchases of property
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we have assembled a team with extensive medical device development and commercialization capabilities . in addition to the commercialization of pantheris in the united states and select international markets in march 2016 , we began commercializing our initial non-lumivascular platform products in 2009 and introduced our lumivascular platform products in the united states in late 2012. we generated revenues of $ 10.7 million in 2015 , $ 19.2 million in 2016 , $ 9.9 million in 2017 , $ 7.9 million in 2018 , and $ 9.1 million in 2019. the growth experienced in 2019 is largely due to our next generation pantheris and the launch of pantheris sv . prior to the introduction of our lumivascular platform , our non-imaging catheter products were manufactured by a third-party . all of our products are now manufactured in-house using components and sub-assemblies manufactured both in-house at our facility in redwood city , california and by outside vendors . we assemble all of our products at our manufacturing facility but certain critical processes such as coating and sterilization are done by outside vendors . we expect our current manufacturing facility will be sufficient through at least 2020. on june 19 , 2019 , the company 's board of directors approved an amendment to the company 's amended and restated certificate of incorporation to effect an additional 1-for - 10 reverse stock split of the company 's common stock . the reverse stock split became effective on june 21 , 2019. the par value of the common stock and convertible preferred stock was not adjusted as a result of the reverse stock split . all common stock , stock options , and restricted stock units , and per share amounts in this document have been retroactively adjusted for all periods presented to give effect to the reverse stock splits . during the years ended december 31 , 2019 and 2018 , our net loss and comprehensive loss was $ 19.5 million and $ 27.6 million , respectively . we have not been profitable since inception , and as of december 31 , 2019 , our accumulated deficit was $ 348.3 million . since inception , we have financed our operations primarily through private and public placements of our preferred and common securities and , to a lesser extent , debt financing arrangements . in january 2015 , we completed an initial public offering , or ipo , of 12,500 shares . as a result of our ipo , which closed in february 2015 , we received net proceeds of approximately $ 56.9 million , after underwriting discounts and commissions of approximately $ 4.5 million and other expenses associated with our ipo of approximately $ 3.6 million . in september 2015 , we entered into a term loan agreement , or loan agreement , with crg partners iii l.p. and certain of its affiliated funds , collectively crg , under which we were able to borrow up to $ 50.0 million on or before march 29 , 2017 , subject to certain terms and conditions . we borrowed $ 30.0 million on september 22 , 2015 and an additional $ 10.0 million on june 15 , 2016 under the loan agreement . contingent on achievement of certain revenue milestones , among other conditions , we would have been eligible to borrow an additional $ 10.0 million , on or prior to march 29 , 2017 ; however , we did not achieve the level of revenues required to borrow the final $ 10.0 million . contemporaneously with the execution of the loan agreement , we entered into a securities purchase agreement with crg , pursuant to which crg purchased 870 shares of our common stock on september 22 , 2015 at a price of $ 5,596.40 per share , which represents the 10-day average of closing prices of our common stock ending on september 21 , 2015. pursuant to the securities purchase agreement , we filed a registration statement covering the resale of the shares sold to crg and must comply with certain affirmative covenants during the time that such registration statement remains in effect . we used the proceeds from the crg borrowing and securities purchase to retire our outstanding principal and accrued interest with pdl biopharma , or pdl , and to retire the principal and accrued interest underlying our outstanding promissory notes , or the notes . on february 3 , 2016 , we filed a universal shelf registration statement to offer up to $ 150.0 million of our securities and entered into an “ at-the-market ” program pursuant to a sales agreement with cowen and company , or cowen , through which we may , from time to time , issue and sell shares of common stock having an aggregate offering value of up to $ 50.0 million . the shelf registration statement also covers the resale of the shares sold to crg . the registration statement was declared effective by the sec on march 8 , 2016. during the year ended december 31 , 2016 , we sold 2,737 shares of common stock through the “ at-the-market ” program at an average price of $ 1,947.40 and raised net proceeds of $ 5.2 million , after payment of $ 0.2 million in commissions and fees to cowen . during the year ended december 31 , 2017 , we sold 18,968 shares of common stock through the “ at-the-market ” program at an average price of $ 176.80 and raised net proceeds of $ 3.2 million , after payment of $ 0.1 million in commissions and fees to cowen . in addition , in august 2016 we completed a follow-on public offering of 24,644 shares of our common stock for net proceeds of approximately $ 31.5 million after deducting underwriting discounts and commissions of approximately $ 2.4 million and other expenses of approximately $ 0.6 million . the 24,644 shares include the exercise in full by the underwriters of their option to purchase an additional 3,214 shares of our common stock . story_separator_special_tag 47 in april 2017 , we undertook an organizational realignment which included a reduction in force , that lowered our total headcount by approximately 33 % compared to december 31 , 2016. the organizational realignment was designed to focus our commercial efforts on driving catheter utilization in our strongest markets , around our most productive sales professionals . our field sales personnel headcount was reduced to 32 , down from 60 as of december 31 , 2016. this workforce reduction was designed to reduce operating expenses while continuing to support major product development and clinical initiatives . the strategic reduction in the field sales force was designed to maintain robust engagement with higher volume users of our lumivascular technology and position us to increase utilization of our catheters within our installed base of accounts in 2018 following the launch of our next generation products . in september 2017 , we effected a cost reduction plan , which also included a company-wide reduction in force , lowering our total headcount by an additional 24 employees . our field sales personnel headcount was further reduced to a total of 20 people . in addition , as part of the cost reduction plan , in october 2017 , we subleased a portion of the company 's facilities and consolidated our operations primarily into one building . on february 14 , 2018 , we entered into amendment no . 2 to the term loan agreement ( the “ amendment no . 2 loan agreement ” ) with crg . under its terms , the amendment no . 2 loan agreement , among other things : ( 1 ) extended the interest-only period through june 30 , 2021 ; ( 2 ) extended the period during which the company may elect to pay a portion of interest in payment-in-kind , or pik , interest payments through june 30 , 2021 so long as no default has occurred and is continuing ; ( 3 ) permitted the company to make its entire interest payments in pik interest payments for through december 31 , 2019 so long as no default has occurred and is continuing ; ( 4 ) extended the maturity date to june 30 , 2023 ; ( 5 ) reduced the minimum liquidity requirement to $ 3.5 million at all times ; ( 6 ) eliminated the minimum revenue covenant for 2018 and 2019 ; ( 7 ) reduced the minimum revenue covenant to $ 15 million for 2020 , $ 20 million for 2021 and $ 25 million for 2022 ; and ( 8 ) provided crg with board observer rights . in addition , on february 14 , 2018 , we entered into a series a preferred stock purchase agreement ( the “ series a purchase agreement ” ) with crg , pursuant to which it agreed to convert $ 38.0 million of the outstanding principal amount of its senior secured term loan ( plus the back-end fee and prepayment premium applicable thereto ) under the loan agreement into a newly authorized series a preferred stock . as discussed in the section of this report titled “ dividend policy , ” the holders of series a preferred stock are entitled to receive annual accruing dividends at a rate of 8 % , payable in additional shares of series a preferred stock or cash , at our option . the shares of series a preferred stock have no voting rights and rank senior to all other classes and series of the company 's equity in terms of repayment and certain other rights . on february 16 , 2018 , we completed a public offering of 17,979 shares of series b preferred stock and warrants to purchase 1,797,900 shares of common stock . as a result , we received net proceeds of approximately $ 15.5 million after underwriting discounts , commissions , legal and accounting fees . the series b preferred stock has a liquidation preference of $ 0.001 per share , full ratchet price based anti-dilution protection , has no voting rights and is subject to certain ownership limitations . the series b preferred stock is immediately convertible at the option of the holder , has no stated maturity , and does not pay regularly stated dividends or interest . each share of series b preferred stock is accompanied by one series 1 warrant that expires on the seventh anniversary of the date of issuance to purchase up to 50 shares of common stock and one series 2 warrant that expires on the earlier of ( i ) the seventh anniversary of the date of issuance or ( ii ) the 60th calendar day following the receipt and announcement of fda clearance of our pantheris below-the-knee device ( or the same or similar product with a different name ) to purchase up to 50 shares of common stock ; provided , however , if at any time during such 60-day period the volume weighted average price for any trading day is less than the then effective exercise price , the termination date shall be extended to the seven year anniversary of the initial exercise date . fda clearance of pantheris sv was received in april 2019 , triggering this 60-day period . during the entire 60-day period following clearance , the volume weighted average price was less than the then effective exercise price . as such , all series 2 warrants are currently deemed to expire on the seventh anniversary of the date of issuance . in addition , pursuant to the series a purchase agreement , we issued to crg 41,800 shares of series a preferred stock at the closing of the series b offering . the series a preferred stock was issued in exchange for the conversion of $ 38.0 million of the outstanding principal amount of their senior secured term loan ( plus the back-end fee and prepayment premium applicable thereto ) , totaling approximately $ 41.8 million .
| interest income ( expense ) , net decreased $ 4.3 million , or 78 % , to a net expense of $ 1.2 million during the year ended december 31 , 2019. the reason for the decrease is primarily due to deemed dividend recognized when the series b convertible preferred stock was issued in february 2018 that resulted in a beneficial conversion feature . other income , net . other income ( expense ) , net remained relatively flat in comparison to the prior year . other income was primarily attributable to income derived from subleasing a portion of the company 's facilities starting in october of 2017 and the remeasurement of foreign exchange transactions . as a result of the adoption of topic 842 during the year ended december 31 , 2019 , the company recorded $ 1.1 million of sublease payments received in other income on the statement of operations and comprehensive loss . to maintain comparability between periods , the company reclassified these payments received of approximately $ 962,000 in the year ended december 31 , 2018 that were previously netted against rent expense included in selling , general and administrative expenses to the same line item on the statement of operations . liquidity and capital resources as of december 31 , 2019 , we had cash and cash equivalents of $ 10.9 million and an accumulated deficit of $ 348.3 million , compared to cash and cash equivalents of $ 16.4 million and an accumulated deficit of $ 328.9 million as of december 31 , 2018. the company expects to incur losses for the foreseeable future . the company believes that its cash and cash equivalents of $ 10.9 million at december 31 , 2019 and expected revenues and funds from operations will be sufficient to allow the company to fund its current operations through at least the second quarter of 2020. we do not know when or if our operations will generate sufficient cash to fund our ongoing operations . additional debt financing , if
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the elevated levels of cash and cash equivalents at june 30 , 2018 partly reflected operating fluctuations in our short-term liquidity coupled with $ 36.6 million in cash and cash equivalents acquired from clifton . investment securities available for sale . investment securities classified as available for sale decreased by $ 10.8 million to $ 714.3 million at june 30 , 2019 from $ 725.1 million at june 30 , 2018. the net decrease in the portfolio reflected security purchases totaling $ 125.9 million during the year ended june 30 , 2019 coupled with a $ 6.3 million increase in the fair value of the portfolio to a net unrealized gain of $ 2.0 million at june 30 , 2019 from a net unrealized loss of $ 4.3 million at june 30 , 2018. the net decrease in the portfolio was coupled with sales of securities totaling $ 75.7 million and $ 66.8 million cash repayment of principal , net of premium amortization and discount accretion during the year ended june 30 , 2019. in addition , the net increase in the portfolio was partially offset by the early adoption of asu 2017-08 , receivables-nonrefundable fees and other costs ( subtopic 310-20 ) on october 1 , 2018 , which shortens the amortization period to the earliest call date for purchased callable debt securities held at a premium . the effect of the adoption of asu 2017-08 decreased the balance of the portfolio by $ 531,000 during the year ended june 30 , 2019. based on its evaluation , management has concluded that no other-than-temporary impairment was present within the available for sale segment of the investment portfolio as of june 30 , 2019. additional information about securities available for sale at june 30 , 2019 is presented in “ item 1. business ” of this annual report on form 10-k , as well as in note 4 and note 6 to the audited consolidated financial statements . investment securities held to maturity . investment securities classified as held to maturity decreased by $ 13.1 million to $ 576.7 million at june 30 , 2019 from $ 589.7 million at june 30 , 2018. the decrease in held to maturity securities reflected security purchases totaling $ 55.2 million that was partially offset by cash repayment of principal , net of discount accretion and premium amortization , totaling $ 67.7 million for the year ended june 30 , 2019. based on its evaluation , management has concluded that no other-than-temporary impairment was present within the held to maturity segment of the investment portfolio as of june 30 , 2019. additional information about securities held to maturity at june 30 , 2019 is presented under “ item 1. business ” of this annual report on form 10-k , as well as in note 5 and note 6 to the audited consolidated financial statements . loans held-for-sale . our residential lending infrastructure continues to support strategies focused on the origination of residential mortgage loans designated for sale into the secondary market which has enabled us to augment our sources of non-interest income through the recognition of loan sale gains while helping to manage our exposure to interest rate risk . during the year ended june 30 , 2019 , we sold $ 54.3 million of residential mortgage loans resulting in net sale gains totaling $ 524,000 for the period . loans held for sale totaled $ 12.3 million at june 30 , 2019 compared to $ 863,000 at june 30 , 2018 and are reported separately from the balance of net loans receivable as of those dates . loans receivable . loans receivable , net of unamortized premiums , deferred costs and the allowance for loan losses , increased by $ 175.2 million to $ 4.65 billion at june 30 , 2019 from $ 4.47 billion at june 30 , 2018. the increase in net loans receivable was primarily attributable to new loan origination and purchase volume outpacing loan repayments during the year ended june 30 , 2019 . 47 residential mortgage loans held in portfolio , including home equity loans and lines of credit , increased by $ 52.0 million to $ 1.44 billion at june 30 , 2019 from $ 1.39 billion at june 30 , 2018. the increase reflected an increase in the balance of one- to four-family first mortgage loans of $ 46.6 million to $ 1.34 billion at june 30 , 2019 from $ 1.30 billion at june 30 , 2018 and an increase of $ 5.4 million in the balance of home equity loans and home equity lines of credit to $ 96.2 million at june 30 , 2019 from $ 90.8 million at june 30 , 2018. residential mortgage loan origination volume for the year ended june 30 , 2019 , excluding loans held-for-sale , totaled $ 140.6 million , comprising $ 106.9 million of one- to four-family first mortgage loan originations and $ 33.7 million of home equity loan and home equity line of credit originations during the period . residential mortgage loan originations were augmented with the purchase of one- to four-family first mortgage loans totaling $ 95.5 million during the year ended june 30 , 2019. commercial loans , including multi-family and nonresidential commercial mortgage loans , commercial business loans and construction loans , increased by $ 114.3 million to $ 3.28 billion at june 30 , 2019 from $ 3.17 billion at june 30 , 2018. the components of the aggregate increase included an increase in commercial mortgage loans totaling $ 143.7 million partially offset by a decrease in the outstanding balance of commercial business loans and construction loans totaling $ 20.0 million and $ 9.4 million , respectively . the decrease in the balance of commercial business loans and construction loans was primarily attributable to loan repayments outpacing new loan origination and purchase volume . story_separator_special_tag the outstanding balance of commercial mortgage loans at june 30 , 2019 totaled $ 3.21 billion while the outstanding balances of commercial business loans and construction loans , totaled $ 65.8 million and $ 13.9 million , respectively , as of that date . commercial loan origination volume for the year ended june 30 , 2019 totaled $ 467.6 million , which comprised $ 437.3 million of commercial mortgage loan originations augmented by $ 21.9 million of commercial business loan originations and construction loan disbursements totaling $ 8.4 million during the period . commercial loan originations were augmented with the funding of purchased loans totaling $ 71.3 million during the year ended june 30 , 2019. other loans , primarily account loans , deposit account overdraft lines of credit and other consumer loans , decreased by $ 3.3 million to $ 5.8 million at june 30 , 2019 from $ 9.1 million at june 30 , 2018. we originated a total of $ 2.3 million of account loans and other consumer loans during the year ended june 30 , 2019 , while no additional consumer loans were purchased during the period . additional information about loans receivable at june 30 , 2019 is presented under “ item 1. business ” of this annual report on form 10-k , as well as in note 7 to the audited consolidated financial statements . nonperforming loans . nonperforming loans increased by $ 3.4 million to $ 20.3 million , or 0.43 % of total loans at june 30 , 2019 , from $ 16.9 million , or 0.37 % of total loans at june 30 , 2018. nonperforming loans generally include those loans reported as 90 days and over past due while still accruing and loans reported as nonaccrual with such balances totaling $ 22,000 and $ 20.2 million , respectively , at june 30 , 2019. the increase in nonperforming loans was largely attributable to the addition of one loan totaling $ 2.8 million that is fully secured by the vacant land that serves as its collateral and is current in its payment status . the loan was designated as a troubled debt restructuring and placed on nonaccrual status during the quarter ended september 30 , 2018. additional information about nonperforming loans at june 30 , 2019 is presented under “ item 1. business ” of this annual report on form 10-k , as well as in note 8 to the audited consolidated financial statements . allowance for loan losses . during the year ended june 30 , 2019 , the balance of the allowance for loan losses increased by $ 2.4 million to $ 33.3 million , or 0.70 % of total loans at june 30 , 2019 , from $ 30.9 million , or 0.68 % of total loans at june 30 , 2018. the increase resulted from provisions of $ 3.6 million during the year ended june 30 , 2019 that were partially offset by charge-offs , net of recoveries , totaling $ 1.1 million during that same period . additional information about the allowance for loan losses at june 30 , 2019 is presented under “ item 1. business ” of this annual report on form 10-k , as well as in note 1 and note 8 to the audited consolidated financial statements . other assets . the aggregate balance of other assets , including premises and equipment , fhlb stock , interest receivable , goodwill , core deposit intangibles , bank owned life insurance , deferred income taxes , other real estate owned and other assets , decreased by $ 17.8 million to $ 647.1 million at june 30 , 2019 from $ 664.8 million at june 30 , 2018. the decrease in other assets primarily reflected a $ 28.2 million net decrease in the fair value of our interest rate derivatives portfolio to a net asset value of $ 3.7 million at june 30 , 2019 as compared to a net asset value of $ 31.9 million at june 30 , 2018. this decrease was partially offset by a $ 5.2 million increase in fhlb stock resulting from a net increase in fhlb advances during the year ended june 30 , 2019 coupled with a $ 6.3 million increase in the cash surrender value of our bank-owned life insurance policies for the same period . 48 the remaining increases and decreases in other assets for the year ended june 30 , 2019 generally reflected normal operating fluctuations in their respective balances . deposits . total deposits increased by $ 74.0 million to $ 4.15 billion at june 30 , 2019 from $ 4.07 billion at june 30 , 2018. the net increase in deposit balances reflected a $ 76.9 million increase in interest-bearing deposits offset in part by a $ 2.9 million decrease in non-interest-bearing deposits . the increase in interest-bearing deposits included increases in the balances of savings and club accounts and certificates of deposit totaling $ 46.6 million and $ 187.8 million , respectively , which were partially offset by a decrease in the balance of interest-bearing checking accounts totaling $ 157.5 million for the period . the change in deposit balances for the year ended june 30 , 2019 reflected changes in the balances of retail deposits as well as non-retail deposits acquired through various wholesale channels . the decrease in the balance of interest-bearing checking primarily reflected a $ 210.8 million decrease in the balance of wholesale money market deposits attributable to the scheduled maturity and termination of our participation in the promontory interfinancial network 's ( “ promontory ” ) insured network deposits ( “ ind ” ) program . partially offsetting the decrease in the balance of wholesale interest-bearing checking was an increase of $ 284.8 million in other deposits comprising increases of $ 171.5 million and $ 113.3 million in retail and other wholesale deposits , respectively . we continued to utilize a deposit listing service through which we attract wholesale time deposits targeting institutional investors with an original investment horizon of up to five years .
| for the year ended june 30 , 2019 , our total deposits increased by $ 74.0 million to $ 4.15 billion from $ 4.07 billion at june 30 , 2018. the increase in deposits for the year ended june 30 , 2019 largely reflected continuing effects of product , pricing and marketing strategies implemented during fiscal 2019. excluding brokered and listing service deposits , non-maturity deposits increased by $ 97.0 million while certificates of deposit increased by $ 74.5 million . brokered and listing service deposits , comprising both non-maturity deposits and certificates of deposits , decreased by $ 97.5 million . the net growth and reallocation of deposits reflected our strategic focus on reallocating our deposit mix in favor of retail deposits . the balance of borrowings increased by $ 123.3 million to $ 1.32 billion at june 30 , 2019 from $ 1.20 billion at june 30 , 2018. the increase in borrowings for the year ended june 30 , 2019 partly reflected the net increase in fhlb advances of $ 113.1 million coupled with the increase of $ 30.0 million in overnight borrowings and partially offset by a $ 19.7 million decrease in depositor sweep accounts . the net increase in fhlb advances reflected a new $ 200.0 million advance drawn to replace the maturing promontory ind deposits , as noted above , partially offset by the repayment of maturing advances . stockholders ' equity decreased by $ 141.6 million to $ 1.13 billion at june 30 , 2019 from $ 1.27 billion at june 30 , 2018. the decrease in stockholders ' equity largely reflected the impact of our share repurchases during fiscal 2019 which totaled $ 141.7 million . net income for the fiscal year ended june 30 , 2019 was $ 42.1 million or $ 0.46 per diluted share ; an increase of $ 22.5 million from $ 19.6 million , or $ 0.24 per diluted share , for the fiscal year ended june 30 , 2018. the increase to net income for the year ended june 30 , 2019 , largely
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we believe this change is preferable as it allows us to more effectively analyze our verticals by aligning presentation of existing and acquired customers using a standardized approach . these changes do not result in any adjustments to our previously issued financial statements and were applied retrospectively beginning on january 1 , 2010 as presented in the tables below . additionally , we have revised our disclosures to present travel and hospitality and retail and consumer verticals as a single travel and consumer vertical . replace_table_token_15_th replace_table_token_16_th summary of results of operations and non-gaap financial measures the following tables present a summary of our results of operations , by amount and as a percentage of revenues , for the years ended december 31 , 2012 , 2011 and 2010 : replace_table_token_17_th the key drivers of our consolidated results in 2012 as compared to 2011 were as follows : broad-based revenue growth from clients in most of our key verticals , and in particular within banking and financial services , which increased revenues by $ 35.3 million , or 46.1 % , isv and technology and travel and consumer with a $ 22.6 million , or 26.8 % , and a $ 24.5 million , or 34.2 % , growth in 2012 revenues as compared to 2011 , respectively ; 36 continued penetration of the european market where we experienced revenue growth of $ 48.1 million , or 45.0 % , in 2012 compared to $ 48.5 million , or 82.8 % in 2011 ; strong revenue contribution from our top clients . revenues attributable to our top ten clients as of december 31 , 2012 increased by $ 43.3 million as compared to 2011 as we continued to leverage long-term relationships to generate repeat revenue and expand existing revenue streams ; completion of a strategic acquisitions of thoughtcorp , inc. ( thoughtcorp ) in may , 2012 and empathy lab , llc ( empathy lab ) in december , 2012 , which contributed another $ 7.7 million in revenues ; decrease in our income from operations in 2012 as compared to 2011 by 1.2 % as a percentage of revenues mainly due to an increase in incentive compensation our it professionals combined with an increase in stock-based compensation of 0.7 % over 2011 as a percentage of revenues . the operating results in any period are not necessarily indicative of the results that may be expected for any future period . in our quarterly earnings press releases and conference calls , we discuss two key measures that are not calculated according to generally accepted accounting principles ( gaap ) . the first non-gaap measure is income from operations , as reported on our consolidated and condensed statements of income and comprehensive income , excluding certain expenses and benefits , which we refer to as non-gaap income from operations . the second measure calculates non-gaap income from operations as a percentage of reported revenues , which we refer to as non-gaap operating margin . we believe that these non-gaap measures help illustrate underlying trends in our business , and we use these measures to establish budgets and operational goals ( communicated internally and externally ) , manage our business , and evaluate our performance . we also believe these measures help investors compare our operating performance with our results in prior periods and compare our operating results with those of similar companies . we exclude certain expenses and benefits from non-gaap income from operations that we believe are not reflective of these underlying business trends and are not useful measures in determining our operational performance and overall business strategy . because our reported non-gaap financial measures are not calculated according to gaap , these measures are not comparable to gaap and may not be comparable to similarly described non-gaap measures reported by other companies within our industry . consequently , our non-gaap financial measures should not be evaluated in isolation from or supplant comparable gaap measures , but , rather , should be considered together with our consolidated and condensed financial statements , which are prepared according to gaap . the following table presents a reconciliation of income from operations as reported on our consolidated statements of income and comprehensive income to non-gaap income from operations and non-gaap operating margin for the years ended december 31 , 2012 and 2011 : replace_table_token_18_th ( 1 ) cost of revenue includes stock-based compensation expense of $ 2,809 , $ 1,365 and $ 1,314 for the years ended december 31 , 2012 , 2011 and 2010 , respectively . selling , general and administrative expenses include stock-based compensation expense of $ 4,017 , $ 1,501 and $ 1,625 for the years ended december 31 , 2012 , 2011 and 2010 , respectively . 37 effects of inflation economies in cis countries such as belarus , russia and ukraine have periodically experienced high rates of inflation . in particular , over a three-year period ending december 31 , 2012 , significant inflation has been reported in belarus . the national statistical committee of belarus estimated that inflation was approximately 109.7 % in 2012 , 153.2 % in 2011 and 9.9 % in 2010. in 2012 , 2011 and 2010 we had 0.5 % , 0.8 % and 1.2 % of our revenues , respectively , denominated in belarusian rubles . the measures currently used by the belarusian government to control this recent inflation include monetary policy and pricing instruments , including increasing interest rates and the use of anti-monopoly laws to prevent the increase in pricing of goods , as well as privatization and using foreign borrowings to replenish the budget and stabilize local currency . inflation , government actions to combat inflation and public speculation about possible additional actions have also contributed materially to economic uncertainty in belarus . belarus may experience high levels of inflation in the future . the russian and ukrainian governments have historically implemented similar measures as belarus to fight inflation . periods of higher inflation may slow economic growth in those countries . story_separator_special_tag inflation also is likely to increase some of our costs and expenses , which we may not be able to pass on to our clients and , as a result , may reduce our profitability . inflationary pressures could also affect our ability to access financial markets and lead to counter-inflationary measures that may harm our financial condition , results of operations or adversely affect the market price of our securities . results of operations the following table sets forth a summary of our consolidated results of operations by amount and as a percentage of our revenues for the periods indicated . this information should be read together with our audited consolidated financial statements and related notes included elsewhere in this annual report . the operating results in any period are not necessarily indicative of the results that may be expected for any future period . replace_table_token_19_th ( 1 ) includes stock-based compensation expense of $ 2,809 , $ 1,365 and $ 1,314 for the years ended december 31 , 2012 , 2011 and 2010 , respectively . ( 2 ) includes stock-based compensation expense of $ 4,017 , $ 1,501 and $ 1,625 for the years ended december 31 , 2011 , 2011 and 2010 , respectively . revenues revenues are derived primarily from providing software development services to our clients . we discuss below the breakdown of our revenues by service offering , vertical , client location , contract type and client concentration . revenues consist of it services revenues and reimbursable expenses and other revenues , which primarily include travel and entertainment costs that are chargeable to clients . 38 revenues by service offering software development includes software product development , custom application development services and enterprise application platforms services , and has historically represented , and we expect to continue to represent , the substantial majority of our business . the following table sets forth revenues by service offering by amount and as a percentage of our revenues for the periods indicated : replace_table_token_20_th revenues by vertical the foundation we have built with isvs and technology companies has enabled us to leverage our strong domain knowledge and industry-specific knowledge capabilities to become a premier it services provider to a range of additional verticals such as banking and financial services , business information and media , and travel and consumer . additionally , we have substantial expertise in other industries such as oil and gas , telecommunications , healthcare and several others , which are currently reported in aggregate under other verticals . the following table sets forth revenues by vertical by amount and as a percentage of our revenues for the periods indicated : replace_table_token_21_th revenues by client location our revenues are sourced from three geographic markets : north america , europe and the cis . we present and discuss our revenues by client location based on the location of the specific client site that we serve , irrespective of the location of the headquarters of the client or the location of the delivery center where the work is performed . as such , revenues by client location differ from the segment information in our audited consolidated financial statements included elsewhere in this annual report , which is not solely based on the geographic location of the clients but rather is based on managerial responsibility for a particular client regardless of client location . the following table sets forth revenues by client location by amount and as a percentage of our revenues for the periods indicated : replace_table_token_22_th 39 replace_table_token_23_th revenues by contract type our services are performed under both time-and-material and fixed-price arrangements . our engagement models depend on the type of services provided to a client , the mix and locations of professionals involved and the business outcomes our clients are looking to achieve . historically , the majority of our revenues have been generated under time-and-material contracts . under time-and-material contracts , we are compensated for actual time incurred by our it professionals at negotiated hourly , daily or monthly rates . fixed-price contracts require us to perform services throughout the contractual period and we are paid in installments on pre-agreed intervals . we expect time-and-material arrangements to continue to comprise the majority of our revenues in the future . the following table sets forth revenues by contract type by amount and as a percentage of our revenues for the periods indicated : replace_table_token_24_th revenues by client concentration we have grown our revenues from our clients by continually expanding the scope and size of our engagements , and we have grown our key client base through internal business development efforts and several strategic acquisitions . our focus on delivering quality to our clients is reflected by an average of 91.9 % and 82.0 % of our revenues in 2012 coming from clients that had used our services for at least one and two years , respectively . in addition , we have significantly grown the size of existing accounts . the number of clients that accounted for over $ 5.0 million in annual revenues increased to 16 in 2012 from 10 in 2010 , and the number of clients that generated at least $ 0.5 million in revenues increased to 114 in 2012 from 72 in 2010. the following table sets forth revenues contributed by our top five and top ten clients by amount and as a percentage of our revenues for the periods indicated : replace_table_token_25_th during 2011 and 2010 , one of our largest clients , thomson reuters , accounted for over 10 % of our revenues ; however , there were no customers accounting for over 10 % of our revenues in 2012. the volume of work we perform for specific clients is likely to vary from year to year , as we are typically not any client 's exclusive external it services provider , and a major client in one year may not contribute the same amount or percentage of our revenues in any subsequent year .
| additionally , two acquisitions completed in 2012 contributed approximately $ 7.7 million , or 16.7 % , to the overall segment growth during the period . within the segment , revenue from our isvs and technologies and travel and consumer verticals increased by approximately $ 22.8 million and $ 10.8 million , respectively , as compared to 2011 , representing 73.7 % of the overall segment growth . segment operating profit increased by $ 4.9 million , or 14.6 % , from $ 33.7 million in 2011 to $ 38.7 million in 2012. the increase in segment operating profit was attributable primarily to increased revenues , partially offset by an increase in compensation and benefit costs resulting primarily from additional headcount to support our revenue growth and continued demand for onsite resources . europe segment our europe segment accounted for 38.9 % and 36.9 % of total segment revenues in 2012 and 2011 , respectively . europe continues to be a rapidly growing segment in our portfolio , given our nearshore delivery capabilities , and our value proposition in delivering quality software engineering solutions and services is continuing to gain considerable traction with european-based clients . as a result , revenue increased $ 45.4 million , or 36.8 % , from $ 123.5 million during 2011 to $ 168.9 million in 2012. within the segment , growth was the strongest in our banking and financial services and travel and consumer verticals , where revenue increased by approximately $ 30.2 million and $ 11.2 million , respectively , in 2012 as compared to 2011. segment operating profit increased by $ 7.7 million , or 30.5 % , from $ 25.1 million during 2011 to $ 32.8 million during 2012. the increase in europe segment operating profit was mainly attributable to increased revenues , partially offset by an increase in compensation and benefit costs primarily driven by additional headcount to support our revenue growth and continued demand for increase in onsite resources . russia segment our russia segment comprised 11.7 % of total segment revenues in
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the decision was made by endo after conducting an in-depth review of their research and development activities , including an analysis of research and development priorities , focus and available resources for current and future projects and the commercial potential for the product . therefore the company does not anticipate receiving any contingent cash consideration , since the aveed contingent consideration was contingent upon receiving octreotide approval . see “ item 1. business- endo pharmaceuticals ” and note 6 to the consolidated financial statements . 10 management discussion of critical accounting policies the following discussion and analysis of the financial condition and results of operations are based on the consolidated financial statements and notes to consolidated financial statements contained in this report that have been prepared in accordance with the rules and regulations of the sec and include all the disclosures normally required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make estimates that affect the reported amounts of assets , liabilities , sales and expenses , and related disclosures of contingent assets and liabilities . we base these estimates on historical results and various other assumptions believed to be reasonable , all of which form the basis for making estimates concerning the carrying values of assets and liabilities that are not readily available from other sources . actual results may differ from these estimates . certain of our accounting policies require higher degrees of judgment than others in their application . these include stock based compensation and accounting for income taxes which are summarized below . cash and cash equivalents cash equivalents consist of investments in treasury money market funds . investments the company holds 19.9 % equity investments in certain privately-held companies which acquired the assets of its former subsidiary , which was engaged in the plastic molding and precision coating businesses . the investments are included in other assets and accounted for at cost of $ 275,000 under asc 325 , investments- other . the company monitors these investments for impairment by considering current factors , including the economic environment , market conditions , operational performance and other specific factors relating to the business underlying the investment , and records impairments in carrying values when necessary . fair value of financial instruments . the carrying value of cash and cash equivalents and accounts payable approximate estimated fair values because of short maturities . cash equivalents are classified within level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets . employees ' stock based compensation . stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period , which is generally the vesting period . the valuation provisions of asc 718 apply to new grants and to grants that were outstanding as of the effective date of asc 718 and are subsequently modified . see note 10 to the consolidated financial statements for further information regarding our stock-based compensation assumptions and expense . income taxes deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . valuation allowances are based on the “ more likely than not ” criteria . the accounting for uncertain tax positions requires that we recognize the financial statement benefit of a tax position only after determining that the company would more likely than not sustain the position following an audit . for tax positions meeting the more-likely-than-not threshold , the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority . 11 year ended december 31 , 2011 compared to the year ended december 31 , 2010 on january 15 , 2010 , the company completed the sale of all the issued and outstanding stock of five star under the stock purchase agreement between the company and merit dated november 24 , 2009 and the results for five star have been treated as a discontinued operation . for the year ended december 31 , 2011 , the company had a loss from continuing operations before income taxes of $ 1,794,000 compared to a loss from continuing operations before income taxes of $ 3,374,000 for the year ended december 31 , 2010. the reduced loss from operations is the result of reduced general and administrative expenses ( “ g & a ” ) of $ 1,584,000 . 12 story_separator_special_tag the district of south carolina . as a result of the chapter 11 filing , and the inability of the parties to come to an agreement on financial responsibility , the landlord drew down on a $ 128,000 letter of credit previously provided by gp strategies corporation ( gp strategies ) . gp strategies had issued the letter of credit to the landlord in exchange for the landlord removing the gp strategies guarantee for the new jersey warehouse lease . as a result of the spin off of the company from gp strategies in november 2004 , the company had indemnified gp strategies for any costs related to their guarantee of the five star lease , and therefore the company reimbursed gp strategies $ 128,000. the company filed a claim with the bankruptcy court , but based on its initial analysis of the chapter 11 filings believes it story_separator_special_tag the decision was made by endo after conducting an in-depth review of their research and development activities , including an analysis of research and development priorities , focus and available resources for current and future projects and the commercial potential for the product . therefore the company does not anticipate receiving any contingent cash consideration , since the aveed contingent consideration was contingent upon receiving octreotide approval . see “ item 1. business- endo pharmaceuticals ” and note 6 to the consolidated financial statements . 10 management discussion of critical accounting policies the following discussion and analysis of the financial condition and results of operations are based on the consolidated financial statements and notes to consolidated financial statements contained in this report that have been prepared in accordance with the rules and regulations of the sec and include all the disclosures normally required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make estimates that affect the reported amounts of assets , liabilities , sales and expenses , and related disclosures of contingent assets and liabilities . we base these estimates on historical results and various other assumptions believed to be reasonable , all of which form the basis for making estimates concerning the carrying values of assets and liabilities that are not readily available from other sources . actual results may differ from these estimates . certain of our accounting policies require higher degrees of judgment than others in their application . these include stock based compensation and accounting for income taxes which are summarized below . cash and cash equivalents cash equivalents consist of investments in treasury money market funds . investments the company holds 19.9 % equity investments in certain privately-held companies which acquired the assets of its former subsidiary , which was engaged in the plastic molding and precision coating businesses . the investments are included in other assets and accounted for at cost of $ 275,000 under asc 325 , investments- other . the company monitors these investments for impairment by considering current factors , including the economic environment , market conditions , operational performance and other specific factors relating to the business underlying the investment , and records impairments in carrying values when necessary . fair value of financial instruments . the carrying value of cash and cash equivalents and accounts payable approximate estimated fair values because of short maturities . cash equivalents are classified within level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets . employees ' stock based compensation . stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period , which is generally the vesting period . the valuation provisions of asc 718 apply to new grants and to grants that were outstanding as of the effective date of asc 718 and are subsequently modified . see note 10 to the consolidated financial statements for further information regarding our stock-based compensation assumptions and expense . income taxes deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . valuation allowances are based on the “ more likely than not ” criteria . the accounting for uncertain tax positions requires that we recognize the financial statement benefit of a tax position only after determining that the company would more likely than not sustain the position following an audit . for tax positions meeting the more-likely-than-not threshold , the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority . 11 year ended december 31 , 2011 compared to the year ended december 31 , 2010 on january 15 , 2010 , the company completed the sale of all the issued and outstanding stock of five star under the stock purchase agreement between the company and merit dated november 24 , 2009 and the results for five star have been treated as a discontinued operation . for the year ended december 31 , 2011 , the company had a loss from continuing operations before income taxes of $ 1,794,000 compared to a loss from continuing operations before income taxes of $ 3,374,000 for the year ended december 31 , 2010. the reduced loss from operations is the result of reduced general and administrative expenses ( “ g & a ” ) of $ 1,584,000 . 12 story_separator_special_tag the district of south carolina . as a result of the chapter 11 filing , and the inability of the parties to come to an agreement on financial responsibility , the landlord drew down on a $ 128,000 letter of credit previously provided by gp strategies corporation ( gp strategies ) . gp strategies had issued the letter of credit to the landlord in exchange for the landlord removing the gp strategies guarantee for the new jersey warehouse lease . as a result of the spin off of the company from gp strategies in november 2004 , the company had indemnified gp strategies for any costs related to their guarantee of the five star lease , and therefore the company reimbursed gp strategies $ 128,000. the company filed a claim with the bankruptcy court , but based on its initial analysis of the chapter 11 filings believes it
| loss carryback . five star is currently undergoing an income tax examination by the internal revenue service for income tax filings for the years ended december 31 , 2007 and 2008 and is being challenged with respect to the timing of certain tax deductions . as a result , a liability for uncertain tax positions was provided in the year ended december 31 , 2010 and charged to discontinued operations . as of december 31 , 2011 , the liability related to five star included in the accompanying consolidated balance sheet amounted to approximately $ 313,000 for potential federal and state tax deficiencies and related interest , of which approximately $ 213,000 related to additional tax and approximately $ 100,000 related to interest . for the year ended december 31 , 2011 an income tax benefit of approximately $ 100,000 together with a reduction of related interest and penalties of approximately $ 8,000 and $ 15,000 , respectively , was credited to discontinued operations , representing a correction of the amounts recorded in 2010 , due to a computation error . in addition , approximately $ 40,000 related to remaining penalties charged to other expense within loss from discontinued operations in 2010 were reduced to zero in 2011 based on the notice of deficiency received from the internal revenue service in 2011. the company intends to vigorously defend five star 's position with the internal revenue service . the deficiency notice was issued on april 25 , 2011. on may 17 , 2011 , five star products inc. and its subsidiary five star group inc. filed petitions for reorganization under chapter 11 of the united states bankruptcy code . on december 16 , 2011 , the plan of reorganization of tmg liquidation corp. , five star products inc. 's parent corporation , was approved by the bankruptcy court . under the plan of reorganization , the internal revenue service is authorized to pursue the plan administrator , who is authorized to defend the deficiency letter
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free cash flow is defined as net cash provided by operating activities less capital expenditures , including purchases of property and equipment and capitalization of internal-use software and website development costs . for information related to the unfavorable contracts liability , see note 7 ( unfavorable contracts liability ) to the accompanying consolidated and combined financial statements included in part ii , item 8. , “ financial statements and supplementary data ” of this annual report on form 10-k. credit agreement amendment . in october 2019 , we entered into an amendment to our credit agreement to increase the total net leverage covenant during the remaining term of the credit agreement while preserving the favorable pricing structure from the original agreement . the amendment increases our maximum total net leverage ratio from 3.75x to 4.50x with incremental step downs through maturity on may 31 , 2022. completion of strategic alternatives review . in august 2019 , we announced the conclusion of the strategic alternatives review process first announced on january 16 , 2019. the strategic alternatives review process was public , comprehensive and deliberate , lasting ten months . after extensive negotiations and discussions , no actionable proposals for a sale were available to us . as a result , our board of directors unanimously concluded that the best interests of our stockholders are served by continuing to focus on the execution of our strategic plan and opportunities to drive growth and stockholder returns as an independent public company . we remain open to all potential value-creating opportunities . technology transformation . in february 2019 , we announced a restructuring of the product and technology teams ( the “ technology transformation ” ) . this restructuring is primarily focused on shifting our technology spend towards innovation to improve our speed of product delivery , to enable integration across current and future systems , and to migrate our systems to the cloud . in connection with the technology transformation , we have aligned our product and technology teams with our long-term growth strategy to expand beyond listings to a digital solutions marketplace . as part of this process , we have streamlined the existing teams as we modernize our technology platform and invest in a more efficient cloud-based infrastructure focused on machine learning , product innovation and growth . further , we expect to achieve cost efficiencies upon completion of the technology transformation . sales transformation . in december 2018 , we restructured the sales team ( the “ sales transformation ” ) , with the primary goal of better serving our customers . we reorganized the sales force into teams designed to provide the full range of enhanced services to current customers and a more tailored structure to win new customers . these changes reflect the expansion of our business beyond car listings to include value-added digital solutions such as innovations from dealer inspire and dealerrater . the sales transformation also reflects a realignment of territories following the conversion of the affiliate agreements . 19 key operating metrics . we regularly review a number of key metrics to evaluate our business , measure our performance , identify trends affecting our business , formulate financial projections and make operating and strategic decisions . information regarding traffic , average monthly unique visitors and direct monthly average revenue per dealer is as follows : replace_table_token_3_th ( 1 ) beginning in the first quarter of 2019 , this key operating metric includes revenue from dealer websites and related digital solutions . information regarding our dealer customers is as follows : replace_table_token_4_th traffic ( visits ) . traffic is critical to our business . traffic to the cars network of websites and mobile apps provides value to our advertisers in terms of audience , awareness , consideration and conversion . in addition to tracking traffic volume and sources , we monitor activity on our properties , allowing us to innovate and refine our consumer-facing offerings . traffic is defined as the number of visits to cars desktop and mobile properties ( responsive sites and mobile apps ) , using adobe analytics . traffic does not include traffic to dealer inspire websites . visits refers to the number of times visitors accessed cars properties during the period , no matter how many visitors make up those visits . traffic provides an indication of our consumer reach . although our consumer reach does not directly result in revenue , we believe our ability to reach in-market car shoppers is attractive to our dealer customers and national advertisers . the growth in traffic was driven by our product innovations and investments in and efficiencies gained in search engine optimization , brand awareness and paid channels . for the years ended december 31 , 2019 and december 31 , 2018 , mobile traffic accounted for 72 % and 67 % of total traffic , respectively . average monthly unique visitors ( “ uvs ” ) . growth in unique visitors and consumer traffic to our network of websites and mobile apps increases the number of impressions , clicks , leads and other events we can monetize to generate revenue . we define uvs in a given month as the number of distinct visitors that engage with our platform during that month . visitors are identified when a user first visits an individual cars property on an individual device/browser combination , or installs one of our mobile apps on an individual device . if a visitor accesses more than one of our web properties or apps or uses more than one device or browser , each of those unique property/browser/app/device combinations counts towards the number of uvs . uvs do not include dealer inspire uvs . we measure uvs using adobe analytics . the growth in uvs was driven by the same factors as our traffic growth , our product innovations and investments in and efficiencies gained in search engine optimization , brand awareness and paid channels . average revenue per dealer ( “ arpd ” ) . we believe that our ability to grow arpd is an indicator of the value proposition of our products . story_separator_special_tag we define arpd as direct retail revenue during the period divided by the average number of direct dealer customers during the same period . beginning the first quarter of 2019 , this key operating metric includes revenue from dealer websites and related digital solutions . arpd prior to the first quarter of 2019 has not been recast to include dealer inspire as it would be impracticable to do so . arpd decreased 2 % from september 30 , 2019 , primarily driven by upsell cancellations and dealer churn . arpd increased 4 % from december 31 , 2018 , primarily driven by the addition of dealer websites and related digital solutions , as 2018 arpd did not include these revenue sources . arpd excluding revenue from dealer websites and related digital solutions was $ 2,070 , down 1 % from the prior year . dealer customers . dealer customers represent dealerships using our products as of the end of each reporting period . each physical or virtual dealership location is counted separately , whether it is a single-location proprietorship or part of a large consolidated dealer group . multi-franchise dealerships at a single location are counted as one dealer . 20 total dealer customers increased 1 % from september 30 , 2019. dealer customers increased , primarily due to growth in direct local dealer customers , reflecting improved retention rates and a s tabilization in cancel l ation rates . total dealer customers declined 5 % from december 31 , 2018. dealer customers decreased , primarily due to higher cancellations of marketplace customers , in particular in the first half of 2019 , partially offset by growth in digital solutions customers . factors affecting our performance . our business is impacted by the ever-changing larger automotive environment , including consumer demand and other macroeconomic factors , and changes related to automotive digital advertising solutions . we have observed softness in new car sales in the united states and reduced dealer profitability , which has impacted oems ' and dealerships ' willingness to increase spend with automotive marketplaces like cars.com . our success will depend in part on our ability to continue to transform our business toward a multi-faceted suite of digital solutions that complement our media offerings . we are adapting our go-to-market sales and technology infrastructure , as described in the sales and technology transformations discussions above , to support the execution of our strategy . the foundation of our continued success is the value we deliver to customers , and we believe that our large and growing audience of in-market , undecided car shoppers and innovative solutions deliver significant value to our customers . story_separator_special_tag product and technology expense includes compensation costs , as well as license fees for vehicle specifications , search engine optimization , hardware/software maintenance , software licenses , data center and other infrastructure costs . product and technology expense represents 10.4 % of total revenue for the years ended december 31 , 2019 and 2018. product and technology expense decreased $ 5.9 million , primarily due to cost efficiencies as a result of the technology transformation . marketing and sales . marketing and sales expense primarily consists of traffic and lead acquisition costs ( including search engine and other online marketing ) , tv and digital display/video advertising and creative production , market research , trade events and compensation costs for the marketing , sales and sales support teams . marketing and sales expense represents 35.8 % and 34.2 % of total revenue for the years ended december 31 , 2019 and 2018 , respectively . marketing and sales expense decreased $ 9.3 million , primarily due to lower personnel-related costs as a result of the sales transformation , partially offset by strategic marketing investments aimed at consumer acquisitions , consumer engagement and brand awareness . general and administrative . general and administrative expense primarily consists of compensation costs for the executive , finance , legal , human resources , facilities and other administrative employees . in addition , general and administrative expense includes office space rent , legal and accounting services , other professional services , as well as severance , transformation and other exit costs , costs associated with stockholder activist campaign , and transaction-related costs and costs related to the write-off and loss on assets , excluding the goodwill and intangible asset impairment discussed below . general and administrative expense represents 12.2 % and 11.0 % of total revenue for the years ended december 31 , 2019 and 2018 , respectively . general and administrative expenses increased 22 $ 0.8 million and 1 % versus the prior year . during the year s ended december 31 , 2019 and 2018 , general and administrative expense included the following costs ( in thousands ) : replace_table_token_6_th ( 1 ) transaction-related costs are certain expense items resulting from actual or potential transactions such as business combinations , mergers , acquisitions , dispositions , spin-offs , financing transactions , and other strategic transactions , including , without limitation , ( a ) transaction-related bonuses and ( b ) expenses for advisors and representatives such as investment bankers , consultants , attorneys and accounting firms . transaction-related costs may also include , without limitation , transition and integration costs such as retention bonuses and acquisition-related milestone payments to acquired employees , in addition to consulting , compensation and other incremental costs associated with integration projects . excluding these costs , general and administrative expense increased $ 4.6 million or 10 % , primarily due to compensation . affiliate revenue share . affiliate revenue share expense represents payments made to affiliates pursuant to our affiliate agreements and amortization of the unfavorable contracts liability related to the markets converted prior to the contractual date .
| for information related to the affiliate market conversions , see note 7 ( unfavorable contracts liability ) to the accompanying consolidated and combined financial statements included in part ii , item 8. , “ financial statements and supplementary data ” of this annual report on form 10-k. also included in retail revenue – direct is dealer websites and related digital solutions and digital marketing services , which grew 45 % year over year or 25 % on a pro forma basis , for the year ended december 31 , 2019 , as compared to the year ended december 31 , 2018. these increases were partially offset by a 5 % decline in direct dealer customers from december 31 , 2018. retail revenue—national advertising . national advertising revenue consists of display advertising and other solutions sold to oems , advertising agencies and automotive adjacencies . national advertising revenue represents 13.3 % and 15.9 % of total revenue for the years ended december 31 , 2019 and 2018 , respectively . national advertising revenue declined 23 % , as oems reduced their full year 2019 upfront commitments , reduced their advertising budgets and shifted their spending to programmatic . incremental sales to oems have been lower in volume and rate . wholesale revenue . wholesale revenue represents the fees we charge for marketplace and digital solutions sold to dealer customers by affiliates . the fees represent approximately 60 % of the retail value for the same marketplace subscription advertising sold by our direct sales team . wholesale revenue represents 5.7 % and 12.5 % of total revenue for the years ended december 31 , 2019 and 2018 , respectively . wholesale revenue decreased 59 % , primarily due to affiliate market conversions from wholesale revenue ( $ 39.2 million , which includes $ 5.1 million of unfavorable contracts liability amortization ) to direct revenue ( $ 52.5 million ) . excluding the affiliate market conversions , wholesale revenue was impacted by a 17 % decline in affiliate dealer customers . as of october 1 , 2019 , we have successfully converted all affiliates to our direct control and going forward , we will no longer record wholesale
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as such , we currently anticipate that when we have either disposed of our businesses in those 11 countries or have met the criteria for held-for-sale classification , their financial results , including any gains or losses on disposition , will be presented as discontinued operations in our consolidated statements of operations . we sold our business in one of those countries and ceased operations in another during the fourth quarter of 2016 , but those two countries did not have a major impact on our operations and financial results . however , we currently anticipate that the remaining nine dispositions will be complete or will have met the criteria for held-for-sale classification by march 31 , 2017 , which would be expected to result in discontinued operations presentation at that time . additionally , as a result of those anticipated dispositions , which represent a substantial majority of our international operations outside of emea , and the resulting changes to our internal reporting and leadership structure , we currently expect to combine our emea and rest of world segments into a single international segment in 2017. on october 31 , 2016 , each share of our class a common stock and class b common stock converted automatically into a single class of common stock ( the `` conversion '' ) pursuant to the terms of our sixth amended and restated certificate of incorporation , as amended . prior to the conversion , holders of our class a common stock were entitled to one vote per share and holders of our class b common stock were entitled to 150 votes per share . prior to the conversion , we had 2,399,976 shares of class b common stock issued and outstanding , all of which were held by our three founders . following the conversion , each share of common stock is entitled to one vote per share and otherwise has the same designations , rights , powers and preferences as a share of the class a common stock prior to the conversion . in addition , holders of the common stock now vote as a single class of stock on any matter that is submitted to a vote of stockholders . on october 31 , 2016 , we acquired all of the outstanding shares of livingsocial , inc. ( `` livingsocial '' ) . no consideration was paid in connection with this acquisition . living social is an online local commerce company based in the united states , and its operations are reported within our north america segment for the period from its acquisition date through december 31 , 2016. how we measure our business we measure our business with several financial and operating metrics . we use these metrics to assess the progress of our business , make decisions on where to allocate capital , time and technology investments and assess the long-term performance of our marketplaces . certain of the financial metrics are reported in accordance with u.s. gaap and certain of these metrics are considered non-gaap financial measures . as our business evolves , we may make changes to our key financial and operating metrics used to measure our business in future periods . for further information and a reconciliation to the most applicable financial measure 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 . 35 adjusted ebitda . adjusted ebitda is a non-gaap performance 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 the most applicable financial measure under u.s. gaap , 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 the most applicable financial measure under u.s. gaap , refer to our discussion under non-gaap financial measures in the results of operations section . story_separator_special_tag the following table presents the above financial metrics for the years ended december 31 , 2016 , 2015 and 2014 ( in thousands ) : replace_table_token_6_th the most comparable u.s. gaap performance measure for adjusted ebitda is `` income ( loss ) from continuing operations '' and the most comparable u.s. gaap liquidity measure for free cash flow is `` net cash provided by ( used in ) operating activities from continuing operations . '' for further information and a reconciliation to the most applicable measure under u.s. gaap , refer to our discussion under non-gaap financial measures in the results of operations section . the following table provides income ( loss ) from continuing operations and net cash provided by ( used ) in operating activities from continuing operations for the years ended december 31 , 2016 , 2015 and 2014 ( in thousands ) : replace_table_token_7_th ( 1 ) we adopted the guidance in asu 2016-09 on january 1 , 2016. asu 2016-09 requires that all income tax-related cash flows resulting from share-based payments be reported as operating activities in the statement of cash flows . previously , income tax benefits at settlement of an award were reported as a reduction to operating cash flows and an increase to financing cash flows to the extent that those benefits exceeded the income tax benefits reported in earnings during the award 's vesting period . we elected to apply that change in cash flow classification on a retrospective basis , which has resulted in increases to net cash provided by operating activities , net cash used in financing activities and free cash flow of $ 7.6 million and $ 16.0 million for the years ended december 31 , 2015 and 2014 , respectively . 36 operating metrics active customers . we define active customers as unique user accounts that have made a purchase through one of our online marketplaces during the trailing twelve months . 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 , active customers include unique user accounts that have made a purchase through the acquired entity 's website during the trailing twelve months , which includes customers who have made purchases prior to our acquisition of the entity . gross billings per average active customer . this metric represents the trailing twelve months gross billings generated per average active customer . this metric is calculated as the total gross billings generated in the trailing twelve months , divided by the average number of active customers in such time period . although we believe total gross billings , not gross billings per average active customer , is a better indication of the overall growth of our marketplaces over time , gross billings per average active customer provides us with information about average annual customer spend . units . this metric represents the number of purchases made through our online marketplaces , before refunds and cancellations . we consider unit growth to be an important indicator of the total volume of business conducted through our marketplaces . our active customers and gross billings per average active customer for the trailing twelve months ( `` ttm '' ) ended december 31 , 2016 , 2015 and 2014 were as follows : replace_table_token_8_th ( 1 ) ttm active customers for the year ended december 31 , 2016 includes approximately 1.0 million incremental active customers from the acquisition of livingsocial , inc. our units for the years ended december 31 , 2016 , 2015 and 2014 were as follows : replace_table_token_9_th factors affecting our performance deal sourcing and quality . we consider our merchant relationships to be a vital part of our business model . we depend on our ability to attract and retain merchants that are prepared to offer products or services on compelling terms , particularly as we attempt to expand our product and service offerings in order to create more complete online marketplaces for local commerce . our online marketplaces , which we sometimes refer to as `` pull '' marketplaces , enable customers to search and browse for deal offerings on our websites and mobile applications . in north america and many of our foreign markets , merchants often have a continuous presence on our websites and mobile applications by offering vouchers on an ongoing basis for an extended period of time . currently , a substantial majority of our merchants in north america elect to offer deals in this manner , and we expect that trend to continue . however , merchants have the ability to withdraw their deal offerings , and we generally do not have noncancelable long-term arrangements to guarantee availability of deals . in order to attract merchants that may not have run deals on our platform or would have run deals on a competing platform , we have been willing to accept lower deal margins across all three of our segments and we expect that trend to continue . if new merchants do not find our marketing and promotional services effective , or if our existing merchants do not believe that utilizing our services provides them with a long-term increase in customers , revenue or profit , they may stop making offers through our marketplaces or they may only continue offering deals if we accept lower margins . 37 international operations . operating a global business requires management attention and resources and requires us to localize our services to conform to a wide variety of local cultures , business practices , laws and policies .
| additionally , the total number of units sold decreased to 214.3 million units for the year ended december 31 , 2016 , as compared to 220.8 million units for the year ended december 31 , 2015 , driven by our country exits and dispositions . order discounts increased by $ 53.0 million to $ 215.9 million for the year ended december 31 , 2016 , as compared to $ 162.9 million for the year ended december 31 , 2015 . the decrease in total gross billings was attributable to our international operations and was partially offset by increases in the local and goods categories in our north america segment . total gross billings attributable to the 11 countries that we plan to exit by early 2017 in connection with our global footprint optimization were $ 408.8 million for the year ended december 31 , 2016 . 39 gross billings by segment gross billings by segment for the years ended december 31 , 2016 and 2015 were as follows : replace_table_token_11_th the percentages of gross billings by segment for the years ended december 31 , 2016 and 2015 were as follows : replace_table_token_12_th north america emea rest of world 40 gross billings by category and segment for the years ended december 31 , 2016 and 2015 were as follows : replace_table_token_13_th ( 1 ) includes gross billings from deals with local and national merchants , and through local events . north america the overall increase in north america segment gross billings reflects increases in our local and goods categories . those increases were primarily attributable to : our significant incremental marketing spend to accelerate customer growth . north america marketing expense increased by $ 102.3 million , or 63.6 % , for the year ended december 31 , 2016 , as compared to the year ended december 31 , 2015 , driving a
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factors that influence comparable store sales growth and other sales trends include : general economic conditions and trends , including levels of disposable income and consumer confidence ; product price inflation or deflation ; our competition , including competitive store openings in the vicinity of our stores and competitor pricing and merchandising strategies ; consumer preferences and buying trends ; our ability to identify market trends , and to source and provide product offerings that promote customer traffic and growth in average ticket ; the number of customer transactions and average ticket ; the prices of our products , including the effects of factors beyond our control , such as inflation , deflation and tariffs ; opening new stores in the vicinity of our existing stores ; and advertising , in-store merchandising and other marketing activities . 37 cost of sales and gross profit cost of sales includes the cost of inventory sold during the period , including direct costs of purchased merchandise ( net of discounts and allowances ) , distribution and supply chain costs and supplies . cost of sales also includes depreciation and amortization expense for distribution centers and supply chain-related assets . merchandise incentives received from vendors , which are reflected in the carrying value of inventory when earned or as progress is made toward earning the rebate or allowance , and are reflected as a component of cost of sales as the inventory is sold . inflation and deflation in the prices of food and other products we sell may periodically affect our gross profit and gross margin . the short-term impact of inflation and deflation is largely dependent on whether or not we pass the effects through to our customers , which will depend upon competitive market conditions . our cost of sales and gross profit are correlated to sales volumes . as sales increase , gross margin is affected by the relative mix of products sold , pricing and promotional strategies , inventory shrinkage and leverage of fixed costs of sales . selling , general and administrative expenses selling , general and administrative expenses primarily consist of salaries , wages and benefits costs , share-based compensation , store occupancy costs ( including rent , property taxes , utilities , common area maintenance and insurance ) , advertising costs , buying cost , pre-opening and other administrative costs . depreciation and amortization depreciation and amortization ( exclusive of depreciation included in cost of sales ) primarily consists of depreciation and amortization for buildings , store leasehold improvements , and equipment . store closure and other costs store closure and other costs primarily reflects costs incurred related to store closures , including impairment charges of long-lived assets , severance and any exit costs associated with closing a store . one-time disaster recovery and executive severance costs are also included here . story_separator_special_tag depreciation included in cost of sales ) increased $ 12.4 million primarily related to new store growth as well as remodel initiatives in older stores . 40 store closure and other costs replace_table_token_12_th store closure and other costs in 2019 of $ 7.3 million includes $ 4.1 million of impairment losses related to the write-down of leasehold improvements as well as one-time severance expense of $ 1.2 million associated with the transition of our former president and chief operating officer to senior advisor . in 2018 , store closure and other costs included $ 8.0 million primarily related to lease termination obligations and asset disposals associated with the closure of two underperforming stores during the fourth quarter of 2018 , as well as one-time severance expense of $ 3.6 million associated with the resignation of our former chief executive officer . interest expense , net replace_table_token_13_th the decrease in interest expense is due to the reclassification of previously reported financing leases to operating leases in connection with the adoption of the new lease accounting standard that went into effect at the beginning of 2019 , partially offset by the higher average balance outstanding under the amended and restated credit agreement to fund our share repurchase program . see note 13 , “ long-term debt and finance lease liabilities ” and note 20 , “ capital stock. ” income tax provision replace_table_token_14_th the effective tax rate increased to 23.7 % in 2019 primarily due to the prior year excess tax benefits for the exercise of expiring pre-ipo options in the first half of fiscal year 2018. net income replace_table_token_15_th 41 net income decreased $ 8.9 million primarily due to higher occupancy costs related to the adoption of the new lease standard that went into effect at the beginning of 2019 , as well as cycling a lower effective tax rate in 2018. diluted earnings per share replace_table_token_16_th earnings per share included a benefit of $ 0.06 per share for 2019 and 2018 , respectively , related to the share repurchase program . comparison of fiscal 2018 to fiscal 2017 net sales replace_table_token_17_th net sales during 2018 totaled $ 5.2 billion , increasing 12 % over the prior fiscal year . sales growth was primarily driven by solid performance in new stores opened in the last twelve months . comparable stores contributed approximately 89 % of total sales for 2018 and approximately 87 % for the prior fiscal year . cost of sales and gross profit replace_table_token_18_th gross profit increased during 2018 compared to 2017 by $ 180.4 million , to $ 1.7 billion , primarily driven by increased sales volume and strong performance in new stores opened . selling , general and administrative expenses replace_table_token_19_th 42 selling , general , and administrative expenses increased $ 158.8 million or 13 % as compared to 201 7 . this increase is primarily related to the 30 new stores which opened during 2018 , as well as costs associated with a full year of operations for 2017 store openings . story_separator_special_tag as a percentage of net sales , selling , general and administrative expenses increased slightly reflecting our planned investments in team member wages , benefits and training as well as higher store occupancy costs , which was partially offset by a reduction in workers compensation and general liability insurance costs due to improved claims experience and lower payroll taxes as a result of the state of california repaying its federal unemployment insurance loan . depreciation and amortization replace_table_token_20_th depreciation and amortization expense ( exclusive of depreciation included in cost of sales ) increased $ 13.9 million primarily related to new store growth as well as remodel initiatives in older vintages . store closure and other costs replace_table_token_21_th store closure and other costs in 2018 of $ 12.1 million includes non-cash charges of $ 8.0 million primarily related to lease termination obligations and asset disposals associated with the closure of two underperforming stores during the fourth quarter of 2018 , as well as one-time severance expense of $ 3.6 million associated with the resignation of our former chief executive officer . store closure and other costs were $ 1.1 million for 2017. during the third quarter of 2017 , 14 of our stores were affected by hurricanes in three states . although physical damage was minimal , the stores experienced loss of business due to temporary closures , inventory loss and additional expenses to clean up and power the stores . these costs , net of insurance recovery , totaled $ 0.7 million . interest expense , net replace_table_token_22_th the increase in interest expense is primarily related to the higher average balance outstanding under the amended and restated credit agreement primarily related to the company 's share repurchase program . 43 income tax provision replace_table_token_23_th the effective tax rate declined to 19.0 % in 2018 primarily reflecting the reduction in the corporate federal income tax rate from 35 % to 21 % as a result of the enactment of the tax act , as well as $ 12.4 million in excess tax benefits primarily associated with the exercise of expiring pre-ipo options and a $ 2.6 million discrete benefit associated with a tax method change in conjunction with the tax act . the effective tax rate in 2017 of 22.9 % reflects a one-time tax benefit of $ 18.7 million related to the remeasurement of our net deferred tax liabilities as a result of the enactment of the tax act , combined with the $ 9.9 million in excess tax benefits related to the exercise or vesting of share-based awards . net income replace_table_token_24_th net income in 2018 of $ 158.5 million includes $ 11.6 million ( pre-tax ) for one-time store closure and other costs discussed above , which nearly offset the favorable impact of new store growth . diluted earnings per share replace_table_token_25_th earnings per share included a benefit of $ 0.06 per share for 2018 and $ 0.04 per share for 2017 related to the share repurchase program . earnings per share included a benefit of $ 0.14 per share for 2017 for the effect of the tax act . 44 return on invested capital in addition to reporting financial results in accordance with generally accepted accounting principles , or gaap , we provide information regarding return on invested capital ( “ roic ” ) as additional information about our operating results . roic is a non-gaap financial measure and should not be reviewed in isolation or considered as a substitute for our financial results as reported in accordance with gaap . roic is an important measure used by management to evaluate our investment returns on capital and provides a meaningful measure of the effectiveness of our capital allocation over time . we define roic as net operating profit after-tax ( “ nopat ” ) , including the effect of capitalized operating leases , divided by average invested capital . operating lease interest r epresents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as a finance lease ( capital lease prior to adoption of asc 842 ) . the assumed ownership and associated interest expense are calculated using the discount rate for each lease as recorded as a component of rent expense within selling , general and administrative expenses . invested capital reflects a trailing twelve-month average . as numerous methods exist for calculating roic , our method may differ from methods used by other companies to calculate their roic . it is important to understand the methods and the differences in those methods used by other companies to calculate their roic before comparing our roic to that of other companies . our calculation of roic for the fiscal years indicated was as follows : replace_table_token_26_th ( 1 ) $ 18.7 million income tax credit related to the tax act enacted in december 2017 and $ 2.6 million income tax benefit related to tax calculation method changes recognized in the third quarter of 2018 ; see note 17 , “ income taxes. ” 45 ( 2 ) special items include the direct costs associated with store closure or relocations . after-tax impact includes the tax benefit on the pre-tax charge . ( 3 ) net of tax amounts are calculated using the effective tax rate for the period presented . ( 4 ) 2017 and 2018 interest on capitalized leases is calculated as the trailing four quarters ' rent expense multiplied by eight and by a 7 % interest rate factor . ( 5 ) 2019 interest on capitalized leases is calculated by multiplying operating leases by the 7.5 % discount rate for each lease recorded as rent expense within direct store expense . ( 6 ) 2019 average operating leases represents the net present value of outstanding operating lease obligation . 2018 average operating leases is calculated as the trailing four quarters ' rent expense multiplied by eight and by a 7.0 percent interest rate factor .
| substantially all the provisions of the tax act are effective for taxable years beginning after december 31 , 2017. the most significant changes that impact our company are the reduction in the corporate federal income tax rate from 35 % to 21 % and 100 % bonus depreciation for qualified property acquired and placed in service after september 27 , 2017 and before january 1 , 2023. in a manner consistent with accounting standards codification ( “ asc ” ) 740-10-25-47 , the effect of a change in tax law or rates shall be recognized at the date of enactment , accordingly , we accounted for the corporate federal income tax rate reduction in the fourth quarter of 2017 ( see note 17 , “ income taxes ” ) . results of operations for fiscal 2019 , 2018 and 2017 the following tables set forth our results of operations and other operating data for the periods presented . the period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods . replace_table_token_6_th replace_table_token_7_th 39 comparison of fiscal 2019 to fiscal 2018 net sales replace_table_token_8_th net sales during 2019 totaled $ 5.6 billion , increasing 8 % over the prior fiscal year . sales growth was primarily driven by strong performance in new stores opened in the last twelve months . comparable stores contributed approximately 91 % of total sales for 2019 and approximately 89 % for the prior fiscal year . cost of sales and gross profit replace_table_token_9_th gross profit increased during 2019 compared to 2018 by $ 147.3 million to $ 1.9 billion , primarily driven by increased sales volume . selling , general and administrative expenses replace_table_token_10_th selling , general , and administrative expenses increased $ 145.3 million or 10 % as compared to 2018. this increase is primarily related to the 28 new stores that opened in 2019 , as well as costs associated with a full year of operations for 2018 store openings . as a percentage of net sales , selling , general and administrative expenses increased slightly primarily due to higher occupancy costs related to the adoption of the new lease accounting standard that went into effect at the beginning of fiscal 2019 as well
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the daily sales average is then multiplied by seven to arrive at average weekly sales per restaurant . days on which restaurants are closed for business for any reason other than scheduled closures on thanksgiving and christmas are excluded from this calculation . revenue associated with the reduction in liabilities for gift cards which are not redeemed , commonly referred to as gift card breakage , is not included in the calculation of average weekly sales per restaurant . average weekly same store sales . average weekly same store sales per restaurant is computed by dividing total restaurant same store sales for the period by the total number of days all same store restaurants were open for the period to obtain a daily sales average . the daily same store sales average is then multiplied by seven to arrive at average weekly same store sales per restaurant . days on which restaurants are closed for business for any reason other than scheduled closures on thanksgiving and christmas are excluded from this calculation . sales and sales days used in this calculation include only those for restaurants in operation at the end of the period which have been open for more than 18 months . revenue associated with the reduction in liabilities for gift cards which are not redeemed , commonly referred to as gift card breakage , is not included in the calculation of average weekly same store sales per restaurant . average check . average check is calculated by dividing total restaurant sales by guest counts for a given time period . total restaurant sales includes food , alcohol and beverage sales . average check is influenced by menu prices and menu mix . management uses this indicator to analyze trends in guests ' preferences , the effectiveness of menu changes and price increases and per guest expenditures . average unit volume . average unit volume consists of the average sales of our restaurants over a certain period of time . this measure is calculated by multiplying average weekly sales by the relevant number of weeks for the period presented . this indicator assists management in measuring changes in guest traffic , pricing and development of our concepts . cost of sales . cost of sales is an important metric to management because it is the only truly variable component of cost relative to the sales volume while other components of cost can vary significantly due to the ability to leverage fixed costs at higher sales volumes . guest counts . guest counts are measured by the number of entrees ordered at our restaurants over a given time period . our business is subject to seasonal fluctuations . historically , the percentage of our annual revenues earned during the first and fourth quarters has been higher due , in part , to increased gift card redemptions and increased private dining during the year-end holiday season . in addition , we operate on a 52- or 53-week fiscal year that ends on the sunday closest to december 31. each quarterly period has 13 weeks , except for a 53-week year when the fourth quarter has 14 weeks . our next 53-week fiscal year will 37 occur in 2020. as many of our oper ating expenses have a fixed component , our operating income and operating income margins have historically varied from quarter to quarter . accordingly , results for any one quarter are not necessarily indicative of results to be expected for any other quart er , or for the full fiscal year . key financial definitions net sales . net sales consist primarily of food and beverage sales at our restaurants , net of any discounts , such as management meals and employee meals , associated with each sale . net sales are directly influenced by the number of operating weeks in the relevant period , the number of restaurants we operate and same store sales growth . gift card breakage is also included in net sales . cost of sales . cost of sales is comprised primarily of food and beverage expenses and is presented net of earned vendor rebates . food and beverage expenses are generally influenced by the cost of food and beverage items , distribution costs and menu mix . the components of cost of sales are variable in nature , increase with revenues , are subject to increases or decreases based on fluctuations in commodity costs , including beef prices , and depend in part on the controls we have in place to manage cost of sales at our restaurants . restaurant labor and related costs . restaurant labor and related costs includes restaurant management salaries , hourly staff payroll and other payroll-related expenses , including management bonus expenses , vacation pay , payroll taxes , fringe benefits , workers ' compensation and health insurance expenses . depreciation and amortization . depreciation and amortization principally includes depreciation on restaurant fixed assets , including equipment and leasehold improvements , and amortization of certain intangible assets for restaurants . we depreciate capitalized leasehold improvements over the shorter of the total expected lease term or their estimated useful life . as we continue our restaurant openings , depreciation and amortization is expected to increase as a result of our increased capital expenditures . other operating expenses . other operating expenses includes repairs and maintenance , credit card fees , rent , property taxes , selected insurance premiums , utilities , operating supplies and other restaurant-level related operating expenses . pre-opening expenses . pre-opening expenses are costs incurred prior to opening a restaurant , and primarily consist of manager salaries , relocation costs , recruiting expenses , employee payroll and related training costs for new employees , including rehearsal of service activities , as well as lease costs incurred prior to opening . we currently target pre-opening costs per restaurant at approximately $ 700. general and administrative expenses . general and administrative expenses consists of costs related to certain corporate and administrative functions that support development and restaurant operations and provide an infrastructure to support future company growth . story_separator_special_tag these expenses reflect management , supervisory and staff salaries and employee benefits , travel , information systems , training , corporate rent , depreciation of corporate assets , professional and consulting fees , technology and market research . these expenses have increased as a result of costs associated with being a public company , and we believe such expenses will continue to increase related to our anticipated growth . however , as we are able to leverage these investments made in our people and systems , we expect these expenses to decrease as a percentage of net sales over time . interest expense . interest expense consists primarily of interest on our outstanding indebtedness . our debt issuance costs are recorded at cost and are amortized over the lives of the related debt under the effective interest method . income tax ( expense ) benefit . this primarily represents expense or benefit related to the taxable income allocated to the company from j. alexander 's holdings , llc at the federal , state and local level . as a partnership , j. alexander 's holdings , llc generally pays no tax on its income , and each of its members is required to report such member 's allocable share of the partnership 's income on such member 's income tax returns . discontinued operations . in 2013 , we closed two locations , and we determined that these closures met the criteria for classification as discontinued operations . refer to item 8. financial statements and supplementary data - notes to consolidated financial statements - note 2 ( c ) summary of significant accounting policies—discontinued operations and restaurant closing costs for more information . 38 story_separator_special_tag $ 2,644 during 2018 compared to $ 942 recorded during 2017. in addition , general and administrative expense increases were recorded in salaries , audit and accounting fees , temporary services , noncash rent , real estate site costs , public relations and other less significant expense categories . these increases were partially offset by decreased expense related to deferred compensation , non-cash share-based compensation expense associated with the 2015 management profits interest grant which became fully vested on january 1 , 2018 , the black knight management fee , employee education , incentive compensation , legal fees and other less significant expense categories . in addition , in 2017 , we recorded $ 125 in restaurant closing costs associated with the closed j. alexander 's restaurant in houston , texas , and no such costs related to this restaurant are reflected in 2018. transaction costs transaction costs totaling $ 5,648 and $ 3,529 during fiscal years 2018 and 2017 , respectively , consist primarily of legal and consulting costs , accounting fees , other professional fees , miscellaneous costs and , in 2018 , the black knight termination fee . in 2017 , the company incurred transaction costs associated with the proposed acquisition of the ninety nine restaurant and pub concept ( “ 99 restaurants ” ) totaling $ 3,529. such costs consisted primarily of fairness opinion fees , legal , accounting , and consulting fees as well as other miscellaneous costs . during fiscal year 2018 , the company announced that it did not receive the required number of disinterested shareholder votes to approve the proposed acquisition , and the merger agreement was thereafter terminated . in fiscal year 2018 , the company incurred transaction costs related to both the proposed merger with 99 restaurants , which was terminated in 2018 , and to the termination agreement with respect to the management consulting agreement entered into on november 30 , 2018 with black knight . the termination fee of $ 4,560 along with other legal and professional fees are included in transaction costs for fiscal year 2018. pre-opening expenses pre-opening expense consists of expenses incurred prior to opening a new restaurant and includes manager salaries and relocation costs , payroll and related costs for training new employees , travel and lodging expenses for employees who assist with training new employees , and the cost of food and other expenses associated with practice of food preparation and service activities . pre-opening expense also includes rent expense for leased properties for the period of time between taking control of the property and the opening of the restaurant . during fiscal years 2018 and 2017 , preopening costs of $ 1,415 and $ 1,038 , respectively , were recorded . during fiscal year 2018 , pre-opening expense was primarily associated with a new j. alexander 's restaurant in king of prussia , pennsylvania which commenced operations in april 2018 and the stoney river restaurant in troy , michigan which opened in october 2018. for fiscal year 2017 , the company incurred pre-opening expense as a result of the opening of the j. alexander 's restaurant in lexington , kentucky in march 2017 and the stoney river location in chapel hill , north carolina in february 2017. other income ( expense ) interest expense decreased by $ 92 , or 11.3 % , in 2018 compared to 2017. while we experienced modest increases in interest rates during 2018 compared to interest rates in 2017 , the majority of this impact was offset by debt service payments made during the course of the year lowering our principal balance combined with the capitalization of interest for the new locations under construction during 2018 . 42 income taxes we reported an income tax benefit of $ 1,596 in 2018 compared to an income tax benefit of $ 1,347 in 2017 , reflecting the company 's federal , state and local income tax liability primarily for its allocable share of income of j. alexander 's holdings , llc .
| estimates that the effect of menu price increases was approximately 1.7 % in 40 2018 compared to 2017 . this price increase estimate reflects nominal amounts of menu price changes , without regard to any change in product mix because of price changes , and may not reflect amounts actually paid by guests . management estimates that weekly average guest counts de creased by approximately 1.3 % and 2.5 % in 2018 compared to 2017 within the same store base of restaurants and on a consolidated basis , respectively . it should be noted that , due to severe winter weather conditions during the first quarter of 2018 , our restaurants were forced to close for 27 days ( 16 of which affe cted the j. alexander 's / grill locations resulting in estimated lost net sales of approximately $ 275 ) , and resulted in estimated lost revenue of approximately $ 400 across all restaurants . seve re winter weather in the first quarter of 2017 impacted sales to a lesser extent by forcing three days of restaurant closures resulting in lost revenue of approximately $ 40. guest counts in 2018 were also impacted by severe winter weather occurring in the first quarter of the year , with a portion of the same store guest count decrease wi thin the j. alexander 's / grill restaurants attributed to the impact of severe winter weather on days w hich the j. alexander 's / grill restaurants remained open for busines s but traffic , and thus revenue , was adversely affected . management estimates that an additional $ 600 in net sales were lost wi thin the j. alexander 's / grill restaurants as a result of severe winter weather on days where the decision was made to open for at least a portion of the day during the first quarter of 2018. during fiscal year 2017 , six of the company 's restaurants in florida were closed for
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information on , or accessible through , our website is not part of , or incorporated by reference in , this annual report on form 10-k. supervision and regulation general fdic-insured institutions , like the bank , their holding companies and their affiliates are extensively regulated under federal and state law . as a result , our growth and earnings performance may be affected not only by management decisions and general economic conditions , but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies , including the iowa division of banking ( the “ iowa division ” ) , the federal reserve , the fdic and the consumer financial protection bureau ( the “ cfpb ” ) . furthermore , taxation laws administered by the internal revenue service and state taxing authorities , accounting rules developed by the fasb , securities laws administered by the sec and state securities authorities , and anti-money laundering laws enforced by the u.s. department of the treasury ( “ treasury ” ) have an impact on our business . the effect of these statutes , regulations , regulatory policies and accounting rules are significant to our operations and results . federal and state banking laws impose a comprehensive system of supervision , regulation and enforcement on the operations of fdic-insured institutions , their holding companies and affiliates that is intended primarily for the protection of the fdic-insured deposits and depositors of banks , rather than shareholders . these laws , and the regulations of the bank regulatory agencies issued under them , affect , among other things , the scope of our business , the kinds and amounts of investments the company and the bank may make , required capital levels relative to assets , the nature and amount of collateral for loans , the establishment of branches , the ability to merge , consolidate and acquire , dealings with our insiders and affiliates and the payment of dividends . in reaction to the global financial crisis and particularly following the passage of the dodd-frank act , we experienced heightened regulatory requirements and scrutiny . although the reforms primarily targeted systemically important financial service providers , their influence filtered down in varying degrees to community banks over time and caused our compliance and risk management processes , and the costs thereof , to increase . then , in may 2018 , the economic growth , regulatory relief and consumer protection act ( “ regulatory relief act ” ) was enacted by congress in part to provide regulatory relief for community banks and their holding companies . to that end , the law eliminated questions about the applicability of certain dodd-frank act reforms to community bank systems , including relieving us of any requirement to engage in mandatory stress tests , maintain a risk committee or comply with the volcker rule 's complicated prohibitions on proprietary trading and ownership of private funds . we believe these reforms are favorable to our operations . the supervisory framework for u.s. banking organizations subjects banks and bank holding companies to regular examination by their respective regulatory agencies , which results in examination reports and ratings that are not publicly available and that can impact the conduct and growth of their business . these examinations consider not only compliance with applicable laws and regulations , but also capital levels , asset quality and risk , management ability and performance , earnings , liquidity , and various other factors . the regulatory agencies generally have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine , among other things , that such operations are unsafe or unsound , fail to comply with applicable law or are otherwise inconsistent with laws and regulations . the following is a summary of the material elements of the supervisory and regulatory framework applicable to the company and the bank , beginning with a discussion of the impact of the covid-19 pandemic on the banking industry . it does not describe all of the statutes , regulations and regulatory policies that apply , nor does it restate all of the requirements of those that are described . the descriptions are qualified in their entirety by reference to the particular statutory and regulatory provision . 5 covid-19 pandemic the federal bank regulatory agencies , along with their state counterparts , have issued a steady stream of guidance responding to the covid-19 pandemic and have taken a number of unprecedented steps to help banks navigate the pandemic and mitigate its impact . these include , without limitation : requiring banks to focus on business continuity and pandemic planning ; adding pandemic scenarios to stress testing ; encouraging bank use of capital buffers and reserves in lending programs ; permitting certain regulatory reporting extensions ; reducing margin requirements on swaps ; permitting certain otherwise prohibited investments in investment funds ; issuing guidance to encourage banks to work with customers affected by the pandemic and encourage loan workouts ; and providing credit under the cra for certain pandemic-related loans , investments and public service . because of the need for social distancing measures , the agencies revamped the manner in which they conducted periodic examinations of their regulated institutions , including making greater use of off-site reviews . moreover , the federal reserve issued guidance encouraging banking institutions to utilize its discount window for loans and intraday credit extended by its reserve banks to help households and businesses impacted by the pandemic and announced numerous funding facilities . the fdic also has acted to mitigate the deposit insurance assessment effects of participating in the ppp and the federal reserve 's ppp liquidity facility and money market mutual fund liquidity facility . reference is made to the section “ economic and market risks ” in “ item 1a . story_separator_special_tag risk factors ” and the section “ covid-19 update ” in “ item 7. management 's discussion and analysis of financial condition and results of operations ” for information on the cares act , ppp and the federal reserve 's lending facilities and for discussions of the economic impact of the covid-19 pandemic . in addition , information as to selected topics , such as the impact on capital requirements , dividend payments , reserves and cra , is contained in the relevant sections of this supervision and regulation discussion provided below . the role of capital regulatory capital represents the net assets of a banking organization available to absorb losses . because of the risks attendant to their business , fdic-insured institutions are generally required to hold more capital than other businesses , which directly affects our earnings capabilities . while capital has historically been one of the key measures of the financial health of both bank holding companies and banks , its role became fundamentally more important in the wake of the global financial crisis , as the banking regulators recognized that the amount and quality of capital held by banks prior to the crisis was insufficient to absorb losses during periods of severe stress . certain provisions of the dodd-frank act and basel iii , discussed below , establish capital standards for banks and bank holding companies that are meaningfully more stringent than those in place previously . capital levels . banks have been required to hold minimum levels of capital based on guidelines established by the bank regulatory agencies since 1983. the minimums have been expressed in terms of ratios of “ capital ” divided by “ total assets '' . the capital guidelines for u.s. banks beginning in 1989 have been based upon international capital accords ( known as “ basel ” rules ) adopted by the basel committee on banking supervision , a committee of central banks and bank supervisors that acts as the primary global standard-setter for prudential regulation , as implemented by the u.s. bank regulatory agencies on an interagency basis . the accords recognized that bank assets for the purpose of the capital ratio calculations needed to be risk weighted ( the theory being that riskier assets should require more capital ) and that off-balance sheet exposures needed to be factored in the calculations . following the global financial crisis , the group of governors and heads of supervision , the oversight body of the basel committee on banking supervision , announced agreement on a strengthened set of capital requirements for banking organizations around the world , known as basel iii , to address deficiencies recognized in connection with the global financial crisis . the basel iii rules . in july 2013 , the u.s. federal banking agencies approved the implementation of the basel iii regulatory capital reforms in pertinent part , and , at the same time , promulgated rules effecting certain changes required by the dodd-frank act . in contrast to capital requirements historically , which were in the form of guidelines , basel iii was released in the form of binding regulations by each of the regulatory agencies . the basel iii rules increased the required quantity and quality of capital and required more detailed categories of risk weighting of riskier , more opaque assets . for nearly every class of assets , the basel iii rules require a more complex , detailed and calibrated assessment of risk in the calculation of risk weightings . the basel iii rules are applicable to all banking organizations that are subject to minimum capital requirements , including federal and state banks and savings and loan associations , as well as to bank and savings and loan holding companies , other than “ small bank holding companies ” ( generally certain holding companies with consolidated assets of less than $ 3 billion ) and certain qualifying banking organizations that may elect a simplified framework ( which we have not done ) . thus , the company and the bank are each currently subject to the basel iii rules as described below . not only did the basel iii rules increase most of the required minimum capital ratios in effect prior to january 1 , 2015 , but , in requiring that forms of capital be of higher quality to absorb loss , it introduced the concept of common equity tier 1 capital , which consists primarily of common stock , related surplus ( net of treasury stock ) , retained earnings , and common equity tier 6 1 minority interests subject to certain regulatory adjustments . the basel iii rules also changed the definition of capital by establishing more stringent criteria that instruments must meet to be considered additional tier 1 capital ( primarily non-cumulative perpetual preferred stock that meets certain requirements ) and tier 2 capital ( primarily other types of preferred stock and subordinated debt , subject to limitations ) . the basel iii rules also constrained the inclusion of minority interests , mortgage-servicing assets , and deferred tax assets in capital and required deductions from common equity tier 1 capital in the event that such assets exceeded a percentage of a banking institution 's common equity tier 1 capital . the basel iii rules required minimum capital ratios as of january 1 , 2015 , as follows : a ratio of minimum common equity tier 1 capital equal to 4.5 % of risk-weighted assets ; a ratio of minimum tier 1 capital equal to 6 % of risk-weighted assets ; a continuation of the minimum required amount of total capital ( tier 1 plus tier 2 ) at 8 % of risk-weighted assets ; and a minimum leverage ratio of tier 1 capital to total quarterly average assets equal to 4 % in all circumstances . in addition , institutions that seek the freedom to make capital distributions ( including for dividends and repurchases of stock ) and pay discretionary bonuses to executive officers without restriction must also maintain 2.5 % in common equity tier 1 capital attributable to a capital conservation buffer .
| as a result , the fdic provided assessment credits to insured depository institutions , like the bank , with total consolidated assets of less than $ 10 billion for the portion of their regular assessments that contributed to growth in the reserve ratio between 1.15 % and 1.35 % . the fdic applied the small bank credits for quarterly assessment periods beginning july 1 , 2019. however , the reserve ratio then fell to 1.30 % in 2020 as a result of extraordinary insured deposit growth caused by an unprecedented inflow of more than $ 1 trillion in estimated insured deposits in the first half of 2020 , stemming mainly from the covid-19 pandemic . although the fdic could have ceased the small bank credits , it waived the requirement that the reserve ratio be at least 1.35 % for full remittance of the remaining assessment credits , and it refunded all small bank credits as of september 30 , 2020. supervisory assessments . all iowa banks are required to pay supervisory assessments to the iowa division to fund the operations of that agency . the amount of the assessment is calculated on the basis of the bank 's total assets . during the year ended december 31 , 2020 , the bank paid supervisory assessments to the iowa division totaling approximately $ 174,000. capital requirements . banks are generally required to maintain capital levels in excess of other businesses . for a discussion of capital requirements , see “ the role of capital ” above . liquidity requirements . liquidity is a measure of the ability and ease with which bank assets may be converted to cash . liquid assets are those that can be converted to cash quickly if needed to meet financial obligations . to remain viable , fdic-insured institutions must have enough liquid assets to meet their near-term obligations , such as withdrawals by depositors . because the global financial crisis was in part a liquidity crisis , basel iii also includes a liquidity framework that requires fdic-insured institutions to measure their liquidity against specific liquidity tests . one test , referred to as the liquidity coverage ratio , or lcr , is designed to ensure that the banking entity has
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however , qualification testing for certain of our products has been delayed due to customer engineering shortages and limitations on their ability to access their facilities , and development timelines for certain programs are being extended . we continue to analyze on an ongoing basis how covid-19 related actions could affect our product development efforts , future customer demand , timing of orders , recognized revenues , and cash flows . the continued spread of covid-19 has also led to disruption and volatility in the global capital markets , which , depending on future developments , could impact our capital resources and liquidity in the future . if we need to raise additional capital to support operations in the future , we may be unable to access capital markets and additional capital may only be available to us on terms that could be significantly detrimental to our existing stockholders and to our business as a result of covid-19 . sdi acquisition on june 7 , 2019 , we completed the acquisition of sdi , a private-equity backed navigation systems provider with a scalable , chip-based platform for higher volume gyro applications utilizing quartz mems technology . see note 4 - acquisition in the notes to our consolidated financial statements for additional information regarding this acquisition . following the closing , we began integrating sdi into our current navigation and inertial sensing product line and have included the financial results of sdi in our consolidated financial statements beginning on the acquisition date . hytera transactions as part of the effort to streamline operations and move to a variable cost model in our catv lasers and transmitters product line , on october 25 , 2019 , we entered into an asset purchase agreement ( the “ asset purchase agreement ” ) with hytera communications ( hong kong ) company limited , a limited liability company incorporated in hong kong 49 ( “ hytera hk ” ) , and shenzhen hytera communications co. , ltd. , a corporation formed under the laws of the p.r.c . ( “ shenzhen hytera ” , and together with hytera hk , the “ buyers ” ) , pursuant to which the buyers agreed to purchase from emcore certain catv module and transmitter manufacturing equipment ( the “ equipment ” ) owned by emcore and currently located at the manufacturing facility of our wholly-owned subsidiary , emcore optoelectronics ( beijing ) co , ltd. , a corporation formed under the laws of the p.r.c. , for an aggregate purchase price of approximately $ 5.54 million . as described under “ covid-19 ” above , travel restrictions and delays in customer product qualification processes related to the covid-19 pandemic have negatively affected the timing of the sale and transfer of some of the equipment to the buyers . the equipment has been or will be transferred to the buyers in three separate closings , ( a ) one of which occurred in the quarter ended december 31 , 2019 , with aggregate payments in an amount equal to approximately $ 2.3 million received in such quarter , ( b ) one of which is now expected to occur during the quarter ending march 31 , 2021 , for which 80 % of the applicable sale price ( approximately $ 1.4 million ) was received in april 2020 and the remaining 20 % ( approximately $ 0.4 million ) is expected to be received in the quarter ending march 31 , 2021 , and ( c ) one of which is now expected to occur during the quarter ending june 30 , 2021 , with payment expected to be received in the quarter ending june 30 , 2021. concurrently with entry into the asset purchase agreement , we entered into a contract manufacturing agreement ( the “ manufacturing agreement ” ) , dated as of october 25 , 2019 , with the buyers pursuant to which the buyers agreed to manufacture certain catv module and transmitter products for us from a manufacturing facility located in thailand for an initial five year term at product prices agreed to between the parties . in the manufacturing agreement , we agreed to pay certain shortfall penalties in the event that orders for manufactured products are below certain thresholds . other actions related to catv business in the quarter ended september 30 , 2019 , we also reduced the size of our catv-related employee headcount and reduced the capacity of our wafer fab to one shift , and in january 2020 , we further reduced the size of our employee headcount . these actions incurred costs of $ 0.4 million in the quarter ended september 30 , 2019 and $ 0.4 million in the quarter ended march 31 , 2020 and , together with previously-disclosed headcount reduction at our beijing , china facility and the continuing shift to a variable cost model in our catv lasers and transmitters product line as described under “ hytera transactions ” above , have collectively resulted in annual cash savings of approximately $ 3.4 million beginning in the quarter ended march 31 , 2020 and continuing through the quarter ended september 30 , 2020. these operational changes in catv also fulfill a strategic objective of better positioning the catv lasers and transmitters product line to generate positive cash flow to help fund our growth areas including aerospace and defense . sale/leaseback transaction sdi entered into a standard offer , agreement and escrow instructions for purchase of real estate ( non-residential ) ( the “ concord purchase agreement ” ) dated as of december 31 , 2019 with parkview management group , inc. pursuant to which the parties agreed to consummate a sale and leaseback transaction ( the “ sale and leaseback transaction ” ) . under the terms of the concord purchase agreement , sdi sold the property located in concord , california ( the “ concord real property ” ) to eagle rock holdings , lp ( “ buyer ” ) , an affiliate of parkview management group , inc. on february 10 , 2020 for a total purchase price of $ 13.2 story_separator_special_tag million . sdi received net proceeds of $ 12.8 million after transaction commissions and expenses incurred in connection with the sale . at the consummation of the sale and leaseback transaction , sdi entered into a single-tenant triple net lease ( the “ lease agreement ” ) with buyer pursuant to which sdi leased back from buyer the concord real property for a term commencing on the consummation of the sale and leaseback transaction and ending fifteen ( 15 ) years after the consummation of the sale and leaseback transaction , unless earlier terminated or extended in accordance with the terms of the lease agreement . under the lease agreement , sdi 's financial obligations will include base monthly rent of $ 0.75 per square foot , or approximately $ 77,500 per month , which rent will increase on an annual basis at three percent ( 3 % ) over the life of the lease . sdi is also responsible for all monthly expenses related to the concord real property , including insurance premiums , taxes and other expenses , such as utilities . in connection with the execution of the lease agreement , emcore executed a lease guaranty with buyer under which emcore guaranteed the payment 50 when due of the monthly rent , and all other additional rent , interest and charges to be paid by sdi under the lease agreement . customer settlement agreement on november 17 , 2020 , we entered into an agreement with a customer to resolve certain potential product claims ( the “ customer settlement agreement ” ) . in exchange for a release of any and all potential claims the customer may have related to the applicable product , we have agreed to provide up to $ 1.5 million of product discounts on future purchases from us by the customer . we recorded the full potential expense of $ 1.5 million in the fiscal year ended september 30 , 2020 within research and development expense . critical accounting policies the preparation of consolidated financial statements in conformity with u.s. gaap requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities , as of the date of the financial statements , and the reported amounts of revenue and expenses during the reported period . we develop estimates based on historical experience and on various assumptions about the future that are believed to be reasonable based on the best information available to us . our reported financial position or results of operations may be materially different under changed conditions or when using different estimates and assumptions , particularly with respect to significant accounting policies . in the event that estimates or assumptions prove to differ from actual results , adjustments are made in subsequent periods to reflect more current information . a listing and description of our critical accounting policies includes the following : inventory inventory is stated at the lower of cost or net realizable value ( first-in , first-out ) . inventory that is expected to be used within the next 12 months is classified as current inventory . we write-down inventory once it has been determined that conditions exist that may not allow the inventory to be sold for its intended purpose or the inventory is determined to be excess or obsolete based on assumptions about future demand and market conditions . the charge related to inventory write-downs is recorded as a cost of revenue . we evaluate inventory levels at least quarterly against sales forecasts on a significant part-by-part basis , in addition to determining its overall inventory risk . we have incurred , and may in the future incur , charges to write-down our inventory . see note 8 - inventory in the notes to the consolidated financial statements for additional information related to our inventory . income taxes in accordance with the authoritative guidance on accounting for income taxes , we recognize income taxes using an asset and liability approach . this approach requires the recognition 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 our consolidated financial statements or tax returns . the measurement of current and deferred taxes is based on provisions of the enacted tax law and the effects of future changes in tax laws or rates are not anticipated . the authoritative guidance provides for recognition of deferred tax assets if the realization of such deferred tax assets is more likely than not to occur based on an evaluation of all available evidence , both positive and negative , and the relative weight of the evidence . we have determined that at this time it is more likely than not that deferred tax assets attributable to all other items will not be realized , primarily due to uncertainties related to our ability to utilize our net operating loss carryforwards before they expire . accordingly , we have established a valuation allowance for such deferred tax assets which we do not expect to realize . if there is a change in our ability to realize our deferred tax assets for which a valuation allowance has been established , then our tax valuation allowance may decrease in the period in which we determine that realization is more likely than not . likewise , if we determine that it is not more likely than not that deferred tax assets will be realized , then a valuation allowance may be established for such deferred tax assets and our tax provision may increase in the period in which we make the determination . see note 12 - income and other taxes in the notes to the consolidated financial statements for additional information related to our income taxes . 51 revenue recognition we recognize revenue in accordance with the financial accounting standards board 's ( “ fasb ” ) accounting standards codification ( “ asc ” ) 606 revenue from contracts with customers .
| 53 gross profit replace_table_token_6_th our cost of revenue consists of raw materials , compensation expense including non-cash stock-based compensation expense , depreciation expense and other manufacturing overhead costs , expenses associated with excess and obsolete inventories , and product warranty costs . historically , our cost of revenue as a percentage of revenue , which we refer to as our gross margin , has fluctuated significantly due to product mix , manufacturing yields and sales volumes , and inventory and specific product warranty charges . consolidated gross margins were 32.3 % and 17.3 % for the fiscal years ended september 30 , 2020 and 2019 , respectively . stock-based compensation expense within cost of revenue totaled approximately $ 0.7 million and $ 0.5 million for the fiscal years ended september 30 , 2020 and 2019 , respectively . aerospace and defense gross profit : for the fiscal year ended september 30 , 2020 , aerospace and defense gross profit increased $ 7.5 million , or 82 % , compared to the same period in the prior year , primarily due to higher revenue , of which $ 9.3 million results from the inclusion of sdi gross profit in the fiscal year ended september 30 , 2020 , compared to a $ 2.6 million inclusion of sdi gross profit in the fiscal year ended september 30 , 2019. for the fiscal years ended september 30 , 2020 and 2019 , aerospace and defense gross margin was 30.3 % and 27.8 % , respectively . the higher gross margin in the fiscal year ended september 30 , 2020 is primarily due to improved product mix . broadband gross profit : for the fiscal year ended september 30 , 2020 , broadband gross profit increased $ 13.0 million , or 221 % , compared to the same period in the prior year , primarily as a result of improved product mix in the fiscal year ended september 30 , 2020 and product costs and inventory charges related to excess and obsolete inventory in the fiscal year ended september 30 , 2019. for the fiscal years ended september 30 , 2020
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federal bank stocks were comprised of fhlb stock and frb stock of $ 3.8 million and $ 1.8 million , respectively , at december 31 , 2020. these stocks are purchased and redeemed at par as directed by the federal banks and levels maintained are based primarily on borrowing and other correspondent relationships between the corporation and the federal banks . bank-owned life insurance ( boli ) . the corporation maintains single premium life insurance policies on certain current and former officers and employees of the bank . in addition to providing life insurance coverage , whereby the bank as well as the officers and employees receive life insurance benefits , the appreciation of the cash surrender value of the boli will serve to offset and finance existing and future employee benefit costs . increases in this account are typically associated with an increase in the cash surrender value of the policies , partially offset by certain administrative expenses . boli increased $ 181,000 , or 1.2 % , to $ 15.5 million at december 31 , 2020 from $ 15.3 million at december 31 , 2019. premises and equipment . premises and equipment decreased $ 839,000 to $ 18.2 million at december 31 , 2020 from $ 19.0 million at december 31 , 2019. the overall decrease in premises and equipment during the year was due to depreciation and amortization of $ 1.4 million , partially offset by purchases of $ 1.2 million . in addition , the corporation sold $ 350,000 in assets and recorded asset write-downs of approximately $ 250,000. goodwill . goodwill remained unchanged at $ 19.5 million at december 31 , 2020 and 2019. goodwill represents the excess of the total purchase price paid for the acquisition over the fair value of the identifiable assets acquired , net of the fair value of the liabilities assumed . goodwill is evaluated for impairment at least annually and more frequently if events and circumstances indicate that the asset might be impaired . management evaluated goodwill and concluded that no impairment existed during the year ended december 31 , 2020. core deposit intangible . the core deposit intangible was $ 1.1 million at december 31 , 2020 , compared to $ 1.2 million at december 31 , 2019. the core deposit intangible includes amounts associated with the assumption of deposits in the 2018 community first bancorp , inc. ( cfb ) acquisition , the 2017 northern hancock bank and trust co. ( nhb ) acquisition and the 2016 united american savings bank ( uasb ) acquisition . this asset represents the long-term value of the core deposits acquired . in each instance , the fair value was determined using a third-party valuation expert specializing in estimating fair values of core deposit intangibles . the fair value was derived using an industry standard present value methodology . all-in costs and runoff balances by year were discounted by comparable term fhlb advance rates , used as an alternative cost of funds measure . this intangible asset amortizes over a weighted average estimated life of the related deposits . the core deposit intangible asset is not estimated to have a significant residual value . the corporation recorded $ 164,000 and $ 176,000 of intangible amortization in 2020 and 2019 , respectively . deposits . total deposits increased $ 106.5 million , or 13.5 % , to $ 893.6 million at december 31 , 2020 from $ 787.1 million at december 31 , 2019. interest bearing deposits increased $ 61.6 million , or 9.7 % , and non-interest bearing deposits increased $ 44.9 million , or 30.2 % . these increases were driven by increases in public funds and government stimulus deposits coupled with decreased consumer spending and the retention of certain ppp loan proceeds . borrowed funds . borrowed funds increased $ 3.5 million , or 12.3 % , to $ 32.1 million at december 31 , 2020 from $ 28.6 million at december 31 , 2019. borrowed funds at december 31 , 2020 consisted of short-term borrowings of $ 2.1 million and long-term borrowings of $ 30.0 million . short-term borrowed funds at december 31 , 2020 consisted of an outstanding balance of $ 2.1 million on a line of credit with a correspondent bank at rate of 4.25 % . long-term borrowed funds consisted of six $ 5.0 million fhlb term advances totaling $ 30.0 million , maturing between 2021 and 2025 and having fixed interest rates between 0.97 % and 2.85 % . long-term advances are utilized primarily to fund loan growth and short-term advances are utilized primarily to compensate for normal deposit fluctuations . stockholders ' equity . stockholders ' equity increased $ 5.6 million , or 6.5 % , to $ 91.5 million at december 31 , 2020 from $ 85.9 million at december 31 , 2019. the increase was primarily due to net income of $ 6.7 million and an increase of $ 1.9 million in accumulated other comprehensive income , partially offset by common stock and preferred dividends paid of $ 3.3 million and $ 186,000 , respectively . k-21 story_separator_special_tag style='font-family : `` times new roman '' , times , serif ; font-size : 10pt ' > interest expense . interest expense decreased $ 21,000 to remain flat at $ 8.1 million for 2020 and 2019. this decrease can be attributed to a $ 99,000 decrease in interest expense on borrowed funds , partially offset by a $ 78,000 increase in interest expense on interest-bearing deposits . interest expense on deposits increased $ 78,000 , or 1.1 % , to $ 7.2 million for 2020 , compared to $ 7.1 million for 2019. the average balance of interest-bearing deposits increased $ 48.6 million , or 7.8 % , causing a $ 533,000 increase in interest expense . partially offsetting this increase , the average rate on interest-bearing deposits decreased by 7 basis points to 1.06 % for 2020 versus 1.13 % for 2019 causing a $ 455,000 decrease in interest expense . story_separator_special_tag interest expense on borrowed funds decreased $ 99,000 , or 9.9 % , to $ 897,000 for 2020 , compared to $ 996,000 for 2019. the average rate on borrowed funds decreased 48 basis points to 2.25 % for 2020 versus 2.73 % for 2019 causing a $ 176,000 decrease in interest expense . partially offsetting this decrease , the average balance of borrowed funds increased $ 3.4 million , or 9.3 % , to $ 39.9 million for 2020 , compared to $ 36.5 million for 2019 causing a $ 77,000 increase in interest expense . the following table reconciles interest income on the consolidated statements of net income to net interest income adjusted to a fully taxable equivalent basis for the years ended december 31 : replace_table_token_15_th provision for loan losses . the corporation records provisions for loan losses to maintain a level of total allowance for loan losses that management believes , to the best of its knowledge , covers all probable incurred losses estimable at each reporting date . management considers historical loss experience , the present and prospective financial condition of borrowers , current conditions ( particularly as they relate to markets where the corporation originates loans ) , the status of nonperforming assets , the estimated underlying value of the collateral and other factors related to the collectability of the loan portfolio . nonperforming loans increased $ 1.2 million , or 41.1 % , to $ 4.1 million at december 31 , 2020 from $ 2.9 million at december 31 , 2019. the increase in nonperforming loans was primarily related to an increase in non-accrual loans in the residential mortgage and commercial real estate portfolios of $ 664,000 and $ 706,000 , respectively . the provision for loan losses increased $ 2.5 million to $ 3.2 million for 2020 from $ 715,000 for 2019. the corporation 's allowance for loan losses amounted to $ 9.6 million , or 1.18 % of the corporation 's total loan portfolio at december 31 , 2020 compared to $ 6.6 million or 0.93 % of total loans at december 31 , 2019. the allowance for loan losses , as a percentage of nonperforming loans at december 31 , 2020 and 2019 , was 233.5 % and 225.5 % , respectively . the allocation of the allowance for loan losses related to commercial real estate , residential mortgage and consumers loans increased during the year primarily as a result of growth in the balances , partially offset by a reduction of net charge-off in these portfolios . in addition , the allowance increased in general , due to risk rating changes for loans which were granted payment deferrals in connection with the pandemic , an increase in criticized and classified loans and the addition of a specific pandemic qualitative allowance factor . this pandemic factor , which was initially set at 2 basis points for the first quarter , increased to 9 basis points and added approximately $ 628,000 to the provision expense during the year ended december 31 , 2020. significant uncertainty remains regarding future levels of criticized and classified loans , nonperforming loans and charge-offs , but some deterioration is expected as a result of the pandemic . the corporation will continue to closely monitor changes in the loan portfolio and adjust the provision expense accordingly . at december 31 , 2020 , there was no provision for loan losses allocated to loans acquired from uasb , nhb or cfb because the unaccreted purchase discount still exceeded the calculated allowance . noninterest income . noninterest income includes revenue that is related to services rendered and activities conducted in the financial services industry , including fees on depository accounts , general transaction and service fees , security and loan sale gains and losses , and earnings on boli . noninterest income decreased $ 28,000 and remained flat at $ 4.4 million for 2020 and 2019. the decrease in noninterest income is due to decreases in fees and service charges and earnings on boli of $ 659,000 and $ 165,000 , respectively , partially offset by increases in gains on the sale of securities and loans and other income of $ 609,000 , $ 127,000 and $ 60,000 , respectively . the reductions in fees and service charges was primarily caused by a substantial decrease in consumer spending related to the pandemic , resulting in higher deposit balances and less account overdrafts . additionally , the corporation sold approximately $ 43.2 million of low yielding securities , in part to repay higher cost overnight borrowings , and to realize a gain of $ 687,000. k-24 noninterest expense . noninterest expense decreased $ 104,000 to $ 22.0 million for 2020 , compared to $ 22.1 million for 2019. this decrease was primarily related to decreases in compensation and employee benefits , professional fees and premises and equipment expense of $ 590,000 , $ 87,000 and $ 73,000 , respectively . these decreases were partially offset by increases in other noninterest expense and fdic insurance expense of $ 393,000 and $ 265,000 , respectively . compensation and employee benefits expense decreased $ 590,000 , or 5.0 % , to $ 11.1 million for 2020 , compared to $ 11.7 million for 2019. salary expense decreased $ 350,000 primarily due to lobby closures and reduced branch hours put in place as a result of the pandemic . also , the corporation experienced a $ 146,000 reduction of expense related to employee retirement plans . professional fee expense decreased $ 87,000 , or 9.4 % , to $ 841,000 for 2020 , compared to $ 928,000 for 2019. this decrease is primarily related to a decrease in legal costs due to a decrease in foreclosure activity as a result of the pandemic .
| the changes attributable to the combined impact of volume/rate are allocated on a consistent basis between the volume and rate variances . changes in interest income on loans and securities reflect the changes in interest income on a fully tax equivalent basis . replace_table_token_14_th 2020 results compared to 2019 results the corporation reported net income available to common stockholders of $ 6.6 million and $ 7.8 million for 2020 and 2019 , respectively . the $ 1.2 million , or 15.6 % , decrease in net income was attributed to $ 2.5 million increase in the provision for loan losses and a $ 28,000 decrease in noninterest income , partially offset by a $ 1.0 million increase in net interest income and decreases in the provision for income taxes and noninterest expense of $ 227,000 and $ 104,000 , respectively . returns on average equity and assets were 7.61 % and 0.68 % , respectively , for 2020 , compared to 9.50 % and 0.88 % , respectively , for 2019. net interest income . the primary source of the corporation 's revenue is net interest income . net interest income is the difference between interest income on earning assets , such as loans and securities , and interest expense on liabilities , such as deposits and borrowed funds , used to fund the earning assets . net interest income is impacted by the volume and composition of interest-earning assets and interest-bearing liabilities , and changes in the level of interest rates . tax equivalent net interest income increased $ 1.0 million to $ 29.3 million for 2020 , compared to $ 28.3 million for 2019. this increase in net interest income can be attributed to an increase in tax equivalent interest income of $ 1.0 million . interest income . tax equivalent interest income increased $ 1.0 million , or 2.8 % , to $ 37.3 million for 2020 , compared to $ 36.3 million for 2019. this increase can be attributed to a $ 1.5 million increase in interest earned on loans , partially offset by decreases
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the company 's critical accounting policies are those related to its allowance for loan losses , the evaluation of other-than-temporary impairment of investment securities , the valuation of and its ability to realize deferred tax assets , and the measurement of fair values of financial instruments . allowance for loan losses . the allowance for loan losses is calculated with the objective of maintaining an allowance necessary to absorb credit losses inherent in the loan portfolio . management 's determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio and other relevant factors . however , this evaluation is inherently subjective , as it requires an estimate of the loss content for each risk rating and for each impaired loan , an estimate of the amounts and timing of expected future cash flows , and an estimate of the value of collateral . the company has established a systematic method of periodically reviewing the credit quality of the loan portfolio in order to establish an allowance for loan losses . the allowance for loan losses is based on current judgments about the credit quality of individual loans and segments of the loan portfolio . the allowance for loan losses is established through a provision for loan losses based on the company 's evaluation of the probable losses inherent in the loan portfolio , and considers all known internal and external factors that affect loan collectability as of the reporting date . the evaluation , which includes a review of loans on which full collectability may not be reasonably assured , considers , among other matters , the estimated net realizable value or the fair value of the underlying collateral , economic conditions , historical loan loss experience , knowledge of inherent losses in the portfolio that are probable and reasonably estimable and other factors that warrant recognition in providing an appropriate loan loss allowance . management believes this is a critical accounting policy because this evaluation involves a high degree of complexity and requires it to make subjective judgments that often require assumptions or estimates about various matters . the allowance for loan losses consists primarily of specific allocations and general allocations . specific allocations are made for loans that are determined to be impaired . impairment is measured by determining the present value of expected future cash flows or , for collateral-dependent loans , the fair value of the collateral , including adjustments for market conditions and selling expenses . the general allocation is determined by segregating the remaining loans by type of loan , risk weighting and payment history . the company also analyzes delinquency trends , general economic conditions , and geographic and industry concentrations . this analysis establishes factors that are applied to the loan groups to determine the amount of the general allowance . the principal assumption used in calculating the allowance for loan losses is the estimate of loss for each risk rating . actual loan losses may be significantly more than the allowance the company has established , which could have a material negative effect on its financial results . goodwill . we recorded goodwill in connection with our previous mergers . goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired . goodwill is not amortized but is tested for impairment annually or more frequently if impairment indicators arise . goodwill and other intangibles are subject to impairment testing at the reporting unit level , which must be conducted at least annually . we perform impairment testing during the fourth quarter of each year , or more frequently if impairment indicators exist . determining the fair value of a reporting unit under the goodwill impairment test is judgmental and often involves the use of significant estimates and assumptions . estimates of fair value are primarily determined using discounted cash flows , market comparisons and recent transactions . these approaches use significant estimates and assumptions including projected future cash flows , discount rates reflecting the market rate of return , projected growth rates and determination and evaluation of appropriate market comparables . however , future events could cause us to conclude that goodwill has become impaired , which would result in recording an impairment loss . any resulting impairment loss could have a material adverse impact on our financial condition and results of operations . our annual assessment of potential goodwill impairment was completed in the fourth quarter of 2018. based on the fair value of the reporting unit that has goodwill , no impairment of goodwill was recognized at december 31 , 2018 or 2017 . 40 other-than-temporary impairment . in estimating other-than-temporary impairment of investment securities , securities are evaluated on at least a quarterly basis to determine whether a decline in their value is other-than-temporary . in estimating other-than temporary impairment losses , management considers ( 1 ) the length of time and the extent to which the fair value has been less than cost , ( 2 ) the financial condition and near-term prospects of the issuer , and ( 3 ) whether or not the company intends to sell or expect that it is more likely than not that it will be required to sell the investment security before an anticipated recovery in fair value . once a decline in value for a debt security is determined to be other than temporary , the other-than-temporary impairment is separated in ( a ) the amount of total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security ( the credit loss ) and ( b ) the amount of other-than-temporary impairment related to all other factors . the amount of the total other-than-temporary impairment related to credit loss is recognized in earnings . the amount of other-than-temporary impairment related to other factors is recognized in other comprehensive income ( loss ) . valuation of deferred tax assets . story_separator_special_tag in evaluating the ability to realize deferred tax assets , management considers all positive and negative information , including the company 's past operating results and its forecast of future taxable income . in determining future taxable income , management utilizes a budget process that makes business assumptions , and the implementation of feasible and prudent tax planning strategies . the company also utilizes a monthly forecasting tool to incorporate activity throughout the calendar year . these assumptions require it to make judgments about its future taxable income that are consistent with the plans and estimates it uses to manage its business . the net deferred tax asset may be offset by an equal valuation allowance . any change in estimated future taxable income may result in a reduction of the valuation allowance against the deferred tax asset , which would result in income tax benefit in the period . fair value measurements . fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability ( an exit price ) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date . valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs . a three-level of fair value hierarchy prioritizes the inputs used to measure fair value : level 1—quoted prices in active markets for identical assets or liabilities ; includes certain u.s. treasury and other u.s. government agency debt that is highly liquid and actively traded in over-the-counter markets . level 2—inputs other than level 1 that are observable , either directly or indirectly , such as quoted prices for similar assets or liabilities , quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities . level 3—unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities . level 3 assets and liabilities include financial instruments whose value is determined using pricing models , discounted cash flow methodologies or similar techniques , as well as instruments for which the determination of fair value requires significant management judgment or estimation . the asset or liability 's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement . comparison of financial condition at december 31 , 2018 , and december 31 , 2017 assets . total assets increased $ 345.5 million , or 37.0 % , to $ 1.3 billion at december 31 , 2018 compared to $ 934.5 million at december 31 , 2017. cash and due from banks increased $ 32.7 million , or 158.7 % , to $ 53.4 million at december 31 , 2018 compared to $ 20.6 million at december 31 , 2017. this is primarily the result of deposit growth . 41 investment securities classified as available-for-sale increased $ 101.8 million , or 82.4 % , to $ 225.4 million at december 31 , 2018 compared to $ 123.6 million at december 31 , 2017. this increase was primarily the result of securities acquired in the fwvb merger . loans , net , increased $ 167.7 million , or 22.8 % , to $ 903.3 million at december 31 , 2018 compared to $ 735.6 million at december 31 , 2017. this was primarily due to the fwvb acquired loan portfolio of $ 95.5 million and net loan originations of $ 37.5 million in commercial real estate loans , $ 15.4 million in residential mortgage loans , $ 12.7 million in construction loans , $ 7.9 million in other loans , $ 5.3 million in commercial and industrial loans and $ 4.6 million in consumer loans , partially offset by $ 10.3 million of sold residential mortgage loans to the fhlb mpf program . there was a decrease of $ 2.8 million in impaired loans due to mitigated credit risk and loan payoffs contributing to a decrease in nonperforming loans to total loans . this ratio decreased to 0.69 % , 28 basis points , or 28.9 % at december 31 , 2018 , compared to 0.97 % at december 31 , 2017. premises and equipment , net , increased $ 6.7 million , or 40.3 % , to $ 23.4 million at december 31 , 2018 compared to $ 16.7 million at december 31 , 2017. this is due to the additions related to the eight branch locations from the fwvb merger . in addition , there was $ 3.5 million related to the new barron p. “ pat ” mccune jr. corporate center ( “ bpmcc ” ) that was placed into service and capitalized in the current year . the bpmcc building was previously taken into premises and equipment from a previously defaulted loan relationship in the first quarter of 2016. liabilities . total liabilities increased $ 301.1 million , or 35.8 % , to $ 1.1 billion at december 31 , 2018 compared to $ 841.2 million at december 31 , 2017. total deposits increased $ 313.3 million , or 40.5 % , to $ 1.1 billion at december 31 , 2018 compared to $ 773.3 million at december 31 , 2017. there were increases of $ 77.6 million in savings accounts , $ 73.5 million in now accounts , $ 64.7 million in demand deposits , $ 50.7 million in money market accounts and $ 50.6 million in time deposits , partially offset by a decrease of $ 3.8 million in brokered deposits . this increase is due to approximately $ 281.6 million of deposits acquired in the fwvb merger on april 30 , 2018 and these deposits increased by $ 5.2 million as of december 31 , 2018. this increase is largely the result of school district and municipal deposits during the current period .
| there was an increase of $ 7.7 million in the average balance on securities exempt from federal tax and a decrease of 37 basis points in yield as a result of the prior year reduction in the federal statutory income tax rate from 34 % to 21 % . other interest and dividend income increased $ 134,000 as a result of increased interest earned on correspondent deposit banks and fhlb dividends in the current year . interest income on federal funds sold increased $ 89,000 , mainly due to an increase of 158 basis points in other interest-earning assets comprised mainly of interest-bearing cash . although the average balance decreased by $ 7.7 million for the current year , the four quarterly interest rate hikes of 25 basis points each by the frb overshadowed the average balance decline . interest expense increased $ 2.6 million , or 76.3 % , to $ 5.9 million for the year ended december 31 , 2018 compared to $ 3.4 million for the year ended december 31 , 2017. interest expense on deposits increased $ 2.2 million due to current year rate increases and an increase in average interest-bearing deposits of $ 159.7 million which is attributed primarily to the fwvb merger . the average cost of interest-bearing deposits increased 19 basis points . in addition , interest expense on short-term borrowings increased $ 439,000 in the current period primarily due to increased interest rates on fhlb overnight borrowings that had an average balance increase of $ 19.5 million and an average balance increase of $ 3.0 million on securities sold under agreements to repurchase . provision for loan losses . the provision for loan losses increased $ 655,000 , to $ 2.5 million , for the year ended december 31 , 2018 , compared to $ 1.9 million of provision for loan losses for the year ended december 31 , 2017 , of which $ 250,000 was attributed to the ffco acquired loan portfolio . net charge-offs for the year ended december 31 ,
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the cares act contains additional protections for homeowners and renters of properties with federally backed mortgages , including a 60-day moratorium on the initiation of foreclosure proceedings beginning on march 18 , 2020 and a 120-day moratorium on initiating eviction proceedings effective march 27 , 2020. borrowers of federally backed mortgages have the right under the cares act to request up to 360 days of forbearance on their mortgage payments if they experience financial hardship directly or indirectly due to the coronavirus-related public health emergency . fannie mae and freddie mac have extended their moratorium on foreclosures and evictions for single family federally backed mortgages until at least february 28 , 2021. also pursuant to the cares act , the u.s. treasury has the authority to provide loans , guarantees and other investments in support of eligible businesses , states and municipalities affected by the economic effects of covid-19 pandemic . some of these funds have been used to support the several federal reserve board programs and facilities described below or additional programs or facilities that are established by the federal reserve board under its section 13 ( 3 ) authority and meeting certain criteria . the cares act also includes several measures that temporarily adjust existing laws or regulations . these include providing the fdic with additional authority to guarantee the deposits of solvent insured depository 51 institutions held in noninterest-bearing business transaction accounts to a maximum amount specified by the fdic , reinstating the fdic 's temporary liquidity guarantee authority to guarantee debt obligations of solvent insured depository institutions or depository institution holding companies and temporarily allowing the treasury to fully guarantee money market mutual funds . the cares act provides financial institutions with the option to suspend gaap requirements for covid-19-related loan modifications that would otherwise constitute troubled debt restructurings and further requires the federal banking agencies to defer to financial institutions ' determinations in making such suspensions . federal reserve board actions the federal reserve board has taken a range of actions to support the flow of credit to households and businesses . for example , on march 15 , 2020 , the federal reserve board reduced the target range for the federal funds rate to 0 to 0.25 % and announced that it would increase its holdings of u.s. treasury securities and agency mortgage-backed securities and begin purchasing agency commercial mortgage-backed securities . the federal reserve board has stated that it expects to hold interest rates near zero for several years . the federal reserve board has also encouraged depository institutions to borrow from the discount window and has lowered the primary credit rate for such borrowing by 150 basis points while extending the term of such loans up to 90 days . reserve requirements have been reduced to zero as of march 26 , 2020. in addition , the federal reserve board established a range of facilities and programs to support the u.s. economy and u.s. marketplace participants in response to economic disruptions associated with covid-19 pandemic . through these facilities and programs , the federal reserve board , relying on its authority under section 13 ( 3 ) of the federal reserve act , has taken steps to directly or indirectly purchase assets from , or make loans to , u.s. companies , financial institutions , municipalities and other market participants . some of these facilities stopped purchasing assets or making loans as of december 31 , 2020. federal reserve board facilities and programs that expired as of december 31 , 2020 included : three main street loan facilities to purchase loan participations , under specified conditions , from banks lending to small and medium u.s. businesses ; a primary market corporate credit facility to purchase corporate bonds directly from , or make loans directly , to eligible participants ; a secondary market corporate credit facility to purchase corporate bonds trading in secondary markets , including from exchange-traded funds , that were issued by eligible participants ; a term asset-backed securities loan facility to make loans secured by asset-backed securities ; and a municipal liquidity facility to purchased bonds directly from u.s. state , city and county issuers . the federal reserve board facilities and programs that will expire on march 31 , 2021 include : a paycheck protection program liquidity facility to provide financing to related to paycheck protection program loans made by banks ; a primary dealer credit facility to provide liquidity to primary dealers through a secured lending facility ; a commercial paper funding facility to purchase the commercial paper of certain u.s. issuers ; and a money market mutual fund liquidity facility to purchase certain assets from , or make loans to , financial institutions providing financing to eligible money market mutual funds . 52 capital the company 's tier 1 and cet1 ratios were 13.61 % and 13.28 % , respectively at december 31 , 2020 , compared to 12.83 % and 12.49 % , respectively at december 31 , 2019 , under the u.s. basel iii final rule . for more information , see “ capital ” in this management 's discussion and analysis of financial condition and results of operations , item 1. business - supervision , regulation and other factors - capital , and note 16 , regulatory capital requirements and dividends from subsidiaries , in the notes to the consolidated financial statements in this annual report on form 10-k. liquidity the company 's sources of liquidity include customers ' interest-bearing and noninterest-bearing deposit accounts , loan principal and interest payments , investment securities , and borrowings . as a holding company , the parent 's primary source of liquidity is the bank . story_separator_special_tag due to the net earnings restrictions on dividend distributions , the bank was not permitted to pay any dividends at december 31 , 2020 and 2019 without regulatory approval . the parent paid no common dividends to its sole shareholder , bbva , during 2020. as noted in item 1. business - supervision , regulation and other factors , as a result of the tailoring rules , the company was not subject to the lcr requirements as of december 31 , 2020 but as the company became a category iv u.s. ihc under the tailoring rules as of december 31 , 2020 , it will be subject to the lcr requirements again in the future . at december 31 , 2020 , the company 's lcr was 144 % and was fully compliant with the lcr requirements . management believes that the current sources of liquidity are adequate to meet the company 's requirements and plans for continued growth . for more information , see below under “ liquidity management ” in this management 's discussion and analysis of financial condition and results of operations , and note 10 , fhlb and other borrowings , note 11 , shareholder 's equity , and note 15 , commitments , contingencies and guarantees , in the notes to the consolidated financial statements . critical accounting policies and estimates the accounting principles followed by the company and the methods of applying these principles conform with accounting principles generally accepted in the united states of america and with general practices within the banking industry . the company 's critical accounting policies relate to the allowance for loan losses and goodwill impairment . these critical accounting policies require the use of estimates , assumptions and judgments which are based on information available as of the date of the financial statements . accordingly , as this information changes , future financial statements could reflect the use of different estimates , assumptions and judgments . certain determinations inherently have a greater reliance on the use of estimates , assumptions and judgments and , as such , have a greater possibility of producing results that could be materially different than originally reported . allowance for loan losses : management 's policy is to maintain the allowance for loan losses at a sufficient level reflecting management 's estimate of expected losses over the life of the portfolio . management performs periodic and systematic detailed reviews of its loan portfolio to identify trends and to assess the overall collectability of the loan portfolio . management estimates the allowance balance using relevant available information , from internal and external sources , relating to past events , current conditions , and reasonable and supportable forecasts . historical credit loss experience provides the basis for the estimation of expected credit losses . adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards , portfolio mix , delinquency level , or term as well as for changes in environmental conditions , such as changes in unemployment rates , gross domestic product , or other relevant factors . the company has internally developed a macroeconomic forecast which projects over a four-year reasonable and supportable forecast period . management may change the horizon of the forecast based on changes in sources of forecast information or management 's ability to develop a reasonable and supportable forecast . after the reasonable and supportable forecast period , the company reverts to long run historical average default probabilities and loss severities using a linear function , with a variable speed determined on a portfolio basis . 53 while management uses the best information available to establish the allowance for loan losses , future adjustments to the allowance for loan losses and methodology may be necessary if economic or other conditions differ substantially from the assumptions used in making the estimates . such adjustments to original estimates , as necessary , are made in the period in which these factors and other relevant considerations indicate that loss levels vary from previous estimates . a detailed discussion of the methodology used in determining the allowance for loan losses is included in note 1 , summary of significant accounting policies , in the notes to the consolidated financial statements . goodwill impairment : it is the company 's policy to assess goodwill for impairment at the reporting unit level on an annual basis or between annual assessments if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value . accounting standards require management to estimate the fair value of each reporting unit in assessing impairment at least annually . as such , the company engages an independent valuation expert to assist in the computation of the fair value estimates of each reporting unit as part of its annual assessment . this assessment utilizes a blend of income and market based valuation methodologies . the impairment testing process conducted by the company begins by assigning net assets and goodwill to each reporting unit . the company then completes the impairment test by comparing the fair value of each reporting unit with the recorded book value of its net assets , with goodwill included in the computation of the carrying amount . if the fair value of a reporting unit exceeds its carrying amount , goodwill of that reporting unit is not considered impaired . if the carrying amount of a reporting unit exceeds its fair value , an impairment loss is recognized in an amount equal to that excess .
| commercial real estate loans totaled $ 13.6 billion at december 31 , 2020 , compared to $ 13.9 billion at december 31 , 2019 , and real estate - construction loans totaled $ 2.5 billion at december 31 , 2020 and $ 2.0 billion at december 31 , 2019. this segment consists primarily of extensions of credit to real estate developers and investors for the financing of land and buildings , whereby the repayment is generated from the sale of the real estate or the income generated by the real estate property . the company attempts to minimize risk on commercial real estate properties by various means including requiring collateral values that exceed the loan amount , adequate cash flow to service the debt , and the personal guarantees of principals of the borrowers . in order to minimize risk on the construction portfolio , the 76 company has established an operations group outside of the lending staff which is responsible for loan disbursements during the construction process . the following tables present the geographic distribution for the commercial real estate and real estate - construction portfolios . table 22 commercial real estate replace_table_token_24_th table 23 real estate – construction replace_table_token_25_th residential real estate the residential real estate portfolio includes residential real estate - mortgage loans , equity lines of credit and equity loans . the residential real estate portfolio primarily contains loans to individuals , which are secured by single-family residences . loans of this type are generally smaller in size than commercial real estate loans and are geographically dispersed throughout the company 's market areas , with some guaranteed by government agencies or 77 private mortgage insurers . losses on residential real estate loans depend , to a large degree , on the level of interest rates , the unemployment rate , economic conditions and collateral values . residential real estate - mortgage loans totaled $ 13.3 billion at december 31 , 2020 and $ 13.5 billion at december 31 , 2019. risks associated with residential real estate - mortgage loans are mitigated through rigorous underwriting procedures , collateral values established by independent appraisers and mortgage insurance . in addition , the
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during fiscal 2014 , the only asset management agreement of five island asset management , llc ( “ fiam ” ) , another of our asset managers , was terminated by front street and the operations of fiam were wound down . through salus , we are a provider of asset-based loans to the middle market across a variety of industries . an asset-based loan is a financing tool where the decision to lend is primarily based on the value of a borrower 's collateral . while salus has developed a variety of processes to value and monitor the collateral related to its loans and maintain its lien position in the collateral securing its loans , there can be no assurance that salus will not suffer a partial or complete loss if any of the loans become non-performing . as of september 30 , 2015 , salus ' loans were funded through capital commitments from salus ' equity , funds committed by fgl insurance and front street cayman as participants and funds committed by salus ' collateralized loan obligation ( “ clo ” ) securitization . as of september 30 , 2015 , salus , along with its co-lenders fgl insurance and front street cayman , have funded loans totaling $ 395.9 million aggregate principal amount outstanding on a consolidated basis . as of september 30 , 2015 , $ 125.5 million of salus ' loans were delinquent in payment and the loan loss allowance established for these loans was $ 56.6 million . during fiscal 2015 , following certain organizational changes at salus , salus determined to focus its efforts primarily on monitoring , servicing and collecting its existing loans and not to underwrite any new loans . salus may , however , pursue other opportunities that it may consider strategically advantageous or complimentary to its efforts to collect its existing loans . it is expected that salus ' operations will significantly diminish as it collects on the loan in its portfolio . coramerica is a commercial real estate lender which originates and acquires both senior and subordinated mortgage loans for commercial and multi-family properties located in the u.s. coramerica commenced operations in 2009 and originates and acquires loans on various types of income-producing properties , including apartments , industrial properties , manufactured housing , mixed-use properties , office buildings and retail properties . coramerica manages commercial mortgage loans , as well as fixed-income assets based on its assessment of risk-adjusted returns and inefficiencies in the marketplace . eic is a debt capital investment manager specializing in direct lending to companies in the north america energy and infrastructure sectors . eic commenced operations on april 3 , 2014 and seeks to provide customized financing solutions by bringing together capital , domain expertise and investment experience to structure customized financing solutions . 104 highlights for fiscal 2015 : significant transactions and activity consumer products segment in october 2014 , spectrum brands completed the $ 30.3 million cash acquisition of tell manufacturing , inc. ( “ tell ” ) , a leading manufacturer and distributor of commercial doors , locks and hardware . in december 2014 , spectrum brands issued $ 250.0 million aggregate principal amount of 6.125 % unsecured notes due 2024 at par ( the “ 6.125 % notes ” ) and entered into a new term loan facility in an aggregate principal amount of 150.0 million ( the “ new term loan facility ” ) . on december 31 , 2014 , spectrum brands completed the $ 115.7 million acquisition , net of working capital adjustments , of proctor & gamble 's european pet food business consisting of the iams and eukanuba brands ( “ european iams and eukanuba ” ) , leading premium brands for dogs and cats . on january 16 , 2015 , spectrum brands completed the $ 146.8 million acquisition , net of working capital adjustments , of salix animal health llc ( “ salix ” ) , the world 's leading and largest vertically integrated producer and distributor of premium , natural rawhide dog chews , treats and snacks . on may 20 , 2015 , spectrum brands issued $ 1.0 billion aggregate principal amount of 5.75 % unsecured notes due 2024 at par ( the “ 5.75 % notes ” ) . on may 21 , 2015 , spectrum brands acquired armored autogroup parent inc ( “ aag ” ) , the leader in the us automotive aftermarket appearance category . spectrum financed the acquisition through a combination of the 5.75 % notes issued and a registered offering of $ 575 million of spectrum brands common stock . in the registered offering , hrg acquired 49 % of the common stock offered thereby . on june 23 , 2015 , spectrum brands refinanced all of its outstanding indebtedness under its existing term loans and asset based lending revolving credit facility ( the “ existing facilities ” ) with a new senior secured credit facility consisting of term loans in the amount of $ 1,450.0 million , 300.0 million and cad $ 75.0 million ( collectively defined as the “ term loan ” ) and a $ 500.0 million revolving credit facility ( the “ revolver facility ” and together with the term loan , the “ new facilities ” ) . the proceeds from the term loan and draws on the revolver facility were used to repay spectrum brands ' then-existing senior term credit facility ( the “ prior term loan ” ) , repay spectrum brands ' outstanding 6.75 % senior unsecured notes ( the “ 6.75 % notes ” ) , repay the spectrum brands ' then-existing asset based revolving loan facility ( the “ prior revolver facility ” ) , and to pay fees and expenses in connection with the refinancing and for general corporate purposes . insurance segment in november 2014 , front street cayman , a wholly-owned subsidiary of hrg , purchased ability reinsurance ( bermuda ) limited ( “ ability re ” ) from ability reinsurance holdings limited for $ 19.2 million . story_separator_special_tag during fiscal 2015 front street cayman also closed three additional reinsurance transactions with unaffiliated parties . in fiscal 2015 , fgl began a strategic review process for the company . on november 8 , 2015 , anbang insurance group co. , ltd. ( “ anbang ” ) entered into a definitive merger agreement to acquire fgl for $ 26.80 per share ( the “ fgl merger ” ) . pursuant to this agreement , anbang will acquire all of the outstanding shares of fgl . stockholders of fgl will receive $ 26.80 per share in cash at closing . at the date of the transaction , the company owned 47 million shares , or 80.5 % of fgl . asset management segment during fiscal 2015 , the bankruptcy court overseeing the chapter 11 proceedings of radioshack corp. ( “ radioshack ” ) approved the sale of 1,743 of the company 's stores to general wireless inc. , an affiliate of standard general lp . salus was the lender under radioshack 's $ 250.0 million term loan placed in december 2013 with a net exposure to our insurance and asset management segments of $ 57.0 million and $ 93.0 million , respectively after giving effect to a non-qualifying participation of $ 100.0 million held by a third party that was fully repaid in fiscal 2015. the extent to which salus will be able to recover amounts owed to it by radioshack is dependent on a number of factors , including the results of asset sales , only some of which have been completed to date , and ongoing litigation . the expected recovery on the radioshack loan , excluding any additional proceeds from ongoing litigation , resulted in an impairment of $ 101.0 million recognized across our insurance segment ( $ 40.0 million , after eliminations ) and asset management segment ( $ 61.0 million ) for fiscal 2015 . salus also recorded additional specific impairments of $ 32.3 million in fiscal 2015 primarily related to nine loans where the underlying collateral was underperforming . during fiscal 2015 , salus initiated restructuring of its clo vehicle via a special redemption of outstanding unaffiliated senior debt tranches in order to reduce the clo 's outstanding leverage and borrowing costs . during fiscal 2015 , we acquired additional 34 % ownership in coramerica for $ 5.2 million , bringing our total ownership to 51 % . 105 energy segment on october 31 , 2014 , our wholly-owned subsidiary , hgi energy acquired approximately 25.5 % interests in compass from exco for $ 118.8 million in cash , resulting in hgi energy 's ownership interest in compass increasing to 99.8 % . the change in control resulting from the acquisition of exco 's interest in compass resulted in the remeasurement of our initial basis in compass at fair value which increased the compass ' full cost pool by $ 145.4 million primarily due to the valuation of proved developed and undeveloped oil and natural gas properties . during fiscal 2015 , our energy segment recorded impairments to its oil and natural gas properties of $ 485.1 million based on the ceiling test limitation under full cost method of accounting . the impairments were primarily due to the decline in oil and natural gas prices as well as the increased full cost pool that resulted from the remeasurement of our initial basis in compass and the acquisition of exco 's interest on october 31 , 2014. in june 2015 , compass completed the $ 19.2 million sale of certain oil and natural gas properties in northern louisiana . in october , subsequent to the fiscal year end , compass entered into an agreement to sell its holly , waskom , and danville assets to a third party for $ 160.0 million in cash , subject to customary closing conditions and adjustments . the transaction is expected to close on december 1 , 2015. proceeds from the sale are expected to be used to reduce compass ' outstanding debt . corporate and other segment on november 25 , 2014 , the company announced that philip falcone , hrg 's then chief executive officer ( “ ceo ” ) and chairman of the board of directors ( “ the board ” ) had , effective december 1 , 2014 , resigned from his positions with the company . in connection with his departure , on november 25 , 2014 , the company and mr. falcone entered into a separation and general release agreement pursuant to which mr. falcone was paid $ 20.5 million as a one-time payment , $ 16.5 million , which constituted the unpaid portion of mr. falcone 's fiscal 2014 annual bonus ( in cash , rather than a combination of cash and equity ) and $ 3.3 million , which constituted a pro-rata bonus for fiscal 2015 ( in cash , rather than a combination of cash and equity ) for service through december 1 , 2014 , based on anticipated results . on march 6 , 2015 , hrg appointed omar asali , our then president , to the additional position of ceo . during fiscal 2015 , we changed our view of the strategic direction of frederick 's of hollywood ( “ foh ” ) following the departure of the company 's former ceo during the first fiscal quarter of 2015 , which triggered goodwill and intangibles impairment tests . the tests resulted in total impairments of $ 60.2 million to goodwill and the intangible assets . on april 19 , 2015 , foh commenced a chapter 11 bankruptcy case in the united states bankruptcy court for the district of delaware .
| the $ 85.6 million improvement was the result of ( i ) a $ 176.2 million increase in cash provided by the consumer products segment ; and ( ii ) a $ 7.1 million increase in cash provided by the energy segment ; offset by ( i ) a $ 48.1 million decrease in cash provided by the insurance segment ; ( ii ) a $ 33.0 million increase in cash used by the corporate and other segment ; and ( iii ) a $ 16.6 million increase in cash used by the asset management segment . the $ 176.2 million increase in cash provided by operating activities in the consumer products segment was primarily due to higher earnings of $ 79.0 million ; ( ii ) $ 66.0 million increase in cash generated from working capital and other items driven by lower accounts receivable and inventory , partially offset by lower accounts payable and other working capital items ; ( iii ) lower cash payments for interest of $ 46.0 million ; and ( iv ) lower cash acquisition , integration and restructuring related costs of $ 14.0 million . these increases in cash provided by operating activities were partially offset by higher cash payments for income taxes of $ 31.0 million . the insurance segment 's $ 48.1 million decrease in cash provided by operating activities was primarily due to higher policy acquisition costs resulting from an increase in product sales from fiscal 2013 to fiscal 2014 and income taxes paid , partially offset by higher net investment income receipts . the $ 33.0 million increase in cash used by the operating activities in the corporate and other segments was primarily due to increase in interest cash payments of $ 33.0 million driven by higher outstanding debt levels in fiscal 2014 as compared to fiscal 2013 . investing activities cash used in investing activities during fiscal 2015 was $ 2.0 billion primarily driven by ( i ) $ 1.3 billion used for the acquisitions of aag , european iams and eukanuba , salix and tell in the consumer products segment and the acquisition of exco 's remaining 25.5 %
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headcount increased from 1,776 employees at december 31 , 2017 to 2,035 employees at december 31 , 2018 which led to a net increase in compensation and related costs of $ 10.2 million which included an overall reduction in self-insurance costs as a result of lower medical claims during the period . cost of software and other . cost of software and other fees consists primarily of third-party royalty fees for our end-user software products . certain of these products were developed using third-party research and development resources , and the third party receives royalty payments on sales of products it developed . the modest decrease in cost of software and other was mainly driven by lower 3 rd party fees . total gross margin decreased from 21 % to 17 % year-over-year which was primarily due to the non-proportional increase in sales as compared with the increase in overall costs . operating expenses for the year ended december 31 , 2018 increased by $ 7.7 million or 54 % from 2017. the increase is primarily related to a $ 10.0 million legal settlement with a ftc related investigation that was agreed to on november 6 , 2018 and remains unpaid as of december 31 , 2018. this increase was offset by lower research and development costs of $ 0.3 million , lower sales and marketing costs of $ 0.6 million , a decrease in general and administration costs of $ 1.3 million , all of which are due to cost reduction efforts throughout 2017 which lowered overall costs in 2018. these cost reduction efforts impacted compensation and benefits related expenses , office , travel , and consulting expenses . we intend the following discussion of our financial condition and results of operations to provide information that will assist in understanding our consolidated financial statements , the changes in certain key items in those consolidated financial statements from year to year , and the primary factors that accounted for those changes , as well as how certain accounting principles , policies and estimates affect our consolidated financial statements . 25 critical accounting policies and estimates in preparing our consolidated financial statements in conformity with generally accepted accounting principles in the united states , we make assumptions , judgments and estimates that can have a significant impact on our revenue and operating results , as well as on the value of certain assets and liabilities on our consolidated balance sheet . we base our assumptions , judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances . actual results could differ materially from these estimates under different assumptions or conditions . on a regular basis we evaluate our assumptions , judgments and estimates and make changes accordingly . we believe that the assumptions , judgments and estimates involved in the accounting for revenue recognition , fair value measurements , purchase accounting in business combinations , self-insurance accruals , accounting for intangible assets , stock-based compensation and accounting for income taxes have the greatest potential impact on our consolidated financial statements , so we consider these to be our critical accounting policies . we discuss below the critical accounting estimates associated with these policies . for further information on the critical accounting policies , see note 1 of our notes to consolidated financial statements . revenue recognition on january 1 , 2018 , the company adopted financial accounting standards board ( `` fasb '' ) accounting standards codification topic 606 , revenue from contracts with customers ( “ asc 606 '' ) . as a result , the company changed its accounting policy for revenue recognition and applied asc 606 using the modified retrospective method . typically , this approach would result in recognizing the cumulative effect of initially applying asc 606 as an adjustment to the opening retained earnings at january 1 , 2018 , while prior period amounts are not adjusted and continue to be reported in accordance with the company 's historic revenue recognition methodology under asc 605 , revenue recognition . based on our assessment of the guidance in asc 606 , the company did not have a material change in financial position , results of operations , or cash flows and therefore there is no cumulative impact recorded to opening retained earnings . however , we have included additional qualitative and quantitative disclosures about our revenues as is required under the new revenue standard . disaggregation of revenue we generate revenue from the sale of services and sale of software fees for end-user software products provided through direct customer downloads and through the sale of these end-user software products via partners . the following table depicts the disaggregation of revenue ( in thousands ) according to revenue type and is consistent with how we evaluate our financial performance : revenue from contracts with customers : replace_table_token_4_th fair value measurements asc 820 , fair value measurements and disclosures , defines fair value , establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements . fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date . valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs . the standard describes a fair value hierarchy based on three levels of inputs , of which the first two are considered observable and the last unobservable , that may be used to measure fair value , which are the following : 26 ● level 1 - quoted prices in active markets for identical assets or liabilities . story_separator_special_tag therefore , determining fair value for level 1 instruments generally does not require significant management judgment , and the estimation is not difficult . ● level 2 - inputs other than level 1 that are observable , either directly or indirectly , such as quoted prices for similar assets or liabilities ; quoted prices in markets that are not active ; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities . level 2 instruments require limited management judgment . ● level 3 - unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities . the determination of fair value for level 3 instruments requires the most management judgment and subjectivity . our level 2 securities are priced using quoted market prices for similar instruments , nonbinding market prices that are corroborated by observable market data , or discounted cash flow techniques . marketable securities , measured at fair value using level 2 inputs , are primarily comprised of commercial paper , corporate bonds , corporate notes and u.s. government agencies securities . we review trading activity and pricing for these investments as of the measurement date . when sufficient quoted pricing for identical securities is not available , we use market pricing and other observable market inputs for similar securities obtained from various third-party data providers . these inputs either represent quoted prices for similar assets in active markets or have been derived from observable market data . stock-based compensation we account for stock-based compensation in accordance with the provisions of asc 718 , compensation - stock compensation . under the fair value recognition provisions of asc 718 , stock-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period of the award . we estimate the fair value of stock-based awards on the grant date using ( i ) the black-scholes-merton option-pricing model for service-based stock options and ( ii ) the quoted prices of the company 's common stock for restricted stock units . determining the appropriate fair value model and calculating the fair value of stock-based awards requires judgment , including estimating stock price volatility , forfeiture rates and expected life . if any of these assumptions used in the option-pricing models change , our stock-based compensation expense could change on our consolidated financial statements . accounting for income taxes we are required to estimate our income taxes in each of the tax jurisdictions in which we operate . this process involves management 's estimation of our current tax exposures together with an assessment of temporary differences determined based on the difference between the financial statement and tax basis of certain items . these differences result in net deferred tax assets and liabilities , which are included in our consolidated balance sheet . we must assess the likelihood that we will be able to recover our deferred tax assets . if recovery is not likely , we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable . we currently have provided a full valuation allowance on our u.s. deferred tax assets that management determined are not likely to be realized due to cumulative net losses since inception and the difficulty in accurately forecasting the company 's results . in addition , we currently have provided a partial valuation allowance on certain foreign deferred tax assets . if any of our estimates change , we may change the likelihood of recovery and our tax expense as well as the value of our deferred tax assets would change . our income tax calculations are based on the application of the respective u.s. federal , state or foreign tax law . the company 's tax filings , however , are subject to audit by the respective tax authorities . accordingly , we recognize tax liabilities based on our estimate of whether , and the extent to which , additional taxes will be due when such estimates are more-likely-than-not to be sustained . an uncertain income tax position will not be recognized if it has less than a 50 % likelihood of being sustained . our policy is to include interest and penalties related to unrecognized tax benefits as a component of income tax expense . to the extent the final tax liabilities are different than the amounts originally accrued , the increases or decreases are recorded as income tax expense or benefit in the consolidated statements of operations . 27 story_separator_special_tag padding-bottom:2px ; width:10 % ; vertical-align : bottom ; display : inline-block ; '' > 2017 interest income and other , net $ 965 50 % $ 643 interest income and other , net . interest income and other , net consists primarily of interest income on our cash , cash equivalents and short-term investments . the increase in interest income and other , net of $ 0.3 million for the year ended december 31 , 2018 compared to 2017 was primarily due to due to higher interest rate and higher yields on corporate and government debt investments . 30 income tax provision ( benefit ) ( $ in thousands ) 2018 % change 2017 to 2018 2017 income tax provision ( benefit ) $ ( 1 ) ( 100 ) % $ 604 income tax provision ( benefit ) . the income tax provision ( benefit ) is comprised of estimates of current taxes due in domestic and foreign jurisdictions and changes in deferred tax balances .
| for the year ended december 31 , 2018 , direct software and other revenue was $ 2.8 million compared to $ 2.7 million for 2017 . for the year ended december 31 , 2018 , software and other revenue generated from our partnerships was $ 2.2 million compared to $ 2.7 million for 2017 . revenue mix the components of revenue , expressed as a percentage of total revenue were : replace_table_token_7_th for the year ended december 31 , 2018 , comcast and cox communications accounted for 69 % and 15 % of our total revenue , respectively . for the year ended december 31 , 2017 , comcast accounted for 65 % of our total revenue . no other customers accounted for 10 % or more of our total revenue in any year presented . revenue from customers outside the united states accounted for less than 1 % of our total revenue in 2018 and 2017. cost of revenue replace_table_token_8_th cost of services . cost of services consists primarily of compensation costs and contractor expenses for people providing services , technology and telecommunication expenses related to the delivery of services and other personnel-related expenses in service delivery . the increase of $ 10.3 million in cost of services for the year ended december 31 , 2018 compared to 2017 includes an increase in compensation and benefits charges of $ 12.8 million related to increases in headcount , offset by a $ 2.5 million decrease in self-insurance cost and related employee benefits due to lower medical claims . cost of software and other . cost of software and other fees consists primarily of third-party royalty fees for our end-user software products , wages , and processing fees . certain of these products were developed using third-party research and development resources , and the third party receives royalty payments on sales of products it developed . cost of software and other were relatively flat year-over-year . 29 operating expenses replace_table_token_9_th
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increased competition for limited offshore oil and gas projects has driven down rates that drilling rig contractors are charging for their services , which affects us , as drilling rigs historically have been the asset class used for intervention work . this rig overhang combined with lower volumes of work may affect the utilization and or rates we can achieve for our assets . in addition , the current volatile and uncertain macroeconomic conditions in some countries around the world , such as brazil and the u.k. following brexit , may have a direct and or indirect impact on our existing contracts and contracting opportunities and may introduce further currency volatility into our operations and or financial results . the recently enacted u.s. tax cuts and jobs act ( the “ 2017 tax act ” ) may also introduce uncertainty in terms of capital spending by oil and gas companies . many oil and gas companies are increasingly focusing on optimizing production of their existing subsea wells . we believe that we have a competitive advantage in terms of performing well intervention services efficiently . furthermore , we believe that when oil and gas companies begin to increase overall spending levels , it will likely be for production enhancement activities rather than for exploration projects . our well intervention and robotics operations are intended to service the life span of an oil and gas field as well as to provide abandonment services at the end of the life of a field as required by governmental regulations . thus over the longer term , we believe that fundamentals for our business remain favorable as the need for prolongation of well life in oil and gas production is the primary driver of demand for our services . our current strategy is to be positioned for future recovery while coping with a sustained period of weak activity . this strategy is based on the following factors : ( 1 ) the need to extend the life of subsea wells is significant to the commercial viability of the wells as plug and abandonment costs are considered ; ( 2 ) our services offer commercially viable alternatives for reducing the finding and development costs of reserves as compared to new drilling as well as extending and enhancing the commercial life of subsea wells ; and ( 3 ) in past cycles , well intervention and workover have been some of the first activities to recover , and in a prolonged market downturn are important to the commercial viability of deepwater wells . 34 business activity summary we have enhanced our financial position and strengthened our balance sheet with proceeds from the sale of certain non-core business assets , which , together with net proceeds from our equity offerings in 2016 and early 2017 as well as liquidity under our revolving credit facility , has allowed us to strategically focus on our core well intervention and robotics businesses . our non-core business asset dispositions since 2009 primarily included the sale of individual oil and gas properties and former reservoir consulting business in 2009 , the sale of our stockholdings in cal dive international , inc. in 2009 , the sale of ert in 2013 , and the disposition of our subsea construction business , including the sale in 2013 of the caesar and express pipelay vessels and the sale in 2014 of the spoolbase facility located in ingleside , texas . our business activities in 2017 included the following : the agreement providing access to the hfrs was amended effective february 1 , 2017 to extend the term of the agreement by one year to march 31 , 2019 and to reduce the retainer fee ; we returned the skandi constructor to its owner in march 2017 upon the expiration of the vessel charter ; the siem helix 2 vessel was delivered to us and the charter term began in february 2017 ; in april 2017 , the siem helix 1 vessel commenced operations for petrobras offshore brazil ; in may 2017 , we took delivery of the grand canyon iii chartered vessel ; and the siem helix 2 vessel commenced operations for petrobras in december 2017. story_separator_special_tag style= '' font-family : arial ; font-size:10pt ; '' > net gain on disposition of assets in 2016 was attributable to the sale of the helix 534 in december 2016 . 37 selling , general and administrative expenses . our selling , general and administrative expenses decreased by $ 2.7 million in 2017 as compared to 2016 . the decrease was primarily attributable to a $ 4.7 million decrease associated with the provision for uncertain collection of a portion of our then existing trade and note receivables as well as our overriding royalty interest asset being fully depreciated in april 2017 , offset in part by an increase in payroll related costs including share-based compensation associated with our long-term incentive plan ( note 11 ) . equity in losses of investments . equity in losses of investments was $ 2.4 million in 2017 as compared to $ 2.2 million in 2016 primarily reflecting an increase in our share of losses that were recorded by independence hub ( note 5 ) . net interest expense . our net interest expense totaled $ 18.8 million in 2017 as compared to $ 31.2 million in 2016 reflecting increases in interest income and capitalized interest and a decrease in interest expense . interest income totaled $ 2.6 million for 2017 as compared to $ 2.1 million for 2016 . interest on debt used to finance capital projects is capitalized and thus reduces overall interest expense . capitalized interest totaled $ 16.9 million for 2017 as compared to $ 11.8 million for 2016 . story_separator_special_tag the decrease in interest expense was primarily attributable to a significant reduction in our debt levels including an $ 80 million principal reduction of our term loan in june 2017. interest expense for 2017 and 2016 also included charges of $ 1.6 million and $ 2.5 million , respectively , to accelerate the amortization of a pro-rata portion of debt issuance costs related to the lenders whose commitments in our revolving credit facility were reduced ( note 6 ) . loss on early extinguishment of long-term debt . the $ 0.4 million loss in 2017 was associated with the write-off of the unamortized debt issuance costs related to certain lenders exiting from the term loan then outstanding under our credit agreement prior to its amendment and restatement in june 2017 ( note 6 ) . the $ 3.5 million loss in 2016 was associated with the repurchases of $ 139.9 million in aggregate principal amount of our 2032 notes in 2016. other income ( expense ) , net . we reported other expense , net , of $ 1.4 million for 2017 as compared to other income , net , of $ 3.5 million for 2016 . other income ( expense ) , net , in 2017 and 2016 included foreign currency transaction gains ( losses ) of $ ( 2.2 ) million and $ 0.2 million , respectively . these amounts primarily reflect foreign exchange fluctuations in our non-u.s. dollar currencies . also included in the comparable year-over-year periods were net gains of $ 0.8 million and $ 1.3 million associated with our foreign currency exchange contracts primarily reflecting gains related to the portions of the contracts that were not designated as cash flow hedges ( note 17 ) . in addition , other income , net , for 2016 included a $ 2.0 million net foreign currency translation gain reclassified out of accumulated other comprehensive loss into earnings during the year . income tax benefit . income taxes reflected a benefit of $ 50.4 million in 2017 as compared to $ 12.5 million in 2016 . this variance is primarily due to the effect of u.s. tax law changes enacted in december 2017 , offset in part by a decrease in pretax loss for the current year period and a tax charge in 2017 attributable to a change in tax position related to our foreign taxes . the effective tax rate was 247.5 % for 2017 as compared to 13.3 % for 2016 . the increase was primarily attributable to the effect of the tax law changes , partially offset by the earnings mix between our higher and lower tax rate jurisdictions and the change in tax position related to our foreign taxes ( note 7 ) . 38 comparison of years ended december 31 , 2016 and 2015 the following table details various financial and operational highlights for the periods presented ( dollars in thousands ) : replace_table_token_10_th ( 1 ) 2015 amounts included asset impairment charges ( see discussions below ) . ( 2 ) represents number of vessels or robotics assets as of the end of the period excluding acquired vessels prior to their in-service dates , vessels taken out of service prior to their disposition and vessels jointly owned with a third party . the helix 534 was excluded from the numbers for the entire year of 2016 as it had been stacked and out of service prior to its sale in december 2016. the seawell was excluded from the numbers for the first eight months of 2015 as it was out of service undergoing major capital upgrades . ( 3 ) represents average utilization rate , which is calculated by dividing the total number of days the vessels or robotics assets generated revenues by the total number of calendar days in the applicable period . intercompany segment amounts are derived primarily from equipment and services provided to other business segments at rates consistent with those charged to third parties . intercompany segment revenues are as follows ( in thousands ) : 39 replace_table_token_11_th net revenues . our total net revenues decreased by 30 % in 2016 as compared to 2015. in general , decreased revenues for 2016 reflect both reduced opportunities for work and the acceptance of work at reduced rates for some of our assets in light of the continuation of the industry-wide downturn as a result of the substantial decline in oil prices since late 2014. our well intervention revenues decreased by 21 % in 2016 as compared to 2015 primarily reflecting significantly lower revenues in our north sea region due to lack of work and our acceptance of work at reduced rates , offset in part by revenue increases in our u.s. gulf of mexico region . in the north sea , the well enhancer was 64 % utilized during 2016 while the vessel was 89 % utilized during 2015. the skandi constructor was 4 % utilized during 2016 as compared to being 56 % utilized during 2015. the seawell was re-activated in june 2016 and was 42 % utilized during 2016 as compared to being out of service undergoing its life extension capital upgrades during the first eight months of 2015 and being stacked after those life extension activities were completed in september 2015. in the gulf of mexico , the q4000 was 98 % utilized during 2016 as compared to 71 % utilized during 2015. idle time for the q4000 included 64 days in the second quarter of 2015 for its scheduled dry dock , and some downtime attributable to irs mechanical issues in january 2015. in addition , we recognized $ 15.6 million associated with a work scope cancellation under a “ take or pay ” contract for 42 days of work originally scheduled to be performed by the q4000 in late 2016. the q5000 , which was delivered to us in april 2015 and went on contracted rates under our five-year contract with bp in may 2016 , was 65 % utilized in 2016 due to operational downtime .
| in addition , if there are cancellation fees , the amount of those fees can be substantially less than the rates we would have generated had we performed the contract . accordingly , backlog is not necessarily a reliable indicator of total annual revenues for our services as contracts may be added , renegotiated , deferred , canceled and in many cases modified while in progress , and reduced rates , fines and penalties may be imposed by our customers . 35 comparison of years ended december 31 , 2017 and 2016 the following table details various financial and operational highlights for the periods presented ( dollars in thousands ) : replace_table_token_8_th ( 1 ) represents number of vessels or robotics assets as of the end of the period excluding acquired vessels prior to their in-service dates , vessels taken out of service prior to their disposition and vessels jointly owned with a third party . ( 2 ) represents average utilization rate , which is calculated by dividing the total number of days the vessels or robotics assets generated revenues by the total number of calendar days in the applicable period . intercompany segment amounts are derived primarily from equipment and services provided to other business segments at rates consistent with those charged to third parties . intercompany segment revenues are as follows ( in thousands ) : 36 replace_table_token_9_th net revenues . our total net revenues increased by 19 % in 2017 as compared to 2016 . increased revenues for 2017 reflected higher revenues in our well intervention segment , offset in part by revenue decreases in our robotics and production facilities segments . our well intervention revenues increased by 38 % in 2017 as compared to 2016 primarily reflecting higher revenues generated from all of the well intervention vessels except for the q4000 . in brazil , the siem helix 1 achieved 96 % utilization since it commenced operations for petrobras in mid-april 2017. the siem helix 2 commenced operations for petrobras in mid-december 2017 with 53 % utilization . in the north sea , the well enhancer was 74 % utilized during 2017 while
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as a reit , we can reduce our taxable income by distributing all or a portion of such taxable income to shareholders . future distributions will be declared and paid at the discretion of the board of trustees and will depend upon cash generated by operating activities , our financial condition , capital requirements , annual dividend requirements under the reit provisions of the code , and such other factors as our board of trustees deems relevant . 44 we also participate in the activities conducted by our subsidiary entities that have elected to be treated as trss under the code . as such , we are subject to federal , state , and local taxes on the income from these activities . income taxes attributable to our trss are accounted for under the asset and liability method . under the asset and liability method , deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements , which will result in taxable or deductible amounts in the future . we aggregate our operating segments into three reportable segments ( commercial , multifamily , and third-party asset management and real estate services ) based on the economic characteristics and nature of our assets and services . we compete with a large number of property owners and developers . our success depends upon , among other factors , trends affecting national and local economies , the financial condition and operating results of current and prospective tenants , the availability and cost of capital , interest rates , construction and renovation costs , taxes , governmental regulations and legislation , population trends , zoning laws , and our ability to lease , sublease or sell our assets at profitable levels . our success is also subject to our ability to refinance existing debt on acceptable terms as it comes due . overview we own and operate a portfolio of high-growth commercial and multifamily assets , many of which are amenitized with ancillary retail . our portfolio reflects our longstanding strategy of owning and operating assets within metro-served submarkets in the washington , d.c. metropolitan area that have high barriers to entry and key urban amenities , including being within walking distance of a metro station . as of december 31 , 2019 , our operating portfolio consists of 62 operating assets comprising 44 commercial assets totaling 12.7 million square feet ( 10.7 million square feet at our share ) and 18 multifamily assets totaling 7,111 units ( 5,327 units at our share ) . additionally , we have ( i ) seven assets under construction comprising four commercial assets totaling 943,000 square feet ( 821,000 square feet at our share ) and three multifamily assets totaling 1,011 units ( 833 units at our share ) ; and ( ii ) 40 future development assets totaling 21.9 million square feet ( 18.7 million square feet at our share ) of estimated potential development density . during 2019 , we sold or recapitalized approximately $ 426 million of assets , which included approximately $ 270 million of operating assets , that were identified for sale or recapitalization because of their relatively low expected return potential and their high tax basis , enabling better capital retention . the assets sold or recapitalized generated approximately $ 10 million of noi in 2019. we expect to continue this opportunistic strategy in 2020 by marketing over $ 500 million of assets for sale . based on the current challenging investment sales market , and our opportunistic expectations as a seller , we expect to transact on at least $ 200 million in 2020. also , consistent with our approach to capital recycling , in the competitive washington , d.c. office leasing market , we are focused on retaining tenants and avoiding the costly concessions associated with backfilling vacancy . we believe this approach produces a higher comparable return while better positioning assets for potential sale or recapitalization , and simultaneously de-risking them at a time of greater supply and cyclical downturn risk . the lease renewals we executed in 2017 and 2018 reduced our noi in 2019 , primarily due to free rent associated with these early renewals . because ( i ) the concessions in our commercial portfolio have burned off to stabilized levels , ( ii ) we delivered under construction assets on or ahead of schedule , and ( iii ) we acquired f1rst residences , we expect noi to rebound in 2020. we do not , however , expect to see this noi increase immediately flow through to ffo in 2020 , primarily due to the reduction in capitalized interest from the delivery of our assets under construction . as these assets stabilize , we expect the increase in earnings to offset the increase in interest expense which will increase ffo . since mid-2017 , we have been focused on a comprehensive plan to reposition our holdings in national landing through a broad array of placemaking strategies . our placemaking strategies include the delivery of new multifamily and office developments , locally sourced amenity retail and thoughtful improvements to the streetscape , sidewalks , parks and other outdoor gathering spaces . in keeping with our dedication to placemaking , each new project is intended to contribute to authentic and distinct neighborhoods by creating a vibrant street environment with a robust offering of amenity retail and improved public spaces . in november 2018 , amazon announced it had selected sites that we own in national landing in northern virginia as the location of an additional headquarters . to date , amazon has executed leases totaling approximately 857,000 square feet at five office buildings in our national landing portfolio . in march 2019 , we executed three initial leases with amazon totaling approximately 537,000 square feet at three of our office buildings in national landing . story_separator_special_tag these three initial leases encompass approximately 88,000 square feet at 241 18th street south , approximately 191,000 square feet at 1800 south bell street , and approximately 258,000 square feet at 1770 crystal drive . amazon began moving into 241 18th street south and 1800 south bell in 2019 , and we expect amazon to begin moving into 1770 crystal drive by the end of 2020. in april 2019 , we executed a lease with amazon for an additional approximately 48,000 square feet of office space at 2345 crystal drive in national landing . amazon moved its first employees into 2345 crystal drive during the second quarter of 2019. in december 2019 , we executed a lease with amazon for an additional approximately 272,000 square feet of office space at 2100 crystal drive in national landing . we expect amazon to begin occupying space in 2100 crystal drive in late 2020 . 45 in march 2019 , we also executed purchase and sale agreements with amazon for two of our national landing development sites , metropolitan park and pen place , which will serve as the initial phase of new construction associated with amazon 's new headquarters at national landing . subject to customary closing conditions , amazon contracted to acquire these two development sites for an estimated aggregate $ 293.9 million , or $ 72.00 per square foot based on their combined estimated potential development density of up to approximately 4.1 million square feet . in may 2019 , amazon submitted its plans to arlington county for approval of two new office buildings , totaling 2.1 million square feet , inclusive of over 50,000 square feet of street-level retail with new shops and restaurants , on the metropolitan park land sites . in january 2020 , we sold the metropolitan park land sites to amazon for $ 155.0 million , which represents an $ 11.0 million increase over the previously estimated contract value resulting from an increase in the approved development density on the sites . we expect the sale of the pen place land site to amazon to be completed in 2021. we are the developer , property manager and retail leasing agent for amazon 's new headquarters at national landing . in february 2019 , the commonwealth of virginia enacted an incentives bill , which provides tax incentives to amazon if it creates up to 37,850 full-time jobs with average salaries of $ 150,000 or higher in national landing . as part of the incentive package , we expect $ 1.8 billion in infrastructure and education investments led by state and local governments . key highlights of operating results for the years ended december 31 , 2019 included : net income attributable to common shareholders of $ 65.6 million , or $ 0.48 per diluted common share , for the year ended december 31 , 2019 as compared to $ 39.9 million , or $ 0.31 per diluted common share , for the year ended december 31 , 2018 . net income attributable to common shareholders for the years ended december 31 , 2019 and 2018 included gains on the sale of real estate of $ 105.0 million and $ 52.2 million , and transaction and other costs of $ 23.2 million and $ 27.7 million ; third-party real estate services revenue , including reimbursements , of $ 120.9 million for the year ended december 31 , 2019 as compared to $ 98.7 million for the year ended december 31 , 2018 ; operating commercial portfolio leased and occupied percentages at our share of 91.4 % and 88.2 % as of december 31 , 2019 compared to 89.6 % and 85.5 % as of december 31 , 2018 ; operating multifamily portfolio leased and occupied percentages at our share of 89.5 % and 87.2 % as of december 31 , 2019 and 95.7 % and 93.9 % as of december 31 , 2018 . the decreases are due in part to the movement of west half into our recently delivered operating assets during the fourth quarter of 2019. the in service operating multifamily portfolio was 95.1 % leased and 93.3 % occupied as of december 31 , 2019 ; the leasing of approximately 2.3 million square feet , or 2.1 million square feet at our share , at an initial rent ( 1 ) of $ 45.61 per square foot and a gaap-basis weighted average rent per square foot ( 2 ) of $ 46.31 for the year ended december 31 , 2019 ; and a decrease in same store ( 3 ) noi of 7.0 % to $ 292.3 million for the year ended december 31 , 2019 as compared to $ 314.1 million for the year ended december 31 , 2018 . _ ( 1 ) represents the cash basis weighted average starting rent per square foot , which excludes free rent and fixed escalations . ( 2 ) represents the weighted average rent per square foot that is recognized over the term of the respective leases , including the effect of free rent and fixed escalations . ( 3 ) includes the results of the properties that are owned , operated and in service for the entirety of both periods being compared except for properties for which significant redevelopment , renovation or repositioning occurred during either of the periods being compared . additionally , investing and financing activity during the year ended december 31 , 2019 included : the closing of an underwritten public offering of 11.5 million common shares ( including 1.5 million common shares related to the exercise of the underwriters ' option to cover overallotments ) at $ 42.00 per share , which generated net proceeds , after deducting the underwriting discounts and commissions and other offering expenses , of $ 472.8 million ; the sale of three commercial assets for the gross sales price of $ 165.4 million , and the sale of a 50.0 % interest in a real estate venture that owns central place tower for the gross sales price of $ 220.0 million ; the execution of
| the decrease in property rentals revenue was partially offset by a $ 4.2 million increase in revenue related to 1221 van street , which we placed into service during the first quarter of 2018 , a combined $ 1.9 million increase in revenue related to west half and 4747 bethesda avenue , which were both placed into service during the second half of 2019 , and an increase in straight line rental revenue , primarily related to a ground lease at 1700 m street that was executed in the fourth quarter of 2018. third-party real estate services revenue , including reimbursements , increased by approximately $ 22.2 million , or 22.5 % , to $ 120.9 million in 2019 from $ 98.7 million in 2018 . the increase was primarily due to an $ 8.1 million increase in development fee income and a $ 16.4 million increase in reimbursement revenue primarily driven by construction management revenue , resulting from an increase in construction projects in 2019. depreciation and amortization expense decreased by approximately $ 19.9 million , or 9.4 % , to $ 191.6 million in 2019 from $ 211.4 million in 2018 . the decrease was primarily due to a $ 14.1 million decline related to properties taken out of service for redevelopment and a $ 7.6 million decrease related to the disposed properties . the decrease in depreciation and amortization expense was partially offset by an increase of $ 3.6 million related to 1221 van street , west half and 4747 bethesda avenue . property operating expense decreased by approximately $ 10.5 million , or 7.1 % , to $ 137.6 million in 2019 from $ 148.1 million in 2018 . the decrease was primarily due to an $ 8.3 million decline related to the disposed properties , a $ 3.5 million decline in property operating expenses at courthouse plaza 1 and 2 due to a reduction in ground rent expense ,
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you should read the following descriptions of critical accounting policies , judgments and estimates in conjunction with our audited consolidated financial statements and other disclosures included elsewhere in this annual report . revenues — we recognize revenue when realized or realizable and earned , which is when the following criteria are met : persuasive evidence of an arrangement exists ; delivery has occurred ; the sales price is fixed or determinable ; and collectability is reasonably assured . determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenue we report . if there is an uncertainty about the project completion or receipt of payment for the services , revenues are deferred until the uncertainty is sufficiently resolved . at the time revenues are recognized , we provide for any contractual deductions and reduce revenues accordingly . we defer amounts billed to our clients for revenues not yet earned . such amounts are anticipated to be recorded as revenues as services are performed in subsequent periods . unbilled revenues represent services provided which are billed subsequent to the period end in accordance with the contract terms . we derive our revenues from a variety of service offerings , which represent specific competencies of our it professionals . contracts for these services have different terms and conditions based on the scope , deliverables , and complexity of the engagement , which require management to make judgments and estimates in determining appropriate revenue recognition . fees for these contracts may be in the form of time-and-materials or fixed-price arrangements . the majority of our revenues ( 88.2 % of revenues in 2016 , 85.8 % in 2015 and 84.7 % in 2014 ) are generated under time-and-material contracts whereby revenues are recognized as services are performed with the corresponding cost of providing those services reflected as cost of revenues when incurred . the majority of such revenues are billed on an hourly , daily or monthly basis whereby actual time is charged directly to the client . we expect time-and-material arrangements to continue to comprise the majority of our revenues in the future . revenues from fixed-price contracts ( 10.4 % of revenues in 2016 , 12.8 % in 2015 and 13.6 % in 2014 ) are determined using the proportional performance method . in instances where final acceptance of the product , system , or solution is specified by the client , revenue is deferred until all acceptance criteria have been met . in absence of a sufficient basis to measure progress towards completion , revenue is recognized upon receipt of final acceptance from the client . the complexity and judgment of our estimation process and issues related to the assumptions , risks and uncertainties inherent in the application of the proportional performance method of accounting could affect the amounts of revenue , receivables and deferred revenue at each reporting period . business combinations — we account for our business combinations using the acquisition accounting method , which requires us to determine the fair value of net assets acquired and the related goodwill and other intangible assets in accordance with the fasb asc topic 805 , “ business combinations. ” we identify and attribute fair values and estimated lives to the intangible assets acquired and allocate the total cost of an acquisition to the underlying net assets based on their respective estimated fair values . determining the fair value of assets acquired and liabilities assumed requires management 's judgment and involves the use of significant estimates , including projections of future cash inflows and outflows , discount rates , asset lives and market multiples . there are different valuation models for each component , the selection of which requires considerable judgment . these determinations will affect the amount of amortization expense recognized in future periods . we base our fair value estimates on assumptions we believe are reasonable , but recognize that the assumptions are inherently uncertain . if initial accounting for the business combination has not been completed by the end of the reporting period in which the business combination occurs , provisional amounts are reported to present information about facts and circumstances that existed as of the acquisition date . once the measurement period ends , which in no case extends beyond one year from the acquisition date , revisions of the accounting for the business combination are recorded in earnings . goodwill and other intangible assets — the acquired assets typically include customer relationships , trade names , non-competition agreements , and workforce . as a result , a substantial portion of the purchase price is allocated to goodwill and other intangible assets . 29 we assess goodwill for impairment as of october 31 st of each fiscal year , or more frequently if events or changes in circumstances indicate that the fair value of our reporting unit has been reduced below its carrying value . when conducting our annual goodwill impairment assessment , we use a three-step process . the first step is to perform an optional qualitative evaluation as to whether it is more likely than not that the fair value of our reporting unit is less than its carrying value , using an assessment of relevant events and circumstances . in performing this assessment , we are required to make assumptions and judgments including but not limited to an evaluation of macroeconomic conditions as they relate to our business , industry and market trends , as well as the overall future financial performance of our reporting unit and future opportunities in the markets in which it operates . if we determine that it is not more likely than not that the fair value of our reporting unit is less than its carrying value , we are not required to perform any additional tests in assessing goodwill for impairment . story_separator_special_tag however , if we conclude otherwise or elect not to perform the qualitative assessment , we perform a second step for our reporting unit , consisting of a quantitative assessment of goodwill impairment . this quantitative assessment requires us to estimate the fair value of our reporting unit and compare the estimated fair value to its respective carrying value ( including goodwill ) as of the date of the impairment test . the third step , employed for our reporting unit if it fails the second step , is used to measure the amount of any potential impairment and compares the implied fair value of our reporting unit with the carrying amount of goodwill . historically , a significant portion of the purchase consideration was allocated to customer relationships . in valuing customer relationships , we typically utilize the multi-period excess earnings method , a form of the income approach . the principle behind this method is that the value of the intangible asset is equal to the present value of the after-tax cash flows attributable to the intangible asset only . we amortize our intangible assets that have finite lives using either the straight-line method or , if reliably determinable , the pattern in which the economic benefit of the asset is expected to be consumed utilizing expected discounted future cash flows . amortization is recorded over the estimated useful lives that are predominantly ranging , on average , from five to ten years . we do not have any intangible assets with indefinite useful lives . we review our intangible assets subject to amortization to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life . if the carrying value of an asset exceeds its undiscounted cash flows , we will write down the carrying value of the intangible asset to its fair value in the period identified . in assessing fair value , we must make assumptions regarding estimated future cash flows and discount rates . if these estimates or related assumptions change in the future , we may be required to record impairment charges . if the estimate of an intangible asset 's remaining useful life is changed , we will amortize the remaining carrying value of the intangible asset prospectively over the revised remaining useful life . accounting for income taxes — we estimate our income taxes based on the various jurisdictions where we conduct business and we use estimates in determining our provision for income taxes . we estimate separately our deferred tax assets , related valuation allowances , current tax liabilities and deferred tax liabilities . the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax rules and the potential for future adjustment of our uncertain tax positions by the u.s. internal revenue service or other taxing jurisdictions . the provision for income taxes includes federal , state , local and foreign taxes . deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences between the consolidated financial statement carrying amounts and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be reversed . changes to enacted tax rates would result in either increases or decreases in the provision for income taxes in the period of changes . we evaluate the realizability of deferred tax assets and recognize a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized . the realization of deferred tax assets is primarily dependent on future earnings . any reduction in estimated forecasted results may require that we record valuation allowances against deferred tax assets . once a valuation allowance has been established , it will be maintained until there is sufficient positive evidence to conclude that it is more likely than not that the deferred tax assets will be realized . a pattern of sustained profitability will generally be considered as sufficient positive evidence to reverse a valuation allowance . if the allowance is reversed in a future period , the income tax provision will be correspondingly reduced . accordingly , the increase and decrease of valuation allowances could have a significant negative or positive impact on future earnings . stock-based compensation — equity-based compensation cost relating to the issuance of share-based awards to employees is based on the fair value of the award at the date of grant , which is expensed over the requisite service period , net of estimated forfeitures . equity-based awards that do not require future service are expensed immediately . if factors change and we employ different assumptions , stock-based compensation expense may differ significantly from what we have recorded in the past . 30 significant judgment is required in determining the adjustment to stock-based compensation expense for estimated forfeitures . stock-based compensation expense in a period could be impacted , favorably or unfavorably , by differences between forfeiture estimates and actual forfeitures . if there are any modifications or cancellations of the underlying unvested securities , we may be required to accelerate , increase or cancel any remaining unvested stock-based compensation expense . equity-based awards that do not meet the criteria for equity classification are recorded as liabilities and adjusted to fair value based on the closing price of our stock at the end of each reporting period . future stock-based compensation expense related to our liability-classified awards may increase or decrease as a result of changes in the market price for our stock , adding to the volatility in our operating results . as of december 31 , 2016 , 4.1 % of outstanding equity awards were classified as liabilities on our consolidated balance sheets .
| in 2015 , revenue from new customers was $ 45.7 million , primarily resulting from our acquisitions in 2015 , and does not include new clients that are affiliates of existing customers whom we consider an expansion of existing business . in addition , total revenues in 2015 and 2014 included $ 9.5 million and $ 8.4 million of reimbursable expenses and other revenues , respectively , which increased by 13.1 % in 2015 as compared to 2014 , but remained relatively flat as a percentage of total revenues . we discuss below the breakdown of our revenue by client location , service offering , vertical , contract type , and client concentration . revenues by client location our revenues are sourced from four geographic markets : north america , europe , cis , and apac . we present and discuss our revenues by client location based on the location of the specific client site that we serve , irrespective of the location of the headquarters of the client or the location of the delivery center where the work is performed . revenue by client location is different from the revenue by reportable segment in our consolidated financial statements included elsewhere in this annual report . segments are not based on the geographic location of the clients , but instead they are based on the location of the management responsible for a particular client . the following table sets forth revenues by client location by amount and as a percentage of our revenues for the periods indicated : replace_table_token_13_th 2016 compared to 2015 during the year ended december 31 , 2016 , revenues in our largest geography , north america , closed at $ 664.6 million growing $ 179.5 million , or 37.0 % , from $ 485.1 million reported for the year ended december 31 , 2015 . revenues from this geography accounted for 57.3 % of total revenues in fiscal 2016 , an increase of 4.2 % from 53.1 % reported in the corresponding period last year . within north america , we experienced strong growth across all verticals despite considerable market , geo-political , and economic uncertainties : each of the two verticals , media and entertainment and
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liquids our liquids segment purchases propane , butane , and other products from refiners , processing plants , producers , and other parties , and sells the products to retailers , wholesalers , refiners , and petrochemical plants throughout the united states and in canada . our liquids segment owns 19 terminals throughout the united states and a salt dome storage facility in utah , operates a fleet of leased railcars , and leases underground storage capacity . we attempt to reduce our exposure to price fluctuations by using back-to-back physical contracts and pre-sale agreements that allow us to lock in a margin on a percentage of our winter volumes . we also enter into financially settled derivative contracts as economic hedges of our physical inventory , physical sales and physical purchase contracts . our wholesale liquids business is a “ cost-plus ” business that can be affected by both price fluctuations and volume variations . we establish our selling price based on a pass-through of our product supply , transportation , handling , storage , and capital costs plus an acceptable margin . the margin we realize in our wholesale liquids business is substantially less on a per gallon basis than the margin we realize in our retail propane business . weather conditions and gasoline blending can have a significant impact on the demand for propane and butane , and sales volumes and prices are typically higher during the colder months of the year . consequently , our revenues , operating profits , and operating cash flows are typically lower in the first and second quarters of each fiscal year . the following table summarizes the range of low and high spot propane prices per gallon at conway , kansas , and mt . belvieu , texas , two of our main pricing hubs , for the periods indicated and the prices at period end : replace_table_token_11_th 59 the range of low and high spot butane prices per gallon at mt . belvieu , texas for the periods indicated and the prices at period end : replace_table_token_12_th we believe volatility in commodity prices will continue , and our ability to adjust to and manage this volatility may impact our financial results . our liquids segment generated operating income of $ 76.2 million and $ 45.1 million during the years ended march 31 , 2016 and 2015 , respectively . during the year ended march 31 , 2016 , we wrote off assets of $ 14.6 million acquired as part of the gavilon energy acquisition that we deemed no longer recoverable . operating income during the year ended march 31 , 2015 was reduced by a loss of $ 29.8 million on the sale of a natural gas liquids terminal . additionally , sawtooth ngl caverns , llc ( “ sawtooth ” ) , which we acquired in february 2015 , generated $ 9.8 million of operating income during the year ended march 31 , 2016 . retail propane our retail propane segment is a “ cost-plus ” business that sells propane , distillates , and equipment and supplies to end users consisting of residential , agricultural , commercial , and industrial customers and to certain resellers in 25 states and the district of columbia . our retail propane segment purchases the majority of its propane from our liquids segment . our retail propane segment generates margins based on the difference between the wholesale cost of product and the selling price of the product in the retail markets . these margins fluctuate over time due to supply and demand conditions . weather conditions can have a significant impact on our sales volumes and prices , as a large portion of our sales are to residential customers who purchase propane and distillates for home heating purposes . a significant factor affecting the profitability of our retail propane segment is our ability to maintain our product margin . product margin is the difference between our sales prices and our total product costs , including transportation and storage . we monitor wholesale propane prices daily and adjust our retail prices accordingly . we believe volatility in commodity prices will continue , and our ability to adjust to and manage this volatility may impact our financial results . the retail propane business is both weather-sensitive and subject to seasonal volume variations due to propane 's primary use as a heating source in residential and commercial buildings and for agricultural purposes . consequently , our revenues , operating profits , and operating cash flows are typically lower in the first and second quarters of each fiscal year . our retail propane segment generated operating income of $ 44.1 million and $ 64.1 million during the years ended march 31 , 2016 and 2015 , respectively . refined products and renewables our refined products and renewables segment conducts gasoline , diesel , ethanol , and biodiesel marketing operations . we purchase refined petroleum and renewable products primarily in the gulf coast , southeast and midwest regions of the united states and schedule them for delivery at various locations . as discussed in “ recent developments ” below , on february 1 , 2016 , we sold our general partner interest in tlp . we purchase refined petroleum products primarily in the gulf coast , southeast , and midwest regions of the united states and schedule them for delivery primarily on the colonial , plantation , and magellan pipelines . we sell our products to commercial and industrial end users , independent retailers , distributors , marketers , government entities , and other wholesalers of refined petroleum products . we sell our products at tlp 's terminals and at terminals owned by third parties . story_separator_special_tag 60 the following table summarizes the range of low and high spot gasoline prices per barrel using nymex gasoline prompt-month futures for the periods indicated and the prices at period end : replace_table_token_13_th ( 1 ) prices are for the four months ended march 31 , 2014 as we acquired gavilon , llc ( “ gavilon energy ” ) on december 2 , 2013. the following table summarizes the range of low and high spot diesel prices per barrel using nymex ulsd prompt-month futures for the periods indicated and the prices at period end : replace_table_token_14_th ( 1 ) prices are for the four months ended march 31 , 2014 as we acquired gavilon energy on december 2 , 2013. our refined products and renewables segment generated operating income of $ 227.0 million and $ 54.6 million during the years ended march 31 , 2016 and 2015 , respectively . our refined products and renewables segment was significantly expanded with our july 2014 acquisition of transmontaigne . operating income during the year ended march 31 , 2016 was also increased by a gain of $ 130.4 million recorded on the sale of our general partner interest in tlp during the three months ended march 31 , 2016 , as discussed in “ recent developments ” below and note 14 to our consolidated financial statements included in this annual report . trends crude oil prices can fluctuate widely based on changes in supply and demand conditions . the opportunity to generate revenues in our crude oil logistics business is heavily influenced by the volume of crude oil being produced . crude oil prices declined sharply during the period from july 2014 through march 2016 ( the spot price for nymex west texas intermediate crude oil at cushing , oklahoma declined from $ 105.34 per barrel at july 1 , 2014 to $ 38.34 per barrel at march 31 , 2016 ) . while crude oil production in the united states has been strong in recent years , the sharp decline in crude oil prices has reduced the incentive for producers to expand production . if crude oil prices remain low , resultant declines in crude oil production may adversely impact volumes in our crude oil logistics business . since january 2015 , crude oil markets have been in contango ( a condition in which forward crude oil prices are greater than spot prices ) . our crude oil logistics business benefits when the market is in contango , as higher forward prices result in inventory holding gains between the time we financially hedge a barrel in inventory and physically sell the same barrel . in addition , we are able to better use our storage assets when crude oil markets are in contango . our opportunity to generate revenues in our water solutions business is based on the level of production of natural gas and crude oil in the areas where our facilities are located . as described above , crude oil prices declined sharply since july 2014. at current market prices , drilling rigs and production have decreased and adversely impacted the volumes of our water solutions business . a portion of the revenues of our water solutions business is generated from the sale of hydrocarbons that we recover when processing the wastewater . because of this , lower crude oil prices result in lower per-barrel revenues for our water solutions business . an important element of our refined products and renewables segment relates to the marketing of refined products in the southeast and east coast regions . we purchase product in the gulf coast , transport the product on third party pipelines , and sell the product primarily at tlp 's refined products terminals . most of the contracts with these customers are one year in 61 duration , with pricing indexed to prices in the gulf coast at the date of sale plus a specified differential . to operate this business we maintain inventory in transit on the third party pipelines and at the destination terminals where we sell the product . the value of this inventory will increase or decrease as market prices change . in order to mitigate this risk , we enter into futures contracts , which are only available based on new york harbor pricing . because our contracts are indexed to gulf coast prices and our futures contracts are based on new york harbor prices , the futures contracts are not a perfect hedge against our inventory holding risk . during any given quarter , spreads between prices in the gulf coast and new york harbor could narrow or widen , which could reduce the effectiveness of the futures contracts as a hedge of the inventory holding risk . the tenor of these futures contracts , which are typically six months to one year in duration at inception , can also contribute to volatility in earnings among individual quarters within a fiscal year . during the year ended march 31 , 2016 , prices for refined products declined . gulf coast prices , on which our sales contracts are based , declined more than the new york harbor prices , on which our futures contracts are based , which had an adverse impact on our cost of sales . based on historical experience , we generally expect the spreads between gulf coast and new york harbor prices to be more consistent over the course of a contract year than during any individual quarter within the year , and that we should expect more volatility in cost of sales among quarters within a fiscal year than we would expect during a full fiscal year . the decline in crude oil prices has had an adverse impact on many participants in the energy markets , and the inherent risk of customer or counterparty nonperformance is higher when crude oil prices are low or in decline . seasonality seasonality impacts our liquids and retail propane segments .
| ( 2 ) revenues include $ 9.7 million and $ 29.8 million of intersegment sales during the years ended march 31 , 2016 and 2015 , respectively , that are eliminated in our consolidated statements of operations . ( 3 ) in october 2014 , we announced plans to build a crude oil rail transloading facility , backed by executed producer commitments . subsequent to executing these commitments , the producers requested to be released from the commitments . we agreed to release the producers from their commitments in return for a cash payment in march 2015 and additional cash payments over the next five years . upon execution of these agreements in march 2015 , we recorded a gain of $ 31.6 million to other income in our consolidated statement of operations , net of certain project abandonment costs . since this gain was reported in other income , it is not reflected in the table above . crude oil sales . the decrease in revenue per barrel was due primarily to the sharp decline in crude oil prices since july 2014. the decrease in our sales volumes was due primarily to a slowdown in crude oil production and new drilling of crude oil in the current crude oil price environment . our cost of sales during the year ended march 31 , 2016 was increased by $ 2.1 million of net unrealized losses on derivatives and reduced by $ 13.8 million of net realized gains on derivatives . our cost of sales during the year ended march 31 , 2015 was increased by $ 7.4 million of net unrealized losses on derivatives and reduced by $ 37.4 million of net realized gains on derivatives . due to the sharper decline in crude oil prices during the year ended march 31 , 2015 compared to the year ended march 31 , 2016 , realized gains on derivatives were higher during the year ended march 31 , 2015 . our cost of sales during the year ended march 31 , 2015 was also impacted by a lower of cost or market adjustment of $
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because of the numerous risks and uncertainties associated with drug development and commercialization , we are unable to predict the timing or amount of expenses incurred or when , or if , we will be able to achieve or maintain profitability . under our agreement with allergan , beginning in may 2020 , we are entitled to receive tiered royalties in the low to mid-teens for net sales of namzaric ® in the united states . in addition , we are also entitled to receive tiered royalties in the low to mid-single digits from allergan for net sales of namenda xr ® in the united states beginning in june 2018 ; however , we do not expect the namenda xr ® royalties will make a significant financial contribution to our business . pursuant to the agreement , we received a non-refundable upfront license fee of $ 65.0 million in 2012 , which we recognized on a straight-line basis from november 2012 to february 2013. we also earned and received additional cash payments totaling $ 95.0 million upon achievement by allergan of certain development and regulatory milestones , which we recognized in 2013 and 2014. prior to our initial public offering of our common stock , or ipo , in april 2014 , we had raised an aggregate of approximately $ 87.2 million through the sale of convertible preferred stock and $ 1.0 million through the exercise of preferred stock warrants . in 2014 , we issued and sold 3,081,371 shares of common stock in our ipo and received net proceeds of approximately $ 42.6 million , which included partial exercise of the underwriters ' option to purchase additional shares and after deducting underwriting discounts and offering expenses . in connection with the completion of our ipo , all convertible preferred stock converted into common stock . in june 2015 , we entered into a controlled equity offering sales agreement , pursuant to which we were able to issue and sell shares of common stock having an aggregate offering value of up to $ 25.0 million , which was terminated in november 2016. during the term of the agreement , we issued 509,741 shares of common stock and raised net proceeds of $ 9.7 million under the sales agreement . in january 2016 , we raised $ 61.8 million from the sale of 2,875,000 shares of common stock in a follow-on public offering . as of december 31 , 2016 , we had cash , cash equivalents , and available-for-sale securities of $ 135.9 million . revenue we have not generated any revenue from commercial product sales to date . our revenue to date has been generated primarily from non-refundable upfront license payments , milestone payments , reimbursements for research and development expenses and full-time equivalents assigned under our license agreement with allergan , and to a lesser degree reimbursement for research and development expenses from nih grants and government contracts . the following table summarizes the sources of our revenue for the years ended december 31 , 2016 , 2015 , and 2014 ( in thousands ) : replace_table_token_3_th 53 we recognized collaboration revenue of zero in both 2016 and 2015 , and $ 55.0 million in 2014 , pursuant to our license agreement with allergan . we also recognized revenue from allergan of $ 0.3 million , $ 1.4 million , and $ 0.6 million in reimbursements for research and development expenses for the years ended december 31 , 2016 , 2015 , and 2014 , respectively . we do not expect to recognize any further milestone payments under our license agreement with allergan , and we expect reimbursements for full-time equivalents assigned to the license agreement to remain at modest levels in future periods . beginning in may 2020 , we will be entitled to receive royalties in the low to mid-teens from allergan for net sales of namzaric ® in the united states , and in june 2018 we will be entitled to receive royalties in the low to mid-single digits for net sales of namenda xr ® in the united states ; however , we do not expect the namenda xr ® royalties will make a significant financial contribution to our business . we were also awarded a continuation of an nih grant for $ 1.0 million in august 2014 that terminated in july 2016 , which we administered , but conducted through subcontractors . research and development expenses research and development expenses represent costs incurred to conduct research , such as the discovery and development of our wholly-owned product candidates and , to a lesser degree , the development of product candidates pursuant to our agreement with allergan . we recognize all research and development costs as they are incurred . research and development expenses consist of : fees paid to clinical investigators , clinical trial sites , consultants , and vendors , including clinical research organizations , or cros , in conjunction with implementing , conducting , and monitoring our clinical trials and acquiring and evaluating 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 production of clinical supplies , including fees paid to contract manufacturing organizations , or cmos ; expenses related to compliance with regulatory requirements ; other consulting fees paid to third parties ; and employee-related expenses , which include salaries , benefits , and stock-based compensation . the following table summarizes our research and development expenses incurred during the years ended december 31 , 2016 , 2015 , and 2014 ( in thousands ) : replace_table_token_4_th the program-specific expenses summarized in the table above include costs directly attributable to our product candidates . other research and development expenses include costs for early stage programs and costs not allocated to a specific program . we allocate research and development salaries , benefits , stock-based compensation , and indirect costs to our product candidates on a program-specific basis , and we include these costs in the program-specific expenses . story_separator_special_tag we begin to track and report program-specific expenses for early stage programs once they have been nominated and selected for further development and clinical-stage work has commenced . the largest component of our total operating expenses has historically been our investment in research and development activities , including the clinical development of our product candidates . we anticipate incurring significant research and development expenses as we continue to support the fda 's review of ads-5102 for lid , clinical trials for ads-5102 in indications beyond lid , including but not limited to walking impairment in multiple sclerosis patients and other parkinson 's disease indications earlier in the parkinson 's disease treatment journey , ads-4101 for treatment of epilepsy , and potentially additional clinical-stage programs in more indications or for future product candidates . the process of conducting the necessary clinical research to obtain fda approval is costly and time consuming . we consider the active management and development of our clinical pipeline to be crucial to our long-term success . the actual probability of success for each product candidate and clinical program may be affected by a variety of factors , including but not limited to the quality of the product candidate , early clinical data , investment in the program , competition , manufacturing capability , and commercial viability . furthermore , in the past we have entered into licensing arrangements with other pharmaceutical companies to develop and 54 commercialize our product candidates , and we may enter into additional licensing arrangements or collaborations in the future . in situations in which third parties have control over the clinical development of a product candidate , the estimated completion dates are largely under the control of such third parties and not under our control . we can not forecast with any degree of certainty which of our product candidates , if any , will be subject to future licensing or collaboration arrangements or how such arrangements would affect our development plans or capital requirements . as a result of the uncertainties discussed above , we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates . general and administrative expenses , net general and administrative expenses , net , consist primarily of personnel and related benefit costs , facilities , professional services , insurance , and public company related expenses , as well as increasingly the costs associated with establishing commercial capabilities in support of the potential launch of ads-5102 for lid , reduced to a small degree by reimbursement from allergan for external costs related to supporting prosecution and litigation of intellectual property rights under our license agreement . we anticipate our general and administrative expenses will increase significantly as we continue to establish our commercial capabilities and support our potential commercial-stage programs . if ads-5102 is approved by the fda , we plan to market and sell through our own sales force or through a contract sales organization , targeting neurologists and movement disorder specialists in the united states , or possibly through collaboration and license agreements with pharmaceutical companies . interest and other income ( expense ) , net interest and other income ( expense ) , net , consists primarily of interest received on our investments , as well as gains and losses resulting from the remeasurement of our convertible preferred stock warrant liability . we recorded adjustments to the estimated fair value of the convertible preferred stock warrants until they were exercised or expired . subsequent to the ipo , we reclassified the convertible preferred stock warrant liability as additional paid-in capital and we no longer recorded any related periodic fair value adjustments . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with united states generally accepted accounting principles , or u.s. gaap . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported revenue generated and expenses incurred during the reporting periods . our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . we have discussed the development , selection , and disclosure of these estimates with the audit committee of our board of directors . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in note 2 of our financial statements included in this annual report on form 10-k , we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements . revenue recognition we recognize revenue when all four of the following criteria have been met : ( i ) persuasive evidence of an arrangement exists , ( ii ) delivery has occurred or services have been rendered , ( iii ) the fee is fixed or determinable , and ( iv ) collectability is reasonably assured . we recognize revenue under license arrangements based on the performance requirements of the contract . we make determinations of whether persuasive evidence of an arrangement exists and whether delivery has occurred or services have been rendered based on management 's judgments regarding the fixed nature of the fees charged for deliverables and the collectability of those fees . should changes in conditions cause management to determine that these criteria are not met for any new or modified transactions , revenue recognized could be adversely affected .
| research and development expenses associated with other indications of ads-5102 were flat year over year when comparing 2016 to 2015. included in research and development expenses was stock-based compensation expense , which was $ 2.9 million compared to $ 3.2 million for the years ended december 31 , 2016 and 2015 , respectively . general and administrative expenses , net general and administrative expenses , net , increased by $ 6.9 million , or 29 % , to $ 30.3 million for the year ended december 31 , 2016 from $ 23.5 million for the year ended december 31 , 2015 . the increase in general and administrative expenses was primarily due to increased costs associated with establishing commercial capabilities in anticipation of the commercial launch of ads-5102 for the treatment of lid , pending regulatory approval , including an increase in headcount-related expenses . general and administrative expenses also included stock-based compensation expense of $ 7.7 million compared to $ 6.8 million for the years ended december 31 , 2016 and 2015 , respectively . interest and other income , net interest and other income , net , increased by $ 0.4 million , or 123 % , to $ 0.8 million for the year ended december 31 , 2016 , from $ 0.4 million for the year ended december 31 , 2015 . net interest income is primarily due to interest income earned on investments . comparison of the years ended december 31 , 2015 and 2014 the following table summarizes our results of operations for the years ended december 31 , 2015 and 2014 ( in thousands , except percentages ) : replace_table_token_6_th revenue revenue decreased by $ 53.9 million , or 97 % , to $ 1.9 million for the year ended december 31 , 2015 from $ 55.8 million for the year ended december 31 , 2014 . revenue from license fees and milestones decreased to zero for the year ended december 31 , 2015 from $ 55.0 million for the year ended december 31 , 2014 entirely due to the timing , magnitude , and nature of specified amounts recognized under our license agreement with allergan . no further license fees or milestones are due under
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the assets of mg are reflected on the december 31 , 2019 consolidated balance sheet as “ assets of discontinued operations ” and the results of operations are reflected in the consolidated statements of operations for the years ended december 31 , 2020 and 2019 as “ net loss from discontinued operations ” . in december 2020 , the company decided to sell trinity services llc ( “ trinity ” ) , an o & g drilling pad dirt construction company , and is currently in the disposition process . the assets and operations of trinity are reflected on the december 31 , 2020 and 2019 consolidated balance sheets as “ assets of discontinued operations ” and the results of operations are reflected in the consolidated statements of operations for the years ended december 31 , 2020 and 2019 as “ net loss from discontinued operations ” . management believes certain comparisons of 2020 to 2019 are not meaningful as the variances are due almost entirely to the 5j acquisition . where applicable , this analysis provides explanation of any meaningful causes of variances that are in addition to variances resulting from the 5j acquisition . 24 story_separator_special_tag style= '' font : 10pt times new roman , times , serif ; margin : 0pt 0 ; text-align : justify ; text-indent : 0.5in '' > net cash used in investing activities was $ 6,837,536 for the year ended december 31 , 2020 , compared to $ 543,432 for the year ended december 31 , 2019 , with $ 42,368 and $ 15,325 , respectively , related to discontinued operations . for the year ended december 31 , 2020 , net cash used in investing activities consisted of $ 6,320,168 cash paid for the acquisition of 5j , $ 75,000 paid to the buyer of mg cleaners , and $ 400,000 of net capital expenditures . for the year ended december 31 , 2019 , net cash used in investing activities consisted of $ 500,000 cash paid for the acquisition of trinity and $ 28,107 of net capital expenditures . financing activities net cash provided by financing activities was $ 11,759,723 for the year ended december 31 , 2020 , compared to $ 886,010 for the year ended december 31 , 2019 , including $ 484,235 and $ 170,130 , respectively , related to discontinued operations . for the year ended december 31 , 2020 , net cash provided by financing activities consisted of net proceeds from secured line of credit of $ 4,156,238 , net proceeds from notes payable of $ 5,584,048 and proceeds from convertible notes payable of $ 3,144,295 , partially offset by payments on notes payable of $ 1,385,535 and payment of deferred finance costs of $ 223,558. for the year ended december 31 , 2019 , net cash provided by financing activities consisted of proceeds from convertible notes payable and other notes payable of $ 1,230,000 and proceeds from sale of common stock of $ 359,000 , partially offset by payments on notes payable of $ 819,105 and other payments of $ 54,015. our cash flows from operations are primarily funded through our financing activities , including our accounts receivable line of credit facility , notes and loans , stock sales , issuing our stock for services and various leases . currently , we believe we will need to continue to utilize lines of credit , borrowings and stock sales to sufficiently sustain our current level of operations for the next 12 months . at present , we believe the industry and general domestic economic activity is still depressed given current commodity prices and the global covid-19 pandemic that is prevalent in the markets we operate . we likely will require additional capital to maintain or expand operations . additionally , we believe any material acquisition of another operating company would require additional outside capital consisting of debt or equity . failure to secure additional funds could significantly hamper our ongoing operations particularly if a down cycle in our industry continues further . as the business cycle improves , and the pandemic dissipates in the markets we serve , we plan to improve our cash flows provided in operating activities by focusing on increasing sales by increasing utilization of the assets we have acquired and offering higher value services that receive higher gross margins . however , there can be no assurances given of industry improvement , pandemic relief or improved cash flows of our business . historically , we have funded our capital expenditures internally through cash flow , leasing and financing arrangements . we intend to continue to fund future capital expenditures through cash flow , as well as through capital available to us pursuant to our line of credit , capital from the sale of our equity securities and through commercial leasing and financing programs . on june 19 , 2019 , each of mg cleaners llc ( “ mg ” ) , trinity services llc ( “ trinity ” ) and jake oilfield solutions llc ( “ jake ” ) , each of which were wholly owned subsidiary of the company , entered into separate revolving accounts receivable financing facilities ( collectively the “ catalyst ar facility ” ) with catalyst finance l.p. ( “ catalyst ” ) . the catalyst ar facility was funded on june 27 , 2019. the new catalyst ar facility with catalyst was used to pay off the crestmark facility in full . the catalyst ar facility provides for the company , through mg , trinity and jake , to have access to up to 90 % of the net amount of eligible receivables ( as defined in the financing agreement ) . the catalyst ar facility is paid for by the assignment of the accounts receivable of each of mg , trinity and jake to catalyst and is secured by all instruments and proceeds related thereto . story_separator_special_tag the catalyst ar facility has an interest rate of 2.25 % in excess of the prime rate reported by the wall street journal per annum , plus a financing fee equal to 0.20 % of the receivable balance every 15 days , with a maximum cumulative rate of 1.6 % . there are no origination fees , monitoring or early termination fees . the catalyst ar facility can be terminated by the company with thirty days written notice . the company is a guarantor of the financing facility and our subsidiaries as borrowers have cross-collateralized their accounts receivable with this facility . 26 on june 27 , 2019 , an accounts receivable financing company funding a total of $ 1,317,304 pursuant to the ar facility . of the amounts funded $ 500,000 was paid directly to the seller of trinity , $ 43,219 was used to pay off notes payable of mg cleaners , $ 714,239 was used to pay off the crestmark liability and the remaining $ 59,846 was deposited to the company 's bank account . in connection with the acquisition of 5j oilfield services llc and 5j trucking llc ( collectively “ 5j entities ” ) , on february 27 , 2020 , the 5j entities entered into a master lease agreement with utica leaseco llc ( “ utica ” ) pursuant to which utica refinanced substantially all of the 5j entities equipment in the aggregate amount of $ 11,950,000 ( “ utica financing ” ) which amount was financed based on 75 % of the net forced liquidation value of the equipment . the company used a portion of the proceeds from the utica financing to pay the cash portion of the purchase price of the 5j entities . pursuant to the terms of the utica financing , the 5j entities will pay a monthly fee of $ 331,065 to utica for a period of 51 months , with a cash payment due at the end of the lease term in the amount of $ 831,880. the 5j entities own all of the assets financed pursuant to the utica financing , subject to utica 's security interest in all of the equipment of the 5j entities . the company has entered into a guaranty agreement with utica , whereby it has guaranteed all of the obligations of the 5j entities under the utica master lease agreement . on may 18 , 2020 , being effective april 27 , 2020 , the company entered into its first amendment with utica leaseco whereby utica agreed to lower the monthly payment made by 5j from $ 331,065 to $ 150,000 for a six month period starting april 27 , 2020. on august 31 , 2020 the company entered into its second amendment to lease documents with utica , whereby for a two month period effective october 27 , 2020 the company 's payments were amended to $ 150,000 per month . starting december 27 , 2020 , at the end of the modification period , the company 's payment will resume at $ 379,400 through the maturity date of may 27 , 2024. this amendment was accounted for as a modification of the debt . effective march 5 , 2021 , the company entered into a third amendment requiring weekly payments of $ 23,750 until june 4 , 2021. from june 4 , 2021 to june 25 , 2021 the weekly payments shall increase to $ 112,000 per week , and thereafter commencing on july 27 , 2021 the payments shall be $ 448,000 per month for the remaining term . on february 27 , 2020 , the 5j entities entered into a revolving accounts receivable assignment and term loan financing and security agreement with amerisource funding inc. ( “ amerisource ” ) in the aggregate amount of $ 10,000,000 ( “ amerisource financing ” ) . the company used a portion of the proceeds from the amerisource financing to pay the cash portion of the purchase price of the 5j entities . the amerisource financing provides for : ( i ) an equipment loan in the principal amount of $ 1,401,559 ( “ amerisource equipment loan ” ) , ( ii ) a bridge term facility in the amount of $ 550,690 ( “ bridge facility ” ) , and ( iii ) an accounts receivable revolving line of credit up to $ 10,000,000 ( “ ar facility ” ) . the ar facility has been issued in an amount not to exceed $ 10,000,000 , with the maximum availability limited to 85 % of the eligible accounts receivable ( as defined in the financing agreement ) . the ar facility is paid for by the assignment of the accounts receivable of each of the 5j entities and is secured by all instruments and proceeds related thereto . the ar facility has an interest rate of 4.5 % in excess of the prime rate per annum , an initial collateral management fee of 0.75 % of the maximum account limit per annum , a non-usage fee of 0.35 % assessed on a quarterly basis on the difference between the maximum availability under the ar facility and the average daily revolving loan balance outstanding , and a one time commitment fee equal to $ 100,000 paid at closing . the ar facility can be terminated by the 5j entities with 60 days written notice . there is an early termination fee equal to two percent ( 2.0 % ) of the then maximum account limit if there are more than twelve ( 12 ) months remaining in term of the ar facility , or one percent ( 1.0 % ) of the then maximum account limit if there twelve months or less remaining in the term of the ar facility . the company is a guarantor of the amerisource financing . the amerisource equipment loan in the amount of $ 1,401,559 is secured by certain equipment pledged as collateral
| share based compensation expense included in sg & a expenses was $ 66,566 for the year ended december 31 , 2020 compared to $ 246,099 for the same period in 2019. bad debt expense included in sg & a expenses for the year ended december 31 , 2020 was $ 474,708 , as compared to bad debt expense of $ 52,737 in 2019 resulting from uncollectable accounts receivables from certain customers . impairment expenses for the year ended december 31 , 2020 was $ 1,084,671 and $ 565,466 in the prior year . the expenses in 2020 related primarily to the full impairment of goodwill for the oil tools and the frac water equipment at momentum . in 2019 , the impairment expense of goodwill was associated with the oil tools . acquisition costs for the year ended december 31 , 2020 was $ 1,485,829 and were related to the acquisition of 5j in february 2020. for the year ended december 31 , 2019 , acquisition costs were $ 70,945 and related to the acquisition of trinity . interest expense , net , increased to $ 3,801,020 during the year ended december 31 , 2020 from $ 573,028 during the year ended december 31 , 2019 , resulting from increased borrowings to fund the 5j acquisition . gain on extinguishment of debt for the year ended december 31 , 2020 was $ 94,339 related to forgiveness on ppp loans . loss on settlement of notes payable in the year end december 31 , 2020 was $ 14,204 , compared to a loss on settlement of liabilities in 2019 of $ 101,251 which resulted from the settlement of two notes payable during 2019. gain on sale of assets for the year ended december 31 , 2020 of $ 220,315 was primarily related to the disposal of 5j assets . the net loss from continuing operations for the year ended december 31 , 2020 was $ 14,105,158 as compared to a net loss of
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microbot 's current technological platforms , virob tm , cardiosert tm and tipcat tm , are comprised of proprietary innovative technologies . using the virob platform , microbot is currently developing its first product candidate : the self cleaning shunt , or scs tm , for the treatment of hydrocephalus and normal pressure hydrocephalus , or nph . although the scs utilizes one of our platforms , we are focused on the development of a multi generation pipeline portfolio utilizing all three of our proprietary technologies . microbot has a patent portfolio of 30 issued/allowed patents and 21 patent applications pending worldwide . technological platforms virob the virob is an autonomous crawling micro-robot which can be controlled remotely or within the body . its miniature dimensions are expected to allow it to navigate and crawl in different natural spaces within the human body , including blood vessels , the digestive tract and the respiratory system as well as artificial spaces such as shunts , catheters , ports , etc . its unique structure is expected to give it the ability to move in tight spaces and curved passages as well as the ability to remain within the human body for prolonged time . the scs product was developed using the virob technology . cardiosert on may 25 , 2018 , microbot acquired a patent-protected technology from cardiosert ltd. , a privately-held medical device company based in israel . the cardiosert technology contemplates a combination of a guidewire and microcatheter , technologies that are broadly used for surgery within a tubular organ or structure such as a blood vessel or duct . the cardiosert technology features a unique guidewire delivery system with steering and stiffness control capabilities which when developed is expected to give the physician the ability to control the tip curvature , to adjust tip load to varying degrees of stiffness in a gradually continuous manner . the cardiosert technology was originally developed to support interventional cardiologists in crossing chronic total occlusions ( cto ) during percutaneous coronary intervention ( pci ) procedures and has the potential to be used in other spaces and applications , such as peripheral intervention , and neurosurgery . cardiosert was part of a technological incubator supported by the israel innovation authorities ( formerly known as the office of the chief scientist , or ocs ) , and a device based on the technology has successfully completed pre-clinical testing . 31 tipcat the tipcat is a disposable self-propelled locomotive device that is specially designed to advance in tubular anatomies . the tipcat is a mechanism comprising a series of interconnected balloons at the device 's tip that provides the tipcat with its forward locomotion capability . the device can self-propel within natural tubular lumens such as the blood vessels , respiratory and the urinary and gi tracts . a single channel of air/fluid supply sequentially inflates and deflates a series of balloons creating an inchworm like forward motion . the tipcat maintains a standard working channel for treatments . unlike standard access devices such as guidewires , catheters for vascular access and endoscopes , the tipcat does not need to be pushed into the patient 's lumen using external pressure ; rather , it will gently advance itself through the organ 's anatomy . as a result , the tipcat is designed to be able to reach every part of the lumen under examination regardless of the topography , be less operator dependent , and greatly reduce the likelihood of damage to lumen structure . the tipcat thus offers functionality features equivalent to modern tubular access devices , along with advantages associated with its physiologically adapted self-propelling mechanism , flexibility , and design . microbot is no longer pursuing the development of the tipcat as a colonoscopy tool but is currently exploring the use of the tipcat for minimally invasive endovascular neurosurgical applications . financial operations overview research and development expenses research and development expenses consist primarily of salaries and related expenses and overhead for microbot 's research , development and engineering personnel , prototype materials and research studies , obtaining and maintaining microbot 's patent portfolio . microbot expenses its research and development costs as incurred . general and administrative expenses general and administrative expenses consist primarily of the costs associated with management costs , professional fees for accounting , auditing , consulting and legal services , and allocated overhead expenses . microbot expects that its general and administrative expenses may increase in the future as it expands its operating activities , maintains and expands its patent portfolio and incurs additional costs associated with the merger , the preparation of becoming a public company and maintaining compliance with exchange listing and sec requirements . microbot expects these potential increases will likely include management costs , legal fees , accounting fees , directors ' and officers ' liability insurance premiums and expenses associated with investor relations . income taxes microbot has incurred net losses and has not recorded any income tax benefits for the losses . it is still in its development stage and has not yet generated revenues , therefore , it is more likely than not that sufficient taxable income will not be available for the tax losses to be fully utilized in the future . critical accounting policies and significant judgments and estimates microbot 's management 's discussion and analysis of its financial condition and results of operations are based on its financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles , or gaap . the preparation of these financial statements requires microbot to make estimates and judgments that affect the reported amounts of assets , liabilities , and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements . story_separator_special_tag on an ongoing basis , microbot evaluates its estimates and judgments , including those related to accrued research and development expenses . microbot bases its 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 value of assets and liabilities that are not readily apparent from other sources . actual results may differ materially from these estimates under different assumptions or conditions . while microbot 's significant accounting policies are described in more detail in the notes to its financial statements , microbot believes the following accounting policies are the most critical for fully understanding and evaluating its financial condition and results of operations . 32 fair value of financial instruments the company measures the fair value of certain of its financial instruments ( such as the derivative warrant liabilities ) on a recurring basis . a fair value hierarchy is used to rank the quality and reliability of the information used to determine fair values . financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories : ● level 1 - quoted prices ( unadjusted ) in active markets for identical assets and liabilities . ● level 2 - inputs other than level 1 that are observable , either directly or indirectly , such as unadjusted quoted prices for similar assets and liabilities , unadjusted quoted prices in the markets that are not active , or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities . ● level 3 - unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities . foreign currency translation microbot 's functional currency is the u.s. dollars , and its reporting currency is the u.s. dollar . government grant and input tax credit recoveries microbot from time to time has received , and may in the future continue to receive , grants from the israeli innovation authority to cover eligible company expenditures . these are presented as other income in the statement of operations and comprehensive loss as the grant funds are used for or applied towards a number of microbot 's operating expenses , such as salaries and benefits , research and development and professional and consulting fees . the recoveries are recognized in the corresponding period when such expenses are incurred . research and development expenses microbot recognizes research and development expenses as incurred , typically estimated based on an evaluation of the progress to completion of specific tasks using data such as clinical site activations , manufacturing steps completed , or information provided by vendors on their actual costs incurred . microbot determines the estimates by reviewing contracts , vendor agreements and purchase orders , and through discussions with internal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services . these estimates are made as of each balance sheet date based on facts and circumstances known to microbot at that time . if the actual timing of the performance of services or the level of effort varies from the estimate , microbot will adjust the estimate accordingly . 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 capitalized as prepaid expenses and recognized as expense in the period that the related goods are consumed or services are performed . microbot may pay fees to third-parties for manufacturing and other services that are based on contractual milestones that may result in uneven payment flows . there may be instances in which payments made to vendors will exceed the level of services provided and result in a prepayment of the research and development expense . story_separator_special_tag font-size : 10pt '' > in november 2017 , microbot was awarded an additional non-dilutive grant of up to 2,610,000 israeli new shekels ( approximately $ 735,000 ) from the israel innovation authority . the grant provides additional sources to be utilized by microbot for the continued development of the self-cleaning shunt for the treatment of hydrocephalus and normal pressure hydrocephalus . the grant funds may be used for or applied towards a number of research and development expenses , such as employees ' salaries , research and development expenses ( including materials , as well as professional and consulting fees . the recoveries are recognized in the corresponding period when such expenses are incurred . with respect to such grant , microbot is committed to pay royalties , as , if and when it successfully commercializes the scs and generates revenue from sales of the scs , at a rate of between 3 % to 3.5 % on sales proceeds up to the total amount of grants received , linked to the dollar , plus interest at an annual rate of usd libor . under the terms of the grant and applicable law , microbot is restricted from transferring any technologies , know-how , manufacturing or manufacturing rights developed using the grant outside of israel without the prior approval of the israel innovation authority . microbot has no obligation to repay the grant , if the scs project fails , is unsuccessful or aborted before any sales are generated . the financial risk is assumed completely by the iia . microbot believes that its net cash will be sufficient to fund its operations for at least 12 months and fund operations necessary to continue development activities of the scs and tipcat . microbot plans to continue to fund its research and development and other operating expenses , other development
| liquidity and capital resources microbot has incurred losses since inception and negative cash flows from operating activities for the years ended december 31 , 2018 and 2017. as of december 31 , 2018 , microbot had a net working capital of approximately $ 1,071,000 , consisting primarily of cash and cash equivalents . microbot anticipates that it will continue to incur net losses for the foreseeable future as it continues research and development efforts of its product candidates , hires additional staff , including clinical , scientific , operational , financial and management personnel , and incurs additional costs associated with being a public company . microbot has funded its operations through the issuance of capital stock , grants from the israeli innovation authority , and convertible debt . since inception ( november 2010 ) through december 31 , 2018 , microbot has raised gross cash proceeds of approximately $ 18,000,000 , and incurred a total cumulative loss of approximately $ 27,864,000. on january 14 , 2019 , the company entered into a securities purchase agreement with an accredited institutional investor providing for the issuance and sale by the company to the purchaser of an aggregate of ( i ) 330,000 shares of the company 's common stock , at a purchase price per share of $ 6.50 and ( ii ) 125,323 pre-funded warrants each to purchase one share of common stock , at a purchase price per pre-funded warrant of $ 6.49. the gross proceeds to the company were approximately $ 3.0 million . the closing of the offering took place on january 15 , 2019. the pre-funded warrants were exercised in full in january 2019. on january 15 , 2019 , the company entered into a securities purchase agreement with certain accredited institutional investors providing for the issuance and sale by the company to the purchasers of an aggregate of 590,000 shares of the company 's common stock , at a purchase price per share of $ 10.00. the gross proceeds to the company were approximately $ 5.9 million . the closing of the offering took place on january 17 , 2019. on january 23 , 2019 the company entered into
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as a result , the effects of covid-19 and other factors impacting business travel have a greater effect on our business than factors impacting leisure travel . group business is typically defined as a minimum of 10 guestrooms booked together as part of the same piece of business . group business may or may not use the meeting space at any given hotel . given the limited meeting space at the majority of our hotels , group business that utilizes meeting space represents a small component of our customer base . a number of our hotel properties are affiliated with brands marketed toward extended-stay customers . extended-stay customers are generally defined as those staying five nights or longer . key indicators of operating performance we use a variety of operating , financial and other information to evaluate the operating performance of our business . these key indicators include financial information that is prepared in accordance with accounting principles generally accepted in the united states of america ( `` gaap '' ) as well as other financial measures that are non-gaap measures . 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 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 : 32 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 revenue . we use revpar to identify trend information with respect to room revenues from comparable hotel 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 revenue and other operating 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 property 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 84.1 % of our total revenues for the year ended december 31 , 2020 , and it is dictated by demand ( as measured by occupancy ) , pricing ( as measured by adr ) and our available supply of hotel rooms . we also use non-gaap measures such as ffo , adjusted ffo , ebitda , ebitda re and adjusted ebitda to evaluate the operating performance of our business . for a more in depth discussion of the non-gaap measures , please refer to the `` non-gaap financial measures '' section . 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 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 , 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 hotel brands . revenues — substantially all of our revenues are derived from the operation of hotels . specifically , our revenues are comprised of : ◦ room revenue — occupancy and adr are the major drivers of room revenue . room revenue accounts for the majority of our total revenues . story_separator_special_tag ◦ 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 ) . 33 ◦ other revenue — occupancy and the nature of the hotel property are the main drivers of other ancillary revenue , such as parking fees , resort 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 revenue . property operating expenses — the components of our property operating expenses 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 property . ◦ 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 — management agreements '' and `` our hotel properties — franchise agreements '' sections . ◦ other operating expense — these expenses include labor and other costs associated with the sources of our other revenue , as well as the labor and other costs associated with the administrative departments , sales and marketing , repairs and maintenance , and utility costs at the hotel properties . 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 management fees , franchise fees , travel agency commissions , and credit card processing fees , all of which are based on hotel revenues . therefore , changes in adr have a more significant impact on operating margins than changes in occupancy . story_separator_special_tag style= '' color : # 000000 ; font-family : 'times new roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > property operating expenses decreased $ 565.7 million , or 59.1 % , to $ 391.6 million for the year ended december 31 , 2020 , from $ 957.2 million for the year ended december 31 , 2019. the decrease was due to a $ 91.1 million decrease in property operating expenses attributable to the non-comparable properties and a $ 474.5 million decrease in property operating expenses attributable to the comparable properties . the components of our property operating expenses for the comparable properties owned at december 31 , 2020 and 2019 , respectively , were as follows ( in thousands ) : replace_table_token_11_th 36 the decrease in property operating expenses attributable to the comparable properties was due to the impact of the covid-19 pandemic and the cost savings measures we adopted in response to the covid-19 pandemic . management and franchise fee expense for the year ended december 31 , 2020 included a reduction in management and franchise fee expense of $ 17.8 million related to the recognition of the wyndham termination payment . other operating expense for the year ended december 31 , 2020 included property-level severance expense of approximately $ 8.2 million . this amount included $ 6.7 million related to severance for associates at our new york city hotels operating under collective bargaining agreements . depreciation and amortization depreciation and amortization expense decreased $ 17.4 million , or 8.2 % , to $ 194.2 million for the year ended december 31 , 2020 , from $ 211.6 million for the year ended december 31 , 2019. the decrease was a result of a $ 16.4 million decrease in depreciation and amortization expense attributable to the non-comparable properties and a $ 1.0 million decrease in depreciation and amortization expense attributable to the comparable properties . impairment loss during the year ended december 31 , 2019 , we recorded an impairment loss of $ 13.5 million related to two hotel properties . the impairment was due to adverse changes in the operating performance of the hotels .
| 34 comparison of the year ended december 31 , 2020 to the year ended december 31 , 2019 replace_table_token_9_th 35 revenues total revenues decreased $ 1.1 billion , or 69.8 % , to $ 473.1 million for the year ended december 31 , 2020 , from $ 1.6 billion for the year ended december 31 , 2019. the decrease was a result of a $ 919.3 million decrease in room revenue , a $ 137.1 million decrease in food and beverage revenue , and a $ 36.7 million decrease in other revenue . room revenue beginning in march 2020 , we experienced a significant decline in occupancy and revpar due to the covid-19 pandemic . room revenue decreased $ 919.3 million , or 69.8 % , to $ 397.8 million for the year ended december 31 , 2020 from $ 1.3 billion for the year ended december 31 , 2019. the decrease was a result of a $ 126.5 million decrease in room revenue attributable to the non-comparable properties and a $ 792.8 million decrease in room revenue attributable to the comparable properties . the decrease in room revenue from the comparable properties was attributable to a 66.8 % decrease in revpar primarily due to a decline in demand as a result of the covid-19 pandemic . the following are the key hotel operating statistics for the comparable properties owned at december 31 , 2020 and 2019 , respectively : replace_table_token_10_th food and beverage revenue food and beverage revenue decreased $ 137.1 million , or 77.2 % , to $ 40.4 million for the year ended december 31 , 2020 , from $ 177.5 million for the year ended december 31 , 2019. the decrease was a result of a $ 13.8 million decrease in food and beverage revenue attributable to the non-comparable properties and a $ 123.3 million decrease in food and beverage revenue attributable to the comparable properties . the decrease in food and beverage revenue attributable to the comparable properties was primarily due to the impact of the covid-19 pandemic . other revenue other revenue , which includes revenue derived from ancillary sources such as parking fees , resort fees , gift shop sales and other guest service fees ,
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we began consolidating blink on may 9 , 2018. we are a development stage company , and all of our programs are at a preclinical stage of development . to date , we have not generated any revenue from product sales and do not expect to generate revenue from the sale of products for the foreseeable future . since inception we have incurred significant operating losses . our net losses for the years ended december 31 , 2019 and 2018 were $ 78.3 million and $ 116.7 million , respectively . as of december 31 , 2019 , we had an accumulated deficit of $ 203.0 million . 102 our total operating expenses were $ 75.2 million and $ 45.7 million for the years ended december 31 , 2019 and 2018 , respectively . we expect to continue to incur significant expenses and increasing operating losses in connection with ongoing development activities related to our portfolio of programs as we continue our preclinical development of product candidates ; advance these product candidates toward clinical development ; further develop our base editing platform ; research activities as we seek to discover and develop additional product candidates ; maintenance , expansion enforcement , defense , and protection of our intellectual property portfolio ; and hiring research and development , clinical and commercial personnel . in addition , upon the closing of our ipo , we expect to incur additional costs associated with operating as a public company . as a result of these anticipated expenditures , we will need additional financing to support our continuing operations and pursue our growth strategy . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through a combination of equity offerings , debt financings , collaborations , strategic alliances , and licensing arrangements . we may be unable to raise additional funds or enter into such other agreements when needed on favorable terms or at all . our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy . we can give no assurance that we will be able to secure such additional sources of funds to support our operations , or , if such funds are available to us , that such additional funding will be sufficient to meet our needs . research and development expenses research and development expenses consist of costs incurred in performing research and development activities , which include : the cost to obtain licenses to intellectual property , such as those with harvard university , or harvard , broad institute of mit and harvard , or broad institute , and editas medicine , inc , or editas , and related future payments should certain success , development and regulatory milestones be achieved ; personnel-related expenses , including salaries , bonuses , benefits and stock-based compensation for employees engaged in research and development functions ; expenses incurred in connection with the discovery and preclinical development of our research programs , including under agreements with third parties , such as consultants , contractors and contract research organizations ; the cost of developing and validating our manufacturing process for use in our preclinical studies and future clinical trials ; laboratory supplies and research materials ; and facilities , depreciation and other expenses which include direct and allocated expenses . we expense research and development costs as incurred . advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses . the prepaid amounts are expensed as the benefits are consumed . in the early phases of development , our research and development costs are often devoted to product platform and proof-of-concept studies that are not necessarily allocable to a specific target , therefore , we have not yet begun tracking our expenses on a program-by-program basis . we expect that our research and development expenses will increase substantially in connection with our planned preclinical and future clinical development activities . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including stock-based compensation , for personnel in our executive , intellectual property , business development , and administrative functions . general and administrative expenses also include legal fees relating to intellectual property and corporate matters , professional fees for accounting , auditing , tax and consulting services , insurance costs , travel , and direct and allocated facility related expenses and other operating costs . we anticipate that our general and administrative expenses will increase in the future to support increased research and development activities . we also expect to incur increased costs associated with being a public company , including costs of accounting , audit , legal , regulatory and tax-related services associated with maintaining compliance with nasdaq and sec requirements , director and officer insurance costs , and investor and public relations costs . other income and expenses other income and expenses consist of the following items : change in fair value of derivative liabilities consists primarily of remeasurement gains or losses associated with changes in the anti-dilution issuance rights , finance milestone payment liabilities and success payment liabilities associated with our license agreement with harvard , dated as of june 27 , 2017 , as amended , or the harvard license agreement , and the license agreement between blink and broad institute , as amended , dated as of may 9 , 2018 , or the broad license agreement . 103 anti-dilution issuance rights were issued to harvard and broad institute allowing harvard and broad institute to maintain a defined ownership percentage in us on a fully diluted basis upon subsequent equity financings until we achieved a defined aggregate level of preferred stock financing . story_separator_special_tag at the inception of the agreements , the liability for the anti-dilution right was recorded at fair value with cost recorded as research and development expense and was remeasured at each reporting period and at the termination of the right with changes recorded in other income ( expense ) . financing milestone payment liabilities are derived from future cash payments due to harvard and broad institute upon the closing of additional rounds of preferred stock . at the inception of the agreements , the liabilities were recorded at fair value with cost recorded as research and development expense and were remeasured at each reporting period with changes recorded in other income ( expense ) . success payment liabilities are derived from future increases in the per share fair market value of the series a-1 preferred stock and series a-2 preferred stock at specified future dates . at inception of the agreements , the success payment liabilities were recorded at fair market value with cost recorded as research and development expense and were remeasured at each reporting period with changes recorded in other income ( expense ) . depending on our valuation , the success payment liabilities could fluctuate significantly from period to period . all anti-dilution issuance rights and finance milestone liabilities pursuant to our harvard license agreement and broad license agreement have been met as of december 31 , 2018. accordingly , we are no longer required to record liabilities for these rights . loss on issuance of preferred stock in connection with blink merger represents the expense recognized upon the consummation of the blink merger . pursuant to the blink merger , we issued two shares of our series a-2 preferred stock for each share of blink and took a charge representing the excess of the fair value of our series a-2 preferred stock issued to blink shareholders over the value of the blink preferred stock exchanged by blink shareholders . loss on issuance of preferred stock to investors consists of a charge taken upon issuance of our preferred stock at a discount due to an increase in value above the sale price . change in fair value of preferred stock tranche liabilities consist primarily of remeasurement gains or losses associated with changes in the fair value of the tranche rights associated with our series a-1 preferred stock and series a-2 preferred stock . all obligations have been met at december 31 , 2018 and therefore there will be no further remeasurement . story_separator_special_tag shares of our common stock in connection with the blink merger ) to broad institute . for the year ended december 31 , 2018 , we recorded a $ 1.3 million change in fair value expense related to these anti-dilution issuance rights . during the year ended december 31 , 2018 , we recorded a $ 9.7 million change in fair value expense related to financial milestone payments . all remaining financing milestone obligations were met in 2018. during the year ended december 31 , 2019 , we recorded a $ 5.4 million change in fair value expense related to the success payment liabilities as compared to a $ 0.7 million expense for the year ended december 31 , 2018. the success payment obligations are still outstanding as of december 31 , 2019 and will continue to be revalued at each reporting period . loss on issuance of preferred stock in connection with blink merger loss on issuance of preferred stock in connection with the blink merger of $ 49.5 million for the year ended december 31 , 2018 represented the excess of the fair value of our series a-2 preferred stock issued to blink shareholders over the value of the blink preferred stock exchanged by blink shareholders at the time of the blink merger . loss on issuance of preferred stock to investors loss on issuance of preferred stock to investors of $ 5.7 million for the year ended december 31 , 2018 resulted from issuance of our series a-1 preferred stock at a fair value of the preferred stock in excess of the cash proceeds received . 105 change in fair value of preferred stock tranche liabilities we have determined that our obligation to issue and our investors ' obligation to purchase additional shares of series a-1 preferred stock and series a-2 preferred stock represented a freestanding financial instrument . the resulting preferred stock tranche liability was initially recorded at fair value , with gains and losses arising from changes in fair value recognized in the consolidated statement of operations at each period while such instruments were outstanding . as a result of the changes in fair value , we recognized other expense of $ 4.3 million for the year ended december 31 , 2018. as of december 31 , 2018 , the tranche rights had been exercised and the liabilities have been reclassified to preferred stock . interest income interest income was $ 2.5 million for the year ended december 31 , 2019 as compared to $ 0.3 million for the year ended december 31 , 2018. we began actively investing our funds in 2019. interest expense interest expense of $ 0.2 million for the year ended december 31 , 2019 was related to our equipment financing leases . there was no corresponding interest expense in 2018. comparison of year ended december 31 , 2018 and period ended december 31 , 2017 replace_table_token_4_th research and development expenses research and development expenses were $ 33.9 million for the year ended december 31 , 2018 , compared to $ 5.9 million for the period from january 25 , 2017 ( inception ) to december 31 , 2017. the increase of $ 28.0 million was primarily due to the following : an $ 8.5 million increase in expenses related to technology licenses .
| for the year ended december 31 , 2019 , technology license expense was $ 3.4 million , which consisted primarily of option fees of $ 2.4 million related to a technology license agreement and $ 0.8 million , which consisted primarily of the license fee and fair value of beam common stock provided to bio palette in conjunction with a license agreement executed in march 2019. for the year ended december 31 , 2018 , technology license expense was $ 13.3 million , which included : $ 5.3 million related to the broad license agreement for the initial value of anti-dilution rights , financing milestone payment liabilities , success payment liabilities , and the initial shares of common stock issued to broad institute , $ 3.7 million related to the issuance of 3,055,555 shares of preferred stock under a license agreement with editas , $ 2.2 million for additional shares of stock issued to broad institute upon the blink merger , and other technology license expenses of $ 2.0 million . research and development expenses will continue to increase as we continue our current research programs , initiate new research programs , continue our preclinical development of product candidates and conduct future clinical trials for any of our product candidates . general and administrative expenses general and administrative expenses were $ 20.6 million and $ 11.9 million for the years ended december 31 , 2019 and 2018 , respectively . the increase of $ 8.7 million was primarily a result of a $ 4.4 million increase in personnel related costs due to an increase in general and administrative employees from eight employees as of december 31 , 2018 to 21 employees as of december 31 , 2019 , a $ 1.7 million increase in stock-based compensation due to an increase in the number of general and administrative employees as well as an increase in the value of our common stock , a $ 1.2 million increase in outsourced services including audit services as well as consulting services to supplement our internal capabilities , a $ 1.1 million increase in other administrative expenses , and a $ 0.3 million increase in expense allocated to general and administrative expense
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part ii 35 2. concrete our year-over-year ready-mixed concrete shipments declined : § 6 % in 2011 § 5 % in 2010 § 32 % in 2009 the concrete segment reported a loss of $ 43.4 million in 2011 compared to a loss of $ 45.0 million in 2010. ready-mixed concrete volumes were down 6 % while the average sales price increased 6 % , contributing to a 10 % improvement in unit materials margin . concrete revenues and gross profits 3. asphalt mix our year-over-year asphalt mix shipments : § increased 1 % in 2011 § declined 3 % in 2010 § declined 22 % in 2009 asphalt mix gross profit was $ 25.6 million in 2011 compared to $ 29.3 million in 2010 due principally to higher liquid asphalt costs . the average sales price for asphalt mix increased 8 % while liquid asphalt costs increased 17 % . asphalt mix revenues and gross profits part ii 36 4. cement the average unit selling price for cement decreased 7 % and volumes were down 5 % in 2011 compared to 2010 contributing to the $ 0.7 million reduction in gross profit . cement revenues and gross profits selling , administrative and general expenses sag expenses decreased $ 37.5 million , or 11 % , from 2010. this 2011 decrease resulted from lower spending in most major overhead categories , including lower spending for our it replacement project and the absence of a charge in the current year for property donations . additionally , the current year expenses included savings from reduced employment levels . our comparative company employment levels at year end : § declined 7 % in 2011 § declined 4 % in 2010 § declined 11 % in 2009 sag expenses for property donations recorded at fair value were as follows : $ 0.0 million in 2011 , $ 9.2 million in 2010 and $ 8.5 million in 2009. the gains from these donations , which are equal to the excess of the fair value over the carrying value , are included in gain on sale of property , plant & equipment and businesses , net in the consolidated statements of comprehensive income . excluding the effect of these property donations , sag expenses decreased $ 28.3 million in 2011 over 2010 and increased $ 5.2 million in 2010 over 2009. severance charges included in sag expenses were as follows : 2011 $ 4.1 million , 2010 $ 6.9 million and 2009 $ 7.3 million . part ii 37 gain on sale of property , plant & equipment and businesses , net the 2011 gain includes a $ 39.7 million pretax gain associated with the sale of four non-strategic aggregates facilities and a $ 0.6 million pretax gain associated with an exchange of assets ( see note 19 acquisitions and divestitures in item 8 financial statements and supplementary data ) . the 2010 gain includes a $ 39.5 million pretax gain associated with the sale of three non-strategic aggregates facilities . the 2009 gain was primarily related to sales and donations of real estate . interest expense the 2011 increase in interest expense resulted primarily from our debt refinancing completed in june . in addition to higher effective interest rates on the new debt , we incurred $ 26.2 million of charges in connection with our tender offer and debt retirement . these charges resulted from the $ 18.4 million difference between the purchase price and par value of the notes purchased in the tender offer , $ 0.7 million in transaction fees and $ 8.1 million of noncash write-offs of unamortized discounts , deferred financing costs and amounts in accumulated other comprehensive income ( aoci ) related to the retired debt . income taxes our income tax benefit from continuing operations for the years ended december 31 is shown below : replace_table_token_12_th the $ 11.2 million decrease in our 2011 benefit from income taxes is primarily related to the 2011 decreased loss from continuing operations . the $ 51.8 million increase in our 2010 benefit from income taxes is primarily related to the increased loss from continuing operations . a reconciliation of the federal statutory rate of 35 % to our effective tax rates for 2011 , 2010 and 2009 is presented in note 9 income taxes in item 8 financial statements and supplementary data. part ii 38 discontinued operations pretax earnings from discontinued operations were : § $ 7.4 million in 2011 § $ 10.0 million in 2010 § $ 19.5 million in 2009 the 2011 pretax earnings includes pretax gains totaling $ 18.6 million related to the 5cp earn-out and insurance recoveries compared to similar pretax gains totaling $ 13.9 million in 2010. the 2009 pretax earnings from discontinued operations resulted primarily from settlements with two of our insurers in perchloroethylene lawsuits resulting in pretax gains of $ 23.5 million . these gains were partially offset by general and product liability costs , including legal defense costs , and environmental remediation costs . for additional information regarding discontinued operations and the 5cp earn-out , see note 2 discontinued operations in item 8 financial statements and supplementary data. liquidity and financial resources our primary sources of liquidity are cash provided by our operating activities , a bank line of credit and access to the capital markets . additional financial resources include the sale of reclaimed and surplus real estate , and dispositions of non-strategic operating assets . story_separator_special_tag we believe these financial resources are sufficient to fund our future business requirements , including : § cash contractual obligations § capital expenditures § debt service obligations § potential future acquisitions § dividend payments on october 14 , 2011 , our board of directors declared a quarterly dividend of one cent per share for the fourth quarter of 2011 compared with the 25 cents per share quarterly dividend paid in the third quarter of 2011. on february 15 , 2012 , our board declared a dividend of one cent per share for the first quarter of 2012. we actively manage our capital structure and resources in order to minimize the cost of capital while properly managing financial risk . we seek to meet these objectives by adhering to the following principles : § maintain substantial bank line of credit borrowing capacity § use the bank line of credit only for seasonal working capital requirements and other temporary funding requirements § proactively manage our long-term debt maturity schedule such that repayment/refinancing risk in any single year is low § avoid financial and other covenants that limit our operating and financial flexibility § opportunistically access the capital markets when conditions and terms are favorable part ii 39 cash included in our cash and cash equivalents balance of $ 155.8 million is $ 40.1 million of cash held at one of our foreign subsidiaries . this cash is not available to fund domestic operations unless repatriated . we have no plans to repatriate the cash as the earnings from this subsidiary are indefinitely reinvested . if we distribute the earnings in the form of dividends , the distribution would be subject to u.s. income taxes . cash from operating activities net cash provided by operating activities is derived primarily from net earnings before deducting noncash charges for depreciation , depletion , accretion and amortization . replace_table_token_13_th 2011 versus 2010 although net earnings before noncash deductions for depreciation , depletion , accretion and amortization increased to $ 290.9 million from $ 285.6 million , net cash provided by operating activities decreased $ 33.7 million . operating cash flows were negatively impacted by changes in our working capital accounts which used $ 25.3 million in cash in 2011 compared to $ 37.2 million of cash generated in 2010. this increase in cash outflows was partially offset by a decrease in contributions to pension plans from $ 24.5 million in 2010 to $ 4.9 million in 2011 . 2010 versus 2009 lower net earnings before deducting noncash charges for depreciation , depletion , accretion and amortization caused the majority of the $ 250.3 million decrease in operating cash flows . cash received associated with gains on sale of property , plant & equipment and businesses is presented as a component of investing activities and accounts for $ 40.2 million of the $ 250.3 million year-over-year decrease in operating cash flows . part ii 40 cash from investing activities 2011 versus 2010 net cash used for investing activities of $ 19.5 million decreased $ 68.9 million from 2010. proceeds from the sale of non-strategic businesses increased $ 23.8 million year-over-year to $ 74.7 million in 2011. we utilized an asset swap strategy to acquire aggregates facilities in high growth markets while disposing of non-strategic assets . this strategy allowed us to acquire net assets valued at $ 35.4 million for a cash outlay of $ 10.5 million . accordingly , cash used to acquire businesses decreased by $ 60.0 million compared to 2010. cash used for the purchase of property , plant & equipment totaled $ 98.9 million in 2011 , compared to $ 86.3 million in 2010 and $ 109.7 million in 2009 . 2010 versus 2009 net cash used for investing activities totaled $ 88.4 million compared to $ 80.0 million in 2009 , an increase of $ 8.4 million . the positive cash flows from an increase in proceeds from the sale of non-strategic businesses of $ 34.9 million and the decrease in cash used for capital projects were more than offset by a $ 33.6 million increase in payments for businesses acquired and a $ 33.3 million decrease in the redemption of medium-term investments . cash from financing activities 2011 versus 2010 net cash used for financing activities of $ 41.3 million decreased $ 47.8 million from 2010. increases in financing cash flows were largely due to an increase in cash flows related to debt of $ 71.5 million . this net positive cash flow variance includes proceeds and payments of short-term and long-term debt , debt issuance costs , cash paid to purchase our own debt at a premium above par value and proceeds from the settlement of interest rate swap agreements . the positive cash flows from debt-related items and the $ 29.6 million decrease in dividends paid ( largely as a result of the dividend reduction in the fourth quarter of 2011 ) were partially offset by year-over-year decreases in proceeds from the issuance of common stock and the exercise of stock options totaling $ 53.7 million . 2010 versus 2009 net cash used for financing activities totaled $ 89.1 million , compared to $ 361.0 million during 2009. during 2010 , we reduced total debt by $ 19.8 million despite a significant year-over-year decline in cash provided by operating activities . in the third quarter of 2009 , we reduced our dividend per share to $ 0.25 from $ 0.49 declared and paid in the prior two quarters of 2009 , resulting in comparative cash savings of $ 91.9 million during 2010. part ii 41 debt replace_table_token_14_th in june 2011 , we issued $ 1.1 billion of long-term notes in two series , as follows : $ 500.0 million of 6.50 % notes due in 2016 and $ 600.0 million of 7.50 % notes due in 2021. these notes were issued principally to : § repay and terminate our $ 450.0 million floating-rate term loan due in 2015 § fund the purchase through a tender offer of $ 165.4 million
| these profit enhancements are in addition to the actions announced in 2011 , which produced the $ 55 million in run-rate overhead savings as cited above . § planned asset sales with net after-tax proceeds of approximately $ 500 million from the sale of non-core assets over the next 12 to 18 months . the net proceeds of these sales , together with the increased earnings resulting from the profit enhancement plan , will be used to reduce debt and strengthen our balance sheet and credit profile . the intended asset sales are consistent with our strategic focus on building leading aggregates positions in markets with above-average long-term demand growth . correction of prior period financial statement in preparation for an internal revenue service ( irs ) exam during 2011 , we identified improper deductions and errors in the calculation of taxable income for items primarily associated with the 2007 acquisition of florida rock . the errors arose during periods prior to 2009 and are not material to previously issued financial statements . as a result , we did not amend previously filed financial statements but have restated the affected consolidated balance sheet and consolidated statements of equity presented in this form 10-k. see note 20 correction of prior period financial statement in item 8 financial statements and supplementary data for more details . stabilizing markets for the twelve-month period ending december 31 , 2011 , contract awards for highway construction , which include federal , state and local road and bridge projects , were down 6 % from 2010 in vulcan-served states . however , contract awards for more aggregates-intensive road-related projects were up 2 % over 2010 while bridges were down 18 % compared to 2010. we believe this sharp contrast between road and bridge contract award activity is due to the types of projects funded with federal stimulus dollars as well as the increase in spending from regular funding programs by state departments of transportation , which
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we leverage some of the leading global hotel brands with all but two of our hotels flagged under a brand owned by marriott , hilton or starwood . we believe that premier global hotel brands create significant value as a result of each brand 's ability to produce incremental revenue through their strong reservation and rewards systems and sales organizations with the result being that branded hotels are able to generate greater profits than similar unbranded hotels . we are primarily interested in owning hotels that are currently operated under , or can be converted to , a globally-recognized brand . we would also consider opportunities to acquire other non-branded hotels located in premier or unique markets where we believe that the returns on such a hotel may be higher than if the hotel were operated under a globally-recognized brand . innovative asset management we believe we can create significant value in our portfolio through innovative asset management strategies such as rebranding , renovating and repositioning and we engage in a process of regular evaluations of our portfolio in order to determine if there are opportunities to employ these value-add strategies . we realized numerous asset management achievements in 2013 , including : the execution of a $ 140 million capital expenditure program ; the implementation of asset management strategies in order to improve hotel revenues and contain costs ; and proactively managing the third-party at each of our properties to maximize hotel operating performance . our asset management team is focused on improving hotel profit margins through revenue management strategies and cost control programs . our asset management team also focuses on identifying new and potential value creation opportunities across our portfolio , including adding new resort fees , creating incremental guest rooms , leasing out restaurants to more profitable third party operators , converting unused space to revenue-generating meeting space , and implementing programs to reduce energy usage . our senior management team has established a broad network of hotel industry contacts and relationships , including relationships with hotel owners , financiers , operators , project managers and contractors and other key industry participants . we use our broad network of hotel industry contacts and relationships to maximize the value of our hotels . under the federal income tax rules governing reits , we are required to engage a hotel manager that is an eligible independent contractor to manage each of our hotels pursuant to a management agreement with one of our subsidiaries . we strive to negotiate management agreements that give us the right to exert influence over the management of our properties , annual budgets and all capital expenditures ( all , to the extent permitted under the reit rules ) , and then to use those rights to continually monitor and improve the performance of our properties . we cooperatively partner with our hotel managers in an attempt to increase operating results and long-term asset values at our hotels . in addition to working directly with the personnel at our hotels , our senior management team also has long-standing professional relationships with our hotel managers ' senior executives , and we work directly with these senior executives to improve the performance of the hotels in our portfolio that they manage . conservative capital structure we believe that a conservative capital structure maximizes investment capacity while reducing enterprise risk . we currently employ a low-risk and straight-forward capital structure with no corporate level debt , preferred equity , or convertible bonds . moreover , we have significant balance sheet flexibility with no outstanding borrowings under our $ 200 million senior unsecured credit facility as of december 31 , 2013 , as well as approximately half of our hotels being unencumbered by mortgage debt . we believe it is imprudent to increase the inherent risk of highly cyclical lodging fundamentals through the use of a highly leveraged capital structure . we believe our strategically designed capital structure is a value creation tool that can be used over the entire lodging cycle . specifically , we believe lower leverage benefits us in the following ways : provides capacity to fund attractive early-cycle acquisitions ; - 35 - provides optionality to fund acquisitions with the most efficient funding source ; enhances our ability to maintain a sustainable dividend ; enables us to opportunistically repurchase shares during periods of stock price dislocation ; and provides capacity to fund late-cycle capital needs . our current debt outstanding consists primarily of fixed interest rate mortgage debt . we have no outstanding borrowings under our senior unsecured credit facility , which bears interest at what we believe is an attractive floating rate . we prefer that a significant portion of our portfolio remains unencumbered by debt in order to provide maximum balance sheet flexibility . in addition , to the extent that we incur additional debt , our preference is non-recourse secured mortgage debt . we expect that our strategy will enable us to maintain a balance sheet with an appropriate amount of debt throughout all phases of the lodging cycle . we have mortgage debt maturities that start in late 2014 , with significant maturities in 2015 ( approximately $ 230 million ) and 2016 ( approximately $ 305 million ) . we anticipate addressing these maturities , as well as other capital needs , with a combination of the following : refinancing proceeds on existing encumbered hotels ; borrowing capacity on our existing unencumbered hotels ; proceeds from the disposition of non-core hotels ; capacity on our $ 200 million senior unsecured credit facility ; and annual cash flow from operations . we prefer a relatively simple but efficient capital structure . we have not invested in joint ventures and have not issued any operating partnership units or preferred stock . we structure our hotel acquisitions to be straightforward and fit within our conservative capital structure ; however , we will consider a more complex transaction if we believe that the projected returns to our stockholders will significantly exceed the returns that would otherwise be available . story_separator_special_tag key indicators of financial condition and operating performance we use a variety of operating and other information to evaluate the financial condition and operating performance of our business . these key indicators include financial information that is prepared in accordance with u.s. gaap , as well as other financial information that is not prepared in accordance with u.s. gaap . in addition , we use other information that may not be financial in nature , including statistical information and comparative data . we use this information to measure the performance of individual hotels , groups of hotels and or our business as a whole . we periodically compare historical information to our internal budgets as well as industry-wide information . these key indicators include : occupancy percentage ; average daily rate ( or adr ) ; revenue per available room ( or revpar ) ; earnings before interest , income taxes , depreciation and amortization ( or ebitda ) and adjusted ebitda ; and funds from operations ( or ffo ) and adjusted ffo . occupancy , adr and revpar are commonly used measures within the hotel industry to evaluate operating performance . revpar , which is calculated as the product of adr and occupancy percentage , is an important statistic for monitoring operating performance at the individual hotel level and across our business as a whole . we evaluate individual hotel revpar performance on an absolute basis with comparisons to budget and prior periods , as well as on a company-wide and regional basis . adr and revpar include only room revenue . room revenue comprised approximately 70 % of total revenues for the year ended december 31 , 2013 and is dictated by demand , as measured by occupancy percentage , pricing , as measured by adr , and our available supply of hotel rooms . - 36 - our adr , occupancy percentage and revpar performance may be impacted by macroeconomic factors such as u.s. economic conditions generally , regional and local employment growth , personal income and corporate earnings , office vacancy rates and business relocation decisions , airport and other business and leisure travel , new hotel construction and the pricing strategies of competitors . in addition , our adr , occupancy percentage and revpar performance is dependent on the continued success of our hotels ' global brands . we also use ebitda , adjusted ebitda , ffo and adjusted ffo as measures of the financial performance of our business . see “ non-gaap financial measures. ” overview of 2013 the recovery in the lodging industry continued during 2013 with demand increasing 2.2 % and many markets returning to prior peak occupancy levels . importantly , new hotel supply remained constrained , increasing only 0.7 % , which is less than half the historical average . this positive supply/demand imbalance powered industry revpar growth of 5.4 % . key highlights for 2013 include the following : hotel financings . we raised $ 165 million through three separate secured financings during 2013. the financings include ( i ) a $ 31 million mortgage loan secured by the lodge at sonoma renaissance resort & spa with a term of ten years and a fixed interest rate of 3.96 % ( ii ) a $ 71 million mortgage loan secured by the westin san diego with a term of ten years and a fixed interest rate of 3.94 % and ( iii ) a $ 63 million mortgage loan secured by the salt lake city marriott downtown with a term of seven years and a fixed interest rate of 4.25 % . the loans are property-specific and non-recourse to the company subject to standard exceptions . as part of the financing of the salt lake city marriott downtown , we prepaid the $ 27.3 million mortgage loan previously secured by the hotel through defeasance , which had a maturity date of january 2015. the cost to defease the loan was approximately $ 1.5 million . allerton loan . we closed on the settlement of the bankruptcy and related litigation involving our senior mortgage loan secured by the allerton hotel , receiving a $ 5.0 million principal payment and a new $ 66.0 million mortgage loan . we received an additional principal payment of $ 1.5 million in may 2013. non-core hotel disposition . we sold the 487-room torrance marriott south bay to an unaffiliated third party for a contractual sales price of $ 74 million on november 21 , 2013. we recognized a gain on the sale of $ 22.7 million , which is reported in discontinued operations . chief operating officer . john l. williams departed from his position as president and chief operating officer of the company effective may 1 , 2013. in connection with his departure from the company , we recorded a severance cost of approximately $ 3.1 million , which is reflected in corporate expenses on the accompanying consolidated statement of operations . on april 1 , 2013 , robert d. tanenbaum joined the company as executive vice president , asset management and was appointed chief operating officer effective may 1 , 2013. outlook for 2014 we believe we are in the middle of a multi-year lodging recovery cycle . hotel supply growth has flattened in most markets . in 2013 , we experienced increased travel demand , leading to revpar gains due more from increases in room rates than from growth in occupancy and we expect this trend to continue in 2014. further , we expect our newly renovated hotels to outperform the market in 2014 due both to an enhanced product and limited disruption . story_separator_special_tag december 31 , 2013 and december 31 , 2012 , respectively . the increase in interest expense is primarily due to the new mortgage loans we entered into in late 2012 and 2013. the increase is partially offset by lower interest expense on our credit facility due to lower borrowings in 2013 and interest rate cap fair value adjustments .
| food and beverage revenues increased $ 18.0 million from 2012 , which includes $ 7.6 million of food and beverage revenues contributed by the five hotels acquired in 2012. the remaining increase of $ 10.4 million at our comparable hotels was primarily driven by higher banquet revenue from both group business and local catering . other revenues , which primarily represent spa , golf , parking and attrition and cancellation fees , increased $ 5.9 million , which includes $ 3.2 million of other revenues contributed by the five hotels we acquired during 2012. the remaining increase of $ 2.7 million at our comparable hotels was primarily driven by the implementation of resort fees at three of our hotels , as well as attrition and cancellation fees . hotel operating expenses . our operating expenses from continuing operations for the years ended december 31 , 2013 and 2012 , respectively , consist of the following ( in millions ) : replace_table_token_11_th our hotel operating expenses increased $ 58.7 million , or 10.9 % , from $ 538.9 million for the year ended december 31 , 2012 to $ 597.6 million for the year ended december 31 , 2013 , which includes $ 37.5 million of hotel operating expenses contributed by the five hotels we acquired in 2012. the remaining increase of $ 21.2 million is primarily due to higher food and beverage costs and support costs , specifically repairs and maintenance and sales and marketing . property taxes at our comparable hotels increased approximately $ 3.0 million , which is primarily due to significant increases in the county property tax rates at the chicago marriott and conrad chicago and a reassessment of the vail marriott mountain resort & spa . incentive management fees increased as a result of higher profits , as well as three additional hotels that earned incentive management fees in 2013. depreciation and amortization . depreciation and amortization is recorded on our hotel buildings over 40 years for the periods subsequent to acquisition . depreciable lives of hotel furniture , fixtures and equipment are estimated
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if an asset 's fair value less costs to sell , based on estimated future cash flows , management estimates or market comparisons , is less than its carrying amount , the asset is written down to its estimated fair value less costs to sell . judgments and assumptions real estate held for sale and investment in residential parcels are reviewed for possible impairment when events or circumstances indicate that the carrying values may not be recoverable . if the evaluation determines that the recorded value will not be recovered , the carrying value of real estate held for sale and investment in residential parcels are written down to its estimated fair value less costs to sell . this evaluation requires management to make assumptions and apply considerable judgment based on market conditions and comparable sales transactions . changes in assumptions may require valuation adjustments that may materially impact the company 's future operating results . 33 equity method investments policy description equity method investments are reviewed for possible impairment when events or circumstances indicate that there is an other-than-temporary loss in value . an investment is written down to fair value if there is evidence of a loss in value which is other-than-temporary . judgments and assumptions in determining the fair value of an investment and assessing whether any identified impairment is other-than-temporary , significant estimates and considerable judgment are involved . in evaluating whether an impairment is other-than-temporary , the company considers all available information , including the length of time and extent of the impairment , the financial condition and near-term prospects of the affiliate , the company 's ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value , and projected industry and economic trends . these estimates and judgments are based , in part , on the company 's current and future evaluation of economic conditions , as well as an affiliate 's current and future plans to the extent that such plans are known to the company . impairment calculations contain additional uncertainties because they require management to make assumptions and apply judgments to estimates of future cash flows , probabilities related to various cash flow scenarios , and appropriate discount rates . changes in these and other assumptions could affect the projected operational results of the unconsolidated affiliates and , accordingly , may require valuation adjustments to the company 's investments that may materially impact the company 's financial condition or its future operating results . income taxes policy description income taxes are determined using the asset and liability method . deferred tax assets and liabilities are recognized for the estimated future tax impacts of differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . deferred income tax assets are routinely assessed for realizability . a valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax asset will not be realized . barnwell recognizes the financial statement effects of tax positions when it is more likely than not that the position will be sustained by a taxing authority . judgments and assumptions we make estimates and judgments in determining our income tax expense for each reporting period . significant changes to these estimates could result in an increase or decrease in our tax provision in future periods . we are also required to make judgments about the recoverability of deferred tax assets and when it is more likely than not that all or a portion of deferred tax assets will not be realized , a valuation allowance is provided . we consider available positive and negative 34 evidence when assessing the realizability of deferred tax assets including historic and estimated future taxable earnings and available tax planning strategies . accordingly , changes in our business performance , unforeseen events , and changes in estimates of future taxable income could require a further increase in the valuation allowance or a reversal in the valuation allowance in future periods . this could result in a charge to , or an increase in , income in the period such determination is made , and the impact of these changes could be material . in addition , barnwell operates within the u.s. and canada and is subject to audit by taxing authorities in these jurisdictions . barnwell records accruals for the estimated outcomes of these audits , and the accruals may change in the future due to new developments in each matter . tax benefits are recognized when we determine that it is more likely than not that such benefits will be realized . management evaluates its potential exposures from tax positions taken that have or could be challenged by taxing authorities . these potential exposures result because taxing authorities may take positions that differ from those taken by management in the interpretation and application of statutes , regulations and rules . management considers the possibility of alternative outcomes based upon past experience , previous actions by taxing authorities ( e.g. , actions taken in other jurisdictions ) and advice from tax experts . where uncertainty exists due to the complexity of income tax statutes and where the potential tax amounts are significant , we generally seek independent tax opinions to support our positions . if our evaluation of the likelihood of the realization of benefits is inaccurate , we could incur additional income tax and interest expense that would adversely impact earnings , or we could receive tax benefits greater than anticipated which would positively impact earnings , either of which could be material . management believes that barnwell 's provision for uncertain tax positions is reasonable . story_separator_special_tag however , the ultimate resolution of tax treatments disputed by governmental authorities may adversely affect barnwell 's current and deferred income taxes . asset retirement obligation policy description barnwell records the fair value of a liability for an asset retirement obligation in the period in which it is incurred . barnwell 's estimated site restoration and abandonment costs of its oil and natural gas properties are capitalized as part of the carrying amount of oil and natural gas properties and depleted over the life of the related reserves . when the assumptions used to estimate a recorded asset retirement obligation change , a revision is recorded to both the asset retirement obligation and the capitalized cost of asset retirements . the liability is accreted at the end of each period through charges to oil and natural gas operating expense . judgments and assumptions the asset retirement obligation is recorded at fair value in the period in which it is incurred along with a corresponding increase in the carrying amount of the related asset . barnwell has estimated fair value by discounting the estimated future cash outflows required to settle abandonment and restoration liabilities . the present value calculation includes numerous estimates , assumptions and judgments regarding the existence of liabilities , the amount and timing of cash outflows required to settle the liability , what constitutes adequate restoration , inflation factors , credit adjusted discount rates , and consideration of changes in legal , regulatory , environmental and political environments . abandonment and restoration cost estimates are determined in conjunction with barnwell 's reserve engineers based on historical information regarding costs incurred to abandon and restore similar well 35 sites , information regarding current market conditions and costs , and knowledge of subject well sites and properties . the process of estimating the asset retirement obligation requires substantial judgment and use of estimates , resulting in imprecise determinations . actual asset retirement obligations through the end of fiscal 2014 have not materially differed from our estimates . however , because of the inherent imprecision of estimates as described above , there can be no assurance that material differences will not occur in the future . a 20 % increase in accretion and depletion of the asset retirement obligation would have increased barnwell 's fiscal 2014 expenses before taxes by approximately $ 325,000. overview barnwell is engaged in the following lines of business : 1 ) exploring for , developing , acquiring , producing and selling oil and natural gas in canada ( oil and natural gas segment ) , 2 ) investing in land interests in hawaii ( land investment segment ) , 3 ) drilling wells and installing and repairing water pumping systems in hawaii ( contract drilling segment ) , and 4 ) developing homes for sale in hawaii ( residential real estate segment ) . oil and natural gas segment barnwell is involved in the acquisition , exploration and development of oil and natural gas properties in canada where we initiate and participate in exploratory and developmental operations for oil and natural gas on properties in which we have an interest , and evaluate proposals by third parties with regard to participation in such exploratory and developmental operations elsewhere . barnwell sells all of its oil and natural gas liquids production under short-term contracts with marketers of oil . natural gas sold by barnwell is generally sold under short-term contracts with prices indexed to market prices . the price of natural gas , oil and natural gas liquids is freely negotiated between the buyers and sellers . oil and natural gas prices are determined by many factors that are outside of our control . market prices for oil and natural gas products are dependent upon factors such as , but not limited to , changes in market supply and demand , which are impacted by overall economic activity , changes in weather , pipeline capacity constraints , inventory storage levels , and output . petroleum and natural gas prices are very difficult to predict and fluctuate significantly . natural gas prices tend to be higher in the winter than in the summer due to increased demand , although this trend has become less pronounced due to the increased use of natural gas to generate electricity for air conditioning in the summer and increased natural gas storage capacity in north america . oil and natural gas exploration , development and operating costs generally follow trends in product market prices , thus in times of higher product prices the cost of exploring , developing and operating the oil and natural gas properties will tend to escalate as well . capital expenditures are required to fund the exploration , development , and production of oil and natural gas . cash outlays for capital expenditures are largely discretionary , however , a minimum level of capital expenditures is required to replace depleting reserves . due to the nature of oil and natural gas exploration and development , significant uncertainty exists as to the ultimate success of any drilling effort . land investment segment the land investment segment is comprised of the following components : 1 ) through barnwell 's 77.6 % controlling interest in kaupulehu developments , a hawaii general partnership , 75 % controlling interest in kd kona 2013 lllp , a hawaii limited liability limited 36 partnership , and 34.45 % non-controlling interest in kkm makai , lllp , a hawaii limited liability limited partnership , the company 's land investment interests include the following : · the right to receive payments from kd i and kd ii , resulting from the sale of lots and or residential units within approximately 870 acres of the kaupulehu lot 4a area , located approximately six miles north of the kona international airport in the north kona district of the island of hawaii , adjacent to hualalai resort at historic ka ` upulehu , between the queen kaahumanu highway and the pacific ocean , by kd i and kd ii in two increments ( increment i and increment ii ) .
| the average exchange rate of the canadian dollar to the u.s. dollar decreased 6 % in fiscal 2014 , as compared to fiscal 2013 , and the exchange rate of the canadian dollar to the u.s. dollar 39 decreased 8 % at september 30 , 2014 , as compared to september 30 , 2013. accordingly , the assets , liabilities , stockholders ' equity , and revenues and expenses of barnwell 's subsidiaries operating in canada have been adjusted to reflect the change in the exchange rates . barnwell 's canadian dollar assets are greater than its canadian dollar liabilities ; therefore , increases or decreases in the value of the canadian dollar to the u.s. dollar generate other comprehensive income or loss , respectively . other comprehensive income and losses are not included in net loss . other comprehensive loss due to foreign currency translation adjustments , net of taxes , for fiscal 2014 was $ 2,009,000 , a $ 690,000 change from other comprehensive loss due to foreign currency translation adjustments , net of taxes , of $ 1,319,000 in fiscal 2013. there were no taxes on other comprehensive loss due to foreign currency translation adjustments in fiscal 2014 and 2013 due to a full valuation allowance on the related deferred tax assets . oil and natural gas revenues selected operating statistics the following tables set forth barnwell 's annual average prices per unit of production and annual net production volumes for fiscal 2014 as compared to fiscal 2013. production amounts reported are net of royalties . replace_table_token_5_th replace_table_token_6_th * natural gas price per unit is net of pipeline charges . oil and natural gas revenues decreased $ 1,078,000 ( 5 % ) from $ 21,376,000 in fiscal 2013 to $ 20,298,000 in fiscal 2014 , primarily due to decreases in net production partially offset by higher prices for all products . production was impacted by divestitures of certain oil and natural gas properties in fiscal 2014 as well as by natural declines in production
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in addition , we must make judgments about discount rates and capitalization rates . income taxes we own interests in various subsidiaries , some of which are corporations subject to federal and state income taxes and others of which are pass-through entities for tax purposes . pass-through entities do not pay taxes ; they pass their income ( and other tax attributes ) through to the owners of the equity interests in such entities . municipal mortgage & equity , llc is a pass-through entity , and therefore , all of its income ( and loss ) , including its share of pass-through income ( and other tax attributes ) , is allocated to our common shareholders . we do not have a liability for federal and state income taxes related to our pass-through income . however , because we have several taxable subsidiaries ( i.e. , corporations ) , a portion of our income is subject to federal and state income taxes . asc no . 740 , “ income taxes , ” establishes financial accounting and reporting standards for the effect of income taxes . the objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current period and deferred tax assets and liabilities for future tax consequences of events that have been recognized in an entity 's financial statements or tax returns . significant judgment is required in determining and evaluating income tax positions , including assessing the relative merits and risks of various tax treatments considering statutory , judicial and regulatory guidance available regarding the tax position . we establish additional provisions for income taxes when there are certain tax positions that could be challenged and it is more likely than not these positions will not be sustained upon review by taxing authorities . judgment is also required in assessing the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns as well as the recoverability of our deferred tax assets . in assessing our ability to realize the benefit of our deferred tax assets we consider information such as forecasted earnings , future taxable income and tax planning strategies in measuring the required valuation allowance . 14 story_separator_special_tag 11.2 % , or $ 1.0 million , for the year ended december 31 , 2012 as compared to 2011 mainly due to declines in income on preferred stock and other income . income on preferred stock recognized in 2012 decreased $ 0.5 million as compared to 2011 due to 5,000 series a preferred units being redeemed at par for $ 5.0 million in july 2012. other income decreased $ 0.4 million year over year mainly due to a $ 0.7 million recovery of previously reserved asset management fees related to our lihtc funds in 2011 as well as $ 0.2 million of proceeds received during 2011 related to corporate matters , neither of which were repeated during 2012. these decreases were partially offset by the recognition of $ 0.5 million of previously collected purchase option payments associated with the termination of an option agreement with a counterparty to purchase land owned by the company during 2012. operating expenses the following table summarizes our operating expenses for the years ended december 31 , 2012 and 2011 : replace_table_token_5_th total operating expenses increased 1.2 % , or $ 0.3 million , mainly due to an increase in other expenses which were largely offset by declines in professional fees as well as declines in salaries and benefits . other expenses primarily includes depreciation and amortization , guarantee expense , asset management costs , asset workout expenses and costs related to our ownership of real estate . other expenses increased $ 2.8 million year over year mainly due to $ 1.2 million of restructuring fees incurred in the fourth quarter 2012 related to subordinated debt repurchases and the related extension of the interest pay rate concession . other expenses recognized in 2012 were also higher than 2011 due to a $ 0.5 million contingent obligation related to litigation exposure that was recorded in 2012. we also recognized $ 0.3 million of operating losses in 2012 associated with a rental property that we took control of during first quarter of 2012. lastly , during the fourth quarter 2011 approximately $ 0.5 million of unrealized foreign currency translation gains which were recorded within accumulative other comprehensive income ( “ aoci ” - a component of equity ) were transferred into the consolidated statement of operations as a result of the closing of an ihs subsidiary ; this activity was not repeated in 2012. professional fees , which include consulting fees , auditing fees and legal fees , decreased $ 1.9 million for the year ended december 31 , 2012 as compared to 2011. this decrease was mainly due to a $ 1.0 million reduction in legal expenses . additionally , consulting costs decreased $ 0.9 million as a result of reduced dependence on accounting related consultants . salaries and benefits , excluding employees of ihs , decreased $ 0.4 million year over year to $ 6.4 million for the year ended december 31 , 2012 mainly due to a decline in the average number of employees from 35 during 2011 to 31 during 2012. salaries and benefits related to employees of ihs decreased $ 0.1 million year over year to $ 4.0 million for the year ended december 31 , 2012. this decrease was primarily driven by a decrease in bonuses , partially offset by an increase in the average number of employees from 24 during 2011 to 27 during 2012 . story_separator_special_tag 17 impairment on bonds and provision for credit losses the following table summarizes our bond impairments and our provision for credit losses for the years ended december 31 , 2012 and 2011 : replace_table_token_6_th impairment on bonds decreased $ 5.6 million for the year ended december 31 , 2012 as compared to 2011. during 2012 , our bond impairments were the result of $ 5.1 million of impairments on our performing bond portfolio , which were driven by fluctuations in individual property performances , and $ 2.1 million of impairments on non-performing bonds . during 2011 , our bond impairments were the result of $ 9.9 million of impairments on our performing bond portfolio , which were driven by fluctuations in individual property performances , and $ 2.9 million of impairments on non-performing bonds , of which $ 1.7 million related to one bond with a upb of $ 2.5 million and fair value of zero at december 31 , 2011. the company recognized $ 5.6 million in recoveries of previously recognized loan losses during 2012 primarily related to the receipt of $ 1.7 million as a cash settlement for releasing individuals who provided certain financial guarantees related to a loan financing as well as a $ 3.7 million valuation allowance recovery associated with a senior mortgage loan which paid off at par during the fourth quarter 2012. during 2011 , we recognized a $ 0.6 million provision on two bridge loans with a upb of $ 7.4 million , and a $ 0.3 million provision relating to a $ 1.2 million interest in a $ 24.9 million land loan . net gains on assets , derivatives and early extinguishment of liabilities the following table summarizes our net gains on assets , derivatives and early extinguishment of liabilities for the years ended december 31 , 2012 and 2011 : replace_table_token_7_th net gains on bonds decreased by $ 12.1 million for the year ended december 31 , 2012 as compared to 2011. during 2012 the net gains of $ 1.4 million were primarily the result of gains taken on the redemptions of six bonds with a upb of $ 35.5 million . the net gains of $ 13.5 million recorded during 2011 were primarily the result of $ 8.5 million gains taken on the sales or redemptions of 19 bonds with a upb of $ 139.0 million , much of this representing a reversal of previously recorded impairments . additionally , we recorded a gain of $ 5.0 million on a bond still held in our portfolio at december 31 , 2011 , as a result of cash received on partial bond redemption which was greater than the bond 's total amortized cost . for the year ended december 31 , 2012 , net losses on early extinguishment of liabilities were $ 1.8 million as compared to net gains of $ 0.9 million during 2011. during 2012 , we recorded losses of $ 2.0 million in the fourth quarter associated with the replacement of our securitization debt that had credit enhancement and liquidity facilities expiring on march 31 , 2013 as well as losses of $ 0.3 million associated with the early termination of five securitization trusts . these losses were partially offset by gains of $ 0.5 million on repurchases of mandatorily redeemable preferred shares . during 2011 , we recorded gains of $ 1.2 million on repurchases of mandatorily redeemable preferred shares , partially offset by losses of $ 0.3 million associated with the early termination of nine securitization trusts . for the year ended december 31 , 2012 , gains on loans were $ 0.3 million as compared to losses of $ 0.8 million during 2011. the $ 0.3 million of gains recorded during 2012 related to cash proceeds received on loans which had no recorded carrying value . for the year ended december 31 , 2011 , we recorded lower of cost or market ( “ locom ” ) losses of $ 1.0 million , partially offset by $ 0.2 million of recoveries . 18 net losses on derivatives reflect mark-to-market adjustments for unrealized gains and losses on derivative positions in order to reflect our derivatives at fair value at each period end . in addition to the fair value adjustments , these amounts also include net interest accrued during the period on interest rate swaps and total return swaps , as well as gains or losses at sale or termination . net losses on derivatives declined by $ 7.4 million for the year ended december 31 , 2012 as compared to 2011. the majority of this decline ( $ 4.2 million ) was due to a smaller decline in interest rates in 2012 as compared to 2011. more specifically , we recognized unrealized losses of $ 3.3 million during 2011 as compared to unrealized gains of $ 0.9 million during 2012. net interest paid on our swaps declined by $ 1.4 million year over year , primarily due to the termination of derivative agreements . we also recognized $ 1.8 million in gains during 2012 related to terminated derivatives as compared to no termination activity during 2011. net gains due to real estate consolidation and foreclosure the following table summarizes our net gains due to real estate consolidation and foreclosure for the years ended december 31 , 2012 and 2011 : table 8 ( in thousands ) 2012 2011 net gains due to real estate consolidation and foreclosure $ 5,404 $ 13,329 net gains due to real estate consolidation and foreclosure were $ 28.0 million during 2011 ( $ 14.7 million of which is included in discontinued operations see tables 11 and 12 below ) . the gains recorded in 2011 were primarily due to seven properties that were consolidated by a non-profit entity on october 1 , 2011 ( the non-profit entity is consolidated by the company ) . upon consolidation , our bond interests were eliminated against the corresponding mortgage payable of each property .
| 15 net interest income the following table summarizes our net interest income for the years ended december 31 , 2012 and 2011 : replace_table_token_2_th bond interest income is our main source of revenue and is primarily affected by the size of the bond portfolio , the interest rates on the bonds in the portfolio and the collection rate on the portfolio . total net interest income decreased by 16.1 % or $ 7.5 million , for the year ended december 31 , 2012 as compared to 2011. interest income on bonds decreased $ 15.0 million . this decline was partly due to a decrease in the weighted average effective interest rate of 11 bps to 6.25 % ; however , the decrease was mainly due to a decline in the weighted average bond upb year over year of $ 219 million ( from $ 1.2 billion in 2011 to $ 1.0 billion in 2012 ) due primarily to redemption activity and principal amortization . also contributing to the decline in the weighted average bond upb was the consolidation of eleven properties by a consolidated non-profit entity during 2011 and 2012 ( $ 88.9 million ) . upon consolidation , our bonds were eliminated against the corresponding mortgage payable of each property and the interest income associated with these bonds was reported through an allocation of income as opposed to interest income reflected in the table above . reporting our bond interest income as an allocation of income upon consolidation resulted in a decline of reported interest income of $ 3.8 million year over year with a corresponding increase of interest income reported as an allocation of income of $ 3.4 million year over year ( see table 10 below ) and an increase of interest income reported through discontinued operations of $ 0.8 million year over year ( see table 12 below ) . interest income on loans and short-term investments decreased $ 1.3 million , mainly due to a decline in the weighted average loan upb year over year of $ 43.4 million ( from $ 86.6 million in 2011 to $ 43.2 million in 2012 ) due to loan sale and payoff activity . in addition , the average interest rate declined 61 bps to 1.82 % mainly due to higher coupon performing loans paying
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net sales by new releases and catalog titles the following table presents our net sales of new releases ( titles initially released in the respective fiscal year ) and catalog titles for fiscal 2012 and 2011 ( amounts in thousands ) : replace_table_token_7_th net sales of our new releases increased $ 39.6 million in fiscal 2012 compared to fiscal 2011 primarily due to the release of saints row : the third which shipped significantly more units in fiscal 2012 than homefront did in fiscal 2011. this increase was partially offset by performance of udraw which sold fewer units and at lower average net selling prices in fiscal 2012 compared to fiscal 2011. net sales of our catalog titles decreased $ 6.1 million in fiscal 2012 compared to fiscal 2011 primarily due to a decrease in the number of catalog units sold . net sales by territory the following table presents our net sales by territory for fiscal 2012 and 2011 ( amounts in thousands ) : replace_table_token_8_th net sales in north america decreased $ 8.9 million in fiscal 2012 compared to fiscal 2011 primarily due to the performance of udraw which sold fewer units , and at a lower average net selling price , in fiscal 2012 compared to fiscal 2011. the decrease was also due to lower net sales in fiscal 2012 of ufc undisputed 3 compared to net sales of ufc undisputed 2010 in fiscal 2011. these decreases were partially offset by net sales of saints row : the third , which shipped significantly more units , and at a slightly higher average net selling price , in fiscal 2012 compared to homefront in fiscal 2011. net sales in europe increased $ 27.7 million in fiscal 2012 compared to fiscal 2011. the increase was primarily due to net sales of saints row : the third , which shipped significantly more units in fiscal 2012 compared to homefront in fiscal 2011. also 25 contributing to the increase were net sales of warhammer 40k : space marine , which did not have a comparable title released in fiscal 2011. we estimate that changes in foreign currency translation rates during fiscal 2012 increased our reported net sales in this territory by $ 4.3 million . net sales in the asia pacific territory in fiscal 2012 increased $ 14.8 million compared to fiscal 2011 primarily due to net sales of saints row : the third , which shipped significantly more units , and at a higher average net selling price , in fiscal 2012 compared to homefront in fiscal 2011. we estimate that changes in foreign currency translation rates increased our reported net sales in this territory by $ 6.1 million during fiscal 2012. cost of sales cost of sales increased $ 216.7 million , or 41.7 % , in fiscal 2012 compared to fiscal 2011. as a percent of net sales , cost of sales increased 10.5 points in fiscal 2012 compared to fiscal 2011. cost of sales - product costs ( amounts in thousands ) fiscal year ended march 31 , 2012 % of net sales fiscal year ended march 31 , 2011 % of net sales % change $ 353,597 42.6 % $ 272,021 40.9 % 30.0 % product costs primarily consist of direct manufacturing costs , including platform manufacturer license fees , net of manufacturer volume rebates and discounts . in fiscal 2012 , product costs as a percent of net sales increased 1.7 points compared to fiscal 2011. the increase as a percent of net sales was primarily due to performance of udraw in fiscal 2012 which had a lower average net selling price and higher product costs per unit compared to fiscal 2011. cost of sales - software amortization and royalties ( amounts in thousands ) fiscal year ended march 31 , 2012 % of net sales fiscal year ended march 31 , 2011 % of net sales % change $ 308,051 37.1 % $ 129,237 19.4 % 138.4 % software amortization and royalties expense consists of amortization of capitalized payments made to third-party software developers and amortization of capitalized internal studio development costs . commencing upon product release , capitalized software development costs are amortized to software amortization and royalties expense based on the ratio of current gross sales to total projected gross sales . in fiscal 2012 and fiscal 2011 , software amortization and royalties expense included charges associated with title cancellations and impairments totaling $ 75.3 million and $ 16.9 million , respectively ( see `` note 5 — licenses and software development `` in the notes to the consolidated financial statements included in part ii , item 8 for further information ) . excluding these charges , software amortization and royalties expense as a percent of net sales in fiscal 2012 increased 11.1 points compared to fiscal 2011. the increase was primarily due to titles such as homefront , red faction : armageddon , and warhammer 40k : space marine , that had higher capitalized development costs relative to their net sales in fiscal 2012 , compared to the mix of titles included in net sales in fiscal 2011. cost of sales - license amortization and royalties ( amounts in thousands ) fiscal year ended march 31 , 2012 % of net sales fiscal year ended march 31 , 2011 % of net sales % change $ 74,632 9.0 % $ 118,287 17.8 % ( 36.9 ) % license amortization and royalties expense consists of royalty payments due to licensors , which are expensed at the higher of ( 1 ) the contractual royalty rate based on actual net product sales for such license , or ( 2 ) an effective rate based upon total projected net sales for such license . net sales from our licensed properties represented 57 % and 73 % of our total net sales in fiscal 2012 and 2011 , respectively . story_separator_special_tag in fiscal 2012 and fiscal 2011 , license amortization and royalties expense included charges associated with title cancellations and impairments totaling $ 19.6 million and $ 36.2 million , respectively ( see `` note 5 — licenses and software development `` in the notes to the consolidated financial statements included in part ii , item 8 for further information ) . excluding these charges , license amortization and royalties expense as a percent of net sales in fiscal 2012 decreased 5.7 points compared to fiscal 2011. the primary driver of this decrease was the larger mix of net sales from licensed products in the prior year period , which was primarily due to the release of ufc undisputed 2010 in that period whereas net sales recognized in fiscal 2012 were driven by owned 26 intellectual properties such as homefront and saints row : the third . operating expenses our operating expenses increased $ 55.3 million , or 19.7 % in fiscal 2012 compared to fiscal 2011. product development ( amounts in thousands ) fiscal year ended march 31 , 2012 % of net sales fiscal year ended march 31 , 2011 % of net sales % change $ 89,526 10.8 % $ 79,374 11.9 % 12.8 % product development expense primarily consists of expenses incurred by internal development studios and payments made to external development studios which are not eligible , or are in a phase of development that is not yet able to be capitalized as part of software development . product development expense increased $ 10.2 million in fiscal 2012 compared to fiscal 2011. included in fiscal 2012 and 2011 was $ 12.3 million and $ 1.7 million , respectively , of cash severance charges and other employee-based costs recorded related to our business realignments ( see `` note 8 — restructuring and other charges `` in the notes to the consolidated financial statements included in part ii , item 8 ) . excluding these charges , product development expense decreased $ 0.4 million in fiscal 2012 compared to fiscal 2011. the decrease in fiscal 2012 reflected a reduction in expenditures resulting from our studio closures and a reduction in the number of games under development ; these decreases were partially offset by changes in the timing of our development cycles as more of our games during fiscal 2012 were in a phase of development that was not capitalizable to software development compared to fiscal 2011. selling and marketing ( amounts in thousands ) fiscal year ended march 31 , 2012 % of net sales fiscal year ended march 31 , 2011 % of net sales % change $ 191,669 23.1 % $ 156,075 23.5 % 22.8 % selling and marketing expenses consist of advertising , promotional expenses , and personnel-related costs . selling and marketing expenses increased $ 35.6 million in fiscal 2012 compared to fiscal 2011. included in fiscal 2012 and 2011 was $ 3.2 million and $ 0.2 million , respectively , of cash severance charges and other employee-based costs recorded related to our business realignments ( see `` note 8 — restructuring and other charges `` in the notes to the consolidated financial statements included in part ii , item 8 ) . excluding these charges , selling and marketing expenses increased $ 32.6 million in fiscal 2012 compared to fiscal 2011 ; this increase was primarily due to promotional efforts supporting the launch of new releases such as saints row : the third , warhammer 40,000 : space marine and red faction : armageddon in fiscal 2012. excluding the impact of changes in deferred net revenue , to arrive at a net sales basis that most closely relates to our selling and marketing activities in a given period , selling and marketing expenses ( excluding cash severance charges and other employee-based costs recorded related to our business realignments ) as a percent of net sales increased 3.1 points in fiscal 2012 compared to fiscal 2011. the increase in fiscal 2012 was primarily due to the fiscal 2012 release of udraw , which had higher levels of marketing support relative to its net sales compared to the udraw release in fiscal 2011. additionally , the increase was also due to higher marketing support for catalog titles on lower net sales from catalog titles in fiscal 2012 , compared fiscal 2011. general and administrative ( amounts in thousands ) fiscal year ended march 31 , 2012 % of net sales fiscal year ended march 31 , 2011 % of net sales % change $ 48,712 5.9 % $ 45,356 6.8 % 7.4 % general and administrative expenses consist of personnel and related expenses of executive and administrative staff and fees for professional services such as legal and accounting . included in fiscal 2012 and 2011 was $ 2.3 million and $ 0.4 million , respectively , of cash severance charges and other employee-based costs recorded related to our business realignments ( see `` note 8 — restructuring and other charges `` in the notes to the consolidated financial statements included in part ii , item 8 ) . excluding these charges , general and administrative expenses increased $ 1.4 million in fiscal 2012 compared to fiscal 2011 ; this increase was primarily due to recoveries of bad debt in the prior fiscal year . 27 restructuring restructuring charges generally include costs such as , severance and other employee-based charges in excess of standard business practices , costs associated with lease abandonments less estimates of sublease income , charges related to long-lived assets , and costs of other non-cancellable contracts . in fiscal 2012 , restructuring charges and adjustments were $ 6.8 million .
| we entered into an agreement with turtle rock studios inc. , the creators of the multiple award-winning `` left 4 dead , '' to publish a new core title scheduled to be released in calendar 2013. we also entered into an agreement with crytek , a leader in the creation of first person shooters , to develop the next installment of the homefront franchise , scheduled for release in fiscal 2014. strategic plan and business realignments our strategy is to develop a select number of titles with a significant digital component targeted at the core gamer . our goal is to build franchises over time , by delivering a high-quality gaming experience , building a dedicated community around the title , and delivering a significant level of online services and digital content . our focus is on building franchises based primarily on our owned intellectual properties such as saints row and homefront . we intend to launch new intellectual properties on new platforms as they emerge . our current focus does not include casual games on social networks or handheld devices . during fiscal 2012 , we made a number of changes to our organization and product lineup . we discontinued a number of titles in our product pipeline that did not fit our strategic objectives , thus reducing future product development expenses . we reduced the number of internal development studios from eleven to five . we exited markets , sold or reconfigured games and product lines that did not meet internal profitability thresholds or were no longer central to our go-forward strategy . we negotiated with our kids ' and movie-based licensors to reduce our future license commitments . we reduced costs and headcount in our corporate and global publishing organizations as well as our studios impacted by the changes in our product line-up . in january 2012 , we implemented a plan of restructuring in order to better align our operating expenses with the lower expected revenues under the updated strategy . in connection with this realignment , we significantly reduced other
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all providers will be subject to civil and criminal penalties for any deliberate omissions , misrepresentations or falsifications of any information given to hhs . while the impact of the covid-19 pandemic , the national emergency declaration and the various state and local government imposed stay-at-home restrictions did not have a material impact on adapthealth 's consolidated operating results for the three months ended march 31 , 2020 , adapthealth began to experience declines in net revenues in certain services associated with elective medical procedures ( such as commencement of new cpap services and medical equipment and orthopedic supply related to facility discharges ) in the three months ended june 30 , 2020 , and such declines may continue during the duration of the covid-19 pandemic . in response to these declines , as well as certain over staffing related to recent acquisitions , adapthealth conducted a workforce assessment and implemented a reduction in force in april 2020 resulting in the elimination of approximately 6 % of its workforce . in connection with the workforce reductions , adapthealth incurred a one-time charge for severance and related expenses of approximately $ 1.6 million . offsetting these declines in net revenue , adapthealth is experiencing an increase in net revenue related to increased demand for certain respiratory products ( such as oxygen ) , increased sales in its resupply businesses ( primarily as a result of the increased ability to contact patients at home as a result of state and local government imposed stay-at-home orders ) and the one-time sale of certain respiratory equipment ( primarily ventilators , bi-level pap devices and oxygen concentrators ) to hospitals and local health agencies . additionally , suspension of medicare sequestration through march 31 , 2021 ( resulting in a 2 % increase in medicare payments to all providers ) , and regulatory guidance from cms expanding telemedicine and reducing documentation requirements during the emergency period , have resulted in increased net revenues for certain products and services . the full extent of the impact of the covid-19 pandemic on adapthealth 's business , results of operations , and financial condition is highly uncertain and will depend on future developments and numerous evolving factors that it may not be able to accurately predict , and could be material to adapthealth 's consolidated financial statements in future reporting periods . key components of operating results net revenue . net revenue is recorded for services that adapthealth provides to patients for home healthcare equipment , medical supplies to the home and related services . adapthealth 's primary service lines are ( i ) sleep therapy equipment , supplies and related services ( including cpap and bi pap services ) to individuals suffering from osa , ( ii ) medical devices and supplies to patients for the treatment of diabetes ( including continuous glucose monitors and insulin pumps ) , ( iii ) home medical equipment to patients discharged from acute care and other facilities , ( iv ) oxygen and related chronic therapy services in the home , and ( v ) other hme medical devices and supplies on behalf of chronically ill patients with wound care , urological , incontinence , ostomy and nutritional supply needs . revenues are recorded either ( x ) at a point in time for the sale of supplies and disposables , or ( y ) over the service period for equipment rental ( including , but not limited to , cpap machines , hospital beds , wheelchairs and other equipment ) , at amounts estimated to 48 be received from patients or under reimbursement arrangements with medicare , medicaid and other third-party payors , including private insurers . cost of net revenue . cost of net revenue primarily includes the cost of non-capitalized medical equipment and supplies , distribution expenses , labor costs , facilities rental costs , third-party revenue cycle management costs and depreciation for capitalized patient equipment . distribution expenses represent the cost incurred to coordinate and deliver products and services to the patients . included in distribution expenses are leasing , maintenance , licensing and fuel costs for the vehicle fleet ; salaries , benefits and other costs related to drivers and dispatch personnel ; and amounts paid to couriers . general and administrative expenses . general and administrative expenses consist of corporate support costs including information technology , human resources , finance , contracting , legal , compliance leadership , equity-based compensation , transaction expenses and other administrative costs . depreciation and amortization , excluding patient equipment depreciation . depreciation expense includes depreciation charges for capital assets other than patient equipment ( which is included as part of the cost of net revenue ) . amortization expense includes amortization of identifiable intangible assets . factors affecting adapthealth 's operating results adapthealth 's operating results and financial performance are influenced by certain unique events during the periods discussed herein , including the following : acquisitions adapthealth accounts for its acquisitions in accordance with financial accounting standards board ( fasb ) accounting standards codification ( asc ) topic 805 , business combinations , and the operations of the acquired entities are included in the historical results of adapthealth for the periods following the closing of the acquisition . the most significant of these acquisitions impacting the comparability of adapthealth 's operating results in 2020 compared to 2019 were sleepmed therapies , inc. ( “ sleepmed ” ) acquired in july 2019 , choice medical healthcare , inc. ( “ choice ” ) acquired in october 2019 , the patient care solutions business ( “ pcs ” ) acquired from mckesson corporation in january 2020 , healthline medical equipment , llc ( “ healthline ” ) acquired in february 2020 , advanced home care , inc. ( “ advanced ” ) acquired in march 2020 , solara medical supplies , llc ( “ solara ” ) acquired in july 2020 , activstyle , inc. ( “ activstyle ” ) acquired in july 2020 , family medical supply , inc. ( “ family ” ) acquired in august 2020 and pinnacle medical solutions , inc. ( “ pinnacle ” ) story_separator_special_tag acquired in october 2020. refer to note 3 , acquisitions , included in our consolidated financial statements for the year ended december 31 , 2020 included in this report for additional information regarding adapthealth 's acquisitions . debt and recapitalization in july 2020 , adapthealth refinanced its debt borrowings and entered into a new credit agreement with a new bank group ( the “ 2020 credit agreement ” ) . the 2020 credit agreement consisted of a $ 250 million term loan ( the “ 2020 term loan ” ) and $ 200 million in commitments for revolving credit loans with a $ 15 million letter of credit sublimit , both with maturities in july 2025. the amount borrowed under the 2020 term loan bore interest quarterly at variable rates based upon the sum of ( a ) the adjusted libor rate ( subject to a floor ) equal to the libor ( as defined in the 2020 credit agreement ) for the applicable interest period , plus ( b ) an applicable margin ranging from 2.50 % to 3.75 % per annum based on the consolidated total leverage ratio ( as defined in the 2020 credit agreement ) . in january 2021 , the company refinanced its borrowings under the 2020 credit agreement in connection with the acquisition of aerocare holdings , inc. refer to the section liquidity and capital resources below for additional discussion regarding such refinancing . in july 2020 , adapthealth llc ( “ adapthealth llc ” ) , a wholly owned subsidiary of adapthealth , issued $ 350.0 million aggregate principal amount of 6.125 % senior unsecured notes due 2028 ( the “ 6.125 % senior notes ” ) . 49 the 6.125 % senior notes will mature on august 1 , 2028. interest on the 6.125 % senior notes is payable on february 1st and august 1st of each year , beginning on february 1 , 2021. in march 2019 , adapthealth restructured its then existing debt borrowings which consisted of $ 425 million in credit facilities , including a $ 300 million initial term loan , $ 50 million delayed draw term loan , and $ 75 million revolving credit facility . outstanding amounts borrowed under such credit facility were repaid in full in connection with the july 2020 refinancing transaction discussed above . in march 2019 , adapthealth entered into a promissory note agreement with an investor with a principal amount of $ 100 million ( the “ promissory note ” ) . the transactions consummated with respect to the march 2019 debt restructuring discussed above and the promissory note are hereinafter referred to as the “ 2019 recapitalization. ” in november 2019 , the company repaid $ 50 million under the initial term loan . in connection with the closing of the business combination , the promissory note was replaced with a new amended and restated promissory note with a principal amount of $ 100.0 million , and the investor converted certain of its members ' equity interests to a $ 43.5 million promissory note . the new $ 100.0 million promissory note , together with the $ 43.5 million promissory note , are collectively referred to herein as the “ new promissory note ” . the outstanding principal balance under the new promissory note is due on november 8 , 2029 , and bears interest at the following rates ( a ) for the period starting on the closing date and ending on the seventh anniversary , a rate of 12 % per annum , and ( b ) for the period starting on the day after the seventh anniversary of the closing date and ending on the maturity date , a rate equal to the greater of ( i ) 15 % per annum or ( ii ) the twelve-month libor plus 12 % per annum . seasonality adapthealth 's business experiences some seasonality . its patients are generally responsible for a greater percentage of the cost of their treatment or therapy during the early months of the year due to co-insurance , co-payments and deductibles , and therefore may defer treatment and services of certain therapies until meeting their annual deductibles . in addition , changes to employer insurance coverage often go into effect at the beginning of each calendar year which may impact eligibility requirements and delay or defer treatment . these factors may lead to lower net revenue and cash flow in the early part of the year versus the latter half of the year . additionally , the increased incidence of respiratory infections during the winter season may result in initiation of additional respiratory services such as oxygen therapy for certain patient populations . adapthealth 's quarterly operating results may fluctuate significantly in the future depending on these and other factors . key business metrics adapthealth focuses on net revenue , ebitda , adjusted ebitda and adjusted ebitda less patient equipment capex as it reviews its performance . total net revenue is comprised of net sales revenue and net revenue from fixed monthly equipment reimbursements less implicit price concessions . net sales revenue consists of revenue recognized at a point in time for the sale of supplies and disposables . net revenue from fixed monthly equipment reimbursements consists of revenue recognized over the service period for equipment ( including , but not limited to , cpap machines , hospital beds , wheelchairs and other equipment ) . 50 replace_table_token_3_th replace_table_token_4_th 51 story_separator_special_tag december 31 , 2019. interest expense related to long-term debt during 2020 increased by $ 13.5 million compared to 2019 as a result of higher long-term debt borrowings outstanding during that year . interest expense during 2019 included non-cash interest expense of $ 11.4 million representing the change in fair value of the company 's interest rate swap agreements ; such amount would only be paid out if the interest rate swap agreements were terminated . on august 22 , 2019 , adapthealth designated its swaps as effective cash flow hedges .
| for the year ended december 31 , 2020 , net sales revenue ( recognized at a point in time ) comprised 72 % of total net revenue , compared to 60 % of total net revenue for the year ended december 31 , 2019. the increase in the proportion of net sales revenue compared to total net revenue was driven primarily by the pcs , solara , activstyle and pinnacle acquisitions , which are direct to consumer supplies businesses , as well as the sleepmed and choice acquisitions , which are primarily cpap resupply businesses . for the year ended december 31 , 2020 , net revenue from fixed monthly equipment reimbursements comprised 28 % of total net revenue , compared to 40 % of total net revenue for the year ended december 31 , 2019 . 52 grant income . grant income for the year ended december 31 , 2020 was $ 14.3 million and related to the recognition of amounts received under the cares act provider relief funds . there was no grant income recognized during the year ended december 31 , 2019. cost of net revenue . the following table summarizes cost of net revenue for the years ended december 31 , 2020 and 2019 : replace_table_token_6_th cost of net revenue for the year ended december 31 , 2020 was $ 898.6 million compared to $ 440.7 million for the year ended december 31 , 2019 , an increase of $ 457.9 million or 103.9 % , which is primarily related to acquisition growth . costs of products and supplies increased by $ 285.5 million primarily as a result of acquisition growth , increased cpap resupply sales , and expenses associated with the coronavirus pandemic , including increased personal protective equipment purchases . salaries , labor and benefits increased by $ 104.7 million primarily related to acquisition growth and increased headcount , primarily from the pcs , solara , activstyle and pinnacle acquisitions . the increase in rent and occupancy and other operating expenses is related to acquisition growth , primarily from the aforementioned acquisitions . cost of net revenue was 85.0 % of net revenue for the year ended december 31 , 2020 compared to 83.1 % for the year ended december 31 , 2019. the cost of products and supplies was 41.8 % of net revenue in 2020 compared to 29.5 % in 2019 , while patient equipment depreciation was 6.7 % of net revenue in 2020 compared to 11.2 % in
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as of december 31 , 2019 , we had 858 customers with annual run-rate revenue , or arr , of $ 100,000 or more , up from 453 as of december 31 , 2018. 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 . 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 and logs in 2018. in 2019 , we launched user experience monitoring and network performance monitoring , and announced the addition of security monitoring to our platform . as of december 31 , 2019 , approximately 60 % of our customers were using more than one product , up from approximately 25 % a year earlier . we believe these metrics indicate strong momentum in the uptake of our newer platform products . 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 . 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 25 % for the year ended december 31 , 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 , london , paris , amsterdam , singapore , sydney and tokyo . 39 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 primarily priced 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 . story_separator_special_tag 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 . 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 . 40 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 . sales and marketing sales and marketing expense consists primarily of personnel costs for our sales and marketing organization , costs of general marketing and promotional activities , including the free tier and free introductory trials of our products , travel-related expenses and allocated overhead costs . sales commissions earned by our sales force are deferred and amortized on a straight-line basis over the expected period of benefit , which we have determined to be four years . we expect that our sales and marketing expense will increase in absolute dollars and continue to be our largest operating expense for the foreseeable future as we expand our sales and marketing efforts . however , we expect that our sales and marketing expense will decrease as a percentage of our revenue over the long term . general and administrative general and administrative expense consists primarily of personnel costs and contractor fees for finance , legal , human resources , information technology and other administrative functions . in addition , general and administrative expense includes non-personnel costs , such as legal , accounting and other professional fees , hardware and software costs , certain tax , license and insurance-related expenses and allocated overhead costs . we expect to incur additional expenses as a result of operating as a newly public company , including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange , costs related to compliance and reporting obligations , and increased expenses for insurance , investor relations and professional services . we expect that our general and administrative expense will increase in absolute dollars as our business grows . other income , net other income , net consists of income earned on our money market funds included in cash and cash equivalents and on our marketable securities . provision for income taxes provision for income taxes consists of u.s. federal and state income taxes and income taxes in certain foreign jurisdictions in which we conduct business . we maintain a full valuation allowance on our federal and state deferred tax assets as we have concluded that it is not more likely than not that the deferred tax assets will be realized . 41 results of operations the following table sets forth our consolidated statements of operations data for the periods indicated : replace_table_token_5_th ( 1 ) includes stock-based compensation expense as follows : replace_table_token_6_th ( 2 ) includes amortization of acquired intangibles expense as follows : replace_table_token_7_th ( 3 ) includes a $ 2.3 million , $ 0.4 million and $ 2.3 million benefit within research and development , sales and marketing and general and administrative expenses , respectively , related to the release of a non-income tax liability for the year ended december 31 , 2019. see note 9 to our consolidated financial statements included elsewhere in this annual report on form 10-k for further discussion .
| 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 increased headcount , which resulted in increased personnel expenses . quarterly gross margin trends our quarterly gross margins have fluctuated between 73 % and 79 % in each period presented . our gross margins increased in the last three quarters ended december 31 , 2019 as a result of better optimization of cloud spend . quarterly operating expense trends operating expenses have generally increased in each sequential quarter presented above 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 . quarterly other income , net trends other income , net stayed flat over the seven quarters ended september 30 , 2019. during the last quarter ended december 31 , 2019 , we earned interest income from investments in money market funds and marketable securities . 47 liquidity and capital resources since inception , we have financed operations primarily through sales of subscriptions and the net proceeds we have received from sales of equity securities as further detailed below . our cash and cash equivalents primarily consist of bank deposits and money market funds . our marketable securities consist of u.s. government treasury securities , commercial paper and corporate bonds . as of december 31 , 2019 , we had cash and cash equivalents of $ 597.3 million and marketable securities of $ 176.7 million . in september 2019 , we closed our ipo of 27,600,000 shares of our class a common stock at an offering price of $ 27.00 per share , including 3,600,000 shares pursuant to the underwriters '
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· during 2008 , our total debt decreased by $ 89.4 million . this decrease was due to a ) our second quarter purchase of $ 125 million of our 2.50 % exchangeable senior subordinated debentures , all of which were tendered to us , b ) our fourth quarter purchase of a notional amount of $ 19.4 million and $ 6.7 million of our 6½ % senior subordinated notes and 6½ % senior subordinated notes – class b , respectively ; and c ) repayment of $ 77 million of our outstanding term loans . these decreases were partially offset by $ 135 million of borrowings under our credit facility and the accretion of the discount of our 6½ % senior subordinated notes – class b. our cash and cash equivalents balance at december 31 , 2008 was $ 20.1 million . our results for the past three years also reflect our acquisition during 2007 and 2006 of the following businesses and assets : · as part of the november 30 , 2005 emmis transaction , we began providing programming , sales and other related services under a local marketing agreement to wbpg-tv , the cw affiliate serving mobile/pensacola and we secured a purchase option for $ 3.0 million to acquire the station from emmis upon fcc approval . on july 7 , 2006 , we completed the acquisition of the operating assets of wbpg-tv , including the fcc license . · in the first quarter of 2007 we completed the acquisition of kasa-tv , the fox affiliate in albuquerque , from raycom media for approximately $ 55.0 million in cash . we previously operated the station pursuant to a local marketing agreement effective september 15 , 2006. the acquisition added a television duopoly in the 44th largest television market , where we also own krqe-tv , the local cbs affiliate which produces 25 hours of local news each week , including the market 's # 1 late news broadcast . the geographic market spans some 180,000 square miles and is one of the three largest in the country . critical accounting policies , estimates and recently issued accounting pronouncements certain of our accounting policies , as well as estimates we make , are critical to the presentation of our financial condition and results of operations since they are particularly sensitive to our judgment . some of these policies and estimates relate to matters that are inherently uncertain . the estimates and judgments we make affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingent liabilities . on an on-going basis , we evaluate our estimates , including those related to intangible assets , bad debts , program rights , income taxes , stock-based compensation , pensions , contingencies and litigation . 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 , and it is possible that such differences could have a material impact on our consolidated financial statements . the accounting policies and estimates discussed below are particularly critical to understanding our consolidated financial statements . for additional information about these and other accounting policies , see note 1 to our consolidated financial statements included elsewhere in this report . we have discussed each of these critical accounting policies and related estimates with the audit committee of our board of directors . valuation of long-lived assets and intangible assets approximately $ 547.3 million , or 64 % , of our total assets as of december 31 , 2008 consisted of indefinite lived intangible assets . intangible assets principally include broadcast licenses and goodwill . if the fair value of these assets is less than the carrying value , we may be required to record an impairment charge . as required by fas 142 , we test the impairment of our broadcast licenses annually or whenever events or changes in circumstances indicate that such assets might be impaired . the impairment test consists of a comparison of the fair value of broadcast licenses with their carrying amount on a station-by-station basis using a discounted cash flow valuation method , assuming a hypothetical startup scenario . 34 also as required by fas 142 , we test the impairment of our goodwill annually or whenever events or changes in circumstances indicate that goodwill might be impaired . the first step of the goodwill impairment test compares the fair value of a station with its carrying amount , including goodwill . the fair value of a station is determined through the use of a discounted cash flow analysis . the valuation assumptions used in the discounted cash flow model reflect historical performance of the station and prevailing values in the markets for broadcasting properties . if the fair value of the station exceeds its carrying amount , goodwill is not considered impaired . if the carrying amount of the station exceeds its fair value , the second step of the goodwill impairment test is performed to measure the amount of impairment loss , if any . the second step of the goodwill impairment test compares the implied fair value of goodwill with the carrying amount of that goodwill . the implied fair value of goodwill is determined by performing an assumed purchase price allocation , using the station 's fair value ( as determined in the first step described above ) as the purchase price . if the carrying amount of goodwill exceeds the implied fair value , an impairment loss is recognized in an amount equal to that excess but not more than the carrying value of goodwill . story_separator_special_tag we recorded an impairment charge of $ 297.0 million during the second quarter of 2008 that included an impairment to the carrying values of our broadcast licenses of $ 185.7 million , relating to 19 of our television stations ; and an impairment to the carrying values of our goodwill of $ 111.3 million , relating to 8 of our television stations . as required by fas 142 , we tested for impairment our indefinite lived intangible assets at june 30 , 2008 , between the required annual tests , because we believed events had occurred and circumstances changed that would more likely than not reduce the fair value of our broadcast licenses and goodwill below their carrying amounts . these events included : a ) the continued decline of the price of our class a common stock ; b ) the decline in the current selling prices of television stations ; c ) the lower growth in advertising revenues ; and d ) the decline in the operating profit margins of some of our stations . we used the same assumptions as disclosed in our annual report on form 10-k for the year ended december 31 , 2007 , except for the adjustments that are detailed in the table below . the increase in the discount rate reflected the volatility of stock prices of public companies within the media sector . the changes in the market growth rates and operating profit margins reflected the general economic pressures impacting both the national and a number of local economies , and specifically , national and local advertising expenditures in the markets where our stations operate . as required by fas 142 , we also performed our annual test for impairment of broadcast licenses and goodwill as of december 31 , 2008 , 2007 and 2006. as a result of these annual tests we recorded an additional impairment charge in the fourth quarter of 2008 of $ 723.5 million , excluding an $ 8.7 million charge for the write-off of certain broadcast assets , that have become obsolete as a result of the dtv transition , includes a goodwill impairment charge of $ 309.6 million and an impairment charge of $ 413.9 million related to our broadcast licenses . this was due to the continued economic recession that started in december 2007 , the decline in advertising revenues and the more recent financial credit crisis . the assumptions used in the valuation testing have certain subjective components including anticipated future operating results and cash flows based on our own internal business plans as well as future expectations about general economic and local market conditions . we recorded an impairment charge of $ 318.1 million during the second quarter of 2006 that included a broadcast license impairment charge of $ 222.8 million relating to 15 of our television stations and a goodwill impairment charge of $ 95.3 million . as required by fas 142 , we tested our indefinite lived intangible assets as of june 30 , 2006 , which was between annual tests , because we believed that , based upon the continued decline in the trading price of our class a common stock , it was more likely than not that the fair value of our reporting units would fall below their carrying amounts . we used market information not available as of december 31 , 2005 to calculate the fair value of our broadcast licenses and reporting units . the impairment tests as of june 30 , 2006 used the same assumptions as disclosed in our annual report on form 10-k for the year ended december 31 , 2005 , with the exception of the discount rate , the market growth rate and the operating profit margins , as detailed in the table below . there were no events during 2007 to warrant the performance of an interim impairment test of our indefinite lived intangible assets . additionally , there were no additional impairment charges recorded as of december 31 , 2007 and 2006 . 35 we based the valuation of broadcast licenses on the following average industry-based assumptions : replace_table_token_7_th regarding potential changes to these assumptions and the potential impact on the december 31 , 2008 carrying values of our broadcast licenses , if we were to decrease the market revenue growth by 1 % and by 2 % , we would incur an additional impairment of our broadcast licenses of $ 74.5 million and $ 135.6 million , respectively . if we were to decrease the operating profit margins by 5 % and 10 % from the projected operating profit margins , we would incur an additional impairment of our broadcast licenses of $ 142.4 million and $ 284.9 million , respectively . if we were to increase the discount rate used in the valuation calculation by 1 % and 2 % , we would incur an additional impairment of our broadcast licenses of $ 73.0 million and $ 131.9 million , respectively . we based the valuation of goodwill on the following assumptions based on our internal projections : replace_table_token_8_th regarding potential changes to these assumptions and the potential impact on the december 31 , 2008 carrying value of our goodwill , if we were to decrease the market revenue growth by 1 % and by 2 % of the projected growth rate , the enterprise value of our reporting units would not change . if we were to decrease the operating profit margins by 5 % and 10 % from the projected operating profit margins , the enterprise value of our reporting units would decrease by $ 43.6 million and $ 72.7 million , respectively . if we were to increase the discount rate used in the valuation calculation by 1 % and 2 % , the enterprise value of our reporting units would decrease by $ 18.3 million and $ 36.2 million , respectively . in addition , we would then be required to take these enterprise values to the second step of the goodwill impairment test .
| this increase was primarily due to the sale of the following assets : a ) the puerto rico operations for $ 131.9 million , net of transactional costs ; b ) the 700 mhz licenses for $ 32.5 million , net of transactional costs ; c ) certain of the banks broadcasting assets , including kscw-tv and its 700 mhz licenses , for $ 9.5 million , net of transactional costs ; and d ) the wand ( tv ) partnership interest for $ 6.8 million . these sales proceeds were partially offset by the following acquisitions and investments : a ) the kasa-tv acquisition for $ 52.2 million ; and b ) other investments of $ 0.5 million . net cash used in financing activities decreased $ 38.8 million to $ 79.3 million for the year ended december 31 , 2008 , compared to cash used in financing activities of $ 118.1 million for the prior year . this decrease was due to : a ) we purchased $ 125 million of our 2.50 % exchangeable senior subordinated debentures , all of which were tendered to us ; b ) we purchased a notional amount of $ 19.4 million and $ 6.7 million of our 6½ % senior subordinated notes and 6½ % senior subordinated notes – class b , respectively ; and c ) we repaid $ 77 million of our outstanding term loans . these decreases were partially offset by $ 135 million of borrowings under our credit facility . net cash used in financing activities increased $ 64.7 million to $ 118.0 million for the year ended december 31 , 2007 , compared to cash used in financing activities of $ 53.4 million for the prior year . this decrease was primarily due to the pay-down of our term loans of $ 120.1 million in 2007 compared to the pay-down of our revolving facility of $ 41.0 million and the repurchase of our class a common stock of $ 13.0 million in 2006. the pay-down of our credit facility in 2007 and 2006 was driven by operating cash flow and by the sale of certain non-strategic assets . 51 description of indebtedness the following is a summary of our outstanding indebtedness as of december 31 ( in thousands ) : replace_table_token_17_th credit facility our credit
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in assessing impairment , the corporation has the option to perform a qualitative analysis to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount . if , after assessing the totality of such events or circumstances , we determine it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount , then we would not be required to perform an impairment test . the quantitative impairment analysis requires a comparison of each reporting unit 's fair value to its carrying value to identify potential impairment . goodwill impairment exists when a reporting unit 's carrying value of goodwill exceeds its implied fair value . significant judgment is applied when goodwill is assessed for impairment . this judgment includes , but may not be limited to , the selection of appropriate discount rates , the identification of relevant market comparables and the development of cash flow projections . the selection and weighting of the various fair value techniques may result in a higher or lower fair value . judgment is applied in determining the weightings that are most representative of fair value . the annual quantitative assessment of goodwill for the two reporting units ( commercial banking and wealth management services ) was performed utilizing a discounted cash flow analysis ( “ income approach ” ) and estimates of selected market information ( “ market approach ” ) . the income approach measures the fair value of an interest in a business by discounting expected future cash flows to a present value . the market approach takes into consideration fair values of comparable companies operating in similar lines of business that are potentially subject to similar economic and environmental factors and could be considered reasonable investment alternatives . the results of the income approach and the market approach were weighted equally . the results of the 2018 annual quantitative impairment analysis indicated that the remaining fair value significantly exceeded the carrying value for both reporting units . intangible assets identified in acquisitions consist of wealth management advisory contracts . the fair value of intangible assets was estimated using valuation techniques , based on a discounted cash flow analysis . the value attributed to other intangible assets was based on the time period over which they are expected to generate economic benefits . intangible assets are amortized over their estimated lives using a method that approximates the amount of economic benefits that are realized by the corporation . intangible assets with definite lives are tested for impairment whenever events or circumstances occur that indicate that the carrying amount may not be recoverable . if applicable , the corporation tests each of the intangibles by comparing the carrying value of the intangible asset to the sum of undiscounted cash flows expected to be generated by the asset . if the carrying amount of the asset exceeds its undiscounted cash flows , then an impairment loss would be recognized for the amount by which the carrying amount exceeds its fair value . impairment would result in a write-down to the estimated fair value based on the anticipated discounted future cash flows . the remaining useful life of the intangible assets that are being amortized is also evaluated to determine whether events and circumstances warrant a revision to the remaining period of amortization . the corporation makes certain estimates and assumptions that affect the determination of the expected future cash flows from the intangible assets . for intangible assets such as wealth management advisory contracts , these estimates and assumptions include account attrition , market appreciation for wealth management assets under administration and anticipated fee rates , estimated revenue growth , projected costs and other factors . significant changes in these estimates - 32 - management 's discussion and analysis and assumptions could cause a different valuation for these intangible assets . changes in the original assumptions could change the amount of the intangible assets recognized and the resulting amortization . subsequent changes in assumptions could result in recognition of impairment of these intangible assets . when there are events or circumstances that occur indicating that the carrying amount of the corporation 's intangible assets may not be recoverable , the corporation tests each of the intangibles by comparing the carrying value of the intangible asset to the sum of undiscounted cash flows expected to be generated by the asset . as of december 31 , 2018 , the carrying value of intangible assets was deemed to be recoverable . these assumptions used in the impairment tests of goodwill and intangible assets are susceptible to change based on changes in economic conditions and other factors . any change in the estimates which the corporation uses to determine the carrying value of the corporation 's goodwill and identifiable intangible assets , or which otherwise adversely affects their value or estimated lives could adversely affect the corporation 's results of operations . see note 8 to the consolidated financial statements for additional information . assessment of investment securities for impairment securities that the corporation has the ability and intent to hold until maturity are classified as held to maturity and are accounted for using historical cost , adjusted for amortization of premiums and accretion of discounts . securities available for sale are carried at fair value , with any unrealized gains and losses , net of taxes , reported as accumulated other comprehensive income or loss in shareholders ' equity . the fair values of securities may be based on either quoted market prices or third party pricing services . when the fair value of an investment security is less than its amortized cost basis , the corporation assesses whether the decline in value is other-than-temporary . the corporation considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary . story_separator_special_tag evidence considered in this assessment includes the reasons for impairment , the severity and duration of the impairment , changes in the value subsequent to the reporting date , forecasted performance of the issuer , changes in the dividend or interest payment practices of the issuer , changes in the credit rating of the issuer or the specific security , and the general market condition in the geographic area or industry in which the issuer operates . future adverse changes in market conditions , continued poor operating results of the issuer , projected adverse changes in cash flows , which might impact the collection of all principal and interest related to the security , or other factors could result in further losses that may not be reflected in an investment 's current carrying value , possibly requiring an additional impairment charge in the future . in determining whether an other-than-temporary impairment has occurred for debt securities , the corporation compares the present value of cash flows expected to be collected from the security with the amortized cost of the security . if the present value of expected cash flows is less than the amortized cost of the security , then the entire amortized cost of the security will not be recovered ; that is , a credit loss exists , and an other-than-temporary impairment shall be considered to have occurred . when an other-than-temporary impairment has occurred , the amount of the other-than-temporary impairment recognized in earnings for a debt security depends on whether the corporation intends to sell the security or if it is more-likely-than-not that the corporation will be required to sell the security before recovery of its amortized cost less any current period credit loss . if the corporation intends to sell the security or it is more-likely-than-not that it will be required to sell the security before recovery of its amortized cost , the other-than-temporary impairment shall be recognized in earnings equal to the entire difference between the amortized cost and fair value of the security . if the corporation does not intend to sell or it is more-likely-than-not that it will not be required to sell the security before recovery of its amortized cost , the amount of the other-than-temporary impairment related to credit loss shall be recognized in earnings and the noncredit-related portion of the other-than-temporary impairment shall be recognized in other comprehensive income . there were no other-than-temporary impairment losses recognized for the year ended december 31 , 2018 . defined benefit pension plans the determination of the defined benefit obligation and net periodic benefit cost related to our defined benefit pension plans requires estimates and assumptions such as discount rates , mortality , rates of return on plan assets and compensation increases . management evaluates the assumptions annually and uses an actuarial firm to assist in making these estimates . - 33 - management 's discussion and analysis changes in assumptions due to market conditions , governing laws and regulations , or circumstances specific to the corporation could result in material changes to defined benefit pension obligation and net periodic benefit cost . see note 17 to the consolidated financial statements for additional information . overview the corporation offers a comprehensive product line of banking and financial services to individuals and businesses , including commercial , residential and consumer lending , retail and commercial deposit products , and wealth management services through its offices in rhode island , eastern massachusetts and connecticut ; its atm networks ; and its internet website at www.washtrust.com . our largest source of operating income is net interest income , which is the difference between interest earned on loans and securities and interest paid on deposits and borrowings . in addition , we generate noninterest income from a number of sources , including wealth management services , mortgage banking activities and deposit services . our principal noninterest expenses include salaries and employee benefit costs , outsourced services provided by third-party vendors , occupancy and facility-related costs and other administrative expenses . our financial results are affected by interest rate fluctuations , changes in economic and market conditions , competitive conditions within our market area and changes in legislation , regulation and or accounting principles . adverse changes in economic growth , consumer confidence , credit availability and corporate earnings could negatively impact our financial results . we continue to leverage our strong statewide brand to build market share and remain steadfast in our commitment to provide superior service . in january 2019 , washington trust opened a new full-service branch in north providence , rhode island . risk management the corporation has a comprehensive enterprise risk management ( “ erm ” ) program through which the corporation identifies , measures , monitors and controls current and emerging material risks . the board of directors is responsible for oversight of the erm program . the erm program enables the aggregation of risk across the corporation and ensures the corporation has the tools , programs and processes in place to support informed decision making , to anticipate risks before they materialize and to maintain the corporation 's risk profile consistent with its risk strategy . the board of directors has approved an erm policy that addresses each category of risk . the risk categories include : credit risk , interest rate risk , liquidity risk , price and market risk , compliance risk , strategic and reputation risk , and operational risk . a description of each risk category is provided below . credit risk represents the possibility that borrowers or other counterparties may not repay loans or other contractual obligations according to their terms due to changes in the financial capacity , ability and willingness of such borrowers or counterparties to meet their obligations . in some cases , the collateral securing the payment of the loans may be sufficient to assure repayment , but in other cases the corporation may experience significant credit losses which could have an adverse effect on its operating results .
| - 36 - management 's discussion and analysis average balances/net interest margin - fully taxable equivalent ( fte ) basis the following table presents average balance and interest rate information . tax-exempt income is converted to a fully taxable equivalent basis using the statutory federal income tax rate adjusted for applicable state income taxes net of the related federal tax benefit . unrealized gains ( losses ) on available for sale securities and fair value adjustments on mortgage loans held for sale are excluded from the average balance and yield calculations . nonaccrual loans , as well as interest recognized on these loans , are included in amounts presented for loans . replace_table_token_6_th - 37 - management 's discussion and analysis interest income amounts presented in the preceding table include the following adjustments for taxable equivalency for the years indicated : replace_table_token_7_th net interest income net interest income continues to be the primary source of our operating income . net interest income for 2018 , 2017 and 2016 totaled $ 132.3 million , $ 119.5 million and $ 110.5 million , respectively . net interest income is affected by the level of and changes in interest rates , and changes in the amount and composition of interest-earning assets and interest-bearing liabilities . income associated with loan payoffs and prepayment penalties is included in net interest income . the following discussion presents net interest income on a fully taxable equivalent ( “ fte ” ) basis by adjusting income and yields on tax-exempt loans and securities to be comparable to taxable loans and securities . comparison of 2018 with 2017 the analysis of net interest income , net interest margin and the yield on loans is impacted by the level of income associated with loan payoffs and prepayment penalties recognized in each period . for 2018 income associated with loan payoffs and prepayment penalties amounted to $ 847 thousand , compared to $ 988 thousand in 2017 . fte net interest
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