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other reinsurance-related expense totaled $ 5.9 million for the year ended december 31 , 2011. as management views these coverage as reinsurance protection , we treat the financial statement effects of these covers as ceded premium for the purposes of calculating our loss , expense and combined ratios . consolidated underwriting , acquisition and insurance expenses were $ 426.7 million , $ 472.6 million and $ 517.9 million for the years ended december 31 , 2011 , 2010 and 2009 , respectively . the decrease in the dollar value of expenses between the three periods was primarily attributable to lower acquisition expense related to the aforementioned reduction in earned premium . the increase in the consolidated expense ratio for 2011 as compared to 2010 reflects approximately $ 7.6 million of expense related to the company 's investments in start-up operations abroad and a new information technology business delivery platform . the increase in the consolidated expense ratio for 2010 as compared to 2009 was primarily attributable to declining premium volumes . consolidated interest expense was $ 22.1 million , $ 22.9 million and $ 25.7 million for the years ended december 31 , 2011 , 2010 and 2009 , respectively . the decrease in interest expense was due to reduced interest rates and the repayment of outstanding balances on our revolving line of credit during 2009. consolidated foreign currency exchange loss was $ 3.5 million for the year ended december 31 , 2011 compared to gains of $ 3.8 million and $ 0.2 million for the same periods ended 2010 and 2009. for the year ended december 31 , 2011 , non u.s. dollar currencies strengthened against the u.s. dollar , excluding british sterling which was flat , resulting in the foreign currency exchange loss . by comparison , for the year ended december 31 , 2010 , non u.s. dollar currencies weakened considerably against the u.s. dollar , resulting in the foreign currency exchange gain . in 2009 , we deemed the value assigned to the former trade name of our syndicate 1200 segment impaired after an evaluation of the value of the name . the expense recognized as a result of this impairment was $ 5.9 million , which represented the unamortized balance as of the impairment date . consolidated provisions for income taxes were $ 19.5 million , $ 32.7 million and $ 24.9 million for the years ended december 31 , 2011 , 2010 and 2009 , respectively . for the year ended december 31 , 2011 , the tax provision generated by our operations based in the united states was partially offset by tax benefits for our operations based in the united kingdom . included in the consolidated provision for income taxes for the year ended december 31 , 2010 was $ 1.3 million in tax expense from argo ireland to the internal revenue service for withholding on dividends received from argo group us . included in the consolidated provision for income taxes for the year ended december 31 , 2009 was a $ 5.6 million tax refund received from the state of california due to a favorable tax settlement . offsetting this tax refund was $ 7.7 million in tax expense from argo ireland to the internal revenue service for withholding on dividends received from argo group us . the consolidated income tax provision represents the income tax expense associated with our operations based on the tax laws of the jurisdictions in which they operate . therefore , the consolidated provision for income taxes represents taxes on net income for our united states , ireland , belgium , brazil , switzerland , and united kingdom operations . additionally , our tax rates for years presented were impacted by fluctuations in foreign exchange rates within the international specialty segment . segment results we are primarily engaged in writing property and casualty insurance and reinsurance . we have four ongoing reporting segments : excess and surplus lines , commercial specialty , international specialty ( formerly reinsurance ) and syndicate 1200 ( formerly international specialty ) . additionally , we have a run-off lines segment for products that we no longer underwrite . 53 during the first quarter of 2011 , we evaluated the operating structure of our bermuda and london-based business segments . to more appropriately align our operating structure with the management of the business , we concluded that operating activities associated with our london operations ( our former international specialty segment ) would be principally managed and evaluated as a lloyd 's of london ( lloyd's ) market syndicate business , while our bermuda operations ( our former reinsurance segment ) would serve as the center for our international insurance and reinsurance business , including our product development and global strategic expansion initiatives . these changes resulted in our bermuda operations , and subsequently our new non-syndicate international insurance operations , being identified as our international specialty segment . our london-based operation , focused on the management and growth of our lloyd 's syndicate operations , is now known as our syndicate 1200 segment . additionally , we have a run-off lines segment for products we no longer underwrite . in evaluating the operating performance of our segments , we focus on core underwriting and investing results before consideration of realized gains or losses from the sales of investments . management excludes realized investment gains and losses from segment results , as decisions regarding the sales of investments are made at the corporate level . although this measure of profit ( loss ) does not replace net income ( loss ) computed in accordance with gaap as a measure of profitability , management utilizes this measure of profit ( loss ) to focus its reporting segments on generating operating income . since we generally manage and monitor the investment portfolio on an aggregate basis , the overall performance of the investment portfolio , and related net investment income , is discussed above on a combined basis under consolidated net investment income rather than within or by segment . story_separator_special_tag excess and surplus lines . the following table summarizes the results of operations for the excess and surplus lines segment : replace_table_token_11_th the declines in gross written and earned premiums were primarily due to market conditions . the excess and surplus lines marketplace continues to experience increased competition from both other excess and surplus lines carriers as well as the standard markets , which has led to lower rates and business shifting to the standard markets . competition within the excess and surplus lines marketplace remains intense , resulting in continued downward pressure on average rate per exposure and the current economic conditions are forcing insureds to reduce coverage or in some cases , cease operations . in addition , insureds in this segment are often the result of new business formations , which have been limited due to the current economic environment . 54 the excess and surplus lines segment has experienced a shift in both product and policyholder mix , resulting in reduced premium writings . included in losses and loss adjustment expenses for the year ended december 31 , 2011 was $ 7.6 million in catastrophe losses for storm activity in the united states , including the alabama and joplin , missouri tornados and hurricane irene . offsetting these catastrophe losses was $ 33.8 million of net favorable loss reserve development on prior accident years primarily resulting from $ 30.2 million of favorable development in the general and products liability lines of business . the remaining net favorable development was attributable to the automobile liability , professional liability and property lines of business . included in losses and loss adjustment expenses for the year ended december 31 , 2010 was $ 19.0 million in favorable loss reserve development on prior accident years within the casualty , professional liability and property lines . included in losses and loss adjustment expenses was $ 4.5 million of storm losses for the 2010 accident year . included in losses and loss adjustment expenses was $ 15.4 million in favorable loss reserve development on prior accident years within the casualty , professional liability and property lines . the increase in the expense ratio for the year ended december 31 , 2011 as compared to the same periods in 2010 and 2009 was primarily attributable to the reductions in earned premiums outpacing the reductions in total underwriting expenses . commercial specialty . the following table summarizes the results of operations for the commercial specialty segment : replace_table_token_12_th the decline in earned premiums for the years ended december 31 , 2011 and 2010 as compared to the same period in 2009 was primarily attributable to the discontinued hotel/motel , religious institution , and first insurance company of hawaii ( ficoh ) programs and underwriting actions in the grocery and restaurant programs within the argo insurance u.s. retail business unit which began in 2009. earned premiums of $ 90.8 million at argo insurance were $ 20.1 million less than 2010 following the termination of the above mentioned programs and $ 2.3 million of property catastrophe reinstatement premiums assessed after april 2011 tornados in alabama . partially offsetting these declines were increases in gross written and earned premiums for our coal mining and surety products . earned premiums at rockwood increased $ 5.1 million to $ 66.7 million for 2011 as increased demand for coal and natural gas increased workers compensation payrolls on mining and energy-related accounts . earned premiums for our surety products increased $ 2.4 million to $ 12.9 million for 2011 due to expanded new business opportunities resulting from a revised reinsurance structure that expanded capacity . included in losses and loss adjustment expenses for the year ended december 31 , 2011 was $ 21.0 million in catastrophe losses from storm activity in the united states , including hurricane irene and the alabama and joplin , missouri tornados . the commercial specialty segment had net unfavorable loss reserve development on prior accident years of $ 8.4 million primarily 55 driven by $ 16.3 million of unfavorable development in general liability due to increases in claim severity and $ 2.0 million of unfavorable development in short-tail lines . partially offsetting the unfavorable reserve development was $ 5.9 million of favorable development in workers compensation and $ 3.7 million of favorable development in an assumed directors and officers program . included in losses and loss adjustment expenses for the year ended december 31 , 2010 was $ 16.8 million in catastrophe losses from storm activity in the united states . the commercial specialty segment recognized $ 9.8 million of net favorable reserve development on prior accident year 's loss reserves in 2010. this favorable loss reserve development was comprised primarily of $ 5.6 million of favorable loss reserve development in our workers compensation lines and $ 4.4 million of favorable loss reserve development in an assumed directors and officers program . this favorable loss reserve development was partially offset by unfavorable loss reserve development in liability lines . included in losses and loss adjustment expenses for the year ended december 31 , 2009 was $ 10.4 million in catastrophe losses from storm activity in the united states . the commercial specialty segment recognized $ 3.7 million of net favorable reserve development on prior accident year 's loss reserves . this favorable development was comprised primarily of $ 6.2 million of favorable development in workers compensation , $ 3.5 million of favorable development in short tail lines , $ 2.5 million of adverse development in other liability , and $ 3.5 million of adverse development in commercial auto liability . the increase in the expense ratio for the year ended december 31 , 2011 as compared to the same period in 2010 was primarily attributable to the reductions in earned premiums outpacing the reductions in total underwriting expenses .
| argo re contributed earned premiums of $ 101.5 million ( on gross written premiums of $ 193.1 million ) for the year ended december 31 , 2011 compared to $ 100.2 million ( on gross written premiums of $ 176.1 million ) for the same period ended 2010. the increase in gross written and earned premiums at argo re was primarily due to new business written by our casualty and professional lines unit . the decrease in consolidated gross written premiums and earned premiums for the year ended december 31 , 2010 as compared to the same period in 2009 was primarily attributable to the planned reduction of various programs where profitability had been declining . consolidated net investment income decreased for the year ended december 31 , 2011 as compared to the same periods ended 2010 and 2009 due to lower investment yields and continued declining invested asset balances . total invested assets at december 31 , 2011 were $ 3,985.0 million , net of $ 162.5 million of invested assets attributable to the trade capital providers . total invested assets at december 31 , 2010 were $ 4,045.0 million , net of $ 170.4 million of invested assets attributable to argo international 's trade capital providers . total invested assets at december 31 , 2009 were $ 4,099.0 million , net of $ 235.3 million of invested assets attributable to the trade capital providers . 50 consolidated gross realized gains were $ 74.2 million for the year ended december 31 , 2011 , as compared to $ 47.3 million and $ 47.4 million in 2010 and 2009 , respectively . consolidated gross realized losses were $ 25.0 million , $ 10.5 million and $ 64.1 million for the years ended december 31 , 2011 , 2010 and 2009 , respectively . included in consolidated gross realized losses for the years ended december 31 , 2011 , 2010 and 2009 were write downs of approximately $ 1.2 million , $ 0.8 million and $ 45.5 million , respectively , from the recognition of other-than-temporary
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in this md & a , references to gaap issued by the fasb are derived from the fasb accounting standards codification tm ( asc ) . the preparation of financial statements in conformity with gaap requires us to make estimates based on currently available information when recording transactions resulting from business operations . the estimates that we deem to be most critical to an understanding of aflac 's results of operations and financial condition are those related to the valuation of investments and derivatives , deferred policy acquisition costs , liabilities for future policy benefits and 31 index to financial statements unpaid policy claims , and income taxes . the preparation and evaluation of these critical accounting estimates involve the use of various assumptions developed from management 's analyses and judgments . the application of these critical accounting estimates determines the values at which 96 % of our assets and 83 % of our liabilities are reported as of december 31 , 2011 , and thus has a direct effect on net earnings and shareholders ' equity . subsequent experience or use of other assumptions could produce significantly different results . investments and derivatives aflac 's investments in debt , perpetual and equity securities include both publicly issued and privately issued securities . for publicly issued securities , we determine the fair values from quoted market prices readily available from public exchange markets and price quotes and valuations from third party pricing vendors . for privately issued securities , we determine the majority of the fair values using a discounted cash flow pricing model and for the remaining securities , non-binding price quotes from outside brokers . we also routinely review our investments that have experienced declines in fair value to determine if the decline is other than temporary . these reviews are performed with consideration of the facts and circumstances of an issuer in accordance with applicable accounting guidance . the identification of distressed investments , the determination of fair value if not publicly traded , and the assessment of whether a decline is other than temporary involve significant management judgment and require evaluation of factors , including but not limited to : issuer financial condition , including profitability and cash flows credit status of the issuer the issuer 's specific and general competitive environment published reports general economic environment regulatory , legislative and political environment the severity of the decline in fair value the length of time the fair value is below cost our intent , need , or both to sell the security prior to its anticipated recovery in value other factors as may become available from time to time our derivatives are primarily interest rate , foreign currency and credit default swaps that are associated with investments in special-purpose entities , including variable interest entities ( vies ) where we are the primary beneficiary . inputs used to value derivatives include , but are not limited to , interest rates , credit spreads , foreign currency forward and spot rates , and interest volatility . prior to the third quarter of 2011 , these interest rate swaps and certain foreign currency swaps were priced by broker quotations . for our credit default swaps and certain foreign currency swaps , there were limited or no observable valuation inputs . we estimated the fair value of these instruments by obtaining broker quotes from a limited number of brokers . these brokers based their quotes on a combination of their knowledge of the current pricing environment and market conditions . in the third quarter of 2011 , we changed from receiving valuations from brokers to receiving valuations from a third party pricing vendor for our derivatives . see notes 1 , 3 , 4 and 5 of the notes to the consolidated financial statements for additional information . deferred policy acquisition costs and policy liabilities aflac 's products are generally long-duration fixed-benefit indemnity contracts . we make estimates of certain factors that affect the profitability of our business to match expected policy benefits and deferrable acquisition costs with expected policy premiums . these assumptions include persistency , morbidity , mortality , investment yields and expenses . if actual results match the assumptions used in establishing policy liabilities and the deferral and amortization of acquisition costs , profits will emerge as a level percentage of earned premiums . however , because actual results will vary from the assumptions , profits as a percentage of earned premiums will vary from year to year . we measure the adequacy of our policy reserves and recoverability of deferred policy acquisition costs ( dac ) annually by performing gross premium valuations on our business . our testing indicates that our insurance liabilities are adequate and that our dac is recoverable . 32 index to financial statements deferred policy acquisition costs certain costs of acquiring new business are deferred and amortized over the policy 's premium payment period in proportion to anticipated premium income . future amortization of dac is based upon our estimates of persistency , interest and future premium revenue generally established at the time of policy issuance . however , the unamortized balance of dac reflects actual persistency . see note 1 of the notes to the consolidated financial statements and the new accounting pronouncements discussion in this section of md & a for information on changes to the accounting policy for costs associated with acquiring or renewing insurance contracts effective january 1 , 2012. as presented in the following table , the ratio of unamortized dac to annualized premiums in force for japan decreased in 2011 after having an upward trend for the previous two years . this decrease was due to the lower expense ratio of the first sector products that generated high volumes of sales in japan . story_separator_special_tag the upward trend in the ratio of unamortized dac to annualized premiums in force in japan in 2010 and 2009 was a result of a greater proportion of our annualized premiums being under the alternative commission schedule , which pays a higher commission on first-year premiums and lower commissions on renewal premiums . this schedule is very popular with our new agents as it helps them with cash flow for personal and business needs as they build their business . while this resulted in a higher unamortized dac balance , the overall cost to the company was reduced . the ratio of unamortized dac to annualized premiums in force has increased for aflac u.s. for the last three years . the increase has been primarily driven by a greater proportion of our annualized premiums being under an accelerated commission schedule for new associates and was also impacted by the loss of a large payroll account in 2010 which had a lower ratio of unamortized dac to annualized premiums in force . deferred policy acquisition cost ratios aflac japan aflac u.s. ( in millions ) 2011 2010 2009 2011 2010 2009 deferred policy acquisition costs $ 7,733 $ 6,964 $ 5,846 $ 2,921 $ 2,770 $ 2,687 annualized premiums in force 17,284 15,408 13,034 5,188 4,973 4,956 deferred policy acquisition costs as a percentage of annualized premiums in force 44.7 % 45.2 % 44.9 % 56.3 % 55.7 % 54.2 % 33 index to financial statements policy liabilities the following table provides details of policy liabilities by segment and in total as of december 31. policy liabilities ( in millions ) 2011 2010 japan segment : future policy benefits $ 72,792 $ 66,023 unpaid policy claims 2,786 2,592 other policy liabilities 10,944 6,257 total japan policy liabilities $ 86,522 $ 74,872 u.s. segment : future policy benefits $ 6,484 $ 6,078 unpaid policy claims 1,195 1,126 other policy liabilities 390 377 total u.s. policy liabilities $ 8,069 $ 7,581 consolidated : future policy benefits $ 79,278 $ 72,103 unpaid policy claims 3,981 3,719 other policy liabilities 11,334 6,634 total consolidated policy liabilities $ 94,593 $ 82,456 our policy liabilities , which are determined in accordance with applicable guidelines as defined under gaap and actuarial standards of practice , include two components that involve analysis and judgment : future policy benefits and unpaid policy claims , which accounted for 84 % and 4 % of total policy liabilities as of december 31 , 2011 , respectively . future policy benefits provide for claims that will occur in the future and are generally calculated as the present value of future expected benefits to be incurred less the present value of future expected net benefit premiums . we calculate future policy benefits based on assumptions of morbidity , mortality , persistency and interest . these assumptions are generally established at the time a policy is issued . the assumptions used in the calculations are closely related to those used in developing the gross premiums for a policy . as required by gaap , we also include a provision for adverse deviation , which is intended to accommodate adverse fluctuations in actual experience . unpaid policy claims include those claims that have been incurred and are in the process of payment as well as an estimate of those claims that have been incurred but have not yet been reported to us . we compute unpaid policy claims on a non-discounted basis using statistical analyses of historical claims payments , adjusted for current trends and changed conditions . we update the assumptions underlying the estimate of unpaid policy claims regularly and incorporate our historical experience as well as other data that provides information regarding our outstanding liability . our insurance products provide fixed-benefit amounts per occurrence that are not subject to medical-cost inflation . furthermore , our business is widely dispersed in both the united states and japan . this geographic dispersion and the nature of our benefit structure mitigate the risk of a significant unexpected increase in claims payments due to epidemics and events of a catastrophic nature . claims incurred under aflac 's policies are generally reported and paid in a relatively short time frame . the unpaid claims liability is sensitive to morbidity assumptions , in particular , severity and frequency of claims . severity is the ultimate size of a claim , and frequency is the number of claims incurred . our claims experience is primarily related to the demographics of our policyholders . as a part of our established financial reporting and accounting practices and controls , we perform actuarial reviews of our policyholder liabilities on an ongoing basis and reflect the results of those reviews in our results of operations and financial condition as required by gaap . 34 index to financial statements our fourth quarter 2011 review indicated that we needed to strengthen the liability associated primarily with a closed block of cancer policies and a block of care policies in japan , primarily due to low investment yields . we strengthened our future policy benefits liability by $ 123 million in 2011 as a result of this review . our fourth quarter 2010 review indicated that we needed to strengthen the liability for a closed block of dementia policies in japan , primarily due to low investment yields . we strengthened our future policy benefits liability by $ 93 million in 2010 for this closed block of policies . in computing the estimate of unpaid policy claims , we consider many factors , including the benefits and amounts available under the policy ; the volume and demographics of the policies exposed to claims ; and internal business practices , such as incurred date assignment and current claim administrative practices . we monitor these conditions closely and make adjustments to the liability as actual experience emerges . claim levels are generally stable from period to period ; however , fluctuations in claim levels may occur . in calculating the unpaid policy claim liability , we do not calculate a range of estimates .
| we realized pretax investment gains , net of losses , of $ 594 million ( $ 386 million after-tax ) from the sale of securities . the impairments and many of the sales were the result of an implemented plan to reduce the risk exposure in our investment portfolio coupled with the continued decline in the credit worthiness of certain issuers . gains were primarily driven by the sale of u.s. treasury strips and japanese government bonds ( jgbs ) that were part of a bond-swap program . in 2010 , we realized pretax investment losses of $ 459 million ( $ 298 million after-tax ) as a result of the recognition of other-than-temporary impairment losses . we realized pretax investment gains , net of losses , of $ 38 million ( $ 25 million after-tax ) from securities sold or redeemed in the normal course of business . in 2009 , we realized pretax investment losses of $ 1.4 billion ( $ 884 million after-tax ) as a result of the recognition of other-than-temporary impairment losses . we realized pretax investment losses of $ 101 million ( $ 66 million after-tax ) from the exchange of certain perpetual security investments into fixed-maturity securities . the losses were partially offset by pretax investment gains of $ 250 million ( $ 162 million after-tax ) that were generated primarily from a bond-swap program that took advantage of tax loss carryforwards . see note 3 of the notes to the consolidated financial statements for more details on these investment activities . the following table details our pretax impairment losses by investment category for the years ended december 31 . ( in millions ) 2011 2010 2009 perpetual securities $ 565 $ 160 $ 729 corporate bonds 1,316 285 458 collateralized debt obligations 0 0 148 mortgage- and asset-backed securities 17 12 24 municipalities 2 0 0 equity securities 1 2 2 total other-than-temporary impairment losses realized $ < font size= '' 2 ''
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26 multicellular we believe the multiple cell types in ixmyelocel-t , which are normally found in bone marrow but in smaller quantities , possess the key functions required for reducing chronic inflammation and promoting angiogenesis and tissue repair . by reducing inflammation , we believe that ixmyelocel-t provides the ideal conditions to allow for the growth of new tissue and blood vessels . minimally invasive our procedure for collecting bone marrow can be performed in an out-patient setting and takes approximately 15 minutes . administration of ixmyelocel-t for the treatment of dcm is performed in the cardiac catheterization laboratory using a cell injection catheter system in a one-time procedure . for diseases such as cli , administration of ixmyelocel-t is performed with a syringe in an outpatient setting in a one-time , approximately 20 minute procedure . safe bone marrow and bone marrow-derived therapies have been used safely and efficaciously in medicine for over three decades . ixmyelocel-t leverages this body of scientific study and medical experience , and appears well tolerated in over 200 patients treated to date . our technology platform our patient-specific multicellular therapies are manufactured using the company 's proprietary aastrom repicell system ( ars ) cell manufacturing system . our manufacturing process is conducted in a highly-automated , fully-closed and rigorously controlled system . our system is highly scalable and reproducible and located in a 5,000-square-foot centralized manufacturing facility in ann arbor , michigan . production is conducted under current good manufacturing practices ( cgmp ) guidelines required by the fda with current annual capacity to treat up to 3,000 patients . our strategy our objective is to become the leading global biotechnology company in the development , manufacture , and commercialization of autologous multicellular therapies for the treatment of severe ischemic cardiovascular diseases . to achieve this objective , we intend to : · complete our phase 2b ixcell-dcm clinical study for the treatment of advanced heart failure due to ischemic dcm and , if successful , progress ixmyelocel-t into pivotal phase 3 clinical studies for this orphan indication . · complete patient follow-up in the revive-cli study to evaluate safety and efficacy endpoints for the treatment of critical limb ischemia . · conduct additional preclinical and clinical studies of ixmyelocel-t to pursue additional high-value indications for the treatment of severe ischemic cardiovascular diseases . · utilize our proprietary ars cell-expansion manufacturing platform to expand our product portfolio of cell therapies for the treatment of immune/inflammatory , cardiovascular and fibrovascular diseases . · leverage our leading proprietary cell manufacturing platform and expertise to provide manufacturing services and capabilities to other development and commercial-stage biopharmaceutical companies . · prepare to commercialize ixmyelocel-t through continued development of our internal commercialization capabilities and or strategic partnerships for north america , europe and asia . clinical development programs our clinical development programs are focused on addressing areas of high unmet medical need in severe , chronic ischemic cardiovascular diseases . we have completed our phase 1/2 clinical trials in dcm , and we are currently enrolling our phase 2b ixcell-dcm study , which is a randomized , double-blind , placebo-controlled clinical trial for patients with advanced heart failure due to ischemic dcm . ixmyelocel-t has been granted a u.s. orphan drug designation by the fda for the treatment of dcm . we also have ongoing ixmyelocel-t clinical programs for the treatment of cli and craniofacial reconstruction . however , on march 27 , 2013 , we announced a strategic change in our research and development programs to focus on the clinical development of ixmyelocel-t for the treatment of advanced heart failure due to ischemic dilated cardiomyopathy . as a result of the strategic change , we stopped enrollment of the phase 3 revive clinical trial in patients with critical limb ischemia . results to date in our clinical trials may not be indicative of results obtained from subsequent patients enrolled in those trials or from future clinical trials . further , our future clinical trials may not be successful or we may not be able to obtain the required biologic license application ( bla ) approval to commercialize our products in the united states in a timely fashion , or at all . see risk factors. 27 heart failure due to dilated cardiomyopathy heart failure represents a significant unmet medical need and a growing public health problem . the american heart association reports that there are approximately 6 million patients currently suffering from heart failure in the united states and an estimated 650,000 new cases in the u.s. each year . current medical costs to treat these patients exceed $ 25 billion and this is expected to more than triple to nearly $ 80 billion by 2030 as a result of a growing patient population and the high cost of the limited treatment alternatives for advanced heart failure patients , as described below . dcm is a leading cause of heart failure and of heart transplantation in the united states . dcm is a disease characterized by weakening of the heart muscle , thinning of the heart walls , enlargement of the heart chambers , and the inability to sufficiently pump blood throughout the body . patients with dcm typically present with symptoms of congestive heart failure , including limitations in physical activity and shortness of breath . ischemic dcm is associated with atherosclerotic cardiovascular disease and prior heart attacks and is the most common form of dilated cardiomyopathy , representing an estimated 60 % of all dcm patients . patient prognosis depends on the stage and cause of the disease , but is typically characterized by a very poor quality of life and a high mortality rate . current treatments for ischemic dcm patients that are refractory to further medical therapy such as prescription drugs , devices , and or further revascularization procedures including bypass surgery and angioplasty , are limited to heart transplantation and placement of left ventricular assist devices ( lvads ) . there are less than 2,500 heart transplantations in the united states each year . story_separator_special_tag many refractory dcm patients are not eligible for heart transplantation and transplants are extremely expensive at an estimated cost of approximately $ 1 million . lvads are also expensive at an estimated cost of over $ 175,000 and have a mortality rate of 50 % at two years . a majority of advanced heart failure patients that are refractory to medical therapy have dcm , and we believe that the refractory ischemic dcm market represents a substantial market opportunity for ixmyelocel-t. these refractory ischemic dcm patients are currently the target patient population for our clinical development of ixmyelocel-t , with approximately 175,000 patients in the united states alone . ixmyelocel-t has been granted a u.s. orphan drug designation by the fda for the treatment of dcm , which we believe provides an efficient and cost-effective path to approval for ixmyelocel-t in this heart failure indication . we have conducted two phase 2a multicenter , randomized , open-label clinical studies in patients with ischemic dcm and nonischemic dcm investigating surgical ( impact-dcm ) and catheter-based ( catheter-dcm ) delivery of ixmyelocel-t. we reported 12-month data for the surgical impact-dcm study at the heart failure society of america meeting in september 2011 and final 12-month results from the catheter-dcm study at the society for cardiovascular angiography and interventions ( scai ) 2012 scientific sessions . results from these studies demonstrated that ixmyelocel-t was well-tolerated in patients with dcm . in the catheter-dcm study and post-surgery in the impact-dcm study , the incidence of adverse events was comparable between the ixmyelocel-t groups and the control groups . cardiac failure was reported more frequently in the control group relative to ixmyelocel-t in both studies . while these exploratory phase 2a studies were not powered for determining differences in efficacy between treatment groups , there were consistent trends of clinically meaningful improvement in clinical endpoints observed in the ischemic dcm ( idcm ) groups in both studies . in the combined idcm groups across both studies , major adverse cardiovascular events ( mace ) were experienced by a lower percentage of ixmyelocel t-treated patients compared to control patients , representing greater than 50 % reduction in the number of patients having a mace event . likewise , patients in the combined ischemic dcm groups that were treated with ixmyelocel-t had a reduction in the average number of mace events per patient . mace is the recommended endpoint ( mortality and cardiovascular hospitalizations ) in phase 3 heart failure studies as stated in the fda 2009 somatic cell therapy for cardiac diseases draft guidance . consistent positive trends also were observed in several secondary efficacy measures in the idcm groups . the majority of ixmyelocel t-treated patients with idcm , but not control patients , had improvement in nyha class that was sustained over the 12 months following treatment . improvement in nyha class is considered clinically meaningful . additionally , a higher percentage of ixmyelocel t-treated idcm patients showed a clinically meaningful improvement in self-reported quality of life and increased 6 minute walk distance compared to the idcm control patients . we are currently enrolling patients in the phase 2b ixcell-dcm clinical study , which is a multicenter , randomized , double-blind , placebo-controlled study evaluating the efficacy and safety of ixmyelocel-t in patients with advanced heart failure due to ischemic dcm . the study is designed to enroll 108 patients at approximately 35 sites in the u.s. and canada . patients will be followed for 12 months for the primary efficacy endpoint of mace events , defined as all-cause deaths , all-cause hospitalizations , and unplanned outpatient or emergency department visits for iv treatment of acute worsening heart failure . secondary endpoints include clinical , functional , structural , symptomatic , quality of life , and biomarker measures at 3 , 6 and 9 months . patients will be followed for an additional 12 months for safety . we expect to complete enrollment of the ixcell-dcm study in 2014 , and have top-line efficacy results approximately 12 months later . 28 critical limb ischemia cli is the most serious and advanced stage of pad resulting from chronic inflammation and lipid accumulation . pad is a chronic atherosclerotic disease that progressively restricts blood flow in the limbs and can lead to serious medical complications . this disease is often associated with other serious clinical conditions including hypertension , cardiovascular disease , dyslipidemia , diabetes , obesity and stroke . cli is used to describe patients with chronic ischemia-induced pain ( even at rest ) or tissue loss ( ulcers or gangrene ) in the limbs , often leading to amputation and death . many cli patients are considered unsuitable for revascularization as they have exhausted all other reasonable treatment options and will likely require amputation . the one-year and four-year mortality rates for cli patients that are unsuitable for revascularization that progress to amputation are approximately 25 % and 70 % , respectively . currently , there are an estimated 250,000 cli patients that are unsuitable for revascularization in the united states . ixmyelocel-t has shown significant promise in the treatment of cli patients with existing tissue loss that are unsuitable for revascularization . our u.s. phase 2b restore-cli program was a multi-center , randomized , double-blind , placebo-controlled clinical trial designed to evaluate the safety and efficacy of ixmyelocel-t in the treatment of patients with cli that are unsuitable for revascularization . it was the largest multi-center , randomized , double-blind , placebo-controlled cellular therapy study ever conducted in cli patients . we completed enrollment of this trial in february 2010 with a total of 86 patients at 18 sites across the united states . final results of the phase 2b restore-cli clinical trial were presented at the american heart association scientific sessions in november 2011 and published in the peer-reviewed journal molecular therapy in april 2012. patients in the treatment arm showed a 62 % reduction in risk relative to placebo in the primary efficacy endpoint of time to first occurrence of treatment failure ( p=0.0032 ) .
| research and development expenses decreased to $ 15,104,000 for the year ended december 31 , 2013 from $ 26,025,000 for the year ended december 31 , 2012 due to a reduction in clinical trial expenses due to stopping of enrollment in the phase 3 revive clinical trial , the execution of a corporate restructuring that we announced on march 27 , 2013 that reduced staff and operating expenses and the reversal of non-cash stock compensation expense due to the restructuring . these costs reductions were partially offset by the increased activity due to enrollment in our phase 2b ixcell-dcm study . research and development expenses increased to $ 26,025,000 for the year ended december 31 , 2012 from $ 21,330,000 for the year ended december 31 , 2011 due to increased cro and consulting costs related to the phase 3 revive clinical trial , as well as increased cash compensation and non-cash stock based compensation associated with an increase in headcount . our major ongoing research and development programs are focused on the clinical development of our technology platform for the treatment of severe , chronic cardiovascular diseases . the following table summarizes the allocation of cost for our research and development projects ( in thousands ) : replace_table_token_2_th selling , general and administrative expenses decreased to $ 5,875,000 for the year ended december 31 , 2013 from $ 7,750,000 for the year ended december 31 , 2012 due to the execution of a corporate restructuring that reduced staff and operating expenses , decreases in consulting expenses and the reversal of non-cash stock compensation expense due to the restructuring . selling , general and administrative expenses increased slightly to $ 7,750,000 for the year ended december 31 , 2012 from $ 7,724,000 for the year ended december 31 , 2011 due to an increase in legal and consulting expenses , offset by a decrease in non-cash stock-based compensation . non-cash income from the change in fair value of warrants was $ 5,337,000 for the year ended december 31 , 2013 compared to $ 4,248,000 for the year ended december 31 , 2012. the decrease in value was primarily due to the decline in our stock price , the reduction in the number of december 2010 and august 2013 warrants
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this facility was renewed in april 2017 and again in february 2019 , extending the revolving period to february 2021 , followed by an amortization period to april 2023. in november 2015 , we entered into a third $ 100 million facility . this facility was renewed in november 2017 , extending the revolving period to november 2019 , followed by an amortization period to november 2021. in a securitization and in our warehouse credit facilities , we are required to make certain representations and warranties , which are generally similar to the representations and warranties made by dealers in connection with our purchase of the automobile contracts . if we breach any of our representations or warranties , we will be obligated to repurchase the automobile contract at a price equal to the principal balance plus accrued and unpaid interest . we may then be entitled under the terms of our dealer agreement to require the selling dealer to repurchase the contract at a price equal to our purchase price , less any principal payments made by the customer . subject to any recourse against dealers , we will bear the risk of loss on repossession and resale of vehicles under automobile contracts that we repurchase . whether a securitization is treated as a secured financing or as a sale for financial accounting purposes , the related special purpose subsidiary may be unable to release excess cash to us if the credit performance of the securitized automobile contracts falls short of pre-determined standards . such releases represent a material portion of the cash that we use to fund our operations . an unexpected deterioration in the performance of securitized automobile contracts could therefore have a material adverse effect on both our liquidity and results of operations , regardless of whether such automobile contracts are treated as having been sold or as having been financed . critical accounting policies we believe that our accounting policies related to ( a ) finance receivables at fair value , ( b ) allowance for finance credit losses , ( c ) amortization of deferred origination costs and acquisition fees , ( d ) term securitizations , ( e ) accrual for contingent liabilities and ( f ) income taxes are the most critical to understanding and evaluating our reported financial results . such policies are described below . allowance for finance credit losses in order to estimate an appropriate allowance for losses incurred on finance receivables , we use a loss allowance methodology commonly referred to as `` static pooling , `` which stratifies our finance receivable portfolio into separately identified pools based on the period of origination . using analytical and formula driven techniques , we estimate an allowance for finance credit losses , which we believe is adequate for probable incurred credit losses that can be reasonably estimated in our portfolio of automobile contracts . net losses incurred on finance receivables are charged to the allowance . we evaluate the adequacy of the allowance by examining current delinquencies , the characteristics of the portfolio , prospective liquidation values of the underlying collateral and general economic and market conditions . as circumstances change , our level of provisioning and or allowance may change as well . receivables acquired after 2017 , are accounted for using fair value and will have no allowance for finance credit losses in accordance with the fair value method of accounting for finance receivables . 36 broad economic factors such as recession and significant changes in unemployment levels influence the credit performance of our portfolio , as does the weighted average age of the receivables at any given time . our internal credit performance data consistently show that new receivables have lower levels of delinquency and losses early in their lives , with delinquencies increasing throughout their lives and losses gradually increasing to a peak between 36 and 42 months , after which they gradually decrease . the historical weighted average seasoning of our total owned portfolio including finance receivables at fair value , is summarized in the table below : replace_table_token_18_th the credit performance of our portfolio is also significantly influenced by our underwriting guidelines and credit criteria we use when evaluating contracts for purchase from dealers . we regularly evaluate our portfolio credit performance and modify our purchase criteria to maximize the credit performance of our portfolio , while maintaining competitive programs and levels of service for our dealers . we generally do not lower the contractual interest rate or waive or forgive principal when our borrowers incur financial difficulty on either a temporary or permanent basis . an exception to this policy is when a court order mandates the terms of the contract to be modified , such as in a chapter 13 bankruptcy proceeding . in such cases , which represent an immaterial portion of our portfolio of finance receivables , we have estimated the amount of impairment that results from such modification and established an appropriate allowance within our allowance for finance credit losses . finance receivables measured at fair value effective january 1 , 2018 , we adopted the fair value method of accounting for finance receivables acquired on or after that date . for each finance receivable acquired after 2017 , we consider the price paid on the purchase date as the fair value for such receivable . we estimate the cash to be received in the future with respect to such receivables , based on our experience with similar receivables acquired in the past . we then compute the internal rate of return that results in the present value of those estimated cash receipts being equal to the purchase date fair value . thereafter , we recognize interest income on such receivables on a level yield basis using that internal rate of return as the applicable interest rate . cash received with respect to such receivables is applied first against such interest income , and then to reduce the carrying value of the receivables . story_separator_special_tag we re-evaluate the fair value of such receivables at the close of each measurement period . if the reevaluation were to yield a value materially different from the carrying value , an adjustment would be required . 37 anticipated credit losses are included in our estimation of cash to be received with respect to receivables . because such credit losses are included in our computation of the appropriate level yield , we do not thereafter make periodic provision for credit losses , as our best estimate of the lifetime aggregate of credit losses is included in that initial computation . also because we include anticipated credit losses in our computation of the level yield , the computed level yield is materially lower than the average contractual rate applicable to the receivables . because our initial carrying value is fixed as the price we pay for the receivable , rather than as the contractual principal balance , we do not record acquisition fees as an amortizing asset related to the receivables , nor do we capitalize costs of acquiring the receivables . rather we recognize the costs of acquisition as expenses in the period incurred . amortization of deferred originations costs and acquisition fees upon purchase of a contract from a dealer , we generally either charge or advance the dealer an acquisition fee . in addition , we incur certain direct costs associated with acquisitions of our contracts . all such acquisition fees and direct costs are applied to the carrying value of finance receivables and are accreted into earnings as an adjustment to the yield over the estimated life of the contract using the interest method . receivables acquired after 2017 are accounted for using fair value . in accordance with the fair value method of accounting for finance receivables , any dealer acquisition fees will be incorporated into acquisition price of the receivables and no direct costs will be deferred . term securitizations our term securitization structure has generally been as follows : we sell automobile contracts we acquire to a wholly-owned special purpose subsidiary , which has been established for the limited purpose of buying and reselling our automobile contracts . the special-purpose subsidiary then transfers the same automobile contracts to another entity , typically a statutory trust . the trust issues interest-bearing asset-backed securities , in a principal amount equal to or less than the aggregate principal balance of the automobile contracts . we typically sell these automobile contracts to the trust at face value and without recourse , except that representations and warranties similar to those provided by the dealer to us are provided by us to the trust . one or more investors purchase the asset-backed securities issued by the trust ; the proceeds from the sale of the asset-backed securities are then used to purchase the automobile contracts from us . we may retain or sell subordinated asset-backed securities issued by the trust or by a related entity . we structure our securitizations to include internal credit enhancement for the benefit the investors ( i ) in the form of an initial cash deposit to an account ( `` spread account `` ) held by the trust , ( ii ) in the form of overcollateralization of the senior asset-backed securities , where the principal balance of the senior asset-backed securities issued is less than the principal balance of the automobile contracts , ( iii ) in the form of subordinated asset-backed securities , or ( iv ) some combination of such internal credit enhancements . the agreements governing the securitization transactions require that the initial level of internal credit enhancement be supplemented by a portion of collections from the automobile contracts until the level of internal credit enhancement reaches specified levels , which are then maintained . the specified levels are generally computed as a percentage of the principal amount remaining unpaid under the related automobile contracts . the specified levels at which the internal credit enhancement is to be maintained will vary depending on the performance of the portfolios of automobile contracts held by the trusts and on other conditions , and may also be varied by agreement among us , our special purpose subsidiary , the insurance company , if any , and the trustee . such levels have increased and decreased from time to time based on performance of the various portfolios , and have also varied from one transaction to another . the agreements governing the securitizations generally grant us the option to repurchase the sold automobile contracts from the trust when the aggregate outstanding balance of the automobile contracts has amortized to a specified percentage of the initial aggregate balance . upon each transfer of automobile contracts in a transaction structured as a secured financing for financial accounting purposes , we retain on our consolidated balance sheet the related automobile contracts as assets and record the asset-backed notes or loans issued in the transaction as indebtedness . 38 we receive periodic base servicing fees for the servicing and collection of the automobile contracts . under our securitization structures treated as secured financings for financial accounting purposes , such servicing fees are included in interest income from the automobile contracts . in addition , we are entitled to the cash flows from the trusts that represent collections on the automobile contracts in excess of the amounts required to pay principal and interest on the asset-backed securities , base servicing fees , and certain other fees and expenses ( such as trustee and custodial fees ) . required principal payments on the asset-backed notes are generally defined as the payments sufficient to keep the principal balance of such notes equal to the aggregate principal balance of the related automobile contracts ( excluding those automobile contracts that have been charged off ) , or a pre-determined percentage of such balance . where that percentage is less than 100 % , the related securitization agreements require accelerated payment of principal until the principal balance of the asset-backed securities is reduced to the specified percentage .
| provision for credit losses and interest expense are significantly affected by the volume of automobile contracts we purchased during the trailing 12-month period and by the outstanding balance of finance receivables held by consolidated subsidiaries ( other than our portfolio of finance receivables measured at fair value , as to which expected credit losses have the effect of reducing the interest rate applicable to such receivables ) . employee costs and general and administrative expenses are incurred as applications and automobile contracts are received , processed and serviced . factors that affect margins and net income include changes in the automobile and automobile finance market environments , and macroeconomic factors such as interest rates and changes in the unemployment level . employee costs include base salaries , commissions and bonuses paid to employees , and certain expenses related to the accounting treatment of outstanding stock options , and are one of our most significant operating expenses . these costs ( other than those relating to stock options ) generally fluctuate with the level of applications and automobile contracts processed and serviced . other operating expenses consist largely of facilities expenses , telephone and other communication services , credit services , computer services , marketing and advertising expenses , and depreciation and amortization . total operating expenses were $ 371.1 million for the year ended december 31 , 2018 , compared to $ 402.3 million for the prior year , a decrease of $ 31.2 million , or 7.8 % . the decrease is primarily due to a decrease in provision for credit losses , offsetting increases in employee costs , interest expense , marketing and general and administrative expenses . 41 employee costs increased by $ 6.4 million or 8.7 % , to $ 79.3 million during the year ended december 31 , 2018 , representing 21.4 % of total operating expenses , from $ 73.0 million for the prior year , or 18.1 % of total operating expenses . employee costs for the prior year period were net of $ 5.4 million of direct employee costs associated with the originations of contracts during that period . such deferred costs are then recognized over the life of the
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determining the amount of the alll is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans , estimated losses on pools of homogeneous loans based on historical loss experience , qualitative factors , and consideration of current economic trends and conditions , all of which may be susceptible to significant change . various banking regulators , as an integral part of their examination of the company , also review the alll . such regulators may require , based on their judgments about information available to them at the time of their examination , that certain loan balances be charged off or require that adjustments be made to the alll . additionally , the alll is determined , in part , by the composition and size of the loan portfolio . the alll consists of two components , a specific component and a general component . the specific component relates to loans that are classified as impaired . for such loans an allowance is established when the discounted cash flows , collateral value or observable market price of the impaired loan is lower than the carrying value of that loan . the general component covers all other loans and is based on historical loss experience adjusted by qualitative factors . the general reserve component of the alll is based on pools of unimpaired loans segregated by loan segment and risk rating categories of “ pass ” , “ special mention ” or “ substandard and accruing. ” historical loss factors and various qualitative factors are applied based on the risk profile in each risk rating category to determine the appropriate reserve related to those loans . substandard loans on nonaccrual status above the $ 100 thousand loan relationship threshold and all loans considered troubled debt restructurings ( “ tdrs ” ) are classified as impaired . see note 2- “ summary of significant accounting policies ” and note 5- “ loans ” of the notes to consolidated financial statements included in item 8- “ financial statements and supplementary data ” of this annual report on form 10-k for additional information about the alll . securities valuation and impairment evaluation management utilizes various inputs to determine the fair value of its investment portfolio . to the extent they exist , unadjusted quoted market prices in active markets ( level 1 ) or quoted prices for similar assets or models using inputs that are observable , either directly or indirectly ( level 2 ) are utilized to determine the fair value of each investment in the portfolio . in the absence of observable inputs or if markets are illiquid , valuation techniques are used to determine fair value of any investments that require inputs that are both unobservable and significant to the fair value measurement ( level 3 ) . for level 3 inputs , valuation techniques are based on various assumptions , including , but not limited to , cash flows , discount rates , adjustments for nonperformance and liquidity , and liquidation values . a significant degree of judgment is involved in valuing investments using level 3 inputs . the use of different assumptions could have a positive or negative effect on the consolidated statements of financial condition or results of operations . see note 4- “ securities ” and note 18- “ fair value measurements ” of the notes to consolidated financial statements included in item 8 hereof for additional information about the company 's securities valuation techniques . on a quarterly basis , management evaluates individual investment securities classified as held-to-maturity and available-for-sale having unrealized losses to determine whether or not the security is other-than-temporarily-impaired ( “ otti ” ) . the analysis of otti requires the use of various assumptions , including but not limited to , the length of time an investment 's fair value is less than book value , the severity of the investment 's decline , any credit deterioration of the issuer , whether management intends to sell the security , and whether it is more-likely-than-not that the company will be required to sell the security prior to recovery of its amortized cost basis . debt investment securities deemed to be otti are written down by the impairment related to the estimated credit loss , and the non-credit related impairment loss is recognized in other comprehensive income . there were no otti charges on investment securities recognized in 2013. the company recognized otti charges on investment securities of $ 96 thousand and $ 798 thousand in 2012 and 2011 , respectively , within the consolidated statements of operations . for 2012 and 2011 , the otti charges related to estimated credit losses on pooled trust preferred securities . see note 4- “ securities ” of the notes to consolidated financial statements included in item 8 hereof for additional information about the company 's otti charges . 35 other real estate owned oreo consists of property acquired by foreclosure , abandonment or conveyance of deed in-lieu of foreclosure of a loan , and bank premises that is no longer used for operation or for future expansion . oreo is held for sale and is initially recorded at fair value less costs to sell at the date of acquisition or transfer , which establishes a new cost basis . upon acquisition of the property through foreclosure or deed-in-lieu of foreclosure , any write-down to fair value less estimated selling costs is charged to the alll . the determination is made on an individual asset basis . bank premises no longer used for operations or future expansion is transferred to oreo at its fair value less estimated selling costs with any related write-down included in non-interest expense . subsequent to acquisition , valuations are periodically performed by management and the assets are carried at the lower of cost or fair value less cost to sell . fair value is determined through external appraisals , current letters of intent , broker price opinions or executed agreements of sale . story_separator_special_tag costs relating to the development and improvement of the oreo properties may be capitalized ; holding period costs and any subsequent changes to the valuation allowance are charged to expense as incurred . income taxes the objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity 's financial statements or tax returns . judgment is required in assessing the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns . fluctuations in the actual outcome of these future tax consequences could impact our consolidated financial condition or results of operations . the company records an income tax provision or benefit based on the amount of tax currently payable or receivable and the change in deferred tax assets and liabilities . deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial and tax reporting purposes . management conducts quarterly assessments of all available evidence to determine the amount of deferred tax assets that will more-likely-than-not be realized . the available evidence used in connection with these assessments includes taxable income in current and prior periods , cumulative losses in prior periods , projected future taxable income , potential tax-planning strategies , and projected future reversals of deferred tax items . management 's assumptions and estimates take into consideration its interpretation of tax laws and possible outcomes of current and future audits conducted by tax authorities . these assessments involve a certain degree of subjectivity which may change significantly depending on the related circumstances . in connection with determining the income tax provision or benefit , the company considers maintaining liabilities for uncertain tax positions and tax strategies that management believes contain an element of uncertainty . periodically , the company evaluates each of its tax positions and strategies to determine whether a liability for uncertain tax benefits is required . as of december 31 , 2013 and 2012 , the company determined that it did not have any uncertain tax positions or tax strategies and that no liability was required to be recorded . note 2- “ summary of significant accounting policies ” and note 13 - “ income taxes ” of the notes to consolidated financial statements included in item 8 hereof for additional discussion on the accounting for income taxes . new authoritative accounting pronouncements accounting standards update ( “ asu ” ) no . 2011-11 , balance sheet ( topic 210 ) : “ disclosures about offsetting assets and liabilities ” requires enhanced disclosures that will enable users of its financial statements to evaluate the effect or potential effect of netting arrangements on an entity 's financial position . this includes the effect or potential effect of rights of setoff associated with an entity 's recognized assets and recognized liabilities within the scope of this update . the amendments require enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are either ( 1 ) offset in accordance with either asc 210-20-45 or asc 815-10-45 or ( 2 ) subject to an enforceable master netting arrangement or similar agreement , irrespective of whether they are offset in accordance with either asc 210-20-45 or asc 815-10-45. the company adopted asu no . 2011-11 on january 1 , 2013. the adoption of this new guidance did not have an effect on the operating results or financial position of the company . asu no . 2012-02 , intangibles-goodwill and other ( topic 350 ) : “ testing indefinite-lived intangible assets for impairment ” simplifies the guidance for testing the decline in realizable value ( impairment ) of indefinite-lived intangible assets other than goodwill . asu no . 2012-02 allows an entity the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test . an organization electing to perform a qualitative assessment is no longer required to calculate the fair value of an indefinite-lived intangible asset unless the organization determines , based on a qualitative assessment , that it is “ more likely than not ” that the asset is impaired . the company adopted asu 2012-02 on january 1 , 2013. the adoption of this new guidance did not have an effect on the operating results or financial position of the company . asu no . 2013-01 , balance sheet ( topic 210 ) : “ clarifying the scope of disclosures about offsetting assets and liabilities ” clarifies the scope of transactions that are subject to the disclosures about offsetting , specifically that ordinary trade receivables and receivables are not in the scope of asu no . 2011-11. this update applies only to derivatives , repurchase agreements and reverse purchase agreements , and securities borrowing and securities lending transactions that are offset in accordance with specific criteria contained in fasb accounting standards codification or subject to a master netting arrangement or similar agreement . the company adopted asu 2013-01 on january 1 , 2013. the adoption of this new guidance did not have an effect on the operating results or financial position of the company . 36 asu no . 2013-02 , comprehensive income ( topic 220 ) : “ reporting of amounts reclassified out of accumulated other comprehensive income ” improves the transparency of reporting these reclassifications . the new amendments require an organization to : present either on the face of the statement where income is presented or in the notes to the financial statements the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income ; or cross reference to other disclosures currently required under gaap for other reclassification items to be reclassified directly to income in their entirety in the same reporting period . the amendments apply to all public and private companies that report other comprehensive income .
| the transaction , which closed on january 24 , 2014 , is expected to improve operating efficiency and strengthen the bank 's capital position ; 37 · transferred three vacant lots previously held for future expansion to oreo for disposition ; and · executed a sale of one of its administrative facilities located in luzerne county , pennsylvania , which is expected to reduce non-interest expense . at the end of the second quarter of 2013 , the company hired a chief lending officer with over 30 years of in-depth credit administration , commercial lending and management experience . the chief lending officer 's primary objectives are to lead the bank 's commercial lending and business development teams , as well as develop and manage business relationships with commercial customers . in the fourth quarter , the company established a profitability enhancement program to focus management 's efforts on four key areas within the bank 's core business : 1 ) profit enhancement ; 2 ) process improvement ; 3 ) non-interest expense reduction ; and 4 ) organizational structure enhancements . the main committee is comprised of four subcommittees , or task groups , to oversee each of the four core areas and is charged with the following goals : · to achieve an efficiency ratio that ranks in the top 50.0 % of peer banking institutions by december 31 , 2014 ; · to identify resources and define accountability needed to execute profit enhancement initiatives ; and · to implement an optimal organizational structure that will position the bank for sustained profitability , continuous process improvement and non-interest expense management . in addition to the above new actions , management continued to reposition the balance sheet in order to reduce risk , improve asset quality and strengthen the company 's and bank 's capital positions . on may 24 , 2012 , a putative shareholder filed a complaint in the court of common pleas for lackawanna county ( “ shareholder derivative suit ” ) against certain present and former directors and officers of the company ( the “ individual defendants ” ) alleging , inter alia , breach of fiduciary duty , abuse of control , corporate waste , and unjust enrichment . the company was named as a
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electricity and gas accounted for approximately 6 % and 10.3 % of total sales in 2019 , respectively , compared to 6 % and 9.5 % of total sales 2018.the monthly energy cost ( electricity , coal and gas ) as a percentage of total monthly sales of our main paper products for the 24 months ended december 31 , 2019 are summarized as follows : gross profit gross profit for december 31 , 2019 was $ 13,679,518 ( 11.63 % of the total revenue ) , representing an increase of $ 7,859,117 , or 135.03 % , from the gross profit of $ 5,820,401 ( 6.71 % of the total revenue ) for the year ended december 31 , 2018. the increase was mainly due to ( i ) the increase in quantities sold of cmp , offset printing paper and tissue paper and ( ii ) the decrease of material purchase price of cmp and offset printing paper , partially offset by the decrease of asp of these products . 33 corrugating medium paper , offset printing paper and tissue paper products gross profit for offset printing paper , cmp and tissue paper products for the year ended december 31 , 2019 was $ 13,691,322 , an increase of $ 7,867,598 , or 135.10 % , from the gross profit of $ 5,823,724 for the year ended december 31 , 2018. the increase was mainly the result of the factors discussed above . the overall gross profit margin for offset printing paper , cmp and tissue paper products increased by 4.93 percentage points , from 6.71 % for the year ended december 31 , 2018 , to 11.64 % for the year ended december 31 , 2019. gross profit margin for regular cmp for the year ended december 31 , 2019 was 10.29 % , or 2.61 percentage points higher , as compared to gross profit margin of 7.68 % for the year ended december 31 , 2018. such increase was primarily due to decrease of material purchase price , partially offset by the decrease in asp of regular cmp . gross profit margin for light-weight cmp for the year ended december 31 , 2019 was 10.13 % , or 5.09 percentage points higher , as compared to gross profit margin of 5.04 % for the year ended december 31 , 2018. gross profit margin for offset printing paper was 31.19 % for the year ended december 31 , 2019 , an increase of 30.42 percentage points , as compared to 0.77 % for the year ended december 31 , 2018. such increase was mainly due to the decrease of purchase price of recycled white scrap paper , partially offset by the decrease in asp of offset printing paper . gross profit margin for tissue paper products for the year ended december 31 , 2019 was -31.46 % . monthly gross profit margins for our corrugating medium paper and offset printing paper for the 24-month period ended december 31 , 2019 are as follows : selling , general and administrative expenses selling , general and administrative expenses for the year ended december 31 , 2019 were $ 9,781,719 , a decrease of $ 3,316,654 , or 25.32 % from $ 13,098,373 for the year ended december 31 , 2018. the decrease was mainly due to additional repair and maintenance costs incurred during the production suspension period and depreciation of idle fixed assets in 2018. income ( loss ) from operations operating income for the year ended december 31 , 2019 was $ 3,897,799 , an increase of $ 15,080,113 , or 134.86 % , from loss from operations of $ 11,182,314 for the year ended december 31 , 2018. the increase in operating loss was primarily due to the increase in gross profit and the decrease in selling , general and administrative expenses . 34 other income and expenses interest expense for the year ended december 31 , 2019 decreased by $ 565,751 , from $ 1,492,119 in the year ended december 31 , 2018 , to $ 926,368. the company had short-term and long-term interest-bearing loans and related party loans that aggregated $ 15,137,181 as of december 31 , 2019 , as compared to $ 21,185,452 as of december 31 , 2018. net income ( loss ) as a result of the above , net income was $ 2,221,182 for the year ended december 31 , 2019 , representing an increase of $ 12,766,866 , or 121.06 % , from net loss of $ 10,545,684 for year ended december 31 , 2018. accounts receivable net accounts receivable increased by $ 242,679 , or 8.44 % , to $ 3,119,311 as of december 31 , 2019 , as compared with $ 2,876,632 as of december 31 , 2018. we usually collect accounts receivable within 30 days of delivery and completion of sales . inventories inventories consist of raw materials ( accounting for 23.04 % of total value of inventory as of december 31 , 2019 ) , semi-finished goods and finished goods . as of december 31 , 2019 , the recorded value of inventory decreased by 43.63 % to $ 1,647,882 from $ 2,923,516 as of december 31 , 2018. as of december 31 , 2019 , the inventory of recycled paper board , which is the main raw material for the production of cmp , was $ 40,032 , approximately $ 372,285 , or 90.29 % , lower than the balance as of december 31 , 2018. due to the volatility of recycled paper board and recycled white scrap paper price , we maintained a minimum level of inventory of raw materials at the end of the year . a summary of changes in major inventory items is as follows : replace_table_token_6_th accounts payable and notes payable accounts payable and notes payable was $ 250,486 as of december 31 , 2019 , a decrease of 4,021,184 , or 94.14 % , from $ 4,271,670 as of december 31 , 2018. accounts payable was $ 250,486 and $ 629,054 as of december 31 , 2019 and december 31 , 2018 , respectively . story_separator_special_tag we have been relying on the bank acceptance notes issued under our credit facilities with bank of cangzhou to make the majority of our raw materials payments to our vendors . our notes payable to bank of cangzhou were $ nil and $ 3,642,616 as of december 31 , 2019 and december 31 , 2018 , respectively . in january 2018 , bank of cangzhou issued bank acceptance notes on our behalf for $ 3,642,616 , which we paid off in january 2019 . 35 renewal of operating lease on august 7 , 2013 , the company 's audit committee and the board of directors approved the sale of the land use right of the headquarters compound ( the “ lur ” ) , the office building and essentially all industrial-use buildings in the headquarters compound ( the “ industrial buildings ” ) , and three employee dormitory buildings located within the headquarters compound ( the “ dormitories ” ) to hebei fangsheng for cash prices of approximately $ 2.77 million , $ 1.15 million , and $ 4.31 million respectively . in connection with the sale of the industrial buildings , hebei fangsheng agreed to lease the industrial buildings back to the company for its original use for a term of up to three years , with an annual rental payment of approximately $ 145,037 ( rmb1,000,000 ) . the lease agreement expired in august 2016. on august 6 , 2016 and august 6 , 2018 , the company entered into two supplementary agreements with hebei fangsheng , who agreed to extend the lease term to august 9 , 2022 with the same rental payment as original lease agreement . the accrued rental owed to hebei fangsheng was approximately $ 56,552 and $ 203,188 which was recorded as part of the current liabilities as of december 31 , 2019 and december 31 , 2018 , respectively . capital expenditure commitment as of december 31 , 2019 we finance our daily operations mainly by cash flows generated from our business operations . as december 31 , 2019 , we had approximately $ 1 million in capital expenditure commitments that were mainly related to improvement of industrial buildings . these commitments are expected to be financed by bank loans and cash flows generated from our business operations . cash , cash equivalents and restricted cash our cash , cash equivalents and restricted cash as of december 31 , 2019 was $ 5,837,745 , a decrease of $ 6,279,680 , from $ 12,117,425 as of december 31 , 2018. the decrease of cash and cash equivalents for the year ended december 31 , 2019 was attributable to a number of factors : i. net cash provided by operating activities net cash provided by operating activities was $ 7,530,474 for the year ended december 31 , 2019. the balance represented a decrease of cash of $ 1,639,900 , or 17.88 % , from $ 9,170,374 provided for the year ended december 31 , 2018. net income for the year ended december 31 , 2019 was $ 2,221,182 representing an increase of $ 12,766,866 , or 121.06 % , from a net loss of $ 10,545,684 for the year ended december 31 , 2018. changes in various asset and liability account balances throughout the year ended december 31 , 2019 also contributed to the net change in cash from operating activities in year ended december 31 , 2019. chief among such changes is the increase of accounts receivable in the amount of $ 294,882 during the year of 2019 ( a decrease to net cash ) and the decrease of notes payable in the amount of $ 3,625,921 ( an increase to net cash ) . there was also a decrease of $ 1,242,780 in the ending inventory balance as of december 31 , 2019 ( an increase to net cash for the year ended december 31 , 2019 cash flow purposes ) . in addition , the company had non-cash expenses relating to depreciation and amortization in the amount of $ 15,304,039 and provision of inventory reserve of $ 75,719. the company also had a net increase of $ 5,392,916 in prepayment and other current assets ( a decrease to net cash ) and a net increase of $ 504,451 in other payables and accrued liabilities and related parties ( an increase to net cash ) , as well as an increase in income tax payable of $ 1,180,493 ( an increase to net cash ) during the year ended december 31 , 2019. ii . net cash used in investing activities we incurred $ 7,866,849 in net cash expenditures for investing activities during the year ended december 31 , 2019 , as compared to $ 2,198,852 for the year ended december 31 , 2018. expenditures in the year ended december 31 , 2019 were for the prepayment of acquisition of hebei tengsheng assets and expenditures on improvement of industrial building . 36 iii . net cash used in financing activities net cash used in financing activities was $ 5,772,467 for the year ended december 31 , 2019 , as compared to net cash used in financing activities in the amount of $ 3,165,607 for the year ended december 31 , 2018. the decrease was mainly attributable to repayment of bank loans and related party loans in 2019. short-term bank loans replace_table_token_7_th ( a ) on february 6 , 2018 , the company entered into a working capital loan agreement with the icbc , with a balance of $ 4,079,730 as of december 31 , 2018. the working capital loan was guaranteed by hebei tengsheng with its land use right pledged as collateral for the benefit of the bank . the loan bore a fixed interest rate of 5.4 % per annum . the loan was due and repaid on january 28 , 2019 . ( b ) on january 2 , 2018 , the company entered into a working capital loan agreement with the bank of cangzhou , with a balance of $ 5,099,662 as of december 31 , 2018. the loan bore a fixed interest rate of 6.09
| the changes in revenue and quantity sold for the year ended december 31 , 2019 and 2018 are summarized as follows : replace_table_token_3_th 27 monthly revenue ( excluding revenue of digital photo paper and tissue paper products ) for the 24 months ended december 31 , 2019 , are summarized below : the average selling price , or asp , for our major products for the years ended december 31 , 2019 and 2018 are summarized as follows : replace_table_token_4_th 28 the following is a chart showing the month-by-month asps ( excluding the asps of digital photo paper and tissue paper products ) for the 24 month period ended december 31 , 2019 : 29 corrugating medium paper revenue from cmp amounted to $ 90,826,438 ( 77.22 % of the total offset printing paper , cmp and tissue paper products revenues ) for the year ended december 31 , 2019 , representing an increase of $ 9,230,194 , or 11.31 % , from $ 81,596,244 during 2018. we sold 214,147 tonnes of cmp in the year ended december 31 , 2019 as compared to 150,658 tonnes in the year ended december 31 , 2018 , representing a 42.14 % increase in quantity sold . asp for regular cmp dropped from $ 545/tonne in 2018 to $ 427/tonne in 2019 , representing a 21.65 % decrease . asp in rmb for regular cmp in 2018 and 2019 was rmb3,614 and rmb2,942 , respectively , representing a 18.59 % decrease . the quantity of regular cmp sold increased by 52,825 tonnes , from 116,012 tonnes in 2018 to 168,837 tonnes in 2019. asp for light-weight cmp dropped from $ 531/tonne in 2018 to $ 414/tonne in 2019 , representing a $ 22.03 % decrease . asp in rmb for light-weight cmp in 2018 and 2019 was rmb3,523 and rmb2,857 , respectively , representing a 18.90 % decrease . the quantity of light-weight cmp sold increased by 10,664 tonnes , from 34,646 tonnes in 2018 , to 45,310 tonnes in 2019. our pm6 production line , which produces regular cmp , has a designated capacity of 360,000 tonnes /year . the utilization rates for the year ended december 31 , 2019 and 2018 were 46.68 % and 32.54 % , respectively , representing an increase of 14.14 % . quantities sold for regular cmp that was produced by the pm6 production line from january 2018 to december 2019 are as follows : offset printing paper revenue from offset printing paper was $
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while consumer spending in the traditional golf industry has not grown in recent years , we believe improving economic conditions and improvements in local housing markets have helped and will continue to help drive membership growth and increase the number of golf rounds played . in addition , we believe growth in related industries , including leisure , fitness and entertainment , may positively impact our traditional golf business . application of critical accounting policies management 's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles or gaap . the preparation of financial statements in conformity with gaap requires the use of estimates and assumptions that could affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses . 29 our estimates are based on information available to management at the time of preparation of the consolidated financial statements , including the result of historical analysis , our understanding and experience of the company 's operations , our knowledge of the industry and market-participant data available to us . actual results have historically been in line with management 's estimates and judgments used in applying each of the accounting policies described below and management periodically re-evaluates accounting estimates and assumptions . actual results could differ from these estimates and materially impact our consolidated financial statements . however , the company does not expect our assessments and assumptions below to materially change in the future . a summary of our significant accounting policies is presented in note 2 to our consolidated financial statements , which appear in part ii , item 8 . “ financial statements and supplementary data. ” the following is a summary of our accounting policies that are most affected by judgments , estimates and assumptions . impairment of property and equipment and intangible assets long-lived property , equipment and definite-lived intangible assets are tested for potential impairment when changes in circumstances indicate the carrying amount of the assets , or other appropriate grouping of assets , may not be fully recoverable . indicators of impairment include material adverse changes in the projected revenues and expenses , significant underperformance relative to historical or projected future operating results , and significant negative industry or economic trends . an impairment is determined to have occurred if the future net undiscounted cash flows expected to be generated is less than the carrying value of an asset . the impairment is measured as the difference between the carrying value and the fair value . significant judgment is required both in determining impairment and in estimating the fair value . we may use assumptions and estimates derived from a review of our operating results , business projections , expected growth rates , discount rates , and tax rates . we also make certain assumptions about future economic conditions , interest rates , and other market data . many of the factors used in these assumptions and estimates are outside the control of management , and can change in future periods . membership deposit liabilities in our traditional golf business , private country club members generally pay an advance initiation fee deposit upon their acceptance as a member to the their country club . initiation fee deposits are refundable 30 years after the date of acceptance as a member . the difference between the initiation fee deposit paid by the member and the present value of the refund obligation is deferred and recognized into revenue in the consolidated statements of operations on a straight-line basis over the expected life of an active membership , which is estimated to be seven years . the determination of the estimated average expected life of an active membership is based on company-specific historical data and involves judgment and estimation . the present value of the refund obligation is recorded as a membership deposit liability in the consolidated balance sheets and accretes over a 30-year nonrefundable term using the effective interest method . this accretion is recorded as interest expense , net in the consolidated statements of operations . valuation of securities fair value of securities is based on an internal model and involves significant judgment . the inputs to our model includes discount rates , prepayment speeds , default rates and severity assumptions . see note 10 to our consolidated financial statements in part ii , item 8 . “ financial statements and supplementary data ” for information regarding the fair value of our investments , and respective estimation methodologies , as of december 31 , 2019 . impairment of securities and other investments temporary declines in value generally result from changes in market factors , such as market interest rates and credit spreads , or from certain macroeconomic events , including market disruptions and supply changes , which do not directly impact our ability to collect amounts contractually due . we continually evaluate the credit status of each of our securities and the collateral supporting our securities . these factors are also analyzed in relation to the amount of the unrealized loss and the period elapsed since it was incurred . the result of this evaluation is considered when determining management 's estimate of cash flows , particularly with respect to developing the necessary inputs and assumptions . unrealized losses that are considered other-than-temporary are recognized in earnings . significant judgment is required in this analysis . we evaluate our other investments for impairment whenever events or changes in circumstances indicate that the carrying amount might not be recoverable . the evaluation of recoverability is based on management 's assessment of the financial condition and near term prospects of the commercial real estate project , the length of time and the extent to which the market value of the investment has been less than cost , availability and cost of financing , demand for space , competition for tenants , changes in market rental rates , and operating costs . story_separator_special_tag as these factors are difficult to predict and are subject to future events that may alter management 's 30 assumptions , the values estimated by management in its recoverability analyses may not be realized , and actual losses or impairment may be realized in the future . stock-based compensation we account for stock-based compensation for options in accordance with the fair value recognition provisions , under which we use the black-scholes option valuation model , which requires the input of subjective assumptions . these assumptions include expected volatility , expected dividend yield of our stock , expected term of the awards and the risk-free interest rate . recent accounting pronouncements see note 2 in part ii , item 8 . “ financial statements and supplementary data ” for information about recent accounting pronouncements . 31 story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; font-size:10pt ; '' > depreciation and amortization increased by $ 2.7 million during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 due to increases of : ( i ) $ 2.9 million in depreciation on assets placed into service in our entertainment golf business for our orlando , florida venue in april 2018 and for our three venues in raleigh , north carolina ; richmond , virginia ; and west palm beach , florida in august , september and october 2019 , respectively , ( ii ) $ 1.1 million due to amortization on additional finance leases for equipment , and ( iii ) depreciation on additional assets placed in service at traditional golf properties , partially offset by ( iv ) a $ 1.8 million reduction in depreciation due to traditional golf properties that were exited in 2018 and 2019. pre-opening costs pre-opening costs increased by $ 6.6 million during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 primarily due to costs associated with the opening of three new entertainment golf venues in 2019 compared to one venue opened in 2018. pre-opening costs can fluctuate based on timing of venue openings and geographic locations . impairment and other losses during the year ended december 31 , 2019 , impairment consisted of : ( i ) $ 1.2 million on three traditional golf properties that were classified as held-for-sale and subsequently sold , ( ii ) $ 3.8 million on two leased traditional golf properties , ( iii ) $ 10.2 million of losses on asset retirements of certain software and equipment as a result of the decision to discontinue use at our entertainment golf venues , and ( iv ) $ 0.2 million of losses on asset retirements in our traditional golf business . during the year ended december 31 , 2018 , impairment consisted primarily of $ 7.0 million due to impairment on five traditional golf properties that were classified as held-for-sale and $ 0.9 million on three leased traditional golf properties . realized and unrealized ( gain ) loss on investments during the year ended december 31 , 2018 , we recorded a net realized gain on the mark-to-market value of a derivative , which was unwound in december 2018 . 33 interest and investment income interest and investment income decreased by $ 0.8 million during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 primarily due to lower balances in interest bearing cash accounts . interest expense , net interest expense , net decreased by $ 7.9 million during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 primarily due to a decrease of $ 8.0 million related to the traditional golf loan payoff in december 2018 , partially offset by an increase of interest expense capitalized into construction in progress balances associated with the opening of three entertainment golf venues in 2019. other income , net other income , net increased by $ 18.0 million during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 primarily due to : ( i ) $ 10.6 million in higher gains from sale of traditional golf properties , ( ii ) $ 0.9 million of losses recognized during the year ended december 31 , 2018 related to traditional golf lease modifications and terminations , ( iii ) $ 5.3 million of losses recognized during the year ended december 31 , 2018 primarily due to a $ 4.9 million settlement of a legal dispute related to the exit of a traditional golf leased course , and ( iv ) $ 1.3 million in lower losses on the extinguishment of debt primarily due to the payoff of a traditional golf loan in december 2018. replace_table_token_6_th n.m. – not meaningful ( a ) includes $ 22.1 million for the year ended december 31 , 2018 due to management contract reimbursements reported under the new revenue standard adopted on january 1 , 2018 . 34 revenues from golf operations revenues from golf operations decreased by $ 22.9 million during the year ended december 31 , 2018 compared to the year ended december 31 , 2017 primarily due to increases of : ( i ) $ 22.1 million due to management contract reimbursements reported on a gross basis under the new revenue standard adopted prospectively on january 1 , 2018 , ( ii ) $ 6.6 million of improvements in the traditional golf business for properties in operation at both december 31 , 2018 and december 31 , 2017 including growth in members and in rounds played , and ( iii ) $ 2.2 million related to our entertainment golf venue opened in orlando , florida in 2018 , partially offset by a decrease of $ 7.9 million as a result of fewer traditional golf properties owned or operated in 2018. sales of food and beverages sales of food and beverages decreased by $ 1.1 million during the year ended december 31 , 2018 compared to the year ended december 31 , 2017 primarily due to a decrease of $ 4.1 million as a
| 2019 . 32 operating expenses operating expenses decreased by $ 22.5 million during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 primarily due to decreases of : ( i ) $ 64.7 million due to fewer traditional golf properties owned or operated in 2019 , ( ii ) $ 1.4 million due to decreased utility and water usage , partially offset by increases of : ( iii ) $ 30.3 million of reimbursed expenses from management contracts , ( iv ) $ 2.0 million in traditional golf repairs and maintenance expenses due to the benefit of insurance proceeds recorded in 2018 , ( v ) $ 0.5 million in payroll expense primarily due to an increase in california minimum wage , and ( vi ) $ 11.0 million in our entertainment golf business due to three new venues that opened in 2019. cost of sales - food and beverages cost of sales - food and beverages decreased by $ 4.9 million during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 primarily due to decreases of : ( i ) $ 7.0 million due to fewer traditional golf properties owned or operated in 2019 and ( ii ) $ 0.2 million due to lower sales volumes for traditional golf properties operating in both periods , partially offset by ( iii ) an increase of $ 2.3 million in our entertainment golf business due to three new venues that opened in 2019. general and administrative expense ( including acquisition and transaction expense ) general and administrative expense increased by $ 9.4 million during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 due to increases of : ( i ) $ 5.2 million of higher payroll and payroll related expenses primarily related to the hiring of employees in our entertainment golf segment , ( ii ) $ 1.3 million of higher travel and other related expenses as part of the development of
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· shiftpixy shifter solution : shifters placed with one of shiftpixy 's clients can now access other shift work with other shiftpixy clients , ultimately through the new shiftpixy mobile app , a prototype of which was released in september 2016. when released to the general public , anticipated to be in the first calendar quarter of 2019 , the shiftpixy mobile app will enable not only shiftpixy shift employees but also ultimately shift employees outside the shiftpixy ecosystem , many of them millennials who connect to the outside world solely through mobile devices , to access available shift jobs at all of shiftpixy 's participating clients . in addition to the benefits of working not as independent contractors but as employees , enjoying the protections of workers ' compensation coverage and employment laws , as well as the calculation and remittance of applicable employment taxes , among other benefits , shifters are also enabled to participate in shiftpixy 's benefit plan offerings , including minimum essential health insurance coverage plans and a 401 ( k ) plan . shiftpixy 's headquarters is currently situated in irvine , california , from which it can reach the southern california market , and the company has a modest staff in phoenix . shiftpixy opened office in new york city in the later part of our fiscal year 2017. during the fiscal year ended august 31 , 2018 , shiftpixy opened offices in austin , texas , orlando area , florida , and chicago , from which its local sales/service representatives will secure and service clients in those areas , and it plans to open additional physical offices in the following locales : san francisco and miami . 36 through these office locations , we plan to engage more actively with clients through sales , marketing , employee onboarding , training and payroll processing , in each instance as necessary and appropriate to the applicable market . these markets collectively account for or allow us to cover approximately 53 % of our target market in the restaurant/hospitality sectors . ( u.s. department of labor . bureau of labor statistics . may 2015. occupational employment and wages . ) shiftpixy and its subsidiary collectively serve , as of august 31 , 2018 , an aggregate of 193 clients with an aggregate of approximately 8,540 employees , including 6,370 employees of shiftpixy and shiftablehr that we provide to our clients and 2,170 employees of our clients for whom we provide only payroll administration services . no one client represented more than 10 % of our revenues for fiscal year 2018. shiftpixy 's anticipated business and revenue growth will result from the following factors : · large potential market . · the burdens placed on employers with over 50 full-time employees under the aca . · marketing advantages from strategic insurance provider relationships . · new shiftpixy mobile app that is designed to provide additional benefits to employers and shift workers . · ultimate development of a shiftpixy ecosystem . · mitigation of employment law compliance risks . the problem : employment law compliance requirements present a multi-obstacle ridden employment related compliance landscape for our target market of businesses that rely significantly on part-time and temporary workers . challenges facing such businesses include the need to secure applicable workers ' compensation insurance coverage , to effect employment related tax withholdings and filings , and to navigate laws related to hiring and release of employees , including discrimination ( race , color , national origin , sex , age , religion , disability , pregnancy and sexual orientation ) , sexual harassment , sick pay and time off , hours of work , minimum wage and overtime , gender pay differentials , immigration , safety , child labor , military leave , garnishment and other wage imposition processing , family and medical leave , cobra , and unemployment claims . aca compliance currently adds another significant burden to businesses with more than 50 full-time workers , as they try to manage the additional burdens associated with mandated health insurance benefits . a business can secure assistance in mitigating and even eliminating these challenges by retaining shiftpixy . 37 the shiftpixy solution : shiftpixy is developing an ecosystem comprised of a closed proprietary operating and processing system that helps restaurant or hospitality businesses ( and in the future , businesses in additional industries wherein we plan to market our services ) as well as shift workers by matching available shifts with available shift workers . the shiftpixy ecosystem provides the following benefits : · compliance · cost containment · cost savings shift human capital management inc. : we formed shift human capital management inc. , a wholly-owned subsidiary , in december 2015. we formed this subsidiary in response to the need to have workers ' compensation policies written in the names of the clients ( as may be required by some states ) and otherwise in response to client needs for only administrative and processing services rather than the full-service , staffing program offered by shiftpixy . as of august 31 , 2018 , shiftablehr had 116 clients with 5,131 worksite employees , including 2,170 employees for whom we provide only payroll administration services . significant developments in 2018 new sales offices shiftpixy recently opened offices in austin , texas , orlando and chicago area from which its local sales/service representatives will secure and service clients in those areas , and it plans to open additional physical offices in the following locales : san francisco and miami . software development the heart of shiftpixy 's employment service solutions is a technology platform , including a mobile app , through which shiftpixy employees ( and in the future , shift workers not currently in our ecosystem ) will be enabled to find available shift work at shiftpixy client locations , solving a problem of finding available shift work for both the shifters looking for additional shift work and business clients looking to fill open shifts . story_separator_special_tag the mobile app is one of the software components of what we call the mobile platform , and together with the shiftpixy “ command hub ” and the client portal , is being developed , tested and released in stages . we have released and are using the onboarding feature of our software , which enables us to capture all application process related data regarding our assigned employees and to introduce employees to and integrate them into the shiftpixy ecosystem . our new employees no longer have to fill out the burdensome pile of required new employee paperwork . by leveraging artificial intelligence capabilities , new hires are guided by a conversation with a “ pixy ” chatbot that asks the necessary questions and generates the required employment documents in a highly personal and engaging way . following completion of the questions , applicable onboarding paperwork is prepopulated with the data and prepared for the employee 's signature to be affixed digitally via the app as well . we use the app to gather even i-9 required documentation . our next phase of development , which will be completed in the first calendar quarter of 2019 , is the implementation of the scheduling component of our software , which was designed to enable each client worksite to schedule workers and to identify shift gaps that need to be filled . we leverage artificial intelligence to maintain schedules and fulfillment , using an active methodology to engage and move people to action . 38 the next succeeding phase of development , planned to be completed in the first calendar quarter of 2019 , includes the implementation of our shift intermediation functionality , which is designed to enable our shift workers to receive information regarding and to accept available shift work opportunities . we currently plan to have the onboarding , scheduling and shift intermediation functionalities operable and integrated across our platform during the first calendar quarter of 2019 ; however , the intermediation functionality becomes useful only to the extent that we have meaningful numbers of available workers and client shift opportunities in the same geographic region , which we currently have in our southern california market . our goal is to have the mobile platform serve not only to enable our shift workers to secure additional shift work and our job provider clients to fill open shifts but also to attract new clients who see the value associated with being able to fill open shifts with a ready-to-hire workforce . this software is an important component of our overall ecosystem , and we are excited about our continued development . we also plan to begin using the “ delivery features ” of our mobile platform during the first calendar quarter of 2019. our technology and approach to human capital management allows the company a unique window into the daily demands of “ quick service restaurants ” ( “ qsr ” ) operators and the ability to extend our technology and engagement to enable this unique self-delivery proposition . shiftpixy 's new driver management layer for operators in the shiftpixy ecosystem will now allow clients to use their own team members to deliver a brand intended customer experience . shiftpixy has taken the compliance , management and insurance issues related to the support of a delivery option and created a turnkey self-delivery opportunity . this would allow our clients to enjoy the income growth from delivery , preserve their customer experience and their brand as well as their customer data . the first phase of this component of our platform is the driver onboarding , which was completed by the third calendar quarter of 2018. following completion of this phase , we plan to add features that enhance the capability of our mobile application to track and manage the delivery process . the enhanced features will “ micro meter ” essential commercial insurance coverages required by our operator clients-namely workers ' compensation and auto coverages on a delivery-by-delivery basis . another key element of our software development involves using shiftpixy 's blockchain ledger to process and record our critical p2p ( “ peer-to-peer ” ) connections . while not necessarily a new development , we note that we use blockchain technology in an effort to keep our data secure . any data considered to be a human capital validation point or part of the hiring and onboarding process is being utilized and recorded in shiftpixy 's blockchain ledger . the employee i-9 verification process , for example—one of the most stringent , rigorous , and penalty-laden compliance procedures is positively impacted by blockchain utilization of biometric authentication and automatic verification of i-9 data , removing human error in the process of screening for fraudulent information . verification of that data on the blockchain allows both employers and auditing agencies to confidently validate additional criteria such as employment dates , and a candidate 's background ( i.e . education , references , certifications , etc . ) , and share the verification status directly on multiple distributed sources within the blockchain , further underscoring the trust and accuracy of a candidate 's information and corporate compliance . future implementation of blockchain technology within shiftpixy 's technological ecosystem is anticipated to include the extended applications for payroll and real-time payments , and utilizing smart contracts for employment contracts , which facilitate the performance of credible , trackable , and irreversible transactions without third parties . for purposes of clarification , we note that shiftpixy has never , does not now and will never use its blockchain technology in any form of cryptocurrency or cryptocurrency related application .
| cost of revenue . our cost of revenue includes the costs of employer side taxes and workers ' compensation insurance coverage . cost of revenues for the year ended august 31 , 2018 , versus the year ended august 31 , 2017 , totalled $ 29.5 million compared to $ 16.6 million . as a result , cost of revenues increased by $ 12.9 million or 78 % . approximately $ 10 million is attributed to the additional worksite employees the company is servicing , which increased by 2,610 from an average of 4,290 for the fiscal year ended august 31 , 2017 , to an average of 6,900 employees for the fiscal year ended august 31 , 2018. approximately $ 1.2 million of the increase is attributed to an increase in the company 's state unemployment tax rate and the federal unemployment tax credit reduction for the state of california . approximately $ 0.8 million of the increase is attributed to the increase in workers ' compensation expense , resulting from engaging with two clients in the janitorial business , serving approximately 200 worksite employees , for which the cost of workers ' compensation insurance is triple the average cost of coverage for employees in the traditional vertical in which we otherwise operate . the company incurred $ 2.1 million of workers ' compensation insurance expense for these two clients in the fiscal year ended august 31 , 2018 , compared to $ 1.3 million in the fiscal year ended august 31 , 2017. approximately $ 0.9 million of the increase is attributed to the estimated workers ' compensation costs based on incurred losses and estimate of future cost trends . gross profit . gross profit for the year ended august 31 , 2018 , versus the year ended august 31 , 2017 totaled $ 5.5 million compared to $ 3.7 million , an increase $ 1.8 million or 49 % . gross profit as a percentage of revenue decreased from 18.2 % for the year ended august 31 ,
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story_separator_special_tag href= '' https : //www.sec.gov/archives/edgar/data/0001098972/000119312512098885/ # toc '' > development of our technologies , expand our operations , and or bring our product candidates to market . the eventual total cost of each clinical trial is dependent on a number of factors such as trial design , length of the trial , number of clinical sites , and number of patients . the process of obtaining and maintaining regulatory approvals for new therapeutic products is lengthy , expensive , and uncertain . because the further development of our prophage series vaccines is subject to evaluation and uncertainty , and because herpv is an early-stage clinical development candidate , we are unable to reliably estimate the cost of completing our research and development programs , the timing of bringing such programs to various markets , and , therefore , when , if ever , material cash inflows are likely to commence . programs involving qs-21 depend on our collaborative partners or licensees successfully completing clinical trials , successfully manufacturing qs-21 to meet demand , obtaining regulatory approvals and successfully commercializing product candidates containing qs-21 . product development portfolio qs-21 qs-21 stimulon ® adjuvant , from our saponin platform , is an adjuvant , or a substance added to a vaccine or other immunotherapy , that is intended to enhance immune response . the key licensees of qs-21 are gsk and janssen ai . there are 15 vaccines containing qs-21 in clinical development , including a total of four in phase 3 testing for malaria , melanoma , non-small cell lung cancer and shingles . the first products containing qs-21 are anticipated to be launched in the 2013-2014 timeframe . the pipeline of product candidates containing qs-21 is extraordinarily diverse , encompassing prophylactic as well as therapeutic vaccines for infectious diseases , multiple cancer types , and alzheimer 's disease . the company does not incur clinical development costs for these products . for additional information regarding qs-21 , please read part i-item 1 . business of this annual report on form 10-k. prophage series vaccines we started enrolling patients in our first clinical trial studying a prophage series vaccine at memorial sloan-kettering cancer center in new york , new york in november 1997. to date , nearly 900 cancer patients have been treated with our vaccine in clinical trials . because prophage series vaccines are novel therapeutic vaccines that are patient-specific , meaning derived from the patient 's own tumor , they are experiencing a long development process and high development costs , either of which could delay or prevent our commercialization efforts . for additional information regarding regulatory risks and uncertainties , please read the risks identified under part i-item 1a . risk factors of this annual report on form 10-k. we believe that the collective results from clinical trials thus far show that the vaccine candidates that have been clinically evaluated have a favorable safety profile . we also believe that available results from clinical trials suggest that treatment with the prophage series vaccines can generate immunological and anti-tumor responses . for additional information regarding our prophage series vaccines , please read part i-item 1 . business of this annual report on form 10-k. liquidity and capital resources we have incurred annual operating losses since inception , and we had an accumulated deficit of $ 607.7 million as of december 31 , 2011. we expect to incur significant losses over the next several years as we continue clinical trials , apply for regulatory approvals , prepare for commercialization , and continue development of our technologies . we have financed our operations primarily through the sale of equity and convertible notes , and interest income earned on cash , cash equivalents , and short-term investment balances . from our inception through december 31 , 2011 , we have raised aggregate net proceeds of $ 514.4 million through the sale of common and preferred stock , the exercise of stock options and warrants , proceeds from our employee stock purchase plan , and the issuance of convertible notes . during february 2010 , we entered into an at the market sales agreement ( the 2010 atm ) with mcnicoll , lewis & vlak llc and wm smith & co ( the sales agents ) under which we were able to sell an aggregate of up to 3,333,333 shares of our common stock from 39 time to time through the sales agents . as of february 29 , 2012 , we issued approximately 2.4 million shares of our common stock in at the market offerings through the sales agents and raised net proceeds of approximately $ 12.6 million after deducting offering costs of approximately $ 450,000. as of december 31 , 2011 , we had debt outstanding of $ 37.9 million in principal , including $ 37.5 million in principal of our 2006 notes maturing august 31 , 2014 and $ 100,000 in principal of our 2005 notes maturing february 20 , 2025. the 2005 notes are currently redeemable by us or at the option of the holders on february 1 , 2015 and 2020. our cash , cash equivalents , and short-term investments at december 31 , 2011 were $ 10.7 million , a decrease of $ 9.0 million from december 31 , 2010. we believe that , based on our current plans and activities , our cash balance of $ 10.7 million as of december 31 , 2011 , plus the $ 18 million net proceeds from equity offerings and license agreements since year-end , along with the estimated additional proceeds from our license , supply , and collaborative agreements will be sufficient to satisfy our liquidity requirements through 2013 based on our estimated annual use of cash of $ 13-16 million during 2012. we continue to monitor the likelihood of success of our key initiatives and are prepared to discontinue funding of such activities if they do not prove to be feasible , restrict capital expenditures and or reduce the scale of our operations . story_separator_special_tag we believe that , based on our current plans and activities , our working capital resources at december 31 , 2011 and the net proceeds raised from equity sales and license agreements since year-end , along with the estimated proceeds from our license , supply , and collaborative agreements , will be sufficient to satisfy our liquidity requirements into 2013. we closely monitor our cash needs . we continue to monitor the likelihood of success of our key initiatives and are prepared to discontinue funding of such activities if they do not prove to be commercially feasible . in addition , we will continue to adjust other spending as needed in order to preserve liquidity . we expect to attempt to raise additional funds in advance of depleting our current funds . in order to fund our operations through 2012 and beyond , we will need to contain costs and raise additional funds . we may attempt to raise additional funds by : ( 1 ) out-licensing technologies or products to one or more third parties , ( 2 ) renegotiating third party agreements , ( 3 ) selling assets , ( 4 ) securing additional debt financing and or ( 5 ) selling additional equity securities . our ability to successfully enter into any such arrangements is uncertain , and if funds are not available , or not available on terms acceptable to us , we may be required to revise our planned clinical trials , other development activities , capital expenditures , and or the scale of our operations . as noted above , we expect to attempt to raise additional funds in advance of depleting our funds ; however , we may not be able to raise funds or raise amounts sufficient to meet the long-term needs of the business . satisfying long-term liquidity needs may require the successful commercialization of oncophage and or one or more partnering arrangements for our other prophage series vaccines , successful commercialization of vaccines containing qs-21 under development by our licensees , and potentially successful commercialization of other product candidates , each of which will require additional capital , as discussed above . we hope to earn royalties from our qs-21 product in the 2013-2014 timeframe . please see note regarding forward-looking statements on page 2 of this annual report on form 10-k and the risks highlighted under part i-item 1a . risk factors of this annual report on form 10-k. our future cash requirements include , but are not limited to , supporting clinical trial and regulatory efforts and continuing our other research and development programs . since inception , we have entered into various agreements with institutions and clinical research organizations to conduct and monitor our clinical studies . under these agreements , subject to the enrollment of patients and performance by the applicable institution of certain services , we have estimated our payments to be $ 47.6 million over the term of the studies . through december 31 , 2011 , we have expensed $ 47.1 million as research and development expenses and $ 46.8 million has been paid related to these clinical studies . the timing of expense recognition and future payments related to these agreements is subject to the enrollment of patients and performance by the applicable institution of certain services . we have also entered into sponsored research agreements related to our product candidates that required payments of $ 6.5 million , all of which has been paid as of december 31 , 2011. we plan to enter into additional sponsored research agreements , and we anticipate significant additional expenditures will be required to advance 40 our clinical trials , apply for regulatory approvals , continue development of our technologies , and bring our product candidates to market . part of our strategy is to develop and commercialize some of our product candidates by continuing our existing collaborative arrangements with academic and collaborative partners and licensees and by entering into new collaborations . as a result of our collaborative agreements , we will not completely control the efforts to attempt to bring those product candidates to market . we have various agreements , for example , with collaborative partners and or licensees , which allow the use of our qs-21 adjuvant in numerous vaccines . these agreements grant exclusive worldwide rights in some fields of use and co-exclusive or non-exclusive rights in others . these agreements generally provide us with rights to manufacture and supply qs-21 to the collaborative partner or licensee and also call for royalties to be paid to us on future sales of licensed vaccines that include qs-21 , which may or may not be achieved . significant investment in manufacturing capacity could be required if we were to retain our manufacturing and supply rights . net cash used in operating activities for the year ended december 31 , 2011 and 2010 was $ 16.2 million and $ 14.8 million , respectively . we continue to support and develop our qs-21 partnering collaborations , with the goal of earning royalties from this product in the 2013-2014 timeframe . our future ability to generate cash from operations will depend on achieving regulatory approval of our product candidates , and market acceptance of oncophage and our product candidates , achieving benchmarks as defined in existing collaborative agreements , and our ability to enter into new collaborations . please see note regarding forward-looking statements on page 2 of this annual report on form 10-k section and the risks highlighted under part i-item 1a . risk factors of this annual report on form 10-k. the table below summarizes our contractual obligations as of december 31 , 2011 ( in thousands ) . replace_table_token_6_th ( 1 ) assumes the 2006 notes are not converted and are paid at maturity on august 31 , 2014. in certain circumstances , the 2006 notes could be converted before then .
| general and administrative expenses decreased 11 % to $ 10.8 million for the year ended december 31 , 2011 from $ 12.1 million for the year ended december 31 , 2010. this decrease is largely due to the status of our development programs and our cost containment efforts and includes $ 600,000 related to our employee and director noncash share-based compensation expense , $ 400,000 for amortization and depreciation expense , and $ 200,000 for personnel related expenses . non-operating income : non-operating income of $ 4.7 million for the year ended december 31 , 2010 consists of a net gain of $ 2.8 million on the extinguishment of a portion of our 2005 notes and the change in the fair value of our derivative liability since december 31 , 2009 of $ 1.9 million . interest expense : interest expense decreased to $ 4.2 million for the year ended december 31 , 2011 from $ 4.9 million for the year ended december 31 , 2010. this decrease is related to the repurchase of substantially all of our 2005 notes during the year ended december 31 , 2010. interest on our 2006 notes is payable semi-annually on december 30 and june 30 in cash or , at our option , in additional notes or a combination thereof . during the years ended december 31 , 2011 and 2010 , interest expense included $ 2.8 million and $ 2.6 million , respectively , paid in the form of additional 2006 notes . year ended december 31 , 2010 compared to the year ended december 31 , 2009 revenue : we generated revenue of $ 3.4 million and $ 3.3 million during the years ended december 31 , 2010 and 2009 , respectively . revenue includes revenue earned on shipments of qs-21 to our qs-21 licensees , license fees , royalties earned , and in 2010 , grants earned and oncophage sales . in the years ended december 31 , 2010 and 2009 , we recorded $ 1.5 million each period from the amortization of deferred revenue related to our qs-21 partnered programs . 37 research and development : research and development expenses include the costs associated with our internal research and development activities , including compensation and benefits , occupancy costs , clinical manufacturing costs , costs of consultants , and administrative costs . research and development expense decreased 24 % to $ 12.9 million for the year ended december 31 , 2010 from $ 16.9 million for
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to maximize opportunities for synergies , cost efficiencies and volumes ; continuous improvement initiatives to increase production efficiency , enhance effectiveness in our commercial activities , ensure the safety of our employees while at work , and reduce operating expense ; increase market share through initiatives to maximize volumes and through selective partnerships , alliances and acquisitions ; and continued adoption of sustainable business practices to manage our social and environmental impacts and improve operating efficiency and natural resource stewardship . key economic factors and trends affecting the industries in which we operate we sell recycled metals to the global steel industry for the production of finished steel . our financial results largely depend on supply of raw materials in the u.s. and western canada and demand for recycled metal in foreign and domestic markets and for finished steel products in the western u.s. global economic conditions , changes in supply and demand conditions , the strength of the u.s. dollar , the availability and price of raw material alternatives , and trade actions such as tariffs affect market prices for and sales volumes of recycled ferrous and nonferrous metal in global markets and steel products in the western u.s. and can have a significant impact on the results of operations for our reportable segments . commencing in fiscal 2012 and spanning through the first half of fiscal 2016 , our markets were adversely impacted by a slowdown of economic activity globally . the macroeconomic uncertainty , combined with global steel-making overproduction and a strengthening of the u.s. dollar had resulted in deteriorating market conditions for global steel manufacturers and volatile pricing swings . the weak price environment for recycled metals in fiscal 2015 and the first half of fiscal 2016 was exacerbated by a decline in iron ore prices , a raw material used in steel-making blast furnaces which compete with eaf mills that use ferrous scrap metal as their primary feedstock . low-priced steel billets which use iron ore as their primary raw material , and which are direct substitutes for ferrous scrap metal in the manufacture of finished steel , also contributed to lower scrap metal demand and prices during these years . the low economic growth in the u.s. and the lower scrap metal price environment at the time contributed to constrained scrap flows in the domestic supply markets which led to significantly lower margins in our amr business during fiscal 2015 and the first half of fiscal 2016 before prices and margins recovered during the second half of fiscal 2016. in fiscal 2017 and 2018 , the combination of improved u.s. and global economic growth , lower chinese steel exports , and further development of the steel industries using eafs in other export markets contributed to improved demand and prices for ferrous recycled scrap metal , positively impacting our operating results . compared to the prior two years , our performance in fiscal 2018 also benefited from improvements in market conditions , increased sales diversification , and improved supply volumes . the higher price environment for scrap metal during fiscal 2018 together with benefits from commercial initiatives to improve supply channels and a strong u.s. economy led to an increase in scrap supply flows into our facilities , including end-of-life vehicles , resulting in higher processed volumes compared to fiscal 2017 and 2016. in fiscal 2018 , selling prices for ferrous recycled metal rose gradually during the first three quarters followed by a modest decrease in the fourth quarter . the higher average selling prices supported an expansion of the spread between direct purchase costs and selling prices of ferrous recycled metal compared to the prior year . our operating margins also benefited from improved volumes of nonferrous material from end-of-life vehicles and the shredding process , partially offset by operating margin compression experienced near the end of fiscal 2018 as a result of a decrease in average net selling prices for certain nonferrous products driven primarily by the global impact of new regulations and measures put into place by policymakers in china during the year , including import regulations and tariffs on u.s. scrap imports . our css business benefited in fiscal 2018 from reduced price pressure from steel imports , the impact of u.s. tariffs on steel imports , and steady demand for finished steel products in the west coast markets which contributed to higher selling prices for our finished steel products . our css business experienced improved metal margins from selling prices increasing faster than raw material purchase prices which , in combination with operational synergies gained following the integration of our steel manufacturing and 30 / schnitzer steel industries , inc. form 10-k 2018 schnitzer steel industries , inc. oregon metals recycling operations in the fourth quarter of fiscal 2017 , led to significantly improved results compared to the prior two years . trade actions , including tariffs , quotas and any retaliation by affected countries , can impact profit on sales of our products and , in certain cases , impede our ability to sell to certain export markets or require us to direct our sales to alternative market destinations , which can cause our quarterly operating results to fluctuate . for further information regarding the potential impact of changing conditions in global markets including the impact of tariffs , quotas and other trade actions on our business and results of operations , see part i , item 1a . risk factors of this report . story_separator_special_tag is contained in note 16 - segment information in the notes to the consolidated financial statements in part ii , item 8 of this report . auto and metals recycling replace_table_token_12_th _ lt = long ton , which is equivalent to 2,240 pounds nm = not meaningful ( 1 ) price information is shown after netting the cost of freight incurred to deliver the product to the customer . ( 2 ) average sales price and volume information excludes platinum group metals ( “ pgms ” ) in catalytic converters . story_separator_special_tag ( 3 ) cars purchased by auto parts stores only . fiscal 2018 compared with fiscal 2017 amr segment revenues revenues in fiscal 2018 increased by 40 % compared to fiscal 2017 primarily due to stronger market conditions for recycled metal in the domestic and export markets resulting in significantly higher average net selling prices and increased sales volumes compared to the prior year . amr 's revenues and sales volumes in fiscal 2018 also benefited from increased sales diversification compared to the prior year . 34 / schnitzer steel industries , inc. form 10-k 2018 schnitzer steel industries , inc. amr segment operating income operating income for fiscal 2018 was $ 169 million , compared to $ 91 million in fiscal 2017 . operating results benefited from stronger market conditions for ferrous recycled metal which , in combination with commercial initiatives , led to an increase in scrap supply flows into our facilities , including end-of-life vehicles , and higher processed volumes compared to fiscal 2017 . the higher price environment in fiscal 2018 including a period of gradually rising selling prices for ferrous recycled metal during the first three quarters followed by a modest decrease in the fourth quarter , together with benefits from commercial initiatives , supported an expansion of the spread between direct purchase costs and selling prices of ferrous recycled metal at amr , with the metal spread for fiscal 2018 expanding by approximately 29 % compared to the prior year . operating margins also benefited from improved volumes of nonferrous material from end-of-life vehicles and the shredding process , partially offset by operating margin compression experienced near the end of fiscal 2018 as a result of a decrease in average net selling prices for certain nonferrous products driven primarily by the global impact of new regulations and measures put into place by policymakers in china during the year , including import regulations and tariffs on u.s. scrap imports . amr selling , general and administrative ( “ sg & a ” ) expense in fiscal 2018 increased by $ 17 million , or 14 % , compared to the prior year primarily due to higher employee-related expenses , including an increase in incentive compensation accruals as a result of improved operating performance and other expenses related to higher volumes . fiscal 2017 compared with fiscal 2016 amr segment revenues revenues in fiscal 2017 increased by 29 % compared to fiscal 2016 primarily due to improved market conditions for recycled metals in the domestic and export markets resulting in higher average net selling prices and increased sales volumes compared to the prior year , including benefits from increased sales diversification . average net selling prices for shipments of ferrous scrap metal in fiscal 2017 increased by 25 % compared to the prior year . ferrous sales volumes in fiscal 2017 also increased by 9 % compared to the prior year due to higher export and domestic shipments in fiscal 2017. additionally , nonferrous sales volumes in fiscal 2017 were higher by 14 % compared to the prior year , and nonferrous average net selling prices were higher by 5 % . amr segment operating income operating income for fiscal 2017 was $ 91 million , compared to $ 23 million in fiscal 2016 . adjusted operating income in fiscal 2017 was $ 90 million , compared to $ 48 million in the prior year . see the reconciliation of amr adjusted operating income in non-gaap financial measures at the end of this item 7. operating results in fiscal 2017 benefited from better market conditions , increased sales diversification , improved supply volumes , expanded nonferrous metal recovery , and additional benefits from cost savings and productivity improvement initiatives compared to fiscal 2016 . the higher price environment for scrap metal in fiscal 2017 together with benefits from commercial initiatives to improve supply channels and an improved trend in u.s. economic conditions also led to an increase in the supply of scrap metal , including end-of-life vehicles , resulting in higher processed volumes compared to the prior year . the stronger price environment also positively impacted the spread between direct purchase costs and selling prices of ferrous recycled metal at amr , with the metal spread for fiscal 2017 expanding by approximately 10 % compared to the prior year . operating results in fiscal 2016 were adversely impacted by a lower price environment which included sharp declines in commodity selling prices during the first half of fiscal 2016 resulting in an unfavorable impact from average inventory accounting during the year . this compares to a favorable impact from average inventory accounting in fiscal 2017 which , relative to performance benefits from other drivers , was not a major contributor to the improvement in amr 's operating results year over year . amr sg & a expense in fiscal 2017 increased by $ 10 million , or 9 % , compared to the prior year primarily due to higher employee-related expenses , including an increase in incentive compensation accruals resulting from improved financial performance , other expenses related to higher volumes , and increased environmental liabilities . this increase was partially offset by incremental benefits from cost savings and productivity improvement measures to reduce direct costs of production and sg & a expense . amr operating results in fiscal 2017 were positively impacted by approximately $ 11 million of incremental benefits from these measures . in the second quarter of fiscal 2016 , we identified a triggering event requiring an interim impairment test of goodwill allocated to our reporting units . the impairment test resulted in a non-cash goodwill impairment charge of $ 9 million at a reporting unit within amr . we also recorded non-cash impairment charges and accelerated depreciation on certain long-lived and other assets at amr of $ 16 million primarily related to certain regional metals recycling operations and used auto parts store locations and certain previously-idled recycling equipment assets .
| css reported operating income of $ 38 million in fiscal 2018 , compared to $ 5 million in the prior year , reflecting significantly higher metal margins from selling prices increasing faster than raw material purchase prices , reduced price pressure from steel imports , steady demand for finished steel products in the west coast markets , as well as operational synergies gained following the integration of our steel manufacturing and oregon metals recycling operations in the fourth quarter of fiscal 2017 to form the css division . css 's operating results in fiscal 2017 were adversely impacted by competition from lower-priced steel imports and the adverse impact of the downtime and costs associated with major equipment upgrades at our steel mill during the first quarter of fiscal 2017. consolidated selling , general and administrative ( “ sg & a ” ) expense in fiscal 2018 increased by $ 37 million , or 22 % , compared to the prior year primarily due to higher employee-related expenses , including a $ 10 million increase in incentive and share-based compensation accruals resulting from improved financial performance , a $ 6 million increase in legal and professional services expenses , accruals for environmental liabilities totaling $ 7 million , and other expenses related to higher volumes . net income from continuing operations attributable to ssi in fiscal 2018 was $ 156 million , or $ 5.46 per diluted share , compared to $ 45 million , or $ 1.60 per diluted share , in the prior year . net income from continuing operations attributable to ssi in fiscal 2018 included discrete income tax benefits totaling $ 37 million , or $ 1.30 per diluted share , related to the release of valuation allowances against certain deferred tax assets , and an income tax benefit of $ 7 million , or $ 0.24 per diluted share , related to the impacts of u.s. federal tax legislation enacted during the year . the following items further highlight selected liquidity and capital structure metrics : net cash provided by operating activities of $ 160 million in fiscal 2018 , compared to $ 100 million in the prior year ; debt of $ 107
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co-1686 was identified as the lead inhibitor candidate under the license agreement . we are responsible for all preclinical , clinical , regulatory and other activities necessary to develop and commercialize co-1686 . we made an up-front payment of $ 2.0 million to avila upon execution of the license agreement and an additional $ 4.0 million milestone payment in the first quarter of 2012 upon the acceptance by the u.s. food and drug administration , or fda , of our investigational new drug , or ind , application for co-1686 . we recognized both payments as acquired in-process research and development expense . we are obligated to pay royalties on net sales of co-1686 , based on the volume of annual net sales achieved . celgene has the option to increase royalty rates by electing to reimburse a portion of our development expenses . this option must be exercised within a limited period of time after celgene is notified by us of our intent to pursue regulatory approval of co-1686 in the united states or the european union as a first-line treatment . we may be required to pay up to an additional aggregate of $ 115.0 million in additional development and regulatory milestone payments if certain clinical study objectives and regulatory filings , acceptances and approvals are achieved . in addition , we may be required to pay up to an aggregate of $ 120.0 million in sales milestone payments if certain annual sales targets are achieved . 46 in january 2013 , the company entered into an exclusive license agreement with gatekeeper pharmaceuticals , inc. ( gatekeeper ) to acquire exclusive rights under patent applications associated with mutant egfr inhibitors and methods of treatment . pursuant to the terms of the license agreement , the company made an up-front payment of $ 250,000 upon execution of the agreement , which was recognized as acquired in-process research and development expense . if co-1686 is approved for commercial sale , the company will pay royalties to gatekeeper on future net sales . rucaparib in june 2011 , we entered into a license agreement with pfizer to acquire exclusive global development and commercialization rights to pfizer 's drug candidate known as rucaparib . this drug candidate is a small molecule parp inhibitor which we are developing for the treatment of ovarian and pancreatic cancers . pursuant to the terms of the license agreement , we made an up-front payment by issuing pfizer $ 7.0 million principal amount of a 5 % convertible promissory note due in 2012 , which was subsequently converted to common stock immediately prior to our initial public offering . we are responsible for all development and commercialization costs of rucaparib and , if approved , we will be required to pay pfizer royalties on sales of the product . in addition , we may be required to pay pfizer up to an aggregate of $ 259.0 million in milestone payments if certain development , regulatory and sales milestones are achieved . in april 2012 , the company entered into a license agreement with astrazeneca uk limited to acquire exclusive rights associated with rucaparib under a family of patents and patent applications that claim methods of treating patients with parp inhibitors in certain indications . the license enables the development and commercialization of rucaparib for the uses claimed by these patents . pursuant to the terms of the license agreement , the company made an up-front payment of $ 250,000 upon execution of the agreement , which was recognized as acquired in-process research and development expense . the company may be required to pay up to an aggregate of $ 0.7 million in milestone payments if certain regulatory filings , acceptances and approvals are achieved . if approved , astrazeneca will also receive royalties on any sales of rucaparib . lucitanib on november 19 , 2013 , the company acquired all of the issued and outstanding capital stock of eos and gained rights to develop and commercialize lucitanib , an oral , selective tyrosine kinase inhibitor . as further described below , eos licensed the worldwide rights , excluding china , to develop and commercialize lucitanib from advenchen laboratories llc ( advenchen ) . subsequently , rights to develop and commercialize lucitanib in markets outside the u.s. and japan were sublicensed by eos to les laboratoires servier ( servier ) in exchange for upfront milestone fees , royalties on sales of lucitanib in the sublicensed territories , and research and development funding commitments . advenchen laboratories llc in october 2008 , eos entered into an exclusive license agreement with advenchen to develop and commercialize lucitanib on a global basis , excluding china . the company is obligated to pay advenchen royalties on net sales of lucitanib , based on the volume of annual net sales achieved . in addition , the company is obligated to pay to advenchen twenty five percent of any consideration , excluding royalties , received pursuant to any sublicense agreements for lucitanib , including the agreement with les laboratoires servier . les laboratoires servier in september 2012 , eos entered into a collaboration and license agreement with servier whereby eos sublicensed to servier exclusive rights to develop and commercialize lucitanib in all countries outside of the u.s. , japan , and china . in exchange for these rights , eos received an upfront payment and is entitled to receive additional payments on the achievement of specified development , regulatory and commercial milestones up to 100.0 million in the aggregate . in addition , the company is entitled to receive sales milestone payments if specified annual sales targets for lucitanib are met , which , in the aggregate , could total 250.0 million . the company is also entitled to receive royalties on net sales of lucitanib by servier . the company and servier are developing lucitanib pursuant to a development plan agreed to between the parties . servier is responsible for all of the initial global development costs under the agreed upon plan up to 80.0 million . story_separator_special_tag cumulative global development costs , if any , in excess of 80.0 million will be shared equally between the company and servier . co-101 in november 2009 , we entered into a license agreement with clavis pharma asa to develop and commercialize co-101 in north america , central america , south america and europe . under the terms of the license agreement , we made an up-front payment to clavis in the amount of $ 15.0 million , which was comprised of $ 13.1 million for development costs incurred prior to the execution of the agreement , which we recognized as acquired in-process research and development and $ 1.9 million for the prepayment of preclinical activities to be performed by clavis . in november 2010 , the license agreement was amended to expand the license territory to include asia and other international markets . we paid clavis $ 10.0 million for the territory expansion and recognized that payment as acquired in-process research and development expense . as part of the amendment to the license agreement , clavis agreed to reimburse up to $ 3.0 million of our research and development costs for certain co-101 development activities subject to our incurring such costs . 47 on november 12 , 2012 , the company reported results from a pivotal study of co-101 in metastatic pancreatic cancer , which failed to demonstrate a difference in overall survival between the two study arms . based on the results of the study , the company has ceased development of co-101 and terminated the license agreement . drug discovery collaboration agreement in july 2012 , the company entered into a drug discovery collaboration agreement with array biopharma inc. for the discovery of a novel kit inhibitor targeting resistance mutations for the treatment of gist , a gastrointestinal cancer . under the terms of the agreement , the company was responsible to fund all costs of the discovery program , as well as costs to develop and commercialize any clinical candidates discovered . this drug discovery program did not identify a compound to be used in further development activities and the program was terminated in the fourth quarter of 2013. financial operations overview revenue to date , we have not generated any revenues . in the future , we may generate revenue from the sales of product candidates that are currently under development or from milestone payments or royalties pursuant to our sublicense agreement with servier . based on our current development plans , we do not expect to generate significant revenues for the foreseeable future . if we fail to complete the development of our product candidates and , together with our partners , companion diagnostics or obtain regulatory approval for them , our ability to generate future revenue , and our results of operations and financial position , will be adversely affected . research and development expenses research and development expenses consist of costs incurred for the development of our product candidates and companion diagnostics , which include : license fees and milestone payments related to the acquisition of in-licensed products , which are reported on our statements of operations as acquired in-process research and development ; employee-related expenses , including salaries , benefits , travel and share-based compensation expense ; expenses incurred under agreements with contract research organizations ( cros ) and investigative sites that conduct our clinical trials ; the cost of acquiring , developing and manufacturing clinical trial materials ; costs associated with preclinical activities and regulatory operations ; and activities associated with the development of companion diagnostics for our product candidates . research and development costs are expensed as incurred . license fees and milestone payments related to in-licensed products and technology are expensed if it is determined that they have no alternative future use . costs for certain development activities , such as clinical trials , are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment , clinical site activations or information provided to us by our vendors . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later stage clinical trials . we plan to increase our research and development expenses for the foreseeable future as we seek to expand our clinical and companion diagnostic development activities for our co-1686 , rucaparib and lucitanib product candidates . the following table identifies research and development costs and acquired in-process research and development costs on a program-specific basis for our product candidates in-licensed through december 31 , 2013 , their companion diagnostics , and the ckit inhibitor drug discovery program . personnel-related costs , depreciation and share-based compensation are not allocated to specific programs as they are deployed across multiple projects under development and , as such , are separately classified as personnel and other expenses in the table below . 48 replace_table_token_4_th accretion of contingent purchase consideration in connection with the acquisition of eos in november 2013 , we incurred contingent purchase consideration liabilities . we re-measure contingent consideration arrangements at fair value on a periodic basis and record changes in fair value to operating expense in the statement of operations . changes in fair value are primarily attributed to new information about the ipr & d assets and the passage of time . in the absence of new information , the changes to fair value represent the passage of time as we progress towards the achievement of future milestones . general and administrative expenses general and administrative expenses consist principally of salaries , share-based compensation expense , and other personnel-related costs for employees in executive , finance , business development , legal , investor relations and information technology functions . other general and administrative expenses include facility costs , communication expenses , corporate insurance , and professional fees for legal , consulting and accounting services .
| these increases in research and development expenses were partially offset by a $ 23.2 million decline in co-101 related expenses due to the termination of this program in late 2012. the increase in research and development expenses for the year ended december 31 , 2012 over 2011 was primarily due to development expenses associated with our rucaparib and co-1686 product candidates . clinical trial and drug development expenses increased by $ 7.7 million due to growth in preclinical development , diagnostic development activities and in the number of patients , active sites and investigators participating in the clinical trials that support these two product candidates . in the third quarter of 2012 , we initiated a drug discovery program for kit , resulting in an increase of $ 2.1 million over the prior year . co-101 costs increased by $ 2.2 million due mainly to drug development , manufacturing activities , and expenses incurred to wind down this program . the remaining increase of $ 6.2 million was due primarily to an increase in salaries , benefits , stock compensation expense and personnel-related costs resulting from additional headcount hired to support the expanding development activities of our products . general and administrative expenses . general and administrative expenses for the years ended december 31 , 2013 , 2012 and 2011 were as follows : replace_table_token_7_th the increase in general and administrative expenses for the year ended december 31 , 2013 over 2012 was primarily attributable to transaction expenses of $ 2.2 million associated with the acquisition of eos in november 2013 as well as a $ 2.7 million increase in share-based compensation expense for general and administrative employees and members of our board of directors as a result of an increase in the value of stock options granted during the 2013 year . the increase in general and administrative expenses for the year ended december 31 , 2012 over 2011 was primarily attributable to increased personnel , professional services , facilities and information system costs associated with being a publicly traded company . additionally , share-based compensation increased by $ 1.8 million due to the increase
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as of december 31 , 2018 , we collected the full $ 19.8 million grant proceeds and will not be recognizing grant revenue under the contract in future periods . research and development expenses research and development expenses consist primarily of costs incurred for the discovery and development of our product candidates , most notably , our lead product candidate pegzilarginase . although we opened an internal research laboratory in february 2017 , we continue to contract with external providers for nonclinical studies and clinical trials . our research and development expenses include : costs from acquiring clinical trial materials and services performed for contracted services with contract manufacturing organizations ; fees paid to clinical trial sites , clinical research organizations , contract research organizations , contract manufacturing organizations , nonclinical research companies , and academic institutions ; and employee and consultant-related expenses incurred , which include salaries , benefits , travel and stock-based compensation . research and development costs are expensed as incurred . advance payments for goods or services to be rendered in the future for use in research and development activities are deferred and capitalized . the capitalized amounts are expensed as the related goods are delivered or the services are performed . research and development expenses have historically represented the largest component of our total operating expenses . we plan to increase our research and development expenses for the foreseeable future as we continue the development of our product candidates . 73 our expenditures on current and future nonclinical and clinical development programs are subject to numerous uncertainties in timing and cost to completion . the duration , costs , and timing of clinical trials and development of our product candidates will depend on a variety of factors , including : the scope , rate of progress , and expenses of our ongoing research activities as well as any additional clinical trials and other research and development activities ; future clinical trial results ; uncertainties in clinical trial enrollment rates or drop-out or discontinuation rates of patients ; changes in the competitive drug development environment ; potential safety monitoring or other studies requested by regulatory agencies ; significant and changing government regulation ; and the timing and receipt of regulatory approvals , if any . the process of conducting the necessary clinical research to obtain fda and other regulatory approval is costly and time consuming and the successful development of our product candidates is highly uncertain . the risks and uncertainties associated with our research and development projects are discussed more fully in part i , item 1a of this annual report titled “ risk factors. ” as a result of these risks and uncertainties , we are unable to determine with any degree of certainty the duration and completion costs of our research and development projects , or if , when , or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval . we may never succeed in achieving regulatory approval for any of our product candidates . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including stock-based compensation , for personnel in executive , finance , accounting , operations , and human resources functions . other significant costs include legal fees relating to corporate matters and fees for insurance , accounting , consulting , and recruiting services . we expect that our general and administrative expenses will increase in the future to support our continued research and development activities , and the potential commercialization of our product candidates . these increases will likely include higher costs related to the hiring of additional personnel and fees to outside consultants , lawyers and accountants , among other expenses . additionally , we have incurred and expect to continue to incur increased costs associated with being a public company , including expenses related to services associated with maintaining compliance with nasdaq listing rules and sec requirements , insurance , and investor relations costs . interest income interest income consists of interest earned on our cash , cash equivalents , and marketable securities . income taxes we serve as a holding company for our seven wholly-owned subsidiary corporations and file a consolidated corporate federal income tax return . we use the asset and liability method of accounting for income taxes . under this method , deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statements and the tax bases of assets and liabilities . a valuation allowance is established against the deferred tax assets to reduce their carrying value to an amount that is more likely than not to be realized . the deferred tax assets and liabilities are classified as noncurrent along with the related valuation allowance . due to our lack of earnings history , the net deferred tax assets have been fully offset by a valuation allowance . we recognize benefits of uncertain tax positions if it is more likely than not that such positions will be sustained upon examination based solely on the technical merits , as the largest amount of benefits that is more likely than not to be realized upon the ultimate settlement . our policy is to recognize interest and penalties related to the unrecognized tax benefits as a component of income tax expense . 74 critical accounting policies and estimates our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the united states , or gaap . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , costs and expenses , and related disclosures . these estimates form the basis for judgments we make about the carrying values of our assets and liabilities , which are not readily apparent from other sources . we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances . story_separator_special_tag on an ongoing basis , we evaluate our estimates and assumptions . our actual results may differ materially from these estimates under different assumptions or conditions . our critical accounting policies are those policies which require the most significant judgments and estimates in the preparation of our consolidated financial statements . we believe that the assumptions and estimates associated with our most critical accounting policies are those relating to accrued research and development costs and stock-based compensation . we define our critical accounting policies as those accounting principles generally accepted in the united states that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations , as well as the specific manner in which we apply those principles . our significant accounting policies are more fully described in note 2 to our audited consolidated financial statements appearing elsewhere in this annual report . accrued research and development costs we record the costs associated with research nonclinical studies , clinical trials , and manufacturing development as incurred . these costs are a significant component of our research and development expenses , with a substantial portion of our on-going research and development activities conducted by third-party service providers , including contract research organizations , or cros , and contract manufacturing organizations , or cmos . we accrue for expenses resulting from obligations under agreements with cros , cmos , and other outside service providers for which payment flows do not match the periods over which materials or services are provided to us . we record accruals based on estimates of services received and efforts expended pursuant to agreements established with cros , cmos , and other outside service providers . these estimates are typically based on contracted amounts applied to the proportion of work performed and determined through analysis with internal personnel and external service providers as to the progress or stage of completion of the services . we make significant judgments and estimates in determining the accrual balance in each reporting period . in the event advance payments are made to a cro , cmo , or outside service provider , the payments will be recorded as a prepaid asset which will be amortized as the contracted services are performed . as actual costs become known , we adjust our accruals . inputs , such as the services performed , the number of patients enrolled , or the study duration , may vary from our estimates , resulting in adjustments to research and development expense in future periods . changes in these estimates that result in material changes to our accruals could materially affect our results of operations . stock-based compensation we recognize the cost of stock-based awards granted to employees based on the estimated grant-date fair values of the awards . the value of the award is recognized as compensation expense on a straight-line basis over the requisite service period . forfeitures are recognized when they occur , which may result in the reversal of compensation costs in subsequent periods as the forfeitures arise . we elected to early adopt asu 2018-07 , compensation – stock compensation ( topic 718 ) effective january 1 , 2018. all non-employee share-based payment awards granted prior to adoption were remeasured at fair value as of the adoption date . there was no material impact on our consolidated financial statements from the adoption . all non-employee share-based payment awards granted after adoption are measured at grant-date fair value . compensation expense for employee and non-employee share-based payment awards with performance conditions is recognized when the performance condition is deemed probable . 75 we estimate the grant date fair value of stock options granted usi ng the black-scholes option-pricing model , which requires the use of highly subjective assumptions to determine the fair value of the awards . these assumptions include : expected term – the expected term represents the period that the stock-based awards are expected to be outstanding and is determined using the simplified method ( based on the mid-point between the vesting date and the end of the contractual term ) . expected volatility – since we have only been publicly traded for a short period and do not have adequate trading history for our common stock , the expected volatility is estimated based on the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants . subsequent to the ipo , we began to consider our own historic volatility . for purposes of identifying comparable companies , we selected companies with comparable characteristics to us , including enterprise value , risk profiles , position within the industry , and with historical share price information sufficient to meet the expected life of the stock-based awards . the historical volatility data was computed using the daily closing prices for the selected companies ' shares during the equivalent period of the calculated expected term of the stock-based awards . we will continue to apply this process using the same or similar comparable entities until a sufficient amount of historical information regarding the volatility of our own stock price becomes available . risk-free interest rate – the risk-free interest rate is based on the u.s. treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option . expected dividend – we have never paid dividends on our common stock and have no plans to pay dividends on our common stock . therefore , we used an expected dividend yield of zero . prior to our ipo in april 2016 , the fair value of the shares of common stock underlying our share-based awards were estimated on each grant date by our board of directors .
| general and administrative expenses . general and administrative expenses increased by $ 2.6 million , or 25 % , to $ 12.6 million for the year ended december 31 , 2018 from $ 10.1 million for the year ended december 31 , 2017. the increase in general and administrative expenses was primarily due to additional employee headcount and compensation to support company growth . non-cash stock compensation expense accounted for $ 1.1 million of the increase . interest income . the increase in interest income to $ 1.2 million for the year ended december 31 , 2018 from $ 0.5 million for the year ended december 31 , 2017 was primarily due to increasing yield rates , purchasing investments with greater maturity terms , and the investment of additional funds received as a result of our public offerings in april 2018 and october 2018. comparison of the years ended december 31 , 2017 and 2016 the following table summarizes our results of operations for the years ended december 31 , 2017 and 2016 , together with the changes in those items in dollars and as a percentage : replace_table_token_4_th grant revenues . grant revenues increased by $ 0.6 million , or 12 % , to $ 5.2 million for the year ended december 31 , 2017 from $ 4.6 million for the year ended december 31 , 2016. the increase was primarily due to additional research and development costs associated with the clinical trials for pegzilarginase in cancer patients , for which we recognized grant revenue pursuant to the grant contract . 77 research and development expenses . research and development expenses increased by $ 4.7 million , or 26 % , to $ 22.8 million for the year ended december 31 , 2017 from $ 18.1 million for the year ended december 31 , 2016. the change in research and development expenses was due to : higher personnel-related expenses , which increased by $ 3.2 million as a
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for the year ended september 30 , 2015 , sally beauty supply 's net sales and segment operating profit were $ 2,329.5 million and $ 412.4 million , respectively , representing 61 % and 64 % of our consolidated net sales and consolidated operating profit before unallocated corporate expenses and share-based compensation expenses , respectively . we believe bsg is the largest full-service distributor of professional beauty supplies in north america , exclusively targeting salons and salon professionals . as of september 30 , 2015 , bsg had 1,137 company-operated stores , supplied 157 franchised stores and had a sales force of approximately 958 professional distributor sales consultants selling exclusively to salons and salon professionals in the u.s. , and in canada , mexico and certain european countries . company-operated bsg stores , which primarily operate under the cosmoprof banner , average approximately 2,600 square feet in size and are primarily located in secondary strip shopping centers . bsg stores provide a comprehensive selection of beauty products featuring an average of 9,000 skus that include hair color and care , skin and nail care , beauty sundries and electrical appliances . through bsg 's large store base and sales force , bsg is able to access a significant portion of the highly fragmented u.s. salon industry . bsg stores carry leading third-party brands such as paul mitchell® , wella® , sebastian® , goldwell® , joico® and aquage® , intended for use in salons and for resale by the salons to consumers . bsg is also the exclusive source for certain well-known third-party branded products pursuant to exclusive distribution agreements with certain suppliers within specified geographic territories . for the year ended september 30 , 2015 , bsg 's net sales and segment operating profit were $ 1,504.8 million and $ 231.2 million , respectively , representing 39 % and 36 % of our consolidated net sales and consolidated operating profit before unallocated corporate expenses and share-based compensation expenses , respectively . 44 key industry and business trends we operate primarily within the large and growing u.s. beauty supply industry . we believe that a number of key industry and business trends and characteristics will influence our business and our financial results going forward . these key trends and characteristics are discussed elsewhere in this annual report . please see `` key industry and business trends '' in item 1 of this annual report . significant recent acquisitions in the fiscal year 2013 , the company acquired certain assets and business operations of essential salon products , inc. ( `` essential salon '' ) , a professional-only distributor of beauty products operating in the northeastern region of the united states , for approximately $ 15.3 million , subject to certain adjustments . the results of operations of essential salon are included in the company 's consolidated financial statements subsequent to the acquisition date . the assets acquired and liabilities assumed , including intangible assets subject to amortization of $ 9.1 million , were recorded based on their preliminary estimated fair values at the acquisition date . in addition , goodwill of $ 3.1 million ( which is expected to be deductible for tax purposes ) was recorded as a result of this acquisition . we funded this acquisition primarily with cash from operations and borrowings under the abl facility . in addition , we completed several other individually immaterial acquisitions during the fiscal years 2015 , 2014 and 2013 at the aggregate cost of approximately $ 7.1 million , $ 4.9 million and $ 6.8 million , respectively . we recorded intangible assets subject to amortization of $ 2.2 million , $ 1.4 million and $ 4.0 million in connection with these acquisitions completed in the fiscal years 2015 , 2014 and 2013 , respectively . in addition , we recorded goodwill in the amount of $ 2.8 million , $ 2.6 million and $ 2.0 million , the majority of which is expected to be deductible for tax purposes , in connection with these individually immaterial acquisitions . we funded these acquisitions primarily with cash from operations and borrowings under the abl facility . the valuation of the assets acquired and liabilities assumed in connection with these acquisitions was based on their fair values at the acquisition date . share repurchase programs in august 2014 , we announced that the board had approved a share repurchase program authorizing us to repurchase up to $ 1.0 billion of our common stock over a period of approximately three years ( the `` 2014 share repurchase program '' ) . the 2014 share repurchase program expires on september 30 , 2017. during the fiscal year ended september 30 , 2015 , we repurchased and subsequently retired approximately 8.1 million shares of our common stock under the 2014 share repurchase program at a cost of $ 227.6 million . in addition , during the fiscal year ended september 30 , 2014 , we repurchased and retired approximately 12.6 million shares of our common stock under the 2013 share repurchase program ( a share repurchase program approved by our board in march 2013 and terminated in connection with the authorization of the 2014 share repurchase program ) at a cost of $ 333.3 million and , during the fiscal year ended september 30 , 2013 , we repurchased and subsequently retired approximately 18.9 million shares of our common stock under the 2013 share repurchase program and the 2012 share repurchase program ( a share repurchase program approved by our board in august 2012 and terminated in connection with the authorization of the 2013 share repurchase program ) at a cost of $ 509.7 million . we reduced common stock and additional paid-in capital , in the aggregate , by these amounts . however , as required by gaap , to the extent that the share repurchase amounts exceeded the balance of additional paid-in capital prior to such repurchases , we recorded the excess in accumulated deficit . story_separator_special_tag we funded these share repurchases with cash from operations , borrowings under the abl facility and a portion of the cash proceeds from our september 2012 and october 2013 debt issuances . 45 data security incidents in march 2014 , we disclosed that we had experienced a data security incident ( the `` 2014 data security incident '' ) . in may 2015 , we disclosed that we had experienced a second illegal intrusion into our payment card systems ( together with the 2014 data security incident , the `` data security incidents '' ) .the data security incidents involved the unauthorized installation of malicious software ( malware ) on our information technology systems , including our point-of-sale systems that , we believe , may have illegally accessed and removed a portion of the payment card data ( track 2 ) for some transactions . the costs that the company has incurred to date in connection with the data security incidents primarily include professional advisory fees and legal costs and expenses relating to investigating and remediating the data security incidents . for the fiscal years ended september 30 , 2015 and 2014 , selling , general and administrative expenses reflect expenses of $ 5.6 million ( net of related insurance recovery of $ 0.6 million ) and $ 2.5 million , respectively , related to the data security incidents , inclusive , in the fiscal year ended september 30 , 2015 , of an accrued liability of approximately $ 2.9 million related to potential litigation costs and expenses associated with the 2014 data security incident . we expect to incur additional costs and expenses related to the data security incidents in future periods . these costs may result from potential liabilities to payment card networks , governmental or third party investigations , proceedings or litigation and legal and other fees necessary to defend against any potential liabilities or claims , and further investigatory and remediation costs . please see `` risk factors we may be adversely affected by any disruption in our information technology systems , `` `` unauthorized access to confidential information and data on our information technology systems and security and data breaches could materially adversely affect our business , financial condition and operating results `` and `` we have experienced data security incidents and are not yet able to determine the full extent or scope of the potential liabilities relating to these data security incidents. `` cost rationalization initiatives in june 2015 , the board approved an initiative to restructure our sally beauty supply operations in germany ( the `` germany restructuring '' ) , which included the closing of 15 underperforming retail stores and two supporting administrative offices . this initiative is part of our ongoing cost rationalization efforts designed to increase the profitability of our sally beauty supply segment 's international operations . after completion of the germany restructuring , which was substantially completed during the fourth quarter of the fiscal year ended september 30 , 2015 , we continue to operate 18 retail stores in germany . in connection with the germany restructuring we incurred pre-tax expenses in the aggregate amount of approximately 4.7 million ( $ 5.3 million , at the weighted average exchange rate during the relevant period ) , including costs associated with lease obligations , asset impairments , employee severance , and other business transition and exit costs . of this amount , approximately 2.2 million ( $ 2.5 million , at the weighted average exchange rate during the relevant period ) were non-cash expenses resulting from asset impairments . in addition , approximately 0.4 million ( $ 0.4 million , at the weighted average exchange rate during the relevant period ) represent one-time employee severance payments . the germany restructuring expenses are included in cost of products sold and distribution expenses ( 1.2 million , $ 1.4 million , at the weighted average exchange rate during the relevant period ) and in selling , general and administrative expenses reflect expenses ( 3.5 million , $ 3.9 million , at the weighted average exchange rate during the relevant period ) in the company 's consolidated statements of earnings , based on the nature of the costs incurred . at september 30 , 2015 , the company believes that any future costs of the germany restructuring , primarily relating to remaining obligations under operating leases , will not have a material adverse impact on the company 's future operating results or cash flows . 46 other significant items derivative instruments as a multinational corporation , we are subject to certain market risks including changes in market interest rates and foreign currency fluctuations . we may consider a variety of practices in the ordinary course of our business to manage these market risks including , when deemed appropriate , the use of derivative instruments such as foreign currency options , collars and forwards ( hereafter , `` foreign exchange contracts '' ) and interest rate swaps . currently , we do not purchase or hold any derivative instruments for speculative or trading purposes . foreign currency derivative instruments we are exposed to potential gains or losses from foreign currency fluctuations affecting net investments in subsidiaries ( including intercompany balances not permanently invested ) and earnings denominated in foreign currencies , as well as exposure resulting from the purchase of merchandise by certain of our subsidiaries in a currency other than their functional currency and from the sale of products and services among the parent company and subsidiaries with a functional currency different from the parent or among subsidiaries with different functional currencies . our primary exposures are to changes in exchange rates for the u.s. dollar versus the euro , the british pound sterling , the canadian dollar , the chilean peso and the mexican peso . in addition , from time to time we may have exposure to changes in the exchange rate for the british pound sterling versus the euro in connection with the sale of products and services among certain european subsidiaries of the company .
| ( d ) for the purpose of calculating our same store sales metrics , we compare the current period sales for stores open for 14 months or longer as of the last day of a month with the sales for these stores for the comparable period in the prior fiscal year . our same store sales are calculated in constant dollars and include internet-based sales ( including the bsg loxa beauty website ) and the effect of store expansions , if applicable , but do not generally include the sales from stores relocated until 14 months after the relocation . the sales from stores acquired are excluded from our same store sales calculation until 14 months after the acquisition . description of net sales and expenses net sales . our net sales consist primarily of the following : sally beauty supply . sally beauty supply generates net sales primarily by selling products through its stores to both retail customers and salon professionals . sally beauty supply sells products for hair color and care , skin and nail care , beauty sundries and electrical appliances . because approximately 47 % of our sally beauty supply product sales come from exclusive-label brands , most of these same products are generally not available in most other retail stores or in our bsg business segment . various factors influence sally beauty supply 's net sales including overall consumer traffic , local competition , inclement weather , product assortment and availability , price , hours of operation , and marketing and promotional activity . sally beauty supply 's product assortment and sales are generally not seasonal in nature . beauty systems group . bsg generates net sales primarily by selling products to salons and salon professionals through company-operated and franchised stores as well as through its network of professional distributor sales consultants . bsg sells products for hair color and care , skin and nail care , beauty sundries and electrical appliances . these products are not sold directly to the general public and are generally not the same products as those sold in our sally beauty supply stores . various factors influence bsg 's net sales , including product features and availability , competition , inclement weather , relationships with suppliers , new product introductions and price . bsg 's product
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blizzard distributes its products and generates revenues worldwide through various means , including : subscriptions ; sales of prepaid subscription cards ; value-added services such as realm transfers , faction changes and other character customizations within the world of warcraft gameplay ; retail sales of physical `` boxed '' products ; online download sales of pc products ; and licensing of software to third-party or related party companies that distribute world of warcraft , diablo iii and starcraft ii products . in addition , blizzard developed hearthstone : heroes of warcraft , a free-to-play digital collectible card game , which was released in closed beta in august 2013 and in open beta in january 2014 , and is currently developing heroes of the storm , a new free-to-play online hero brawler . activision blizzard distribution activision blizzard distribution ( `` distribution '' ) 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 t size= '' 2 '' > international sales are a fundamental part of our business . net revenues from international sales accounted for approximately 47 % , 50 % , and 50 % of our total consolidated net revenues for the years ended december 31 , 2013 , 2012 and 2011 , respectively . in addition to our united states ( `` u.s. '' ) operations , we maintain significant operations in canada , the united kingdom ( `` u.k. '' ) , france , germany , ireland , italy , sweden , spain , the netherlands , australia , south korea and china . 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 online content and digital downloads we provide our products through both retail channels and digital online delivery methods . many of our video games that are available through retailers as physical `` boxed '' software products , such as dvds , are also available by direct digital download over the internet ( from our websites and websites 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 ) , generally for a one-time fee . we also offer subscription-based services for world of warcraft , which are digitally delivered and hosted by blizzard 's proprietary online-game related service , battle.net . we currently define digital online channel-related sales as revenues from subscriptions and memberships , licensing royalties , value-added services , downloadable content , and digitally distributed products . this definition may differ from that used by our competitors or other companies . for the year ended december 31 , 2013 , revenues through digital online channels increased by $ 22 million , as compared to 2012 , and represented 34 % of our total consolidated net revenues in 2013 , as compared to 32 % in 2012. this increase was mainly attributable to the strong performance of digital downloadable content for call of duty : black ops ii ( such as downloadable content packs , and micro-downloadable content ( `` micro-dlc '' ) which allows players to personalize their in-game experience ) , the continued strong performance of call of duty : black ops ii , and recognition of deferred revenues from world of warcraft : mists of pandaria , which was released in 2012 , without a comparable release from blizzard in 2013. on a non-gaap basis ( which excludes the impact of deferred revenues ) , revenues through digital online channels decreased by $ 34 million , as compared to 2012 , and represented 36 % of our total non-gaap net revenues in 2013 as compared to 32 % in 2012. the 50 decrease in revenues through digital online channels was primarily due to the releases of diablo iii and world of warcraft : mists of pandaria in 2012 , partially offset by the strong performance of digital downloadable content for call of duty : black ops ii in 2013. digital online channel revenues were a greater portion of total non-gaap revenues in 2013 , given the relatively lower decrease in digital online channel revenues compared to the decrease in retail channel revenues , versus the prior year . our sales of digital downloadable content are driven in part by our sales of retail products . lower revenues in our retail distribution channel in the current year might impact our digital online channel revenues in the subsequent year . digital revenues remain an important part of our business , and we continue to focus on and develop products that can be delivered via digital online channels . the amount of our digital revenues in any period may fluctuate depending , in part , on the timing and nature of our specific product releases . over the next few years , we plan to introduce games , based on some of our most successful franchises , that operate on a free-to-play model with microtransactions . these games include blizzard 's hearthstone : heroes of warcraft , blizzard 's heroes of the storm , and call of duty online . 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 the current generation of game consoles began with microsoft 's launch of the xbox 360 in november 2005 , and continued in 2006 when nintendo and sony launched the wii and the ps3 , respectively . story_separator_special_tag the installed base of current-generation hardware in the u.s. and europe was approximately 195 million units as of december 31 , 2013 , as compared to 184 million units at december 31 , 2012 , according to the npd group , with respect to north america , and gfk chart-track , with respect to europe , representing an overall increase of 6 % in units year-over-year . the growth was larger for the high-definition platforms , with the installed base of ps3 and xbox 360 hardware units increasing 9 % year-over-year , while the installed base of wii hardware units increased only 2 % year-over-year . in november 2012 , nintendo released the wii u , and in november 2013 , sony released the ps4 and microsoft released the xbox one , their respective next-generation game consoles and entertainment systems . as of december 31 , 2013 , according to the npd group and gfk chart-track , the installed base of next-generation hardware in the u.s. and europe was approximately 10 million units . while the new console cycle has started strongly and demand for next-generation games was higher than expected , we expect that this will result in a lower-than-expected demand for current-generation games . for example , we experienced slower sales of our 2013 fourth-quarter launch of call of duty : ghosts , as compared to sales of our 2012 fourth-quarter launch of call of duty : black ops ii , which we believe is partly attributable to the console platform transition . when new console platforms are announced or introduced into the market , consumers may reduce their purchases of game console software products for current console platforms in anticipation of new platforms becoming available . during these periods , sales of the game console software products we publish may slow or even decline until new platforms are introduced and achieve wide consumer acceptance . platform transitions may have a comparable impact on sales of downloadable content , amplifying the impact on our revenue . during platform transitions , we simultaneously incur costs to develop and market new titles for current-generation video game platforms , which may not sell at premium prices , and to develop and market products for next-generation platforms , which may not generate immediate or near-term revenues . we continually monitor console hardware sales and manage our product delivery on each of the current- and next-generation platforms in a manner we believe to 51 be most effective to maximize our revenue opportunities and achieve the desired return on our investments in product development . long term , we expect the new consoles to drive industry growth and expand our opportunities . conditions in the retail distribution channels conditions in the retail channels of the interactive entertainment industry remained challenging during 2013. in north america and europe , retail sales within the industry experienced a combined overall decrease of approximately 7 % in 2013 , as compared to 2012 , according to the npd group and gfk chart-track . the declines in the north american and european retail channels were impacted by fewer releases and catalog sales in 2013 as compared to 2012. in addition , the decline in sales to the retail channels continues to be more pronounced for casual titles on the nintendo wii and handheld platforms ( down over 29 % year-over-year ) , than titles on high-definition platforms ( i.e. , xbox 360 and ps3 ) . despite the 7 % decrease in retail sales in north america and europe for the overall industry , according to the npd group , gfk chart-track and the company 's internal estimates , sales of the industry 's top five titles ( including accessory packs and figures ) grew 20 % in 2013 , as compared to 2012. the increase in retail sales of the top five titles was mainly driven by the release of a top title by a competitor in the third quarter of 2013. this further demonstrated the concentration of revenues in the top titles , particularly for high-definition platforms , which experienced year-over-year growth , while non-premier titles experienced declines . the company 's results have been less impacted by the general declining trends in retail compared to our competitors because of our greater focus on premier top titles and a more focused overall slate of titles . 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 38 % of the sales in the u.s. video game industry in 2013 as compared to 30 % in 2012. 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 , our three largest franchises in 2013call of duty , skylanders and world of warcraftaccounted for approximately 80 % of our net revenues , and a significantly higher percentage of our operating income , for the year . we expect that a limited number of popular franchises will continue to produce a disproportionately high percentage of the industry and our revenues and profits . seasonality the interactive entertainment industry is 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 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 five months to 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 .
| in north america and europe combined , including toys and accessories , activision publishing had four of the top 10 titles overall . for the fourth quarter , in aggregate across all platforms in the u.s. and europe combined , activision publishing 's call of duty : ghosts was the # 1 best-selling title in both units and dollars and the # 1 best-selling game on the next-generation ps4 and xbox one console platforms in both units and dollars . additionally , for the calendar year , call of duty : black ops ii was the # 9 best-selling title in both units and dollars . in north america and europe combined , skylanders giants , including toys and accessories , was the # 4 best-selling handheld and console game in dollars overall and skylanders swap force , including toys and accessories , was the # 6 best-selling handheld and console game in dollars overall . as of december 31 , 2013 , the skylanders franchise had generated , life-to-date , more than $ 2 billion in worldwide retail sales , including toys and accessories , and activision had sold approximately 175 million skylanders toys worldwide . in north america , blizzard entertainment 's starcraft ii : heart of the swarm ® was the # 1 best-selling pc game . as of december 31 , 2013 , blizzard entertainment 's world of warcraft remains the # 1 subscription-based mmorpg , with approximately 7.8 million subscribers . product release highlights games and digital downloadable content released during the year ended december 31 , 2013 included : call of duty : black ops ii revolution ( digital downloadable content ) call of duty : black ops ii uprising ( digital downloadable content ) call of duty : black ops ii vengeance ( digital downloadable content ) call of duty : black ops ii apocalypse ( digital downloadable content ) call of duty : ghosts deadpool 49 diablo iii for the ps3 and xbox 360 hearthstone : heroes of warcraft ( closed beta ) skylanders swap force starcraft ii : heart of
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consulting agreements the company has entered into a consulting agreement with mr. howell whereby the company agreed to pay mr. howell $ 10,0000 per month . the consulting agreement may be terminated at will by the company . the consulting agreement was suspended during the pendency of the apa with orbital from july , 2019 to december , 2019 , but resumed in january , 2020 after the apa was terminated . the company intends to continue to engage mr. howell as a consultant until his consulting services are no longer required . director independence the company is not listed on any national exchange , or quoted on any inter-dealer quotation service , that imposes independence requirements on any committee of the company 's directors , such as an audit , nominating or compensation committee . the company 's board of directors consists of ron howell , who is not independent . page 27 item 14. principal accounting fees and services the following is a summary of the fees paid to sadler , gibb & associates llc , the company 's independent public accounting firm , during the fiscal years ended december 31 , 2019 and 2018 . 2019 2018 audit fees $ 14,500 $ 10,500 audit-related fees - - tax fees - - all other fees - - total $ 14,500 $ 10,500 audit committee pre-approval of services of principal accountants we do not currently have an audit committee appointed by the board of directors and the full board of directors did not vote on whether any non-audit services impacted our auditor 's independence . we currently do not have any policy for approval of audit and permitted non-audit services by our independent auditor . we plan to appoint an audit committee by our board of directors and adopt procedures for approval of audit and non-audit services . page 28 part iv item 15. exhibits and financial statement schedules financial statements and schedules . the following consolidated financial statements of hst global , inc. are included herein beginning on page 8 : report of independent registered public accounting firm consolidated balance sheets as of december 31 , 2019 and 2018 consolidated statements of operations for the years ended december 31 , 2019 , and 2018 consolidated statements of changes in stockholders ' interest for the years ended december 31 , 2019 and 2018 consolidated statements of cash flows for the years ended december 31 , 2019 and 2018 notes to consolidated financial statements exhibits the following exhibits are included herein : exhibit no . description 31.1 certification by the chief executive officer of competitive technologies , inc. pursuant to section 302 of the sarbanes-oxley act of 2002 ( rule 13a-14 ( a ) or rule 15d-14 ( a ) ) . 31.2 certification by the chief financial officer of competitive technologies , inc. pursuant to section 302 of the sarbanes-oxley act of 2002 ( rule 13a-14 ( a ) or rule 15d-14 ( a ) ) . 32.1 certification by the chief executive officer of competitive technologies , inc. pursuant to section 906 of the sarbanes-oxley act of 2002 ( 18 u.s.c . 1350 ) . 32.2 certification by the chief financial officer of competitive technologies , inc. pursuant to section 906 of the sarbanes-oxley act of 2002 ( 18 u.s.c . 1350 ) . 101 interactive data files signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . hst global , inc. ( the registrant ) by : \s\ ron howell ron howell chief executive officer date : april 9 , 2020 page 29 story_separator_special_tag forward-looking statements statements about our future expectations are `` forward-looking statements '' within the meaning of applicable federal securities laws , and are not guarantees of future performance . when used herein , the words `` may , '' `` will , '' `` should , '' `` anticipate , '' `` believe , '' `` appear , '' `` intend , '' `` plan , '' `` expect , '' `` estimate , '' `` approximate , '' and similar expressions are intended to identify such forward-looking statements . these statements involve risks and uncertainties inherent in our business , including those set forth under the caption `` risk factors '' in other filings with the sec , and are subject to change at any time . our actual results could differ materially from these forward-looking statements . we undertake no obligation to update publicly any forward-looking statement . overview hst global , inc. is an integrated health and wellness biotechnology company with a plan to develop and /or acquire a network of wellness centers worldwide that would be primarily focused on the homeopathic and alternative treatment of late stage cancer . in addition , the company intends to acquire innovative products for the treatment of individual health challenges . in this regard , the company primarily focuses on homeopathic and alternative product candidates that are undergoing or have already completed significant clinical testing . to date we have been unable to initiate our original business plan . while we are continuing to seek opportunities to do so , we are also seeking other opportunities to integrate assets , rights , or other potential revenue streams . plan of operation general and administrative expenses consist primarily of salaries and related personnel costs , professional fees , business insurance , rent , general legal activities , and other corporate expenses . we have never been profitable and do not anticipate having net income unless and until we develop and or acquire our wellness centers and or develop new channels of distribution . with respect to our current activities , this is not likely to occur until we obtain significant additional funding . we can not story_separator_special_tag consulting agreements the company has entered into a consulting agreement with mr. howell whereby the company agreed to pay mr. howell $ 10,0000 per month . the consulting agreement may be terminated at will by the company . the consulting agreement was suspended during the pendency of the apa with orbital from july , 2019 to december , 2019 , but resumed in january , 2020 after the apa was terminated . the company intends to continue to engage mr. howell as a consultant until his consulting services are no longer required . director independence the company is not listed on any national exchange , or quoted on any inter-dealer quotation service , that imposes independence requirements on any committee of the company 's directors , such as an audit , nominating or compensation committee . the company 's board of directors consists of ron howell , who is not independent . page 27 item 14. principal accounting fees and services the following is a summary of the fees paid to sadler , gibb & associates llc , the company 's independent public accounting firm , during the fiscal years ended december 31 , 2019 and 2018 . 2019 2018 audit fees $ 14,500 $ 10,500 audit-related fees - - tax fees - - all other fees - - total $ 14,500 $ 10,500 audit committee pre-approval of services of principal accountants we do not currently have an audit committee appointed by the board of directors and the full board of directors did not vote on whether any non-audit services impacted our auditor 's independence . we currently do not have any policy for approval of audit and permitted non-audit services by our independent auditor . we plan to appoint an audit committee by our board of directors and adopt procedures for approval of audit and non-audit services . page 28 part iv item 15. exhibits and financial statement schedules financial statements and schedules . the following consolidated financial statements of hst global , inc. are included herein beginning on page 8 : report of independent registered public accounting firm consolidated balance sheets as of december 31 , 2019 and 2018 consolidated statements of operations for the years ended december 31 , 2019 , and 2018 consolidated statements of changes in stockholders ' interest for the years ended december 31 , 2019 and 2018 consolidated statements of cash flows for the years ended december 31 , 2019 and 2018 notes to consolidated financial statements exhibits the following exhibits are included herein : exhibit no . description 31.1 certification by the chief executive officer of competitive technologies , inc. pursuant to section 302 of the sarbanes-oxley act of 2002 ( rule 13a-14 ( a ) or rule 15d-14 ( a ) ) . 31.2 certification by the chief financial officer of competitive technologies , inc. pursuant to section 302 of the sarbanes-oxley act of 2002 ( rule 13a-14 ( a ) or rule 15d-14 ( a ) ) . 32.1 certification by the chief executive officer of competitive technologies , inc. pursuant to section 906 of the sarbanes-oxley act of 2002 ( 18 u.s.c . 1350 ) . 32.2 certification by the chief financial officer of competitive technologies , inc. pursuant to section 906 of the sarbanes-oxley act of 2002 ( 18 u.s.c . 1350 ) . 101 interactive data files signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . hst global , inc. ( the registrant ) by : \s\ ron howell ron howell chief executive officer date : april 9 , 2020 page 29 story_separator_special_tag forward-looking statements statements about our future expectations are `` forward-looking statements '' within the meaning of applicable federal securities laws , and are not guarantees of future performance . when used herein , the words `` may , '' `` will , '' `` should , '' `` anticipate , '' `` believe , '' `` appear , '' `` intend , '' `` plan , '' `` expect , '' `` estimate , '' `` approximate , '' and similar expressions are intended to identify such forward-looking statements . these statements involve risks and uncertainties inherent in our business , including those set forth under the caption `` risk factors '' in other filings with the sec , and are subject to change at any time . our actual results could differ materially from these forward-looking statements . we undertake no obligation to update publicly any forward-looking statement . overview hst global , inc. is an integrated health and wellness biotechnology company with a plan to develop and /or acquire a network of wellness centers worldwide that would be primarily focused on the homeopathic and alternative treatment of late stage cancer . in addition , the company intends to acquire innovative products for the treatment of individual health challenges . in this regard , the company primarily focuses on homeopathic and alternative product candidates that are undergoing or have already completed significant clinical testing . to date we have been unable to initiate our original business plan . while we are continuing to seek opportunities to do so , we are also seeking other opportunities to integrate assets , rights , or other potential revenue streams . plan of operation general and administrative expenses consist primarily of salaries and related personnel costs , professional fees , business insurance , rent , general legal activities , and other corporate expenses . we have never been profitable and do not anticipate having net income unless and until we develop and or acquire our wellness centers and or develop new channels of distribution . with respect to our current activities , this is not likely to occur until we obtain significant additional funding . we can not
| results of operations the company had no revenues and no cost of revenues for the years ended december 31 , 2019 and 2018. the company incurred operating expenses of $ 151,554 for the year ended december 31 , 2019 , compared to $ 142,587 in 2018. the increase in expenses in 2019 was primarily a result of an increase in administrative expenses , primarily due to an attempted acquisition of certain assets described below . we do not believe these costs are indicative of future years , and we can not at this time predict our costs if and when we begin earning revenues and exit the start-up stage . the company had net income of $ 426,572 for the year ended december 31 , 2019 compared to a net loss of $ 178,335 in 2018. this is primarily a result of gain on extinguishment of debt , offset partially by an increase in operating expenses as described above . page 6 liquidity and capital resources our capital requirements are principally related to our efforts to implement our business plan . our cash balance as of december 31 , 2019 was $ 1,955. cash flows replace_table_token_0_th the company does not currently have sufficient capital in its accounts , nor sufficient firm commitments for capital to assure its ability to meet its current obligations or to continue its planned operations . the company is continuing to pursue working capital and additional revenue through the seeking of the capital it needs to carry on its planned operations . there is no assurance that any of the planned activities will be successful . off-balance sheet arrangements
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our global portfolio includes 141 data centers located in north america , with 107 located in europe , 22 in latin america , 12 in asia , six in australia and three in africa . 63 index to financial statements the following table presents an overview of our portfolio of data centers , including the 43 data centers held as investments in unconsolidated joint ventures , and developable land , based on information as of december 31 , 2020 . replace_table_token_18_th 64 index to financial statements ( 1 ) current net rentable square feet as of december 31 , 2020 , which represents the current square feet under lease as specified in the applicable lease agreements plus management 's estimate of space available for lease based on engineering drawings . includes customers ' proportional share of common areas and excludes space under active development and space held for development . ( 2 ) space under active development includes current base building and data center projects in progress . ( 3 ) space held for development includes space held for future data center development , and excludes space under active development . as of december 31 , 2020 , our portfolio , including the 43 data centers held as investments in unconsolidated joint ventures , were approximately 86.3 % leased excluding approximately 5.4 million square feet of space under active development and approximately 2.3 million square feet of space held for development . due to the capital-intensive and long-term nature of the operations being supported , our lease terms are generally longer than standard commercial leases . as of december 31 , 2020 , our average remaining lease term is approximately five years . our scheduled lease expirations through december 31 , 2022 are 26.0 % of rentable square feet excluding month-to-month leases , space under active development and space held for development as of december 31 , 2020. factors which may influence future results of operations covid-19 . we are closely monitoring the impact of the covid-19 pandemic on our global business and operations , including the impact on our customers , suppliers and business partners . as of the date of this report , all of our facilities have been and continue to be fully operational and operating in accordance with our business continuity and pandemic response plans . across our portfolio , our facilities have been deemed essential operations , allowing us to remain staffed with critical personnel in place to continue to provide services and support for our customers . while we did not experience significant disruptions from the covid-19 pandemic during the year ended december 31 , 2020 nor as of the date of this report , we can not predict the impact that the covid-19 pandemic will have on our future financial condition , results of operations and cash flows due to numerous uncertainties . the full extent to which the covid-19 pandemic and the various responses to it impact our business , operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict , including : the duration and scope of the pandemic ; governmental , business and individuals ' actions that have been and continue to be taken in response to the pandemic ; the availability of and cost to access the capital markets ; the effect on our customers and customer demand for and ability to pay for our services ; the impact on our development projects ; and disruptions or restrictions on our employees ' ability to work and travel . the global impact of the outbreak has been rapidly evolving and federal and local governments , including in locations where we operate , have responded by instituting quarantines , restrictions on travel , “ shelter in place ” rules , restrictions on the types of business that may continue to operate , and restrictions on construction projects . we can not predict whether further restrictions will be implemented or how long they will be in effect . the impacts from the severe disruptions caused by the effective shutdown of large segments of the global economy remain unknown . our workforce , excluding our critical data center employees , is working from home , which may impact its productivity . we have also experienced delays in construction activity in a few of our markets due to government restrictions in certain locations and as a result of availability of labor , and these delays are impacting some of our anticipated deliveries to our customers . we may continue to experience delays in construction activity , even after these restrictions are eased or lifted , due to increased safety protocols implemented in response to the covid-19 pandemic . we continue to closely monitor the situation and communicate with our customers , contractors and suppliers . from a supply chain perspective , as of the date of this report , we believe we have secured the vast majority of equipment needed to complete our current development activities . in addition , we can not predict the impact that covid-19 will have on our customers , suppliers and other business partners ; however , any material effect on these parties could adversely impact us . as of the date of this report , we have collected 2020 and january 2021 base rent and other payments at levels consistent with the comparable prior period . we received requests for rent relief related to covid-19 , most often in the form of rent deferral requests or requests for further discussion , from customers representing approximately 3 % of annualized recurring rent . we are evaluating each customer rent relief request on an individual basis , considering a number of factors . not all customer requests will ultimately result in modification agreements , nor are we forgoing our contractual rights under our agreements . these 65 index to financial statements requests for rent relief have not yet indicated that the probability of collecting the remaining rent due from these customers was less than likely . story_separator_special_tag consequently , there were no instances where we deemed it necessary to cease the recognition of income from rentals on a straight-line basis and begin the recognition of income from rentals on a cash basis when lease payments are collected . while we did not have any material adjustments to amounts as of and during the year ended december 31 , 2020 , circumstances related to the covid-19 pandemic could potentially result in recording impairments , lease modifications and credit losses in future periods . january 2021 collections and rent relief requests may not necessarily be indicative of collections or requests in any future period . covid-19 philanthropic efforts . we have undertaken a comprehensive , philanthropic initiative consisting of corporate contributions , matching gifts and community outreach initiatives to help support organizations combating covid-19 around the world . ● in april 2020 , we announced a $ 1.0 million philanthropic effort to help support covid-19 relief efforts in the communities we operate in globally , including donations to global and local charitable organizations . ● in march 2020 , we announced , in partnership with megaport , that for the month of april we were waiving port fees for new ports on service exchange across our global portfolio to anyone in the government , medical , emergency services , and education verticals for six months . global market and economic conditions . general economic conditions and the cost and availability of capital may be adversely affected in some or all of the metropolitan areas in which we own properties and conduct our operations , including as a result of the covid-19 pandemic . changes in political conditions , geopolitical turmoil , political instability , civil disturbances , restrictive governmental actions or nationalization in the countries in which we operate , such as recent escalations in political and trade tensions involving the u.s. , china and hong kong , could potentially result in adverse effects on our , and our customers ' , operations . in june 2016 , a majority of voters in the united kingdom elected to withdraw from the european union in a national referendum . the united kingdom formally withdrew from the european union on january 31 , 2020 and ratified a trade and cooperation agreement governing its future relationship with the european union . the agreement , which is being applied provisionally from january 1 , 2021 until it is ratified by the european parliament and the council of the european union , addresses trade , economic arrangements , law enforcement , judicial cooperation and a governance framework including procedures for dispute resolution , among other things . because the agreement merely sets forth a framework in many respects and will require complex additional bilateral negotiations between the united kingdom and the european union as both parties continue to work on the rules for implementation , significant political and economic uncertainty remains about how the precise terms of the relationship between the parties will differ from the terms before withdrawal . instability in the u.s. , european , asia pacific and other international financial markets and economies may adversely affect our ability , and the ability of our customers , to replace or renew maturing liabilities on a timely basis , access the capital markets to meet liquidity and capital expenditure requirements and could potentially result in adverse effects on our , and our customers ' , financial condition and results of operations . in addition , our access to funds under our global revolving credit facilities depends on the ability of the lenders that are parties to such facilities to meet their funding commitments to us . we can not assure you that recent and long-term disruptions in the global economy , including as a result of the covid-19 pandemic , and the return of tighter credit conditions among , and potential failures or nationalizations of , third-party financial institutions as a result of such disruptions will not have an adverse effect on our lenders . if our lenders are not able to meet their funding commitments to us , our business , results of operations , cash flows and financial condition could be adversely affected . if we do not have sufficient cash flow to continue operating our business and are unable to borrow additional funds , access our existing lines of credit or raise debt or equity capital , we may need to source alternative methods to improve our liquidity . such alternatives could include , without limitation , curtailing development activity , disposing of one or more of our properties , potentially on disadvantageous terms , or entering into or renewing lease agreements on less favorable terms than we otherwise would . 66 index to financial statements foreign currency exchange risk . for the years ended december 31 , 2020 and 2019 , we had foreign operations , including through our investments in unconsolidated joint ventures , in the united kingdom , ireland , france , the netherlands , germany , switzerland , canada , singapore , australia , japan , hong kong , south korea and brazil and we have added austria , belgium , denmark , spain , sweden and kenya as part of the interxion combination , which closed in march 2020 , and , as such , are subject to risk from the effects of exchange rate movements of foreign currencies , which may affect future costs and cash flows . our foreign operations are conducted in the british pound sterling , euro , canadian dollar , brazilian real , singapore dollar , australian dollar , japanese yen , hong kong dollar , south korean won , swiss franc , danish krone , swedish krona and the kenyan shilling . our primary currency exposures are to the british pound sterling , the euro and the singapore dollar . the withdrawal of the united kingdom ( or any other country ) from the european union , or prolonged periods of uncertainty relating to any of these possibilities , could result in increased foreign currency exchange volatility .
| 2019 and compared to a portfolio consisting of 214 data centers , including 18 data centers held as investments in unconsolidated joint ventures , with an aggregate of approximately 34.5 million rentable square feet including 3.4 million square feet of space under active development and 2.1 million square feet of space held for development as of december 31 , 2018 . 75 index to financial statements revenues total operating revenues for the years ended december 31 , 2020 , 2019 and 2018 were as follows ( in thousands ) : replace_table_token_22_th the following tables show revenues for the years ended december 31 , 2020 , 2019 and 2018 for stabilized properties and non-stabilized properties and other ( all other properties ) ( in thousands ) . revenue totals for non-stabilized include results from properties that have not yet met the definition of stabilized and properties that are classified as held for sale or were sold during the period . replace_table_token_23_th stabilized revenue decreased $ 36.9 million for the year ended december 31 , 2020 compared to the same period in 2019 due to delayed timing of re-leasing space that expired towards the end of 2019 as well as reduced utility consumption also related to these vacancies not yet re-leased . non-stabilized revenues increased $ 727.1 million for the year ended december 31 , 2020 compared to the same period in 2019 primarily as a result of revenues associated with the interxion combination of $ 691.4 million for the year ended december 31 , 2020 along with development properties placed into service during the year ended december 31 , 2020 , partially offset by properties sold to mapletree in january 2020 , properties contributed to the mapletree joint venture in november 2019 and the ascenty acquisition prior to deconsolidation in march 2019 . replace_table_token_24_th on january 1 , 2019 , we adopted topic 842 and the practical expedient
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also within our auto finance segment , we are providing certain installment lending products in addition to our traditional loans secured by automobiles . we closely monitor and manage our expenses based on current product offerings . at this time , we are maintaining our infrastructure and incurring increased overhead and other costs in order to expand point-of-sale and direct-to-consumer finance and credit solutions and new product offerings that we believe have the potential to grow into our existing infrastructure and allow for long-term shareholder returns . beyond these activities within our credit and other investments segment , we invest in and service portfolios of credit card receivables . one of our portfolios of credit card receivables is encumbered by non-recourse structured financing , and for this portfolio our principal remaining economic interest is the servicing compensation we receive as an offset against our servicing costs given that the likely future collections on the portfolio are insufficient to allow for full repayment of the financing . 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 ) investments in additional financial assets associated with point-of-sale and direct-to-consumer finance and credit activities as well as the acquisition of interests in receivables portfolios ; ( 2 ) investments in other assets or businesses that are not necessarily financial services assets or businesses ; and ( 3 ) the repurchase of our convertible senior notes and other debt or our outstanding common stock . 19 story_separator_special_tag equity in income of equity-method investee . because our equity-method investee uses the fair value option to account for its financial assets and liabilities , changes in fair value estimates can cause some volatility in the earnings of this investee . because of continued liquidations in the credit card receivables portfolio of our equity-method investee , absent additional investments in our existing or in new equity-method investees in the future , we expect gradually declining effects from our equity-method investment on our operating results . net losses upon ( recovery of ) charge off of loans , interest 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 legacy credit card receivables . additionally , net recovery in the year ended december 31 , 2017 reflects the effects of reimbursements received in respect of one of our portfolios . for the year ended december 31 , 2017 , these reimbursements exceeded the charge-offs experienced within the portfolio during the period as the reimbursements are not directly associated with the timing of actual charge-offs . a reduction in the amount of these reimbursements during 2018 resulted in net losses for that period . we currently do not expect further reimbursements will result in a net recovery of losses upon impairment , and do not expect such reimbursements to have a material impact on charge-offs in 2019. provision for losses on loans , interest and fees receivable recorded at net realizable value . our provision for losses on loans , interest and fees receivable recorded at net realizable value covers , with respect to such receivables , changes in estimates regarding our 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 a period-over-period increase in this category between the years ended december 31 , 2018 and 2017 primarily reflecting the effects of volume associated with point-of-sale and direct-to-consumer finance receivables ( i.e. , growth of new product receivables and their subsequent maturation ) , rather than specific credit quality changes or deterioration , which also impacted our provision for losses on loans , interest and fees receivable recorded at net realizable value to a lesser degree . partially offsetting this increase was a reduction in our provision for loan losses for unearned fees and discounts that may be applicable for outstanding loan receivables and which would serve to reduce the financial impact of an eventual charge-off . the offsetting of unearned fees and discounts against our provision for losses resulted in an initial $ 3.3 million reduction in the provision recognized for the twelve months ended december 31 , 2018. 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 , 2018 , relative to the year ended december 31 , 2017 , reflect the following : increases in salaries reflecting marginal growth in both the number of employees and increases in related benefit costs . we expect some marginal increase in this cost for 2019 when compared to 2018 as we expect our receivables to continue to grow ; increases in card and loan servicing expenses in the year ended december 31 , 2018 when compared to the year ended december 31 , 2017 due to growth in receivables associated with our investments in point-of-sale and direct-to-consumer receivables which grew from $ 316.7 million outstanding to $ 453.3 million outstanding at december 31 , 2017 and december 31 , 2018 , respectively , offset by the continued net liquidations in our legacy credit card portfolios , the receivables of which declined from $ 16.6 million outstanding to $ 9.6 million outstanding at december 31 , 2017 and december 31 , 2018 , respectively ; decreases in marketing and solicitation costs for the year ended december 31 , 2018 primarily due to volume-related decreases in new accounts and the timing story_separator_special_tag of solicitations during 2018. we expect increased origination and brand marketing support will result in overall increases in year-over-year expenditures during 2019. certain operating costs are variable based on the levels of accounts and receivables we service ( both for our own account and for others ) and the pace and breadth of our growth in receivables . 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 legacy credit card receivables . this trend is gradually reversing as we continue to grow our earning assets ( including loans , interest and fees receivable ) based principally on growth of point-of-sale and direct-to-consumer receivables and to a lesser extent , growth within our car operations . this is evidenced by the growth we experienced in our managed receivables levels with minimal growth in the fixed portion of our card and loan servicing expenses as well as our salaries and benefits costs as we were able to better utilize our fixed costs to grow our asset base . we continue to manage our costs effectively . 22 notwithstanding our cost-control efforts and focus , we expect increased levels of expenditures associated with anticipated growth in point-of-sale and direct-to-consumer credit card-related operations . these expenses will primarily relate to the variable costs of marketing efforts and card and loan servicing expenses associated with new receivable acquisitions . while we have greater control over our variable expenses , it is difficult ( as explained 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 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 earnings generated from our auto finance segment and our liquidating credit card portfolios , we may experience continuing pressure on our ability to achieve consistent profitability . 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 . we experienced a negative effective income tax expense rate of 118.6 % for the year ended december 31 , 2018 , compared to an effective income tax benefit rate of 13.5 % for the year ended december 31 , 2017. our negative effective income tax expense rate for the year ended december 31 , 2018 is significantly below the statutory rate principally as a result of our settlement during 2018 of an irs examination of our 2008 tax return and the carryback of its resulting net operating losses to pre-2008 tax years . the settlement resulted in a decrease in our federal tax valuation allowance and net reductions in our accruals of interest on liabilities for uncertain tax positions and unpaid taxes . our effective income tax benefit rate for the year ended december 31 , 2017 was below the statutory rate principally due to ( 1 ) interest and penalties that we accrued on unpaid federal tax liabilities and ( 2 ) our establishment of valuation allowances against our net federal deferred tax assets associated with our net loss incurred in that year . we report income tax-related interest and penalties ( including those associated with both our accrued liabilities for uncertain tax positions and unpaid tax liabilities ) within our income tax line item on our consolidated statements of operations . we likewise report the reversal of income tax-related interest and penalties within such line item to the extent that we resolve our liabilities for uncertain tax positions or unpaid tax liabilities in a manner favorable to our accruals therefor . for 2018 , we reported a net reversal of income tax-related interest and penalties of $ 1.2 million within our income tax line item , and , for 2017 , we reported net income tax-related interest and penalties of $ 0.5 million within our income tax line item . in december 2014 , we reached a settlement with the irs concerning the tax treatment of net operating losses we incurred in 2007 and 2008 and carried back to obtain refunds of federal income taxes paid in earlier years dating back to 2003. in 2015 , we filed an amended return claim that , if accepted , would have eliminated the $ 7.4 million assessment ( and corresponding interest and penalties ) under a negotiated provision of the december 2014 irs settlement . the irs filed a lien ( as is customarily the case ) associated with the assessment . subsequently , an irs examination team denied our amended return claims , and we filed a protest with irs appeals . following correspondence and conferences held with irs appeals , we received and accepted a settlement offer from irs appeals in june 2018 that reduced our $ 7.4 million net unpaid income tax assessment referenced above to $ 3.7 million .
| the significant factors affecting our differing levels of fees and related income on earning assets include : increases in fees on credit products , primarily associated with growth in direct-to-consumer products and to a lesser degree by growth in point-of-sale finance products , offset somewhat by general net declines in legacy credit card receivables ; 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 described below ; and a $ 2.1 million write-down in 2017 of the carrying value associated with investments previously made in consumer finance technology platforms carried at the lower of cost or market valuation . we expect increasing levels of direct-to-consumer fee income in 2019 as we continue to invest in new credit card receivables as part of our direct-to-consumer operations . additionally , for credit card accounts for which we use fair value accounting , we expect our change in fair value of credit card receivables recorded at fair value and our change in fair value of notes payable associated with structured financings recorded at fair value amounts to gradually diminish ( absent significant changes in the assumptions used to determine these fair values ) in the future . these amounts , however , are subject to potentially high levels of volatility if we experience changes in the quality of our credit card receivables or if there are significant changes in market valuation factors ( e.g. , interest rates and spreads ) in 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 legacy credit card receivables liquidations and associated debt repayments . servicing income . we earn servicing income by servicing loan portfolios for third parties ( including our equity-method investee ) .
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under the terms of the termination agreement , we agreed to pay astrazeneca certain amounts for the return of the licenses granted to it , including ( a ) an upfront fee of $ 15.0 million , ( b ) future royalties at a royalty rate of 10 % of net sales of tenapanor or other nhe3 products by us or our licensees , and ( c ) 20 % of non-royalty revenue received from a new collaboration partner should we elect to license , or otherwise provide rights to develop and commercialize tenapanor or another nhe3 inhibitor . the amounts described in ( a ) - ( c ) are capped at the aggregate amount of $ 90.0 million . we also paid astrazeneca $ 10.0 million as reimbursement for certain research and development expenses incurred by astrazeneca under the collaboration agreement during 2015 , and for the acceleration of the transfer of information and materials to us . under the termination agreement , astrazeneca was obligated to complete the manufacturing of clinical trial material necessary for the phase 3 clinical program for tenapanor in ibs-c , and we agreed to pay astrazeneca a maximum amount of $ 10 million for such clinical trial material , which maximum amount was subsequently reduced to $ 8.0 million pursuant to an amendment to the termination agreement ( amendment number one ) . as the astrazeneca agreement was terminated in june 2015 , we recognized the remaining deferred revenue balance of $ 43.1 million during the three months ended june 30 , 2015. in the three months ended june 30 , 2015 , we recorded the $ 15.0 million upfront payment for the return of the licenses as well as the $ 10.0 million payment for reimbursement of research and development expenses and the acceleration of the transfer of information and materials as a reduction in licensing revenue in the condensed statements of operations and comprehensive loss . we recorded $ 7.3 million in expenses incurred for the tenapanor clinical trial material from astrazeneca during the year ended december 31 , 2015. sanofi sa ( sanofi ) in february 2014 , we entered into an option and license agreement with sanofi , or the sanofi agreement , under which we granted sanofi an exclusive worldwide license to conduct research utilizing our program evaluating small molecule nap2b inhibitors for the treatment of hyperphosphatemia in ckd patients on dialysis . in addition , sanofi had the option under the sanofi agreement to obtain an exclusive license to develop , manufacture and commercialize our nap2b inhibitors . under the sanofi agreement , we received an upfront payment of $ 1.25 million in march 2014 , which was fully recognized as licensing revenue in may 2014 after we completed our obligation to provide sanofi the background know-how , listed patents , and materials described in the sanofi agreement . the sanofi agreement was terminated effective september 30 , 2015 and all rights were returned to ardelyx . there was no payment associated with termination and the return of rights to ardelyx . financial operations overview revenue we have not generated any revenue from product sales . our revenue to date has been generated from non-refundable license payments and reimbursements for research and development expenses under our license 62 agreements with astrazeneca and sanofi , both of which were terminated in 2015. we recognize revenue from upfront payments ratably over the term of our estimated period of performance under the agreement , which we consider to be licensing revenue . should any of our agreements contain event based payments , such payments are recorded as revenue when we achieve the underlying milestone if it is deemed to be a substantive milestone at the date the arrangement is entered into . to the extent that non-substantive milestones are achieved and we have remaining performance obligations , milestones are deferred and recognized as revenue over the estimated remaining period of performance . reimbursements from astrazeneca for development costs incurred under our license and collaboration agreement with them were classified as collaborative development revenue . research and development expenses research and development expenses represent costs incurred to conduct research , such as the discovery and development of our unpartnered product candidates , and prior to the termination of the astrazeneca agreement , research and development expenses also included costs we incurred in connection with the development of tenapanor pursuant to our license agreement with astrazeneca . we recognize all research and development expenses as they are incurred . research and development expenses consist of the following : external research and development expenses incurred under agreements with consultants , third-party contract research organizations and investigative sites where a substantial portion of our clinical studies are conducted , and with contract manufacturing organizations where our clinical supplies are produced ; expenses associated with supplies and materials consumed in connection with our research operations ; employee-related expenses , which include salaries , benefits and stock-based compensation ; and facilities and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities , depreciation and amortization expense and other supplies . we expect our research and development expenses will increase substantially in the future as we progress the development of tenapanor and our other our internal product candidates , advance our discovery research projects into the preclinical stage and continue our early stage research including further development of our apeccs cell-culture system . the process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming . we , or our collaboration partner ( s ) , if any , may never succeed in achieving marketing approval for any of our product candidates . the probability of success of each of the product candidates may be affected by numerous factors , including preclinical data , clinical data , competition , manufacturing capability and commercial viability . the successful development of our product candidates is highly uncertain and may not result in approved products . story_separator_special_tag completion dates and completion costs can vary significantly for each product candidate and are difficult to predict . given the uncertainty associated with clinical trial enrollment and the risks inherent in the development process , we are unable to determine the duration and completion costs of current or future clinical trials of our product candidates or if and to what extent we will generate revenues from the commercialization and sale of any of our product candidates . we anticipate that 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 the scientific and clinical success of each product candidate , as well as an ongoing assessment as to each product candidate 's commercial potential . we will need to raise additional capital and will seek additional collaboration partnerships in the future in order to complete the development and commercialization of our product candidates , including tenapanor . general and administrative general and administrative expenses include personnel costs , travel expenses and other expenses for outside professional services , including legal , human resources , audit and accounting services . personnel costs includes 63 salaries , bonus , benefits and stock-based compensation . since becoming a public company in 2014 , we have incurred and expect to continue to incur expenses required of public companies , including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange and costs related to compliance and reporting obligations pursuant to the rules and regulations of the sec . other related public company costs include increased expenses for additional insurance , investor relations and professional services . income taxes we recorded income tax benefit for the year ended december 31 , 2015 primarily due to the provision to return true-up for the year ended december 31 , 2014. for each of the tax years ended december 31 , 2014 and 2013 , the company recorded an income tax provision due to the minimum taxes which resulted from upfront and milestone payments received from astrazeneca . due to the history of cumulative losses , the company 's deferred taxes continue to be subject to full valuation allowance for the tax years ended december 31 , 2015 , 2014 , and 2013. critical accounting polices and estimates a detailed discussion of our significant accounting policies can be found in note 1 of the notes to financial statements , and the impact and risks associated with our accounting policies are discussed throughout this annual report on form 10-k and in the footnotes to the financial statements . critical accounting policies are those that require significant judgment and or estimates by management at the time that financial statements are prepared such that materially different results might have been reported if other assumptions had been made . we consider certain accounting policies related to revenue recognition , accrued liabilities , and use of estimates to be critical policies . these estimates form the basis for making judgments about the carrying values of assets and liabilities . we base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . actual results could differ materially from these estimates . we believe the following policies to be the most critical to an understanding of our financial condition and results of operations because they require us to make estimates , assumptions and judgments about matters that are inherently uncertain . revenue recognition research activities revenue from research activities made under collaboration partnership agreements are recognized as the services are provided and when there is persuasive evidence that an arrangement exists , delivery has occurred , the price is fixed or determinable , and collectability is reasonably assured . revenue generated from research and license agreements typically includes up-front signing or license fees , cost reimbursements , research services , minimum sublicense fees , milestone payments , and royalties on future licensees ' product sales . multiple-element arrangements for revenue agreements with multiple-element arrangements , such as license and development agreements , we allocate revenue to each non-contingent unit of accounting based on the relative selling price of each unit . when applying the relative selling price method , we determine the selling price for each deliverable using vendor-specific objective evidence or third-party evidence . if neither exists , we use the best estimate of selling price for that deliverable . revenue allocated is then recognized when the four basic revenue recognition criteria are met for each unit . our obligations under the agreements may include the transfer of intellectual property rights in the form of licenses , obligations to provide research and development services and obligations to 64 participate on certain development committees with the collaboration partner . we make judgments that affect the period over which we recognize revenue . on a quarterly basis , we review our estimated period of performance for our license revenue based on the progress under the arrangement and account for the impact of any changes in estimated periods of performance on a prospective basis . cost reimbursement we recognize cost reimbursement revenue under collaboration partnership agreements as the related research and development costs for services are rendered . deferred revenue represents the portion of research or license payments received that have not been earned . milestone a milestone is considered substantive when the consideration earned from the achievement of the milestone ( i ) is commensurate with either our performance to achieve the milestone or the enhancement of value of the item delivered as a result of a specific outcome resulting from our performance to achieve the milestone , ( ii ) relates solely to past performance and ( iii ) is reasonable relative to all deliverables and payment terms in the arrangement . such payments that are contingent upon the achievement of a substantive milestone are recognized entirely as revenue in the period in which the milestone is achieved .
| research and development year ended december 31 , 2015 2014 dollar change ( in thousands ) research and development $ 39,885 $ 25,900 $ 13,985 research and development expenses were $ 39.9 million for the year ended december 31 , 2015 , an increase of $ 14.0 million , or 54 % , compared to $ 25.9 million for the year ended december 31 , 2014. the change was primarily due to the $ 7.3 million in expenses incurred for the tenapanor clinical trial material from astrazeneca as well as an increase of $ 6.7 million in expenses incurred for clinical development activities associated with tenapanor and rdx022 , and manufacturing process development for rdx022 . general and administrative year ended december 31 , 2015 2014 dollar change ( in thousands ) general and administrative $ 13,530 $ 7,287 $ 6,243 general and administrative expenses were $ 13.5 million for the year ended december 31 , 2015 , an increase of $ 6.2 million , or 86 % , compared to $ 7.3 million for the year ended december 31 , 2014. the increase was primarily due to an increase in professional services fees , personnel and public company costs . 67 change in fair value of preferred stock warrant liability year ended december 31 , 2015 2014 dollar change ( in thousands ) change in fair value of preferred stock warrant liability $ $ ( 1,593 ) $ 1,593 change in fair value of preferred stock warrant liability was zero for the year ended december 31 , 2015 compared to $ ( 1.6 ) million for the year ended december 31 , 2014. the preferred stock warrants were net exercised upon the completion of our initial public offering ( ipo ) in june 2014 and are no longer subject to remeasurement . comparison of the years ended december 31 , 2014 and 2013 revenue replace_table_token_7_th licensing revenue for the year ended december 31 , 2014 was $ 18.4 million , an increase of $ 10.3 million , or 128 % , compared to $ 8.1 million for the year ended december 31 , 2013. the increase was primarily due to the amortization of deferred revenue from the $ 15.0 million development milestone payment we received in december 2013 related to the amendment to the astrazeneca agreement and the $ 25.0 million development milestone payment we received in may 2014 related to the dosing of the first patient in the phase 2b esrd clinical trial in hyperphosphatemia in april 2014 , which were both recognized ratably
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the phase 3 clinical program is expected to be initiated by bayer in march 2013. in 2011 , bayer achieved agreement with the fda on the design of the planned phase 3 clinical studies of bay41-6551 under the special protocol assessment process that is intended to support the submission of a nda if the planned phase 3 clinical study is successful . we also have a significant collaboration with baxter healthcare to identify and develop pegylated drug candidates with the objective of providing new long-acting therapies for hemophilia patients . under the terms of this collaboration , we are providing a license to our intellectual property and our pegylation technology and expertise . baxter is responsible for all clinical development . the first drug candidate in this collaboration , bax 855 , is a longer-acting ( pegylated ) form of a full-length recombinant factor viii ( rfviii ) protein which has completed phase 1 clinical development in patients with hemophilia a. in february 2013 , baxter initiated a phase 3 multi-center , open-label clinical study called prolong-ate that will enroll more than 100 previously treated adult patients with severe hemophilia a to assess the efficacy , safety and pharmacokinetics of bax 855 for prophylaxis and on-demand treatment of bleeding . if bax 855 is approved by health authorities and is successfully commercialized by baxter , this would represent a substantial royalty revenue opportunity for us , subject to significant risks and uncertainties relating to regulatory approval with health authorities and subsequent commercial success . while the late stage clinical development programs described above are key elements of the future success of our company , we believe it is critically important that we continue to make substantial investments in our earlier-stage drug candidate pipeline . for example , in april 2012 we advanced nktr-192 , our short-acting opioid drug candidate , into phase 1 clinical studies and in july 2012 we advanced nktr-181 into a phase 2 clinical study and plan to conduct a human abuse liability study for nktr-181 in the first half of 2013. while we believe that our substantial investment in research and development has the potential to create significant value if one or more of our drug candidates demonstrate positive clinical results and receive regulatory approval in one or more major markets , drug research and development is an inherently uncertain process and there is a high risk of failure at every stage prior to approval and the timing and outcome of clinical trial results are extremely difficult 57 to predict . clinical development successes and failures can have a disproportionate positive or negative impact on our scientific and medical prospects , financial prospects , financial condition , and market value . historically , we have entered into a number of license and supply contracts under which we manufactured and supplied our proprietary pegylation reagents on a cost-plus or fixed price basis . our current strategy is to manufacture and supply pegylation reagents to support our proprietary drug candidates or our third party collaborators where we have a strategic development and commercialization relationship or where we derive substantial economic benefit . as a result , whenever possible , we are renegotiating or not seeking renewal of legacy manufacturing supply arrangements that do not include a strategic development or commercialization component . for example , in october 2010 , we entered into a supply , dedicated suite and manufacturing guarantee agreement with amgen , inc. and amgen manufacturing , limited , which has significantly amended economic and other terms in the non-exclusive supply and license agreement we previously entered into with amgen in 1995. in addition , in december 2010 , we entered into an amended manufacturing and supply agreement with merck ( through its acquisition of schering-plough corporation ) to provide for transfer to an alternative manufacturer and revised economics for an interim supply arrangement until that transition is completed . key developments and trends in liquidity and capital resources at december 31 , 2012 , we had approximately $ 302.2 million in cash , cash equivalents , and investments in marketable securities and $ 149.0 million in indebtedness . the indebtedness includes $ 125.0 million in aggregate principal amount of 12.0 % senior secured notes due july 15 , 2017 which we issued during the three months ended september 30 , 2012 , but excludes our long-term liability relating to the sale of future royalties under the purchase and sale agreement with rpi finance trust ( rpi ) . as is further described in note 7 , this royalty obligation liability will not be settled in cash , but we may be required to make a payment of up to $ 7.0 million in 2014 if the worldwide net sales thresholds of mircera ® in 2013 are not met . during the year-ended december 31 , 2012 , we retired $ 215.0 million in aggregate principal amount of our previously outstanding convertible subordinated notes . as of december 31 , 2012 , we had at least twelve months of working capital to fund our current business plans . we expect the clinical development of our proprietary drug candidates including etirinotecan pegol , amikacin inhale , nktr-181 , and nktr-192 will require significant investment in order to continue to advance in clinical development with the objective of entering into a collaboration partnership or obtaining regulatory approval . however , we have no credit facility or any other sources of committed capital . in addition , while in the past we have received a number of significant payments from license and collaboration agreements and other significant transactions , we do not currently anticipate completing new transactions with substantial upfront payments in the near -term . our current business plan is also subject to significant uncertainties and risks as a result of , among other factors , expenses being higher than anticipated , unplanned expenses , cash receipts being lower than anticipated , and the need to satisfy contingent liabilities including litigation matters and indemnification obligations . story_separator_special_tag the availability and terms of various financing alternatives substantially depend on the success or failure of our drug development programs including naloxegol , etirinotecan pegol , bax 855 , amikacin inhale , nktr-181 , and nktr-192 . the availability and terms of financing alternatives and any future significant payments from existing or new collaborations all depend on the positive outcome of ongoing or planned clinical studies , whether we or our partners are successful in obtaining health authority approvals in major markets , and if approved , the commercial success of these drugs . in particular , we are entitled to up to $ 235.0 million of regulatory and commercial launch milestones under our license agreement with astrazeneca , $ 95.0 million of which is related to astrazeneca submitting regulatory approval filings for naloxegol with the fda and with the ema . astrazeneca has indicated that it plans to submit regulatory filings for naloxegol subject to subject to astrazeneca 's final preparation of the registration package and a pre-nda meeting with the fda . in the event we do not enter into any new collaboration partnerships with significant up-front payments or do not receive the naloxegol regulatory milestone payments in 2013 , we would likely be required to pursue financing alternatives . 58 in the event we determine to explore financing alternatives , our objective would be to first pursue financing alternatives that are not dilutive to the ownership of our common stock security holders . however , if non-dilutive financing alternatives are not available to us on commercially reasonable terms or at all , we could be required to pursue dilutive equity-based financing alternatives such as an offering of convertible debt or common stock . story_separator_special_tag for discussion of the risks associated with the complex nature of our collaboration agreements . 60 revenue by geography revenue by geographic area is based on locations of our partners . the following table sets forth revenue by geographic area ( in thousands ) : replace_table_token_6_th the increase in revenue attributable to european countries for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 is primarily attributable to increased product sales and royalty revenues from our existing european collaboration partners . the decrease in revenue attributable to european countries for the year ended december 31 , 2011 compared to the year ended december 31 , 2010 is primarily attributable to the revenue we recognized in 2010 from the astrazeneca license agreement . cost of goods sold ( in thousands , except percentages ) replace_table_token_7_th cost of goods sold increased during the year ended december 31 , 2012 compared to the year ended december 31 , 2011 primarily due to the $ 10.5 million increase in product sales in 2012. the increase in product gross margin during the year ended december 31 , 2012 compared to the year ended december 31 , 2011 is primarily due to the decreased cost per unit in 2012 resulting from increased manufacturing activity , resulting in improved overhead absorption . the decrease in cost of goods sold during the year ended december 31 , 2011 compared to the year ended december 31 , 2010 is primarily due to the $ 2.5 million decrease in product sales in 2011 and an increase in overall commercial and proprietary manufacturing activity in 2011 compared to 2010 that resulted in decreased costs per unit . the increase in product gross margin during the year ended december 31 , 2011 compared to the year ended december 31 , 2010 is primarily due to the different mix of products sold and the decreased costs per unit in 2011 resulting from increased manufacturing activity . we expect product gross margin to fluctuate in future periods depending on the level and mix of manufacturing orders from our customers due to the fixed cost base associated with our manufacturing activities . research and development expense ( in thousands , except percentages ) replace_table_token_8_th 61 research and development expense consists primarily of personnel costs ( including salaries , benefits , and stock-based compensation ) , clinical study costs , direct costs of outside research conducted by clinical research organizations , materials , supplies , licenses and fees . research and development expense also includes certain overhead allocations consisting of various support and facilities related costs . the increase in research and development expense for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 is primarily attributable to the $ 15.2 million increase in direct research and development program costs , a substantial portion of which is attributable to the etirinotecan pegol ( nktr-102 ) phase 3 beacon clinical study initiated in december 2011 as well as the nktr-181 phase 2 clinical study initiated in july 2012. in addition , research and development expense increased due to a $ 6.2 million increase in salaries and employee benefits resulting from increased headcount to support our expanded clinical development activities . the increase in research and development expense for the year ended december 31 , 2011 compared to the year ended december 31 , 2010 is primarily attributable to a $ 7.5 million increase in direct research and development program and materials costs , a $ 3.0 million increase in salaries and employee benefits , and a $ 6.3 million increase in support and facilities-related costs , which includes increased non-cash depreciation and non-cash rent expenses related to the move to our facility in the mission bay area of san francisco , california ( mission bay facility ) at the end of 2010. we utilize our employee and infrastructure resources across multiple development and research programs . the following table shows expenses incurred for preclinical study support , clinical supplies , clinical and regulatory services provided by third parties and direct materials costs for each of our drug candidates .
| we expect product sales to increase in 2013 as compared to 2012. royalty revenues and non cash royalty revenue related to sale of future royalties we receive royalty revenue from certain of our collaboration partners based on their net sales of commercial products . royalty revenues decreased during the year ended december 31 , 2012 compared to the year ended december 31 , 2011 primarily as a result of the sale of the royalties we receive from ucb 's cimzia ® and roche 's mircera ® product sales as is further described below . royalty revenues increased during the year ended december 31 , 2011 as compared to the year ended december 31 , 2010 primarily as a result of the increase in royalties received from net sales of cimzia ® and mircera ® . we expect royalties to decrease in 2013 as compared to 2012 . 59 during the years ended december 31 , 2011 and 2010 , we recognized $ 8.3 million and $ 5.4 million , respectively , in aggregate royalties from net sales of cimzia ® and mircera ® . in february 2012 , we sold all of our rights to receive future royalty payments on cimzia ® and mircera ® effective for all periods from january 1 , 2012 through the life of the royalty obligation . as described in note 7 to our consolidated financial statements , this royalty sale transaction has been recorded as a liability that amortizes over the estimated royalty payment period . as a result of this liability accounting , even though the royalties from ucb and roche are remitted directly to the purchaser , we will continue to record revenue for these royalties . during the year ended december 31 , 2012 , we recognized $ 13.5 million in aggregate royalties from net sales of cimzia ® and mircera ® , of which the $ 2.7 million recognized in the three months ended march 31 , 2012 was retained by us as these amounts resulted from product sales in the fourth quarter of 2011 and the $ 10.8 million recognized in the nine months ended december 31 , 2012 was remitted directly to
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this increase was mainly due to additional share-based compensation expense related to the 2014 issuance of restricted shares to directors and certain officers of the company , the grant of performance shares under a new long term incentive plan and the grant of options to certain employees . also , the 2014 period included higher payroll related expenses due to the addition of new employees during 2013 and 2014. acquisition costs the 2013 period included costs related to the acquisition of the additional ownership interest in the deer park property as well as costs from other potential acquisitions of operating properties that we chose not to pursue . abandoned pre-development costs during the 2014 period , we decided to abandon two pre-development projects and as a result , we recorded a $ 2.4 million charge , representing the cumulative related costs . depreciation and amortization depreciation and amortization increased $ 6.7 million , or 7 % , in the 2014 period compared to the 2013 period . the following table sets forth the changes in various components of depreciation and amortization ( in thousands ) : replace_table_token_25_th depreciation and amortization costs decreased at existing properties as certain construction and development related assets , as well as lease related intangibles recorded as part of the acquisition price of acquired properties , which are amortized over shorter lives , became fully depreciated during the reporting periods . interest expense interest expense increased approximately $ 6.3 million , or 12 % , in the 2014 period compared to the 2013 period , primarily due to the acquisition of the additional ownership interest in deer park in august 2013. with the acquisition of the additional interest in deer park , we consolidated the property with all of the property 's debt being reflected on our consolidated balance sheet and the associated interest expense being reflected in interest expense on our consolidated operating statements since the acquisition date . in addition , we issued $ 250 million in aggregate principal amount of 3.875 % senior , unsecured notes during the 4th quarter of 2013. the proceeds from these notes repaid amounts outstanding on our unsecured lines of credit which had an interest rate of approximately 1.2 % . 40 loss on early extinguishment of debt in november 2014 , we completed a $ 250 million , 3.75 % senior notes offering . the net proceeds were used to redeem our $ 250 million , 6.15 % senior notes due november 2015. we recorded a charge of approximately $ 13.1 million for the make-whole premium related to the early redemption , which was completed in december 2014. gain on sale of real estate in december 2014 , we completed the sale of our outlet center in lincoln city , oregon . the net proceeds received from the sale of the property were approximately $ 39.0 million . we recorded a gain on sale of real estate of approximately $ 7.5 million . we were not retained to provide any services to this outlet center after the sale was completed . gain on previously held interest in acquired joint venture in august 2013 , we acquired an additional one-third ownership interest in the deer park property , bringing our total ownership to a two-thirds interest . with the acquisition of a controlling interest , we have consolidated the property for financial reporting purposes since the acquisition date . using the step acquisition approach , we recorded a gain of approximately $ 26.0 million , representing the difference between the carrying value and the fair market value of our original equity interest . the carrying value of our original investment in the property had been reduced over time as a result of recognizing our share of the losses generated by the property under the equity method of accounting . the losses were generally the result of depreciation and amortization expense exceeding earnings before depreciation . in addition , a significant portion of our original investment was returned during the period in which we held the investment due to distributions made to the owners from ( 1 ) proceeds received when permanent financing was put in place , ( 2 ) proceeds received from the settlement of a lawsuit , and ( 3 ) cash on hand immediately prior to our acquisition . accordingly , a substantial portion of the fair value of our equity interest was recognized as a gain due to the low cost basis of our equity investment balance in the property . interest and other income ( expense ) during the first quarter of 2014 , we incurred property damage to our west branch , michigan outlet center due to a severe snow storm . our insurance policy provides us with reimbursement for the replacement cost for the damage done to this property . during fiscal 2014 , we recorded a casualty gain of $ 486,000 reflecting our expected total replacement insurance proceeds in excess of the total of the net book value written off and demolition costs incurred . equity in earnings ( losses ) of unconsolidated joint ventures equity in earnings of unconsolidated joint ventures decreased approximately $ 2.0 million in the 2014 period compared to the 2013 period . the decrease is primarily due to transactions at the deer park property in 2013 prior to our acquisition of an additional one-third interest in the property and its subsequent consolidation for financial reporting purposes . as a part of the refinancing of the debt at deer park in august 2013 , a gain on early extinguishment of debt of $ 13.8 million was recorded . in addition a lawsuit was settled which resulted in income to deer park of approximately $ 9.5 million after expenses . our one-third share of these transactions , recorded through equity in earnings prior to the acquisition , was approximately $ 7.8 million . story_separator_special_tag this decrease is partially offset by the incremental equity in earnings from the national harbor outlet center and charlotte outlet center which opened during the fourth quarter of 2013 and the third quarter of 2014 , respectively . 2013 compared to 2012 net income net income increased approximately $ 56.8 million in the 2013 period to $ 113.3 million compared to $ 56.5 million for the 2012 period . the increase in net income was a result of a $ 28.0 million increase in operating revenues , a $ 26.0 million increase from a gain on a previously held interest in an acquired joint venture and a $ 14.3 million increase in equity in earnings from unconsolidated joint ventures . subsequent to the third quarter of 2012 , five additional outlet centers were developed or acquired by our unconsolidated joint ventures . these increases in income were partially offset by an increase in property operating expenses of $ 9.9 million , increase in general and administrative expenses of $ 1.7 million and an increase in interest expense of $ 1.8 million . 41 base rental base rentals increased $ 18.2 million , or 8 % , in the 2013 period compared to the 2012 period . the following table sets forth the changes in various components of base rentals ( in thousands ) : replace_table_token_26_th base rental income generated from existing properties in our portfolio increased due to increases in rental rates on lease renewals , incremental rents from re-tenanting vacant spaces , as well as incremental rental revenue from the expansion of one outlet center in 2012 and two outlet centers in 2013. in august 2013 , we acquired an additional one-third interest in the deer park property from one of the partners , bringing our total ownership to a two-thirds interest . as a result of acquiring a controlling ownership interest . we have consolidated the results of the property since the acquisition date for financial reporting purposes . at december 31 , 2013 , the combined net value representing the amount of unamortized above market lease assets and below market lease liability values , recorded as a part of the purchase price of acquired properties , was a net above market lease asset which totaled approximately $ 10.7 million . if a tenant terminates its lease prior to the original contractual termination date of the lease and no rental payments are being made on the lease , any unamortized balance of the related above or below market lease value will be written off and could materially impact our net income positively or negatively . the decrease in base rent recognized from the amortization of above and below market lease values related primarily to the amortization of net above market lease assets recorded from the deer park acquisition . in addition , several below market leases from previous acquisitions became fully amortized at the end of 2012 thus causing a decrease in base rent in the 2013 period compared to the 2012 period . expense reimbursements expense reimbursements increased $ 8.5 million , or 8 % , in the 2013 period compared to the 2012 period . the following table sets forth the changes in various components of expense reimbursements ( in thousands ) : replace_table_token_27_th expense reimbursements , which represent the contractual recovery from tenants of certain common area maintenance , insurance , property tax , promotional , advertising and management expenses , generally fluctuate consistently with the reimbursable property operating expenses to which they relate . existing property expense reimbursements increased in the 2013 period compared to the 2012 period as a result of an increase in recoverable property operating expenses , a modest increase in the portfolio 's overall average occupancy rate , and due to a number of leases recently executed which require a higher reimbursement amount of our operating expenses . 42 management , leasing and other services management , leasing and other services increased $ 1.1 million , or 53 % , in the 2013 period compared to the 2012 period . the following table sets forth the changes in various components of other income ( in thousands ) : replace_table_token_28_th management , leasing and other services increased primarily from fees earned from the unconsolidated joint ventures added to the portfolio during the fourth quarter of 2012 and from the national harbor joint venture which opened during november 2013. the increase was partially offset by the loss of management fees from the deer park joint venture , which we began consolidating in august 2013 following the acquisition of our additional one-third interest . other income other income in the 2013 period remained relatively consistent compared to the 2012 period . the following table sets forth the changes in various components of other income ( in thousands ) : replace_table_token_29_th property operating expenses property operating expenses increased $ 9.9 million , or 9 % , in the 2013 period compared to the 2012 period . the following table sets forth the changes in various components of property operating expenses ( in thousands ) : replace_table_token_30_th property operating expenses increased at existing properties due to increases in mall office operating costs , snow removal costs , property insurance and real estate taxes . general and administrative expenses general and administrative expenses increased $ 1.7 million , or 4 % , in the 2013 period compared to the 2012 period . in the 2012 period general and administrative expenses included $ 1.3 million of compensation expense related to 45,000 common shares that vested immediately , granted to steven b. tanger , pursuant to an amendment to his employment contract . excluding this charge , general and administrative expenses increased approximately $ 3.0 million . this increase was mainly due to additional share-based compensation expense related to the 2013 grants of restricted shares to directors and certain officers of the company and the grant of performance shares to senior officers under a new long term incentive plan .
| as a result , our consolidated statements of operations reflect all of the revenues and expenses of deer park since the acquisition date including the significant depreciation and amortization associated with the property , the net effect of which was a reduction in net income . 37 base rentals base rentals increased $ 21.1 million , or 8 % , in the 2014 period compared to the 2013 period . the following table sets forth the changes in various components of base rentals ( in thousands ) : replace_table_token_19_th base rental income generated from existing properties in our portfolio increased due to increases in rental rates on lease renewals and incremental rents from re-tenanting vacant spaces , as well as incremental base rental income from the expansions at our branson , charleston , park city and sevierville outlet centers in 2014. termination fees , which are generally based on the lease term remaining at the time of termination , increased compared to the 2013 period as the average remaining term on leases terminating early in 2014 was longer than the average remaining term of the leases terminating early in 2013. at december 31 , 2014 , the combined net amount of above market lease assets and below market lease liability values , recorded as a part of the purchase price of acquired properties , was a net above market lease asset totaling approximately $ 7.9 million . if a tenant terminates its lease prior to the contractual termination of the lease and no rental payments are being made on the lease , any unamortized balance of the related above or below market lease value will be written off and could materially impact our net income positively or negatively . the change in the amortization of above and below market lease values was primarily attributable to the amortization of the above market lease values recorded from the 2013 acquisition of the deer park , new york property . percentage rentals percentage rentals decreased $ 944,000 , or 8 % , in the 2014 period compared to the 2013 period . the following table sets forth the changes in various components
| 10,599 |
although the timing of the recovery of crude oil prices is dependent on many variables , we believe as long-term demand rises and production naturally declines , commodity prices will recover and our customers will begin to increase their investments in new sources of oil production . our improved execution in 2014 has set the stage for us to overcome the challenges in the industry in 2015 , and while certain reductions to our headcount in the coming year are necessary to protect our profitability , the measures we expect to take will align with our long-term growth strategies . subsea technologies . all of our businesses will be negatively affected by the decline in crude oil prices , but the timing will be different for each . our 2014 subsea order activity , specifically during the fourth quarter related to chevron 's agbami phase 3 project , eni 's block 15/06 east hub development and wintershall 's maria , led to another year of strong subsea project backlog as of december 31 , 2014. however , in reaction to the decline in crude oil prices , many of our customers have announced reductions to their capital spending in 2015 , and we are preparing for the anticipated slowing of subsea orders in the coming year . we expect subsea revenue in 2015 to be relatively flat when compared to 2014 in large part from our conversion of existing backlog , partially offset by lower 2015 inbound expectations and the impact of a strong u.s. dollar . our focus in the coming year will concentrate on leveraging our global capabilities and reducing operating costs . in the long-term , we continue to believe deepwater development will remain a significant part of our customers ' portfolios . a critical part of our long-term strategy to maintain our subsea market leadership is to continue to invest in the technologies required to develop our customers ' challenging assets and further expand our capabilities focused on increasing reservoir production over the life of the field . however , given the critical need to reduce costs over the short-term , we are focused on offering cost-effective approaches to our customers ' project developments , including customer acceptance of new technologies and acceptance of business models to help achieve their cost-reduction goals . part of this strategy includes standardization of subsea production equipment as operators understand the cost and scheduling benefits that standardization brings to their projects . given the recent decline in crude oil prices and the capital budget reductions by our customers , we expect that growth related to subsea services in 2015 to be relatively flat when compared to 2014. however , we continue to focus on subsea processing and subsea services as key long-term growth platforms so that we can expand our role as life-of-field partners with our customers by lowering their costs and improving their recovery . when crude oil prices recover to levels that support economic field development and the overall oil and gas market recovers , operators will continue to seek ways to reduce costs associated with developing their deepwater assets , and we believe our continued focus on subsea processing and subsea services , particularly in subsea boosting and well intervention solutions , will be critical parts of our continued growth and success . overall , we continue to seek ways to leverage our capacity investments , our talent , and our overall cost structure to drive improvement in our execution and our financial results in the coming year . surface technologies . the improved operational results we realized in 2014 were the result of north american surface technologies orders recovering from the slowdown that began in 2012 and that continued into mid 2013. however , provided the recent decline in commodity prices , and consequently , the decline in rig counts , we are preparing for decreased north american land activity in 2015 , which will affect our surface wellhead , fluid control and completion services businesses in north america . absent a recovery of oil and gas prices in the second half of 2015 , we believe that commodity prices in 2016 may be at a level to allow recovery in north american activity . in 2015 we expect to continue efforts to integrate our north american surface wellhead and completion services businesses to strengthen our market presence and service offerings which we believe will bring increased value to our customers . our international surface wellhead business delivered strong operational results from continued strength in international markets in 2014 , and we expect this strength to continue in 2015 as a result of our strong international surface wellhead backlog . 24 story_separator_special_tag during 2012 and $ 1.7 million and $ 1.4 million of gains related to the remeasurement of foreign currency exposures in 2013 and 2012 , respectively . further discussion of our derivative instruments is incorporated herein by reference from note 15 to our consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. our provision for income taxes reflected an effective tax rate of 29.8 % in 2013. excluding a charge related to withholding taxes in angola , our effective tax rate was 26.7 % in 2013. in 2012 , our effective tax rate was 28.0 % . the decrease in our effective tax rate from 2012 to the adjusted rate in 2013 was primarily due to a more favorable mix of earnings . our effective tax rate can fluctuate depending on our country mix of earnings , since our foreign earnings are generally subject to lower tax rates than in the united states . in certain jurisdictions , primarily singapore and malaysia , our tax rate is significantly less than the relevant statutory rate due to tax holidays which are set to expire after 2018 and 2015 , respectively . the difference between the effective tax rate and the statutory u.s. federal income tax rate primarily related to differing foreign and state tax rates . story_separator_special_tag 26 operating results of business segments segment operating profit is defined as total segment revenue less segment operating expenses . the following items have been excluded in computing segment operating profit : corporate staff expense , net interest income ( expense ) associated with corporate debt facilities , income taxes , and other revenue and other expense , net . information about amounts included in corporate items is incorporated herein by reference from note 19 to our consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. the following table summarizes our operating results for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_7_th _ * not meaningful we report our results of operations in u.s. dollars ; however , our earnings are generated in various currencies worldwide . for example , we generate a significant amount of revenue , and incur a significant amount of costs , in norwegian krone , brazilian real , singapore dollar , malaysian ringgit , british pound , angolan new kwanza and the euro . the earnings of subsidiaries functioning in their local currencies are translated into u.s. dollars based upon the average exchange rate during the period , in order to provide worldwide consolidated results . while the u.s. dollar results reported reflect the actual economics of the period reported upon , the variances from prior periods include the impact of translating earnings at different rates . 27 subsea technologies 2014 compared with 2013 subsea technologies ' revenue increased $ 539.5 million in 2014 compared to the prior year . revenue for 2014 included a $ 178.5 million unfavorable impact of foreign currency translation . excluding the impact of foreign currency translation , subsea technologies ' revenue increased by $ 718.0 million during 2014 compared to the prior year . we entered the year with a strong backlog . during the first half of 2014 , high crude oil prices led to solid oil and gas exploration and production activity when compared to the prior year ; however , a decline in oil prices that began in mid-2014 and which significantly further declined in the fourth quarter of 2014 has unfavorably affected the subsea market . despite the late 2014 decline in crude oil prices , we had solid order activity during 2014 from high demand for subsea systems and services . the year-over-year increase in revenue was attributable to the conversion of backlog and solid order activity in 2014. subsea technologies ' operating profit totaled $ 748.2 million , or 14.2 % of revenue , in 2014 , compared to the prior-year 's operating profit as a percentage of revenue of 11.6 % . the margin improvement was primarily driven by our western region subsea business from higher margin project backlog conversion and higher volumes in subsea services , particularly in the gulf of mexico , partially offset by additional contract value in 2013 related to an angolan withholding tax adjustment . foreign currency translation unfavorably impacted operating profit in 2014 by $ 24.9 million compared to the prior year . 2013 compared with 2012 subsea technologies ' revenue increased $ 720.1 million in 2013 compared to the prior year . revenue for 2013 included a $ 129.1 million unfavorable impact of foreign currency translation . excluding the impact of foreign currency translation , subsea technologies ' revenue increased by $ 849.2 million during 2013 compared to the prior year . with continued high crude oil prices , oil and gas exploration and production activity increased in 2013 when compared to the prior year , as evidenced by increased spending by oil and gas companies . this led to a stronger market for subsea products and services . we entered the year with a strong backlog and continued to have solid order activity during 2013 from high demand for subsea systems . the year-over-year increase in revenue was attributable to the conversion of backlog , combined with strong order activity in 2013. the revenue increase in 2013 was also due in part to our acquisition of the remaining 55 % of schilling robotics in the second quarter of 2012. subsea technologies ' operating profit totaled $ 548.2 million , or 11.6 % of revenue , in 2013 , compared to the prior-year 's operating profit as a percentage of revenue of 10.8 % . the margin improvement was primarily driven by our subsea systems business from increased utilization and efficiency of engineering resources in our western region business , improved results in our subsea service business , additional contract value in 2013 related to an angolan withholding tax adjustment , lower overall research and development expenses and liquidated damage charges recognized in 2012 in brazil , partially offset by charges taken on the exxonmobil hibernia southern extension project . this increase was partially offset by the recognition of the gain on our previously held equity interest in schilling robotics in 2012. foreign currency translation unfavorably impacted operating profit in 2013 by $ 14.6 million compared to the prior year . 28 surface technologies 2014 compared with 2013 surface technologies ' revenue increased $ 323.9 million in 2014 compared to the prior year . the revenue increase was driven by international growth in our surface wellhead business , primarily in the middle east and europe regions . additionally , revenue in north america increased as the north american shale markets had higher activity compared to the prior year which drove additional demand for our well service pumps and flowline products in our fluid control business and surface wellhead products and services . foreign currency translation unfavorably impacted revenue by $ 35.9 million in 2014 compared to the prior year . surface technologies ' operating profit totaled $ 393.0 million , or 18.4 % of revenue , in 2014 , compared to the prior-year 's operating profit as a percentage of revenue of 14.2 % .
| selling , general and administrative ( “ sg & a ” ) expense increased by $ 55.8 million year-over-year , driven by higher project tendering costs and reorganization expenses in our subsea business , increased sales commissions , costs associated with terminating a representative agreement in our surface wellhead business and bonus accruals . during 2014 we recognized a net $ 84.3 million gain on the sale of our material handling products business . further information of the sale is incorporated herein by reference from note 5 to our consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. 25 other income ( expense ) , net , reflected a $ 33.4 million loss related to the remeasurement of an intercompany foreign currency transaction and other foreign currency losses primarily due to the strengthening of the u.s. dollar in 2014. further discussion of our derivative instruments is incorporated herein by reference from note 15 to our consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. our provision for income taxes reflected an effective tax rate of 34.0 % and 29.8 % in 2014 and 2013 , respectively . excluding a retroactive benefit related to the american taxpayer relief act of 2012 recorded in the first quarter of 2013 , our effective tax rate was 30.7 % in 2013. the increase in our effective tax rate in 2014 from the adjusted rate in 2013 was primarily due changes in norwegian tax law effective from 2014 and an unfavorable change in mix of earnings . our effective tax rate can fluctuate depending on our country mix of earnings , since our foreign earnings are generally subject to lower tax rates than in the united states . in certain jurisdictions , primarily singapore and malaysia , our tax rate is significantly less than the relevant statutory rate due to tax holidays which are set to expire after 2018 and 2015 , respectively . the difference between the effective tax rate and the statutory u.s. federal income tax
| 10,600 |
currently awld is developing lots for sale to third party builders and is not engaged in any construction activity . sixteen lots have been sold , and two lots are currently in advanced negotiations . the company expects to close on the sale of twelve lots and record the deeds during 2016. to date , no deeds have been issued . as of december 31 , 2015 , the company has $ 1,175,990 of lot deposits for pending sales . 34 as reflected in our consolidated financial statements we have generated significant losses of $ 8,278,964 and $ 9,063,427 for the years ended december 31 , 2015 and 2014 , respectively , consisting primarily of general and administrative expenses , raising substantial doubt that we will be able to continue operations as a going concern . our independent registered public accounting firm included an explanatory paragraph in their report for these years stating that we have not achieved a sufficient level of revenues to support our business and have suffered recurring losses from operations . our ability to execute our business plan is dependent upon our generating cash flow and obtaining additional debt or equity capital sufficient to fund operations . our business strategy may not be successful in addressing these issues and there can be no assurance that we will be able to obtain any additional capital . if we can not execute our business plan ( including acquiring additional capital ) , our stockholders may lose their entire investment in us . if we are able to obtain additional debt or equity capital ( of which there can be no assurance ) , we hope to acquire additional management as well as increase marketing our products and continue the development of our real estate holdings . financings in 2014 , we raised , net of repayments , approximately $ 7,295,000 of new capital through the issuance of debt and equity . we used the net proceeds from the closings of these private placement offerings for general working capital and capital expenditures . in 2015 , we raised , net of repayments , approximately $ 6,181,000 of new capital through the issuance of debt and equity . we used the net proceeds from the closings of these private placement offerings for general working capital and capital expenditures . initiatives we have implemented a number of initiatives designed to expand revenues and control costs . revenue enhancement initiatives include expanding marketing , investment in additional winery capacity and developing new real estate development revenue sources . cost reduction initiatives include investment in equipment that will decrease our reliance on subcontractors , plus outsourcing and restructuring of certain functions . our goal is to become more self-sufficient and less dependent on outside financing . application for quotation on otc bulletin board on january 20 , 2016 finra cleared the request to submit quotations on the otc bulletin board and in otc link by glendale securities , inc. of sherman oaks , california . in addition , the company submitted its application for quotation on the otcqb marketplace and was approved on march 7 , 2016 . 35 story_separator_special_tag justify '' > loss on extinguishment of convertible debt loss on extinguishment of convertible debt was $ 0 and approximately $ 220,000 during the years ended december 31 , 2015 and 2014 , respectively . during 2014 , 476,972 shares of series a convertible preferred stock ( “ series a preferred ” ) valued at $ 2.30 per share were received by convertible note holders upon the exchange of convertible notes with $ 812,881 and $ 64,126 principal and interest , respectively . the 2014 extinguishment losses resulted from the excess of the fair value of the issued series a preferred over the carrying value of the exchanged convertible notes that was not pursuant to the original terms of the convertible notes . liquidity and capital resources we measure our liquidity in variety of ways , including the following : for the years ended december 31 , 2015 2014 cash $ 110,645 $ 442,725 working capital ( deficiency ) $ ( 1,477,183 ) $ ( 1,897,344 ) based upon our working capital situation as of december 31 , 2015 , we require additional equity and or debt financing in order to sustain operations . these conditions raise substantial doubt about our ability to continue as a going concern . during the years ended december 31 , 2015 and 2014 , we have relied primarily on private placement equity offerings to third party independent , accredited investors to sustain operations . these offerings were conducted by our wholly-owned subsidiary dpec capital , inc. during the year ended december 31 , 2015 , we issued 2,821,942 shares of common stock at $ 2.00 per share for cash proceeds of $ 5,643,884 and issued 274,860 shares of common stock at $ 2.50 per share for cash proceeds of $ 687,150. during the year ended december 31 , 2014 , we issued 1,223,349 shares of common stock at $ 2.00 per share for gross proceeds of $ 2,446,697 and issued 2,748,995 share of series a preferred at $ 2.30 per share for cash proceeds $ 5,532,877. the difference between the cash proceeds and the cited shares times $ 2.30 per share is due to cash deposits received in 2013 , prior to the closing of the subscription . an additional 476,972 shares of series a preferred were issued upon the conversion of notes payable . all shares were issued to accredited investors on private placement transactions . 38 the proceeds from these financing activities were used to fund our existing operating deficits , legal and accounting expenses in preparation of becoming and being a public company , capital expenditures associated with our real estate development projects , enhanced marketing efforts to increase revenues and the general working capital needs of the business . we will need to raise additional capital in order to meet our future liquidity needs for operating expenses , capital expenditures for the winery expansion and to further invest in our real estate development . story_separator_special_tag if we are unable to obtain adequate funds on reasonable terms , we may be required to significantly curtail or discontinue operations . sources and uses of cash for the years ended december 31 , 2015 and 2014 net cash used in operating activities net cash used in operating activities for the years ended december 31 , 2015 and 2014 , amounted to approximately $ 6,538,000 and $ 7,052,000 , respectively . during the year ended december 31 , 2015 the net cash used in operating activities was primarily attributable to the net loss of approximately $ 8,279,000 , adjusted for approximately $ 1,674,000 of non-cash expenses and $ 67,000 cash provided by changes in the levels of operating assets and liabilities . during the year ended december 31 , 2014 , the net cash used in operating activities was primarily attributable to the net loss of approximately $ 9,063,000 , adjusted for approximately $ 1,552,000 of net non-cash expenses and $ 459,000 provided by changes in the levels of operating assets and liabilities . net cash used in investing activities net cash used in investing activities for the years ended december 31 , 2015 and 2014 amounted to approximately $ 470,000 and $ 654,000 , respectively , and was primarily related to the purchase of property and equipment . net cash provided by financing activities net cash provided by financing activities for the years ended december 31 , 2015 and 2014 amounted to approximately $ 6,181,000 and $ 7,294,000 , respectively . for the year ended december 31 , 2015 , the net cash provided by financing activities resulted primarily from the issuance of equity securities for net proceeds of approximately $ 6,331,000 , partially offset by net repayments of debt of approximately $ 150,000. for the year ended december 31 , 2014 , the net cash provided by financing activities resulted primarily from the issuance of equity securities for net proceeds of approximately $ 8,030,000 , partially offset by net repayments of debt of approximately $ 736,000. going concern and management 's liquidity plans the accompanying financial statements have been prepared assuming that we will continue as a going concern , which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business . as discussed in note 2 to the accompanying consolidated financial statements , we have not achieved a sufficient level of revenues to support our business and development activities and have suffered substantial recurring losses from operations since our inception , which conditions raise substantial doubt that we will be able to continue operations as a going concern . the accompanying consolidated financial statements do not include any adjustments that might be necessary if we were unable to continue as a going concern . 39 based on current cash on hand and subsequent activity as described herein , our cash-on-hand only allows us to operate our business operations on a month-to-month basis . because of our limited cash availability , we have scaled back our operations to the extent possible . while we are exploring opportunities with third parties and related parties to provide some or all of the capital we need , we have not entered into any agreement to provide us with the necessary capital . historically , the company has been successful in raising funds to support our capital needs . if we are unable to obtain additional financing on a timely basis , we may have to delay vendor payments and or initiate cost reductions , which would have a material adverse effect on our business , financial condition and results of operations , and ultimately we could be forced to discontinue our operations , liquidate and or seek reorganization under the u.s. bankruptcy code . as a result , our auditors have issued a going concern opinion in conjunction with their audit of our december 31 , 2015 and 2014 consolidated financial statements . off-balance sheet arrangements none . contractual obligations as a smaller reporting company , we are not required to provide the information required by paragraph ( a ) ( 5 ) of this item . critical accounting policies and estimates use of estimates to prepare financial statements in conformity with accounting principles generally accepted in the united states of america , we must make estimates and assumptions . these estimates and assumptions affect the reported amounts in the financial statements , and the 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 . our significant estimates and assumptions are the valuation of equity instruments , the useful lives of property and equipment and reserves associated with the realizability of certain assets . foreign currency translation our functional and reporting currency is the united states dollar . the functional currencies of the company 's operating subsidiaries are their local currencies ( united states dollar , argentine peso and british pound ) . there has been a steady devaluation of the argentine peso relative to the united states dollar in recent years . assets and liabilities are translated into u.s. dollars at the balance sheet date , ( 12.9441 and 8.5411 at december 31 , 2015 and 2014 , respectively ) and revenue and expense accounts are translated at a weighted average exchange rate for the period or for the year then ended ( 9.2495 and 8.1095 for the years ended december 31 , 2015 and 2014 , respectively ) . resulting translation adjustments are made directly to accumulate other comprehensive income . losses arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency of $ 360,170 and $ 223,904 for the years ended december 31 , 2015 and 2014 , respectively , are recognized in operating results in the consolidated statements of operations . we engage in foreign currency denominated transactions with customers and suppliers , as well as between subsidiaries with different functional currencies .
| restaurant revenues were approximately ars 4.8 million during the years ended december 31 , 2015 and 2014. argentine winemaking revenues were approximately ars 3.3 million and 2.9 million during the years ended december 31 , 2015 and 2014 , respectively , representing an increase of approximately ars 0.4 million or 14 % , resulting from an expansion of distribution channels and additional investments in marketing and sales staff . other revenues , including golf , tennis and agricultural revenues , were ars 1.1 million and ars 1.5 million during the years ended december 31 , 2015 and 2014 , respectively . the decrease of ars 0.4 million is primarily due to a decrease in agricultural revenues . gross profit we generated a gross loss of approximately $ 218,000 for the year ended december 31 , 2015 as compared to a gross loss of approximately $ 12,000 for the year ended december 31 , 2014. the restaurant and golf and tennis business units at awe realized negative margins in 2015 and 2014 , due to significant fixed costs ( i.e . depreciation on golf courses and tennis courts ) related to these business units . the restaurant and golf and tennis are kept open every day at a loss , in order to support the image of the winery . during 2015 , we recorded approximately $ 193,000 inventory write-down as the result of two significant hailstorms that occurred during the year . selling and marketing expenses selling and marketing expenses were approximately $ 246,000 and $ 336,000 , for the years ended december 31 , 2015 and 2014 , respectively , representing a decrease of approximately $ 89,000 or 26 % . the decrease is primarily due to expenses incurred during 2014 related to a marketing event to promote our international wine sales , including meeting with potential importers and distributors , as well as potential wine clients and investors in china , the middle east and europe . general and administrative expenses general and administrative expenses were approximately $ 7,271,000 and $ 7,911,000 for the years ended december
| 10,601 |
during may , we started to see a slowdown in the global markets , in particular the consumer and computing space . this weakness accelerated in the last several weeks of the second quarter , affecting several of our customers that build product for the u.s. and european markets . gross margin in the second quarter was also impacted by the softening demand , which caused us to change our mix to lower margin commodity products to support revenue . in addition , there was a slower than expected ramp in productivity due to the training requirements for replacing operators as a result of the china labor shortages , which was completed in the third quarter . during the third quarter of 2011 , we continued to see broad weakness across global markets that began in may and accelerated throughout the third quarter . despite this softness , we were able to execute our strategy of gaining market share by shifting our product mix to lower margin products to best utilize our installed capacity , and we grew our nine month revenue 10 % over the prior year period . we continued to drive manufacturing productivity improvements at our china packaging facilities to maximize the utilization of our operators and equipment . we used excess capacity to build finished goods inventory in preparation for a three day shut-down for the china national holiday , which occurred during the first week in october . in response to these market conditions , during the third quarter , we implemented cost reduction actions that included the delay of capital investments , hiring freezes , a reduction in factory overtime , as well as temporary reductions on travel . during the fourth quarter of 2011 , the broad weakness that began in may and throughout the third quarter , continued to impact all of our market segments . however , past design win momentum and new product initiatives enabled further market share gains . although productivity and manufacturing efficiencies in our shanghai facility recovered to prior levels , gross margin continued to be negatively impacted by the effects of the market softness including increased pricing pressure , continued sales of lower margin commodity products and less than maximum utilization of manufacturing capacity , despite the increase in our finished goods inventory in advance of the chinese new year . factors relevant to our results of operations in 2011 , the following factors affected , and , we believe , will continue to affect , our results of operations : we have experienced pressure from our customers and competitors to reduce the selling price for our standard products , and we expect future improvements in net income to result primarily from increases in sales volume and improvements in product mix as well as manufacturing cost reductions in order to offset any reduced average selling prices ( asp ) of our products . see risk factors we are and will continue to be under continuous pressure from our customers and competitors to reduce the price of our products , which could adversely affect our growth and profit margins in part i , item 1a of this annual report for additional information . for the years ended december 31 , 2011 , 2010 and 2009 , our original equipment manufacturers ( oem ) and electronic manufacturing services ( ems ) customers together accounted for 47 % , 46 % and 53 % of net sales , respectively , while our global network of distributors accounted for 53 % , 54 % and 47 % of net sales , respectively . our gross profit margin was 30 % in 2011 , compared to 37 % in 2010 and 28 % in 2009. our gross profit margin decreased in 2011 primarily due to increased pricing pressure and the decline in business in north america and europe , where our gross margins are typically higher than asia . our target rate is 35 % as we strive to improve our gross margins in support of our profitable growth strategy . future gross profit margins will depend primarily on our product mix , manufacturing cost savings , and the demand for our products . for 2011 , the percentage of our net sales derived from our asian subsidiaries was 75 % , compared to 73 % in 2010 and 77 % in 2009. in addition , europe accounted for approximately 13 % , 12 % and 10 % of our net sales in 2011 , 2010 and 2009 , respectively . at the end of the 2011 , business in north america and europe was weak and therefore , when they recover , we expect our net sales to the asian market to decrease from fourth quarter levels as a percentage of our total net sales . as of december 31 , 2011 , we had invested approximately $ 348 million in our manufacturing facilities in china . during 2011 , we invested approximately $ 64 million in these manufacturing facilities , and we expect to continue to invest in our manufacturing facilities , although the amount to be invested will depend on product demand and new product developments . for 2011 , our capital expenditures , excluding capital expenditures related to our joint venture in chengdu , china , were approximately 10 % of our net sales , which is at the lower end of our historical 10 % to 12 % of net sales model as we delayed capital investments in the third and fourth quarters in response to market conditions . for 2012 , we expect capital expenditures , excluding chengdu building expenditures , to be in their normal range of 10 % to 12 % of net sales . our investment in research and development remained relatively the same at $ 27 million in 2010 and 2011. in 2011 , research and development expenses were approximately 4 % of net sales . story_separator_special_tag -29- description of sales and expenses net sales the principal factors that have affected or could affect our net sales from period to period are : the condition of the economy in general and of the semiconductor industry in particular , our customers ' adjustments in their order levels , changes in our pricing policies or the pricing policies of our competitors or suppliers , the addition or termination of key supplier relationships , the rate of introduction and acceptance by our customers of new products , our ability to compete effectively with our current and future competitors , our ability to enter into and renew key corporate and strategic relationships with our customers , vendors and strategic alliances , changes in foreign currency exchange rates , a major disruption of our information technology infrastructure , unforeseen catastrophic events , such as armed conflict , terrorism , fires , typhoons and earthquakes , and any other disruptions , such as labor shortages , unplanned maintenance or other manufacturing problems . cost of goods sold cost of goods sold includes manufacturing costs for our semiconductors and our wafers . these costs include raw materials used in our manufacturing processes as well as labor costs and overhead expenses . cost of goods sold is also impacted by yield improvements , capacity utilization and manufacturing efficiencies . in addition , cost of goods sold includes the cost of products that we purchase from other manufacturers and sell to our customers . cost of goods sold is also affected by inventory obsolescence if our inventory management is not efficient . selling , general and administrative expenses selling , general and administrative expenses relate primarily to compensation and associated expenses for personnel in general management , sales and marketing , information technology , engineering , human resources , procurement , planning and finance , and sales commissions , as well as outside legal , accounting and consulting expenses , and other operating expenses . research and development expenses research and development expenses consist of compensation and associated costs of employees engaged in research and development projects , as well as materials and equipment used for these projects . research and development expenses are primarily associated with our wafer facilities near kansas city , missouri and manchester , united kingdom ( u.k. ) and our manufacturing facilities in china , as well as with our engineers in the u.s. and taiwan . all research and development expenses are expensed as incurred . amortization of acquisition- related intangible assets amortization of acquisition-related intangible assets consists of amortization of acquisition-related intangible assets , such as developed technologies and customer relationships . interest income / expense interest income consists of interest earned on our cash and investment balances . interest expense consists of interest payable on our outstanding credit facilities and other debt instruments including the stated rate on our convertible senior notes with an aggregate principal amount of $ 230 million due 2026 ( the notes ) , which were retired in 2011. amortization of debt discount amortization of debt discount consists of non-cash amortization expense related to our notes . the amortization period ended september 30 , 2011. see management 's discussion and analysis of financial condition and results of operations liquidity and capital resources and note 7 of notes to consolidated financial statements for additional information on our notes . -30- income tax provision our global presence requires us to pay income taxes in a number of jurisdictions . see note11 of notes to consolidated financial statements for additional information . story_separator_special_tag new roman '' > -33- year 2010 compared to year 2009 replace_table_token_20_th net sales for 2010 increased $ 179 million to $ 613 million from $ 434 million for 2009. the 41 % increase in net sales represented an approximately 34 % increase in units sold and a 5 % increase in asp . the revenue increase for 2010 was attributable to increase in demand for our products in all geographic regions led by north america and europe . the following table sets forth the geographic breakdown of our net sales for the periods indicated based on the country to which the product is billed : replace_table_token_21_th replace_table_token_22_th cost of goods sold increased $ 75 million , or 24 % , for 2010 to $ 388 million , compared to $ 313 million for 2009. as a percent of sales , cost of goods sold decreased from 72 % for 2009 to 63 % for 2010. our average unit cost ( aup ) decreased approximately 8 % . the decrease in cost of goods sold as a percentage of net sales and the decrease in aup was due to higher capacity utilization in our manufacturing operations . gross profit for 2010 increased 86 % to $ 225 million from $ 121 million for 2009. gross profit as a percentage of net sales was 37 % for 2010 , compared to 28 % for 2009. the increased gross margin was primarily due to higher capacity utilization of our manufacturing and wafer fabrication facilities , increased operating efficiencies and improved product mix . replace_table_token_23_th sg & a for 2010 increased $ 18 million , or 26 % , to $ 89 million , compared to $ 70 million for 2009 , due primarily to higher sales commissions related to increased sales , as well as to higher employee related costs including incentives and higher general operating costs . sg & a , as a percentage of net sales , was 15 % in 2010 , compared to 16 % in 2009. replace_table_token_24_th r & d for 2010 increased $ 3 million to $ 27 million , or 4 % of net sales , from $ 24 million , or 6 % of net sales , for 2009. the increase was due primarily to increased personnel costs , engineering supplies and material purchases .
| gross profit for 2011 decreased 14 % to $ 194 million from $ 225 million for 2010. gross profit as a percentage of net sales was 30 % for 2011 , compared to 37 % for 2010. the decreased gross margin was primarily due to a weak pricing environment and a shift in product mix to lower margin products in an effort to maintain capacity utilization at our wafer fabrication facilities and shanghai packaging facilities . replace_table_token_10_th sg & a for 2011 increased $ 1 million , or 1 % , to $ 90 million , compared to $ 89 million for 2010. sg & a , as a percentage of net sales , was 14 % in 2011 , compared to 15 % in 2010. replace_table_token_11_th r & d for 2011 remained relativity flat at $ 27 million , or 4 % of net sales , compared to $ 27 million , or 4 % of net sales , for 2010. replace_table_token_12_th amortization of acquisition-related intangibles was approximately $ 4 million for 2011 and 2010. replace_table_token_13_th interest income for 2011 decreased to $ 1 million , compared to $ 3 million for 2010 , due primarily to a decrease in interest income earned on our auction rate securities , which were put back to ubs ag at par value on june 30 , 2010 in accordance with the settlement agreement and lower interest earned on cash balances in 2011 -32- replace_table_token_14_th interest expense for 2011 was $ 3 million , compared to $ 5 million for 2010. the $ 2 million decrease is due primarily to the reduced interest paid on our no net cost loan that was paid off on june 30 , 2010 in connection with the settlement agreement with ubs ag and the retirement of our notes . replace_table_token_15_th amortization of debt discount for 2011 was approximately $ 6 million , compared to $ 8 million for 2010. the $ 2 million decrease in amortization of debt discount was due primarily to the amortization period on our notes ending as of september 30 , 2011. replace_table_token_16_th other expense for 2011 was $ 0 million , compared to
| 10,602 |
we currently have two non-exclusive research license agreements in place with the monsanto division of bayer crop science , a division of bayer ag , for the evaluation of our c3003 and c3004 traits in soybean and with forage genetics international , llc , a division of land o'lakes , inc. for the evaluation of five yield traits in forage sorghum . our business strategy is to progress our traits into field tests to generate validating yield data . over the last three years , we have progressed our evaluation of c3003 in field test with camelina and canola . we are planning to expand our field tests with additional traits and more events in 2019 and 2020. we plan to leverage data that we generate to support the performance of our traits in key crops to establish collaborations or sign licenses to the traits with major agricultural companies in order to generate revenue . yield10 bioscience is headquartered in woburn , massachusetts and has an oilseed development center of excellence in saskatoon , saskatchewan , canada . government grants as of december 31 , 2018 , proceeds of $ 793 remain to be earned under our u.s. government grants . this includes amounts for reimbursement to our subcontractors , as well as reimbursement for our employees ' time , benefits and other expenses related to future performance . the status of our government grants is as follows : program title funding agency total government funds total revenue recognized through december 31 , 2018 remaining amount to be recognized as of december 31 , 2018 contract/grant expiration production of high oil , transgene free camelina sativa plants through genome editing ( `` camelina '' ) department of energy $ 1,997 $ 1,997 $ — september 2018 subcontract from michigan state university project funded by doe entitled `` a systems approach to increasing carbon flux to seed oil '' department of energy 1,212 419 793 september 2019 total $ 3,209 $ 2,416 $ 793 critical accounting estimates and judgments our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , costs and expenses , and related disclosures . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ from these estimates . we believe that our significant accounting policies , which are described in note 2 to our consolidated financial statements , involve a degree of judgment and complexity . accordingly , we believe that the specific accounting policies described below are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations . 43 grant revenue government research grants currently represent our sole source of revenue . we recognize government grants as revenue because the grants are central to the company 's ongoing crop science program . revenue is earned as research expenses related to the grants are incurred and revenue earned on government grants , but not yet invoiced as of the balance sheet date , are recorded as unbilled receivables in the accompanying consolidated balance sheets for the years ended december 31 , 2018 and december 31 , 2017 . funds received from government grants in advance of work being performed are recorded as deferred revenue until earned . stock-based compensation the accounting standards for stock-based compensation require that all stock-based awards be recognized as an expense in the consolidated financial statements and that such expense be measured based on the fair value of the award . determining the appropriate fair value model and calculating the fair value of stock-based payment awards requires the use of highly subjective assumptions , including the expected life of the stock-based payment awards and stock price volatility . we use the black-scholes option-pricing model to value our service-based option grants and to determine the related compensation expense . generally , we recognize the fair value of stock awards evenly over their vesting periods provided the individual receiving the award meets continuing service conditions . the assumptions used in calculating the fair value of stock-based awards represent management 's best estimates , but the estimates involve inherent uncertainties and the application of management judgment . see note 10 to the consolidated financial statements for further discussion on the key assumptions used to determine the fair values of option grants pursuant to the black-scholes option pricing model . comparison of the years ended december 31 , 2018 and 2017 revenue replace_table_token_1_th total revenue was $ 556 and $ 944 for the years ended december 31 , 2018 and 2017 , respectively , and was derived solely from our research grants . grant revenue for the year ended december 31 , 2018 was primarily earned from the company 's sub-award with michigan state university . during the year ended december 31 , 2017 , grant revenue primarily consisted of $ 913 in grant revenue earned from the doe camelina grant . we anticipate that grant revenue will increase over the next twelve months as we dedicate greater resources to our doe sub-award with michigan state university . expenses replace_table_token_2_th research and development expenses research and development expenses were fairly consistent at $ 4,759 and $ 4,597 for the years ended december 31 , 2018 and 2017 , respectively . the four percent increase of $ 162 was primarily due to a $ 106 net increase in employee compensation and benefits and a $ 103 increase in our research consulting and third-party analytical expenses . these increases were partially offset by an $ 46 decrease in sponsored research fees . story_separator_special_tag the increase in employee compensation and benefits was primarily the result of hiring additional research personnel , partially offset by our elimination of the 2018 accrual for employee bonuses . our increase in research consulting expense was primarily the result of payments we made to 44 our scientific advisory board and for third-party bioinformatics support . sponsored research expense decreased during 2018 compared to 2017 as a result of the discontinuation in research services performed for us by north carolina state university as a subcontractor under our doe camelina grant that ended in 2017. based on our current financial forecasts , we expect research and development expenses during 2019 will remain at a level consistent with 2018 provided that we are able to raise additional funds to support our ongoing operations . our forecasts related to research and development expenses are subject to significant change as events and opportunities occur during 2019 that could result in modifications to our business plans . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-weight : bold ; '' > liquidity and capital resources currently , we require cash to fund our working capital needs , to purchase capital assets , to pay our operating lease obligations and other operating costs . the primary sources of our liquidity have historically included equity financings , government research grants and income earned on cash and short-term investments . since our inception , we have incurred significant expenses related to our research , development and commercialization efforts . with the exception of 2012 , when we recognized $ 38,885 of deferred revenue from a terminated joint venture , we have recorded losses since the company 's initial founding , including our fiscal year ended december 31 , 2018 . as of december 31 , 2018 , we had an accumulated deficit of $ 351,923 . our total unrestricted cash , cash equivalents and short-term investments as of december 31 , 2018 , were $ 5,769 as compared to $ 14,487 at december 31 , 2017 . as of december 31 , 2018 , we had no outstanding debt . our cash , cash equivalents and short-term investments at december 31 , 2018 , were held for working capital purposes . as of december 31 , 2018 , we had restricted cash of $ 332 which consisted of $ 307 held in connection with the lease agreement for our woburn , massachusetts facility and $ 25 held in connection with our corporate credit card used for small and incidental purchases . investments are made in accordance with our corporate investment policy , as approved by our board of directors . the primary objective of this policy is to preserve principal and investments are limited to high quality corporate debt , u.s. treasury bills and notes , money market funds , bank debt obligations , municipal debt obligations and asset-backed securities . the policy establishes maturity limits , concentration limits , and liquidity requirements . as of december 31 , 2018 , we were in compliance with this policy . we currently anticipate $ 9,000 - $ 9,500 of cash usage during 2019 to fund our operations . in march 2019 we closed on a registered direct offering of our common stock , raising $ 2.6 million , net of offering costs . we estimate that our current cash resources , including funds raised in the march offering , will be sufficient to fund operations and meet our obligations , when due , into the fourth quarter of 2019. this forecast of cash resources is forward-looking information that involves risks and uncertainties , and the actual amount of expenses could vary materially and adversely as a result of a number of factors . we follow the guidance of accounting standards codification ( `` asc '' ) topic 205-40 , presentation of financial statements-going concern , in order to determine whether there is substantial doubt about the company 's ability to continue as a going concern for one year after the date our financial statements are issued . the company 's ability to continue operations after its current cash resources are exhausted depends on its ability to obtain additional financing through , among other sources , public or private equity financing , secured or unsecured debt financing , equity or debt bridge financing , additional government research grants or collaborative arrangements with third parties , as to which no assurances can be given . we do not know whether additional financing will be available on terms favorable or acceptable to the company when needed , if at all . if adequate additional funds are not available when required , we will be forced to curtail our research efforts , explore strategic alternatives and or wind down our operations and pursue options for liquidating our remaining assets , including intellectual property and equipment . based on our cash forecast , we have determined that the company 's present capital resources are not sufficient to fund our planned operations for a twelve-month period ending in march 2020 , and therefore , raise substantial doubt about our ability to continue as a going concern . if we issue equity or debt securities to raise additional funds , ( i ) the company may incur fees associated with such issuance , ( ii ) our existing stockholders will experience dilution from the issuance of new equity securities , ( iii ) the company may incur ongoing interest expense and be required to grant a security interest in company assets in connection with any debt issuance , and ( iv ) the new equity or debt securities may have rights , preferences and privileges senior to those of our existing stockholders . in addition , utilization of our net operating loss and research and development credit carryforwards may be subject to significant annual limitations under section 382 of the internal revenue code of 1986 due to ownership changes resulting from future equity financing transactions
| net income during 2018 is primarily the result of $ 158 of investment income earned from the company 's short-term investments and higher average cash balances held during the year partially offset by imputed interest charges related to the company 's lease obligations and final installment payments made in connection with the early termination of a third-party manufacturing agreement that ended during 2016. other expense , net , of $ 113 during 2017 is primarily due to the imputed interest charges referred to above . deemed dividend on series a convertible preferred stock issuance during december 2017 , the company closed on a public offering of securities that included 4,667,000 class a units , priced at a public offering price of $ 2.25 per unit , with each unit consisting of one share of common stock , a series a five-year warrant to purchase one share of common stock at an exercise price of $ 2.25 per share , and a series b nine-month warrant to purchase 0.5 share of common stock at an exercise price of $ 2.25 per share , and 3,987 class b units , priced at a public offering price of $ 1,000 per unit , with each unit consisting of one share of preferred stock convertible to 445 shares of common stock at a conversion price of $ 2.25 per common share , series a five-year warrants to purchase 445 shares of common stock at an exercise price of $ 2.25 per share , and series b nine-month warrants to purchase 223 shares of common stock with an exercise price of $ 2.25 per share . proceeds received from the offering were allocated to the various elements of the offering based on their relative fair values . the series a convertible preferred stock was valued on an as-if-converted basis based on the underlying common stock . the series a and series b warrants were valued using the black-scholes
| 10,603 |
all of these properties are wholly-owned , with the exception of an industrial property in new jersey , in which the company owns a 51 % controlling equity interest , and the shopping center in new jersey , in which the company holds a 67 % controlling equity interest . the company 's weighted-average lease expiration was 7.4 and 7.2 years as of september 30 , 2016 and 2015 , respectively , and its average annualized rent per occupied square foot as of september 30 , 2016 and 2015 was $ 5.72 and $ 5.48 , respectively . at september 30 , 2016 and 2015 , the company 's occupancy was 99.6 % and 97.7 % , respectively . subsequent to fiscal yearend , on october 27 , 2016 , the company sold its only vacant building for $ 4,272,000 which increased our occupancy rate to 100.0 % . during fiscal 2016 , the company acquired eight industrial properties totaling approximately 1,830,000 square feet for approximately $ 210,747,000. the company has a concentration of properties leased to fedex corporation ( fdx ) . as of september 30 , 2016 , the company had approximately 16,010,000 square feet of property , of which approximately 7,584,000 square feet , or 47 % , consisting of fifty-three separate stand-alone leases , were leased to fdx and its subsidiaries , ( 6 % to fdx and 41 % to fdx subsidiaries ) . these properties are located in twenty-four different states . the percentage of rental and reimbursement revenue from fdx and its subsidiaries was 56 % for the year ended september 30 , 2016 , consisting of 7 % leased to fdx and 49 % leased to fdx subsidiaries . no other tenant accounted for 5 % or more of the company 's total rental and reimbursement revenue for fiscal 2016. in addition to real estate property holdings , the company held $ 73,604,894 in marketable reit securities at september 30 , 2016 , representing 5.3 % of the company 's undepreciated assets ( which is the company 's total assets excluding accumulated depreciation ) . these liquid real estate holdings are not included in calculating the tenant concentration ratios above and therefore further enhance the company 's diversification . as a result , the securities portfolio provides the company with additional liquidity , diversification , income and serves as a proxy for real estate when more favorable risk adjusted returns are not available . the company 's revenue primarily consists of rental and reimbursement revenue from the ownership of industrial rental property . rental and reimbursement revenue increased $ 17,140,613 , or 22 % , for the year ended september 30 , 2016 as compared to the year ended september 30 , 2015. total expenses ( excluding other income and expense ) increased $ 7,368,782 , or 17 % , for the year ended september 30 , 2016 as compared to the year ended september 30 , 2015. the increases were due mainly to the revenue and expenses relating to the property acquisitions made during fiscal 2015 and 2016 . 32 net operating income from property operations ( noi ) is defined as recurring rental and reimbursement revenue , less real estate taxes and operating expenses , such as insurance , utilities and repairs and maintenance . noi increased $ 14,901,332 , or 23 % , for the fiscal year ended september 30 , 2016 as compared to the fiscal year ended september 30 , 2015 and increased $ 11,930,616 , or 22 % , for the fiscal year ended september 30 , 2015 as compared to the fiscal year ended september 30 , 2014. the increase from fiscal year 2015 to 2016 was due to the additional income related to eight industrial properties purchased during fiscal 2016 and the purchase of ten industrial properties during fiscal 2015. the increase from fiscal year 2014 to 2015 was due to the additional income related to ten industrial properties purchased during fiscal 2015. the company 's noi for the fiscal years ended september 30 , 2016 , 2015 and 2014 is calculated as follows : replace_table_token_11_th for the fiscal years ended september 30 , 2016 , 2015 and 2014 , gross revenue , which includes rental revenue , reimbursement revenue and dividend and interest income totaled $ 100,532,502 , $ 81,499,364 and $ 68,554,938 , respectively . subsequent to the fiscal yearend , on october 17 , 2016 , the company purchased a newly constructed 338,584 square foot industrial building located in hamburg , ny , which is in the buffalo msa . the building is 100 % net-leased to fedex ground package system , inc. for fifteen years through march 2031. the purchase price was $ 35,100,000. the company obtained a 15 year fully-amortizing mortgage loan of $ 23,500,000 at a fixed interest rate of 4.03 % . annual rental revenue over the remaining term of the lease averages approximately $ 2,308,000. in addition , subsequent to the fiscal yearend , on october 1 , 2016 , a 50,741 square foot expansion of a building leased to fedex ground package system , inc. located in edinburg , tx was substantially completed for a cost of approximately $ 4,988,000 , resulting in a new 10 year lease which extended the prior lease expiration date from september 2021 through september 2026. in addition , the expansion resulted in an increase in annual rent effective from the date of completion of approximately $ 499,000 from approximately $ 598,000 , or $ 5.27 per square foot , to approximately $ 1,097,000 , or $ 6.68 per square foot . on october 27 , 2016 , the company sold its only vacant building , ( which increased our occupancy rate from 99.6 % to 100.0 % ) , consisting of a 59,425 square foot industrial building situated on 4.78 acres located in white bear lake , mn for approximately $ 4,272,000 , which is the company 's approximate u.s. gaap net book carrying value . story_separator_special_tag the industrial properties purchased , expanded and sold during fiscal 2017 to date , increased our current total leasable square feet to approximately 16,340,000 and increased our occupancy rate to 100.0 % . 33 in addition to the property purchased subsequent to the fiscal yearend , we have entered into agreements to purchase eight new build-to-suit , industrial buildings that are currently being developed in florida , michigan , north carolina , ohio and south carolina totaling approximately 2,099,000 square feet each with net-leased terms ranging between ten to fifteen years with a weighted average lease maturity of 13.3 years . approximately 1,267,000 square feet , or 60 % , is leased to fdx and its subsidiaries . the purchase price for the eight properties is approximately $ 212,373,000. subject to satisfactory due diligence and other customary closing conditions and requirements , we anticipate closing these eight transactions during fiscal 2017 and fiscal 2018. in connection with five of the eight properties , the company has entered into commitments to obtain five mortgages totaling $ 101,204,000 at fixed rates ranging from 3.60 % to 4.20 % , with a weighted average interest rate of 3.83 % . each of these mortgages will be a fifteen year , fully-amortizing loan . the company may make additional acquisitions in fiscal 2017 and fiscal 2018 and the funds for these acquisitions may come from mortgages , draws on our unsecured line of credit facility , cash on hand , sale of marketable securities , other bank borrowings , proceeds from the dividend reinvestment and stock purchase plan ( drip ) , private placements and public offerings of additional common or preferred stock or other securities . to the extent that funds or appropriate properties are not available , fewer acquisitions will be made . during the fiscal years ended september 30 , 2016 , 2015 and 2014 , the company completed fifteen expansions at thirteen of its locations , consisting of ten building expansions and five parking lot expansions . two of the parking lot expansions included the purchase of additional land . the ten building expansions resulted in approximately 699,000 additional square feet . total costs for all fifteen property expansions were approximately $ 52,474,000 and resulted in total increased annual rent of approximately $ 5,180,000. fourteen completed expansions resulted in a new ten year lease extension for each property that was expanded and one completed expansion resulted in a new twelve year lease extension . revenues also include dividend and interest income and net realized gain on securities transactions . the company holds a portfolio of marketable securities of other reits with a fair value of $ 73,604,894 as of september 30 , 2016 , representing 5.3 % of the company 's undepreciated assets ( which is the company 's total assets excluding accumulated depreciation ) . the company generally limits its marketable securities investments to no more than approximately 10 % of its undepreciated assets . the company invests in reit securities and , from time to time , may use margin debt when an adequate yield spread can be obtained . as of september 30 , 2016 and 2015 , there were no draws against the margin . the reit securities portfolio provides the company with additional liquidity and additional income and serves as a proxy for real estate when more favorable risk adjusted returns are not available . as of september 30 , 2016 , the company 's portfolio consisted primarily of 81 % reit common stocks and 19 % reit preferred stocks , all of which are listed on a national securities exchange . the company 's weighted-average yield on the securities portfolio for fiscal 2016 was approximately 8.0 % . dividend and interest income for fiscal 2016 was $ 5,616,392 , and was $ 3,723,867 for fiscal 2015. during fiscal 2016 , the company realized $ 4,398,599 in gains on sales of securities transactions . the company has unrealized gains of $ 12,942,267 in its reit securities portfolio as of september 30 , 2016. the dividends received from our securities investments continue to meet our expectations . the company intends to hold these securities for investment on a long-term basis . the company had $ 95,749,508 in cash and cash equivalents and $ 73,604,894 in reit securities as of september 30 , 2016. the company believes that funds generated from operations , the drip , the unsecured line of credit facility , together with the ability to finance and refinance its properties , will provide sufficient funds to adequately meet its obligations over the next several years . the company has a dividend reinvestment and stock purchase plan ( drip ) , in which participants can purchase stock from the company at a price of approximately 95 % of market value . amounts received in connection with the drip , ( including dividend reinvestments of $ 8,369,146 , $ 8,489,169 and $ 7,624,528 for fiscal years ended 2016 , 2015 and 2014 , respectively ) , were $ 72,175,797 , $ 48,404,556 and $ 38,090,334 for fiscal years ended 2016 , 2015 and 2014 , respectively . 34 industrial space demand is very closely correlated to gross domestic product ( gdp ) growth . despite seven years of unprecedented monetary stimulus , real annual gdp growth has averaged less than 2.0 % over this period . however , there has been significant demand for industrial space and national occupancy rates have continued to increase . the most significant demand driver for modern industrial real estate continues to be ecommerce . every year , since the turn of the century , the percentage of goods purchased on-line has increased at a 15 % annual growth rate . today , approximately 10 % of retail sales have migrated from traditional store sales to on-line sales . this favorable trend for the industrial real estate sector is expected to be a leading demand driver for the foreseeable future , as consumers continue to embrace the added efficiencies of on-line consumption . new home construction and sales of existing homes has also continued to strengthen .
| property tenant square feet former u.s. gaap straight- line rent psf former cash rent psf former lease expiration renewal u.s gaap straight- line rent psf renewal initial cash rent psf renewal lease expiration renewal term ( years ) tenant improvement cost psf over renewal term ( 1 ) leasing commissions cost psf over renewal term ( 1 ) monaca , pa datatel resources 80,856 $ 2.87 $ 2.87 11/30/15 $ 3.00 $ 3.00 11/30/17 2.0 $ -0- $ -0- granite city , il anheuser- busch , inc. 184,800 4.16 4.32 5/31/16 4.36 4.10 11/30/21 5.5 0.21 0.13 richmond , va united technologies 60,000 4.99 5.24 5/31/16 5.33 5.24 11/30/18 2.5 -0- -0- total 325,656 weighted average $ 3.99 $ 4.13 $ 4.20 $ 4.04 4.1 $ 0.16 $ 0.10 ( 1 ) amount calculated based on the total cost divided by the square feet , divided by the renewal term . the three lease renewals resulted in a weighted average term of 4.1 years and a u.s. gaap straight-line weighted average lease rate of $ 4.20 per square foot . the renewed weighted average initial cash rent per square foot is $ 4.04. this compares to the former weighted average rent of $ 3.99 per square foot on a u.s. gaap straight-line basis and the former weighted average cash rent of $ 4.13 per square foot , representing an increase in the weighted average lease rate of 5.3 % on a u.s. gaap straight-line basis and a decrease in the weighted average lease rate of 2.2 % on a cash basis . during september 2015 , the company entered into a 5.25 year lease agreement for its previously vacant 148,000 square foot building located in fayetteville , nc through february 28 , 2021. the lease commenced december 1 , 2015 and is with victory packaging , l.p. , a wholly-owned subsidiary of kapstone paper and packaging corporation , a publicly-owned company . the initial annual rent of $ 469,160 , representing $ 3.17 per square foot , commenced on march 1 , 2016 with 2.5 % annual increases thereafter . during october 2015 , the company entered into a 5.25 year lease agreement for
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we may sell properties from time to time when we believe the prospective total return from a property is particularly low relative to its market value and or the market value of the property is significantly greater than its estimated replacement cost . capital from such sales will be reinvested into properties that are expected to provide better prospective returns or returned to shareholders . we have disposed of two properties since inception for a cumulative sales price of approximately $ 36.0 million and a total gain of approximately $ 6.8 million . 38 2014 developments acquisition activity during the year ended december 31 , 2014 , we acquired 29 industrial buildings containing 2,266,082 square feet and one improved land parcel consisting of 1.2 acres for a total purchase price of approximately $ 235.7 million . the properties were acquired from unrelated third parties using existing cash on hand , net of assumed mortgage loans payable of approximately $ 8.5 million with a weighted average interest rate of approximately 5.74 % and borrowings under our credit facility . the following table sets forth the industrial buildings we acquired during the year ended december 31 , 2014 : replace_table_token_9_th 1 excludes intangible liabilities and mortgage premiums , if any . the total aggregate investment was approximately $ 236.7 million . 2 stabilized cap rates are calculated , at the time of acquisition , as annualized cash basis net operating income for the property stabilized to market occupancy ( generally 95 % ) divided by the total acquisition cost for the property . total acquisition cost basis for the property includes the initial purchase price , the effects of marking assumed debt to market , buyer 's due diligence and closing costs , estimated near-term capital expenditures and leasing costs necessary to achieve stabilization . we define cash basis net operating income for the property as net operating income excluding straight-line rents and amortization of lease intangibles . these stabilized cap rates are subject to risks , uncertainties , and assumptions and are not guarantees of future performance , which may be affected by known and unknown risks , trends , uncertainties , and factors that are beyond our control , including risks related to our ability to meet our estimated forecasts related to stabilized cap rates and those risk factors contained in this annual report on form 10-k. 3 includes an improved land parcel consisting of 1.2 acres that is separately leased for trailer storage . public follow-on offerings on december 9 , 2014 , we completed a public follow-on offering of 9,775,000 shares of our common stock at a price per share of $ 19.60. the net proceeds of the follow-on offering were approximately $ 183.0 million after deducting the underwriting discount and offering costs of approximately $ 8.6 million . we intend to use of the net proceeds to acquire industrial properties and for general corporate purposes . 39 on may 22 , 2014 , we completed a public follow-on offering of 8,050,000 shares of our common stock at a price per share of $ 17.75. the net proceeds of the follow-on offering were approximately $ 136.5 million after deducting the underwriting discount and offering costs of approximately $ 6.4 million . we used approximately $ 100.0 million of the net proceeds to repay outstanding borrowings under our revolving credit facility and the remaining net proceeds to acquire industrial properties and for general business purposes . establishment of atm program on february 28 , 2014 , we established an at-the market equity offering program ( the atm program ) pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $ 100,000,000 in amounts and at times as we determine from time to time . actual sales , if any , will depend on a variety of factors to be determined by our company from time to time , including , among others , market conditions , the trading price of our common stock , our determinations of the appropriate sources of funding for our company and potential uses of funding available to us . we intend to use the net proceeds from the offering of the shares under the atm program , if any , for general corporate purposes , which may include future acquisitions and repayment of indebtedness , including borrowings under our credit facility . during the three months and year ended december 31 , 2014 , we did not issue any shares of common stock under the atm program . amendments to credit facility and new term loans on may 8 , 2014 , we entered into a third amended and restated senior credit agreement ( the facility ) with keybank national association , as administrative agent and as a lender , keybanc capital markets , as a lead arranger and pnc bank , national association , union bank , n.a . and regions bank as lenders ( collectively the lenders ) to , among other matters , add a seven-year $ 50.0 million term loan to the existing $ 150.0 million facility , which included a $ 100.0 million revolving credit facility and a five-year $ 50.0 million term loan . the seven-year $ 50.0 million term loan maturity date under the facility is may 2021. the five-year $ 50.0 million term loan maturity date under the facility was extended to may 2019 ( previously january 2018 ) and the maturity date of the revolving credit facility was extended to may 2018 ( previously january 2016 ) with one 12-month extension option exercisable by us , subject , among other things , to there being an absence of an event of default under the facility and to the payment of an extension fee . on december 8 , 2014 we entered into a first amendment to the facility ( the amended facility ) with keybank national association , as administrative agent and as a lender , and pnc bank , national association , mufg union bank , n.a. story_separator_special_tag , regions bank and goldman sachs bank usa as lenders to add a five-year $ 100.0 million term loan to our existing $ 200.0 million credit facility . the five-year $ 100.0 million term loan matures in march 2020. the aggregate amount of the amended facility may be increased to a total of up to $ 500.0 million , subject to the approval of the administrative agent and the identification of lenders willing to make available additional amounts . outstanding borrowings under the amended facility are limited to the lesser of ( i ) the sum of our $ 100.0 million revolving credit facility , our $ 50.0 million five-year term loan , our $ 50.0 million seven-year term loan and our $ 100.0 million five-year term loan or ( ii ) 60.0 % of the value of the unencumbered properties . interest on the amended facility , including the five-year and seven-year term loans , is generally to be paid based upon , at our option , either ( i ) libor plus the applicable libor margin or ( ii ) the applicable base rate which is the greatest of the administrative agent 's prime rate , 0.50 % above the federal funds effective rate , or thirty-day libor plus the applicable libor margin for libor rate loans under the amended facility plus 1.25 % . the applicable libor margin will range from 1.50 % to 2.05 % ( 1.50 % at december 31 , 2014 ) for the revolving credit facility and each of the five-year term loans and 1.75 % to 2.30 % ( 1.75 % at december 31 , 2014 ) for the seven-year term loan , depending on the ratio of our outstanding consolidated indebtedness to the value of our consolidated gross asset value . the amended facility requires quarterly payments of an annual unused facility fee in an amount equal to 0.20 % or 0.25 % depending on the unused portion of the amended facility . the amended facility is guaranteed by us and by substantially all of the current and to-be-formed subsidiaries of the borrower that own an 40 unencumbered property . the amended facility has been modified to be unsecured by our properties or by interests in the subsidiaries that hold such properties . the amended facility includes a series of financial and other covenants that we must comply with in order to borrow under the amended facility . as of december 31 , 2014 , there were no borrowings outstanding on the revolving credit facility and $ 200.0 million of borrowings outstanding on the term loans . as of december 31 , 2013 , there were $ 31.0 million of borrowings outstanding on the revolving credit facility and $ 50.0 million of borrowings outstanding on a five-year term loan . we were in compliance with the covenants under the amended facility at december 31 , 2014 and 2013. tenant default on january 29 , 2013 , we filed a one count eviction action against banah international group , inc. ( banah ) , our tenant at 215 10th avenue in hialeah , fl , for failure to pay december 2012 and january 2013 rent . on february 21 , 2013 , the state court entered a default judgment for possession against banah . later that same day , banah filed a chapter 11 bankruptcy petition and subsequently extended the deadline to affirm or reject the lease while working on a plan of reorganization . banah made all payments in accordance with the lease for the period from february 21 , 2013 through october 31 , 2014 and a partial payment for november 2014 during the bankruptcy . the lease was recorded as month-to-month and revenue was recognized as cash was received . on december 18 , 2013 , banah filed its proposed plan for reorganization which called for a successor entity ( the successor entity ) to assume the lease , pending plan confirmation by the bankruptcy court . on september 9 , 2014 , following the failure of the successor entity to fulfill its obligations , the bankruptcy court vacated the plan and engaged a court appointed trustee to oversee the operations of banah . on september 24 , 2014 , the court approved an emergency motion by the trustee to convert the bankruptcy to chapter 7. as a result , banah vacated the space and we regained possession during january 2015. dividend and distribution activity the following table sets forth the cash dividends paid or payable per share during the year ended december 31 , 2014 : replace_table_token_10_th recent developments acquisition activity subsequent to december 31 , 2014 , we acquired seven industrial buildings containing 927,017 square feet for a total purchase price of approximately $ 125.4 million . the properties were acquired from unrelated third parties using cash on hand . the following table sets forth the wholly-owned industrial properties we acquired subsequent to december 31 , 2014 : replace_table_token_11_th 41 contractual commitments as of february 11 , 2015 we have five outstanding contracts with third-party sellers to acquire five industrial properties , one non-binding letter of intent with a third-party seller to acquire one industrial property and one outstanding contract with a third-party purchaser to sell one property as further described under the heading contractual obligations in this annual report on form 10-k. there is no assurance that we will acquire or sell the properties under contract or non-binding letter of intent because the proposed acquisitions and disposition are subject to the completion of satisfactory due diligence , various closing conditions and with respect to one of the properties , the consent of the mortgage lender , and , in addition , with respect to the property under non-binding letter of intent , our entry into a purchase and sale agreement . outlook we believe that industrial rents have stopped falling in our markets and in most cases are rising and will continue to rise in 2015. however , new speculative development has begun in a growing number of markets .
| as of december 31 , 2014 , the non-same store properties , which we acquired or disposed of during the course of 2013 and 2014 , consisted of 61 buildings aggregating approximately 4.5 million square feet . as of december 31 , 2014 , the consolidated same store pool occupancy was approximately 97.1 % compared to approximately 96.3 % as of december 31 , 2013. our future financial condition and results of operations , including rental revenues , straight-line rents and amortization of lease intangibles , may be impacted by the acquisitions of additional properties , and expenses may vary materially from historical results . comparison of the year ended december 31 , 2014 to the year ended december 31 , 2013 : replace_table_token_12_th 43 1 includes straight-line rents and amortization of lease intangibles . see non-gaap financial measures in this annual report on form 10-k for a reconciliation of net operating income and same store net operating income from net income and a discussion of why we believe net operating income and same store net operating income are useful supplemental measures of our operating performance . revenues . total revenues increased approximately $ 23.3 million for the year ended december 31 , 2014 compared to the prior year due primarily to property acquisitions during 2013 and 2014 and increased occupancy in the same store pool portfolio . the increase in same store revenues is primarily related to same store consolidated occupancy at year end increasing to 97.1 % as of december 31 , 2014 as compared to 96.3 % as of december 31 , 2013. in addition , rent changes on new and renewed leases commenced during the year ended december 31 , 2014 were approximately 8.0 % higher as compared with the previous rental rates in that same space . for the quarter and year ended december 31 , 2014 , approximately $ 0.3 million and $ 1.5 million , respectively , was recorded in straight-line rental revenues related to contractual rent abatements given to certain tenants . property operating expenses . total property operating expenses increased approximately $ 6.4 million during the year ended december
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for the year ended september 30 , 2019 , we had a net loss of $ 4,547,582 versus a net loss of $ 4,814,032 in the comparable period in the prior year . the losses for each of the years ended september 30 , 2019 and 2018 can be attributable to research and development expenses , including regulatory approval and product research , general and administrative costs , primarily relating to legal costs associated with intellectual property and patent application costs , general corporate legal expenses all of which were partially offset by adjustments to the derivative liabilities . cash used in operating activities decreased $ 645,261 during the year ended september 30 , 2019 to $ 5,268,302 , compared to $ 5,913,563 for the year ended september 30 , 2018. cash at september 30 , 2019 decreased by $ 2,487,081 to $ 2,180,329 compared to $ 4,667,410 as of september 30 , 2018. business overview we are a biotechnology company in the development stage . we have generated no revenues to date and are devoting substantially all of our operational efforts to the development of our core technology . we are developing a novel approach to stop bleeding ( “ hemostasis ” ) , control leaking ( “ sealant ” ) and manage wounds during surgery , trauma and interventional care . arch is developing products based on an innovative self-assembling barrier technology platform with the goal of making care faster and safer for patients . we believe our technology could support an innovative platform of potential products in the field of stasis and barrier applications . our plan and business model is to develop products that apply that core technology for use with bodily fluids and tissues . our flagship development product candidates , known collectively as the ac5 devices ( which we sometimes refer to as “ ac5 ” , “ ac5 topical gel ” , “ ac5 surgical hemostatic device ” , “ ac5 surgical hemostat ” , “ ac5 topical hemostatic device ” , or “ ac5 topical hemostat ” ) , are being designed to achieve hemostasis during surgical , wound and interventional care . they rely on our self-assembling peptide ( “ sap ” ) technology and are being designed to achieve hemostasis in skin wounds and in minimally invasive and open surgical procedures . we intend to develop other product candidates based on our technology platform for use in a range of indications . ac5 is being designed as a product containing synthetic biocompatible peptides comprising l amino acids , commonly referred to as naturally occurring amino acids . when applied to a wound , ac5 intercalates into the interstices of the connective tissue where it self-assembles into a physical , mechanical nanoscale structure that provides a barrier to leaking substances , such as blood . ac5 may be applied directly as a liquid , which we believe will make it user-friendly and able to conform to irregular wound geometry . additionally , ac5 does not possess sticky or glue-like handling characteristics , which we believe will enhance its utility in several settings , including minimally invasive surgical procedures . further , in certain settings , ac5 lends itself to a concept that we call crystal clear surgery ; the transparency and physical properties of ac5 may enable a surgeon to operate through it in order to maintain a clearer field of vision and prophylactically stop or lessen bleeding as it starts . we believe that the results of early data from preclinical tests have shown quick and effective hemostasis with the use of ac5 relative to that reported with other types of hemostatic agents , and that time to hemostasis is comparable among test subjects regardless of whether such test subject had or had not been treated with therapeutic doses of anticoagulant or antiplatelet medications , commonly called “ blood thinners ” . based on testing results to date , we believe that ac5 is biocompatible . arch therapeutics ' technology has demonstrated hemostasis in liver and other organs in in vivo surgical models , including durable hemostasis within 15 seconds . sap compositions have been tested in small animal organs ( i.e . liver , skin , muscle , brain , eye , spine , spleen , arteries and veins ) . in mammalian vision models ( severed hamster optic tract and in our ocular tissue pilot studies , saps demonstrated biocompatibility and the ability to rapidly and reliably stop bleeding ) and limit inflammation . we have devoted much of our operational effort to date to the research and development of our core technology , including selecting our initial product composition , conducting initial safety and other related tests , conducting an initial human trial for safety and performance of ac5 , developing methods for scale-up , reproducibility , manufacturing and formulation , and developing and protecting the intellectual property rights underlying our technology platform . manufacturing method and formulation optimization are important parts of peptide development . manufacturing and formulation optimization for our product candidates has been and continues to be done with extensive collaboration among our team and partners . the processes are focused on optimizing traditional product parameters to target specifications covering performance , biocompatibility , physical appearance , stability , and handling characteristics , among others . we and our partners intend to monitor manufacturing processes and formulation methods closely , as success or failure in both setting and realizing appropriate specifications may directly impact our ability to conduct preclinical and clinical trials and our subsequent commercialization timelines . story_separator_special_tag our long-term business plan includes the following goals : · conducting biocompatibility , pre-clinical , and clinical studies on ac5 and related products ; · expanding and maintaining protection of our intellectual property portfolio ; · developing appropriate third-party relationships to manufacture , distribute , market and otherwise commercialize ac5 ; 36 · obtaining regulatory certification or clearance of ac5 and related products in the eu , the u.s. , and other jurisdictions as we may determine ; · continuing or developing academic , scientific and institutional relationships to collaborate on product research and development ; and · developing additional product candidates in the hemostatic , sealant , and or other fields . in furtherance of our long-term business goals , we expect to continue to focus on the following activities during the next twelve months : · seek additional funding as required to support the milestones described previously and our operations generally ; · work with our large scale manufacturing partners to scale up production of product compliant with current good manufacturing practices ( “ cgmp ” ) , which activities will be ongoing as we seek to advance toward , enter into , and , if successful , subsequently increase commercialization activities ; · further clinical development of our product platform ; · pursue regulatory clearance for commercialization ; · continue to expand and enhance our financial and operational reporting and controls ; · seek commercial partnerships ; · expand and enhance our intellectual property portfolio by filing new patent applications , obtaining allowances on currently filed patent applications , and or adding to our trade secrets in self-assembly , manufacturing , analytical methods and formulation , which activities will be ongoing as we seek to expand our product candidate portfolio ; · obtain regulatory input into subsequent clinical trial designs ; · assess our self-assembling peptide platforms in order to identify and select product candidates for advancement into development . we believe that the company has cash on hand to meet its anticipated cash requirements into the third quarter of fiscal 2020. notwithstanding this , depending upon additional input from eu and us regulatory authorities , we may need to raise additional capital before then . in addition to the foregoing , our estimated capital requirements potentially could increase significantly if a number of risks relating to conducting these activities were to occur , including without limitation those set forth under the heading “ risk factors ” herein . merger with abs and related activities as noted earlier in this document , on june 26 , 2013 , the company completed the merger with abs , pursuant to which abs became a wholly owned subsidiary of the company . in contemplation of the merger , effective may 24 , 2013 , the company increased its authorized common stock , par value $ 0.001 per share ( “ common stock ” ) , from 75,000,000 shares to 300,000,000 shares and effected a forward stock split , by way of a stock dividend , of its issued and outstanding shares of common stock at a ratio of 11 shares to each one issued and outstanding share . also in contemplation of the merger , effective june 5 , 2013 , the company changed its name from almah , inc. to arch therapeutics , inc. and changed the ticker symbol under which its common stock trades on the otc bulletin board from “ aach ” to “ arth ” . recent developments on november 28 , 2018 , the company announced that it has submitted the required documents for ac5 topical hemostat ( ac5 ) to its notified body as it seeks a ce mark , which is a next step on the path to commercialization in countries governed by the european medical devices directive ( mdd ) . the company was recently notified by its notified body that its review team has completed its review of the arch 's technical documentation and that it has recommended to its decision making panel that ce marking be granted . this process is expected to be completed in early 2020. on may 13 , 2019 , the company announced the pricing of registered direct offering of 8,615,384 units , each unit consisting of a share of the company 's common stock , and a series h warrant ( “ series h warrant ” ) to purchase a share of our common stock for the combined purchase price of $ 0.325 per unit . the series h warrants have an exercise price of $ 0.40 per share and are exercisable for a period of five years . the offering closed on may 14 , 2019. the gross proceeds to arch from the 2019 financing were approximately $ 2.8 million before deducting financing costs of approximately $ 52,000 . 37 on october 17 , 2019 , the company announced the pricing of registered direct offering of 14,285,714 units , each unit consisting of a share of the company 's common stock , and a series i warrant ( “ series i warrant ” ) to purchase a share of our common stock for the combined purchase price of $ 0.175 per unit . the series i warrants have an exercise price of $ 0.22 per share and are exercisable for a period of five years . the offering closed on october 18 , 2019. the gross proceeds to arch from the 2019 financing were approximately $ 2.5 million before deducting financing costs of approximately $ 312,000. pursuant to the engagement agreement , the company also agreed to issue to the placement agent , or its designees , warrants to purchase up to 1,071,429 shares ( the “ placement agent warrants ” ) . the placement agent warrants have substantially the same terms as the series i warrants , except that the exercise price of the placement agent warrants is $ 0.21875 per share and the term of the placement agent warrants is five years .
| o ther income/ ( expense ) other income during the year ended september 30 , 2019 was $ 1,824,175 , a decrease of $ 811,560 compared to total other income of $ 2,635,735 for the year ended september 30 , 2018. the net decrease in other expense was the result of the change in the fair value of derivative liabilities . 38 liquidity and capital resources working capital at september 30 , 2019 , we had total current assets of $ 2,889,681 ( including cash of $ 2,180,329 ) and working capital of $ 2,175,870. our working capital as of september 30 , 2019 and september 30 , 2018 is summarized as follows : replace_table_token_2_th total current assets as of september 30 , 2019 were $ 2,889,681 , a decrease of $ 1,929,523 compared to $ 4,819,204 as of september 30 , 2018. the decrease in current assets is primarily attributable to general and administrative expenses and research and development expenses attributable to product development testing and preparation for regulatory filings , partially offset by the proceeds received from the 2019 financing . our total current assets as of september 30 , 2019 and september 30 , 2018 were comprised primarily of cash , inventory and prepaid expenses . total current liabilities as of september 30 , 2019 were $ 713,811 , an increase of $ 425,426 compared to $ 288,385 as of september 30 , 2018. the increase is primarily due to the payment patent prosecution costs . our total current liabilities as of september 30 , 2019 and september 30 , 2018 were comprised of accounts payable and accrued expenses . cash flow replace_table_token_3_th cash used in operating activities cash used in operating activities decreased $ 645,261 during the year ended september 30 , 2019 to $ 5,268,302 , compared to $ 5,913,563 during the year ended september 30 , 2018. the decrease was primarily due to decrease in general and administrative expenses primarily attributable to compensation costs and research and development expenses incurred in connection with activities to develop our primary product candidate . cash used in investing activities cash used in investing activities decreased $
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gross profit increased by $ 0.5 million or 2 % in 2014 as compared to 2013. selling , general and administrative ( sg & a ) expenses increased by $ 1.0 million in 2014 as compared to 2013. income from operations amounted to $ 8.3 million in 2014 from $ 8.9 million in 2013 , representing a decrease of $ 0.6 million or 6 % as compared to 2013. this decrease resulted from an increase in sga expenses offset by the increase in total gross margin ( lifeboat distribution segment increase was offset by a decrease in techxtend segment ) , our income before provision for income taxes decreased by $ 0.7 million to $ 8.8 million in 2014 compared to $ 9.4 million in 2013. we reported a net income of $ 5.8 million for 2014 compared to $ 6.4 million in 2013. the company 's sales , gross profit and results of operations have fluctuated and are expected to continue to fluctuate on a quarterly basis as a result of a number of factors , including but not limited to : the condition of the software industry in general , shifts in demand for software products , pricing , level of extended payment terms sales transactions , industry shipments of new software products or upgrades , the timing of new merchandise and catalog offerings , fluctuations in response rates , fluctuations in merchandise returns , adverse weather conditions that affect response , distribution or shipping , shifts in the timing of holidays and changes in the company 's product offerings . the company 's operating expenditures are based on sales forecasts . if sales do not meet expectations in any given quarter , operating results may be materially adversely affected . story_separator_special_tag .0001pt ; '' > income taxes for the year ended december 31 , 2014 , the company recorded a provision for income taxes of $ 3.0 million which consists of a provision of $ 2.7 million for u.s. federal income taxes , as well as a $ 0.1 million provision for state taxes , and a provision for foreign taxes of $ 0.2 million . the current year effective tax rate was 34.2 % compared to 32.1 % in 2013. the current year effective tax rates are higher primarily due to the fact that the prior year included an adjustment to reflect a change in state apportionment rules . as of december 31 , 2014 , the company had a u.s. deferred tax asset of approximately $ 0.4 million . for the year ended december 31 , 2013 , the company recorded a provision for income taxes of $ 3.0 million which consists of a provision of $ 2.9 million for u.s. federal income taxes , as well as a $ 0.1 million provision for foreign taxes , and a deferred tax expense of $ 0.1 million as of december 31 , 2013 , the company had a u.s. deferred tax asset of approximately $ 0.4 million . year ended december 31 , 2013 compared to year ended december 31 , 2012 net sales net sales for 2013 increased 1 % , or $ 3.3 million to $ 300.4 million in 2013 compared to $ 297.1 million in 2012. total sales for our lifeboat distribution segment in 2013 were $ 237.7 million compared to $ 217.3 million in 2012 , representing a 9 % increase . total sales for the techxtend segment in 2013 amounted to $ 62.8 million , compared to $ 79.7 million in 2012 , representing a 21 % decrease . the increase in net sales for our lifeboat distribution segment was mainly a result of the strengthening of our account penetration , our continued focus on the expanding virtual infrastructure-centric business and the addition of several key product lines ; primarily on sales generated out of the usa sales office . the 21 % decrease in sales in the techxtend segment was primarily due to a decrease in large single sales transactions and a decrease in extended payment terms sales transactions in the first three quarters of 2013 as compared to exceptionally strong levels of large single sales transactions and extended payment terms sales transactions in 2012. gross profit gross profit for 2013 was $ 24.4 million compared to $ 23.9 million in 2012 , a 2 % increase . total gross profit for our lifeboat distribution segment in 2013 was $ 17.4 million compared to $ 15.8 million in 2012 , representing a 10 % increase . the increase in gross profit for the lifeboat distribution segment was due to increased sales volume as gross profit margin remained relatively stable . total gross profit for our techxtend segment in 2013 was $ 6.9 million compared to $ 8.1 million in 2012 , representing a 14 % decrease . the decrease in gross profit for the techxtend segment was the result primarily of decreased software sales volume , including a decrease in large single sale transactions and extended payment terms 17 sales transactions , offset in part by a higher gross margin in 2013 as compared to 2012 primarily on software sales . vendor rebates and discounts for 2013 improved and amounted to $ 1.7 million compared to $ 1.5 million for 2012 , representing a 13 % increase . the increase in vendor rebates and discounts as a percentage of net sales was experienced mainly at the techxtend segment . story_separator_special_tag gross profit margin ( gross profit as a percentage of net sales ) for 2013 was 8.1 % compared to 8.0 % in 2012. gross profit margin for our lifeboat distribution segment was consistent at 7.3 % in 2013 and 2012. gross profit margin for our techxtend segment in 2013 was 11.0 % compared to 10.1 % in 2012. this increase is due to increased pricing and vendor rebates in 2013 as compared to 2012. the increase in gross profit dollars and the increase in gross profit margins were primarily caused by the sales growth within our lifeboat distribution segment and increase in pricing and an increase in rebates earned at our techxtend segment . the company monitors gross profits and gross profit margins carefully . price competition in our market persisted in 2013. although our total gross profit margins improved slightly in 2013 , we anticipate that margins , as well as discounts and rebates , will continue to be under pressure in the near future . selling , general and administrative expenses total selling , general and administrative ( sg & a ) expenses for 2013 were $ 15.5 million compared to $ 15.4 million in 2012 , representing an increase of $ 0.1 million or 0.8 % . this increase is primarily the result of an increase in sales commissions and bonus for our lifeboat segment due to our growth in this segment , increase in operations bonus , the addition of employees in techxtend government sales , finance and operations to support business growth offset by a decrease in techxtend sales commissions and bonus due to decrease in this segment and a decrease in legal and consulting fees . sg & a expenses as a percentage of net sales were 5.2 % in each of 2013 and 2012. direct selling costs ( a component of sg & a ) for 2013 were $ 8.0 million compared to $ 8.1 million in 2012. total direct selling costs for our lifeboat distribution segment for 2013 were $ 4.7 million compared to $ 4.5 million in 2012 , mainly due to increased commission and bonus expense compared to the prior year on higher segment gross profit and income . total direct selling costs for our techxtend segment for 2013 were $ 3.3 million compared to $ 3.6 million in 2012. the decrease in the techxtend segment was due to lower commission and bonus expense resulting from lower segment gross profit and segment income which are the bases for calculating commission and bonus expense offset by an increase in government sales salaries . the company expects that its sg & a expenses , as a percentage of net sales , may vary depending on changes in sales volume , as well as the levels of continuing investments in key growth initiatives . we plan to continue to expand our investment in information technology and marketing , while monitoring our sales and general and administrative expenses closely . income taxes for the year ended december 31 , 2013 , the company recorded a provision for income taxes of $ 3.0 million which consists of a provision of $ 2.9 million for u.s. federal income taxes , as well as a $ 0.1 million provision for foreign taxes , and a deferred tax expense of $ 0.1 million . the current year effective tax rate was 32.1 % compared to 39.6 % in 2012. the decrease in the effective tax rate was primarily the result of a change in the state of new jersey 's apportionment rules which lowered our state rate compared with the prior year . as of december 31 , 2013 , the company had a u.s. deferred tax asset of approximately $ 0.4 million . 18 for the year ended december 31 , 2012 , the company recorded a provision for income taxes of $ 3.6 million which consists of a provision of $ 2.8 million for u.s. federal income taxes , as well as a $ 0.5 million provision for state and local taxes , a $ 0.2 million provision for foreign taxes , and a deferred tax expense of $ 0.1 million . as of december 31 , 2012 , the company had a u.s. deferred tax asset of approximately $ 0.5 million . recently issued accounting pronouncements in may 2014 , the fasb issued guidance for revenue recognition for contracts , superseding the previous revenue recognition requirements , along with most existing industry-specific guidance . the guidance requires an entity to review contracts in five steps : 1 ) identify the contract , 2 ) identify performance obligations , 3 ) determine the transaction price , 4 ) allocate the transaction price , and 5 ) recognize revenue . the new standard will result in enhanced disclosures regarding the nature , amount , timing and uncertainty of revenue arising from contracts with customers . the standard is effective for our reporting year beginning january 1 , 2017 and early adoption is not permitted . we are currently evaluating the impact of this new accounting pronouncement , if any ; the pronouncement will have on our consolidated financial statements . liquidity and capital resources our cash and cash equivalents increased by $ 3.5 million to $ 23.1 million at december 31 , 2014 from $ 19.6 million at december 31 , 2013. net cash provided by operating activities amounted to $ 5.7 million , net cash used in investing activities amounted to $ 0.3 million , and net cash used in financing activities amounted to $ 1.5 million . net cash provided by operating activities in 2014 was $ 5.7 million . in 2014 , cash was mainly provided by $ 7.4 million from net income including non-cash charges , a $ 1.7 million decrease in accounts receivable , and a $ 1.2 million decrease in prepaid and other current assets , offset in part by a decrease in accounts payable and accrued expenses of $ 4.3 million .
| the decrease in gross profit for the techxtend segment was the result primarily of decreased software sales volume , including a decrease in large single sale transactions and extended payment terms sales transactions , offset in part by a higher gross margin in 2014 as compared to 2013. gross profit margin ( gross profit as a percentage of net sales ) for 2014 was 7.3 % compared to 8.1 % in 2013. gross profit margin for our lifeboat distribution segment was 6.6 % in 2014 compared to 7.3 % in and 2013. the decrease in gross profit margin for the lifeboat distribution segment was primarily caused by competitive pricing pressure , reduced vendor rebates and discounts , and product mix . gross profit margin for our techxtend segment in 2014 was 11.2 % compared to 11.0 % in 2013. the increase in gross profit dollars and the decrease in gross profit margins were primarily caused by the sales growth and product mix within our lifeboat distribution segment which carries lower margins than our techxtend segment . vendor rebates and discounts for 2014 amounted to $ 1.6 million compared to $ 1.7 million for 2013. vendor rebates are dependent on reaching certain targets set by our vendors . vendors have been periodically substantially increasing their target revenues for rebate eligibility . the company monitors gross profits and gross profit margins carefully . price competition in our market continued to intensify in 2014 , with competitors lowering their prices significantly and the company continues to respond immediately . we anticipate that margins , as well as discounts and rebates , will continue to be affected by this current trend . to the extent that the company finances larger transactions with extended payment terms , as anticipated , gross margins also will be negatively impacted . selling , general and administrative expenses total selling , general and administrative ( sg & a ) expenses for 2014 were $ 16.5 million compared to $ 15.5 million in 2013 , representing an increase of $ 1.0 million or
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these increases were partially offset by decreases due to changes in regulations involving advertising sales operations in russia , as further described in item 1 , `` business '' in this annual report on form 10-k. u.s. networks ' advertising revenue increased due to increases in pricing , partially offset by lower audience delivery . excluding the impact of foreign currency fluctuations , the acquisition of eurosport , the effect of the consolidation of discovery family , and the disposition of the company 's radio business , other revenue increased 4 % . this increase was primarily due to an increase at our education and other segments due to increased productions and , to a lesser extent , an increase at our international networks segment as result of increased program sales . these increases were offset by a decrease at our u.s. networks segment primarily due to the absence of representation service fees for discovery family , which have been eliminated since the company began to consolidate discovery family . costs of revenues excluding the impact of foreign currency fluctuations , the acquisitions of eurosport , the effect of the consolidation of discovery family , and the disposition of the company 's radio business , costs of revenues increased 11 % as result of increases of 12 % at our international networks segment and 7 % at our u.s. networks segment . the increases in costs of revenues were mostly due to our commitment to increased spending for content on our networks , which increased content amortization , and , to a lesser extent , increases in content impairments that were not included in restructuring and other charges . excluding the impact of foreign currency fluctuations , the acquisition of eurosport and the effect of the consolidation of discovery family , content amortization was $ 1,458 million and $ 1,336 million for the years ended december 31 , 2015 and december 31 , 2014 , respectively . content amortization rates on our networks have been slightly accelerating . selling , general and administrative selling , general and administrative expenses consist principally of employee costs , marketing costs , research costs , occupancy and back office support fees . excluding the impact of foreign currency fluctuations , the acquisition of eurosport , the consolidation of discovery family , and the disposition of the company 's radio business , selling , general and administrative expenses increased 3 % for the year ended december 31 , 2015 . the increase was primarily due to an increase in selling , general and administrative expense at our international networks segment of 10 % mostly due to increased personnel and associated support costs and , to a lesser extent , increased marketing costs . the increase was also , to a lesser extent , due to slight increases at our u.s. network segment due to an increase in research and , to a lesser extent , marketing costs . these increases were partially offset by a decrease in our equity-based compensation expense . depreciation and amortization depreciation and amortization expense includes depreciation of fixed assets and amortization of finite-lived intangible assets . excluding the impact of foreign currency fluctuations , business combinations and dispositions , depreciation and amortization remained consistent for the year ended december 31 , 2015 . restructuring and other charge s restructuring and other charges decreased $ 40 million . the decrease was primarily due to a decrease in content impairments resulting from the post-acquisition rebranding of the hub network to discovery family in 2014 ( see note 6 and note 15 to the accompanying consolidated financial statements . ) loss ( gain ) on disposition loss on dispositions comprised $ 12 million for the sale of the sbs radio business and $ 5 million for the contribution of the russian business to a joint venture for the year ended december 31 , 2015 . gain on disposition comprised $ 31 million for the sale of howstuffworks for the year ended december 31 , 2014 . ( see note 3 to the accompanying consolidated financial statements . ) 35 interest expense interest expense remained consistent for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014 . income from equity investees , net income from our equity method investees declined $ 22 million , mostly due to losses at all3media related to the amortization of intangible assets for the step up in the fair value of assets acquired from the investment following its acquisition on september 23 , 2014 , interest expense for the recapitalization of debt for the transaction and losses on derivative instruments . the decline was also , to a lesser extent , due to the change in accounting for discovery family from an equity method investment to a consolidated subsidiary , as well as decreased income at various other equity method investees . other expense , net the table below presents the details of other expense , net ( in millions ) . replace_table_token_8_th other expense , net increased $ 88 million in 2015. the increase was primarily due to foreign currency losses related to revaluation of our 1.90 % euro-dominated senior notes due march 19 , 2027 , which expose discovery to fluctuations in euro exchange rates , as well as the revaluation of monetary assets in venezuela , due to changes in the bolivar exchange rate used to remeasure revenue and monetary asset balances ( as further discussed in item 7a , `` quantitative and qualitative disclosures about market risk '' in this annual report on form 10-k ) . the increase was further attributable to a decrease in remeasurement gain related to the acquisition of a controlling interest in eurosport on may 30 , 2014 of $ 29 million , and eurosport france on march 31 , 2015 of $ 2 million ( see note 3 to the accompanying consolidated financial statements ) . story_separator_special_tag these increases were slightly offset by the attribution expense related to the put right held by tf1 , the holder of the remaining interests in eurosport and eurosport france , as a component of other expense , net in 2014 , for which there is no similar expense in the 2015. income taxes the following table reconciles the company 's effective income tax rate to the u.s. federal statutory income tax rate . replace_table_token_9_th income tax expense was $ 511 million and $ 610 million and the effective tax rate was 33 % and 35 % for 2015 and 2014 , respectively . the net 2 % decrease in the effective tax rate was attributable to a decrease in unrecognized tax benefits as a result of multiple audit resolutions and the lapse of the statute of limitations in foreign and domestic jurisdictions , favorable impact to deferred taxes due to various enacted foreign legislative changes and the allocation and taxation of income among multiple foreign and domestic jurisdictions . 36 segment results of operations – 2015 vs. 2014 we evaluate the operating performance of our operating segments based on financial measures such as revenues and adjusted oibda . adjusted oibda is defined as operating income excluding : ( i ) mark-to-market equity-based compensation , ( ii ) depreciation and amortization , ( iii ) amortization of deferred launch incentives , ( iv ) restructuring and other charges , ( v ) certain impairment charges , ( vi ) gains and losses on business and asset dispositions , and ( vii ) certain inter-segment eliminations related to production studios . we use this measure to assess the operating results and performance of our segments , perform analytical comparisons , identify strategies to improve performance , and allocate resources to each segment . we believe adjusted oibda is relevant to investors because it allows them to analyze the operating performance of each segment using the same metric management uses . we exclude mark-to-market equity-based compensation , restructuring and other charges , certain impairment charges , and gains and losses on business and asset dispositions from the calculation of adjusted oibda due to their volatility . we also exclude the depreciation of fixed assets and amortization of intangible assets and deferred launch incentives as these amounts do not represent cash payments in the current reporting period . additionally , certain corporate expenses and inter-segment eliminations related to production studios are excluded from segment results to enable executive management to evaluate segment performance based upon the decisions of segment executives . adjusted oibda should be considered in addition to , but not a substitute for , operating income , net income and other measures of financial performance reported in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . additional financial information for our segments and geographical areas in which we do business is discussed in note 21 to the accompanying consolidated financial statements included in item 8 , “ financial statements and supplementary data ” in this annual report on form 10-k. the table below presents the calculation of total adjusted oibda ( in millions ) . replace_table_token_10_th ( a ) selling , general and administrative expenses exclude mark-to-market equity-based compensation , restructuring and other charges , and gains ( losses ) on dispositions . ( b ) amortization of deferred launch incentives is included as a reduction of distribution revenue for reporting in accordance with gaap but is excluded from adjusted oibda . 37 the table below presents our adjusted oibda by segment , with a reconciliation of total adjusted oibda to consolidated operating income ( in millions ) . replace_table_token_11_th u.s. networks the table below presents , for our u.s. networks operating segment , revenues by type , certain operating expenses , contra revenue amounts , adjusted oibda and a reconciliation of adjusted oibda to operating income ( in millions ) . replace_table_token_12_th revenues distribution revenue increased 11 % . excluding the effect of the consolidation of discovery family , distribution revenue increased 7 % primarily due to contractual rate increases and , to a lesser extent , increases in digital distribution revenue , partially offset by slight declines in subscribers . advertising revenue increased 3 % . excluding the effect of the consolidation of discovery family , advertising revenue increased 2 % as increases in pricing were partially offset by lower audience delivery . other revenue decreased 11 % . excluding the effect of the consolidation of discovery family , other revenue decreased 24 % primarily due to the absence of representation service fees for discovery family , which have been eliminated since the company began to consolidate discovery family . when discovery family was an equity method investment , these fees were not eliminated but disclosed as related party transactions in note 19 to the accompanying consolidated financial statements . 38 costs of revenues costs of revenues increased 9 % . excluding the effect of the consolidation of discovery family , costs of revenues increased 7 % . the increase was primarily attributable to our commitment to increased spending for content on our networks which increased content amortization , and , to a lesser extent , increases in content impairments that were not included in restructuring and other charges . excluding the effect of the consolidation of discovery family , content amortization was $ 719 million and $ 672 million for 2015 and 2014 , respectively . content amortization rates on our networks have been slightly accelerating . selling , general and administrative selling , general and administrative expenses increased 2 % . excluding the effect of the consolidation of discovery family , selling , general and administrative expenses increased slightly due to increases in research and , to a lesser extent , marketing costs . adjusted oibda adjusted oibda increased 6 % . excluding the effect of the consolidation of discovery family , adjusted oibda increased 3 % primarily driven by increases in distribution and advertising revenue , partially offset by increases in content amortization .
| we have an extensive library of content and own rights to much of our content and footage , which enables us to exploit our library to launch brands and services into new markets quickly . our content can be re-edited and updated in a cost-effective manner to provide topical versions of subject matter that can be utilized around the world . substantially all of our content is produced in hd format . although the company utilizes certain brands and content globally , we classify our operations in two reportable segments : u.s. networks , consisting principally of domestic television networks and websites , and international networks , consisting primarily of international television networks and websites ; and two combined operating segments referred to as education and other , consisting principally of curriculum-based product and service offerings and production studios . for further discussion of our company , segments in which we do business , and our content development activities and revenues , see our business overview set forth in item 1 , `` business '' in this annual report on form 10-k. 32 results of operations – 2015 vs. 2014 items impacting comparability newly acquired businesses on may 30 , 2014 , we acquired a controlling interest in eurosport international . on march 31 , 2015 , we acquired a controlling interest in eurosport france and integrated the business into eurosport international , collectively referred to as eurosport . ( see note 3 to the accompanying consolidated financial statements . ) we included the operations of eurosport international and eurosport france in our consolidated financial statements as of their respective acquisition dates . as a result , eurosport has impacted the comparability of our results of operations between 2015 and 2014 . accordingly , to assist the reader in understanding the changes in our results of operations , the results of operations for the years ended december 31 , 2015 and 2014 excluding eurosport are presented in the tables below ( in millions ) . the results of operations for eurosport do not reflect the synergies from increased pan-european market penetration , which are reflected in the total company excluding
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resulting primarily from our balance sheet growth , net interest income for 2015 was $ 30.3 million , representing an increase of $ 9.3 million , or 44 % , compared to the $ 21.0 million recorded for 2014. partially offsetting the increase in net interest income were an increase in noninterest expenses and a decrease in noninterest income as a result of the impact of the bargain purchase gain in 2014. total noninterest expenses were $ 38.3 million for 2015 compared to $ 23.7 million for 2014 , an increase of $ 14.6 million , or 62 % . these include merger and restructuring charges of over $ 4.3 million for 2015 versus only $ 455 thousand for 2014 . 29 our nonperforming assets totaled $ 12.7 million , or 1.35 % of total assets , at december 31 , 2015 , compared to $ 6.7 million , or 0.97 % of total assets , at december 31 , 2014 and $ 5.6 million , or 1.11 % of total assets , at december 31 , 2013. we had loans totaling $ 1.8 million delinquent more than 90 days and still accruing at december 31 , 2015 compared to $ 1.2 million of such delinquencies at december 31 , 2014. in addition , we provided $ 1.8 million for credit losses for the year ended december 31 , 2015 compared to $ 3.3 million for credit losses during the year ended december 31 , 2014 and $ 950 thousand during the year ended december 31 , 2013. the 2015 provision was for the most part reflective of the overall growth experienced in our loan portfolio . 2014 included a nearly $ 2.0 million provision due to a loan loss incurred on one commercial customer . critical accounting policies our accounting and financial reporting policies conform to the accounting principles generally accepted in the united states of america ( “ gaap ” ) and general practice within the banking industry . accordingly , preparation of the financial statements require management to exercise significant judgment or discretion and make significant assumptions and estimates based on the information available that have , or could have , a material impact on the carrying value of certain assets or on income . these estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented . in reviewing and understanding financial information for us , you are encouraged to read and understand the significant accounting policies used in preparing our financial statements . the accounting policies we view as critical are those relating to the allowance for credit losses , income taxes and share based compensation . allowance for credit losses the allowance for credit losses is established through a provision for credit losses charged against income . loans are charged against the allowance for credit losses when management believes that the collectability of the principal is unlikely . subsequent recoveries are added to the allowance . the allowance is an amount that represents the amount of probable and reasonably estimable known and inherent losses in the loan portfolio , based on evaluations of the collectability of loans . the evaluations take into consideration such factors as changes in the types and amount of loans in the loan portfolio , historical loss experience , adverse situations that may affect the borrower 's ability to repay , estimated value of any underlying collateral , estimated losses relating to specifically identified loans , and current economic conditions . this evaluation is inherently subjective as it requires material estimates including , among others , exposure at default , the amount and timing of expected future cash flows on impaired loans , value of collateral , estimated losses on our loan portfolios as well as consideration of general loss experience . based on our estimate of the level of allowance for credit losses required , we record a provision for credit losses to maintain the allowance for credit losses at an appropriate level . we can not predict with certainty the amount of loan charge-offs that we will incur . we do not currently determine a range of loss with respect to the allowance for credit losses . in addition , our regulatory agencies , as an integral part of their examination processes , periodically review our allowance for credit losses . such agencies may require that we recognize additions to the allowance for credit losses based on their judgments about information available to them at the time of their examination . to the extent that actual outcomes differ from management 's estimates , additional provisions to the allowance for credit losses may be required that would adversely impact earnings in future periods . goodwill and other intangible assets goodwill represents the excess of the purchase price over the sum of the estimated fair values of tangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed . core deposit intangibles represent the estimated value of long-term deposit relationships acquired in a business combination . the core deposit intangible is amortized over the estimated useful lives of the acquired long-term deposits acquired , and the remaining amounts of the core deposit intangible are periodically reviewed for reasonableness . goodwill has an indefinite useful life and is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired . an impairment loss is recognized to the extent that the carrying amount exceeds the asset 's fair value . the goodwill impairment analysis is a two-step test . the first step , used to identify potential impairment , involves comparing the reporting unit 's estimated fair value to its carrying value , including goodwill . if the estimated fair value of a reporting unit exceeds its carrying value , goodwill assigned to that reporting unit is considered not to be impaired . story_separator_special_tag if the carrying value exceeds estimated fair value , there is an indication of potential impairment and the second step is performed to measure the amount of impairment of goodwill assigned to that reporting unit . 30 if required , the second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated impairment . the implied fair value of goodwill is determined in a manner similar to the amount of goodwill calculated in a business combination , by measuring the excess of the estimated fair value of the reporting unit , as determined in the first step , over the aggregate estimated fair values of the individual assets , liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination . if the implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit , there is no impairment . if the carrying value of goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill , an impairment charge is recorded for the excess . an impairment loss can not exceed the carrying value of goodwill assigned to a reporting unit , and the loss establishes a new basis in the goodwill . subsequent reversal of goodwill impairment losses is not permitted . we have determined that howard bancorp has one reporting unit . we may engage an external valuation specialist to assist us in the goodwill assessment , which we anticipate will be performed as of september 30 th each year , which would be our annual test date . business combinations gaap requires that the acquisition method of accounting , formerly referred to as purchase method , be used for all business combinations and that an acquirer be identified for each business combination . under gaap , the acquirer is the entity that obtains control of one or more businesses in the business combination , and the acquisition date is the date the acquirer achieves control . gaap requires that the acquirer recognize the fair value of assets acquired , liabilities assumed , and any non-controlling interest in the acquired entity at the acquisition date . income taxes we account for income taxes under the asset/liability method . we recognize deferred tax assets for the future consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases , as well as operating loss and tax credit carry-forwards . we measure deferred tax assets and liabilities 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 . we recognize the effect on deferred tax assets and liabilities of a change in tax rates in income in the period indicated by the enactment date . we establish a valuation allowance for deferred tax assets when , in the judgment of management , it is more likely than not that such deferred tax assets will not become realizable . the judgment about the level of future taxable income is dependent to a great extent on matters that may , at least in part , be beyond our control . it is at least reasonably possible that management 's judgment about the need for a valuation allowance for deferred tax assets could change in the near term . share based compensation we follow the provisions of asc topic 718 “ compensation – stock compensation ” which requires the expense recognition over the respective service period for the fair value of share based compensation awards , such as stock options , restricted stock , and performance based shares . this standard allows management to establish modeling assumptions as to expected stock price volatility , option terms , forfeiture rates and dividend rates which directly impact estimated fair value . the accounting standard also allows for the use of alternative option pricing models which may impact fair value as determined . our practice is to utilize reasonable and supportable assumptions which are reviewed with the appropriate board committee . balance sheet analysis and comparison of financial condition a comparison between december 31 , 2015 and december 31 , 2014 balance sheets is presented below . assets total assets increased $ 255.3 million , or 36.9 % , to $ 946.8 million at december 31 , 2015 compared to $ 691.4 million at december 31 , 2014. this increase in assets includes $ 170 million in assets associated with the patapsco bancorp acquisition . complementing this acquired growth , the bank had organic growth of total assets of $ 86 million and organic loan growth of $ 55 million during 2015. the primary source of funding for the asset growth was an increase in deposit levels . customer deposits increased from $ 554.0 million at december 31 , 2014 to $ 747.4 million at december 31 , 2015 , an increase of $ 193.4 million or 34.9 % , of which $ 170 million , or 31 % growth , is attributable to the patapsco bancorp transaction , and $ 24 million , or 4 % , is attributable to organic growth . supplementing the deposit growth , borrowed funds increased by $ 31.2 million or 46.1 % during 2015. in addition , our total capital levels increased $ 32.3 million or 55.8 % year over year , primarily due to the proceeds of $ 25 million additional capital from the private placement offering in 2015 . 31 securities available for sale we currently hold u.s. agency securities , mortgage backed securities , stock in another small financial institution and mutual fund investments in our securities portfolio , all of which are categorized as available for sale . the investment in a mutual fund is a supplement to our community reinvestment program activities .
| % from 4.92 % year over year , while the average yield on loans held for sale decreased to 3.58 % from 3.71 % reflective of current residential loan market conditions . in addition , interest income earned on investment securities and other interest earning assets increased $ 29 thousand primarily as a result of growth in their average balances , partially offset by a decrease in the average yield on investment securities . the average yield on investment securities decreased to 0.66 % from 0.89 % primarily as a result of changes in the portfolio mix , while the average yield from other earning asset increased to 0.26 % from 0.21 % year over year . 38 interest expense interest expense increased $ 670 thousand , or 27.9 % , to $ 3.1 million during the year ended december 31 , 2015 from $ 2.4 million during the prior year . interest expense increased primarily due to an increase in the average balance of interest bearing funds from $ 399.3 million for 2014 to $ 547.9 million for 2015 , representing a $ 148.6 million or 37.2 % increase in the average balance of interest bearing funds . interest expense benefitted in 2015 from a $ 45.5 million , or 43.2 % , increase in the average balance of noninterest-bearing deposits , without which we would have had to rely on other sources of funding and interest expense would have been significantly higher . partially mitigating the increase in interest expense due to the growth in the average balance of interest-bearing funds was a decrease in the overall cost of funds for 2015 versus 2014 of four basis points . in addition , interest expense increased $ 138 thousand as a result of an $ 11.5 million increase in the average balance of borrowings and a ten basis point increase in the average rate of short-term and long-term borrowings , which was 0.65 % during the year
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on december 29 , 2006 , solar power , inc. , a california corporation , merged with merger sub and solar power , inc. , a california corporation became a wholly-owned subsidiary of solar power , inc. , a nevada corporation ( formerly welund fund , inc. ) . in connection with the merger solar power , inc. , a nevada corporation ( formerly welund fund , inc. ) issued the existing shareholders of solar power , inc. , a california corporation an aggregate of 14,500,000 shares of solar power , inc. , a nevada corporation ( formerly welund fund , inc. ) restricted common stock and substituted 2,000,000 restricted stock awards and options of solar power , inc. , a california corporation with solar power , inc. , a nevada corporation ( formerly welund fund , inc. ) restricted stock awards and options to purchase shares of solar power , inc. , a nevada corporation ( formerly welund fund , inc. ) common stock . on february 15 , 2007 , we re-domiciled in the state of california . in february 2005 dale renewables consulting , inc. , ( drci ) , a california corporation was formed to engage in the business of solar modules and systems installation , integration and sales . in may 2006 , solar power , inc. , a california corporation , and dale stickney construction , inc. ( dsci ) , the parent of drci , agreed in principle on the acquisition of drci by solar power , inc. , a california corporation , and entered into an operating agreement with drci providing that solar power , inc. , a california corporation would effectively be responsible for all current operations , liabilities , and revenues , effective june 1 , 2006 , as contemplated by the proposed merger agreement . in august 2006 , solar power , inc. , a california corporation , and drci completed the agreement and plan of merger ( the merger agreement ) , including the assignment and interim operating agreement ( the operating agreement ) which was an exhibit to the merger agreement . the operating agreement obligated solar power , inc. , a california corporation , to provide all financing necessary for drci 's operations subsequent to june 1 , 2006 until the consummation of the acquisition in exchange for all the revenues generated from its operations . the operating agreement also provided that solar power , inc. , a california corporation , was to provide all management activities of drci on its behalf from june 1 , 2006 until the consummation of the acquisition . on november 15 , 2006 , the company completed the acquisition of drci , paying $ 1,115,373 in cash in exchange for 100 % of the outstanding shares of drci . the acquisition of drci provided solar power , inc. , a california corporation , with an experienced photovoltaic sales and installation team . the company has allocated the purchase price of $ 1,115,373 to estimated fair values of the acquired assets as follows : inventories $ 35,341 other current assets 637,089 plant and equipment 7,995 goodwill 434,948 total $ 1,115,373 on april 12 and 17 , 2007 the company issued standby letters of credit totaling $ 800,000 to two suppliers , sharp electronics and kyocera solar . the letters of credit were issued in support of the company 's line of credit with these suppliers . these suppliers have no interest in the company and are not considered related parties . the term of the letters of credit are twelve months and are collateralized by $ 800,000 of the company 's cash deposits . these letters of credit were released by sharp electronics and kyocera solar and cancelled in january 2008 . 33 on may 7 , 2007 , the company entered into a lease for the location of the company 's first energy outlet . the store is located in roseville , california and has approximately 2,000 square feet . the term of the lease is sixty three months commencing on october 20 , 2007 , with an initial rent of approximately $ 78,000 per year and has an option to renew for an additional five years . on june 5 , 2007 , the company entered into a capitalized lease agreement with california first leasing corporation to finance the purchase of approximately $ 581,000 of software and hardware . the term of the lease is thirty-six months ; the company paid an initial security deposit of approximately $ 9,000 and secured the lease with a letter of credit of $ 450,825 collateralized by an equal amount of the company 's cash deposits . as of december 31 , 2008 , the company owed approximately $ 388,000 on this lease agreement . on june 8 , 2007 , the company issued a standby letter of credit in the amount of $ 1,000,000 in favor of china merchants bank as collateral for the line of credit of its subsidiary , ias electronics ( shenzhen ) co. , ltd. the letter of credit is for a term of one year and is secured by the company 's cash deposits . in june , 2008 , the line of credit was repaid in full and the letter of credit was released by china merchants bank . on june 20 , 2007 , the company issued a standby letter of credit to california first leasing corporation in the amount of $ 284,367 as security for a capital lease agreement . the term of the letter of credit is one year and is secured by the company 's cash deposits . on july 31 , 2007 this letter of credit was increased to $ 601,100 to secure an increase to principal and interest to the capital lease agreement . under the terms of the lease with california first leasing corporation the required amount of the letter of credit is reduced annually as the outstanding balance of the lease decrease . story_separator_special_tag on october 1 , 2008 the amount of the letter of credit was reduced to approximately $ 450,825 for an additional twelve months . at december 31 , 2008 the amount outstanding on the letter of credit to california first leasing corporation was $ 450,825 collateralized by an equal amount of the company 's cash deposits . on june 25 , 2007 , the company entered into an agreement with china merchants bank for a working capital line of credit through its wholly-owned subsidiary , ias electronics ( shenzhen ) co. , ltd. in the amount of $ 900,000. the term of the agreement is one year with an annual interest rate of 6.75 percent . the line is secured by a $ 1,000,000 standby letter of credit collateralized by the company 's cash deposits . in june 2008 , this working capital line of credit was repaid in full and the letter of credit released by china merchants bank . on july 25 , 2007 , the company entered into an office lease for the relocation of the company headquarters . the building is located at 1115 orlando avenue in the city of roseville , california and has approximately 19,000 square feet . the term of the lease is five years commencing on august 1 , 2007 , with an initial rent of approximately $ 343,000 per year and has an option to renew for an additional five years . on august 14 , 2007 , through its wholly-owned subsidiary yes ! solar , inc. , the company filed with the state of california department of corporations a uniform franchise offering circular ( ufoc ) for approval and solar power , inc. executed a guarantee of performance of yes ! solar , inc. to the state of california department of corporations . the company has received approval of the ufoc on november 21 , 2007. as of december 31 , 2008 , the company had completed five franchise territory sales . on december 13 , 2007 , the company and its wholly-owned subsidiary , yes ! solar , inc. ( yes ) entered into a retailer program agreement ( the agreement ) with ge money bank to provide to yes retail customers a vehicle to finance solar systems purchased from yes . the agreement provides that the company will provide a standby letter of credit equal to the greater of $ 50,000 or one percent of sales under the agreement . a standby letter of credit in the amount of $ 50,000 was issued on november 14 , 2007 as a condition to the execution of the agreement . the term of the letter of credit was renewed for an additional year on november 14 , 2008. as of december 31 , 2008 there were no sales under this agreement . management is considering the impact of the following industry trends as they impact the manufacturing of complete photovoltaic systems and planned business model : solar cell pricing trends around the world : recently the key material in the production of solar cells ( silicon ) has been decreasing in price due to the global financial crisis . solar cells are the major component cost in a photovoltaic module . the company has responded by seeking longer-term supply agreements for solar cells at current market rates . to date the company has entered into one long-term supply agreement for solar cells at which the price is fixed , but there is no financial commitment on the part of the company to take delivery of cells . our intent is secure ample solar cell supply to meet our growth needs and to avoid the risk of long-term contract pricings with suppliers whose products are expected to see a decline in the average selling price . industry experts believe that additional planned expansion of silicon processing factories coming on 34 line will produce enough raw materials to create an oversupply on projected demand . failure to effectively manage our supply will hinder our expected growth and our component costs may have an adverse affect on the company 's profitability . government subsidies : federal and state subsidies relating directly to solar installations are an important factor in the planned growth of the solar industry . these subsidies are very important to growing the market for photovoltaic systems because they provide a significant economic incentive to all buyers . without these incentives , industry growth would likely stall . these regulations are constantly being amended and will have a direct effect on our rollout of our planned franchise network among those states that offer superior incentives to the solar industry . global economic conditions : while there has been deterioration in the global economic condition of the financial markets , affecting most segments of industry and commerce , the company is positioned in the renewable energy segment which remains strong . since our customers may depend on financial markets for financing of solar installations , the company is responding by seeking financing sources for its customers . failure to secure these sources may have an adverse affect on the company 's business opportunities and profitability . critical accounting policies and estimates inventories certain factors could impact the realizable value of our inventory , so we continually evaluate the recoverability based on assumptions about customer demand and market conditions . the evaluation may take into consideration historic usage , expected demand , anticipated sales price , product obsolescence , customer concentrations , product merchantability and other factors . the reserve or write-down is equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions . if actual market conditions are less favorable than those projected by management , inventory reserves or write-downs may be required that could negatively impact our gross margin and operating results . goodwill goodwill resulted from our acquisition of dale renewables consulting , inc. we perform a goodwill impairment test on an annual basis and will perform an assessment between annual tests in certain circumstances .
| cost of goods sold in the photovoltaic installation , integration and product sales segment was approximately $ 41,819,000 ( 93.6 % of sales ) for the year ended december 31 , 2008 compared to approximately $ 13,876,000 ( 94.1 % of net sales ) for the year ended december 31 , 2007. while the company has experienced significant growth in sales for this segment in fiscal 2008 , higher than anticipated solar cell costs in the third and fourth quarters eroded construction margins in our photovoltaic segment . due to decreasing cell costs in fiscal 2009 , the company expects that margins will improve in fiscal 2009. there were no cost of goods sold in our franchise operations segment for the years ended december 31 , 2008 and 2007. cost of goods sold in the cable , wire and mechanical assembly segment were approximately $ 2,025,000 ( 73.6 % of net sales ) for the year ended december 31 , 2008 compared to approximately $ 1,940,000 ( 57.1 % of net sales ) for the year ended december 31 , 2007. the increase is attributable to product mix , increased shipping costs due to fuel surcharges and increased material costs due to the increase in copper wire pricing , a key component in the cable wire segment . the company does not expect margins to materially improve in this segment . general and administrative expenses general and administrative expenses were approximately $ 8,981,000 for the year ended december 31 , 2008 and approximately $ 7,196,000 for the year ended december 31 , 2007 an increase of 24.8 % . as a percentage of net sales , general and administrative expenses were 18.9 % and 39.7 % , for the years ended december 31 , 2008 and 2007 , respectively . the increase in actual cost is primarily due to the increase in employee related expense , infrastructure costs and professional fees associated with the continued development of our photovoltaic solar business and start up of our franchise operations . significant elements of general and administrative expenses for the year ended december 31 , 2008 include employee related expense of approximately $ 4,223,000 , information technology costs of approximately $ 171,000 , insurance costs of approximately $ 171,000 , professional and consulting fees of approximately $ 1,573,000 , rent of approximately $ 583,000 , travel
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we believe the following critical accounting policies and the related judgments and estimates are the most significant to the presentation of our consolidated financial statements and require the most difficult , subjective and complex judgments : 36 revenue recognition . we design , market and sell products primarily as commercial , off-the-shelf products . certain customers request different system configurations , based on standard options or accessories that we offer . revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services . we regularly enter into contracts that can include various combinations of products and services , which are generally capable of being distinct and accounted for as separate performance obligations . in such situations , contract values are allocated to each performance obligation based on its relative estimated standalone selling price . the vast majority of our revenues are recognized at a point in time when goods are transferred to a customer . however , for certain contracts that include highly customized components , if performance does not create an asset with an alternative use and termination for convenience clauses provide an enforceable right to payment for performance completed to date , revenue is recognized over time as the performance obligation is satisfied . revenue includes certain shipping and handling costs and is stated net of third party agency fees . shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold . revenue is recognized net of allowances for returns and net of taxes collected from customers which are subsequently remitted to governmental authorities . our products are sold with warranty provisions that require us to remedy deficiencies in quality or performance of our products over a specified period of time , generally twelve to twenty-four months , at no cost to our customers . warranty liabilities are established at the time that revenue is recognized at levels that represent our estimate of the costs that will be incurred to fulfill those warranty requirements . provisions for estimated losses on sales or related receivables are recorded when identified . revenue includes certain shipping and handling costs and is stated net of representative commissions and sales taxes . service revenue is deferred and recognized over the contract period , as is the case for extended warranty contracts , or recognized as services are provided . effective january 1 , 2018 , we adopted fasb asc 606 , `` revenue-revenue from contracts with customers '' and all the related amendments . see note 1 , `` nature of business and significant accounting policies , '' to the consolidated financial statements in item 8 for a discussion of recently adopted accounting pronouncements . inventory . our policy is to record inventory write-downs when conditions exist that indicate that our inventories are likely to be in excess of anticipated demand or are obsolete based upon our assumptions about future demand for our products and market conditions . we regularly evaluate the ability to realize the value of our inventories based on a combination of factors including the following : historical usage rates , forecasted sales or usage , product end of life dates , estimated current and future market values and new product introductions . purchasing requirements and alternative usages are evaluated within these processes to mitigate inventory exposure . when recorded , our write-downs are intended to reduce the carrying value of our inventories to their net realizable value and establish a new cost basis . as of december 31 , 2018 , our inventories of $ 352.1 million are stated net of inventory write-downs . if actual demand for our products deteriorates or market conditions are less favorable than those that we project , additional inventory write-downs may be required in the future . goodwill . goodwill represents the excess purchase price of an acquired enterprise over the estimated fair value of identifiable net assets acquired . we assess goodwill for potential impairment at the reporting unit level during the third quarter of each year , or whenever events or circumstances indicate that the carrying value of these assets may exceed their fair value . we may assess qualitative factors to make this determination , or bypass such a qualitative assessment and proceed directly to testing goodwill for impairment using a two-step process . qualitative factors we may consider include , but are not limited to , macroeconomic conditions , industry conditions , the competitive environment , changes in the market for our products and services , regulatory and political developments and entity specific factors such as strategies and financial performance . if there are indicators that goodwill has been impaired we proceed to a two-step impairment test , whereby the first step is comparing the fair value of a reporting unit with its carrying amount , including goodwill . if the fair value of the reporting unit exceeds the carrying value , goodwill is not impaired and no further testing is performed . the second step is performed if the carrying value of a reporting unit exceeds its fair value . if the carrying value of a reporting unit 's goodwill exceeds its implied fair value , an impairment loss equal to the difference is recorded . our impairment test in the current year did not indicate an impairment of goodwill in any of our reporting units . contingencies . we are subject to the possibility of loss contingencies arising in the normal course of business . we consider the likelihood of loss or impairment of an asset or the incurrence of a liability , as well as our ability to reasonably estimate the amount of loss in determining loss contingencies . an estimated loss is accrued when it is probable that an asset has been impaired or a liability has been incurred and the amount can be reasonably estimated . story_separator_special_tag we regularly evaluate current information available to us to determine whether such accruals and disclosures should be adjusted . 37 income taxes . we account for income taxes using the asset and liability method , which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of the assets and liabilities measured using the enacted tax rates in effect in the years in which the differences are expected to reverse . valuation allowances against deferred tax assets are recorded when a determination is made that the deferred tax assets are not more likely than not to be realized in the future . in making that determination , on a jurisdiction by jurisdiction basis , we estimate our future taxable income based upon historical operating results and external market data . future levels of taxable income are dependent upon , but not limited to , general economic conditions , competitive pressures and other factors beyond our control . as of december 31 , 2018 , we have determined that a valuation allowance against our deferred tax assets of $ 3.2 million is required . if we should determine that we may be unable to realize our deferred tax assets to the extent reported , an adjustment to the deferred tax assets would be recorded in the period such determination is made . we are subject to income taxes in the united states and in numerous foreign jurisdictions , and in the ordinary course of business , there are many transactions and calculations where the ultimate tax determination is uncertain . we record a benefit on a tax position when we determine that it is more likely than not that the position is sustainable upon examination , including resolution of any related appeals or litigation processes , based on the technical merits of the position . for tax positions that are more likely than not to be sustained , we measure the tax position at the largest amount of benefit that has a greater than 50 percent likelihood of being realized when it is effectively settled , using information that is available at the reporting date . we review our tax positions as circumstances warrant , and update our liability for additional taxes as changes in available facts arise . 38 story_separator_special_tag ont > 2018 , 2017 and 2016 , the company also incurred other restructuring charges associated with cost reduction initiatives that were not related to the 2013 realignment plan . loss on sale of business . during the fourth quarter of 2017 , we recorded an estimated pre-tax loss on net assets reclassified as held for sale of $ 23.6 million . the loss on net assets held for sale was related to the planned divestiture of our consumer and smb security business . during the year ended december 31 , 2018 , as a result of the combined sale of the planned divestiture , net working capital adjustments , and subsequent negotiations with the buyer , we recognized an additional pre-tax loss of $ 13.7 million . see note 19 , `` business acquisitions and divestitures , '' of the notes to the consolidated financial statements in item 8 for additional information . interest expense . interest expense totaled $ 16.1 million , $ 16.8 million and $ 18.1 million for the years ended december 31 , 2018 , 2017 and 2016 , respectively . interest expense for the year was primarily associated with the $ 425 million aggregate principal amount of 3.125 percent senior unsecured notes that were issued in june 2016. the decrease in interest expense in 2017 compared to 2016 was primarily due to the $ 1.3 million loss incurred in 2016 on extinguishment of our debt . 40 other ( income ) expense , net . other income totaled $ 0.7 million and $ 4.1 million for the year ended december 31 , 2018 and 2017 , respectively . other expense totaled $ 3.1 million for the year ended december 31 , 2016 . the change in other ( income ) expense , net in 2018 over 2017 is primarily attributed to increased losses on currency exchange rate fluctuations . the change in other ( income ) expense , net in 2017 over 2016 is primarily attributed to decreased losses on currency exchange rate fluctuations . income taxes . our income tax provision was $ 24.7 million , $ 171.8 million and $ 109.3 million in 2018 , 2017 and 2016 , respectively . the effective tax rates for 2018 , 2017 and 2016 were 8.0 percent , 61.6 percent and 39.6 percent , respectively . the company 's effective tax rate in 2018 was lower than the united states federal tax rate of 21.0 percent mainly due to recognition of previously unrecognized tax benefits relating to the european union state aid recovery discussed below , excess tax benefits from stock compensation and a reduction in the accrual for the u.s. transition tax , offset partially by state taxes , higher tax rates applied to income earned in certain foreign jurisdictions , and other discrete items . our effective tax rate in 2017 was higher than the united states federal tax rate of 35 percent mainly due to our estimate of the impact of the tax cuts and jobs act ( the `` tax act '' ) , including $ 66.5 million for deemed distributions of previously unremitted foreign earnings , $ 12.8 million for revaluation of deferred tax items and $ 15.1 million for estimated state and foreign taxes due on distribution of previously unremitted foreign earnings . unrecognized tax benefits for intercompany pricing increased in various jurisdictions in 2017 , but this was partially offset by excess tax benefits for stock compensation and the mix of lower foreign tax rates applied to foreign earnings .
| the acquisitions of armasight , prox dynamics , and point grey were the primary drivers in revenue growth for the year ended december 31 , 2017. international revenue in 2018 totaled $ 841.2 million , representing 47.4 percent of revenue . this compares with international revenue in 2017 which totaled $ 844.0 million , representing 46.9 percent of revenue , and $ 758.6 million in 2016 , representing 45.6 percent of revenue . while the sales mix between united states and international sales may fluctuate from year to year , we expect revenue from customers outside the united states to continue to comprise a significant portion of our total revenue on a long-term basis . cost of goods sold . cost of goods sold for the years ended december 31 , 2018 and 2017 was $ 875.4 million and $ 941.7 million , respectively . the decrease is primarily due to the decline in our commercial business unit as a result of the consumer and smb security business divestiture . cost of goods sold in 2017 was $ 941.7 million , compared to cost of goods sold of $ 895.0 million in 2016 . the increase is primarily due to the increase in revenues year over year as discussed above and changes in product mix . 39 cost of goods sold includes materials , labor and overhead costs incurred in the manufacturing of products and services sold in the period as well as warranty costs . material costs include raw materials , purchased components and sub-assemblies , outside processing and inbound freight costs . labor and overhead costs consist of direct and indirect manufacturing costs , including wages and fringe benefits , operating supplies , depreciation and amortization , occupancy costs , and purchasing , receiving and inspection costs . gross profit . gross profit for the year ended december 31 , 2018 was $ 900.3 million compared to $ 858.8 million in 2017 . gross margin , defined as gross profit divided by revenue , increased from 47.7 percent in 2017 to 50.7 percent in
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we believe that our business transformation has strategically positioned us to take advantage of the long-term , future growth prospects for outsourcing of advanced manufacturing capabilities , design and engineering services and after-market services , which remain strong . we are one of the world 's largest providers of global supply chain solutions , with revenues of $ 23.9 billion in fiscal year 2017 . we have established an extensive network of manufacturing facilities in the world 's major consumer electronics and industrial markets ( asia , the americas , and europe ) in order to serve the growing outsourcing needs of both multinational and regional customers . we design , build , ship , and service consumer electronics and industrial products for our customers through a network of over 100 facilities in approximately 30 countries across four continents . as of march 31 , 2017 , our total manufacturing capacity was approximately 27 million square feet . in fiscal year 2017 , our net sales in asia , the americas and europe represented approximately 46 % , 36 % and 18 % , respectively , of our total net sales , based on the location of the manufacturing site . the following tables set forth net sales and net property and equipment , by country , based on the location of our manufacturing sites and the relative percentages : replace_table_token_6_th 32 replace_table_token_7_th we believe that the combination of our extensive open innovation platform solutions , design and engineering services , advanced supply chain management solutions and services , significant scale and global presence , and industrial campuses in low-cost geographic areas provide us with a competitive advantage and strong differentiation in the market for designing , manufacturing and servicing consumer electronics and industrial products for leading multinational and regional customers . specifically , we have launched multiple product innovation centers ( `` pic '' ) focused exclusively on offering our customers the ability to simplify their global product development , manufacturing process , and after sales services , and enable them to meaningfully accelerate their time to market and cost savings . our operating results are affected by a number of factors , including the following : changes in the macro-economic environment and related changes in consumer demand ; the mix of the manufacturing services we are providing , the number and size of new manufacturing programs , the degree to which we utilize our manufacturing capacity , seasonal demand , shortages of components and other factors ; the effects on our business when our customers are not successful in marketing their products , or when their products do not gain widespread commercial acceptance ; our ability to achieve commercially viable production yields and to manufacture components in commercial quantities to the performance specifications demanded by our customers ; the effects on our business due to our customers ' products having short product life cycles ; our customers ' ability to cancel or delay orders or change production quantities ; our customers ' decisions to choose internal manufacturing instead of outsourcing for their product requirements ; our exposure to financially troubled customers ; integration of acquired businesses and facilities ; increased labor costs due to adverse labor conditions in the markets we operate ; changes in tax legislation ; and changes in trade regulations and treaties . we also are subject to other risks as outlined in item 1a , `` risk factors '' . net sales for fiscal year 2017 declined from the prior year , decreasing by 2.3 % or $ 0.6 billion to $ 23.9 billion . the decrease was primarily due to a $ 0.6 billion decrease in our ctg segment as well as a $ 0.5 billion decrease in our cec segment , partially offset by a $ 0.3 billion increase in our iei segment , and a $ 0.2 billion increase in our hrs segment . our fiscal year 2017 gross profit totaled $ 1.5 billion , representing a decrease of $ 87.1 million , or 5.4 % , from the prior year , which is primarily driven by a $ 92.9 million charge following the significant decline in prices for solar modules coupled with the restructuring charges of $ 49.4 million , of which $ 38.8 million impacted gross margin , incurred during fiscal year 2017 in a plan 33 to accelerate our ability to support more sketch-to-scale tm efforts across the company and reposition away from historical legacy programs and structures . our net income totaled $ 319.6 million , representing a decrease of $ 124.5 million , or 28.0 % , compared to fiscal year 2016 . the decrease in net income during fiscal year 2017 is primarily due to the same factors explained above . cash provided by operations remained consistent at $ 1.1 billion for the fiscal years 2017 and 2016 . cash used in investing activities decreased by approximately $ 0.7 billion to a total amount of $ 0.7 billion for fiscal year 2017 compared with $ 1.4 billion for fiscal year 2016 primarily due to a decrease in the amount of cash paid for acquired businesses during fiscal year 2017. our average net working capital , defined as accounts receivable , including deferred purchase price receivable from our asset-backed securitization programs plus inventory less accounts payable , as a percentage of annualized sales decreased by 0.8 % to 6.9 % . our free cash flow , which we define as cash from operating activities less net purchases of property and equipment , was $ 660.4 million for fiscal year 2017 compared to $ 639.5 million for fiscal year 2016 . the increase in free cash flow is primarily due to higher cash flows from operations . refer to the liquidity and capital resources section for the free cash flows reconciliation to our most directly comparable gaap financial measure of cash flows from operations . story_separator_special_tag cash used in financing activities amounted to $ 242.1 million during fiscal year 2017 , which changed $ 491.7 million from a cash inflow of $ 249.6 million in the prior year primarily due to lower net proceeds from bank borrowings and long-term debt . critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( `` u.s. gaap '' or `` gaap '' ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reporting period . actual results may differ from those estimates and assumptions . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . for further discussion of our significant accounting policies , refer to note 2 to the consolidated financial statements in item 8 , `` financial statements and supplementary data . '' revenue recognition we recognize manufacturing revenue when we ship goods or the goods are received by our customer , title and risk of ownership have passed , the price to the buyer is fixed or determinable and recoverability is reasonably assured . generally , there are no formal substantive customer acceptance requirements or further obligations related to manufacturing services . if such requirements or obligations exist , then we recognize the related revenues at the time when such requirements are completed and the obligations are fulfilled . some of our customer contracts allow us to recover certain costs related to manufacturing services that are over and above the prices we charge for the related products . we determine the amount of costs that are recoverable based on historical experiences and agreements with those customers . also , certain customer contracts may contain certain commitments and obligations that may result in additional expenses or decrease in revenue . we accrue for these commitments and obligations based on facts and circumstances and contractual terms . we also make provisions for estimated sales returns and other adjustments at the time revenue is recognized based upon contractual terms and an analysis of historical returns . provisions for sales returns and other adjustments were not material to our consolidated financial statements for any of the periods presented . we also recognize revenue in accordance with multiple-element arrangements accounting codified under u.s. gaap for arrangements that contain multiple deliverables . we determined that our multiple-element arrangements are generally comprised of arrangements where multiple product components are sold together as part of a complete system . depending on the contractual provisions of the respective contracts , we have concluded that the units of accounting for such arrangements are , in most cases , comprised of an aggregation of product components , however , may also be established at the product component level . for multiple-element arrangements , revenue is allocated to each unit of accounting based on their relative selling prices . relative selling prices are based first on vendor specific objective evidence of fair value ( “ vsoe ” ) , then on third-party evidence of selling price ( “ tpe ” ) when vsoe does not exist , and then on management 's best estimate of the selling price ( “ besp ” ) when vsoe and tpe do not exist . we base the allocation of revenue on besp , because we do not have either vsoe or tpe for the respective deliverables . we provide a comprehensive suite of services for our customers that range from advanced product design to manufacturing and logistics to after-sales services . we recognize service revenue when the services have been performed , and the related costs are expensed as incurred . our net sales for services were less than 10 % of our total sales for all periods presented , and accordingly , are included in net sales in the consolidated statements of operations . 34 customer credit risk we have an established customer credit policy through which we manage customer credit exposures through credit evaluations , credit limit setting , monitoring , and enforcement of credit limits for new and existing customers . we perform ongoing credit evaluations of our customers ' financial condition and make provisions for doubtful accounts based on the outcome of those credit evaluations . we evaluate the collectability of accounts receivable based on specific customer circumstances , current economic trends , historical experience with collections and the age of past due receivables . to the extent we identify exposures as a result of credit or customer evaluations , we also review other customer related exposures , including but not limited to inventory and related contractual obligations . on april 21 , 2016 , sunedison , inc. ( together with certain of its subsidiaries , `` sunedison '' ) , filed a petition for reorganization under bankruptcy law . during the fiscal year ended march 31 , 2016 , we recognized a bad debt reserve charge of $ 61.0 million associated with our outstanding sunedison receivables and accepted return of previously shipped inventory of approximately $ 90.0 million . during the second quarter of fiscal year 2017 , prices for solar panel modules declined significantly . we determined that certain solar panel inventory previously designated for sunedison on hand at the end of the second quarter of fiscal year 2017 was not fully recoverable and recorded a charge of $ 60.0 million to reduce the carrying costs to market during fiscal year 2017. in addition , we recognized a $ 16.0 million impairment charge for solar module equipment and incurred $ 16.9 million of incremental costs primarily related to negative margin sales and other associated solar panel direct costs .
| the decrease in cec is largely attributable to lower sales within our legacy server and storage business . these decreases were partially offset by a $ 287.0 million or 6 % increase in sales from our iei segment driven by contribution from our nextracker inc. ( `` nextracker '' ) acquisition and expansion within our capital equipment business , and by a $ 250.4 million or 6 % increase in sales from our hrs segment primarily driven by automotive business . 37 net sales during fiscal year 2016 decreased $ 1.9 billion or 22 % in the ctg segment and $ 349.6 million or 4 % in the cec segment . the drop in ctg was due to a decline in demand from our largest customer in our mobile business offset by expansion across wearables , connected home and gaming markets . the decrease in cec is primarily attributable to lower sales within our server and storage business . these decreases were partially offset by a $ 341.7 million or 10 % increase in sales from our hrs segment , and by a $ 221.4 million or 5 % increase in sales from our iei segment . these increases in hrs and iei were attributable to an increase across multiple product categories and customers , most notably in our household , energy , automotive , and medical businesses primarily as a result of our strategic acquisitions in both segments referred to below . our ten largest customers during fiscal years 2017 , 2016 and 2015 accounted for approximately 43 % , 46 % and 50 % of net sales , respectively . we have made substantial efforts toward the diversification of our portfolio which allow us to operate at scale in so many different industries , as a result no customer accounted for greater than 10 % of net sales in fiscal year 2017. during fiscal years 2016 and 2015 , only lenovo/motorola ( including net sales from its former parent , google , up to
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the increase was due to a 20.2 % increase in billed hours and a 4.3 % increase in average bill rate . revenue from existing offices accounted for approximately $ 6.5 million of the increase and revenue from new offices provided approximately $ 2.3 million . professional revenues : professional revenues increased approximately $ 30.1 million ( 53.3 % ) primarily from the d & w and vts acquisitions , which contributed approximately $ 19.1 million and $ 9.2 million , respectively , of new revenues . the remaining increase was due to a 6.4 % increase in billed hours offset by a 1.4 % decrease in average bill rate . commercial revenues : commercial revenues have increased approximately $ 5.7 million ( 7.0 % ) primarily from operations in texas . texas branches increased revenues $ 11.4 million , which was offset a $ 5.7 million decrease in our other areas , primarily illinois and wisconsin locations due to a 29.1 % decrease in billed hours . the overall revenue increase was due to a 0.9 % increase in billed hours , primarily overtime premium , and a 6.3 % increase in average bill rate . gross profit : gross profit represents revenues from services less cost of services expenses , which consist of payroll , payroll taxes , payroll-related insurance , temporary worker costs , and reimbursable costs . replace_table_token_12_th 27 replace_table_token_13_th overall , our gross profit has increased approximately $ 13.4 million ( 38.8 % ) due primarily from the d & w ( $ 5.6 million ) and vts ( $ 2.2 million ) acquisitions and increased gross profit in our commercial and multifamily segments . as a percentage of revenue , gross profit has increased to 22.0 % from 20.0 % , primarily due to higher revenues and a larger percentage of revenues from our multifamily and professional segments . commercial gross profit : commercial gross profit increased approximately $ 1.7 million ( 15.7 % ) due to increased revenue . the increase in gross profit percentage of 1.0 % is primarily due to a 6.9 % increase in average spread . multifamily gross profit : multifamily gross profit increased approximately $ 3.8 million ( 33.4 % ) mainly due to an increase in revenue . the increase in gross profit percentage of 2.0 % was due primarily to 8.3 % increase in average spread . professional gross profit : professional gross profit increased approximately $ 7.8 million ( 64.4 % ) due primarily to the d & w and vts acquisitions . the increase in gross profit percentage of 1.6 % was due primarily to the addition of the d & w and vts business , which have higher gross profit percentages . selling , general and administrative expenses : selling , general and administrative expenses increased approximately $ 6.3 million ( 26.2 % ) primarily due to the d & w acquisition with $ 1.9 million and the vts acquisition with $ 1.0 million , loss on contingent consideration of $ 1.7 million , transaction fees of $ 0.5 million , increased payroll , commissions and bonuses , and other costs associated with our growth . depreciation and amortization : depreciation and amortization charges increased approximately $ 0.9 million ( 19.4 % ) . the increase in depreciation and amortization is primarily due to professional segment intangible assets acquired in the d & w acquisition of $ 0.8 million and vts acquisition of $ 0.5 million . interest expense , net : interest expense , net increased approximately $ 0.3 million ( 11.6 % ) due primarily to the increase in the amortization of contingent consideration discounts from the d & w and vts acquisitions , offset by an decrease in the interest under our revolving facility ( as defined below ) from a lower revolver balance during the second and third quarters of 2015 than during the same time period in 2014. the revolving facility balance was increased in the fourth quarter 2015 for the purchase of vts . income taxes : we had an income tax expense of approximately $ 3.4 million in fiscal 2015 , compared with approximately $ 1.4 million in fiscal 2014. the increase in income taxes is primarily due to an increase in taxable income , offset by a significant decrease in the effective rate due primarily to equity related items in 2014. liquidity and capital resources our working capital requirements are primarily driven by temporary worker payments and customer accounts receivable receipts . since receipts from customers lag payments to temporary workers , working capital requirements increase substantially in periods of growth . our primary sources of liquidity are cash generated from operations and borrowings under our credit agreement with texas capital bank , national association ( “ tcb ” ) that provides for a revolving credit facility maturing august 21 , 2019 ( the “ revolving facility ” ) . our primary uses of cash are payments to temporary workers , employees , related payroll liabilities , operating expenses , capital expenditures , cash interest , cash taxes , dividends and contingent consideration payments . we believe that the cash generated from operations , together with the borrowing availability under our revolving facility , will be sufficient to meet our normal working capital needs for at least the next twelve months , including investments made , and expenses incurred , in connection with 28 opening new branches throughout the next year . our ability to continue to fund these items may be affected by general economic , competitive and other factors , many of which are outside of our control . if our future cash flow from operations and other capital resources are insufficient to fund our liquidity needs , we may be forced to obtain additional debt or equity capital or refinance all or a portion of our debt . story_separator_special_tag while we believe we have sufficient liquidity and capital resources to meet our current operating requirements and expansion plans , we may elect to pursue additional growth opportunities within the next year that could require additional debt or equity financing . if we are unable to secure additional financing at favorable terms in order to pursue such additional growth opportunities , our ability to pursue such opportunities could be materially adversely affected . the company has an effective form s-3 shelf registration statement allowing for the offer and sale of up to approximately $ 34 million of common stock . there is no guarantee that we will be able to consummate any offering on terms we consider acceptable or at all . a summary of our operating , investing and financing activities are shown in the following table : replace_table_token_14_th operating activities cash provided by operating activities consists of net income ( loss ) adjusted for non-cash items , including depreciation and amortization , loss on extinguishment of debt and related party debt , share-based compensation expense , put option adjustment , interest expense on contingent consideration payable , and the effect of working capital changes . the primary drivers of cash inflows and outflows are accounts receivable , and accrued payroll and expenses . during fiscal 2016 , net cash provided by operating activities was $ 9.5 million , a de crease of $ 2.3 million compared with $ 11.8 million for fiscal 2015 . this de crease is primarily attributable to the timing of payments on accounts receivables and accrued payroll and expenses offset by higher net income . during fiscal 2015 , net cash provided by operating activities was $ 11.8 million , a n in crease of $ 6.1 million compared with $ 5.7 million for fiscal 2014 . this in crease is primarily attributable to higher operating earnings and timing of certain contractor payables , offset by the timing of payments on accounts receivables . investing activities cash used in investing activities consists primarily of cash paid for businesses acquired and capital expenditures . in fiscal 2016 , we made capital expenditures of $ 0.9 million mainly related to computer equipment purchased in the ordinary course of business . in fiscal 2015 , we paid $ 8.8 million in connection with the d & w acquisition in march 2015 , $ 10.0 million in connection with the vts acquisition in october 2015 and made capital expenditures of $ 0.6 million mainly related to computer equipment purchased in the ordinary course of business and furniture and fixtures related to the new corporate offices . in fiscal 2014 , we made capital expenditures of approximately $ 0.3 million mainly related to computer equipment purchased in the ordinary course of business . 29 financing activities cash flows from financing activities consisted principally of borrowings and payments under our revolving facility , payment of other current obligations and contingent consideration paid . for fiscal 2016 , we in creased borrowings on our revolving credit facility by $ 7.7 million and received net proceeds from issuance of common stock of $ 15.3 million to pay off amounts owing under the senior subordinated credit agreement of $ 15.3 million . we also paid $ 8.0 million in cash dividends on our common stock and $ 7.6 million of contingent consideration related to the fiscal march 2015 d & w acquisition & fiscal october 2015 vts acquisition . in fiscal 2015 , we in creased borrowings under our revolving credit facility by $ 11.3 million and received net proceeds from issuance of common stock of $ 7.0 million . we paid $ 6.5 million in cash dividends on our common stock , de creased our debt and other long-term liabilities by $ 2.7 million using excess cash flows from operations , and paid $ 0.9 million of contingent consideration primarily related to the fiscal june 2013 instaff and the fiscal december 2012 american partners acquisitions . in fiscal 2014 , we de creased our borrowing on the previous revolving credit facility by $ 9.5 million primarily using the proceeds from issuance of common stock of $ 8.5 million . we de creased our long-term debt and other current liabilities by $ 3.3 million using excess cash flows from operations and we paid $ 1.0 million of contingent consideration primarily related to the fiscal june 2013 instaff and the fiscal december 2012 american partners acquisitions . credit agreements on august 21 , 2015 , the company entered into a credit agreement ( the “ credit agreement ” ) with tcb . the credit agreement provides for the revolving facility maturing august 21 , 2019 permitting the company to borrow funds from time to time in an aggregate amount equal to the lesser of the borrowing base amount , which is 85 % of eligible accounts , and tcb 's commitment of $ 25.0 million . effective september 21 , 2016 , pursuant to the terms of the credit agreement , the company obtained an additional $ 10.0 million in credit commitments from tcb , as administrative and syndication agent , and certain other lender parties , pursuant to a commitment increase agreement , raising the total commitment under the credit agreement to $ 35.0 million . all other terms and conditions of the credit agreement remain the same as those in effect prior to the increase . the company 's obligations are secured by a first priority security interest in all assets of the company .
| texas branches in creased revenues $ 2.4 million , other branches outside of the midwest in creased $ 2.2 million , and our illinois and wisconsin locations de creased $ 3.4 million . the overall revenue in crease was due to a 5.2 % in crease in average bill rate offset by a 3.7 % de crease in billed hours . gross profit : gross profit represents revenues from services less cost of services expenses , which consist of payroll , payroll taxes , payroll-related insurance , temporary worker costs , and reimbursable costs . replace_table_token_9_th 25 replace_table_token_10_th overall , our gross profit in creased approximately $ 12.2 million ( 25.4 % ) due primarily to the vts ( $ 6.3 million ) acquisition ( for 12 months in 2016 verses 3 months in 2015 ) and in creased revenues in our multifamily and commercial segments . as a percentage of revenue , gross profit has in creased to 23.7 % from 22.0 % , primarily due to higher percentage of our revenues from our multifamily and professional segments . multifamily gross profit : multifamily gross profit in creased approximately $ 6.3 million ( 40.5 % ) mainly due to a n in crease in revenue and gross profit percentage . the in crease in gross profit percentage of 1.7 % was due primarily to 7.1 % in crease in average spread . professional gross profit : professional gross profit in creased approximately $ 5.7 million ( 28.5 % ) due primarily to the vts acquisition with a gross profit of 25.3 % and the other it divisions of $ 0.2 million . these in creases were offset by a gross profit de crease of $ 0.7 million with a gross profit percentage de crease of 3.0 % in the finance and accounting group due to a 6.9 % de crease in average spread . commercial gross profit : commercial gross profit in creased approximately $ 0.2 million ( 1.9 % ) due to the corresponding in creased revenue . the
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as initial reservoir pressures are depleted , oil , gas and ngls production from a typical well naturally decreases . thus , an oil and gas exploration and production company depletes part of its asset base with each unit of oil or natural gas it produces . we attempt to overcome this natural decline by drilling to find additional reserves and acquiring more reserves than we produce . our future growth will depend on our ability to continue to add reserves in excess of production . we will maintain our focus on costs to add reserves through drilling and acquisitions as well as the costs necessary to produce such reserves . our ability to add reserves through drilling is dependent on our capital resources and can be limited by many factors , including our ability to timely obtain drilling permits and regulatory approvals . see `` - trends and uncertainties - regulatory trends '' below . the permitting and approval process has been more difficult in recent years than in the past due to more stringent rules , such as those enacted by the cogcc in 2009 , and increased activism from environmental and other groups , which has extended the time it takes us to receive permits and other necessary approvals . because of our relatively small size and concentrated property base , we can be disproportionately disadvantaged by delays in obtaining or failing to obtain drilling approvals compared to companies with larger or more dispersed property bases . as a result , we may be less able to shift drilling activities to areas where permitting may be easier , and we have fewer properties over which to spread the costs related to complying with these regulations and the costs or foregone opportunities resulting from delays . story_separator_special_tag were taken 41 against ngl royalties paid on federal and state leases from 2008 through july 2013 in the west tavaputs area of the uinta basin and are now being recovered . the west tavaputs properties were sold in december 2013. other operating revenues for 2013 consisted of $ 0.2 million in net gains realized from the sale of properties and $ 2.3 million of income from gathering , compression and salt water disposal fees received from third parties . the net realized gains from the sale of properties for the year ended december 31 , 2013 related to a loss of $ 3.1 million from purchase price adjustments on the 2012 divestiture , offset by a gain of $ 3.3 million from selldowns of other properties . lease operating expense . lease operating expense ( `` loe '' ) increased to $ 6.62 per boe for the year ended december 31 , 2014 from $ 4.85 per boe for the year ended december 31 , 2013 . loe on a per boe basis is inherently higher from our oil producing properties such as those in our uinta oil and dj basin development areas . due to the sale of natural gas properties with lower loe per boe in the west tavaputs and piceance divestitures , we expect higher loe on a per boe basis in future periods . gathering , transportation and processing expense . gathering , transportation and processing ( `` gtp '' ) expense decreased to $ 3.89 per boe for the year ended december 31 , 2014 from $ 4.65 per boe for the year ended december 31 , 2013 . gtp on a per boe basis decreased due to inherently lower gtp from our oil producing properties such as those in our uinta and dj basin development areas . due to the sale of natural gas properties with higher gtp per boe in the west tavaputs and piceance divestitures , we expect lower gtp on a per boe basis in future periods . during march 2010 , we entered into two firm natural gas pipeline transportation contracts to provide a guaranteed outlet for production from the west tavaputs area of the uinta basin and the gibson gulch area of the piceance basin . these transportation contracts were not included in the sales of these assets in december 2013 and september 2014 , respectively . accordingly , we will continue to incur monthly demand charges of approximately $ 1.5 million for the remaining term of six years even though we no longer utilizes these contracts . these costs were included in unused commitments in the consolidated statements of operations after completion of the piceance divestiture on september 30 , 2014. production tax expense . total production taxes increased to $ 31.3 million for the year ended december 31 , 2014 from $ 27.2 million for the year ended december 31 , 2013 . production taxes are primarily based on the wellhead values of production , which exclude gains and losses associated with hedging activities . production taxes as a percentage of oil , natural gas and ngl sales before hedging adjustments were 6.8 % and 4.9 % for the years ended december 31 , 2014 and december 31 , 2013 , respectively . production tax rates vary across the different areas in which we operate . as the proportion of our production changes from area to area , our average production tax rate will vary depending on the quantities produced from each area and the production tax rates in effect for those areas . the increase in the overall production tax rate is consistent with our production increase in areas with higher production tax rates . with the sale of all of our natural gas properties as of december 31 , 2014 , which were in areas with lower production tax rates , we expect higher production tax rates in future periods . exploration expense . exploration expense for the year ended december 31 , 2014 was $ 0.5 million compared to $ 0.3 million for the year ended december 31 , 2013 . exploration expense for the year ended december 31 , 2014 consisted of $ 0.3 million of geological and geophysical seismic programs and $ 0.2 million for delay rentals across all basins . story_separator_special_tag exploration expense for the year ended december 31 , 2013 consisted of $ 0.3 million for delay rentals across all basins . impairment , dry hole costs and abandonment expense . our impairment , dry hole costs and abandonment expense for the twelve months ended december 31 , 2014 and 2013 is summarized below : 42 replace_table_token_21_th we review our proved oil and natural gas properties for impairment on a quarterly basis or whenever events and circumstances indicate that a decline in the recoverability of their carrying value may have occurred . we estimate the expected future cash flows of our oil and gas properties and compare these undiscounted future cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount is recoverable . if the carrying amount exceeds the estimated undiscounted future cash flows , we will adjust the carrying amount of the oil and natural gas properties to fair value . the factors used to determine fair value include , but are not limited to , recent sales prices of comparable properties , the present value of future cash flows , net of estimated operating and development costs using estimates of reserves , future commodity pricing , future production estimates , anticipated capital expenditures and various discount rates commensurate with the risk associated with realizing the projected cash flows . unproved oil and gas properties are assessed periodically for impairment on a property-by-property basis based on remaining lease terms , drilling results , reservoir performance , commodity price outlooks , future plans to develop acreage and other relevant matters . we generally expect impairments of unproved properties to be more likely to occur in periods of low commodity prices because we will be less likely to devote capital to exploration activities . if our attempts to market interests in certain properties to industry partners are unsuccessful , we may record additional leasehold impairments . as the result of the powder river oil divestiture , the carrying values of the remaining properties were analyzed relative to their estimated fair market values . as a result , the company recognized impairment expense on proved properties of $ 14.8 million for the year ended december 31 , 2014. these properties were classified as held for sale as of december 31 , 2014. in addition , $ 1.0 million of proved property impairment expense was incurred during the year ended december 31 , 2014 related to the west tavaputs divestiture based upon a true-up of previously estimated carrying value . see note 4 of the notes to consolidated financial statements for more information related to these divestitures . as a result of unsuccessful drilling and completion activity by an industry partner in the paradox basin , the company recognized impairment expense of $ 11.6 million during the year ended december 31 , 2014 related to the remaining unproved property in the paradox basin . the company recognized impairment expense of $ 6.1 million related to certain unproved oil and gas properties in the uinta basin as a result of having no future plans to evaluate the acreage . in addition , the company recognized impairment expense of $ 6.4 million as the result of the powder river oil divestiture as discussed above . we recognized $ 207.0 million of proved impairment expense and $ 2.5 million of unproved property impairment expense during the year ended december 31 , 2013 related to our west tavaputs properties based upon an analysis of the carrying value of the related properties relative to their estimated fair values . these assets were sold in december 2013. in addition , we recognized $ 17.1 million of impairment expense related to certain unproved oil and gas properties within exploration projects primarily as a result of having no future plans to evaluate the remaining acreage and an estimated market value below our carrying value . given the decline in current and future commodity prices , we will continue to review our acreage position and future drilling plans as well as assess the carrying value of our properties relative to their estimated fair values . lower sustained commodity prices or additional commodity price declines may lead to additional property impairment in future periods . loss on divestitures . loss on divestitures for the year ended december 31 , 2014 consisted of a $ 79.5 million loss related to the piceance divestiture and a $ 24.5 million loss related to the sale or exchange of the majority of our powder river basin assets ( `` powder river oil divestiture '' ) during the three months ended september 30 , 2014 , offset by $ 3.6 million in net gains realized from the sale of other properties . see note 4 of the notes to consolidated financial statements for more information related to these divestitures . 43 depreciation , depletion and amortization . dd & a decreased to $ 235.8 million for the year ended december 31 , 2014 compared with $ 279.8 million for the year ended december 31 , 2013 . the decrease of $ 44.0 million was a result of a 37 % decrease in production for the year ended december 31 , 2014 compared with the year ended december 31 , 2013 , partially offset by an increase in the dd & a rate . the decrease in production accounted for a $ 103.7 million decrease in dd & a expense , while the overall increase in the dd & a rate accounted for $ 59.7 million of additional dd & a expense . under successful efforts accounting , depletion expense is calculated on a field-by-field basis based on geologic and reservoir delineation using the unit-of-production method . the capital expenditures for proved properties for each field compared to the proved reserves corresponding to each producing field determine a depletion rate for current production .
| the decrease in production volumes reduced production revenues by approximately $ 273.3 million , while the increase in average prices increased production revenues by approximately $ 171.8 million . we discontinued hedge accounting as of january 1 , 2012. all accumulated gains or losses related to the discontinued cash flow hedges were recorded in accumulated other comprehensive income ( `` aoci '' ) as of january 1 , 2012 and remained in aoci until the underlying transaction occurred . as the underlying transaction occurred , these gains or losses were reclassified from aoci into oil , gas and ngl production revenues . the amount reclassified to oil , gas and ngl production revenues was a gain of $ 1.1 million and $ 7.5 million for the years ended december 31 , 2014 and 2013 , respectively . all cash flow hedge accounting transactions were completed as of december 31 , 2014. total production volumes of 9.1 mmboe for the year ended december 31 , 2014 decreased from 14.5 mmboe for the year ended december 31 , 2013 . the decrease is primarily related to sales of all of our natural gas assets in the west tavaputs divestiture on december 10 , 2013 and in the piceance divestiture on september 30 , 2014. these decreases were partially offset by a 118 % overall increase in dj basin production . additional information concerning production is in the following table : replace_table_token_20_th * not meaningful . ( 1 ) other for 2013 includes uinta - west tavaputs natural gas volumes of 21,714 mmcf and oil production of 30 mbbls . hedging activities . in 2014 , approximately 87 % of our oil volumes , 87 % of our natural gas volumes and 18 % of our ngl related volumes were subject to financial hedges , which resulted in an increase in oil revenues of $ 6.4 million , offset by decreases in natural gas revenues of $ 7.1 million and ngl revenues of $ 0.1 million after settlements for all commodity derivatives . of the loss on total settlements of $ 0.8
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presentation product sales and the shipping and handling fees billed to our customers are recorded as revenue net of applicable sales discounts when the product is delivered , title has transferred , and the risk of loss passes to the customer . payments received for undelivered products are recorded as deferred revenue and are included in other current liabilities . also reflected in net sales is a provision for product returns and allowances , which is estimated based on our historical experience . additionally , the company collects an annual renewal fee from associates that is deferred on receipt and is recognized as income on a straight-line basis over a twelve-month period . cost of sales primarily consists of expenses related to raw materials , labor , quality assurance , and overhead costs that are directly associated with the production and distribution of our products and sales materials , as well as duties and taxes that are associated with the import and export of our products . as our international sales increase as a percentage of net sales , cost of sales are increasingly affected by additional duties , freight , and other factors , such as changes in currency exchange rates . associate incentives expense includes all forms of commissions , compensation , and other incentives paid to our associates . compensation paid to babycare associates , although under a different compensation plan , is also included in associate incentives expense . incentives paid to associates include bonuses earned , rewards from contests and promotions , and base commissions , which 33 makes up the majority of our associate incentives expense . bonuses are paid out to associates based on certain business growth criteria , total base commission earnings , and leadership level . contests and promotions are offered as an incentive and reward to our associates and are typically paid out only after an associate achieves specific growth and advancement levels . base commissions are paid out on the sale of products . usana associates earn their commissions based on sales volume points that are generated in their down-line organization . sales volume points are assigned to each commissionable product and comprise a certain percent of the product price . dollars . items such as our starter kits and sales tools have no sales volume point value , and commissions are not paid on the sale of these items . although insignificant to our financial statements , a usana associate may earn commissions on sales volume points that are generated from personal purchases that are not considered to be part of their qualifying purchases. qualifying purchases are the amount of product that associates must purchase each month , which they must either resell to consumers or personally use in order to qualify to earn commissions or bonuses under usana 's compensation plan . commissions paid to usana associates on personal purchases are considered a sales discount and are reported as a reduction to our net sales . selling , general and administrative expenses include wages and benefits , depreciation and amortization , rents and utilities , associate event costs , advertising , professional fees , marketing , and research and development expenses . wages and benefits represent the largest component of selling , general and administrative expenses . significant depreciation and amortization expense is incurred as a result of investments in physical facilities , computer and telecommunications equipment , and systems to support our international operations . sales to customers outside the united states are transacted in the respective local currencies and are translated to u.s. dollars at weighted-average currency exchange rates for each monthly accounting period to which they relate . most of our raw material purchases from suppliers and our product purchases from third-party manufacturers are transacted in u.s. dollars . consequently , our sales and net earnings are affected by changes in currency exchange rates , with sales and earnings generally increasing with a weakening u.s. dollar and decreasing with a strengthening u.s. dollar . in our net sales discussions that follow , we approximate the impact of currency fluctuations on net sales by translating current year net sales at the average exchange rates in effect during the comparable prior year periods . story_separator_special_tag style= '' margin:0in 0in .0001pt ; text-indent : .5in ; '' > importantly , while we have achieved significant growth in hong kong , we anticipate that 2011 will be a transitional year as we turn much of our attention to integrating and growing babycare in china . as such , we expect sales in hong kong to decline in 2011. we expect this change will be primarily the result of three key factors . first , we believe that many of our key associate leaders in hong kong , who qualify to do business in both hong kong and china , will shift their attention to growing their businesses in china through babycare . second , we believe that many of our associates in hong kong , who are simply consumers of our products , will begin purchasing our products in china , if and when our products are registered for sale by babycare in china . third , the average initial purchase amount per associate is lower at babycare than our other markets , causing a natural decrease to our sales as some of our associates who qualify to do business in both hong kong and china , and would have otherwise built their business in hong kong , begin building in china through babycare . although smaller as a percent of sales , we also experienced double-digit local currency sales growth in the philippines and south korea . the increase in total asia pacific sales , on a local currency basis , was partially offset by an overall decline in sales and associates in southeast asia pacific , which we believe , similar to north america , is largely the result of difficult economic conditions . story_separator_special_tag gross profit the increase in gross profit as a percent of net sales can be attributed to a decrease in overall raw materials cost , currency benefits , lower relative freight costs on shipments to our customers , production and shipping efficiency due to capital investments , and leverage gained on increased net sales . additionally , we have implemented certain price increases , notably on some of our larger packs and flagship products , and we discontinued several of our lower gross margin product pack offerings , all of which contributed to our improved gross profit . associate incentives although associate incentives as a percent of sales increased slightly for the year , on a sequential quarter basis it has decreased modestly since the fourth quarter of 2009. notably , during the second quarter of 2010 , we implemented a strategic initiative to reduce associate incentives expense as a percent of net sales and , as a result , we expect a further decrease in 2011. selling , general and administrative expenses the increase in selling , general and administrative expenses as a percent of net sales was primarily due to acquisition costs related to babycare . in absolute terms , our selling , general and administrative expenses increased by $ 20.8 million in 2010 , compared with 2009. the most significant components of this increase in absolute terms were as follows : · an increase in wage-related expenses of approximately $ 11.7 million , which includes $ 2.1 million of expenses related to babycare ; · acquisition costs related to babycare of approximately $ 2.0 million ; · expenses related to our asia pacific convention of approximately $ 1.7 million ; and · an increase in credit card fees of approximately $ 1.9 million related to the increase in sales . we expect that selling , general and administrative expenses will increase in 2011 both in absolute terms and as a percent of net sales . the reasons for this increase include ; ( i ) increased investments in human resources and other integration-related costs for babycare , ( ii ) a full year of regular babycare expense , which is relatively higher than usana due to the required infrastructure in china , and ( iii ) increased spending related to our corporate branding efforts . notably , in connection with the acquisition of babycare , we issued equity awards to certain babycare executives , which will be part of the full year of regular babycare expenses , and which added approximately $ 1.2 million to wage-related expenses in 2010. other income ( expense ) other income increased nearly $ 0.5 million due to a $ 0.5 million reduction in interest expense as a result of a lower average balance on our line of credit during the year . 36 income taxes income taxes totaled 33.7 % of earnings before income taxes in 2010 , compared to 34.2 % in 2009. this decrease is primarily due to increased tax benefits from the deduction for qualified production activities and tax benefits recognized from stock option exercises in 2010. diluted earnings per share diluted earnings per share increased $ 0.69 , or 31.8 % , to $ 2.86 for the year . this increase is the result of improved gross profit margins on higher net sales and a lower tax rate , partially offset by higher relative operating expenses and a higher average number of diluted shares outstanding . fiscal year 2009 compared to fiscal year 2008 the tables below summarize the changes in our active customer base by geographic region as of the dates indicated . active associates by region ( rounded to the nearest thousand ) replace_table_token_14_th 37 active preferred customers by region ( rounded to the nearest thousand ) replace_table_token_15_th total active customers by region ( rounded to the nearest thousand ) replace_table_token_16_th 38 net sales the following table summarizes the changes in our net sales by geographic region for the fiscal years ended january 3 , 2009 and january 2 , 2010 : replace_table_token_17_th * fiscal year 2008 was a 53-week year resulting in one additional week of sales , which amounted to nearly $ 7.0 million . north america : fiscal 2009 was the first time in several years that net sales in north america were negatively affected by changes in currency exchange rates . the overall negative effect of currency fluctuations in 2009 , when compared with 2008 , accounted for nearly half of the $ 20.1 million decline in net sales in this region . further changes in net sales in this region were due to reduced product sales related to an overall decrease in the number of active associates and preferred customers . we believe that this decrease in the number of associates and preferred customers was largely due to difficult economic conditions in both the u.s. and canada . as a manufacturer of premium products , we believe that the economic impact on consumer spending affected our ability to attract and retain associates , preferred customers , and other consumers of our products . we also believe that , due to the international nature of our business and our global seamless compensation plan , many of our north american-based associates were pursuing the opportunity to grow their business in markets outside of north america . we believe that this shift also negatively affected our sales and associate growth in north america . net sales in local currency for the united states and canada , our largest individual markets in 2009 , decreased 5.9 % and 6.0 % , respectively . these declines were due to fewer associates and preferred customers purchasing our products in 2009. additionally , we experienced a slight decrease in the average product order size from many of our new associates , primarily on their initial purchase . we believe this was due to the difficult economic conditions and the related effect on consumers , as well as from the matching bonus portion of our compensation plan .
| fiscal year 2010 compared to fiscal year 2009 net sales the following table summarizes the changes in our net sales by geographic region for the fiscal years ended january 2 , 2010 and january 1 , 2011 : replace_table_token_13_th north america : the decrease in local currency net sales in this region was the result of lower product sales volume due to a decrease in the number of active associates and preferred customers in this region . as a manufacturer of premium products , we believe that continued economic challenges , particularly in the consumer products segment , have contributed meaningfully to the decrease in active associates and preferred customers . part of the decrease in the number of active associates is also due to an increase in the number of north america-based associates building their businesses in asia , which results in growth in sales and associates in asia pacific rather than north america . in the third quarter of 2010 , we launched a new interactive presentation tool , called health and freedom solution , which was created and designed to help our associates explain and share the usana opportunity , including the benefits of our products and our compensation plan . throughout 2011 , we will heavily promote the use of this tool as well as our online training system in an effort to engage our associates and help them become more effective at building their businesses , especially in light of the difficult economic environment . the decrease in active associates throughout the year was partially offset by an increase in customer spending , which was a result of two factors . first , during the year we changed the structure of our compensation , recognition , and rewards programs in a way that we believe will encourage our associates to build their businesses more effectively . we believe that these changes were the primary reason for the increase in product sales volume per customer from 2009 to 2010. second , over the last couple of years we have implemented certain price increases , including a price increase of nearly ten percent on our products in mexico . while our profitability in mexico has improved , we believe that the
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fertilizer in the fertilizer segment , demand for our products is affected by the profitability of the agricultural sectors we serve , the availability of credit to farmers , agricultural commodity prices , the types of crops planted , the number of acres planted , the quality of the land under cultivation and weather-related issues affecting the success of the harvests . our profitability is impacted by international selling prices for fertilizers and fertilizer raw materials , such as phosphate , sulfur , ammonia and urea , ocean freight rates and other import costs , as well as import volumes at the port facilities we manage . as our operations are in south america , primarily argentina , our results in this segment are typically seasonal , with fertilizer sales normally concentrated in the third and fourth quarters of the year due to the timing of the south american agricultural cycle . reported volumes in this segment reflect third-party sales of our finished products . sugar and bioenergy our sugar and bioenergy segment primarily comprises our 50 % interest in bp bunge bioenergia , the joint venture formed in december 2019 by the combination of our brazilian sugar and bioenergy operations with the brazilian biofuels business of bp . our brazilian sugar and bioenergy operations formed the majority of our sugar and bioenergy segment through which we produced and sold sugar and ethanol derived from sugarcane , as well as energy derived from the sugar and ethanol production process . bp bunge bioenergia operates on a stand-alone basis with a total of 11 mills located across the southeast , north and midwest regions of brazil . bp bunge bioenergia is now the second largest operator by effective crushing capacity in the brazilian sugarcane ethanol biofuel industry . as a result of this transaction , we no longer consolidate our brazilian sugar and bioenergy operations in our consolidated financial statements and instead account for our interest in the joint venture under the equity method of accounting . accordingly , our reported sugar and bioenergy results for 2020 include our share of the net earnings in bp bunge bioenergia , whereas our sugar and bioenergy results for 2019 reflect our former 100 % ownership interest in the brazilian sugar and bioenergy operations contributed to the joint venture . although we are committed to supporting the growth and development of bp bunge bioenergia , our long-term goal is to seek strategic opportunities for our investment in the joint venture . profitability in this segment is affected by the profitability of the joint venture and , therefore the value of our investment and the amount and timing of distributions we receive , if any . in turn , the profitability of the joint venture is affected by the availability and quality of sugarcane , which impacts capacity utilization rates and the amount of sugar that can be extracted from the sugarcane , and by market prices of sugar and ethanol . the availability and quality of sugarcane is affected by many factors , including weather , geographical factors such as soil quality and topography , and agricultural practices . once planted , sugarcane may be harvested for several continuous years , but the yield decreases with each subsequent harvest . as a result , the current optimum economic cycle is generally five to seven consecutive harvests , depending on location . the joint venture owns and or has partnership agreements to manage farmland on which it grows and harvests sugarcane and also purchases sugarcane from third parties . prices of sugarcane in brazil are established by consecana , the state of são paulo sugarcane , sugar and ethanol council , and are based on the sucrose content of the cane and the market prices of sugar and ethanol . demand for the joint venture 's products is affected by such factors as changes in global or regional economic conditions , the financial condition of customers and customer access to credit , worldwide consumption of food products , population growth rates , changes in per capita income and demand for and governmental support of renewable fuels produced from agricultural commodities , including sugarcane . in addition to these industry related factors which impact our business areas , our results of operations in all business areas and segments are affected by the following factors : foreign currency exchange rates due to the global nature of our operations , our operating results can be materially impacted by foreign currency exchange rates . both translation of our foreign subsidiaries ' financial statements and foreign currency transactions can affect our results . on a monthly basis , for subsidiaries whose functional currency is a currency other than the u.s. dollar , subsidiary statements of income and cash flows must be translated into u.s. dollars for consolidation purposes based on weighted-average exchange rates in each monthly period . as a result , fluctuations of local currencies compared to the u.s. dollar during each monthly period impact our consolidated statements of income and cash flows for each reported period ( per quarter and year-to-date ) and also affect comparisons between those reported periods . subsidiary balance sheets are translated using exchange rates as of the balance sheet date with the resulting translation adjustments reported in our consolidated balance sheets as a component of accumulated other comprehensive income ( loss ) . 28 additionally , we record transaction gains or losses on monetary assets and liabilities that are not denominated in the functional currency of the entity . these amounts are remeasured into their respective functional currencies at exchange rates as of the balance sheet date , with the resulting gains or losses included in the entity 's statement of income and , therefore , in our consolidated statements of income as foreign exchange gains ( losses ) . we primarily use a combination of equity and intercompany loans to finance our subsidiaries . story_separator_special_tag intercompany loans that are of a long-term investment nature with no intention of repayment in the foreseeable future are considered permanently invested and as such are treated as analogous to equity for accounting purposes . as a result , any foreign currency translation gains or losses on such permanently invested intercompany loans are reported in accumulated other comprehensive income ( loss ) in our consolidated balance sheets . in contrast , foreign currency translation gains or losses on intercompany loans that are not of a permanent nature are recorded in our consolidated statements of income as foreign exchange gains ( losses ) . income taxes as a bermuda exempted company , we are not subject to income taxes on income in our jurisdiction of incorporation . however , our subsidiaries , which operate in multiple tax jurisdictions , are subject to income taxes at various statutory rates ranging from 0 % to 34 % . the jurisdictions that significantly impact our effective tax rate are brazil , the united states , argentina and bermuda . determination of taxable income requires the interpretation of related and often complex tax laws and regulations in each jurisdiction in which we operate , and the use of estimates and assumptions regarding future events . non-u.s. gaap financial measures total segment earnings before interest and taxes ( `` ebit '' ) is an operating performance measure used by our management to evaluate segment operating activities . our management believes total segment ebit is a useful measure of operating profitability , since the measure allows for an evaluation of the performance of its segments without regard to its financing methods or capital structure . in addition , ebit is a financial measure that is widely used by analysts and investors in our industries . total segment ebit is a non-u.s. gaap financial measure and is not intended to replace net income ( loss ) attributable to bunge , the most directly comparable u.s. gaap financial measure . cash provided by ( used for ) operating activities , adjusted is calculated by including the proceeds from beneficial interested in securitized trade receivables with cash provided by ( used for ) operating activities . cash provided by ( used for ) operating activities , adjusted is a non-gaap financial measure and is not intended to replace cash provided by ( used for ) operating activities , the most directly comparable u.s. gaap financial measure . our management believes presentation of this measure allows investors to view our cash generating performance using the same measure that management uses in evaluating financial and business performance and trends . 2020 overview net income ( loss ) attributable to bunge - for the year ended december 31 , 2020 , net income attributable to bunge was $ 1,145 million , an increase of $ 2,425 million compared to a net loss attributable to bunge of $ 1,280 million for the year ended december 31 , 2019. the increase is due to higher segment ebit in our core and non-core segments , as further discussed in the story_separator_special_tag in our chinese , brazilian , european , and north american oilseed processing businesses , primarily driven by increased meal demand in china and increased oil demand in north america , higher sales volumes and prices in our european and canadian oilseed processing businesses , and higher sales prices in our global oilseed trading and distribution businesses , partially offset by lower overall trading and distribution volumes . in grains , net sales decreased $ 464 million due to lower sales volumes and prices in our grain trading and distribution businesses , lower sales volumes and prices in our european grain origination business , and lower sales prices in our brazilian origination business . these decreases were partially offset by higher volumes in our brazilian grain origination business driven by increased farmer selling in response to depreciation of brazilian real versus the u.s. dollar earlier in the year , and higher volumes in our north american grain origination business driven by increased demand from china following an easing of trade restrictions in place for much of the prior year . cost of goods sold increased by $ 435 million , or approximately 2 % , to $ 27,749 million for the year ended december 31 , 2020 compared to $ 27,314 million for the year ended december 31 , 2019. the net increase was primarily due to the following : in oilseeds , cost of goods sold increased by $ 1,242 million due to higher net sales in our oilseed processing and trading and distribution businesses , as described above , as well as unfavorable mark-to-market results in our oilseed processing businesses , partially offset by favorable translation impacts on industrial costs , as most currencies in which such expenses are denominated depreciated versus the u.s. dollar during the year , and non-recurring prior year property , plant and equipment ( pp & e ) impairment charges at various facilities associated with portfolio rationalization initiatives . in grains , cost of goods sold decreased by $ 807 million due to the decrease in net sales noted above , risk management and optimization in our trading and distribution businesses , favorable translation impacts on industrial costs as most currencies in which such expenses are denominated depreciated versus the u.s. dollar during the year , and non-recurring prior year pp & e impairment charges at various facilities associated with portfolio rationalization initiatives . gross profit increased by $ 687 million , or 63 % , to $ 1,780 million for the year ended december 31 , 2020 , compared to $ 1,093 million for the year ended december 31 , 2019. the increase was primarily due to the following : 31 in oilseeds , an increase of $ 344 million was due to higher net sales in excess of cost of goods sold , as described above .
| 29 liquidity and capital resources – at december 31 , 2020 , working capital , which equals total current assets less total current liabilities , was $ 5,196 million , an increase of $ 1,543 million , compared to working capital of $ 3,653 million at december 31 , 2019. the increase in working capital is primarily due to increased readily marketable inventories ( `` rmi '' ) purchases associated with strong farmer selling activity in brazil during the twelve months ended december 31 , 2020 as well as higher commodity prices at december 31 , 2020. segment overview and results of operations our operations are organized , managed and classified into five reportable segments based upon their similar economic characteristics , nature of products and services offered , production processes , types and classes of customer , and distribution methods . we further organize these reportable segments into core operations and non-core operations . core operations comprise our agribusiness , edible oil products , milling products , and fertilizer segments . non-core operations comprise our sugar and bioenergy segment , which itself primarily comprises our 50 % interest in bp bunge bioenergia , a joint venture formed with bp in december 2019 by the combination of our brazilian sugar and bioenergy operations with the brazilian biofuels business of bp . therefore , our reported sugar and bioenergy results for 2020 include our share of the net earnings in bp bunge bioenergia , whereas our sugar and bioenergy results for 2019 reflect our former 100 % ownership interest in the brazilian sugar and bioenergy operations contributed to the joint venture . our remaining operations are not reportable segments , as defined by the applicable accounting standard , and are classified as corporate and other . effective january 1 , 2020 , we changed our segment reporting to separately disclose corporate and other activities from our reporting segments , as further described in note 28- segment information . certain reclassifications of prior period amounts within the reporting segments have been made to conform to current presentation . a reconciliation of net income ( loss ) attributable to bunge to total segment ebit follows : replace_table_token_6_th 30 core segments agribusiness segment replace_table_token_7_th 2020 compared to 2019 agribusiness segment net sales increased by $ 1,122 million , or 4 % , to $ 29,529 million for the year ended december 31 , 2020 , compared to $ 28,407 million for the year ended december 31 , 2019. the net increase was due to the following : in oilseeds , net sales increased $ 1,586 million primarily due to
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the effect of the mlqs on our results of operations is primarily reflected in our ceded written premiums , losses and loss adjustment expenses , as well as our underwriting , acquisition and insurance expenses . the following tables summarize the effect of the mlqs on our underwriting income for the years ended december 31 , 2016 , 2015 and 2014 : year ended december 31 , 2016 year ended december 31 , 2015 year ended december 31 , 2014 ( $ in thousands ) including quota share effect of quota share excluding quota share including quota share effect of quota share excluding quota share including quota share effect of quota share excluding quota share gross written premiums $ 188,478 $ — $ 188,478 $ 177,009 $ — $ 177,009 $ 158,523 $ — $ 158,523 ceded written premiums ( 21,214 ) 10,269 ( 31,483 ) ( 92,991 ) ( 63,991 ) ( 29,000 ) ( 97,012 ) ( 68,755 ) ( 28,257 ) net written premiums $ 167,264 $ 10,269 $ 156,995 $ 84,018 $ ( 63,991 ) $ 148,009 $ 61,511 $ ( 68,755 ) $ 130,266 net retention ( 1 ) 88.7 % 83.3 % 47.5 % 83.6 % 38.8 % 82.2 % net earned premiums $ 133,816 $ ( 16,996 ) $ 150,812 $ 74,322 $ ( 67,950 ) $ 142,272 $ 58,996 $ ( 60,838 ) $ 119,834 losses and loss adjustment expenses ( 70,961 ) 4,380 ( 75,341 ) ( 42,238 ) 30,978 ( 73,216 ) ( 41,108 ) 30,093 ( 71,201 ) underwriting , acquisition and insurance expenses ( 28,551 ) 11,936 ( 40,487 ) ( 2,809 ) 34,254 ( 37,063 ) ( 1,451 ) 28,160 ( 29,611 ) underwriting income ( 2 ) $ 34,304 $ ( 680 ) $ 34,984 $ 29,275 $ ( 2,718 ) $ 31,993 $ 16,437 $ ( 2,585 ) $ 19,022 loss ratio 53.0 % 25.8 % — 56.8 % 45.6 % — 69.7 % 49.5 % — expense ratio 21.3 % 70.2 % — 3.8 % 50.4 % — 2.4 % 46.3 % — combined ratio 74.3 % 96.0 % — 60.6 % 96.0 % — 72.1 % 95.8 % — adjusted loss ratio ( 3 ) — — 50.0 % — — 51.5 % — — 59.4 % adjusted expense ratio ( 3 ) — — 26.8 % — — 26.0 % — — 24.7 % adjusted combined ratio ( 3 ) — — 76.8 % — — 77.5 % — — 84.1 % 45 ( 1 ) the ratio of net written premiums to gross written premiums . ( 2 ) underwriting income is a non-gaap financial measure . see `` — reconciliation of non-gaap financial measures '' for a reconciliation of net income to underwriting income in accordance with gaap . ( 3 ) our adjusted loss ratio , adjusted expense ratio and adjusted combined ratio are non-gaap financial measures . we define our adjusted loss ratio , adjusted expense ratio and adjusted combined ratio as each of our loss ratio , expense ratio and combined ratio , respectively , excluding the effects of the mlqs . we use these adjusted ratios as an internal performance measure in the management of our operations because we believe they give our management and other users of our financial information useful insight into our results of operations and our underlying business performance . our adjusted loss ratio , adjusted expense ratio and adjusted combined ratio should not be viewed as substitutes for our loss ratio , expense ratio and combined ratio , respectively , which are presented in accordance with gaap . our results of operations may be difficult to compare from year to year as we made periodic adjustments to the amount of business we ceded under the terms of the mlqs , may have changed the negotiated terms of the mlqs upon renewal , and may have increased or decreased the ceding commission under the mlqs based on the loss experience of the business ceded . in light of the impact of the mlqs on our results of operations , we internally evaluated our financial performance both including and excluding the effects of the mlqs . components of our results of operations gross written premiums gross written premiums are the amount received or to be received for insurance policies written or assumed by us during a specific period of time without reduction for policy acquisition costs , reinsurance costs or other deductions . the volume of our gross written premiums in any given period is generally influenced by : new business submissions ; binding of new business submissions into policies ; renewals of existing policies ; and average size and premium rate of new and existing policies . we earn insurance premiums on a pro rata basis over the term of a policy . our insurance policies generally have a term of one year . net earned premiums represent the earned portion of our gross written premiums , less that portion of our gross written premiums that is ceded to third-party reinsurers under our reinsurance agreements . ceded written premiums ceded written premiums are the amount of gross written premiums ceded to reinsurers . we enter into reinsurance contracts to limit our exposure to potential large losses as well as to provide additional capacity for growth . ceded written premiums are earned over the reinsurance contract period in proportion to the period of risk covered . the volume of our ceded written premiums is impacted by the level of our gross written premiums and any decision we make to increase or decrease retention levels . since we reduced the ceding percentage under the mlqs from 40 % to 15 % effective january 1 , 2016 , and subsequently terminated and commuted the mlqs effective october 1 , 2016 , we anticipate that our ceded written premiums will decline significantly relative to our gross written premiums in future periods . net investment income net investment income is an important component of our results of operations . we earn investment income on our portfolio of cash and invested assets . story_separator_special_tag our cash and invested assets are primarily comprised of fixed maturity securities , but also include cash and cash equivalents , equity securities and short-term investments . the principal factors that influence net investment income are the size of our investment portfolio and the yield on that portfolio . as measured by amortized cost ( which excludes changes in fair value , such as from changes in interest rates ) , the size of our investment portfolio is mainly a function of our invested equity capital along with premiums we receive from our insureds less payments on policyholder claims . 46 net investment gains net investment gains are a function of the difference between the amount received by us on the sale of a security and the security 's amortized cost , as well as any `` other-than-temporary '' impairments recognized in earnings . losses and loss adjustment expenses losses and loss adjustment expenses are a function of the amount and type of insurance contracts we write and the loss experience associated with the underlying coverage . in general , our losses and loss adjustment expenses are affected by : frequency of claims associated with the particular types of insurance contracts that we write ; trends in the average size of losses incurred on a particular type of business ; mix of business written by us ; changes in the legal or regulatory environment related to the business we write ; trends in legal defense costs ; wage inflation ; and inflation in medical costs . losses and loss adjustment expenses are based on an actuarial analysis of the estimated losses , including losses incurred during the period and changes in estimates from prior periods . losses and loss adjustment expenses may be paid out over a period of years . underwriting , acquisition and insurance expenses underwriting , acquisition and insurance expenses include policy acquisition costs and other underwriting expenses . policy acquisition costs are principally comprised of the commissions we pay our brokers , net of ceding commissions we receive on business ceded under certain reinsurance contracts . policy acquisition costs that are directly related to the successful acquisition of those policies are deferred . the amortization of such policy acquisition costs is charged to expense in proportion to premium earned over the policy life . other underwriting expenses represent the general and administrative expenses of our insurance business including employment costs , telecommunication and technology costs , the costs of our lease , and legal and auditing fees . as we have reduced the ceding percentage under the mlqs from 40 % to 15 % effective january 1 , 2016 , and subsequently terminated and commuted the mlqs effective october 1 , 2016 , we expect to receive lower ceding commissions and therefore anticipate that our underwriting , acquisition and insurance expenses will increase significantly in future periods . income tax expense currently all of our income tax expense relates to federal income taxes . kinsale insurance is generally not subject to income taxes in the states in which it operates ; however , our non-insurance subsidiaries are subject to state income taxes . the amount of income tax expense or benefit recorded in future periods will depend on the jurisdictions in which we operate and the tax laws and regulations in effect . key metrics we discuss certain key metrics , described below , which provide useful information about our business and the operational factors underlying our financial performance . underwriting income is a non-gaap financial measure . we define underwriting income as net income , excluding net investment income , net investment gains and losses , and other income and expenses . see `` —reconciliation of non-gaap financial measures '' for a reconciliation of net income to underwriting income in accordance with gaap . loss ratio , expressed as a percentage , is the ratio of losses and loss adjustment expenses to net earned premiums , net of the effects of reinsurance . 47 expense ratio , expressed as a percentage , is the ratio of underwriting , acquisition and insurance expenses to net earned premiums . combined ratio is the sum of the loss ratio and the expense ratio . a combined ratio under 100 % generally indicates an underwriting profit . a combined ratio over 100 % generally indicates an underwriting loss . adjusted loss ratio is a non-gaap financial measure . we define adjusted loss ratio as the loss ratio , excluding the effects of the mlqs . for additional detail on the impact of the mlqs on our results of operations , see `` —factors affecting our results of operations — the mlqs . '' adjusted expense ratio is a non-gaap financial measure . we define adjusted expense ratio as the expense ratio , excluding the effects of the mlqs . for additional detail on the impact of the mlqs on our results of operations , see `` —factors affecting our results of operations — the mlqs . '' adjusted combined ratio is a non-gaap financial measure . we define adjusted combined ratio as the loss ratio , excluding the effects of the mlqs . for additional detail on the impact of the mlqs on our results of operations , see `` —factors affecting our results of operations — the mlqs . '' return on equity is net income expressed on an annualized basis as a percentage of average beginning and ending stockholders ' equity during the period . our overall financial goal is to produce a return on equity in the mid-teens over the long-term . 48 results of operations year ended december 31 , 2016 compared to year ended december 31 , 2015 the following table summarizes our results of operations for the years ended december 31 , 2016 and 2015 : replace_table_token_14_th ( 1 ) underwriting income is a non-gaap financial measure . see `` —reconciliation of non-gaap financial measures '' for a reconciliation of net income to underwriting income in accordance with gaap . our net income was $ 26.2 million for the year ended december 31 , 2016 compared to $ 22.3
| income tax expense our income tax expense increased by $ 2.1 million to $ 13.4 million for the year ended december 31 , 2016 compared to $ 11.3 million for the year ended december 31 , 2015. our effective tax rate for the year ended december 31 , 2016 was approximately 33.8 % compared to 33.6 % for the year ended december 31 , 2015. our effective tax rate differed from the statutory tax rate in 2016 and 2015 primarily as a result favorable tax treatment on certain municipal bond interest income and dividends received from our equity investments . return on equity our return on equity was 16.2 % for the year ended december 31 , 2016 compared to 21.6 % for the year ended december 31 , 2015 and reflects the increase in our stockholders ' equity from the net proceeds received from the ipo during 2016. year ended december 31 , 2015 compared to year ended december 31 , 2014 the following table summarizes our results of operations for the years ended december 31 , 2015 and 2014 : replace_table_token_19_th 53 ( 1 ) underwriting income is a non-gaap financial measure . see `` —reconciliation of non-gaap financial measures '' for a reconciliation of net income to underwriting income in accordance with gaap . our net income was $ 22.3 million for the year ended december 31 , 2015 compared to $ 13.0 million for the year ended december 31 , 2014 , an increase of $ 9.3 million , or 71.7 % . our underwriting income increased by $ 12.8 million , or 78.1 % , to $ 29.3 million for the year ended december 31 , 2015 compared to $ 16.4 million for the year ended december 31 , 2014. the increase in our underwriting income in the period was primarily the result of higher premium volume in 2015 combined with an improvement in the loss ratio to 56.8 % for the year ended december 31 , 2015 from 69.7 % for the year ended december 31 , 2014. effective january 1 , 2014 , we increased the ceding percentage on the mlqs from 45 % to 50 % , which resulted in a net retention ratio for the year ended december 31 , 2014 of 38.8 % , and the provisional
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following the internal reorganization , in february 2014 , ikaria distributed all of our then outstanding units to its stockholders through the payment of a special dividend on a pro rata basis based on each stockholder 's ownership of ikaria capital stock , which we refer to as the spin-out , and as a result we became a stand-alone company . revenue to date , we have not generated any revenue from product sales and may not generate any revenue from product sales for the next several years , if ever . in the future , we may generate revenue from a combination of product sales , license fees and milestone payments in connection with strategic partnerships , and royalties from the sale of products developed under licenses of our intellectual property . our ability to generate revenue and become profitable depends primarily on our ability to successfully develop and commercialize or partner our product candidates as well as any product candidates we may advance in the future . we expect that any revenue we may generate will fluctuate from quarter to quarter as a result of the timing and amount of any payments we may receive under future partnerships , if any , and from sales of any products we successfully develop and commercialize , if any . if we fail to complete the development of any of our product candidates currently in clinical development or any future product candidates in a timely manner , or to obtain regulatory approval for such product candidates , our ability to generate future revenue , and our business , results of operations , financial condition and cash flows and future prospects would be materially adversely affected . research and development expenses research and development expenses consist of costs incurred in connection with the development of our product candidates , including upfront and development milestone payments , related to in-licensed product candidates and technologies . in order to fairly present our historical information for periods prior to the spin-out , certain departmental expenses from ikaria have been allocated to us . the allocations were applied to us for the purpose of presenting our company as a stand-alone entity . direct and indirect costs for periods prior to the spin-out related to the inopulse and bioabsorbabable cardiac matrix , or bcm , clinical programs have been allocated to us . all allocations were based on actual costs incurred . for purposes of allocating non-project specific expenses , each ikaria department head provided information as to the percentage of employee time incurred on our behalf . research and development expenses primarily consist of : employee-related expenses , including salary , benefits and stock-based compensation expense ; expenses incurred under agreements with contract research organizations , investigative sites that conduct our clinical trials and consultants that conduct a portion of our pre-clinical studies ; expenses relating to vendors in connection with research and development activities ; the cost of acquiring and manufacturing clinical trial materials ; facilities , depreciation of fixed assets and allocated expenses ; lab supplies , reagents , active pharmaceutical ingredients and other direct and indirect costs in support of our pre-clinical and clinical activities ; device development and drug manufacturing engineering ; license fees related to in-licensed products and technology ; and costs associated with non-clinical activities and regulatory approvals . 71 we expense research and development costs as incurred . conducting a significant amount of research and development is central to our business model . product candidates in late 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 late-stage clinical trials . subject to the availability of requisite financing , we plan to increase our research and development expenses for ongoing clinical programs for the foreseeable future as we seek to continue multiple clinical trials for our product candidates , including to potentially advance inopulse for ph-ipf , and seek to identify additional early-stage product candidates . we track external research and development expenses and personnel expenses on a program-by-program basis . we use our employee and infrastructure resources , including regulatory , quality , clinical development and clinical operations , across our clinical development programs and have included these expenses in research and development infrastructure . research and development laboratory expenses are also not allocated to a specific program and are included in research and development infrastructure . engineering activities related to inopulse and the manufacture of cylinders related to inopulse are included in inopulse engineering . inopulse for pah we completed a randomized , placebo-controlled , double-blind phase 2 clinical trial of inopulse for pah in october 2014. the goal of the trial was to determine the safety , tolerability and efficacy of two different doses of inopulse for pah . in february 2016 , we performed the final analysis of our phase 2 long-term extension clinical trial of inopulse for pah , which is part 2 of our phase 2 clinical trial of inopulse for pah , which reinforced the results from part 1 of our phase 2 clinical trial of inopulse for pah . after reaching agreement with the fda and the ema on our phase 3 protocol , we moved forward with phase 3 development with the first patient enrolled in june 2016. inopulse for ph-copd we completed a randomized , placebo-controlled , double-blind , dose-confirmation phase 2 clinical trial of inopulse for ph-copd in july 2014. we received results from this trial , and we have initiated phase 2 testing for the use of the inopulse device for ph-copd patients to evaluate the potential benefit of chronic use on exercise capacity , with the first patient enrolled in october 2016. inopulse for ph-ipf we initiated our phase 2 studies in ph-ipf in 2016 consisting of an exploratory acute hemodynamic study followed by exercise capacity . story_separator_special_tag our first patient was enrolled in our phase 2 study in the second quarter of 2016. bcm in december 2011 , we initiated a clinical trial of bcm , which we refer to as our preservation i trial , in december 2011 , and completed enrollment in december 2014. top-line results from the randomized , double-blind , placebo-controlled clinical trial were announced in july 2015. following the results , we are considering further exploratory work but we do not intend to proceed with further clinical development of bcm at this point until and unless we can determine an alternative path forward . research and development infrastructure we invest in regulatory , quality , clinical development and clinical operations activities , which are expensed as incurred . these activities primarily support our clinical development programs . inopulse engineering we have invested a significant amount of funds in inopulse , which is configured to be highly portable and compatible with available modes of ltot via nasal cannula delivery . our phase 2 clinical trials of inopulse for pah and inopulse for ph-copd utilized the first generation inopulse ds device . we believe our second generation inopulse device , as well as a custom triple-lumen cannula , will significantly improve several characteristics of our inopulse delivery system . we have also invested in design and engineering technology , through ikaria , for the manufacture of our drug cartridges . in february 2015 , we entered into an agreement with flextronics medical sales and marketing ltd. , a subsidiary of flextronics international ltd. , or 72 flextronics , to manufacture and service the inopulse devices that we are using in our ongoing clinical trials of inopulse for pah and inopulse for ph-copd and ph-ipf . it is difficult to determine with certainty the duration and completion costs of our current or any future pre-clinical programs and any of our current or future clinical trials and any future product candidates we may advance , or if , when or to what extent we will generate revenue from the commercialization and sale of any of our product candidates that obtain regulatory approval . we may never succeed in achieving regulatory approval for any of our product candidates . the duration , costs and timing of clinical trials and development of our product candidates will depend on a variety of factors , including the uncertainties of any future clinical trials and pre-clinical studies , uncertainties in clinical trial enrollment rate and significant and changing government regulation . in addition , the probability of success for each product candidate will depend on numerous factors , including competition , manufacturing capability and commercial viability . a change in the outcome of any of these variables with respect to the development of a product candidate could change significantly the costs and timing associated with the development of that product candidate . for example , if the fda or other regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate , or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time with respect to the development of that product candidate . we will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate , as well as an assessment of each product candidate 's commercial potential , including the likelihood of regulatory approval on a timely basis . general and administrative expenses general and administrative expenses include salaries and costs related to executive , finance , and administrative support functions , patent filing , patent prosecution , professional fees for legal , insurance , consulting , investor relations , human resources , information technology and auditing and tax services not otherwise included in research and development expenses . story_separator_special_tag style= '' line-height:120 % ; text-align : left ; text-indent:36px ; font-size:10pt ; '' > total operating expenses . total operating expenses for the year ended december 31 , 2015 were $ 48.2 million compared to $ 59.8 million for the year ended december 31 , 2014 , a decrease of $ 11.6 million , or 19 % . this decrease was primarily due to reductions in research and development expenses pertaining to our bcm and inopulse for ph-copd programs and to a decrease in research and development infrastructure expenses . research and development expenses . total research and development expenses for the year ended december 31 , 2015 were $ 33.4 million compared to $ 46.0 million for the year ended december 31 , 2014 , a decrease of $ 12.6 million , or 27 % . total research and development expenses consisted of the following : · bcm research and development expenses for the year ended december 31 , 2015 were $ 8.2 million compared to $ 13.7 million for the year ended december 31 , 2014 , a decrease of $ 5.5 million , or 40 % . the decrease was primarily due to us ceasing further clinical development of bcm following the preservation i results . · pah research and development expenses for the year ended december 31 , 2015 were $ 10.7 million compared to $ 11.3 million for the year ended december 31 , 2014 , a decrease of $ 0.6 million , or 6 % . the decrease was primarily due to the completion of the phase 2 clinical trial in late-2014 and a reversal of an accrual in the year ended december 31 , 2015 partially offset by increased costs in anticipation of the start of the phase 3 clinical trials . 75 · ph-copd research and development expenses for the year ended december 31 , 2015 were $ 0.0 million compared to $ 3.0 million for the year ended december 31 , 2014 , a decrease of $ 3.0 million , or 100 % .
| the decrease was primarily due to the completion of the phase 2 clinical trial in late-2014 and a reversal of an accrual in the year ended december 31 , 2015 partially offset by increased costs in anticipation of the start of the phase 3 clinical trials . · research and development infrastructure expenses for the year ended december 31 , 2016 were $ 4.7 million compared to $ 8.6 million for the year ended december 31 , 2015 , a decrease of $ 3.8 million , or 45 % . the decrease was due to reduced expenses payable to ikaria as a result of the termination of the tsa effective september 30 , 2015 and reduced personnel costs as a result of the restructuring that occurred in the second half of 2015 . · inopulse engineering expenses for the year ended december 31 , 2016 were $ 1.9 million compared to $ 6.0 million for the year ended december 31 , 2015 , a decrease of $ 4.1 million , or 69 % . the decrease was driven by reduced expenses payable to ikaria as a result of the termination of the tsa , reduced development costs for the inopulse device and triple-lumen cannula and reduced personnel costs as a result of the restructuring that occurred in the second half of 2015. general and administrative expenses . general and administrative expenses for the year ended december 31 , 2016 were $ 7.1 million compared to $ 14.9 million for the year ended december 31 , 2015 , a decrease of $ 7.8 million , or 52 % . the 74 decrease was primarily due to reduced personnel and consulting costs as a result of the restructuring that occurred in the second half of 2015 and a reduction in expenses payable to ikaria as a result of the termination of the tsa effective on september 30 , 2015. other operating income . we had no other operating income for the year ended december 31 , 2016 compared to $ 1.7 million for the year ended december
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we utilize management estimates and , in some instances , independent third party valuation firms to assist in determining the fair values of assets acquired , liabilities assumed and contingent consideration granted . there are inherent assumptions and estimates used in developing the future cash flows and fair values of tangible and intangible assets , such as projecting revenues and profits , discount rates , income tax rates , royalty rates , customer attrition rates and other various valuation assumptions . we use various valuation methods to value property , plant and equipment . when valuing real property , we typically use the sales comparison approach for land and the income approach for buildings and building improvements . when valuing personal property , we typically use either the income or cost approach . we used the relief-from-royalty method to value trade names , trademarks , software and other technology assets , and we used the multi-period excess earnings method to value customer relationships . the relief-from-royalty method assumes that the intangible asset has value to the extent that its owner is relieved of the obligation to pay royalties for the benefits received from the intangible asset . the multi-period excess earnings method is based on the present value of the incremental after-tax cash flows attributable only to the customer relationship after deducting contributory asset charges . goodwill and indefinite-lived intangibles impairment we are required to test our goodwill and indefinite-lived intangible assets for impairment at least annually . when testing goodwill for impairment , we are required to evaluate events and circumstances that may affect the performance of the reporting unit and the extent to which the events and circumstances may impact the future cash flows of the reporting unit to determine whether the fair value of the assets exceeds the carrying value . developing the estimated future cash flows and fair value of the reporting unit requires management 's judgment in projecting revenues and profits , allocation of shared corporate costs , tax rates , capital expenditures , working capital requirements , discount rates and market multiples . many of the factors used in assessing fair value are outside the control of management , and it is reasonably likely that assumptions and estimates can change in future periods . if these assumptions or estimates change in the future , we may be required to record impairment charges for these assets . in response to changes in industry and market conditions , we may be required to strategically realign our resources and consider restructuring , disposing of , or otherwise exiting businesses , which could result in an impairment of goodwill . we perform goodwill impairment tests annually in the fourth quarter and between annual tests whenever events indicate that an impairment may exist . during 2019 , we did not identify any events or changes in circumstances that would more likely than not reduce the fair value of our reporting units below their carrying amounts . therefore , we did not perform any impairment tests other than our annual test in the fourth quarter as of october 31 , 2019 . our goodwill impairment assessment is performed by reporting unit . a reporting unit is an operating segment , or a business one level below an operating segment ( the `` component '' level ) , for which discrete financial information is prepared and regularly reviewed by segment management . however , components are aggregated as a single reporting unit if they have similar economic characteristics . for the purpose of aggregating our components into reporting units , we review the long-term performance of segment ebitda . additionally , we review qualitative factors such as type or class of customers , nature of products , distribution methods , inventory procurement methods , level of integration , and interdependency of processes across components . our assessment of the aggregation includes both qualitative and quantitative factors and is based on the facts and circumstances specific to the components . we have four operating segments : wholesale – north america , europe , specialty and self service . each of these operating segments consists of multiple components that have discrete financial information available that is reviewed by 36 segment management on a regular basis . we have evaluated these components and concluded that the components that compose the wholesale – north america , europe , specialty , and self service operating segments are economically similar and thus were aggregated into four separate reporting units for our 2019 annual goodwill impairment test . our goodwill would be considered impaired if the carrying value of a reporting unit exceeded its estimated fair value . the fair value estimates are established using weightings of the results of a discounted cash flow methodology and a comparative market multiples approach . we believe that using two methods to determine fair value limits the chances of an unrepresentative valuation . discount rates , growth rates and cash flow projections are the assumptions that are most sensitive and susceptible to change as they require significant management judgment . impairment may result from , among other things , deterioration in the performance of acquired businesses , increases in our cost of capital , adverse market conditions , and adverse changes in applicable laws or regulations , including modifications that restrict the activities of the acquired business . to assess the reasonableness of the fair value estimates , we compare the sum of the reporting units ' fair values to the company 's market capitalization and calculate an implied control premium , which is then evaluated against recent market transactions in our industry . if we were required to recognize goodwill impairments , we would report those impairment losses as part of our operating results . we determined no impairments existed when we performed our annual goodwill impairment testing in 2019 on all four reporting units as each of those reporting units had a fair value estimate that exceeded the carrying value by at least 25 % . story_separator_special_tag as of december 31 , 2019 , we had a total of $ 4.4 billion in goodwill subject to future impairment tests . based on our annual goodwill impairment test in the fourth quarter of 2018 , we determined the carrying value of our aviation reporting unit exceeded the fair value estimate by more than the carrying value , thus we recorded an impairment charge of $ 33 million , which represented the total carrying value of goodwill in our aviation reporting unit . the impairment charge was due to a decrease in the fair value estimate from the prior year fair value estimate , primarily driven by a significant deterioration in the outlook for the aviation reporting unit due to competition , customer financial issues and changing market conditions for the airplane platforms that the business services , which lowered our projected gross margin and related future cash flows . we reported the impairment charge in impairment of net assets held for sale and goodwill on the consolidated statements of income for the year ended december 31 , 2018. we sold the aviation business in the third quarter of 2019. we review indefinite-lived intangible assets for impairment annually or sooner if events or changes in circumstances indicate that the carrying value may not be recoverable . we performed a quantitative impairment test in the fourth quarter as of october 31 , 2019 , using the relief-from-royalty method to value the warn trademark , which is our only indefinite-lived intangible ; w e determined no impairment existed as the trademark had a fair value estimate which exceeded the carrying value . recently issued accounting pronouncements see `` recent accounting pronouncements '' in note 4 , `` summary of significant accounting policies `` to the consolidated financial statements in part ii , item 8 of this annual report on form 10-k for information related to new accounting standards . financial information by geographic area see note 16 , `` segment and geographic information `` to the consolidated financial statements in part ii , item 8 of this annual report on form 10-k for information related to our revenue and long-lived assets by geographic region . 1 lkq europe program we have undertaken the 1 lkq europe program to create structural centralization and standardization of key functions to facilitate the operation of the europe segment as a single business . under this multi-year program , we have recognized to date and expect to continue to recognize the following : restructuring expenses — non-recurring costs resulting directly from the implementation of the 1 lkq europe program from which the business will derive no ongoing benefit . see note 6 , “ restructuring and acquisition related expenses ” to the consolidated financial statements in part ii , item 8 of this annual report on form 10-k for further details . transformation expenses — period costs incurred to execute the 1 lkq europe program that are expected to contribute to ongoing benefits to the business ( e.g . non-capitalizable implementation costs related to a common erp system ) . these expenses are recorded in selling , general and administrative expenses . transformation capital expenditures — capitalizable costs for long-lived assets , such as software and facilities , that directly relate to the execution of the 1 lkq europe program . costs related to the 1 lkq europe program incurred to date are reflected in selling , general and administrative expenses and purchases of property , plant and equipment in our consolidated financial statements in part ii , item 8 of this 37 annual report on form 10-k. we expect that future costs of the program , reflecting all three categories noted above , will range between $ 100 million and $ 125 million for the period from 2020 through 2021 with an additional $ 80 million to $ 100 million between 2022 and the projected completion date of the project in 2024. results of operations—consolidated the following table sets forth statements of income data as a percentage of total revenue for the periods indicated : year ended december 31 , 2019 2018 2017 revenue 100.0 % 100.0 % 100.0 % cost of goods sold 61.2 % 61.5 % 61.0 % gross margin 38.8 % 38.5 % 39.0 % selling , general and administrative expenses 28.6 % 28.2 % 27.9 % restructuring and acquisition related expenses 0.3 % 0.3 % 0.2 % impairment of net assets held for sale and goodwill 0.4 % 0.3 % — % depreciation and amortization 2.3 % 2.3 % 2.3 % operating income 7.2 % 7.4 % 8.7 % other expense , net 0.8 % 1.2 % 0.8 % income from continuing operations before provision for income taxes 6.3 % 6.3 % 7.9 % provision for income taxes 1.7 % 1.6 % 2.4 % equity in ( losses ) earnings of unconsolidated subsidiaries ( 0.3 ) % ( 0.5 ) % 0.1 % income from continuing operations 4.3 % 4.1 % 5.5 % net income ( loss ) from discontinued operations 0.0 % ( 0.0 ) % ( 0.1 ) % net income 4.4 % 4.1 % 5.4 % less : net income ( loss ) attributable to continuing noncontrolling interest 0.0 % 0.0 % ( 0.0 ) % less : net income attributable to discontinued noncontrolling interest 0.0 % — % — % net income attributable to lkq stockholders 4.3 % 4.0 % 5.5 % note : in the table above , the sum of the individual percentages may not equal the total due to rounding . year ended december 31 , 2019 compared to year ended december 31 , 2018 revenue .
| we aggregate our wholesale – north america and self service operating segments into one reportable segment , north america , resulting in three reportable segments : north america , europe and specialty . our operating results have fluctuated on a quarterly and annual basis in the past and can be expected to continue to fluctuate in the future as a result of a number of factors , some of which are beyond our control . please refer to the factors referred to in forward-looking statements above . due to these factors and others , which may be unknown to us at this time , our operating results in future periods can be expected to fluctuate . accordingly , our historical results of operations may not be indicative of future performance . acquisitions and investments since our inception in 1998 , we have pursued a growth strategy through both organic growth and acquisitions . we have pursued acquisitions that we believe will help drive profitability , cash flow and stockholder value . we target companies that are market leaders , will expand our geographic presence and will enhance our ability to provide a wide array of vehicle products to our customers through our distribution network . during 2019 , we completed seven acquisitions for a total consideration of $ 63 million , including three wholesale businesses and one self service business in north america , and three wholesale businesses in europe . on may 30 , 2018 , we acquired stahlgruber , a leading european wholesale distributor of aftermarket spare parts for passenger cars , tools , capital equipment and accessories with operations in germany , austria , italy , slovenia , and croatia with further sales to switzerland . this acquisition expanded lkq 's geographic presence in continental europe and serves as an additional strategic hub for our european operations . in addition , this acquisition should allow for continued improvement in procurement , logistics and infrastructure optimization . on july 3 , 2017 , we acquired four parts distribution businesses in belgium . these companies were acquired with the objective of transforming the existing three-step distribution model in belgium to a
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during 2012 , we plan to continue to invest in product and technology development and will continue to introduce feature enhancements across our products as well as introduce chair-side applications . enhancing the customer experience . we are committed to enhancing the customer experience through the evolution of our customer facing systems and programs making it easier for our customers to adopt our products into their practice and increase utilization . we provide robust clinical education resources and training programs through instructor-led training classes , seminars and workshops as well as online training through webinars , blogs , and online educational websites such as our aligntech institute ( www.aligntechinstitute.com ) and cadent ( www.cadentinc.com ) websites . our customer support teams consist of over 700 treatment technicians and customer support staff available to help our customers with their cases and treatment plans . our sales representatives provide additional support and practice development tools such as staff training , software tips and tools , practice marketing guides and marketing materials , as well as any assistance with the invisalign or itero/ioc system process . lastly , we offer our customers varying product promotional discounts and incentive programs as a means to improve the customer experience and increase utilization . our largest north american program , the advantage rebate program , allows eligible orthodontist and gps to earn volume rebates and marketing benefits for exceeding quarterly case shipment thresholds and participating in continuing education . additional tiered benefits range from practice development materials , marketing consulting , and access to dedicated clinical technicians . during 2012 , we plan to continue providing our high standard educational resources and improving our customer support processes as we centralize our newly acquired intra-oral scanner-related customer support team . increasing the effectiveness of our consumer demand creation and extending invisalign brand awareness . as an established and known brand within the dental industry , efficiently marketing to the consumer and creating demand is one of our key strategic objectives to driving long-term growth . 38 our market research indicates that the majority of adults with malocclusion forgo treatment rather than elect traditional treatment due to its many limitations , such as compromised aesthetics and oral discomfort . in addition , many parents also elect traditional treatment for their teenagers due to limited awareness of invisalign treatment applicability for teenager use . our goals are to extend our leadership in clear aligner therapy with adults , increase awareness and consumer demand with moms and teens , and to continue expansion of the clear aligner category overall . we continue to be successful with programs that more effectively and efficiently generate demand or pull for invisalign treatment . in the past several years , we continued building awareness and demand through an integrated consumer marketing platform of traditional media , event marketing and digital and social media . in addition , we continued to evolve our marketing program aimed specifically at the teenage segment to increase awareness and educate prospective teen patients and their parents . in 2011 , we leveraged online and mobile widgets , social media and blogs directly targeted to teens and launched a commercial prompting parents and teens to learn more about invisalign treatment . we will continue to build on these programs and efforts in 2012. growth of international markets . we will continue to focus our efforts towards increasing adoption of our products by dental professionals in our core european markets as well as expansion into new markets . in the past five years , we have grown our core direct business in europe and japan from $ 46.6 million in 2007 to $ 115.6 million in 2011. at the end of 2011 , international sales represented approximately 24.1 % of net worldwide revenues . we trained over 17,800 doctors on the invisalign system internationally , predominantly orthodontists in europe which is our primary international market . due to the higher number of complex malocclusion cases in international markets compared to north america , product expansion and enhancements are important to providing doctors with treatment options that address a wider range of potential patient needs with greater treatment flexibility . the recent invisalign g3 and invisalign g4 features designed to address those complex treatment issues is a significant product evolution . we are also expanding our market presence globally . in may 2011 , we announced commercial availability of the invisalign system in china . while we do not expect meaningful revenue from china for several years , our focused strategy to launch invisalign in four major cities of china such as shanghai , beijing , shenzhen , and guangzhou provides us a large growth opportunity long term . additionally , although the vast majority of our international revenues are from direct sales , approximately 13 % of our international invisalign sales in fiscal 2011 are from distribution partners covering non-core country markets in the asia pacific , emea , and latin america regions . in early 2011 , the invisalign system was commercially launched in turkey through our emea distribution partner . in december 2011 , we received regulatory approval for the invisalign system in russia and commercial launch of invisalign in russia and the middle east began in 2012 also through our emea distribution partner . with these efforts , we expect our international revenues to continue to increase in absolute dollars and as a percentage of total net revenues in the foreseeable future . in addition to the successful execution of our business strategy , there are a number of other factors which may affect our results in 2012 and beyond as set forth below : product innovation and clinical effectiveness . we believe that , in addition to an increase in the number of patients visiting dental offices throughout 2011 as reported by our customers , as well as patient interest in higher value procedures , invisalign g3 was an important contributor to the increased utilization in 2011 by our north american orthodontic customers . story_separator_special_tag additionally , since most of our international customers are orthodontists , we believe the international launch of invisalign g3 in may 2011 was important for continued growth both in our existing international markets and to support our expansion in new markets like china . we expect that the innovations in g4 will build on the success we have seen with invisalign g3 and encourage even greater confidence and adoption in our customers ' practices . additionally , with the introduction of new software features to the ioc and itero intra-oral scanners along with invisalign interoperability , we believe that over the long-term these types of product and clinical innovation will increase adoption of invisalign and increase sales of our intra-oral scanners . however , it is difficult to predict the rate of adoption which may vary by region and channel . 39 investments to increase manufacturing capacity . we are currently transitioning our aligner fabrication and intra-oral scannerrelated activities from our existing facility in juarez , mexico into our new 150,000 square foot property purchased facility in september 2011. the lease on our existing facility expires in july 2013. our ability to plan , construct and equip this additional manufacturing facility is subject to significant risk and uncertainty , including delays and cost overruns . if the opening of this facility is significantly delayed for any reason , or if demand for our product in 2012 exceeds our current expectations , or if the timing of receipt of case product orders during a given quarter is different from our expectations , we may not be able to fulfill orders in a timely manner , which may negatively impact our financial results and overall business . consolidation of new jersey operations . in september 2011 , we announced plans to consolidate our cad/cam services and intra-oral scanner-related activities based in carlstadt , new jersey with our existing manufacturing and shared services organizations in order to optimize efficiency , consolidate customer-facing functions , and reduce operating costs . all existing intra-oral scanner research and development and manufacturing operations will remain in or yehuda , israel . these actions include a phased transition of the following activities over the next few quarters : consolidation of customer care for cad/cam services and intra-oral scanners into our existing shared services organization in san jose , costa rica ; transition of cad/cam services and intra-oral scanner distribution and repair to our treat operations in san jose , costa rica and our manufacturing facility in juarez , mexico ; and consolidation of accounting and finance functions at our corporate headquarters in san jose , california ; and closure of the new jersey facility by the third quarter of 2012. the consolidation of our new jersey operations includes a total reduction of 119 full time headcount in carlstadt , new jersey . the transition began in the fourth quarter of 2011 and is expected to be completed by the third quarter of 2012. as part of this consolidation , we will incur costs for severance estimated to be approximately $ 2.0 million , of which approximately $ 1.1 million was realized in 2011 and $ 0.9 million over the first three quarters of 2012. after the new jersey consolidation is complete , we expect to realize annualized net savings of approximately $ 4.0 million per year . see part ii , item 1a risk factors for risks related to the consolidation of new jersey operations . 40 invisalign utilization rates . our goal is to establish invisalign as the treatment of choice for treating malocclusion ultimately driving increased product adoption and frequency of use by dental professionals , or utilization . our quarterly utilization rates for the previous 12 quarters are as follows : * invisalign utilization rates = # of cases shipped divided by # of doctors cases were shipped to total utilization in the fourth quarter of 2011 increased slightly to 4.1 cases per doctor , driven mostly by our north american gp customers and international doctors . utilization among our north american orthodontist customers declined slightly from the third quarter of 2011 to 7.0 cases per doctor , reflecting seasonality in their teenage patient case starts . although we expect that over the long-term our utilization rates will gradually improve , we expect that period over period comparisons of our utilization rates will fluctuate . acquisition of cadent . on april 29 , 2011 , we acquired privately-held cadent , a leading provider of 3d digital scanning solutions for orthodontics and dentistry . the acquisition of cadent positions us as a leader in one of the best growth opportunities in dentistry and medical devices today . over the next five years , we expect that intra-oral scanners will become widely used in dental practices . we believe that the combination of the two companies will help accelerate the use of intra-oral scanning in the dental industry by leveraging align 's global sales reach , extensive professional and consumer marketing capabilities and base of over 55 thousand clincheck software users . intra-oral scanners also strengthen our ability to drive adoption of invisalign by integrating invisalign treatment more fully with mainstream tools and procedures in doctors ' practices . we may , however , experience difficulties in achieving the anticipated financial or strategic benefits of the acquisition . information regarding risks associated with the cadent acquisition may be found in item 1 of this annual report on form 10-k under the heading risk factors. number of new invisalign doctors trained . we continue to expand our invisalign customer base through training new doctors . in 2012 , we expect to train approximately 6,000 orthodontists and gps in north america and internationally , which is approximately the same number we trained in 2011. foreign exchange rates . although the u.s. dollar is our reporting currency , a portion of our revenues and profits are generated in foreign currencies .
| invisalign case volume growth was driven by both improved utilization and an increase in the number of doctors submitting cases . revenue from our clear aligner segment , consisting of our invisalign products , increased by 16.7 % as a result of additional case volumes across all products . the most significant volume percentage increases were in the invisalign teen and assist products . although invisalign teen case volume increased 32.4 % , revenue for invisalign teen was comparable to the prior year primarily because of the $ 14.3 million release of deferred revenue in 2010. invisalign assist revenue growth was comprised of both an increase in case volume and additional revenue being recognized as each batch is shipped over the course of treatment instead of deferring until the final batch shipment . additionally , invisalign non-case revenues , consisting of training fees and sales of ancillary products , were higher in 2011 compared to 2010 primarily due to increased sales of our vivera product . since date of the acquisition until the end of the 2011 fiscal year end , the scanner and cad/cam services segment generated $ 28.1 million of revenue from sales of itero and ioc scanners and orthocad services . 43 fiscal year 2010 compared to fiscal year 2009 total net revenues increased in 2010 as compared to 2009 primarily as a result of worldwide volume growth across all customer channels . the release of revenue previously deferred for invisalign teen replacement aligners in the second quarter of 2010 contributed an additional $ 14.3 million to total net revenues for 2010. in 2010 , north america revenue increased 17.6 % compared to 2009 due to overall case volume growth of 15.2 % as well as an increase in our average selling price . higher case volume was driven primarily by the north american orthodontic channel reflecting increased penetration into the teenage orthodontic market , especially with the invisalign teen product . additionally , the increase also reflects a significant reduction in our revenue deferral rate for teen replacement aligners and lower discounts and rebates . our international
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we expect our cost of capital will increase as a result of our plan to transition some of our short term revolving borrowings into debt instruments with longer maturities and increased overall interest rates . managing risk involves trade-offs with the competing goal of maximizing short-term profitability . our intention is to strike an appropriate balance between these competing interests within the context of our investor profile . we are continuing to explore additional funding resources including bank term loans , convertible debt , debt private placement and secured government agency financing . we manage our business with a goal of increasing the regular annual dividends paid to shareholders . our board of directors approves a regular quarterly dividend which is reflective of expected taxable income on a recurring basis . our transactions that are infrequent and non-recurring that generate additional taxable income have been distributed to shareholders in the form of special dividends . taxable income is determined in accordance with the internal revenue code and differs from net income for financial statements purposes determined in accordance with u.s. generally accepted accounting principles . our goal of increasing annual dividends requires a careful balance between identification of high-quality lease and mortgage assets in which to invest and the cost of our capital with which to fund such investments . we consider the competing interests of short and long-term debt ( interest rates , maturities and other terms ) versus the higher cost of new equity . we accept some level of risk associated with leveraging our investments . we intend to continue to make new investments that meet our underwriting criteria and where we believe the spreads over our cost of capital will generate sufficient returns to our shareholders . 28 our regular and special dividends for the last four years are as follows : replace_table_token_7_th 1 paid to shareholders of record in january 2013 our increased investments in healthcare real estate beginning in 2009 have been partially accomplished by our ability to effectively leverage our balance sheet . however , we continue to maintain a relatively low leverage balance sheet compared with the value of our assets and with many in our peer group . we believe that our fixed charge coverage ratio , which is the ratio of adjusted ebitda ( earnings before interest , taxes , depreciation and amortization , including amounts in discontinued operations , excluding real estate asset impairments and gains on dispositions ) to fixed charges ( interest expense and principal payments on debt ) , and the ratio of consolidated debt to adjusted ebitda are meaningful measures of our ability to service our debt . we use these two measures as a useful basis to compare the strength of our balance sheet with those in our peer group . we calculate our fixed charge coverage ratio as approximately 12:1 for the year ended december 31 , 2013 ( see page 47 for a discussion of adjusted ebitda and a reconciliation to our net income ) . on an annualized basis , our consolidated debt-to-adjusted ebitda ratio is 5:1 . annual dividend growth , a low leverage balance sheet , a portfolio of diversified , high-quality assets , and prioritizing business relationships with experienced tenants and borrowers continue to be the key drivers of our business plan . according to a 2011 estimate by the u.s. department of health and human services , the number of americans 65 and older is expected to grow 36 % between 2010 and 2020 , compared to a 9 % growth rate for the general population . an increase in this age demographic is expected to increase the demand for senior housing properties of all types in the coming decades . there is increasing demand for private-pay senior housing properties in countries outside the u.s. we will consider real estate and note investments with u.s. entities who seek to expand their senior housing operations into countries where local-market demand is sufficiently demonstrated . we have a current investment of $ 1,500,000 in such ventures . we expect to fund any new investments in real estate and mortgage notes in 2014 using our liquid investments and debt financing unless the size of an acquisition leads us to consider issuing equity securities to fund some or all of such acquisition in order to maintain a relatively low level of debt in comparison to the value of our assets . critical accounting policies we prepare our consolidated financial statements in conformity with accounting principles generally accepted in the united states of america . these accounting principles require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates and cause our reported net income to vary significantly from period to period . if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our consolidated financial statements , the resulting changes could have a material adverse effect on our consolidated results of operations , liquidity and or financial condition . we consider an accounting estimate or assumption critical if : 1. the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change ; and 2. the impact of the estimates and assumptions on financial condition or operating performance is material . 29 our significant accounting policies and the associated estimates , judgments and the issues which impact these estimates are as follows : valuations and impairments the majority of our tenants and borrowers are in the long-term health care industry ( snfs and alfs ) where snfs derive their revenues primarily from medicare , medicaid and other government programs . amounts paid under these government programs are subject to legislative and government budget constraints . story_separator_special_tag from time to time , there may be material changes in government reimbursement . in the past , snfs have experienced material reductions in government reimbursement . the long-term health care industry has also experienced a dramatic increase in professional liability claims and in the cost of insurance to cover such claims . these factors combined to cause a number of bankruptcy filings , bankruptcy court rulings and court judgments affecting our lessees and borrowers . in prior years , we have determined that impairment of certain of our investments had occurred as a result of these events . we evaluate the recoverability of the carrying values of our properties on a property-by-property basis . on a quarterly basis , we review our properties for recoverability when events or circumstances , including significant physical changes in the property , significant adverse changes in general economic conditions and significant deteriorations of the underlying cash flows of the property , indicate that the carrying amount of the property may not be recoverable . the need to recognize an impairment charge is based on estimated undiscounted future cash flows from a property compared to the carrying value of that property . if recognition of an impairment charge is necessary , it is measured as the amount by which the carrying amount of the property exceeds the fair value of the property . for notes receivable , we evaluate the estimated collectibility of contractual loan payments and general economic conditions on an instrument-by-instrument basis . on a quarterly basis , we review our notes receivable for ability to realize on such notes when events or circumstances , including the non-receipt of contractual principal and interest payments , significant deteriorations of the financial condition of the borrower and significant adverse changes in general economic conditions , indicate that the carrying amount of the note receivable may not be recoverable . if necessary , impairment is measured as the amount by which the carrying amount exceeds the fair value as measured by the discounted cash flows expected to be received under the note receivable or , if foreclosure is probable , the fair value of the collateral securing the note receivable . we evaluate our marketable equity securities for other-than-temporary impairments . an impairment of a marketable equity security would be considered “ other-than-temporary ” unless we have the ability and intent to hold the investment for a period of time sufficient for a forecasted market price recovery up to ( or beyond ) the cost of the investment and evidence indicates the cost of the investment is recoverable within a reasonable period of time . the initial carrying value of investments in unconsolidated entities is based on the amount paid to purchase the interest or the estimated fair value of the assets prior to our acquisition of interests in the entity . an aggregate basis difference between the cost of our equity method investee and the amount of underlying equity in its net assets is primarily attributable to goodwill , which is not amortized . we evaluate for impairment our equity method investments and related goodwill based upon a comparison of the estimated fair value of the investments to their carrying value . when we determine a decline in the estimated fair value of such an investment below its carrying value is other than temporary , an impairment is recorded . no impairments to the carrying value of our equity method investee have been recorded for any period presented . while we believe that the carrying amounts of our properties and arrangement with bickford are recoverable and our notes receivable , marketable securities and other investments are realizable , it is possible that future events could require us to make significant adjustments or revisions to these estimates . the determination of the fair value and whether a shortfall in operating revenues or the existence of operating losses is indicative of a loss in value that is other than temporary involves significant judgment . our estimates consider all available evidence including , as appropriate , the present value of the expected future cash flows discounted at market rates , general economic conditions and trends , the duration of the fair value deficiency , and any other relevant factors . while we believe our assumptions are reasonable , changes in these assumptions may have a material impact on our financial results . revenue recognition we collect interest and rent from our customers . generally , our policy is to recognize revenues on an accrual basis as earned . however , there are certain of our customers , for whom we have determined , based on insufficient historical collections and the lack of expected future collections , that revenue for interest or rent is not probable of collection until received . for these 30 investments , our policy is to recognize interest or rental income when assured , which we consider to be the period the amounts are collected . we identify investments as nonperforming if a required payment is not received within 30 days of the date it is due . this policy could cause our revenues to vary significantly from period to period . revenue from minimum lease payments under our leases is recognized on a straight-line basis to the extent that future lease payments are considered collectible . lease payments that depend on a factor directly related to future use of the property , such as an increase in annual revenues over base year revenues , are considered to be contingent rentals , are included in rental income when they are determinable and earned , and are excluded from future minimum lease payments . reit qualification as part of the process of preparing our consolidated financial statements , significant management judgment is required to evaluate our compliance with reit requirements . our determinations are based on interpretation of tax laws , and our conclusions may have an impact on the income tax expense recognized .
| holiday 's obligations to us under the master lease are guaranteed by its indirect parent , holiday al holdings , lp . we funded this acquisition with proceeds of a $ 250,000,000 term loan and proceeds from a public offering of 5,175,000 shares of our common stock at $ 57 per share . the net proceeds from the offering were approximately $ 282,542,000 , after deducting $ 12,500,000 in underwriting discounts , commissions and other offering expenses . bickford as of december 31 , 2013 , we owned an 85 % equity interest and an affiliate of bickford owned a 15 % equity interest in our consolidated subsidiary ( `` propco '' ) which owns 29 assisted living/memory care facilities and also has 1 facility under construction . the facilities are leased to an operating company , ( `` opco '' ) , in which we also share an 85/15 ownership interest with an affiliate of bickford , who controls the entity . our joint venture is structured to comply with the provisions of ridea . on june 28 , 2013 , propco purchased 17 assisted living and memory care facilities which were managed by bickford . the facilities total 750 units and are located in illinois , indiana , iowa and nebraska . of these facilities , 14 were acquired from a subsidiary of care investment trust , inc. ( `` care '' ) for $ 124,549,000 , consisting of $ 44,021,000 in cash and assumption of secured debt with a fair value of $ 80,528,000 . as part of this transaction , we recognized all identifiable tangible assets and liabilities assumed at fair value at the date of acquisition ( there were no identifiable intangible assets or liabilities assumed ) and attributed $ 4,360,000 to the fair value of the land , $ 120,189,000 to the fair value of the buildings and improvements and expensed $ 63,000 32 in transaction costs at closing . the 14 newly-acquired facilities have been leased to opco for an initial term of 5 years at an aggregate annual lease amount of $ 9,750,000 plus annual fixed escalators commencing on july 1 of each succeeding year . concurrent
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in the three defense groups , revenue on our long-term government contracts is recognized as the work progresses , either as products are produced or as services are rendered . as a result , variations in revenue are discussed generally in terms of volume , typically measured by the level of activity on individual contracts or programs . year-over-year variances attributed to volume are due to changes in production or service levels and delivery schedules . operating costs for the defense groups consist of labor , material , subcontractor , overhead and g & a costs and are recognized generally as incurred . variances in costs recognized from period to period reflect primarily increases and decreases in production or activity levels on individual contracts and , therefore , result largely from the same factors that drive variances in revenue . operating earnings and margin in the defense groups are driven by changes in volume , performance or contract mix . performance refers to changes in profitability based on adjustments to estimates at completion on individual contracts . these adjustments result from increases or decreases to the estimated value of the contract , the estimated costs to complete or both . therefore , changes in costs incurred in the 28 period compared with prior periods do not necessarily impact profitability . it is only when total estimated costs at completion on a given contract change without a corresponding change in the contract value that the profitability of that contract may be impacted . contract mix refers to changes in the volume of higher- vs. lower-margin work . additionally , higher or lower margins can be inherent in the contract type ( e.g. , fixed-price/cost-reimbursable ) or type of work ( e.g. , development/production ) . consolidated overview 2016 in review outstanding operating performance : ◦ revenue of $ 31.4 billion , marked by growth in our defense business . ◦ record-high operating earnings of $ 4.3 billion and operating margin of 13.7 percent increased 3.1 percent and 40 basis points , respectively , from 2015 . ◦ return on sales reached a new high of 9.8 percent , an increase of 40 basis points over 2015 . ◦ $ 9.87 of earnings from continuing operations per diluted share increased 8.7 percent from 2015 to the highest level in our history . 14.2 million outstanding shares repurchased for $ 2 billion and $ 911 paid in cash dividends , returning approximately 160 percent of our free cash from operations to shareholders . return on invested capital ( roic ) of 18.1 percent , 70 basis points higher than 2015. robust backlog , including several significant contract awards received in 2016 , providing stability well into the future . review of 2016 vs. 2015 replace_table_token_10_th operating earnings and margin increased in 2016 on essentially flat revenue compared with 2015 , continuing a trend of superb operating performance . our volume reflects fewer aircraft deliveries in our aerospace group offset largely by higher u.s. navy engineering and ship construction work in our marine systems group and c4isr ( command , control , communications , computers , intelligence , surveillance and reconnaissance ) solutions volume in our information systems and technology group . operating costs and expenses decreased at a greater rate than revenue , resulting in positive operating leverage . as a result , operating margin increased 40 basis points compared with 2015 . this margin expansion was attributable to improved performance and continued cost reduction efforts in the aerospace , combat systems and information systems and technology groups . 29 review of 2015 vs. 2014 replace_table_token_11_th we realized top-line revenue growth in 2015 driven primarily by higher ship construction and engineering activity in our marine systems group and additional deliveries of g650 aircraft in our aerospace group . revenue was down slightly in our combat systems and information systems and technology groups . operating costs and expenses increased less than revenue in 2015 , resulting in a 70 basis-point increase in consolidated operating margin compared with 2014. operating margin improved in the aerospace , combat systems and information systems and technology groups . review of business groups replace_table_token_12_th * corporate operating results consist primarily of stock option expense . following is a discussion of operating results for each of our business groups . for the aerospace group , results are analyzed for specific types of products and services , consistent with how the group is managed . for the defense groups , the discussion is based on the lines of products and services each group offers with a supplemental discussion of specific contracts and programs when significant to the group 's results . additional information regarding our business groups can be found in note q to the consolidated financial statements in item 8. aerospace review of 2016 vs. 2015 replace_table_token_13_th 30 the change in the aerospace group 's revenue in 2016 consisted of the following : aircraft manufacturing , outfitting and completions $ ( 548 ) aircraft services 54 pre-owned aircraft 5 total decrease $ ( 489 ) aircraft manufacturing , outfitting and completions revenue decreased in 2016 due primarily to a planned reduction in green and outfitted deliveries of g550 and g450 large-cabin and g280 mid-size aircraft , offset partially by additional deliveries of the ultra-large-cabin g650 aircraft . aircraft services revenue increased in 2016 driven by higher demand for maintenance work and the acquisition of an aircraft management and charter services provider in 2016 . we had one additional pre-owned aircraft sale in 2016 compared with 2015 ( eight versus seven ) . the change in the group 's operating earnings in 2016 consisted of the following : aircraft manufacturing , outfitting and completions $ ( 57 ) aircraft services 63 pre-owned aircraft ( 6 ) g & a/other expenses 12 total increase $ 12 operating earnings were up slightly in 2016 compared with 2015 despite the top-line decrease in revenue . story_separator_special_tag aircraft manufacturing , outfitting and completions earnings were down due to fewer green and outfitted aircraft deliveries and the absence of a supplier settlement received in 2015 , offset partially by favorable cost performance . the group 's aircraft services operating earnings were particularly strong in 2016 due to a favorable mix of work and improved labor efficiencies . in addition , g & a expenses were lower as a result of cost savings initiatives . in 2016 , the group 's operating margin increased 120 basis points to a record-high 20.5 percent . the margin expansion was driven primarily by ongoing cost savings initiatives and improved operating performance across the group . review of 2015 vs. 2014 replace_table_token_14_th the aerospace group 's revenue and earnings increased in 2015 due primarily to additional deliveries of g650 aircraft . operating earnings in 2015 were affected favorably by a supplier settlement associated with aircraft component design and delivery delays . additionally , the group 's services performance reflected a favorable mix of work . partially offsetting these increases , the group 's performance was impacted by slightly 31 higher net r & d expenses associated with ongoing product-development efforts . overall the aerospace group 's operating margin increased 70 basis points to 19.3 percent in 2015. combat systems review of 2016 vs. 2015 replace_table_token_15_th the change in the combat systems group 's revenue in 2016 consisted of the following : international military vehicles $ ( 69 ) u.s. military vehicles 33 weapons systems and munitions ( 2 ) total decrease $ ( 38 ) the transition from engineering to production on a major combat-vehicle contract in the middle east and the timing of work on the group 's contract to upgrade and modernize lav iii combat vehicles for the canadian army resulted in lower revenue on our international military vehicle programs in 2016 . this decrease was offset largely by higher volume on the stryker program to upgrade vehicles with a 30-millimeter cannon . translation of our international businesses ' revenue into u.s. dollars in 2016 has been affected negatively by foreign currency exchange rate fluctuations , continuing a recent trend we have been experiencing . in 2016 , the translation impact was due primarily to the strengthening of the u.s. dollar against the canadian dollar and british pound . had foreign currency exchange rates in 2016 held constant from 2015 , revenue in the combat systems group would have increased 1.5 percent over 2015 . the combat systems group 's operating margin increased 70 basis points in 2016 driven by favorable contract mix and improved operating performance . review of 2015 vs. 2014 replace_table_token_16_th revenue decreased in 2015 due primarily to lower revenue from u.s. military vehicles and weapons systems and munitions . in 2015 , revenue from u.s. military vehicles declined as a result of the completion of the ground combat vehicle ( gcv ) design and development program , offset partially by a ramp-up in work on the stryker engineering change proposal ( ecp ) upgrade program . weapons systems and munitions revenue decreased in 2015 due primarily to lower volume of hydra-70 rockets and decreased ammunition production for u.s. allies . 32 the combat systems group 's operating margin increased 60 basis points in 2015 reflecting the group 's strong operating performance and cost cutting across the business , including reduced overhead costs following restructuring activities completed in 2014. information systems and technology review of 2016 vs. 2015 replace_table_token_17_th the change in the information systems and technology group 's revenue in 2016 consisted of the following : replace_table_token_18_th c4isr solutions revenue increased in 2016 due to higher volume across the business , including the warfighter information network-tactical ( win-t ) mobile communications network program and several programs in canada and the united kingdom . revenue decreased in 2016 in our it services business driven by lower volume on our health solutions programs , including decreased contact-center services work for the centers for medicare & medicaid services . operating margin increased 70 basis points in 2016 . this margin expansion was driven primarily by strong program performance and favorable contract mix across our portfolio . the group also continued to benefit from the 2015 consolidation of two of our businesses to form general dynamics mission systems . operating earnings in 2015 included a gain of $ 23 on the sale of a commercial cyber security product business . excluding the impact of this gain on the prior-year period , the group 's operating margin increased 100 basis points in 2016 . review of 2015 vs. 2014 replace_table_token_19_th in 2015 , revenue was down across the information systems and technology group . it services revenue decreased due to lower volume on several programs , including our commercial wireless work . revenue decreased slightly in our c4isr solutions business due in part to lower volume on the handheld , manpack and small form fit ( hms ) radio program . despite the revenue decline , the group 's operating margin increased 150 basis points in 2015 driven primarily by improved program performance and rightsizing across the group , including the favorable impact from the 2015 consolidation of businesses discussed previously . operating earnings in 2015 also included the $ 23 gain on the sale of a commercial cyber security product business . 33 marine systems review of 2016 vs. 2015 replace_table_token_20_th the change in the marine systems group 's revenue in 2016 consisted of the following : u.s. navy ship engineering , repair and other services $ 246 u.s. navy ship construction 157 commercial ship construction ( 214 ) total increase $ 189 revenue from u.s. navy ship engineering , repair and other services increased in 2016 due to additional development work on the columbia-class submarine program , offset partially by lower volume for u.s. navy repair work .
| military vehicle services revenue decreased due primarily to the completion of the gcv design and development program . service operating costs decreased in 2015 due primarily to lower volume on the programs described above , as well as cost-reduction efforts in the information systems and technology group . g & a expenses as a percentage of revenue , g & a expenses were 6.2 percent in 2016 and 2015 and 6.4 percent in 2014 . g & a expenses in 2014 included $ 29 of severance-related charges in our european military vehicles business in the combat systems group . we expect g & a expenses in 2017 to be generally consistent with 2016 . interest , net net interest expense was $ 91 in 2016 , $ 83 in 2015 and $ 86 in 2014 . we expect full-year 2017 net interest expense to be approximately $ 110 , up from 2016 due primarily to a $ 500 net increase in long-term debt beginning in the third quarter of 2016 and less interest income on lower cash balances . 36 provision for income tax , net our effective tax rate was 27.6 percent in 2016 , 27.7 percent in 2015 and 29.7 percent in 2014 . the effective tax rate in 2016 was favorably impacted by increased international activity and the adoption of accounting standards update ( asu ) 2016-09. for further discussion of the adoption of asu 2016-09 , see note a to the consolidated financial statements in item 8. the decrease in the effective tax rate in 2015 from 2014 was due primarily to the favorable impact of contract close-outs in 2015 . for further discussion and a reconciliation of our effective tax rate from the statutory federal rate , see note e to the consolidated financial statements in item 8. for 2017 , we anticipate a full-year effective tax rate of approximately 28 percent . discontinued operations , net of tax in 2013 , we settled litigation
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to support these requirements , the existence of the following items must be satisfied : 1. the contract or other evidence provides a legal basis for the claim ; or a legal opinion has been obtained , stating that under the circumstances there is a reasonable basis to support the claim ; 2. additional costs are caused by circumstances that were unforeseen at the contract date and are not the result of deficiencies in the contractor 's performance ; 3. costs associated with the claim are identifiable or otherwise determinable and are reasonable in view of the work performed ; and 4. the evidence supporting the claim is objective and verifiable , not based on management 's feel for the situation or on unsupported representations . revenues in excess of contract costs incurred on claims are recognized when an agreement is reached with customers as to the value of the claims , which in some instances may not occur until after completion of work under the contract . costs associated with claims are included in the estimated costs to complete the contracts and are treated as project costs when incurred . our contracts generally take 12 to 36 months to complete . the company generally provides a one to two-year warranty for workmanship under its contracts when completed . warranty claims historically have been insignificant . the accuracy of our revenue and profit recognition in a given period is dependent on the accuracy of our estimates of the revenues and costs to finish uncompleted contracts . our estimates for all of our significant contracts use a highly detailed “ bottom up ” approach . however , our projects can be highly complex , and in almost every case , the profit margin estimates for a contract will either increase or decrease to some extent from the amount that was originally estimated at the time of bid . because we have a large number of projects of varying levels of size and complexity in process at any given time , these changes in estimates can sometimes offset each other without materially impacting our overall profitability . however , large changes in revenue or cost estimates can have a significant effect on profitability . there are a number of factors that can contribute to changes in estimates of contract cost and profitability . the most significant of these include the completeness and accuracy of the original bid , recognition of costs associated with scope changes , extended overhead due to customer-related and weather-related delays , subcontractor and supplier performance issues , site conditions that differ from those assumed in the original bid ( to the extent contract remedies are unavailable ) , the availability and skill level of workers in the geographic location of the project and changes in the availability and proximity of materials . the foregoing factors , as well as the stage of completion of contracts in process and the mix of contracts at different margins , may cause fluctuations in gross profit between periods , and these fluctuations may be significant . results for 2015 , 2014 and 2013 were adversely affected by revisions to estimated profitability on a number of construction projects . see “ recent developments ― financial results for 2015 , operational issues and outlook for 2016 financial results ” above and “ results of operations ― fiscal year ended december 31 , 2015 compared with fiscal year ended december 31 , 2014 ” for further discussion of the impact on our financial results . contracts receivable , including retainage . contracts receivable are generally based on amounts billed to the customer and currently due in accordance with our contracts . many of the contracts under which the company performs work contain retainage provisions . retainage refers to that portion of billings made by the company but held for payment by the customer pending satisfactory completion of the project . retainage on active contracts is classified as a current asset regardless of the term of the contract and is generally collected within one year of the completion of a contract . at december 31 , 2015 and 2014 , contracts receivable included $ 19.8 million and $ 16.4 million of retainage , respectively , which is being contractually withheld by customers until completion of the contracts . there are certain contracts that are completed in advance of full payment . when the receivable will not be collected within our normal operating cycle , we consider it a long-term contract receivable and it is recorded in “ other assets , net ” in our balance sheet . at december 2015 and 2014 , there was zero and $ 5.0 million recorded , respectively . we considered the credit quality of the borrower to assess the appropriate discount rate to apply and continuously monitor the borrower 's credit quality . 25 as the majority of our construction contracts are entered into with state or municipal government customers , credit risk is minimal . the company ascertains that funds have been appropriated by the governmental project owner prior to commencing work on such projects . while most public contracts are subject to termination at the election of the government entity , in the event of termination the company is entitled to receive the contract price for completed work and reimbursement of termination-related costs . credit risk with private owners is minimized because of statutory mechanics liens , which give the company high priority in the event of lien foreclosures following financial difficulties of private owners . contracts receivable are written off based on individual credit evaluation and specific circumstances of the customer , when such treatment is warranted . there was minimal bad debt expense recorded in 2015 and no bad debt expense recoded in 2014. in 2013 , the company wrote off $ 1.8 million of contracts receivable to bad debt expense which was recorded in “ other operating ( expense ) income , net. ” during 2014 , we recovered $ 1.0 million of this $ 1.8 million . story_separator_special_tag based upon a review of outstanding contracts receivable , historical collection information and existing economic conditions , management has determined that substantially all of contracts receivable at december 31 , 2015 are fully collectible , and accordingly , an immaterial allowance for doubtful accounts against contracts receivable was recorded . valuation of long-lived assets and goodwill . long-lived assets , which include property , equipment and acquired intangible assets , including goodwill , are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . impairment evaluations involve fair values and management estimates of useful asset lives and future cash flows . actual useful lives and cash flows could be different from those estimated by management , and this could have a material effect on operating results and financial position . for the year ended december 31 , 2015 , there were no events or changes in circumstances that would indicate a material impairment of our long-lived assets . for the year ended december 31 , 2014 , there was no impairment of our long-lived assets . goodwill must be tested for impairment at least annually , and we performed our most recent annual impairment test of historical goodwill on october 1 , 2015. based on our one reporting unit , our test indicated there was no impairment of goodwill . see “ segment reporting ” below for further information regarding the determination of our reporting unit . note 8 to the consolidated financial statements discusses the two valuation approaches used by the company to determine the fair value of the company 's equity for purposes of evaluating whether there is an indication of goodwill impairment . these valuation approaches are impacted by a number of factors but the key factors are the company 's stock price , the estimated control premium and our estimated forecast of future cash flows . the valuation approaches contain uncertainty regarding the estimates used . one of the largest uncertainties relates to local , state and government spending which management expects to increase in the upcoming years . there are a number of other uncertainties with respect to our future financial performance that could impact estimated future cash flows . these are discussed in a number of places including “ item 1a . risk factors. ” we determined that the fair value of the company 's equity was approximately 21 % and 13 % above the carrying value of the company 's equity at december 31 , 2015 and 2014 , respectively . at december 31 , 2015 , we had goodwill with a remaining carrying amount of approximately $ 54.8 million . income taxes . deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities . we regularly review our deferred tax assets for recoverability and , where necessary , establish a valuation allowance . valuation allowances are established to reduce deferred tax assets if we determine that it is more likely than not ( e.g. , a likelihood of more than 50 % ) that some or all of the deferred tax assets will not be realized in future periods . to assess the likelihood , we use estimates and judgment regarding our future taxable income , as well as the jurisdiction in which this taxable income is generated , to determine whether a valuation allowance is required . such evidence can include our current financial position , our results of operations , both actual and forecasted results , the reversal of deferred tax liabilities , and tax planning strategies as well as the current and forecasted business economics of our industry . additionally , we record uncertain tax positions at their net recognizable amount , based on the amount that management deems is more likely than not to be sustained upon ultimate settlement with the tax authorities in the domestic and international tax jurisdictions in which we operate . on the basis of our evaluations , at december 31 , 2015 and 2014 , a full valuation allowance was recorded on our net deferred tax assets and we had no material uncertain tax positions . if our estimates or assumptions regarding our current and deferred tax items are inaccurate or are modified , these changes could have potentially material impacts on our earnings . 26 segment reporting . we operate in one segment and have only one reportable segment and one reporting unit component , which is heavy civil construction . in making this determination , the company considered the discrete financial information used by our chief operating decision maker ( “ codm ” ) . based on this approach , the company noted that the codm organizes , evaluates and manages the financial information around each heavy civil construction project when making operating decisions and assessing the company 's overall performance . the service provided by the company , in all instances of our construction projects , is heavy civil construction . furthermore , we considered that each heavy civil construction project has similar characteristics , includes similar services , has similar types of customers and is subject to similar economic and regulatory environments which would allow aggregation of individual operating segments into one reportable segment if multiple operating segments existed . in addition , the company noted that even if our local offices were to be considered separate components of our heavy civil construction operating segment , those components could be aggregated into a single reporting unit for purposes of testing goodwill for impairment because our local offices all have similar economic characteristics and are similar in all of the following areas : · the nature of the products and services — each of our local offices perform similar construction projects — they build , reconstruct and repair roads , highways , bridges , airfields , ports , light rail and water , waste water and storm drainage systems .
| this decrease is primarily attributable to the downward percent-complete revisions made to certain projects in the first quarter of 2015 , largely related to construction projects in texas , combined with the completion of certain large projects in texas which were ongoing in 2014 and a $ 2.8 million out-of-period decrease in revenue that was recorded in the first quarter of 2015 as a result of our first quarter review of projects . gross profit . gross profit decreased $ 3.5 million in 2015 compared with the prior year . gross margin also decreased to 4.6 % in 2015 from 4.8 % in 2014 primarily as a result of the downward percent-complete revisions made to certain projects in the first quarter of 2015 , largely related to construction projects in texas . while there are a number of factors which cause the costs incurred and gross profit realized on our contracts to vary , sometimes substantially , from our original projections , the primary factors which resulted in downward revisions in estimates in 2015 were : · conditions or contract requirements that differed from those assumed in the original bid or contract ; · delays in taking measures to address issues which arose during construction ; and · subcontractor performance issues and vendor material spot shortages which caused project progress delays . we may be entitled to claim proceeds related to customer-caused delays , errors in specification and designs or other causes of unanticipated additional costs related to certain projects ; however , we can not predict the amount of claim proceeds or the timing of the receipt of such proceeds . claims are included in the calculation of revenue when realization is probable and amounts can be reliably determined to the extent costs are incurred . revenues in excess of contract costs incurred on claims are recognized when an agreement is reached with customers as to the value of the claims , which in some instances may not occur until after completion of work under the contract . 28 at december 31 , 2015 , we had approximately 104 contracts-in-progress which were less than 90 % complete of various sizes , of different expected profitability and in various stages of completion . the nearer a contract progresses toward completion , the more visibility we have in refining our estimate
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market conditions the company 's success is sensitive to a number of factors , which include , but are not limited to global energy supply and demand , drilling and well completion activity , customer demand for its advanced technology products , market prices for raw materials and governmental actions . drilling and well completion activity levels are influenced by a number of factors , including the number of rigs in operation and the geographical areas of rig activity . additional factors that influence the level of drilling and well completion activity include : historical , current and anticipated future oil and gas prices ; federal , state and local governmental actions that may encourage or discourage drilling activity ; customers ' strategies relative to capital funds allocations ; weather conditions ; and technological changes to drilling and completion methods and economics . customers ' demand for advanced technology products and services provided by the company are dependent on their recognition of the value of chemistries that : provide differentiation in efficiency and efficacy ; address emerging pathogens ; improve the economics of operations ; and are economically viable , socially responsible and ecologically sound . 27 governmental actions may restrict the future use of hazardous chemicals , including , but not limited to , the following industrial applications : oil and gas drilling and completion operations ; oil and gas production operations ; non-oil and gas industrial solvents ; and epa and fda regulatory changes . the continued impact of covid-19 and subsequent modification of social behavior for hygiene and sanitation products create opportunities for product growth in various forms of sanitizing , surface cleaning and disinfecting products . covid-19 effects and actions in march 2020 , the world health organization declared the outbreak of covid-19 a global pandemic that spread throughout the u.s. and the world . in late 2020 , major pharmaceutical companies developed vaccines and received approval for wide-scale distribution in the u.s. and other countries . the vaccination effort is proceeding in the u.s. and the world . however , variant strains of the virus have emerged , which create additional uncertainty on the extent and the duration of the pandemic . the pandemic negatively impacted the u.s. and global economy , disrupted global supply chains and the domestic and international oil and gas markets , and increased volatility in financial markets . these effects materially and adversely affected , and may continue to materially and adversely affect , the demand for oil and natural gas as well as for the company 's services and products . the company 's ct segment is energy-focused with product lines comprised of specialty chemistries , logistics and technology services . customers of the ct segment include major integrated oil and gas companies , oilfield services companies , independent exploration and production companies , national and state-owned oil companies , and international supply chain management companies . due to customer activity levels in this industry , the company experienced materially reduced revenues and cash flows during 2020. outside the oil and gas sector , the covid-19 pandemic increased demand for certain specialty chemicals , particularly sanitizers , surface cleaners and disinfectants . in 2020 , the company launched a diversified line of fda and epa-compliant sanitizers , surface cleaners and disinfectants for industrial , commercial and consumer use . these products build on the company 's historical expertise in chemistry and leverage its infrastructure , personnel , competencies , supply chain , research and historic consumer market experience . the continued impact of covid-19 and subsequent modification of social behavior in regard to the heightened attention to hygiene and sanitation provide a sustainable yet challenging market to expand the company 's portfolio . the da segment 's largest customer base , the oil and gas midstream market , reduced gathering and infrastructure capital spending in 2020. in addition , the pandemic impacted the da segment due to reduced access to facilities to complete new installations for a portion of the year . as a result , spending for the da segment 's products and services has also been impacted by lower consumer demand . as a result , sales and cash flows were below target for the da segment . during 2020 , the company 's financial results were impacted due to impairment charges . the provision for excess and obsolete inventory included charges for the ct segment and the da segment . see note 6 , “ inventories ” in part ii , item 8 – “ financial statements and supplementary data ” of this annual report . the company recorded an impairment to property , plant and equipment ; intangible assets ; and operating right-of-use assets during the first quarter of 2020. the extended impact of covid-19 contributed to additional impairment charges to goodwill and intangible assets in the third quarter of 2020. see note 9 , “ goodwill ; ” note 10 , “ other intangible assets ; ” and note 11 , “ impairment of fixed , long-lived and intangible assets. ” due to the continuing uncertainties , additional impairments may occur in the future . the company expects the current economic situation to negatively impact the energy sector for an extended period of time , with oil demand recovering during 2021 but not returning to the pre-covid-19 level . any further material covid-19 disruption or significant setback in oil and gas demand arising from a slower economic recovery could negatively impact the 28 company . the uncertain future development of the covid-19 crisis and related implications could materially and adversely affect the company 's business , operations , operating results , financial condition , liquidity and or capital levels . while the full impact of the covid-19 pandemic continues to evolve and the full extent of the impact is not yet known , the company continues to closely monitor the effects of the pandemic on commodity demands , and on its customers , operations and employees . story_separator_special_tag any future development and effects are highly uncertain and can not be predicted , including : the scope and duration of the pandemic ; effectiveness of vaccines ; emergence of new coronavirus variants ; further adverse revenue and net income effects ; impairments ; disruptions to the company 's operations ; third-party providers ' ability to support the company 's operations ; limitations on domestic and international travel for sales , system installations , and support ; customer shutdowns of oil and gas exploration and production ; the effectiveness of work from home arrangements ; modifications to work schedules , including manufacturing shifts ; impacts on employees from illness , school closures and other community response measures ; any actions taken by governmental authorities and other third parties in response to the pandemic ; and temporary closures of the company 's facilities or the facilities of its customers and suppliers . the pandemic caused the company to alter its business working practices , including work schedules , manufacturing shifts , employee travel , work locations , meetings and participation in events and conferences . in addition , the company and most of its customers continued the practice of social distancing and work-from-home procedures , which have had , and may continue to have , an impact on the ability of employees and management of the company to communicate and work efficiently . there is no certainty that these actions will mitigate risks posed by the virus to the company 's workforce . the company 's ct segment focused on development of competitively priced product lines that are responsive to the current market including well bore protection and damage mitigation products as the domestic market has shifted to shutting in wells . in response to a forecasted reduction in capital available to customers for drilling with a shift to optimizing existing infrastructure , the company initiated several efforts to use specialty chemicals to improve enhanced oil recovery . the company has also leveraged its international footprint in the middle east to include unconventional , conventional , and enhanced oil recovery programs . the ct segment used its expertise in specialty chemistry , existing chemistry infrastructure and facilities , and historical consumer market experience to launch a product line of sanitizers , surface cleaners and disinfectants , as discussed above . the company believes these new products slot into the premium market and will be competitive over the long-term . the company has also made changes to its executive team to align with its growth focus . the company has also focused on the continuing needs of customers and the market to diversify its business and accelerate growth through deployment of capital , with an emphasis on digital transformation in the oil and gas markets . on may 18 , 2020 , the company closed the acquisition of jp3 , which gives the company access to the midstream and downstream markets and diversifies exposure to volatility in the upstream sector . in addition to increasing market share , the da segment is pursuing product enhancements that enable growth opportunities with current and prospective customers . in response to market conditions and anticipating ongoing volatility , the company reduced its cost structure in 2020 to meet anticipated market activity and reduce the company 's break-even level . among other cost-cutting and cash preservation initiatives : the company 's ceo , john w. gibson , jr. , reduced his base salary by 20 % , and each of the other executive officers reduced his or her salary by 10 % , through december 31 , 2020 , in exchange for restricted stock , effective as of april 1 , 2020 . 29 the board of directors of the company approved a 20 % reduction in the fees to be paid to the directors , effective as of april 1 , 2020. the company consolidated office space by moving all employees at its corporate headquarters into its global research and innovation center in houston , texas and buying out the remaining term of the corporate headquarters lease for a significant discount , with the move completed by the end of june 2020. the company reduced overall headcount by 35 % on march 30 , 2020. additionally , the company reduced the headcount of the da segment by 35 % in october 2020. the company decreased discretionary spending across all business operations . outlook for 2021 the covid-19 pandemic negatively impacted the u.s. and global economy , disrupted global supply chains and the domestic and international oil and gas markets , and increased volatility in financial markets . while market prices for west texas intermediate and brent crude oil rebounded from lows during the initial months of the pandemic in 2020 to exceed $ 50 per barrel in early 2021 , many major integrated oil and gas companies and independent oil and gas companies announced reductions in their 2021 budgets , though such budgets may change if crude oil prices increase . uncertainty exists about the extent and the duration of the resulting industry contraction and consolidation . in addition , the oilfield services industry remains over supplied and timing on returns to pre-pandemic pricing levels remains uncertain . climate change continues to be a focus , as investors are increasingly scrutinizing companies linked to the oil and gas industry through environmental , social and corporate governance factors to promote clean energy and sustainability . in addition , the impact of the actions of the new presidential administration and congress on the economy and financial markets is uncertain in the current year and longer term . during his first month in office , the president signed many executive orders , including ones with implications for stakeholders in the energy industry , suc h as canceling the keystone xl pipeline and another for the u.s. to rejoin the paris agreement on climate change .
| for the fourth quarter of 2020 , revenue was $ 1.3 million , an increase of $ 0.6 million over the third quarter of 2020 , driven primarily by increased equipment sales . segment revenue for 2020 , and the third quarter in particular , was adversely impacted by economic and covid-19 related factors , as demand in the oil and gas sector declined due to capital spending reductions across our customer base . the loss from operations for the period may 18 to december 31 , 2020 , includes write-downs to goodwill of $ 11.7 million and $ 12.5 million for finite-lived intangible assets in the third quarter . in addition , the third quarter of 2020 included charges for excess and obsolete inventory of $ 3.9 million . results for the period may 18 to december 31 , 2020 , also include $ 2.7 million of expense for the jp3 stock performance earn-out provisions related to the purchase of jp3 . capital resources and liquidity overview the company 's ongoing capital requirements relate to the need to acquire and maintain equipment , fund working capital requirements and when the opportunities arise , to make strategic acquisitions . during the year ended december 31 , 2020 , the company funded capital requirements primarily with cash on hand , which included a tax refund received of $ 6.1 million , combined with investing and financing cash inflows that included proceeds of $ 9.9 million received from escrow in 2020 from the 2019 sale of the cict segment and proceeds from a payroll protection program loan of $ 4.8 million . d uring the second quarter of 2020 , the company acquired jp3 , making payments for the acquisition of $ 26.3 million , net of cash acquired . during the third quarter of 2020 , the first stock performance target related to the acquisition was achieved and in october 2020 , the company paid $ 2.5 million into escrow to settle the liability . cash and cash equivalents totaled $ 38.7 million at december 31
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we provided warranties on our inverter products for five to ten years and also provided the option to purchase additional warranty coverage up to 20 years . the product warranty expense accrued related to our standard inverter product warranties is now considered part of our discontinued operations and is recorded as such on our consolidated balance sheets . see note 4. discontinued operations in item 8 `` financial statements and supplementary data '' for more information on our discontinued operations and note 15. warranties in item 8 `` financial statements and supplementary data '' for more information on our warranties from continuing operations . we estimate the anticipated costs of repairing our products under such warranties based on the historical costs of the repairs . the assumptions we use to estimate warranty accruals are reevaluated periodically , in light of actual experience , and when appropriate , the accruals are adjusted . should product failure rates differ from our estimates , actual costs could vary significantly from our expectations . goodwill , intangible and other long-lived assets as a result of our acquisitions , we recorded goodwill and intangible assets . goodwill and indefinite-lived intangible assets are subject to annual impairment testing , as well as testing upon the occurrence of any event that indicates a potential impairment . the annual impairment test can be performed using an assessment of qualitative factors in determining if it is more likely than not that goodwill is impaired . if this assessment indicates that it is more likely than not that goodwill is impaired , then the next step of impairment testing compares the fair value of a reporting unit to its carrying value . goodwill would be impaired if the resulting implied fair value of goodwill was less than the recorded carrying value of the goodwill . finite-lived intangible assets and other long-lived assets are subject to an impairment test if there is an indicator of impairment . when we determine that the carrying value of intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment , we use the projected undiscounted cash flow method to determine whether an impairment exists , and then measure the impairment using discounted cash flows and other fair value measurements . the carrying value and ultimate realization of these assets is dependent upon our estimates of future earnings and benefits that we expect to generate from their use . if our expectations of future results and cash flows are significantly diminished , intangible assets , long-lived assets , and goodwill may be impaired and the resulting charge to operations may be material . additionally , the estimation of useful lives and expected cash flows require us to make significant judgments regarding future periods that are subject to some factors outside of our control . changes in these estimates could result in significant revisions to our carrying value of these assets and may result in material charges to our results of operations . in 2018 , we performed an assessment of qualitative factors for our annual impairment test of the goodwill . the factors reviewed included macroeconomic conditions , industry and market conditions , cost factors , and overall financial performance . this assessment resulted in the conclusion that there was no impairment of goodwill in 2018 . income taxes we are subject to income taxes in the united states and numerous foreign jurisdictions . significant judgment is required in determining our provision for income taxes and income tax assets and liabilities , including evaluating uncertainties in the application of accounting principles and complex tax laws . we record a provision for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method . under this method , we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities , as well as for operating loss and tax credit carryforwards . deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled . we calculate tax expense consistent with intraperiod tax allocation methodology resulting in an allocation of current year tax expense/benefit between continuing operations and discontinued operations . we record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized . we recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position . although we believe that we have adequately reserved for our uncertain tax positions , we can provide no assurance that the final tax outcome of these matters will not be materially different . we make adjustments to these reserves when facts and circumstances change , such as the closing of a tax audit or the refinement of an estimate . to the extent that the final tax outcome of these matters is different than the amounts recorded , such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and operating results . the provision for income taxes includes the effects of any reserves that we believe are appropriate , as well as the related net interest and penalties . for more details see note . 5 income taxes in item 8 `` financial statements and supplementary data . '' 29 on december 22 , 2017 , the u.s. enacted the tax act into law . due to the complexity and scope of the tax act , the sec issued sab 118 , which provided for a one-year measurement period from the date of enactment in which to complete the associated tax analysis . story_separator_special_tag this analysis included finalization of the transition tax , re-measuring our u.s. deferred tax assets and liabilities based on the reduction of the corporate income tax rate to 21 % , as well as reassessing our indefinite reinvestment position . the analysis of the impact of the tax act was completed within the sab 118 measurement period and are included in the results of operations as of december 31 , 2018. business environment and trends semiconductor market the semiconductor market is being driven by the rapid adoption of solid-state drives ( ssd ) deploying the latest 3d-nand memory devices and a ramp of advanced logic devices at the 10nm technology node . the industry 's transition to 3d memory devices and advanced logic is generating increasing demand for rf power supplies , matches and accessories . the growing number of steps associated with the deposition and etch processes is driving an increase in the number of process chambers per fab and higher content of more advanced power solutions per chamber . as etching processes become more challenging due to increasing aspect ratios in advanced 3d devices , more advanced rf technology that includes pulsing and increased control and instrumentation is needed . we are capitalizing on these trends and providing a broader range of more complex combinations of rf power and frequencies and launching more capable matching networks to manage and control the delivered power . during the year , we acquired trek and lumasense , which increased our presence in the electrostatic chuck , electrostatic sensor , and temperature measurement applications for the semiconductor market . investment in semiconductor capital equipment remained strong during the first half of 2018 , following 2017 where investment in semiconductor capital equipment increased approximately 30 % . during the second half of 2018 , we began to see a pause in the semiconductor capital equipment market that continued through the end of 2018. in the fourth quarter the decline accelerated as the semiconductor market was impacted by slowing growth in end market demand for semiconductor devices , digestion of equipment capacity , and uncertainty around trade policies and global economic growth . our business is further impacted by inventory reductions in both semiconductor devices and finished goods inventory at our customers . it is difficult to determine when or if overall market investment in semiconductor capital equipment will return to 2017 levels . industrial technology markets customers in the industrial capital equipment market incorporate our industrial process power and applied power products into a wide variety of equipment used in applications such as thin films , advanced material fabrication , and analytical instrumentation . in industrial technology applications , we remain focused on taking our products into new applications and world regions , increasing our penetration into asia , europe and north america . in 2018 , we made gains across an array of industries . demand for our products used in many industrial thin film coating and specialty power markets increased , particularly in manufacturing areas for products such as solar panels , consumer device coatings , flat panel displays and analytical instrumentation . the flat panel display market showed continued strength with the ongoing ramp of oled mobile screen capacity . our thermal process control and measurement instruments are also making gains in north america , where we have focused for regional expansion . our acquisition of lumasense further expanded our presence in pyrometry and other temperature measurement applications and our acquisition of trek added electrostatic measurement capability for industrial production and energy applications . results of continuing operations our analysis presented below is organized to provide the information we believe will facilitate an understanding of our historical performance and relevant trends going forward , and should be read in conjunction with our consolidated financial statements , including the notes thereto , in item 8 `` financial statements and supplementary data '' of this annual report on form 10-k. advanced energy is organized as a single business unit , which principally serves oem and end customers in the semiconductor and industrial technologies capital equipment markets with power generation , conversion , measurement and control solutions . as of december 31 , 2015 we discontinued our inverter products manufacturing and sales . all prior periods disclosed have been recast to reflect our continuing operations . results of discontinued operations are reflected as `` income ( loss ) from discontinued operations , net of income taxes '' in our consolidated statements of operations . see note 4. discontinued operations in item 8 `` financial statements and supplementary data . '' 30 the following table sets forth , for the periods indicated , certain data derived from our consolidated statements of operations ( in thousands ) : replace_table_token_2_th the following table sets forth , for the periods indicated , the percentage of sales represented by certain items reflected in our consolidated statements of operations ( in thousands ) : replace_table_token_3_th sales , net the following tables summarize annual sales and percentages of sales , by product line , for each of the years ended 2018 , 2017 and 2016 ( in thousands ) : replace_table_token_4_th replace_table_token_5_th 31 operating expense the following table summarizes our operating expense as a percentage of sales for the years ended december 31 , 2018 , 2017 and 2016 ( in thousands ) : replace_table_token_6_th 2018 results compared to 2017 sales total sales for the year ended december 31 , 2018 increased 7.1 % to $ 718.9 million from $ 671.0 million for the year ended december 31 , 2017 . the increase in sales was primarily due to demand in the first half of the year for our products used in the semiconductor capital equipment market as well as growth in the industrial and service markets we serve .
| global service sales increased 26.3 % to $ 92.4 million from $ 73.1 million in 2016. increased global service sales was due to share gains as well as growth in our installed product base . despite this growth , global support revenue as a percentage of total sales decreased to 13.8 % in 2017 from 15.1 % in 2016 , due to the strong growth in sales in our semiconductor market . sales to applied materials inc. and lam research , our two largest customers , increased $ 109.6 million to $ 380.1 million , and 56.6 % of sales , in 2017 from $ 270.5 million , and 55.9 % of sales in 2016 . our sales to applied materials inc. and lam research included sales for the semiconductor capital equipment market , as well as industrial capital equipment used in the solar and flat panel display markets . gross profit gross profit increased $ 103.2 million to $ 356.4 million in 2017 from $ 253.1 million in 2016 and is primarily attributed to increased sales volume . gross profit as a percentage of sales in 2017 increased to 53.1 % from 52.3 % in 2016 , due to increased volume as the semiconductor capital equipment market remains strong and favorable product mix . gross profit from our 2017 acquisition of excelsys was $ 3.1 million , which included $ 0.1 million related to purchased gross profit . operating expense research and development we perform research and development of products for new or emerging applications , technological changes to provide higher performance , lower cost , or other attributes that we expect to advance our customers ' products . we believe that continued development of technological applications , as well as enhancements to existing products to support customer requirements , are critical for us to compete in the markets we serve . accordingly , we devote significant personnel and financial resources to the development of new products and the enhancement of existing products , and we expect these investments to continue . research and
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ppg 's management considers this information useful in providing insight into the company 's ongoing performance because it excludes the impact of items that can not reasonably be expected to recur on a quarterly basis or that are not attributable to our primary operations . net income from continuing operations , earnings per diluted share from continuing operations and the effective tax rate from continuing operations adjusted for these items are not recognized financial measures determined in accordance with u.s. generally accepted accounting principles ( “ u.s . gaap ” ) and should not be considered a substitute for net income , earnings per diluted share , the effective tax rate or other financial measures as computed in accordance with u.s. gaap . in addition , adjusted net income , adjusted earnings per diluted share from continuing operations and the adjusted effective tax rate from continuing operations may not be comparable to similarly titled measures as reported by other companies . income before income taxes from continuing operations is reconciled to adjusted income before income taxes from continuing operations , the effective tax rate from continuing operations is reconciled to the adjusted effective tax rate from continuing operations and net income from continuing operations ( attributable to ppg ) and earnings per share – assuming dilution ( attributable to ppg ) are reconciled to adjusted net income from continuing operations ( attributable to ppg ) and adjusted earnings per share – assuming dilution below : replace_table_token_8_th ( $ in millions , except percentages and per share amounts ) income before income taxes tax expense effective tax rate net income from continuing operations ( attributable to ppg ) earnings per diluted share ( 2 ) year-ended december 31 , 2018 as reported , continuing operations $ 1,693 $ 353 20.9 % $ 1,323 $ 5.40 includes : net tax benefit related to u.s. tax cuts and jobs act — 13 n/a ( 13 ) ( 0.05 ) charges related to customer assortment changes 18 4 24.3 % 14 0.05 charges related to environmental remediation and other costs 77 19 24.3 % 58 0.24 net charges related to business restructuring-related costs ( 1 ) 75 22 29.3 % 53 0.21 charges related to litigation matters 24 5 24.3 % 19 0.08 charges related to acquisition-related costs ( 3 ) 6 2 25.5 % 4 0.02 charge related to brand rationalization 6 2 26.8 % 4 0.02 gain from the sale of a non-operating asset ( 26 ) ( 6 ) 24.3 % ( 20 ) ( 0.08 ) charge related to impairment of a non-manufacturing asset 9 2 24.3 % 7 0.03 adjusted , continuing operations , excluding certain items $ 1,882 $ 416 22.1 % $ 1,449 $ 5.92 ( 1 ) included in net charges related to business restructuring-related costs , are business restructuring charges , accelerated depreciation of certain assets and other related costs , offset by releases related to previously approved programs . ( 2 ) earnings per diluted share is calculated based on unrounded numbers . figures in the table may not recalculate due to rounding . ( 3 ) acquisition-related costs include advisory , legal , accounting , valuation , and other professional or consulting fees incurred to effect acquisitions . these costs are included in selling , general and administrative expense in the consolidated statement of income . acquisition-related costs also include the impact for the step up to fair value of inventory acquired in certain acquisitions which are included in cost of sales , exclusive of depreciation and amortization in the consolidated statement of income . 22 2019 ppg annual report and 10-k performance of reportable business segments performance coatings replace_table_token_9_th performance coatings net sales decreased slightly due to the following : ● unfavorable foreign currency translation ( -3 % ) ● lower sales volumes ( -1 % ) partially offset by : ● higher selling prices ( +2 % ) ● acquisition-related sales ( +1 % ) for the full year 2019 , ppg achieved higher selling prices across all businesses , reflecting the value of our products and services , offset by unfavorable foreign currency translation in all businesses . architectural coatings - americas and asia pacific net sales decreased by a mid-single-digit percentage versus the prior year . the unfavorable impact from customer assortment changes in the u.s. architectural diy channel negatively impacted sales volumes . the u.s. and canada company-owned stores network net sales decreased slightly compared to the prior year . the ppg-comex architectural coatings businesses had slightly higher net sales , excluding the impact of foreign currency translation and acquisitions ( organic sales ) , and continued to benefit from the opening of a net of approximately 160 new concessionaire locations . net sales in asia pacific were negatively impacted by unfavorable foreign currency translation . architectural coatings - emea net sales decreased by a mid-single-digit percentage due to unfavorable foreign currency translation ; however , organic sales increased by a low-single-digit percentage year-over-year driven by higher selling prices . despite volume growth in certain key countries , sales volumes were lower year-over-year . automotive refinish coatings net sales were relatively flat versus the prior year including the increase in net sales from the sem acquisition . sales volumes were impacted by softer u.s. industry demand evidenced by lower collision claims during the year . organic sales increased in all other major geographic regions as customers continued to adopt ppg 's industry-leading technologies . aerospace coatings net sales increased by over 10 % versus the prior year , driven by higher sales volumes . this increase was supported by market outperformance in all major platforms stemming from technology-advantaged products and robust industry demand . protective and marine coatings increased net sales by a mid-single-digit percentage versus the prior year , driven by strong sales volumes in china and europe and price gains in each region . net sales in the u.s. were negatively impacted by reduced activity in the oil and gas sector . story_separator_special_tag segment income increased $ 109 million year-over-year due to higher selling prices and the continued benefits from the company 's ongoing restructuring programs . these benefits were partially offset by the earnings impact of lower sales volumes , which were mostly attributable to the previously announced customer assortment changes , and other cost inflation . additionally , unfavorable foreign currency translation decreased segment income by approximately $ 25 million , primarily related to the weakening of key currencies , including the mexican peso and euro . looking ahead looking ahead , industry demand levels in the first quarter of 2020 are expected to be similar to those experienced in the fourth quarter of 2019. acquisitions are forecasted to add about $ 25 million of net sales primarily from dexmet , texstars , and icr . in addition , net sales will be impacted due to lower production rates by an aerospace customer . based on current exchange rates , foreign currency translation is not expected to have a material impact on segment sales or earnings . 2019 ppg annual report and form 10-k 23 industrial coatings replace_table_token_10_th industrial coatings segment net sales decreased due to the following : ● lower sales volumes ( -6 % ) ● unfavorable foreign currency translation ( -3 % ) partially offset by : ● acquisition-related sales ( +4 % ) ● higher selling prices ( +2 % ) for the full year 2019 , ppg achieved higher selling prices in all major regions for nearly all businesses , reflecting the value of our products and services , offset by unfavorable foreign currency translation in all businesses . in the automotive oem coatings business , net sales decreased by a mid-single-digit percentage driven by lower sales volumes versus the prior year , consistent with the overall global industry automotive build rate . partially offsetting the lower sales volumes were acquisition-related sales from the hemmelrath acquisition and higher selling prices in all major regions . industrial coatings net sales increased slightly versus the prior year , despite lower sales volumes due to weakening global manufacturing demand for certain end-use products . lower sales volumes were more than offset by acquisition-related sales from the whitford acquisition . packaging coatings net sales decreased by a mid-single-digit percentage due to lower sales volumes versus the prior year . year-over-year volumes were impacted by lower demand in packaged foods . however , sales volumes increased in latin america due to customer conversions in the region during the year . specialty coatings and materials net sales were lower by a low-single-digit percentage versus the prior year , despite sales volume growth in the u.s. and emea . segment income increased $ 44 million year-over-year . segment income benefited from improving selling prices , continued benefits from the company 's ongoing restructuring programs and acquisition-related income , which were partially offset by the earnings impact of lower sales volumes and other cost inflation . unfavorable foreign currency translation decreased segment income by approximately $ 20 million , primarily related to the chinese yuan , mexican peso and the euro . looking ahead looking ahead , global industrial demand trends are expected to remain subdued through the first quarter of 2020 , with inconsistencies by region . significant public health issues could have an unfavorable impact in certain industries and regions . the company will continue to prioritize operating margin recovery , focusing on executing its cost savings program and implementing contingency actions where necessary . acquisition-related sales are forecast to add about $ 60 million stemming from whitford and hemmelrath . based on current exchange rates , foreign currency translation is not expected to have a material impact on segment sales or earnings . review and outlook during 2019 , economic conditions were generally positive in all of our major geographic regions despite soft global manufacturing activity that weakened during the year and remained mixed by end-uses . ppg 's net sales excluding foreign currency translation impact grew approximately 1 % versus the prior year . acquisition-related sales from acquisitions completed in 2018 and 2019 contributed 2 % to net sales growth year-over-year , net of dispositions . foreign currency translation was unfavorable throughout the year and impacted net sales by about 3 % . raw material costs moderated during the year , but remain elevated after a multi-year inflationary period . some other key costs continued to increase in 2019 such as employee wage and benefit costs . u.s. and canada during 2019 , the pace of economic growth moderated in the u.s. and canada versus the prior year , led by weaker u.s. gdp growth . automotive oem industry builds were relatively flat compared to 2018. demand in the residential and commercial construction markets was modestly higher in 2019 compared to 2018. new home starts advanced approximately 2 % in 2019 versus approximately 4 % in 2018. residential remodeling was down 2 % in 2019 versus 2018 , while commercial construction was down approximately 4 % compared to flat in 2018. market demand for architectural paint continued to shift more to professional trade painters as continued lower u.s. unemployment resulted in consumers choosing professional painters 24 2019 ppg annual report and 10-k rather than completing projects themselves ; although , demand in u.s. do-it-yourself ( diy ) paint stores was stable after several years of weaker trends . ppg 's architectural coatings sales volumes in the u.s. and canada was impacted by diy customer assortment changes that reduced net sales by more than $ 100 million . the aerospace coatings business had above-market sales volume growth of nearly a double-digit percentage year-over-year . the automotive refinish coatings business was impacted by lower collision rates , changes to inventory management by our customers and a continuing trend of a higher number of automobiles in accidents being scrapped rather than being repaired and repainted offsetting modest growth in miles driven . ppg 's packaging coatings business was impacted by lower packaged food demand which offset growth in the packaged beverage segment .
| in management 's opinion , the company operates in an environmentally sound manner and the outcome of the company 's environmental contingencies will not have a material effect on ppg 's financial position or liquidity ; however , any such outcome may be material to the results of operations of any particular period in which costs , if any , are recognized . management anticipates that the resolution of the company 's environmental contingencies will occur over an extended period of time . as also discussed in note 14 , ppg has significant reserves for environmental contingencies . please refer to the environmental matters section of note 14 for details of these reserves . a significant portion of our reserves for environmental contingencies relate to ongoing remediation at ppg 's former chromium manufacturing plant in jersey city , n.j. and associated sites ( `` new jersey chrome '' ) . there are multiple , future events yet to occur , including further remedy selection and design , remedy implementation and execution and applicable governmental agency or community organization approvals . considerable uncertainty exists regarding the timing of these future events for the new jersey chrome sites . further resolution of these events is expected to occur over the next several years . as these events occur and to the extent that the cost estimates of the environmental remediation remedies change , the existing reserve for this environmental remediation matter will continue to be adjusted . liquidity and capital resources during the past two years , ppg had sufficient financial resources to meet its operating requirements , to fund our capital spending , including acquisitions , share repurchases and pension plans and to pay increasing dividends to shareholders . cash and cash equivalents and short-term investments replace_table_token_11_th cash from operating activities - continuing operations ( $ in millions , except percentages ) % change 2019 2018 2019 vs. 2018 cash from operating activities $ 2,084 $ 1,487 40.1 % 2019 vs. 2018 the $ 597 million increase in cash from operating activities - continuing operations was primarily due to favorable changes in working capital , excluding the impact of business acquisitions , and lower cash contributions to its defined benefit pension plans year-over-year . operating working capital operating working capital is
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the accounting policies that we deem most critical to us and involve the most difficult , subjective or complex judgments are as follows : revenue recognition we recognize revenue from a home sale when title passes to the homeowner , the homeowner 's initial and continuing investment is adequate to demonstrate a commitment to pay for the home , the receivable , if any , from the homeowner is not subject to future subordination and we do not have a substantial continuing involvement with the sold home . these conditions are typically achieved when a home closes . revenue from land sales is recognized when a significant down payment is received , the earnings process is relatively complete , title passes and collectability of the receivable is reasonably assured . although there is limited subjectivity in this accounting policy , we have designated revenue recognition as a critical accounting policy due to the significance of this balance in our statements of operations . real estate real estate is stated at cost unless the community or land is determined to be impaired , at which point the inventory is written down to fair value as required by financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 360-10 , property , plant and equipment . inventory includes the costs of land acquisition , land development and home construction , capitalized interest , real estate taxes , direct overhead costs incurred during development and home construction that benefit the entire community , less impairments , if any . land and development costs are typically allocated and transferred to homes under construction when home construction begins . home construction costs are accumulated on a per-home basis . cost of home closings includes the specific construction costs of the home and all related allocated land acquisition , land development and other common costs ( both incurred and estimated to be incurred ) based upon the total number of homes expected to be closed in each community or phase . any changes to the estimated total development costs of a community or phase are allocated to the remaining homes in the community or phase . when a home closes , we may have incurred costs for goods and services that have not yet been paid . therefore , an accrual to capture such obligations is recorded in connection with the home closing and charged directly to cost of sales . typically , an entitled community 's life cycle ranges from three to five years , commencing with the acquisition of the land , continuing through the land development phase and concluding with the sale , construction and closing of the homes . actual community lives will vary based on the size of the community , the absorption rates and whether the land purchased was raw land or finished lots . master-planned communities encompassing several phases and super-block land parcels may have significantly longer lives and projects involving smaller finished lot purchases may be significantly shorter . additionally , the recent slow-down in the housing market negatively impacted our sales pace , which extended the lives of certain of our communities . all of our land inventory and related real estate assets are reviewed for recoverability at least quarterly , or more frequently if impairment indicators are present , as our inventory is considered “ long-lived ” in accordance with gaap . if an asset is deemed not recoverable , we record an impairment charge to the extent the fair value of such asset is less than its carrying amount . our determination of fair value is based on projections and estimates . changes in these expectations may lead to a change in the outcome of our impairment analysis and actual results may also differ from our assumptions . our analysis is completed at a community level with each community or land parcel evaluated individually . we pay particular attention to communities experiencing a larger-than-anticipated reduction in their absorption rates or averages sales prices or where gross margins are trending lower than anticipated . for those assets deemed to be impaired , the impairment to be recognized is measured as the amount by which the assets ' carrying balance exceeds their fair value . the impairment of a community is allocated to each lot on a straight-line basis . existing and continuing communities . when projections for the remaining income expected to be earned from an existing community are no longer positive , the underlying real estate assets are not deemed fully recoverable , and further analysis is performed to determine the required impairment . the fair value of the community 's assets is determined using either a discounted cash flow model for projects we intend to build out or a market-based approach for projects to be sold and the impairments are charged to cost of home closings in the period during which it is determined that the fair value is less than the assets ' carrying amount . if a market-based approach is used , we determine fair value based on recent comparable purchase and sale activity in the local market , adjusted for known variances as determined by our knowledge of the region and general real estate expertise . if a discounted cash flow approach is used , we compute fair value based on a proprietary model . story_separator_special_tag our key estimates in deriving fair value under our cash flow model are ( i ) home selling prices in the community adjusted for current and 29 expected sales discounts and incentives , ( ii ) costs related to the community — both land development and home construction — including costs spent to date and budgeted remaining costs to spend , ( iii ) projected sales absorption rates , reflecting any product mix change strategies implemented to stimulate the sales pace and expected cancellation rates , ( iv ) alternative land uses including disposition of all or a portion of the land owned and ( v ) our discount rate , which is currently 14-16 % and varies based on our perceived risk inherent in the community 's other cash flow assumptions . these assumptions vary widely across different communities and geographies and are largely dependent on local market conditions . community-level factors that may impact our key estimates include : the presence and significance of local competitors , including their offered product type and competitive actions ; economic and related demographic conditions for the population of the surrounding community ; desirability of the particular community , including unique amenities or other favorable or unfavorable attributes ; and existing home inventory supplies , including foreclosures and short sales . these local circumstances may significantly impact our assumptions and the resulting computation of fair value , and are , therefore , closely evaluated by our division personnel in their creation of the discounted cash flow models . the models are also evaluated by regional and corporate personnel for consistency and integration , as decisions that affect pricing or absorption at one community may have resulting consequences for neighboring communities . we typically do not project market improvements in our discounted cash flow models , but may do so in limited circumstances in the latter years of a long-lived community . mothball communities . in certain cases , we may elect to stop development ( mothball ) of an existing community if we believe the economic performance of the community would be maximized by deferring development for a period of time to allow market conditions to improve . when a community is initially placed into mothball status , it is management 's belief that the community is affected by local market conditions that are expected to improve within the next 1 - 5 years . therefore , a temporary postponement of construction and development work is expected to yield better overall future returns . the decision may be based on financial and or operational metrics . if we decide to mothball a community , we will impair it to its fair value as discussed above and then cease future development activity until such a time when management believes that market conditions have improved and economic performance will be maximized . no costs are capitalized to communities that are designated as mothballed . in addition to our quarterly impairment analysis , which is conducted to determine if any current impairments exist , we also conduct a thorough quarterly review of our underperforming and mothballed communities to determine if they are at risk of future impairment . the financial and operational status and expectations of these communities are analyzed as well as any unique attributes that could be viewed as indicators for future impairments . adjustments are made accordingly and incremental impairments , if any , are recorded at each re-evaluation . based on the facts and circumstances available as of december 31 , 2012 , we do not believe that any of our underperforming or mothballed communities will incur material impairments in the future . changes in market and or economic conditions could materially impact the conclusions of this analysis , and there can be no assurances that future impairments will not occur . inventory assessments on inactive assets . for our mothballed communities as well as our land held for future development , our inventory assessments typically include highly subjective estimates for future performance , including the timing of development , the product to be offered , sales rates and selling prices of the product when the community is anticipated to open for sales , and the projected costs to develop and construct the community . we evaluate various factors to develop our forecasts , including the availability of and demand for homes and finished lots within the marketplace , historical , current and future sales trends , and third-party data , if available . based on these factors , we reach conclusions for future performance based on our judgment . option deposits and pre-acquisition costs : we also evaluate assets associated with future communities for impairments on a quarterly basis . using similar techniques described in the existing and continuing communities section above , we determine if the income to be generated by our future communities is acceptable to us . if the projections indicate that a community is still meeting our internal investment guidelines and is generating a profit , those assets are determined to be fully recoverable and no impairments are required . in cases where we decide to abandon the project , we will fully impair all assets related to such project and will expense and accrue any additional costs that we are contractually obligated to incur . in certain circumstances , we may also elect to continue with a project because it is expected to generate positive future cash flows , even though it may not be generating an accounting profit , or because of other strategic factors . in such cases , we will impair our pre-acquisition costs and deposits , as necessary , to record an impairment to bring the book value to fair value . 30 due to the complexity and subjectivity of these fair value computations , as well as the significance of associated impairments to our financial statements in recent years , we have concluded that the valuation of our real-estate and associated assets is a critical accounting policy .
| increased home orders per community in 2012 are largely responsible for the increase in ending 2012 backlog over 2011. our average sales price for homes in backlog increased to $ 325,600 , up 19.7 % from $ 272,000 at december 31 , 2011 , and up 25.5 % from $ 259,400 at december 31 , 2010 primarily due to mix of homes shifting to higher-priced markets and states , more sought-after closer-in locations , and our pricing power in many communities . our cancellation rate on sales orders as a percentage of gross sales decreased in 2012 to 13.2 % down from 17.0 % and 20.9 % , respectively , for the years ended december 31 , 2011 and 2010 , reflecting a high quality backlog and greater confidence among buyers , supported by increasing prices and expectations of further home value appreciation . we believe these positive trends will result in improved operating results in 2013. company actions and positioning as the homebuilding market stabilizes and recovers , we remain focused on our main goals of growing our orders and revenue , generating profit and maintaining a strong balance sheet . to help meet these goals we continued to execute on the following initiatives in 2012 : strengthening our balance sheet - completed a new senior note issuance and debt tender , extending our earliest debt maturities until 2017 and completed a convertible debt transaction at an attractive 1.875 % interest rate ; generating additional working capital and improving liquidity - completed an equity offering and established a revolving credit facility ; continue to actively acquire and develop lots in markets we deem key to our success in order to maintain and grow our lot supply and active community count ; grew controlled lots by 24.5 % ; utilizing our enhanced market research to capitalize on the knowledge of our buyers ' demands in each community , tailoring our pricing , product and amenities offered ; 27 continuing to innovate and promote the meritage green energy efficiency program , where every new home we construct , at a minimum , meets energy star® standards , including the recent construction of the only triple-certified homes in the country , certified by the u.s. environmental protection agency , for indoor air quality , water conservation and
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any future dividends paid from the parent must be set forth as capital actions in the company 's capital plans and not objected to by the federal reserve board before any dividends can be paid . during september 2014 , the bank established a global bank note program under which the bank may from time to time issue senior notes due seven days or more from the date of issue and subordinated notes due five years or more from the date of issue . in 2015 , the bank completed the sale of $ 700 million aggregate principal amount of its 3.875 % unsecured subordinated notes due 2025 under the global bank note program . 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 11 , fhlb and other borrowings , note 12 , shareholder 's equity , and note 16 , commitments , contingencies and guarantees , in the notes to the consolidated financial statements . financial performance consolidated net income attributable to shareholder for 2015 was $ 489.6 million compared to $ 466.6 million earned during 2014 . the increase in net income attributable to shareholder was primarily due to an increase in noninterest income and net interest income as well as a decrease in noninterest expense offset by increases in provision for loan losses and income tax expense . net interest income increased $ 27.5 million to $ 2.0 billion in 2015 compared to 2014 . the net interest margin for 2015 was 2.74 % , a decline of 40 basis points compared to 3.14 % for 2014 . the decrease in net interest margin for 2015 was driven by lower yields on earning assets . in addition , net interest margin was negatively impacted by the increase in the average balance of trading account securities and the increase in the average balance of other short term borrowings primarily due to an increase in u.s. treasury long and short positions held by bsi . the provision for loan losses was $ 193.6 million for 2015 compared to $ 106.3 million for 2014 . net charge-offs for 2015 totaled $ 116.0 million compared to $ 122.0 million for 2014 . provision for loan losses for 2015 was impacted by loan growth during 2015 in the commercial loan portfolios and consumer direct and indirect portfolio as well as a decline in credit quality indicators most notably driven by downgrades in the energy portfolio during 2015. noninterest income was $ 976.5 million for 2015 , an increase of $ 59.1 million compared to 2014 . the increase in noninterest income was largely attributable to an increase of $ 28.6 million in investment securities gains , a $ 17.8 million increase in investment banking and advisory fees and a $ 35.2 million increase in other noninterest income due to a $ 21.1 million gain on the sale of mortgage loans not initially originated for sale in the secondary market as well as a $ 5.6 million increase in servicing fee income . these increases were offset by a $ 9.6 million decrease in asset management fees , a $ 7.7 million increase in net losses on prepayment of fhlb and other borrowings and a $ 6.9 million decrease in retail investment sales . noninterest expense decreased $ 44.3 million to $ 2.1 billion for 2015 compared to 2014 . the lower level of noninterest expense was primarily attributable to a $ 59.9 million decrease in fdic indemnification expense and an $ 11.6 million decrease in amortization of intangibles offset by a $ 7.0 million increase in equipment expense , an $ 8.6 million increase in professional services and a $ 5.8 million increase in marketing . income tax expense was $ 167.5 million for 2015 compared to $ 147.3 million for 2014 . this resulted in an effective tax rate of 25.4 % for 2015 and a 23.9 % effective tax rate for 2014 . the increase in the effective tax rate for 2015 was primarily driven by higher net income before income tax expense relative to permanent income tax differences in 2015 as compared to 2014 and the release of a valuation allowance on net operating losses of bsi during 2014 . 45 while certain key credit quality metrics continue to remain at historically low levels they did indicate some decline during 2015 due to the impact of downgrades in the energy lending portfolio . specifically , nonperforming assets were $ 506.2 million or 0.82 % of total loans and loans held for sale and other real estate , at december 31 , 2015 , an increase of $ 85.8 million compared to december 31 , 2014 . the company 's total assets at december 31 , 2015 were $ 90.0 billion , an increase of $ 6.8 billion from december 31 , 2014 levels . total loans excluding loans held for sale were $ 61.3 billion at december 31 , 2015 , an increase of $ 4.0 billion or 6.9 % from december 31 , 2014 levels . the growth in loans was primarily due to increases in commercial loans and consumer direct and indirect loans . deposits increased $ 4.8 billion or 7.8 % compared to december 31 , 2014 , driven by transaction accounts which increased 7.4 % fueled by savings and money market growth . noninterest bearing demand deposits increased 12.4 % . certificates and other time deposits increased 10.3 % at december 31 , 2015 compared to december 31 , 2014 primarily related to growth in cds due to certain product promotions . total shareholders ' equity at december 31 , 2015 was $ 12.6 billion , an increase of $ 574 million compared to december 31 , 2014 . story_separator_special_tag critical accounting policies 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 ( 1 ) the allowance for loan losses , ( 2 ) fair value of financial instruments , ( 3 ) income taxes and ( 4 ) 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 level sufficient to absorb estimated probable incurred losses in the loan 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 . accounting standards require that loan losses be recorded when management determines it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated . estimates for the allowance for loan losses are determined by analyzing historical losses , historical migration to charge-off experience , current trends in delinquencies and charge-offs , the results of regulatory examinations and changes in the size , composition and risk assessment of the loan portfolio . also included in management 's estimate for the allowance for loan losses are considerations with respect to the impact of current economic events . these events may include , but are not limited to , fluctuations in overall interest rates , political conditions , legislation that may directly or indirectly affect the banking industry and economic conditions affecting specific geographical areas and industries in which the company conducts business . 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 . fair value of financial instruments : a portion of the company 's assets and liabilities is carried at fair value , with changes in fair value recorded either in earnings or accumulated other comprehensive income ( loss ) . these include investment securities available for sale , trading account assets and liabilities , loans held for sale , mortgage servicing assets , and derivative assets and liabilities . periodically , the estimation of fair value also affects investment securities held to maturity when it is determined that an impairment write-down is other than temporary . fair value determination is also relevant for certain other assets such as other real estate owned , which is recorded at the lower of the recorded 46 balance or fair value , less estimated costs to sell . the determination of fair value also impacts certain other assets that are periodically evaluated for impairment using fair value estimates , including goodwill and impaired loans . fair value is generally based upon quoted market prices , when available . if such quoted market prices are not available , fair value is based upon internally developed models that primarily use observable market based parameters as inputs . valuation adjustments may be made to ensure that financial instruments are recorded at fair value . these adjustments may include amounts to reflect counterparty credit quality and the company 's creditworthiness , among other things , as well as other unobservable parameters . any such valuation adjustments are applied consistently over time . while management believes the company 's valuation methodologies are appropriate and consistent with other market participants , the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date . see note 21 , fair value of financial instruments , in the notes to the consolidated financial statements for a detailed discussion of determining fair value , including pricing validation processes . income taxes : the company 's income tax expense , deferred tax assets and liabilities , and reserves for unrecognized tax benefits reflect management 's best assessment of estimated taxes due . the calculation of each component of the company 's income tax provision is complex and requires the use of estimates and judgments in its determination . as part of the company 's evaluation and implementation of business strategies , consideration is given to the regulations and tax laws that apply to the specific facts and circumstances for any tax positions under evaluation . management closely monitors tax developments on both the federal and state level in order to evaluate the effect they may have on the company 's overall tax position and the estimates and judgments used in determining the income tax provision and records adjustments as necessary . deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expenses .
| fee sharing is recorded to allocate portions of such revenue to other business segments involved in selling to , or providing services to , customers . results of operations for the business segments reflect these fee sharing allocations . in addition , the financial results of the business segments include allocations for shared services and operations expenses . 56 net income by business segment is summarized in the following table : replace_table_token_11_th consumer and commercial banking the following table contains selected financial data for the consumer and commercial banking segment : replace_table_token_12_th comparison of 2015 with 2014 net income was $ 568.7 million for 2015 , an increase of $ 115.4 million compared to net income of $ 453.3 million for 2014 primarily driven by an increase in net interest income and noninterest income offset by an increase in the allocated provision for loan losses . net interest income in 2015 increased $ 130.8 million compared to the prior year as a result of an increase in the spread on earning assets due to higher average loan balances . allocated provision for loan losses increased $ 19.8 million from 2014 to 2015 due to growth in the loan portfolio . noninterest income increased $ 42.0 million to $ 743.5 million in 2015 compared to $ 701.5 million in 2014 driven by increases in other fee income of $ 27.6 million and shared revenue and incentive credits associated with deposit growth of $ 13.9 million . comparison of 2014 with 2013 net income was $ 453.3 million for 2014 , an increase of $ 52.6 million compared to net income of $ 400.7 for 2013 . the increase in net income was primarily driven by increases in net interest income and noninterest income offset by increases in the allocated provision for loan losses and noninterest expense . net interest income increased $ 87.7 million compared to the prior year primarily due to an increase in the spread
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if a loan is impaired , a portion of the allowance is allocated so that the loan is reported net at the present value of estimated future cash flows using the loan 's existing rate or at the fair value of collateral if repayment is expected solely from the sale of the collateral . troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan 's effective rate at inception . if a troubled debt restructuring is considered to be a collateral dependent loan , the loan is reported , net , at the fair value of the collateral . for troubled debt restructurings that subsequently default , we determine the amount of reserve in accordance with the accounting policy for the allowance for loan losses . the general component of the allowance for loan losses covers non-impaired loans and is based on historical loss experience adjusted for current factors . the historical loss experience is determined by portfolio and class and is based on the actual loss history experienced by us . this actual loss experience is then adjusted by comparing current conditions to the conditions that existed during the loss history . we consider the changes related to ( i ) lending policies , ( ii ) economic conditions , ( iii ) nature and volume of the loan portfolio and class , ( iv ) lending staff , ( v ) volume and severity of past due , non-accrual , and risk graded loans , ( vi ) loan review system , ( vii ) value of underlying collateral for collateral dependent loans , ( viii ) concentration levels and ( ix ) effects of other external factors . goodwill : goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets . core deposit intangibles : core deposit intangibles are acquired customer relationships arising from whole bank and branch acquisitions . core deposit intangibles are initially measured at fair value and then are amortized over their estimated useful lives using an accelerated method . the useful lives of the core deposits are estimated to generally be between seven and ten years . goodwill and core deposit intangibles are assessed at least annually for impairment and any such impairment is recognized and expensed in the period identified . we have selected december 31 as the date to perform our annual goodwill impairment test . goodwill is the only intangible asset with an indefinite useful life . emerging growth company : pursuant to the jobs act , an emerging growth company is provided the option to adopt new or revised accounting standards that may be issued by the financial accounting standards board ( “ fasb ” ) or the sec either ( i ) within the same periods as those otherwise applicable to non-emerging growth companies or ( ii ) within the same time periods as private companies . we have irrevocably elected to adopt new accounting standards within the public company adoption period . 56 we may take advantage of some of the reduced regulatory and reporting requirements that are available to us so long as the company qualifies as an emerging growth company , including , but not limited to , not being required to comply with the auditor attestation requirements of section 404 ( b ) of the sarbanes-oxley act , reduced disclosure obligations regarding executive compensation , and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments . results of operations we generate most of our revenue from interest income and fees on loans , interest and dividends on investment securities and non-interest income , such as service charges and fees , debit card income and mortgage banking income . we incur interest expense on deposits and other borrowed funds and non-interest expense , such as salaries and employee benefits and occupancy expenses . changes in interest rates earned on interest-earning assets or incurred on interest-bearing liabilities , as well as the volume and types of interest-earning assets , interest-bearing and non-interest-bearing liabilities and stockholders ' equity , are usually the largest drivers of periodic change in net interest income . fluctuations in interest rates are driven by many factors , including governmental monetary policies , inflation , deflation , macroeconomic developments , changes in unemployment , the money supply , political and international circumstances and domestic and foreign financial markets . periodic changes in the volume and types of loans in our loan portfolio are affected by , among other factors , economic and competitive conditions in arkansas , kansas , missouri and oklahoma , as well as developments affecting the consumer , commercial and real estate sectors within these markets . net income year ended december 31 , 2017 compared with year ended december 31 , 2016 net income for the year ended december 31 , 2017 was $ 20.6 million compared to $ 9.4 million for year ended december 31 , 2016. net income allocable to common stockholders was $ 20.6 million for the year ended december 31 , 2017 , compared to $ 9.4 million for the year ended december 31 , 2016 , an increase of $ 11.3 million , or 120.3 % . during the year ended december 31 , 2017 , increases in net interest income of $ 33.4 million and non-interest income of $ 5.0 million were partially offset by $ 20.4 million in higher non-interest expenses and an increase of $ 834 thousand in the provision for loan loss when compared to the year ended december 31 , 2016. the changes in the components of net income are discussed in more detail in the following sections of “ results of operations. story_separator_special_tag ” year ended december 31 , 2016 compared with year ended december 31 , 2015 net income for the year ended december 31 , 2016 was $ 9.4 million compared to $ 10.3 million for year ended december 31 , 2015. net income allocable to common stockholders was $ 9.4 million for the year ended december 31 , 2016 , compared to $ 10.1 million for the year ended december 31 , 2015 , a decrease of $ 750 thousand , or 7.4 % . during the year ended december 31 , 2016 , increases in net interest income of $ 6.3 million , non-interest income of $ 664 thousand and a reduction of $ 928 thousand in the provision for loan loss were offset by $ 8.5 million in higher non-interest expenses when compared to the year ended december 31 , 2015. the changes in the components of net income are discussed in more detail in the following sections of “ results of operations. ” net interest income and net interest margin analysis net interest income is the difference between interest income on interest-earning assets , including loans and securities , and interest expense incurred on interest-bearing liabilities , including deposits and other borrowed funds . to evaluate net interest income , management measures and monitors ( 1 ) yields on loans and other interest-earning assets , ( 2 ) the costs of deposits and other funding sources , ( 3 ) the net interest spread and ( 4 ) net interest margin . net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities . net interest margin is calculated as net interest income divided by average interest-earning assets . because non-interest-bearing sources of funds , such as non-interest-bearing deposits and stockholders ' equity also fund interest-earning assets , net interest margin includes the benefit of these non-interest-bearing sources of funds . net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities , referred to as a “ volume change , ” and it is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds , referred to as a “ yield/rate change. ” 57 the following table shows the average balance of each principal category of assets , liabilities , and stockholders ' equity and the average yields on interest-earning assets and average rates on interest-bearing liabilities for the years ended december 31 , 2017 , 2016 and 2015. the yields and rates are calculated by dividing income or expense by the average daily balances of the associated assets or liabilities . average balance sheets and net interest analysis replace_table_token_6_th ( 1 ) average loan balances include nonaccrual loans , hedge fair value adjustments and merger fair value adjustments . ( 2 ) net interest margin is calculated by dividing net interest income by average interest-earning assets for the period . ( 3 ) tax exempt income is not included in the above table on a tax equivalent basis . ( 4 ) actual unrounded values are used to calculate the reported yield or rate disclosed . accordingly , recalculations using the amounts in thousands as disclosed in this report may not produce the same amounts . 58 increases and decreases in interest income and interest expense result from changes in average balances ( volume ) of interest-earning assets and interest-bearing liabilities , as well as changes in average interest yields/rates . the following table analyzes the change in volume variances and yield/rate variances for the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 , and the year ended december 31 , 2016 as compared to the year ended december 31 , 2015. analysis of changes in net interest income replace_table_token_7_th ( 1 ) the effect of changes in volume is determined by multiplying the change in volume by the previous year 's average rate . similarly , the effect of rate changes is calculated by multiplying the change in average rate by the prior year 's volume . the changes attributable to both volume and rate , which can not be segregated , have been allocated to the volume variance and the rate variance in proportion to the relationship of the absolute dollar amount of the change in each . year ended december 31 , 2017 compared with year ended december 31 , 2016 net interest income before the provision for loan losses for the year ended december 31 , 2017 was $ 86.0 million compared with $ 52.6 million for the year ended december 31 , 2016 , an increase of $ 33.4 million , or 63.5 % . the increase in net interest income is primarily due to the increase in the volume of interest-earnings assets and to a lesser extent an increase in yields on interest-earning assets . the increase in average volume of interest-earning assets was primarily due to increases in loans and investment securities partially offset by a decrease in federal funds sold and other . interest expense for the year ended december 31 , 2017 was $ 16.7 million , an increase of $ 7.5 million , or 81.4 % , from the interest expense of $ 9.2 million for the year ended december 31 , 2016. the increase in interest expense was primarily due to an increase in the average volume and rates of interest bearing liabilities incurred to fund the increased volume of interest-earning assets . interest income was $ 102.7 million for the year ended december 31 , 2017 and $ 61.8 million for the year ended december 31 , 2016 , an increase of $ 40.9 million , or 66.2 % .
| as of december 31 , 2017 , we had , on a consolidated basis , total assets of $ 3.17 billion , total deposits of $ 2.38 billion , total loans held for investment of $ 2.09 billion ( net of allowances ) and total stockholders ' equity of $ 374.1 million . net income for the year ended december 31 , 2017 was $ 20.6 million compared to $ 9.4 million for the prior year ended december 31 , 2016 , an increase of $ 11.3 million , or 120.3 % . history and background since 2003 , we have completed a series of thirteen acquisitions and two charter consolidations . we have sought to integrate the banks we acquire into our existing operational platform and enhance stockholder value through the creation of efficiencies within the combined operations . in conjunction with our strategic acquisition growth , we strive to reposition and improve the loan portfolio and deposit mix of the banks we acquire . following our acquisitions , we focus on identifying and disposing of problematic loans and replacing them with higher quality loans generated organically . in addition , we have focused on growth in our commercial loan portfolio , which we believe generally offers higher return opportunities than our consumer loan portfolio , primarily by hiring additional talented bankers , particularly in our metropolitan markets , and incentivizing our bankers to expand their commercial banking relationships . we also seek to increase our most attractive deposit accounts primarily by growing deposits in our community markets and cross-selling our depository products to our loan customers . our principal objective is to continue to increase stockholder value and generate consistent earnings growth by expanding our commercial banking franchise both organically and through strategic acquisitions . we believe our strategy of selectively acquiring and integrating community banks has provided us with economies of scale and improved our overall franchise efficiency . we expect to continue to pursue strategic acquisitions and believe our targeted market areas present us with many and varied acquisition opportunities . we are also focused on continuing to grow organically and believe the markets in which we operate currently
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both of these properties are 100 % leased to the u.s. government and occupied by the u.s. citizenship and immigration service . in may 2010 , we acquired an office property located in malden , ma that contains 125,521 rentable square feet . this property is 100 % leased to the commonwealth of massachusetts and occupied as the headquarters for the massachusetts department of education . the purchase price was $ 40,500 , excluding acquisition costs . in june 2010 , we entered a series of agreements with certain subsidiaries of cwh for the purchase of 15 properties with approximately 1.9 million rentable square feet for an aggregate purchase price of $ 231,000 , excluding acquisition costs , and shortly thereafter acquired three of these properties with 304,733 rentable square feet for $ 40,380 , excluding acquisition costs . in july 2010 , we acquired five of these properties that contain 441,284 rentable square feet for an aggregate purchase price of $ 48,339 , excluding acquisition costs . in august 2010 , we acquired two of these properties that contain 287,406 rentable square feet for an aggregate purchase price of $ 75,316 , excluding acquisition costs . in september 2010 , we acquired the remaining five of these properties that contain 837,107 rentable square feet for an aggregate purchase price of $ 66,965 , excluding acquisition costs . these properties are majority leased to the u.s. government and the state of south carolina and are occupied by various federal and state government agencies . in october 2010 , we acquired an office property located in tampa , fl with 67,917 rentable square feet . this property is 100 % leased to the u.s. government and occupied by the department of veterans affairs . the purchase price was $ 13,500 , which includes the assumption of $ 9,755 of mortgage debt that is not currently prepayable and excludes acquisition costs . in december 2010 , we acquired an office property located in trenton , nj with 266,995 rentable square feet . this property is 96 % leased to 15 tenants , of which 65 % is leased to the state of new jersey and occupied by the new jersey department of the treasury . the u.s. government also occupies 10 % of the property , including space occupied by the department of justice and the internal revenue service . the purchase price was $ 46,050 , excluding acquisition costs . in september 2010 , we entered into a purchase and sale agreement to acquire an office property located in quincy , ma with 92,549 rentable square feet . this property is 100 % leased to four tenants , of which 90 % is leased to the commonwealth of massachusetts and occupied by the registry of motor vehicles as its headquarters . we completed the purchase of this property in february 2011 for $ 14,000 , excluding acquisition costs . in november 2010 , we entered into a purchase and sale agreement to acquire two office properties in woodlawn , md with 182,561 rentable square feet . the properties are 100 % leased to two tenants , of which 94 % is leased to the u.s. government and occupied by the social security administration . we completed the purchase of this property in february 2011 for $ 28,000 , excluding acquisition costs . 45 financing activities ( dollar amounts in thousands , except per share amounts ) in january 2010 , we sold 9,775,000 of our shares in a public offering at a price of $ 21.50 per share and raised net proceeds of $ 199,030. the funds from this offering were used to reduce amounts outstanding under our initial $ 250,000 secured revolving credit facility and to fund our business activities , including some of our acquisitions . in january 2010 , we assumed a mortgage with an outstanding balance of $ 10,396 and a fair value of $ 11,458 as part of our lakewood , co acquisition . this note requires interest at 8.15 % and is amortized on a 20 year schedule until maturity in march 2021. we recorded a $ 1,062 premium on this assumed debt , which reduced its effective interest rate to 6.15 % , because we believed the interest rate payable under this mortgage was above the rate we would have had to pay for debt with the same maturity at the time we assumed this obligation . in february 2010 , we assumed a mortgage of $ 24,800 as part of our landover , md property acquisition . the note requires interest at 6.21 % . no principal payment is required until september 2011 , at which time the note is amortized on a 30 year schedule until its maturity in august 2016. we estimated that the terms of this note were at market value at the time of this loan assumption . in august 2010 , we sold 9,200,000 of our shares in a public offering at $ 25.00 per share and raised net proceeds of $ 219,900. the funds from this offering were used to reduce amounts outstanding under our secured revolving credit facility and to fund our business activities , including some of our acquisitions . in october , 2010 , we replaced our initial $ 250,000 secured revolving credit facility with our $ 500,000 unsecured revolving credit facility . our unsecured revolving credit facility has a maturity date of october 28 , 2013 and , subject to certain conditions and the payment of a fee , we may extend the maturity date to october 28 , 2014. interest under the new unsecured revolving credit facility is based upon libor plus a spread that is subject to adjustment based on changes to our senior unsecured debt ratings . we believe the financial and restrictive covenants applicable to us under our unsecured revolving credit facility are similar to the financial and restrictive covenants for other reits that have investment grade senior unsecured debt ratings . in october 2010 , we assumed a mortgage of $ 9,755 as part of our tampa , fl property acquisition . story_separator_special_tag this note requires interest at 7.00 % and is amortized on a 30 year schedule until maturity in march 2019. we recorded a $ 1,148 premium on this assumed debt , which reduced its effective interest rate to 5.15 % , because we believed the interest rate payable under this mortgage was above the rate we would have had to pay for debt with the same maturity at the time we assumed this obligation . 46 story_separator_special_tag style= '' font-family : times ; '' > equity in losses of investee . the equity in losses of investee is our proportionate share of the losses as an investor in aic . income tax expense . the increase in income tax expense reflects state taxes paid in 2009 as a result of our becoming a separate public company . net income . our net income for the year ended december 31 , 2009 decreased as compared to the year ended december 31 , 2008 as a result of the changes noted above . liquidity and capital resources our operating liquidity and resources ( dollar amounts in thousands ) . our principal source of funds to meet operating expenses and pay distributions on our shares is rental income from our properties . we believe that our operating cash flow will be sufficient to pay our operating expenses , debt service and distributions on our shares for the next twelve months and the foreseeable future after the next twelve months . our future cash flows from operating activities will depend primarily upon our ability to : maintain or increase the occupancy of , and the current rent rates at , our properties ; control operating cost increases at our properties ; and purchase additional properties which produce positive cash flows from operations . we generally do not intend to purchase `` turn around '' properties , or properties which do not generate positive cash flows . our future purchases of properties which generate positive cash flow can not be accurately projected because such purchases depend upon available opportunities which come to our attention . our changes in cash flows in the year ended december 31 , 2010 compared to the same period in 2009 was as follows : ( i ) cash flow provided by operating activities increased from $ 40,074 in 2009 to $ 59,149 in 2010 ; ( ii ) cash used in investment activities increased from $ 105,185 in 2009 to $ 394,693 in 2010 ; and ( iii ) cash provided by financing activities increased from $ 66,492 in 2009 to $ 336,503 in 2010. the increase in cash provided by operating activities between 2010 and 2009 is due primarily to cash flows from properties acquired after october 1 , 2009 , and changes in our working capital . the increase in cash used in investing activities between 2010 and 2009 is primarily due to our increased property acquisition activities in 2010. the increase in cash provided by financing activities between 2010 and 2009 is primarily due to an increase in proceeds from the issuances of approximately 19 million of our shares in 2010 as opposed to the issuance of approximately 11.5 million of our shares in 2009 in connection with our ipo ; and the 2009 distribution to cwh prior to our ipo . 50 our investment and financing liquidity and resources ( dollar amounts in thousands , except per share amounts ) . in order to fund acquisitions and to accommodate cash needs that may result from timing differences between our receipt of rents and our desire or need to make distributions or pay operating or capital expenses , we maintain our $ 500,000 unsecured revolving credit facility from a syndicate of financial institutions . this facility replaced our initial $ 250,000 secured revolving credit facility in october 2010. our unsecured revolving credit facility matures on october 28 , 2013 and we may extend the maturity date to october 28 , 2014 , subject to meeting certain conditions and payment of a fee . at december 31 , 2010 , there was $ 118,000 outstanding and $ 382,000 available for borrowings under our unsecured revolving credit facility , and we had cash and cash equivalents of $ 2,437. we expect to use cash balances , borrowings under our unsecured revolving credit facility and net proceeds from offerings of equity or debt securities to fund our future operations , distributions to our shareholders and any future property acquisitions . when significant amounts are outstanding under our unsecured revolving credit facility or the maturity date of that credit facility or our other debts approach , we intend to explore alternatives for repaying or refinancing such amounts . such alternatives may include incurring term debt , issuing new equity securities , such as we did with our january 2010 and august 2010 equity offerings , or extending the maturity date of our unsecured revolving credit facility . although there has recently been a significant reduction in the amount of capital available for real estate business on a global basis and we can provide no assurance that we will be successful in consummating any particular type of financing , we believe that we will have access to financing , such as debt and equity offerings , to fund future acquisitions and capital expenditures and to pay our obligations . we have an effective shelf registration statement that allows us to issue public securities on an expedited basis , but it does not assure that there will be buyers for such securities . our ability to obtain , and the costs of , our future financings will depend primarily on market conditions and our creditworthiness . we have no control over market conditions . potential investors and lenders likely will evaluate our ability to pay distributions to shareholders , fund required debt service and repay debts when they become due by reviewing our business practices and plans to balance our use of debt and equity capital so that our financial profile and leverage ratios afford us flexibility to withstand any reasonably anticipated adverse changes .
| the increase in interest income is the result of our having a higher average amount of investable cash during the year ended december 31 , 2010. interest expense . the increase in interest expense reflects larger outstanding borrowings under our revolving credit facilities compared to the same period in 2009 and interest expense related to the three mortgages we assumed in connection with certain of our 2010 acquisitions , partially offset by a lower weighted average interest rate for borrowings under our revolving credit facilities in 2010. loss on extinguishment of debt . the loss on extinguishment of debt is the result of our write off of remaining unamortized financing costs associated with our terminated initial $ 250,000 secured revolving credit facility . equity in losses of investee . the equity in losses of investee is our proportionate share of the losses as an investor in aic . income tax expense . the increase in income tax expense is a result of our higher operating income in 2010 which is subject to state income taxes in certain jurisdictions . net income and net income per share . our net income for the year ended december 31 , 2010 increased as compared to the year ended december 31 , 2009 as a result of the changes noted above . on a per share basis , the percentage increase in net income is lower due to our issuance of shares in 2009 and 2010 . 48 year ended december 31 , 2009 , compared to year ended december 31 , 2008 replace_table_token_9_th rental income . the increase in rental income between 2009 and 2008 primarily reflects the effects of property acquisitions , rent increases from new leases and leases renewed during 2008 at our properties , net of one lease renewed at a rate lower than its historical rate . the increase also includes contractual expense reimbursements based upon changes in the consumer price index and changes in real estate tax expense . rental income includes non-cash straight line rent adjustments
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we are entitled to receive royalties from gsk on sales of relvar ® /breo ® ellipta ® as follows : 15 % on the first $ 3.0 billion of annual global net sales and 5 % for all annual global net sales above $ 3.0 billion . for other products combined with a laba from the laba collaboration , such as anoro ® ellipta ® , royalties are upward tiering and range from 6.5 % to 10 % . we are also entitled to 15 % of royalty payments made by gsk under its agreements originally entered into with us , and since assigned to trc in connection with the spin-off including trelegy ® ellipta ® , which royalties are upward tiering and range from 6.5 % to 10 % . 2004 strategic alliance in march 2004 , we entered into the strategic alliance agreement with gsk where gsk received an option to license exclusive development and commercialization rights to product candidates from certain of our discovery programs on pre-determined terms and on an exclusive , worldwide basis . in 2005 , gsk licensed our maba program for the treatment of copd , and in october 2011 , we and gsk expanded the maba program by adding six additional innoviva-discovered preclinical maba compounds ( the “ additional mabas ” ) . the development program was funded in full by gsk . in june of 2020 , gsk terminated the program and agreed to pay a $ 10.0 million termination fee to trc . this fee was recognized as revenue from collaborative arrangements with a related party on our consolidated statements of income for the year ended december 31 , 2020. strategic partnership with sarissa capital strategic advisory agreement on december 11 , 2020 , we entered into a strategic advisory agreement ( the “ services agreement ” ) with sarissa capital management lp ( “ sarissa capital ” ) , pursuant to which sarissa capital provides a variety of strategic services to us in order to assist us in the development and execution of our acquisition strategy . the services shall be provided free of charge to us . sarissa capital is considered to be a related party due to its investment in innoviva and its representation on our board of directors . partnership agreement on december 11 , 2020 , innoviva strategic partners llc , our wholly owned subsidiary ( “ strategic partners ” ) , entered into a subscription agreement ( the “ subscription agreement ” ) and an amended and restated limited partnership agreement ( the “ partnership agreement ” ) pursuant to which strategic partners became a limited partner of isp fund lp ( the “ partnership ” ) . the general partner of the partnership ( the “ general partner ” ) is an affiliate of sarissa capital and , pursuant to an investment management agreement , sarissa capital acts as the investment adviser to the partnership . strategic partners made a $ 300 million initial contribution into the partnership . the partnership was formed for the purposes of investing in “ long-only ” securities in the healthcare , pharmaceutical and biotechnology industries . the partnership agreement provides for sarissa capital to receive a customary one percent management fee from the partnership , payable quarterly in advance , measured based on the net asset value of strategic partners ' capital account in the partnership . in addition , the general partner is entitled to a customary 10 % annual performance allocation based on the net profits of the partnership during the annual measurement period . the partnership agreement includes a lock-up period of thirty-six months after which strategic partners is entitled to make withdrawals from the partnership as of such lock-up expiration date and each anniversary thereafter , subject to certain limitations . 34 critical accounting policies 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 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 as of 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 . actual results may differ from these estimates under different assumptions or conditions . we believe that the accounting policies discussed below are critical to understanding our historical and future performance , as these policies relate to the more significant areas involving management 's judgments and estimates . revenue recognition revenue is recognized when our customer obtains control of promised goods or services , in an amount that reflects the consideration which we expect to receive in exchange for those goods or services . revenue is recognized through a five-step process : ( i ) identify the contract with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price for the contract ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) a performance obligation is satisfied . we recognize our royalty revenue on net sales of products with respect to which we have contractual royalty rights in the period in which the royalties are earned and reported to us . royalties are recognized net of amortization of capitalized fees associated with any approval and launch milestone payments made to gsk . story_separator_special_tag under the gsk agreements , we recognized net revenue of $ 326.8 million for the year ended december 31 , 2020 and $ 261.0 million for each of the years ended december 31 , 2019 and 2018. we also recognized a $ 10.0 million termination fee related to the maba program with gsk as revenue from collaborative arrangements with a related party on our consolidated statements of income for the year ended december 31 , 2020. capitalized fees paid to a related party we capitalize fees paid to licensors related to agreements for certain approved products or commercialized products ( “ capitalized fees ” ) . our gross capitalized fees of $ 220.0 million as of december 31 , 2020 consist of registrational and launch-related milestone fees paid to gsk . we capitalized these fees as capitalized fees paid to a related party and amortize these capitalized fees on a straight-line basis over their estimated useful lives upon the commercial launch of the products . the estimated useful lives of these capitalized fees are based on a country-by-country and product-by-product basis , as the later of the expiration or termination of the last patent right covering the compound in such product in such country and 15 years from first commercial sale of such product in such country , unless the collaboration agreement is terminated earlier . consistent with our policy for classification of costs under the research and development collaborative arrangements , the amortization of these capitalized fees is recognized as a reduction of royalty revenue . amortization expense for each of the years ended december 31 , 2020 , 2019 , and 2018 was $ 13.8 million . the remaining estimated amortization expense is $ 13.8 million for each of the years from 2021 to 2025 and $ 56.3 million thereafter . we review our capitalized fees for impairment on a product-by-product basis for each major geographic area when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable . the recoverability of capitalized fees is measured by comparing the asset 's carrying amount to the expected undiscounted future cash flows that the asset is expected to generate . the determination of recoverability typically requires various estimates and assumptions , including estimating the useful life over which cash flows will occur , their amount , and the asset 's residual value , if any . we derive the required cash flow estimates from near-term forecasted product sales and long-term projected sales in the corresponding market . based upon our analyses , no impairment charges have been recorded on the capitalized fees as of december 31 , 2020. variable interest entities we evaluate our ownership , contractual and other interest in the entities that we invest in to determine if they are variable interest entities ( “ vies ” ) , whether we have a variable interest in those entities and the nature and extent of those interests . such evaluation is performed continually throughout the entire period when we stay involved with these entities . based on our evaluation , if we determine we are the primary beneficiary of a vie , we consolidate the entity 's financial results into our financial statements . 35 we consolidate the financial results of trc and pulmoquine therapeutics , inc. ( “ pulmoquine ” ) , which we have determined to be vies , because we have the power to direct the economically significant activities of these entities and the obligation to absorb losses of , or the right to receive benefits from them , and we are the primary beneficiary of the entities . we also consolidate the financial results of isp fund lp that we partner with sarissa capital because we have determined that the partnership is a vie and strategic partners is the primary beneficiary of this vie . equity and other long-term investments as part of our capital allocation strategies , we invest from time to time in equity securities of private or public companies . we also enter into strategic partnerships in order to accelerate the execution of our strategy and enhance returns on our capital . if we determine that we have control over these companies or partnerships , we consolidate the financial statements of the company or partnership . if we determine that we do not have control over these companies or partnerships under either voting or vie models , we then determine if we have an ability to exercise significant influence via voting interests , board representation or other business relationships . we may account for the equity investments where we exercise significant influence using either an equity method of accounting or at fair value by electing the fair value option under accounting standards codification ( `` asc '' ) topic 825 , financial instruments . if the fair value option is applied to an investment that would otherwise be accounted for under the equity method , we apply it to all our financial interests in the same entity ( equity and debt , including guarantees ) that are eligible items . all gains and losses from fair value changes , unrealized and realized , are presented as changes in fair values of equity investments , net on the consolidated statements of income . if we conclude that we do not have an ability to exercise significant influence over an investee , we may elect to account for an equity security without a readily determinable fair value using the measurement alternative as prescribed by asc topic 825. this measurement alternative allows us to measure the equity investment at its cost minus impairment , if any , plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer . equity investments in common stock and warrants of armata pharmaceuticals , inc. ( nyse american : armp ) ( “ armata '' ) and entasis therapeutics holdings inc. ( nasdaq : ettx ) ( `` entasis ” ) are accounted for at fair value .
| the amount for the year ended december 31 , 2020 included $ 2.1 million fees related to due diligence efforts associated with various investments and $ 1.7 million legal and related fees for the arbitration initiated by theravance biopharma against the company and trc . general and administrative expenses decreased by $ 5.4 million for the year ended december 31 , 2019 , compared to the year ended december 31 , 2018 , mainly attributable to lower personnel-related expenses as a result of lower headcount . the amount for the year ended december 31 , 2019 included $ 3.1 million legal and related fees for the arbitration initiated by theravance biopharma against the company and trc , of which $ 3.0 million was accounted for as trc 's expenses and consolidated in the company 's consolidated statements of income . the amount for the year ended december 31 , 2018 included $ 5.7 million cash severance costs in connection with certain members of senior management 's separation from the company and payment of $ 2.7 million to sarissa pursuant to a settlement agreement in february 2018. other expense , net , and interest income other expense , net , and interest income , as compared to the prior years , were as follows : replace_table_token_2_th * not meaningful other expense , net for the year ended december 31 , 2018 , mainly consists of the loss on the extinguishment of debt of $ 5.7 million in relation to the prepayments of our term b loan . interest income decreased for the year ended december 31 , 2020 , compared to the years ended december 31 , 2019 and 2018 , primarily due to lower interest rates resulting from the covid-19 pandemic . 38 interest expense interest expense , as compared to the prior years , was as follows : replace_table_token_3_th interest expense decreased slightly for the year ended december 31 , 2020 , compared to the prior years primarily due to the lower average outstanding debt balance . see “ liquidity ” section below for further information . changes in fair values of equity
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if the u.s. dollar strengthens against other currencies , resulting in unfavorable currency translation , our revenues and revenue growth in u.s. dollars may be lower . if the u.s. dollar weakens against other currencies , resulting in favorable currency translation , our revenues and revenue growth in u.s. dollars may be higher . when compared to the fourth quarter of fiscal 2013 , the u.s. dollar weakened against many currencies during the fourth quarter of fiscal 2014 , resulting in favorable currency translation and u.s. dollar revenue growth that was approximately 1 % higher than our revenue growth in 28 local currency . when compared to fiscal 2013 , there was no aggregate foreign currency translation impact during fiscal 2014 , resulting in u.s. dollar revenue growth that was the same as our revenue growth in local currency . the primary categories of operating expenses include cost of services , sales and marketing and general and administrative costs . cost of services is primarily driven by the cost of client-service personnel , which consists mainly of compensation , subcontractor and other personnel costs , and non-payroll outsourcing costs . cost of services as a percentage of revenues is driven by the prices we obtain for our solutions and services , the utilization of our client-service personnel and the level of non-payroll costs associated with outsourcing contracts . utilization primarily represents the percentage of our consulting professionals ' time spent on chargeable work . utilization for the fourth quarter of fiscal 2014 was approximately 88 % , flat with the third quarter of fiscal 2014 and within our target range . this level of utilization reflects continued strong demand for resources in our global delivery network and in most countries . we continue to hire to meet current and projected future demand . we proactively plan and manage the size and composition of our workforce and take actions as needed to address changes in the anticipated demand for our services , given that compensation costs are the most significant portion of our operating expenses . based on current and projected future demand , we have increased our headcount , the majority of which serve our clients , to more than 305,000 as of august 31 , 2014 , compared with approximately 293,000 as of may 31 , 2014 and approximately 275,000 as of august 31 , 2013 . the year-over-year increase in our headcount reflects an overall increase in demand for our services , primarily those delivered through our global delivery network in lower-cost locations , as well as headcount added in connection with acquisitions . annualized attrition , excluding involuntary terminations , for the fourth quarter of fiscal 2014 was 15 % , up from 14 % in the third quarter of fiscal 2014 and 12 % in the fourth quarter of fiscal 2013 . we evaluate voluntary attrition , adjust levels of new hiring and use involuntary terminations as means to keep our supply of skills and resources in balance with changes in client demand . in addition , we adjust compensation in certain skill sets and geographies in order to attract and retain appropriate numbers of qualified employees , and we may need to continue to adjust compensation in the future . for the majority of our personnel , compensation increases for fiscal 2014 became effective september 1 , 2013. we strive to adjust pricing and or the mix of resources to reduce the impact of compensation increases on our gross margin . our ability to grow our revenues and maintain or increase our margin could be adversely affected if we are unable to : keep our supply of skills and resources in balance with changes in the types or amounts of services clients are demanding , such as the increase in demand for various outsourcing and emerging technology services ; recover increases in compensation ; deploy our employees globally on a timely basis ; manage attrition ; and or effectively assimilate and utilize new employees . gross margin ( net revenues less cost of services before reimbursable expenses as a percentage of net revenues ) for the fourth quarter of fiscal 2014 was 31.7 % , compared with 33.2 % for the fourth quarter of fiscal 2013 . gross margin for fiscal 2014 was 32.3 % , compared with 32.9 % for fiscal 2013 . there were several factors affecting cost of services and gross margin during fiscal 2014 . we experienced lower consulting and outsourcing contract profitability compared to fiscal 2013 , primarily due to pricing pressures in the first half of fiscal 2014 and higher payroll costs as we did not fully absorb the impact of compensation increases and or rebalance the mix of resources . in addition , we experienced lower margins in the early stages of a few large contracts . while we accrued significant variable compensation during fiscal 2014 , the amounts accrued are lower than fiscal 2013 and partially offset the impacts noted above . sales and marketing and general and administrative costs as a percentage of net revenues were 17.9 % for the fourth quarter of fiscal 2014 , compared with 19.3 % for the fourth quarter of fiscal 2013 . sales and marketing and general and administrative costs as a percentage of net revenues were 18.0 % for fiscal 2014 , compared with 18.6 % for fiscal 2013 . sales and marketing costs are driven primarily by : compensation costs for business-development activities ; investment in offerings ; marketing-and advertising-related activities ; and acquisition-related costs . general and administrative costs primarily include costs for non-client-facing personnel , information systems and office space . we continuously monitor these costs and implement cost-management actions , as appropriate . for fiscal 2014 compared to fiscal 2013 , sales and marketing and general and administrative costs each decreased 30 basis points as a percentage of net revenues . operating income for the fourth quarter of fiscal 2014 was $ 1,079 million , compared with $ 984 million for the fourth quarter of fiscal 2013 . story_separator_special_tag operating income for fiscal 2014 was $ 4,301 million , compared with $ 4,339 million for fiscal 2013 . operating margin ( operating income as a percentage of net revenues ) for the fourth quarter of fiscal 2014 was 13.9 % , flat with the fourth quarter of fiscal 2013 . operating margin for fiscal 2014 was 14.3 % , compared with 15.2 % for fiscal 2013 . we recorded reorganization benefits of $ 274 million during fiscal 2013 which increased operating margin by 100 basis points . excluding the effects of the reorganization benefits , operating margin for fiscal 2013 would have been 14.2 % . the effective tax rate for fiscal 2014 was 26.1 % , compared with 18.1 % for fiscal 2013 . the above noted reorganization benefits recorded during fiscal 2013 increased income before income taxes without any increase in income tax expense . in addition , during fiscal 2013 , we recorded a benefit of $ 243 million related to settlements of u.s. federal tax audits for fiscal years 2006 through 2009. absent these items , our effective tax rate for fiscal 2013 would have been 25.3 % . diluted earnings per share were $ 4.52 for fiscal 2014 , compared with $ 4.93 for fiscal 2013 , which included $ 0.72 in benefits from final determinations of prior-year tax liabilities and reductions in reorganization liabilities . excluding these benefits , diluted earnings per share for fiscal 2013 would have been $ 4.21 . 29 our operating income and earnings per share are also affected by currency exchange-rate fluctuations on revenues and costs . most of our costs are incurred in the same currency as the related net revenues . where practical , we also seek to manage foreign currency exposure for costs not incurred in the same currency as the related net revenues , such as the cost of our global delivery network , by using currency protection provisions in our customer contracts and through our hedging programs . we seek to manage our costs taking into consideration the residual positive and negative effects of changes in foreign exchange rates on those costs . for more information on our hedging programs , see note 8 ( derivative financial instruments ) to our consolidated financial statements under item 8 , “ financial statements and supplementary data. ” bookings and backlog new bookings for the fourth quarter of fiscal 2014 were $ 8.33 billion , with consulting bookings of $ 3.95 billion and outsourcing bookings of $ 4.38 billion . new bookings for fiscal 2014 were $ 35.88 billion , with consulting bookings of $ 17.15 billion and outsourcing bookings of $ 18.73 billion . we provide information regarding our new bookings , which include new contracts , including those acquired through acquisitions , as well as renewals , extensions and changes to existing contracts , because we believe doing so provides useful trend information regarding changes in the volume of our new business over time . new bookings can vary significantly quarter to quarter depending in part on the timing of the signing of a small number of large outsourcing contracts . the types of services clients are demanding and the pace and level of their spending may impact the conversion of new bookings to revenues . for example , outsourcing bookings , which are typically for multi-year contracts , generally convert to revenue over a longer period of time compared to consulting bookings . information regarding our new bookings is not comparable to , nor should it be substituted for , an analysis of our revenues over time . new bookings involve estimates and judgments . there are no third-party standards or requirements governing the calculation of bookings . we do not update our new bookings for material subsequent terminations or reductions related to bookings originally recorded in prior fiscal years . new bookings are recorded using then-existing foreign currency exchange rates and are not subsequently adjusted for foreign currency exchange rate fluctuations . the majority of our contracts are terminable by the client on short notice , and some without notice . accordingly , we do not believe it is appropriate to characterize bookings attributable to these contracts as backlog . normally , if a client terminates a project , the client remains obligated to pay for commitments we have made to third parties in connection with the project , services performed and reimbursable expenses incurred by us through the date of termination . critical accounting policies and estimates the preparation of our consolidated financial statements in conformity with u.s. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses . we continually evaluate our estimates , judgments and assumptions based on available information and experience . because the use of estimates is inherent in the financial reporting process , actual results could differ from those estimates . certain of our accounting policies require higher degrees of judgment than others in their application . these include certain aspects of accounting for revenue recognition and income taxes . 30 revenue recognition our contracts have different terms based on the scope , deliverables and complexity of the engagement , the terms of which frequently require us to make judgments and estimates in recognizing revenues . we have many types of contracts , including time-and-materials contracts , fixed-price contracts and contracts with features of both of these contract types . in addition , some contracts include incentives related to costs incurred , benefits produced or adherence to schedules that may increase the variability in revenues and margins earned on such contracts . we conduct rigorous reviews prior to signing such contracts to evaluate whether these incentives are reasonably achievable .
| outsourcing revenues reflected very strong growth , led by health and public service in americas , partially offset by a decline in health in emea . consulting revenues reflected modest growth , driven by public service and health in americas and public service in asia pacific , partially offset by a decline in public service in emea . products net revenues increased 8 % in local currency . outsourcing revenues reflected strong growth , driven by growth across all geographic regions in most industry groups , led by air , freight & travel services and life sciences in americas and retail in emea . these increases were partially offset by declines in retail in americas , and consumer goods & services and air , freight & travel services in emea . consulting revenues reflected strong growth , driven by most industry groups in emea , led by retail , consumer goods & services and auto , and in americas , led by consumer goods & services and air , freight & travel services . this growth was partially offset by declines in retail in asia pacific and americas . resources net revenues increased 1 % in local currency . outsourcing revenues reflected modest growth , driven by energy in americas and utilities in emea , partially offset by a decline in utilities in americas . consulting revenues reflected a slight decline , due to declines in natural resources across all geographic regions and energy in americas , partially offset by growth in energy in asia pacific and emea , utilities in emea and chemicals in americas . some of our clients , primarily in natural resources , continued to reduce their level of consulting investments . in addition , several large systems integration projects have ended or have transitioned to smaller phases and demand for our services has moderated . we expect these trends will continue to impact resources year-over-year net revenue growth in the near term . geographic regions americas net revenues increased 6 % in local currency , driven by the united states , partially
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inventories inventories are adjusted to lower of cost and net realizable value , using the first-in , first-out method . the components of inventory cost include raw materials , labor and overhead . to estimate any necessary adjustments , various assumptions are made in regard to excess or slow-moving inventories , non-conforming inventories , expiration dates , current and future product demand , production planning and market conditions . if future demand and market conditions are less favorable than our assumptions , additional inventory adjustments could be required . incentive trip accrual we accrue expenses associated with our direct sales program , which rewards independent consultants with paid attendance for incentive trips , including our conventions and meetings . expenses associated with incentive trips are accrued over qualification periods as the trips are earned . we specifically analyze incentive trip accruals based on historical and current sales trends as well as contractual obligations when evaluating the adequacy of the incentive trip accrual . actual results could generate liabilities in amounts greater or less than the amounts recorded . we accrued incentive trip costs of approximately $ 6.4 million and $ 5.5 million at december 31 , 2020 and 2019 , respectively , which are included in accrued liabilities in the consolidated balance sheets . due to restrictions associated with covid-19 , we were unable to hold traditional incentive trips during the year ended december 31 , 2020 . 23 contingencies we are involved in certain legal proceedings . when a loss is considered probable in connection with litigation or non-income tax contingencies and when such loss can be reasonably estimated , we recognize a liability within a best estimate range related to the contingency . if there is no best estimate , we record the minimum of the range . as additional information becomes available , we assess the liability related to the contingency and revise the estimate . revisions in estimates of the liabilities could materially affect our results of operations in the period of adjustment . contingencies are discussed in further detail in note 13 , “ commitments and contingencies , ” to our consolidated financial statements , in item 8 , part 2 of this report . income taxes our income tax expense , deferred tax assets and liabilities and contingent reserves reflect our best assessment of estimated future taxes to be paid . we are subject to income taxes in both the united states and numerous foreign jurisdictions . significant judgments and estimates are required in determining consolidated income tax expense . deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense . in evaluating our ability to recover deferred tax assets , we consider all available positive and negative evidence , including scheduled reversals of deferred tax liabilities , projected future taxable income , tax planning strategies and recent financial operations . in projecting future taxable income , we develop assumptions including the amount of future state , federal and foreign pretax operating income , the reversal of temporary differences , and the implementation of feasible and prudent tax planning strategies . these assumptions require significant judgment about the forecasts of future taxable income , and are consistent with the plans and estimates that we are using to manage the underlying businesses . valuation allowances are recorded as reserves against net deferred tax assets when it is determined that net deferred tax assets are not likely to be realized in the foreseeable future . as of december 31 , 2020 and 2019 , we had recorded valuation allowances of $ 15.3 million and $ 21.4 million , respectively , as offsets to deferred tax assets . at december 31 , 2020 , foreign subsidiaries had unused operating loss carryovers for tax purposes of approximately $ 6.0 million . the net operating losses will expire at various dates from 2020 through 2029 , with the exception of those in some foreign jurisdictions where there is no expiration . as of december 31 , 2020 , we had approximately $ 14.5 million of foreign tax and withholding credits . of the $ 14.5 million credits , $ 14.1 million are foreign tax credits , most of which expire in 2024 and the majority of which are offset by valuation allowances . the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations . income tax positions must meet a more-likely-than-not recognition threshold to be recognized . presentation net sales represents gross sales including shipping and handling offset by volume rebates given to independent consultants . volume rebates as a percentage of retail sales may vary by country , depending upon regulatory restrictions that limit or otherwise restrict rebates . we also offer reduced volume rebates with respect to certain products and promotions worldwide . our gross profit consists of net sales less cost of sales , which represents our manufacturing costs , the price we pay to raw material suppliers and manufacturers of our products , and duties and tariffs , as well as shipping and handling costs related to product shipments and distribution to our independent consultants . volume incentives are a significant part of our direct sales marketing program , and represent commission payments made to our independent consultants . these payments are designed to provide incentives for reaching higher sales levels through their own sales and the sales of independent consultants in their sales organization . volume incentives vary slightly , on a percentage basis , by product due to our pricing policies and commission plans in place in various operations . selling , general and administrative expenses represent operating expenses , components of which include labor and benefits , sales events , professional fees , travel and entertainment , consultant marketing , occupancy costs , communication costs , bank fees , independent service fees paid to independent service providers in china , depreciation and amortization , and other miscellaneous operating expenses . story_separator_special_tag most of our sales to independent consultants outside the united states are made in the respective local currencies . in preparing our consolidated financial statements , sales are translated into u.s. dollars using average exchange rates . 24 additionally , the majority of our purchases from suppliers are generally made in u.s. dollars . consequently , a strengthening of the u.s. dollar versus a foreign currency can have a negative impact on our reported sales and contribution margins and can generate transaction losses on intercompany payable balances in the local markets . story_separator_special_tag growth has been impacted by current market conditions , including those driven by the effects of covid-19 , china has shown growth primarily due to initiatives designed to increase independent service providers ' engagement levels and gain market share in the year ended december 31 , 2020 . 26 europe net sales related to europe were $ 77.7 million for the year ended december 31 , 2020 , compared to $ 62.5 million for 2019 , an increase of 24.3 percent . the functional currency for many of these markets is the us dollar which reduces the effect from foreign currency fluctuations . fluctuations in foreign exchange rates had a $ 0.2 million favorable impact on net sales for the year ended december 31 , 2020. net sales increased primarily as a result of the relative stabilization of russian ruble against the u.s. dollar , product promotions that have improved independent consultant engagement and an increase in demand for nutritional supplements as a result of the continued spread of covid-19 during 2020. north america net sales related to north america for the year ended december 31 , 2020 , were $ 145.5 million , compared to $ 138.2 million for 2019 , an increase of 5.3 percent . fluctuations in foreign exchange rates had a $ 0.1 million unfavorable impact on net sales for the year ended december 31 , 2020. excluding the impact of fluctuations in foreign exchange rates , local currency net sales in north america increased by 5.4 percent from 2019. in the united states , net sales increased $ 7.0 million , or 5.4 percent , for the year ended december 31 , 2020 , compared to 2019. the increase in the market is due to several factors including , among others , launch of our new website and introduction of our new compensations plan for independent consultants , rebranding and rebuilding efforts of the nature 's sunshine brand and independent consultant tools in the u.s. and an increase in demand for nutritional supplements as a result of the continued spread of covid-19 during 2020. latin america and other net sales related to latin america and other markets for the year ended december 31 , 2020 , were $ 23.3 million , compared to $ 23.0 million for 2019 , an increase of 1.4 percent . fluctuations in foreign exchange rates had a $ 0.8 million unfavorable impact on net sales for the year ended december 31 , 2020. excluding the impact of fluctuations in foreign exchange rates , local currency net sales in latin america and other increased by 5.1 percent from 2019. the increase was primarily the result of changes in the independent consultant compensation plan as well as an increase in demand for nutritional supplements as a result of continued spread of covid-19 during 2020. further information related to our asia , europe , north america , and latin america and other business segments is set forth in note 14 , `` operating business segment and international operation information , '' to our consolidated financial statements , in item 8 , part 2 of this report . cost of sales cost of sales as a percent of net sales increased to 26.3 percent in 2020 , compared to 25.9 percent in 2019. the increase in cost of sales percentage is driven by unfavorable changes in market mix , an increase in free shipping promotions and an increase in inventory obsolescence reserves . volume incentives volume incentives as a percent of net sales decreased to 34.0 percent in 2020 , compared to 34.1 percent in 2019. these payments are designed to provide incentives for reaching higher sales levels . volume incentives vary slightly , on a percentage basis , by product due to pricing policies and commission plans in place in the various operations . we do not pay volume incentives in china , instead we pay independent service fees , which are included in selling , general and administrative expenses . volume incentives as a percentage of net sales can fluctuate based on promotional activity and mix of sales by market . the decrease in volume incentives as a percent of net sales for the year ended december 31 , 2020 is primarily due to changes in market mix , reflecting growth in markets where volume incentives as a percentage of net sales are lower than the consolidated average , and the growth in nsp china . selling , general and administrative expenses selling , general and administrative expenses represent operating expenses , components of which include labor and benefits , sales events , professional fees , travel and entertainment , marketing , occupancy costs , communications costs , bank fees , depreciation and amortization , independent services fees paid in china , and other miscellaneous operating expenses . 27 selling , general and administrative expenses increased by $ 2.6 million to $ 131.3 million for the year ended december 31 , 2020. selling , general and administrative expenses were 34.1 percent and 35.5 percent of net sales for the years ended december 31 , 2020 and 2019 , respectively . the increase in selling , general and administrative expenses , was primarily related to increased selling costs related to growth in europe and china intended to drive growth , including the rollout of a new compensation plan for independent consultants , increased stock compensation and bonuses , and introduction of virtual events .
| see item 7a . quantitative and qualitative disclosures about market risk . 25 year ended december 31 , 2020 , as compared to the year ended december 31 , 2019 net sales the following table summarizes the changes in net sales by operating segment with a reconciliation to net sales , excluding the impact of currency fluctuations , for the years ended december 31 , 2020 and 2019 ( dollar amounts in thousands ) . replace_table_token_8_th consolidated net sales for the year ended december 31 , 2020 , were $ 385.2 million compared to $ 362.2 million in 2019 , or an increase of approximately 6.3 percent . the increase was related to product sales growth in all of our operating business segments . excluding the unfavorable impact of foreign currency exchange rate fluctuations , consolidated net sales for the year ended december 31 , 2020 would have increased by 6.6 percent from 2019. asia net sales related to asia for the year ended december 31 , 2020 , were $ 138.7 million compared to $ 138.5 million for 2019 , an increase of 0.1 percent . the increase for the asia business is further discussed in the japan and china commentary below . those increases were partially offset by the decrease discussed in the south korea commentary below . although not consistent across every market , the increase in the asia business is partially attributed to an increase in demand for nutritional supplements as a result of the continued spread of covid-19 during 2020. in local currency , net sales increased by 0.1 percent compared to 2019. fluctuations in foreign exchange rates had a $ 19,000 favorable impact on net sales for the year ended december 31 , 2020. notable activity in the following markets contributed to the results of asia : in our south korea market , net sales decreased approximately $ 8.5 million , or 12.1 percent , for the year ended december
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the volume and timing of orders placed by our customers vary due to several factors , including variation in demand for our customers ' products , changes in our customers ' manufacturing strategies and general economic conditions . the company recognizes revenue from specialty equipment using the proportionate performance method . the company recognizes revenue for services in the testing & assembly equipment segment when services are rendered . the aforementioned segment has not generated material service revenue to date . operating profit for specialty equipment depends on the mix between the cost of materials in the equipment and the cost of labor and manufacturing overhead allocated to the equipment . in addition , as we gain experience in manufacturing a certain kind of equipment , we usually achieve increased efficiencies , which result in lower labor costs and manufacturing overhead for that equipment . while we may achieve some level of increased efficiency with respect to manufacturing specialty equipment , our gross margins related thereto will likely continue to vary , as we must produce different kinds of equipment and each piece of equipment must meet certain specifications of our customers . gross profit for the lifting equipment segment 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 , special mission oriented vehicles , specialized carriers and heavy material transports . 28 the following table sets forth certain financial data for the three years ended december 31 , 2006 , 2005 , and 2004. story_separator_special_tag customers . cost of sales . cost of sales increased $ 0.9 million , or 14.6 % , to $ 7.4 million for the period ended december 31 , 2005 from $ 6.5 million for the comparable period in 2004. this increase in cost of sales was due , in part , to increased production costs related to the driveshaft assembly equipment contracts for the korean market , and , in part , to fixed overhead costs incurred during the first half of the year while we were in the initial stages of development of the contracts . as a percentage of revenue , cost of sales increased to 96.9 % in 2005 from 81.4 % in 2004. this increase in cost of sales as a percentage of revenue was primarily the result of increased manufacturing costs relating to our driveshaft assembly equipment . manufacturing costs were greater than anticipated due to manufacturing of more sophisticated driveshaft equipment for new customers as compared to prior periods in which the company engaged in more repeat manufacturing of standalone driveshaft machines . these manufacturing costs include increased labor costs resulting from our employees learning the manufacturing process of these new machines and increased material cost as physical changes were made to the machines in order for them to optimally function as designed . the company anticipates that the costs to design and manufacture these products will decline over time , as experienced with manufacturing other products . due to the high number of machines being built during the second half of the year , increased labor and material costs related to meeting customer delivery requirements were incurred . these increased costs resulted from having to produce and deliver several machines within the same four-week period . in order to meet these deadlines , we hired temporary workers , worked overtime and expedited the manufacture of certain components . gross margin . goss margin decreased $ 1.2 million , or 83.9 % , to $ 0.2 million for the 2005 period from $ 1.5 million for 2004. as a percentage of sales , gross margin decreased to 3.0 % in 2005 from 18.5 % in 2004. the dollar and percentage decrease in gross margin was primarily the result of increased manufacturing costs associated with the production of specialty driveshaft assembly systems and lower contract revenue . research and development expenses . research and development expenses declined $ 1.1 million , or 70.9 % , for the period ended december 31 , 2005 to $ 0.5 million as compared to the comparable 2004 period . research and development expenses declined with the focusing of efforts on the production of specialty equipment . as a percentage of sales our research and development expenses decreased to 6.0 % of revenue in 2005 from 19.8 % of revenue in 2004. selling , general and administrative expenses . selling , general and administrative expenses decreased $ 0.6 million , or 17.6 % , to $ 3.2 million for the period ended december 31 , 2005 from $ 3.8 million for the 2004 period . selling , general , and administrative expenses for 2004 included the creation of a reserve for costs and earnings in excess of billings of approximately $ 1.6 million due to doubt that a customer would take delivery of a specialty machine . during 2005 , additional reserves totaling $ 0.2 million for two separate machines were recorded . excluding these reserves , sg & a expenses increased $ 0.8 million for the year . this increase is primarily attributable to increased staffing incurred in order to implement the growth strategy of commercializing testing 31 services and manufacturing precision driveshafts , increased travel expenses incurred servicing foreign-based customers , and public company related expenses . operating profit ( loss ) . as a result of the foregoing factors , operating profit increased $ 0.5 million to a loss of $ 3.4 million for the 2005 period from a loss of $ 3.9 million for 2004. interest income ( expense ) . as a result of a successful initial public offering in february 2005 , the company repaid the outstanding balance on the revolving credit facility and did not utilize it during the remainder of the year . in addition , our subordinated debt obligation , which totaled approximately $ 7.2 million at december 31 , 2004 , was converted into common stock . story_separator_special_tag as a result , interest expense decreased $ 1.2 million to $ 0.1 million for the 2005 period from $ 1.3 million for the same period in 2004. the company also earned interest income of $ 0.2 million during the year ended december 31 , 2005 by investing cash balances in short-term marketable securities . the company had no interest income during the year ended december 31 , 2004. income tax expense ( benefit ) . income tax benefit was $ 1.1 million for the period ended december 31 , 2005 compared to a tax benefit of $ 1.8 million for the prior year . net earnings ( loss ) . as a result of the foregoing factors , net loss from operations was $ 2.3 million for the period ended december 31 , 2005 compared to a net loss of $ 3.5 million in 2004. liquidity and capital resources cash and cash equivalents were $ 0.6 million at december 31 , 2006 compared to $ 2.0 million at december 31 , 2005. the decrease in cash and cash equivalents is principally attributed to the use of cash to reduce manitex 's revolving credit facility . as of december 31 , 2006 , the company had approximately $ 2.4 million available to borrow under its merged credit facility . additionally , the company 's manitex liftking subsidiary had credit facility which allows for borrowings up to $ 3.5 million cad . at december 31 , 2006 , there were no outstanding borrowings against the canadian facility . the company needs cash to meet its working capital needs as the business grows , to acquire capital equipment , and to fund acquisitions and debt repayment . cash flows from operations and existing availability under the current revolving credit facilities are available when the company needs cash in the future . in the december 2006 , the company reached an agreement with its bank to extend the maturity of the company 's $ 16.5 million credit facility and our $ 14.0 million note payable to april 1 , 2008. the company 's revolving credit facility dated december 15 , 2003 , had an original maturity date of january 2 , 2005. the maturity date has been extended numerous times in various increments and the maturity date is currently april 1 , 2008. the agreement contains the customary limitations including , but not limitations on acquisitions , dividends , repurchase of the company 's stock and capital expenditures . it also requires the company to have on the last date of the quarter a minimum tangible effective net worth , which is defined in the agreement as equity plus subordinated debt minus intangible assets and related party receivables . the company also has a $ 14 million note payable to comerica bank , which was due on september 10 , 2006. the maturity date has been extended ; the note is now due on april 1 , 2008. the company 's ability to meet its commitments and contractual obligations is dependent on the company 's ability to either negotiate extensions of its current credit agreements , replace the existing credit agreements with a new credit agreement with acceptable terms or to raise additional equity capital . although management believes it has the ability to negotiate the necessary extension , to find new financing with acceptable terms , or to raise additional equity capital , there is no assurance that the company will be successful in raising the necessary capital . 32 2006 operating activities generated cash of $ 0.4 million for the year ended december 31 , 2006. the company 's net loss of $ 8.9 million was more than offset by non-cash items of $ 6.7 million , and a change in working capital of $ 2.7 million . the non-cash items are principally composed of amortization and depreciation of $ 1.6 million and an impairment charge of $ 6.6 million offset by an increase in deferred taxes of $ 1.4 million , net of a valuation allowance . the increase in deferred taxes is principally related to $ 1.3 million tax benefit recorded in connection with the current year 's net loss . in march 2007 , the company adopted a plan to dispose of the testing & assembly segment operations based in wixom , michigan and expects that the final sale and disposal of the assets will be completed in the year 2007. the company determined that the carrying values of some of the underlying assets exceeded their fair values . consequently , the company recorded an impairment loss of $ 6.6 million , which represents the excess of the carrying values of the assets over their fair values , less cost to sell . ( see note 26 to the consolidated financial statements ) the decrease in working capital is principally the result of decreases of $ 2.2 million in cost in excess of billings . the decrease is related to the decline in revenues in the testing & assembly equipment segment . the company used cash in investing activities of $ 4.0 million for year ended december 31 , 2006. in 2006 , the company used $ 3.3 million to purchase manitex and manitex liftking and also invested an additional $ 0.6 million in capital assets and patents . financing activities contributed $ 2.0 million in cash for the year ended december 31 , 2006. approximately $ 10.3 million was generated by the issuance of the company stock through a sale of stock and warrants to institutional investors in a private placement . cash available from the prior year 's initial public offering and funds raised in the private placement was used to reduce the company 's line of credit by approximately $ 2.0 million and to reduce the $ 20.0 million bank note by $ 6.0 million to $ 14.0 million and to reduce capital lease obligations by $ 0.2 million .
| million for the same period in 2005. as a percentage of sales , gross margin was 9 % for the twelve month period in 2006 and 3 % for the twelve month period in 2005. gross margin and gross margin percent for twelve month period ended december 31 , 2006 ( excluding the effect of the acquisitions ) was ( $ 1 ) million and ( 18.7 % ) , respectively . the negative margin is the result of the impairment charge and an inability to eliminate fixed costs proportionally with the 33 % decrease in revenues for the testing & assembly equipment segment . research and development expenses . research and development was $ 0.2 million for the twelve months ended december 31 , 2006 and $ 0.5 million in 2005. virtually all the research and development for the 2006 period relates to the lifting equipment segment since the testing & assembly equipment segment stopped conducting research and development . selling , general and administrative expenses . selling , general and administrative expenses increased $ 3 million , or 95 % , to $ 6.3 million for the twelve months ended december 31 , 2006 from $ 3.2 million for the same period in 2005. this increase is entirely attributed to the acquisitions . selling , general and administrative expenses for the twelve month period ended december 31 , 2006 ( excluding the effect of the acquisitions ) is $ 2.7 million or a decrease of $ 0.6 million or 17 % . the decrease is primarily due to a reduction of staff in response to declining revenues . impairment of long lived assets on march 29 , 2007 , our board of directors approved a plan , to sell our testing & assembly equipment segment , in order to focus management 's attention and financial resources on our lifting equipment segment . in connection with the preparation of our 2006 year-end financial statements , the board determined that certain of our testing & assembly equipment segment 's
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our principal investment objective is to maximize our portfolio 's total return by generating current income from our debt investments and capital appreciation from our equity and equity related investments , including warrants , convertible securities and other rights to acquire equity securities in a portfolio company . our lmm companies generally have annual revenues between $ 10 million and $ 150 million , and our lmm portfolio investments generally range in size from $ 5 million to $ 25 million . our middle market investments are made in businesses that are generally larger in size than our lmm portfolio companies , with annual revenues typically between $ 150 million and $ 1.5 billion , and our middle market investments generally range in size from $ 3 million to $ 15 million . our other portfolio ( `` other portfolio '' ) investments primarily consist of investments which are not consistent with the typical profiles for our lmm and middle market portfolio investments , including investments which may be managed by third parties . in our other portfolio , we may incur indirect fees and expenses in connection with investments managed by third parties , such as investments in other investment companies or private funds . we seek to fill the current financing gap for lmm businesses , which , historically , have had more limited access to financing from commercial banks and other traditional sources . the underserved nature of the lmm creates the opportunity for us to meet the financing needs of lmm companies while also negotiating favorable transaction terms and equity participations . our ability to invest across a company 's capital structure , from senior secured loans to equity securities , allows us to offer portfolio companies a comprehensive suite of financing options , or a `` one stop '' financing solution . providing customized , `` one stop '' financing solutions has become even more relevant to our lmm portfolio companies in the current investing environment . we generally seek to partner directly with entrepreneurs , management teams and business owners in making our investments . our lmm portfolio debt investments are generally secured by a first lien on the assets of the portfolio company and typically have a term of between five and seven years . we believe that our lmm investment strategy has a lower correlation to the broader debt and equity markets . as of december 31 , 2012 , we had debt and equity investments in 59 lmm portfolio companies with an aggregate fair value of approximately $ 510.3 million , a total cost basis of approximately $ 408.0 million , and a weighted average annual effective yield on our lmm debt investments of approximately 14.2 % . as of december 31 , 2012 , approximately 76 % of our total lmm portfolio investments at cost were in the form of debt investments and approximately 94 % of such debt investments at cost were secured by first priority liens on the assets of our lmm portfolio companies . at december 31 , 2012 , we had equity ownership in approximately 90 % of our lmm portfolio companies and the average fully diluted equity ownership in those portfolio companies was approximately 32 % . as of december 31 , 2011 , we had debt and equity investments in 54 lmm portfolio companies with an aggregate fair value of approximately $ 415.7 million , a total cost basis of approximately $ 349.0 million and a weighted average annual effective yield on our lmm debt investments of approximately 14.8 % . as of december 31 , 2011 , approximately 74 % of our total lmm portfolio investments at cost were in the form of debt investments and approximately 93 % of such debt investments at cost were secured by first priority liens on the assets of our lmm portfolio companies . at december 31 , 2011 , we had equity ownership in approximately 94 % of our lmm portfolio companies and the average fully diluted equity ownership in those portfolio companies was approximately 34 % . the weighted average annual yields were computed using the effective interest rates for all debt investments as of december 31 , 2012 and 2011 , including amortization of deferred debt origination fees and accretion of 49 original issue discount but excluding fees payable upon repayment of the debt investments and any debt investments on non-accrual status . in addition to our lmm investment strategy , we pursue investments in middle market companies . our middle market portfolio investments primarily consist of direct or secondary investments in interest-bearing debt securities in companies that are generally larger in size than the lmm companies included in our lmm portfolio . our middle market portfolio debt investments are generally secured by either a first or second priority lien on the assets of the portfolio company and typically have a term of between three and five years . as of december 31 , 2012 , we had middle market portfolio investments in 85 companies collectively totaling approximately $ 390.0 million in fair value with a total cost basis of approximately $ 385.5 million . the weighted average annual revenue for the 85 middle market portfolio company investments was approximately $ 513.5 million as of december 31 , 2012. as of december 31 , 2012 , almost all of our middle market portfolio investments were in the form of debt investments and approximately 92 % of such debt investments at cost were secured by first priority liens on portfolio company assets . the weighted average annual effective yield on our middle market portfolio debt investments was approximately 8.8 % as of december 31 , 2012. as of december 31 , 2011 , we had middle market portfolio investments in 57 companies collectively totaling approximately $ 226.5 million in fair value with a total cost basis of approximately $ 228.9 million . story_separator_special_tag the weighted average annual revenue for the 57 middle market portfolio company investments was approximately $ 472.6 million as of december 31 , 2011. as of december 31 , 2011 , almost all of our middle market portfolio investments were in the form of debt investments and approximately 82 % of such debt investments at cost were secured by first priority liens on portfolio company assets . the weighted average annual effective yield on our middle market portfolio debt investments was approximately 9.5 % as of december 31 , 2011. the weighted average annual yields were computed using the effective interest rates for all debt investments as of december 31 , 2012 and 2011 , including amortization of deferred debt origination fees and accretion of original issue discount but excluding fees payable upon repayment of the debt investments . as of december 31 , 2012 , we had other portfolio investments in 3 companies collectively totaling approximately $ 24.1 million in fair value and approximately $ 23.6 million in cost basis and which comprised 2.6 % of our investment portfolio at fair value as of december 31 , 2012. as of december 31 , 2011 , we had other portfolio investments in 3 companies collectively totaling approximately $ 14.1 million in both fair value and cost basis and which comprised 2.1 % of our investment portfolio at fair value as of december 31 , 2011. our portfolio investments are generally made through mscc and the funds . mscc and the funds share the same investment strategies and criteria , although they are subject to different regulatory regimes . an investor 's return in mscc will depend , in part , on the funds ' investment returns as msmf and msc ii are both wholly owned subsidiaries of mscc . the level of new portfolio investment activity will fluctuate from period to period based upon our view of the current economic fundamentals , our ability to identify new investment opportunities that meet our investment criteria , and our ability to consummate the identified opportunities . the level of new investment activity , and associated interest and fee income , will directly impact future investment income . in addition , the level of dividends paid by portfolio companies and the portion of our portfolio debt investments on non-accrual status will directly impact future investment income . while we intend to grow our portfolio and our investment income over the long-term , our growth and our operating results may be more limited during depressed economic periods . however , we intend to appropriately manage our cost structure and liquidity position based on applicable economic conditions and our investment outlook . the level of realized gains or losses and unrealized appreciation or depreciation will also fluctuate depending upon portfolio activity and the performance of our individual portfolio companies . the changes in realized gains and losses and unrealized appreciation or depreciation could have a material impact on our operating results . mscc and its consolidated subsidiaries are internally managed by the investment manager , a wholly owned subsidiary of mscc , which employs all of the executive officers and other employees of main street . because the investment manager is wholly owned by mscc , main street does not pay any external 50 investment advisory fees , but instead incurs the operating costs associated with employing investment and portfolio management professionals through the investment manager . we believe that our internally managed structure provides us with a beneficial operating expense structure when compared to other publicly-traded and privately-held investment firms which are externally managed , and our internally managed structure allows us the opportunity to leverage our non-interest operating expenses as we grow our investment portfolio . for the years ended december 31 , 2012 and 2011 , the ratio of our total operating expenses , excluding interest expense , as a percentage of our quarterly average total assets was 1.8 % and 2.2 % respectively . in addition , during may 2012 , we and the investment manager executed an investment sub-advisory agreement with hms adviser , lp , which is the investment advisor to hms income fund , inc. , a non publicly-traded bdc whose registration statement on form n-2 was declared effective by the sec in june 2012 , to provide certain investment advisory services to hms adviser , lp . we are initially providing such investment advisory services to hms adviser , lp , but ultimately intend that the investment manager provide such services because the fees we receive from such arrangement could otherwise have negative consequences on our ability to meet the source-of-income requirement necessary for us to maintain our ric tax treatment . we will need to obtain certain relief from the sec before the investment manager is permitted to provide these services to hms adviser , lp , which we are seeking , but there can be no assurance that we will obtain such relief . critical accounting policies basis of presentation our financial statements are prepared in accordance with generally accepted accounting principles in the united states of america ( `` u.s. gaap '' ) . for the three years ended december 31 , 2012 , 2011 and 2010 , our consolidated financial statements include the accounts of mscc and its consolidated subsidiaries , which include the funds and the taxable subsidiaries . portfolio investments , as used herein , refers to all of our portfolio investments in lmm companies , middle market portfolio investments , other portfolio investments and our investment in the investment manager but excludes all of our `` marketable securities and idle funds investments . '' marketable securities and idle funds investments are classified as financial instruments and are reported separately on our consolidated balance sheets and consolidated schedule of investments due to the nature of such investments .
| ( b ) per share amounts exclude the earnings attributable to the noncontrolling equity interests in msc ii not owned by main street for the periods prior to the completion of the final msc ii exchange during the first quarter of 2012. investment income for the year ended december 31 , 2012 , total investment income was $ 90.5 million , a $ 24.3 million , or 37 % , increase over the $ 66.2 million for the corresponding period of 2011. this comparable period increase was principally attributable to ( i ) a $ 19.1 million increase in interest income from increased activity in the investment portfolio and higher average levels of portfolio debt investments and interest-bearing marketable securities investments , ( ii ) a $ 3.2 million increase in dividend income from portfolio equity investments and ( iii ) a $ 2.0 million increase in fee income due to the increased activity in and size of the investment portfolio . the increase in investment income included ( i ) $ 1.8 million of non-recurring investment income during the first quarter of 2012 associated with repayment and financing activities for two lmm portfolio investments , ( ii ) a $ 3.2 million increase in investment income associated with higher levels of accelerated prepayment activity for certain middle market portfolio debt investments and marketable securities investments in comparison to 2011 and ( iii ) special dividend activity of $ 1.4 million in the fourth quarter of 2012. expenses for the year ended december 31 , 2012 , total expenses increased by approximately $ 4.3 million , or 16 % , to $ 31.2 million from $ 26.9 million for the corresponding period of 2011. this comparable period increase in expenses was principally attributable to ( i ) higher interest expense of $ 2.1 million as a result of the net issuance of an additional $ 5 million in sbic debentures subsequent to december 31 , 2011 , increased borrowing activity under the credit facility and higher unused fees associated with the increased commitments under the credit facility , ( ii ) higher share-based compensation expense of $ 0.5 million related to non-cash amortization for restricted share grants , and ( iii ) higher compensation and expenses of $ 1.7 million related to increases in personnel and incentive compensation compared to the corresponding period of 2011. for the years ended december 31 , 2012 and 2011 , the ratio of our total operating expenses , excluding interest expense , as a percentage of our quarterly average total assets was 1.8 % and 2.2 % , respectively . distributable net investment income distributable net investment income for the year ended december 31 , 2012 increased
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however , we continued to see resilient levels of activities on development projects and producing fields in the gulf of mexico during 2015. subsequent to year end , the north america rig count has fallen an additional 5 % by the end of january 2016. outside of north america , activities associated with the exploration for and production of oil have also decreased from 2014 levels , although not as significantly as the land-based activities in north america . the rig count outside of north america at the end of 2015 was down approximately 17 % from the end of 2014 and average rig count decreased by approximately 13 % . these reduced international activities have impacted most regions , except the middle east , where we continued to see sustained activity levels during 2015. subsequent to year end , the rig count outside of north america has declined almost 5 % by the end of january 2016. as with north american land-based activity , we believe international activities will also remain at reduced levels without a meaningful improvement in the current global crude oil prices . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; color : # 000000 ; text-decoration : none ; '' > $ 27.5 million in 2015 increased compared to $ 26.7 million and $ 25.5 million in 2014 and 2013 , respectively . other ( income ) expense , net the components of other ( income ) expense , net , were as follows ( in thousands ) : replace_table_token_5_th we incurred property losses due to hurricane isaac in 2012. during 2013 , our insurance claim for property losses and business interruption was fully settled for $ 1.6 million . 21 foreign exchange gains and losses are summarized in the following table ( in thousands ) : replace_table_token_6_th severance and other charges in 2015 , in response to lower commodity pricing for crude oil and reduced spending by our clients on their oil and gas fields , we reduced our cost structure , primarily through a reduction in our workforce , to better align with the decreasing activity levels into the foreseeable future . as a result of these cost reductions , we recorded severance charges of $ 8.8 million , of which approximately $ 3.6 million were accrued and remaining to be paid at december 31 , 2015. additionally , the company recorded a charge to income associated with the impairment of certain equipment and intangible assets and facility exit costs of $ 5.5 million . during 2015 , we recorded loss contingencies for various ongoing legal issues of $ 8.6 million . see note 11 of the notes to consolidated financial statements . interest expense interest expense increased by $ 1.8 million in 2015 compared to 2014 primarily due to increased borrowings on our revolving credit facility . income tax expense income tax expense decreased by $ 43.5 million in 2015 compared to 2014 due primarily to a decrease in taxable income in 2015 . income tax expense decreased by $ 3.6 million in 2014 compared to 2013 due primarily to a decrease in taxable income in 2014 . the effective tax rate was 22.7 % , 23.0 % , and 25.0 % for 2015 , 2014 , and 2013 , respectively . segment analysis the following charts and tables summarize the annual revenue and operating results for our three complementary business segments . segment revenue 22 segment revenue replace_table_token_7_th segment operating income for the years ended december 31 , ( dollars in thousands ) 2015 % change 2014 % change 2013 reservoir description $ 111,032 ( 22.7 ) % $ 143,624 ( 1.9 ) % $ 146,338 production enhancement 35,027 ( 78.8 ) % 165,204 6.8 % 154,715 reservoir management 15,655 ( 57.9 ) % 37,220 18.0 % 31,555 corporate and other ( 1 ) ( 644 ) nm 483 nm 811 operating income $ 161,070 ( 53.5 ) % $ 346,531 3.9 % $ 333,419 ( 1 ) “ corporate and other '' represents those items that are not directly relating to a particular segment . `` nm '' means not meaningful . segment operating income margins ( 1 ) for the years ended december 31 , 2015 2014 2013 margin margin margin reservoir description 23.5 % 27.7 % 28.0 % production enhancement 13.1 % 35.3 % 34.2 % reservoir management 27.5 % 37.7 % 31.9 % total company 20.2 % 31.9 % 31.1 % ( 1 ) calculated by dividing `` operating income '' by `` revenue . '' reservoir description revenue for our reservoir description segment decreased to $ 473.4 million in 2015 compared to $ 519.0 million in 2014 and $ 522.3 million in 2013 . the decrease in revenues in 2015 is primarily due to the strengthening of the u.s. dollar against certain currencies such as the euro , australian dollar , canadian dollar , british pound , and russian ruble , in which we invoice a portion of our revenue . this segment 's operations continue to work on large-scale , long-term , crude-oil and lng projects with an emphasis on offshore developments and international markets . we continue to focus on large-scale core analyses and reservoir fluids characterization studies in the asia-pacific areas , offshore west and east africa , the eastern mediterranean region and the middle east , including kuwait and the united arab emirates . operating income decreased to $ 111.0 million in 2015 from $ 143.6 million in 2014 and $ 146.3 million in 2013 . the decrease in operating income in 2015 over 2014 was due to lower activity levels and also includes additional charges for severance , asset impairments , and accrual for contingent losses in 2015. the decrease in operating income in 2014 over 2013 was the result of declining revenues . operating margins were 23.5 % in 2015 down from 27.7 % in 2014 and 28.0 % in 2013 . story_separator_special_tag production enhancement revenue for our production enhancement segment decreased to $ 267.2 million in 2015 compared to $ 467.6 million in 2014 and $ 452.4 million in 2013 . the revenue decrease of 42.8 % in 2015 compared to 2014 was less than the decrease in the u.s. horizontal rig count of 62 % during 2015. this significant decrease in north america industry activity reduced demand for our products associated with land-based completion of oil wells in u.s. unconventional developments . the increase in revenue in 2014 compared to 2013 was primarily due to the continued success of core 's flowprofiler tm service , our new completion diagnostic service for optimizing completions and stimulations of horizontal wells , and our new kodiak tm propellant booster coupled with our hero tm perforating charges . 23 operating income for this segment decreased to $ 35.0 million in 2015 from $ 165.2 million in 2014 and $ 154.7 million in 2013 . operating margins decreased to 13.1 % in 2015 . the decreases in operating income and operating margin in 2015 compared to 2014 were primarily due to decreased revenue in 2015 and the absorption of our fixed-cost structure over this lower revenue . the increases in operating income and operating margin in 2014 compared to 2013 were primarily driven by increased demand for the company 's proprietary and patented hydraulic fracture and field-flood diagnostic technologies and services such as flowprofiler , spectrachem ® , zero wash ® , and spectraflood diagnostic tracers in north america and internationally . reservoir management revenue for our reservoir management segment decreased to $ 57 million in 2015 compared to $ 98.7 million in 2014 and $ 98.8 million in 2013 . the decrease in revenue in 2015 compared to 2014 is primarily due to the decrease of oil commodity prices and , as a result , reduced spending from our oil and gas clients , especially in the canadian oil sands . we continue to have interest in our existing multi-client reservoir studies such as the duvernay shale project in canada and the tight oil reservoirs of the midland basin study as well as our new joint-industry projects in the williston basin targeting the tight oil of the entire three forks sections and a study in the appalachian basin of the emerging devonian shales in the liquids window . operating income for this segment decreased to $ 15.7 million in 2015 compared to $ 37.2 million in 2014 and $ 31.6 million in 2013 . operating margins decreased to 27.5 % in 2015 , from 37.7 % and 31.9 % in 2014 and 2013 , respectively . the decrease in operating income in 2015 compared to 2014 was due primarily to decreased revenue and absorption of our fixed costs over lower revenue . we are still focused on our joint industry projects , including the utica , duvernay , and mississippi lime studies and the marcellus , niobrara , wolfcamp and eagle ford plays , as well as the sale of fully completed studies . liquidity and capital resources general we have historically financed our activities through cash on hand , cash flows from operations , bank credit facilities , equity financing and the issuance of debt . cash flows from operating activities provides the primary source of funds to finance operating needs , capital expenditures and our dividend and share repurchase programs . if necessary , we supplement this cash flow with borrowings under bank credit facilities to finance some capital expenditures and business acquisitions . as we are a netherlands holding company , we conduct substantially all of our operations through subsidiaries . our cash availability is largely dependent upon the ability of our subsidiaries to pay cash dividends or otherwise distribute or advance funds to us . our financial statements are prepared in conformity with generally accepted accounting principles in the u.s. ( `` u.s. gaap '' or `` gaap '' ) . we utilize the non-gaap financial measure of free cash flow to evaluate our cash flows and results of operations . free cash flow is defined as net cash provided by operating activities ( which is the most directly comparable gaap measure ) less cash paid for capital expenditures . management believes that free cash flow provides useful information to investors regarding the cash that was available in the period that was in excess of our needs to fund our capital expenditures and operating activities . free cash flow is not a measure of operating performance under gaap , and should not be considered in isolation nor construed as an alternative to operating profit , net income ( loss ) or cash flows from operating , investing or financing activities , each as determined in accordance with gaap . free cash flow does not represent residual cash available for distribution because we may have other non-discretionary expenditures that are not deducted from the measure . moreover , since free cash flow is not a measure determined in accordance with gaap and thus is susceptible to varying interpretations and calculations , free cash flow , as presented , may not be comparable to similarly titled measures presented by other companies . the following table reconciles this non-gaap financial measure to the most directly comparable measure calculated and presented in accordance with u.s. gaap for the years ended december 31 , 2015 , 2014 and 2013 ( in thousands ) : replace_table_token_8_th free cash flow as a percent of net income continued to be strong even though free cash flow decreased in 2015 as compared to 2014. this decrease was primarily due to the decrease in cash flow from operating activities as a result of lower activity levels 24 for the oil and gas industry . free cash flow increased slightly in 2014 as compared to 2013 primarily due to the growth of the company , with the increase in net income leading to the increase in cash provided by operations .
| the increase in services revenue from 2013 to 2014 was primarily due to growth in our fracture diagnostic services led by our flowprofiler tm technology along with our continued focus on worldwide crude oil related and large natural gas liquefaction projects , especially those related to the development of deepwater fields off west and east africa , the eastern mediterranean region and increased activity in the gulf of mexico . product sales revenue product sales revenue , which is tied more to demand in north america , decreased to $ 185.6 million for 2015 , from $ 304.4 million for 2014 and $ 308.1 million in 2013 . although average rig count for the u.s. and canada declined 48 % during 2015 compared to 2014 , our product sales revenue decreased only 39 % as our differentiated well completion product sales held up better than the industry activity levels in north america . during 2014 , sales increased over 2013 due to continued improvement in sales of newly introduced products using more advanced technology which partially replaced perforating products developed using basic technology . this improved sales revenue mix was a result of increasing market penetration of new technologies such as our new completion systems for optimizing completion and stimulations of horizontal wells , including our htd-blast tm and kodiak tm enhanced perforating systems and our permanent reservoir monitoring systems , primarily in the 20 canadian oil sands market . these new higher margin products replaced higher volume , low margin perforating products in our revenue mix . cost of services , excluding depreciation cost of services decreased to $ 387.7 million for 2015 from $ 449.5 million for 2014 and $ 445.0 million for 2013 . as a percentage of services revenue , cost of services increased to 63.4 % in 2015 from 57.6 % in 2014 and 58.1 % in 2013 . these increases are primarily due to a reduced absorption rate of our fixed-cost structure across lower revenues in 2015 when compared to 2014 and 2013 . we took actions to reduce our cost structure in response to the sharp decline in global activity during 2015 . see section `` severance and other charges '' below . cost of product sales ,
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the transaction directly aligns with our strategy to grow in large , higher growth , higher margin markets , and expands our utility services capabilities . on june 1 , 2018 , we acquired willbros group inc. ( “ willbros ” ) for approximately $ 110.6 million , net of cash and restricted cash acquired . willbros was a specialty energy infrastructure contractor serving the oil and gas and power industries through its utility transmission and distribution , oil and gas , and canadian operations , which principally provides unit-price maintenance services in existing operating facilities and executes industrial and power projects . the utility transmission and distribution operations formed the transmission segment , the oil and gas operations are included in the pipeline segment , and the canadian operations are included in the power segment . willbros expands our services into electric utility-focused offerings and increases our geographic presence in the united states and canada . we own a 50 % interest in the carlsbad power constructors joint venture ( “ carlsbad ” ) , which engineered and constructed a gas-fired power generation facility located in southern california , and its operations are included as part of the power segment . as a result of determining that we are the primary beneficiary of the variable interest entity ( “ vie ” ) , the results of the carlsbad joint venture are consolidated in our financial statements . the project was substantially complete as of december 31 , 2018 and the warranty period expires in december 2021 . we owned a 50 % interest in the “ arb inc. & b & m engineering co. ” joint venture ( “ wilmington ” ) , which engineered and constructed a gas-fired power generation facility in southern california , and its operations were included as part of the power segment . as a result of determining that we were the primary beneficiary of the vie , the results of the wilmington joint venture were consolidated in our financial statements . the project has been completed , the project warranty period expired , and dissolution of the joint venture was completed in the first quarter of 2019 . business environment we believe there are growth opportunities across the industries we serve and we continue to have a positive long-term outlook . although not without risks and challenges , including those discussed below and in forward-looking statements and included in item 1a . risk factors , we believe , with our full-service operations , broad geographic reach , financial position and technical expertise , we are well positioned to capitalize on opportunities and trends in our industries . we have seen and continue to anticipate potential changes to the already stringent regulatory and environmental requirements for many of our clients ' infrastructure projects , which may improve the timing and certainty of the projects . while fluctuating oil prices create uncertainty as to the timing of some of our opportunities , we continue to see preliminary bidding activity for numerous gas , oil and derivatives projects . we believe that we have the financial and operational strength to meet either short-term delays , or the impact of significant increases in work . we continue to be 29 optimistic about both short and longer-term opportunities . our current view of the outlook for our major end markets is as follows : ● construction of petroleum , natural gas , natural gas liquid , and other liquid pipelines —we expect that the volatility in the price of oil could reduce activities in most , if not all of the shale basins until a higher oil price is sustained . in addition , the ability of our customers to obtain permits for projects could impact the demand for our services , especially for larger interstate pipelines . however , if production from the shale formations continues to increase in the near term , the current capacity limitations between production and processing locations would provide opportunities for our pipeline segment . ● inspection , maintenance and replacement of gas utility infrastructure —we expect that ongoing safety enhancements to gas pipeline systems and the gas utility infrastructure will provide continuing opportunities for our utilities segment , in california , the midwest , and the atlantic coast . we also expect that ongoing gas utility repair and maintenance opportunities will continue . ● inspection , maintenance and replacement of electric utility infrastructure — we expect the demand for electricity in the u.s. to grow over the long term and believe enhancements to the electric utility infrastructure are needed to efficiently serve the power needs of the future . renewables will require substations and transmission lines to connect the new generation sources to customers . in addition , current federal legislation also requires the power industry to meet federal reliability standards for its transmission and distribution systems . we expect these opportunities , as well as ongoing electric utility repair and maintenance opportunities to benefit our transmission segment . ● construction of natural gas-fired power plants and industrial plants — we expect continued construction opportunities for both base-load and peak shaving power plants ; however , we are aware that environmental concerns in california over gas fired power plants may impact the timing and location of near-term construction opportunities in that state . we believe that based on continuing population growth , the intermittency of renewable power resources , and the environmental requirements limiting using ocean water for cooling , power plants will be needed in spite of vocal opposition to “ non-green ” sources . in addition , the current low price of natural gas could result in the replacement of coal-fired power plants and the conversion and expansion at chemical plants and industrial facilities in other parts of the united states . these opportunities would benefit our power segment . story_separator_special_tag ● construction of alternative energy facilities , renewable natural gas facilities , solar power facilities , wind farms , battery storage — we anticipate continued engineering and construction opportunities as state governments , investors and utilities remain committed to renewable power standards , primarily benefitting our power segment . ● transportation infrastructure construction opportunities — we believe that the passing of longer-term highway funding by the federal government in 2015 and voter approval of highway funding proposition 7 in texas , will continue to provide opportunity for our heavy civil group , especially in the state of texas . we expect that opportunities in the louisiana market may improve , but will remain at lower levels than in texas , except for specific programs . this market solely impacts the operations of our civil segment . ● liquefied natural gas facilities ( “ lng ” ) —we believe the lng opportunities for rail , barge , and other transportation needs will continue to grow , although such growth may be at a slow pace . this market will primarily impact our civil and power segments . we further believe the existing large-scale lng export facilities currently being planned will require services that will benefit our field services business within the pipeline segment . material trends and uncertainties we generate our revenue from construction and engineering projects , as well as from providing a variety of specialty construction services . we depend in part on spending by companies in the gas and electric utility industries , the energy , chemical , and oil and gas industries , as well as state departments of transportation and municipal water and wastewater customers . over the past several years , each segment has benefited from demand for more efficient and more 30 environmentally friendly energy and power facilities , more reliable gas and electric utility infrastructure , local highway and bridge needs , and from the activity level in the oil and gas industry . however , periodically , each of these industries and government agencies is adversely affected by macroeconomic conditions . economic and other factors outside of our control may affect the amount and size of contracts we are awarded in any particular period . in march 2020 , the covid-19 outbreak was declared a national public health emergency which continues to spread throughout the world and has adversely impacted global activity and contributed to significant volatility in financial markets . in an effort to contain covid-19 or slow its spread , governments around the world have enacted various measures , including orders to close all businesses not deemed “ essential ” , isolate residents to their homes or places of residence , and practice social distancing when engaging in essential activities . while our services have generally been deemed to be essential services , all segments have reported various levels of project interruptions and restrictions that have delayed project timelines from those originally planned . in some cases , we have experienced temporary work stoppages . this led to general inefficiencies from having to start and stop work , re-sequencing work , requiring on-site health screenings before entering a job site , and following proper social distancing practices . we have also been restricted from completing work or have been prevented from starting work on certain projects . however , despite these impacts , our work has generally been deemed essential , our business model appears to be resilient , and we have adapted accordingly , including making salary or headcount reductions where appropriate . we anticipate that the covid-19 pandemic could have a continued adverse impact on economic and market conditions and we could see an extended period of global economic slowdown . when covid-19 is demonstrably contained , we anticipate a rebound in economic activity , depending on the rate , pace , and effectiveness of vaccinations and the containment efforts deployed by various national , state , and local governments . to date , the inefficiencies experienced have had an unquantifiable impact on our business . we will continue to actively monitor the situation and may take further actions to alter our business operations that we determine are in the best interests of our employees , customers , suppliers , and stakeholders , or as required by federal , state , or local authorities . it is not clear what the potential effects any such alterations or modifications may have on our business or on our financial results for the foreseeable future . we also monitor our customers and their industries to assess the effect that changes in economic , market , and regulatory conditions may have on them . we have experienced reduced spending , project delays , and project cancellations by some of our customers over the last several months , which we attribute to negative economic and market conditions , and we anticipate that these negative conditions and the impact of covid-19 may continue to affect demand for our services in the near-term . fluctuations in market prices of oil , gas and other fuel sources have affected demand for our services . the volatility in the prices of oil , gas , and liquid natural gas that has occurred in the past few years could create uncertainty with respect to demand for our oil and gas pipeline services , specifically in our oil field services and canadian operations . last year 's significant reduction in the price of oil could create uncertainty with respect to demand for our oil and gas pipeline services in the near term , with additional uncertainty resulting over the length of time that prices remain depressed . when the current oversupply eases and with a return to increasing global demand for oil , we expect oil prices to recover from the current levels .
| 2020 and 2019 sg & a expenses were $ 202.8 million for the year ended december 31 , 2020 , an increase of $ 12.8 million , or 6.7 % compared to 2019 primarily due to a $ 7.4 million increase in compensation related expenses , including incentive compensation and a $ 3.4 million increase in new information technology systems and related implementation expenses . sg & a expense as a percentage of revenue for the year ended december 31 , 2020 decreased to 5.8 % compared to 6.1 % for the year ended december 31 , 2019 due to increased revenue . 2019 and 2018 sg & a expenses were $ 190.1 million for the year ended december 31 , 2019 , an increase of $ 8.1 million , or 4.4 % primarily due to $ 10.9 million of incremental expense from the willbros acquisition and a $ 2.2 million increase in facility lease expense , partially offset by a $ 5.8 million decrease in compensation related expenses . sg & a expense as a percentage of revenue was comparable to 2018 . transaction and related costs 2020 and 2019 transaction and related costs incurred for the year ended december 31 , 2020 were $ 3.4 million consisting primarily of professional fees related to our acquisition of fih . no transaction and related costs were incurred for the year ended december 31 , 2019 . 2019 and 2018 no transaction and related costs were incurred for the year ended december 31 , 2019 , compared to $ 13.3 million for the year ended december 31 , 2018 , related to the acquisition of willbros , which consisted primarily of severance and retention bonus costs for certain employees of willbros , professional fees paid to advisors , and exiting or impairing certain duplicate facilities . other income and expense non-operating income and expense items for the years ended december 31 , 2020 , 2019 and 2018 were as follows ( in millions ) : replace_table_token_2_th foreign exchange gain ( loss ) in 2020 , 2019 and 2018 is
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61 our net operating revenues for the year ended december 31 , 2015 , increased $ 798 million to approximately $ 19.4 billion compared to approximately $ 18.6 billion for the year ended december 31 , 2014. our provision for bad debts increased to $ 3.127 billion , or 13.9 % of operating revenues ( before the provision for bad debts ) for the year ended december 31 , 2015 , from $ 2.922 billion , or 13.6 % of operating revenues ( before the provision for bad debts ) for the year ended december 31 , 2014. included in the increase to the provision for bad debts is a $ 169 million change in estimate recorded during the fourth quarter of 2015. this increase resulted from an increase in uncollectible accounts and other unfavorable trends noted during the fourth quarter . we believe the increase in uncollectible accounts is the result of slightly lower benefits from healthcare reform compared to what was previously estimated and a deterioration in the quality of certain categories of self-pay accounts being pursued for collection by our in-house collection agency . these specific categories of self-pay accounts include decreases in collections of deductibles and co-pays , increases in personal bankruptcies , and declines in the growth of scheduled time payments . we had income from continuing operations before noncontrolling interests of $ 295 million during the year ended december 31 , 2015 , compared to $ 260 million for the year ended december 31 , 2014. income from continuing operations before noncontrolling interests for the year ended december 31 , 2015 included an after-tax charge of $ 10 million for loss from early extinguishment of debt , $ 1 million after-tax expense for acquisition and integration expenses from the hma merger , $ 3 million after-tax expense for government legal settlements for several qui tam matters settled in principle and related legal expenses , $ 41 million after-tax expense for the impairment of long-lived assets , an after-tax charge of $ 5 million from fair value adjustments related to the hma legal proceedings , accounted for at fair value , underlying the cvr agreement and related legal expenses , an after-tax charge of $ 10 million related to costs incurred for the planned spin-off of qhc and $ 108 million after-tax charge related to the increase in the provision for bad debts as discussed above . income from continuing operations before noncontrolling interests for the year ended december 31 , 2014 , included an after-tax charge of $ 45 million for loss from early extinguishment of debt , $ 43 million after-tax expense for acquisition and integration expenses from the hma merger , an after-tax charge of $ 47 million for the acceleration of amortization on software to be abandoned , an after-tax charge of $ 25 million for impairment of software costs taken out of service , and an after-tax charge of $ 64 million for the government settlement and related costs in connection with the agreement in principle to settle claims at our new mexico hospitals . these after-tax charges were partially offset by an after-tax income of $ 3 million from fair value adjustments , net of legal expenses , related to the hma legal proceedings underlying the cvr agreement . consolidated inpatient admissions for the year ended december 31 , 2015 , increased 1.7 % , compared to the year ended december 31 , 2014 , and consolidated adjusted admissions for the year ended december 31 , 2015 , increased 3.5 % , compared to the year ended december 31 , 2014. same-store inpatient admissions for the year ended december 31 , 2015 , decreased 1.8 % , compared to the year ended december 31 , 2014 , and same-store adjusted admissions for the year ended december 31 , 2015 , increased 0.3 % , compared to the year ended december 31 , 2014. self-pay revenues represented approximately 12.3 % and 13.0 % for the years ended december 31 , 2015 and 2014 , respectively . during 2015 , we experienced a decline in self-pay admissions and adjusted admissions resulting in a corresponding decline in self-pay revenues as a percentage of total net operating revenues . this decrease is reflective of an increase in medicaid admissions and revenues , primarily in medicaid expansion states , as a result of the implementation of the patient protection and affordable care act , as amended by the health care and education reconciliation act of 2010 , collectively , the reform legislation . the reduction in self-pay admissions and revenue was also experienced in non-expansion states , although to a lesser degree . the amount of foregone revenue related to providing charity care services as a percentage of net operating revenues was approximately 2.3 % and 3.0 % for the years ended december 31 , 2015 and 2014 , respectively . direct and indirect costs incurred in providing charity care services were approximately 0.3 % and 0.5 % for the years ended december 31 , 2015 and 2014 , respectively . the u.s. congress and certain state legislatures have introduced and passed a large number of proposals and legislation designed to make major changes in the healthcare system , including changes that increased access to health insurance . the reform legislation mandates that substantially all u.s. citizens maintain medical 62 insurance coverage and expands health insurance coverage through a combination of public program expansion and private sector health insurance reforms . based on projections issued by the cbo in march 2015 , the incremental insurance coverage due to the reform legislation could result in 25 million formerly uninsured americans gaining coverage by the end of 2025. as the number of persons with access to health insurance in the united states increases , there may be a resulting increase in the number of patients using our facilities who have health insurance coverage . story_separator_special_tag we operate hospitals in eight of the 10 states that experienced the largest reductions in uninsured rates among adult residents between 2013 and 2015. most of these states with the greatest reductions in the number of uninsured adult residents have established a health insurance exchange operated either by the state or in partnership with the federal government and also expanded medicaid . however , states may opt out of the medicaid coverage expansion provisions of the reform legislation without losing existing federal medicaid funding . a number of states have opted out of the medicaid coverage expansion provisions , but could ultimately decide to expand their programs at a later date . of the 28 states in which we operate hospitals that are included in continuing operations , 15 states have taken action to expand their medicaid programs , including louisiana , which is expected to implement medicaid coverage expansion at some point in 2016. at this time , the other 13 states have not , including florida , tennessee and texas , where we operated a significant number of hospitals as of december 31 , 2015. some states that have opted out are evaluating options such as waiver plans to operate an alternative medicaid expansion plan . failure to expand medicaid or implement an effective alternative in these states will likely have a negative impact on the goal of reducing the number of uninsured individuals . we believe our hospitals are well positioned to participate in the provider networks of various qualified health plans , or qhps , offering plan options on the health insurance exchanges created pursuant to the reform legislation . for the 2016 plan year , all of our hospitals in continuing operations have arrangements to participate in at least one health insurance exchange agreement , approximately 90 % of our hospitals participate in two or more contracts , approximately 87 % of our hospitals participate in the first or second lowest cost bronze plan networks ( qhps with a 60 % actuarial value ) and approximately 90 % of our hospitals participate in the first or second lowest cost silver plan networks ( qhps with a 70 % actuarial value ) . the reform legislation makes a number of changes to medicare and medicaid , such as reductions to the medicare annual market basket update for federal fiscal years 2010 through 2019 , a productivity offset to the medicare market basket update , and a reduction to the medicare and medicaid disproportionate share payments , each of which could adversely impact the reimbursement received under these programs . the reform legislation includes provisions aimed at reducing fraud , waste and abuse in the healthcare industry . these provisions allocate significant additional resources to federal enforcement agencies and expand the use of private contractors to recover potentially inappropriate medicare and medicaid payments . the reform legislation amends several existing federal laws , including the anti-kickback statute and the false claims act , to make it easier for government agencies and private plaintiffs to prevail in lawsuits brought against healthcare providers . these amendments also make it easier for potentially severe fines and penalties to be imposed on healthcare providers that violate applicable laws and regulations . we believe the expansion of private sector health insurance and medicaid coverage will , over time , increase our reimbursement related to providing services to individuals who were previously uninsured , which should reduce our expense from uncollectible accounts receivable . the various provisions in the reform legislation that directly or indirectly affect reimbursement take effect over a number of years . in addition , we believe that the reform legislation had a positive impact on net operating revenues and income from continuing operations during 2014 and 2015 as the result of the expansion of private sector and medicaid coverage that has already occurred from the reform legislation and we believe that the net impact of the reform legislation on our net operating revenues will continue to be positive . other provisions of the reform legislation , such as requirements related to employee health insurance coverage , have increased and will continue to increase our operating costs . 63 because of the many variables involved , including clarifications and modifications resulting from the rule-making process , legislative efforts to repeal or modify the law , future judicial interpretations resulting from court challenges to its constitutionality and interpretation , the development of agency guidance , whether and how many states ultimately decide to expand medicaid coverage , the number of uninsured who elect to purchase health insurance coverage , budgetary issues at federal and state levels , and the potential for delays in the implementation of the reform legislation , it is difficult to predict the ultimate effect of the reform legislation . we may not be able to fully realize the positive impact the reform legislation may otherwise have on our business , results of operations , cash flow , capital resources and liquidity . furthermore , we can not predict whether we will be able to modify certain aspects of our operations to offset any potential adverse consequences from the reform legislation . payment under the medicare program for physician services , which is based upon the medicare physician fee schedule , or mpfs , changed in april 2015 with the enactment of the medicare access and chip reauthorization act of 2015 , or macra . the law effectively eliminated a payment reduction that was scheduled for physicians and other practitioners who treat medicare patients . macra provides for a 0.5 % update to the mpfs for each calendar year through 2019. in addition , macra requires the establishment of the merit-based incentive payment system , or mips , beginning in 2019 , under which physicians will receive performance-based payment incentives or payment reductions based on their performance with respect to clinical quality , resource use , clinical improvement activities , and meaningful use of electronic health records .
| replace_table_token_16_th replace_table_token_17_th ( a ) operating expenses include salaries and benefits , supplies , other operating expenses , government settlement and related costs , electronic health records incentive reimbursement and rent . ( b ) adjusted admissions is a general measure of combined inpatient and outpatient volume . we computed adjusted admissions by multiplying admissions by gross patient revenues and then dividing that number by gross inpatient revenues . ( c ) includes loss from discontinued operations . ( d ) the year ended december 31 , 2014 includes former hma hospitals for the period from january 1 through december 31 , 2014 , as if such hospitals were owned during both comparable periods . for all hospitals owned throughout both periods , the same-store information reflects the indicated periods . the same-store information reflected below does not reflect the application of purchase accounting adjustments as if the hma merger had been completed on january 1 , 2014. in addition , same-store comparisons exclude our hospitals that have previously been classified as discontinued operations for accounting purposes . 68 year ended december 31 , 2015 compared to year ended december 31 , 2014 net operating revenues increased by 4.3 % to approximately $ 19.4 billion for the year ended december 31 , 2015 , from approximately $ 18.6 billion for the year ended december 31 , 2014. our provision for bad debts increased to $ 3.127 billion , or 13.9 % of operating revenues ( before the provision for bad debts ) for the year ended december 31 , 2015 , from $ 2.922 billion , or 13.6 % of operating revenues ( before the provision for bad debts ) for the year ended december 31 , 2014. during the fourth quarter of 2015 , we noted that two key indicators analyzed as part of the estimate for the allowance for doubtful accounts cash collections as a percentage of trailing twelve months revenue and days revenue outstanding had trended unfavorably since the end of the third quarter .
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on both a dollar and per asm basis , the majority of the increases were the result of higher salaries and resulting company contributions to the company sponsored 401 ( k ) plans , primarily driven by wage rate increases . in addition , the company announced a $ 1,000 per employee bonus as a result of the 2017 tax reform , which comprised approximately $ 70 million of the increase in salaries , wages , and benefits expense . prior year results included $ 356 million of ratification bonuses accrued during 2016 , associated with collective-bargaining agreements reached with multiple unionized workgroups . based on current cost trends and anticipated capacity , the company expects first quarter 2018 salaries , wages , and benefits expense per asm , excluding profitsharing expense , to increase , compared with first quarter 2017 . the year-over-year projection does not reflect the potential impact of profitsharing expense in both years because the company can not reliably predict or estimate that expense or its impact to the company 's financial statements in future periods . accordingly , the company believes a reconciliation of non-gaap financial measures to the equivalent gaap financial measures for projected results is not meaningful or available without unreasonable effort . during 2017 , the company conducted negotiations with various unionized employee groups . see the above discussion in company overview regarding an agreement reached during the year . the following table sets forth the company 's unionized employee groups that are currently in negotiations on collective-bargaining agreements : employee group approximate number of employees representatives amendable date southwest material specialists ( formerly known as stock clerks ) 300 international brotherhood of teamsters , local 19 ( `` ibt 19 '' ) august 2013 southwest mechanics 2,400 aircraft mechanics fraternal association ( `` amfa '' ) august 2012 42 fuel and oil expense for 2017 increase d by $ 293 million , or 8.0 percent , compared with 2016 . on a per asm basis , fuel and oil expense for 2017 increase d 4.1 percent , compared with 2016 . on both a dollar and per asm basis , the increases were attributable to higher market jet fuel prices , partially offset by a decrease in net hedging losses recognized compared to 2016. see note regarding use of non-gaap financial measures and the reconciliation of reported amounts to non-gaap financial measures for additional detail regarding non-gaap financial measures . the company 's average economic jet fuel price per gallon increase d 4.2 percent , year-over-year , from $ 1.92 for 2016 to $ 2.00 for 2017 . these figures do not include premium expense associated with the company 's fuel hedges , which on a per gallon basis equated to approximately $ 0.08 and $ 0.06 for 2016 and 2017 , respectively . the company also improved its fuel efficiency during 2017 , compared with 2016 , when measured on the basis of asms generated per gallon of fuel . fuel gallons consumed increase d 2.5 percent , compared with 2016 , while year-over-year capacity increase d 3.6 percent . as a result of the company 's fuel hedging program , the company recognized net losses totaling $ 416 million in fuel and oil expense for 2017 , compared with net losses totaling $ 820 million for 2016 . these totals include cash settlements realized from the settlement of fuel derivative contracts associated with the company 's economic fuel hedge totaling $ 572 million paid to counterparties for 2017 , compared with $ 1.0 billion paid to counterparties for 2016 . additionally , these totals exclude gains and or losses recognized from hedge ineffectiveness and from derivatives that did not qualify for hedge accounting . these items are recorded as a component of other ( gains ) losses , net . see note 10 to the consolidated financial statements . as of january 19 , 2018 , on an economic basis , the company had derivative contracts in place related to expected future fuel consumption as follows : period maximum percent of estimated fuel consumption covered by fuel derivative contracts at varying west texas intermediate/brent crude oil , heating oil , and gulf coast jet fuel-equivalent price levels ( a ) 2018 78 % 2019 63 % 2020 31 % beyond 2020 ( b ) 11 % ( a ) the company 's hedge position can vary significantly at different price levels , including prices at which the company considers `` catastrophic '' coverage . the percentages provided are not indicative of the company 's hedge coverage at every price , but represent the highest level of coverage at a single price . the company believes its coverage related to first quarter 2018 is best reflected within the jet fuel forecast price sensitivity table provided below . see note 10 to the consolidated financial statements for further information . ( b ) the company 's coverage for 2021 was approximately 11 percent of estimated fuel consumption . the coverage beyond 2021 was not significant . as a result of applying hedge accounting in prior periods , including related to hedge positions that have either been offset or settled early on a cash basis , the company has amounts `` frozen '' in accumulated other comprehensive income ( loss ) ( `` aoci '' ) , and these amounts will be recognized in earnings in future periods when the underlying fuel derivative contracts settle . story_separator_special_tag the following table displays the company 's estimated fair value of remaining fuel derivative contracts ( not considering the impact of the cash collateral provided to or received from counterparties - see note 10 to the consolidated financial statements for further information ) , as well as the amount of deferred gains/losses in aoci at december 31 , 2017 , and the expected future periods in which these items are expected to settle and or be recognized in earnings ( in millions ) : 43 replace_table_token_10_th based on forward market prices and the amounts in the above table ( and excluding any other subsequent changes to the fuel hedge portfolio ) , the company 's jet fuel costs per gallon could exceed market ( i.e. , unhedged ) prices during some of these future periods . this is based primarily on expected future cash settlements associated with fuel derivatives , but excludes any impact associated with the ineffectiveness of fuel hedges or fuel derivatives that are marked to market because they do not qualify for hedge accounting . see note 10 to the consolidated financial statements for further information . assuming no changes to the company 's current fuel derivative portfolio , but including all previous hedge activity for fuel derivatives that have not yet settled and expected fuel hedge premium costs associated with settling contracts each period , and considering only the expected net cash payments and or receipts related to hedges that will settle , the company is providing the below sensitivity table for first quarter 2018 and full year 2018 jet fuel prices at different crude oil assumptions as of january 19 , 2018 , and for expected premium costs associated with settling contracts each period , respectively . replace_table_token_11_th ( a ) brent crude oil average market prices as of january 19 , 2018 , were approximately $ 68 and $ 67 per barrel for first quarter 2018 and full year 2018 , respectively . ( b ) in accordance with the company 's planned early adoption of accounting standards update no . 2017-12 , targeting improvements to accounting for hedging activities , the company will begin reporting premium expense within fuel and oil expense as of january 1 , 2018 . ( c ) based on the company 's existing fuel derivative contracts and market prices as of january 19 , 2018 , first quarter 2018 economic fuel costs are estimated to be in the $ 2.10 to $ 2.15 per gallon range , including fuel hedging premium expense of approximately $ 34 million , or $ 0.07 per gallon . first quarter 2018 's expected economic fuel cost range of $ 2.10 to $ 2.15 per gallon compares with first quarter 2017 's economic fuel cost of $ 1.96 per gallon , as reported , but including fuel hedging premium expense of $ 34 million , or $ .07 per gallon , will be recast as $ 2.03 per gallon . ( d ) based on the company 's existing fuel derivative contracts and market prices as of january 19 , 2018 , annual 2018 economic fuel costs are estimated to be in the $ 2.10 to $ 2.15 per gallon range , including fuel hedging premium expense of approximately $ 135 million , or $ .06 per gallon . 2018 's annual expected economic fuel cost range of $ 2.10 to $ 2.15 per gallon compares with 2017 's annual economic fuel costs of $ 2.00 per gallon , as reported herein , but including fuel hedging premium expense of $ 135 million , or $ .06 per gallon , will be recast as $ 2.06 per gallon . ( e ) the economic fuel price per gallon sensitivities provided assume the relationship between brent crude oil and refined products based on market prices as of january 19 , 2018 . economic fuel cost projections do not reflect the potential impact of special items because the company can not reliably predict or estimate the hedge accounting impact associated with the volatility of the energy 44 markets or the impact to its financial statements in future periods . accordingly , the company believes a reconciliation of non-gaap financial measures to the equivalent gaap financial measures for projected results is not meaningful or available without unreasonable effort . asu no . 2017-12 , targeted improvements to accounting for hedging activities , is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2018 , with early adoption permitted in any interim or annual period . the company plans to adopt the standard as of january 1 , 2018. see note 2 to the consolidated financial statements for further information . maintenance materials and repairs expense for 2017 decrease d by $ 44 million , or 4.2 percent , compared with 2016 . on a per asm basis , maintenance materials and repairs expense for 2017 decrease d 7.1 percent , compared with 2016 . on both a dollar and per asm basis , the majority of the decreases were attributable to a decrease in airframe maintenance expenses primarily as a result of the retirement of the company 's classic fleet , partially offset by increases in boeing 737-700 engine maintenance due to increased utilization . the company currently expects maintenance materials and repairs expense per asm for first quarter 2018 to increase , compared with first quarter 2017 . aircraft rentals expense for 2017 decrease d by $ 31 million , or 13.5 percent , compared with 2016 . on a per asm basis , aircraft rentals expense decrease d 13.3 percent , compared with 2016 . on both a dollar and per asm basis , the majority of the decrease s were due to 737-300 lease returns and the purchase of ten 737-300 aircraft , that were previously on operating leases , since 2016. see the accompanying note regarding use of non-gaap financial measures for further information .
| prior year results included $ 356 million of contract ratification bonuses accrued in salaries , wages , and benefits expense associated with tentative collective-bargaining agreements reached with multiple unionized workgroups . for the twelve months ended december 31 , 2017 , the company 's earnings performance , combined with its actions to manage invested capital , produced a 25.9 percent pre-tax non-gaap return on invested capital ( `` roic '' ) , compared with the company 's roic of 30.0 percent for the twelve months ended december 31 , 2016 . the primary cause of the year-over-year decline in roic was the decrease in operating income for the twelve months ended december 31 , 2017 , compared with the twelve months ended december 31 , 2016 . see the company 's calculation of roic in the accompanying reconciliation tables as well as the note regarding use of non-gaap financial measures . during 2017 , the company continued to return value to its shareholders . the company returned $ 1.9 billion to shareholders through $ 274 million in dividend payments and $ 1.6 billion through four separate accelerated share repurchase programs and other open market repurchases . during november 2017 , the company launched the fourth quarter 2017 asr program by advancing $ 250 million to a financial institution in a privately negotiated transaction . the company received 4.1 million shares in total under the fourth quarter 2017 asr program , which was completed in january 2018. the purchase was recorded as a treasury share purchase for purposes of calculating earnings per share . 39 on january 31 , 2018 , the company launched a new accelerated share repurchase program by advancing $ 500 million to a financial institution in a privately negotiated transaction ( `` first quarter 2018 asr program '' ) . the specific number of shares that the company ultimately will repurchase under the first quarter 2018 asr program will be determined based generally on a discount to the volume-weighted average price per share of the company 's common stock during a calculation period to be completed
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as of december 31 , 2014 , we had a portfolio of approximately 1,000 owned , leased and or supplied gasoline stations , primarily in the northeast , which consisted of the following : company operated ( with convenience stores ) 134 commission agents 217 dealer leased 191 contract dealers , including mobil branded sub-jobbers 467 total 1,009 commercial in our commercial segment , we include sales and deliveries to end user customers in the public sector and to large commercial and industrial end users of unbranded gasoline , home heating oil , diesel , kerosene , residual oil , bunker fuel and natural gas . in the case of public sector commercial and industrial end user customers , we sell products primarily either through a competitive bidding process or through contracts of various terms . we generally arrange for the delivery of the product to the customer 's designated location , and we respond to publicly-issued requests for product proposals and quotes . our commercial segment also includes sales of custom blended fuels delivered by barges or from a terminal dock to ships through bunkering activity . for the years ended december 31 , 2014 , 2013 and 2012 , our commercial segment did not meet the quantitative metrics for disclosure as a reportable segment on a stand-alone basis . however , we have elected to present segment disclosures for our commercial segment as we believe such disclosures are meaningful to users of our financial information . seasonality due to the nature of our business and our reliance , in part , on consumer travel and spending patterns , we may experience more demand for gasoline and gasoline blendstocks during the late spring and summer months than during the fall and winter . travel and recreational activities are typically higher in these months in the geographic areas in which we operate , increasing the demand for gasoline and gasoline blendstocks that we distribute . therefore , our volumes in gasoline and gasoline blendstocks are typically higher in the second and third quarters of the calendar year . as demand for some of our refined petroleum products , specifically home heating oil and residual oil for space heating 56 purposes , is generally greater during the winter months , heating oil and residual oil sales are generally higher during the first and fourth quarters of the calendar year . these factors may result in significant fluctuations in our quarterly operating results . outlook this section identifies certain risks and certain economic or industry-wide factors that may affect our financial performance and results of operations in the future , both in the short-term and in the long-term . our results of operations and financial condition depend , in part , upon the following : our business is influenced by the overall forward market for refined petroleum products , renewable fuels and crude oil , and increases and or decreases in the prices of these products may adversely impact our financial condition , results of operations and cash available for distribution to our unitholders and the amount of borrowing available for working capital under our credit agreement results from our purchasing , storing , terminalling , transporting and selling operations are influenced by prices for refined petroleum products , renewable fuels and crude oil , pricing volatility and the market for such products . prices in the overall forward market for these products may affect our financial condition , results of operations and cash available for distribution to our unitholders . our margins can be significantly impacted by the forward product pricing curve , often referred to as the futures market . we typically hedge our exposure to petroleum product and renewable fuel price moves with futures contracts and , to a lesser extent , swaps . in markets where futures prices are higher than current prices , referred to as contango , we may use our storage capacity to improve our margins by storing products we have purchased at lower prices in the current market for delivery to customers at higher prices in the future . in markets where futures prices are lower than current prices , referred to as backwardation , inventories can depreciate in value and hedging costs are more expensive . for this reason , in these backward markets , we attempt to reduce our inventories in order to minimize these effects . when prices for the products we sell rise , some of our customers may have insufficient credit to purchase supply from us at their historical purchase volumes , and their customers , in turn , may adopt conservation measures which reduce consumption , thereby reducing demand for product . furthermore , when prices increase rapidly and dramatically , we may be unable to promptly pass our additional costs on to our customers , resulting in lower margins which could adversely affect our results of operations . higher prices for the products we sell may ( 1 ) diminish our access to trade credit support and or cause it to become more expensive and ( 2 ) decrease the amount of borrowings available for working capital under our credit agreement as a result of total available commitments , borrowing base limitations and advance rates thereunder . when prices for the products we sell decline , our exposure to risk of loss in the event of nonperformance by our customers of our forward contracts may be increased as they and or their customers may breach their contracts and purchase the products we sell at the then lower market price from a competitor . a significant decrease in the price for crude oil could adversely affect the economics of the domestic crude oil production for the product which , in turn , could have an adverse effect on our crude oil logistics activities and sales . story_separator_special_tag we commit substantial resources to pursuing acquisitions , although there is no certainty that we will successfully complete any acquisitions or receive the economic results we anticipate from completed acquisitions . we are continuously engaged in discussions with potential sellers and lessors of existing ( or suitable for development ) terminalling , storage , logistics and or marketing assets , including gasoline stations , and related businesses . our growth largely depends on our ability to make accretive acquisitions and or accretive development projects . we may be unable to execute such accretive transactions for a number of reasons , including , but not limited to , the following : ( 1 ) we are unable to identify attractive transaction candidates or negotiate acceptable terms ; ( 2 ) we are unable to obtain financing for such transactions on economically acceptable terms ; or 57 ( 3 ) we are outbid by competitors . in addition , we may consummate transactions that at the time of consummation we believe will be accretive but that ultimately may not be accretive . if any of these events were to occur , our future growth and ability to increase distributions could be limited . we can give no assurance that our transaction efforts will be successful or that any such efforts will be completed on terms that are favorable to us . the condition of credit markets may adversely affect our liquidity . in the past , world financial markets experienced a severe reduction in the availability of credit . possible negative impacts in the future could include a decrease in the availability of borrowings under our credit agreement , increased counterparty credit risk on our derivatives contracts and our contractual counterparties requiring us to provide collateral . in addition , we could experience a tightening of trade credit from our suppliers . we depend upon rail and marine transportation services for a substantial portion of our logistics business in transporting the products we sell . a disruption in rail and marine transportation services could have an adverse effect on our financial condition , results of operations and cash available for distribution to our unitholders . hurricanes , flooding and other severe weather conditions could cause a disruption in the transportation services we depend upon which could affect the flow of service . in addition , accidents , labor disputes between the railroads and their employees and labor renegotiations , including strikes , lockouts or a work stoppage , shortage of railcars , mechanical difficulties or bottlenecks and our disruptions in railroad logistics could also disrupt rail service . these events could result in service disruptions and increased cost which could also adversely affect our financial condition , results of operations and cash available for distribution to our unitholders . other disruptions , such as those due to an act of terrorism or war , could also adversely affect our business . our gasoline and gasoline blendstocks financial results are seasonal and can be lower in the first and fourth quarters of the calendar year . due to the nature of our business and our reliance , in part , on consumer travel and spending patterns , we may experience more demand for gasoline and gasoline blendstocks during the late spring and summer months than during the fall and winter . travel and recreational activities are typically higher in these months in the geographic areas in which we operate , increasing the demand for gasoline and gasoline blendstocks that we distribute . therefore , our results of operations in gasoline and gasoline blendstocks are can be lower in the first and fourth quarters of the calendar year . our heating oil and residual oil financial results are seasonal and can be lower in the second and third quarters of the calendar year . demand for some refined petroleum products , specifically home heating oil and residual oil for space heating purposes , is generally higher during november through march than during april through october . we obtain a significant portion of these sales during the winter months . therefore , our results of operations in heating oil and residual oil for the first and fourth calendar quarters can be better than for the second and third quarters . warmer weather conditions could adversely affect our results of operations and financial condition . weather conditions generally have an impact on the demand for both home heating oil and residual oil . because we supply distributors whose customers depend on home heating oil and residual oil for space heating purposes during the winter , warmer-than-normal temperatures during the first and fourth calendar quarters in the northeast can decrease the total volume we sell and the gross profit realized on those sales . energy efficiency , higher prices , new technology and alternative fuels could reduce demand for our products . increased conservation and technological advances have adversely affected the demand for home heating oil and residual oil . consumption of residual oil has steadily declined over the last three decades . we could face additional competition from alternative energy sources as a 58 result of future government-mandated controls or regulation further promoting the use of cleaner fuels . end users who are dual-fuel users have the ability to switch between residual oil and natural gas . other end users may elect to convert to natural gas . during a period of increasing residual oil prices relative to the prices of natural gas , dual-fuel customers may switch and other end users may convert to natural gas . during periods of increasing home heating oil prices relative to the price of natural gas , residential users of home heating oil may also convert to natural gas . such switching or conversion could have an adverse effect on our financial condition , results of operations and cash available for distribution to our unitholders .
| the increase in sg & a expenses was offset by decreases of $ 2.5 million in bad debt expense and $ 2.0 million in bank fees . 69 sg & a expenses for 2013 and 2012 were $ 115.5 million and $ 95.7 million , respectively , an increase of $ 19.8 million , or 21 % . the increase includes increases of $ 14.8 million in professional fees and due diligence costs associated with the growth of our business , including the acquisitions of basin transload and cascade kelly , $ 5.9 million in overhead expenses to support the growth of our business , $ 3.4 million in bad debt expense , $ 1.3 million in incentive compensation , and $ 3.2 million in other sg & a expenses . the overall increase in sg & a expenses for 2013 includes additional costs to support the growth of our business , primarily related to our crude oil activities and expenses related to our retail gasoline stations for a full year of 2013 versus ten months in 2012. the increase in sg & a expenses was offset by a decrease of $ 3.2 million in commissions related to certain gasoline station operations and $ 1.2 million in bank and letter of credit fees . in addition , in 2012 , we had costs related to alliance that did not recur in 2013 , specifically $ 4.0 million in one-time acquisition costs and $ 0.4 million in management fees related to management agreements with alliance that terminated in connection with the acquisition . operating expenses operating expenses for 2014 and 2013 were $ 204.1 million and $ 185.7 million , respectively , an increase of $ 18.4 million , or 10 % . the increase was primarily due to increases of $ 13.2 million in costs related to the operations of our retail gasoline stations and new-to-industry gasoline stations and convenience stores , including , in part , additional rent , credit card and maintenance expenses associated with our new retail locations and recently renovated sites , $ 3.4 million in costs associated with our crude oil operations , including a full year of
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this study is exploring the use of dalfampridine in patients who have experienced a stroke and who have stabilized with chronic neurologic deficits , which may include walking impairment and upper extremity function impairment , such as arm weakness . over the first six months following a stroke , patients typically show some degree of spontaneous recovery of function , which may be enhanced by rehabilitation and physical therapy . this trial is targeting motor impairments that remain after such recovery . we 71 also are providing grants for investigator-initiated studies looking for potential benefits on a range of functional deficits in ms and other neurological disorders . we are also working with external partners on a once-daily formulation of ampyra . ampyra patent update we have two issued patents listed in the orange book for ampyra , as follows : · the first is u.s. patent no . us 8,007,826 with claims relating to methods to improve walking in patients with ms by administering 10 mg of sustained release 4-aminopyridine ( dalfampridine ) twice daily . based on the final patent term adjustment calculation of the united states patent and trademark office , or uspto , this patent will extend into 2027 . · the second is u.s. patent no . 5,540,938 ( “ the ‘ 938 patent ” ) , the claims of which relate to methods for treating a neurological disease , such as ms , and cover the use of a sustained release dalfampridine formulation , such as ampyra ( dalfampridine ) extended release tablets , 10 mg for improving walking in people with ms. in october 2012 , the uspto determined that the ‘ 938 patent is entitled to a full five year patent term extension under the patent restoration provisions of the hatch waxman act . with a five year patent term extension , the ‘ 938 patent would expire in 2018. we have an exclusive license to this patent from alkermes ( originally with elan , but transferred to alkermes as part of its acquisition of elan 's drug technologies business ) . on january 15 , 2013 , the uspto issued u.s. patent no . 8,354,437 ( u.s. patent application no . 11/102,559 ) with claims relating to methods to improve walking , walking speed , lower extremity muscle tone and lower extremity muscle strength in patients with ms by administering 10 mg of sustained release 4-aminopyridine ( dalfampridine ) twice daily . in 2011 , the european patent office , or epo , granted the counterpart european patent with claims relating to , among other things , use of a sustained release aminopyridine composition , such as dalfampridine , to increase walking speed . in march 2012 , synthon b.v. and neuraxpharm arzneimittel gmbh filed oppositions with the epo challenging this granted european patent . we intend to vigorously defend the european patent , although the outcome of opposition proceedings is unpredictable . dalfampridine-er 5 mg. post-approval commitment study in august 2012 , we announced results from a post-approval commitment study examining the use of a 5mg dose of dalfampridine-er to improve walking in people with ms. the study failed to confirm efficacy of the 5mg dose . we believe that this study , together with ampyra registration studies , continue to show that 10mg twice daily is the appropriate , safe , and effective dose . the study results were provided to the fda and will be presented in peer-reviewed scientific forums . zanaflex zanaflex capsules and zanaflex tablets are fda-approved as short-acting drugs for the management of spasticity , a symptom of many central nervous system , or cns , disorders , including ms and sci . these products contain tizanidine hydrochloride , one of the two leading drugs used to treat spasticity . we launched zanaflex capsules in april 2005 as part of our strategy to build a commercial platform for the potential market launch of ampyra . combined net revenue of zanaflex capsules and zanaflex tablets was $ 13.2 million for the year ended december 31 , 2012 and $ 45.8 million for the year ended december 31 , 2011. in february 2012 , apotex commercially launched a generic version of tizanidine hydrochloride capsules , and we also launched our own authorized generic version , which is being marketed by watson pharma ( a subsidiary of actavis ) . the commercial launch of generic tizanidine hydrochloride capsules has caused a significant decline in net revenue of zanaflex capsules , and the launch of these generic versions and the potential launch of other generic versions is expected to cause the company 's net revenue from zanaflex capsules to decline further in 2013 and beyond . in 72 may 2012 , we received a paragraph iv certification notice from mylan laboratories limited advising us that mylan laboratories has filed an abbreviated new drug application for generic versions of the three dosage strengths of zanaflex capsules . the fda approved mylan 's anda on november 9 , 2012. based upon our request , the fda delisted from the orange book the patent against which mylan laboratories filed the paragraph iv certification notice . research & development programs our lead research and development programs include three distinct therapeutic approaches to restoring neurologic and cardiac function and a fourth program , initiated in 2011 , to develop an acute treatment for neurological trauma . we believe that these programs have broad applicability and have the potential to be first-in-class therapies . while our existing programs have been focused on ms and sci , we believe they may be applicable across a number of cns disorders , including stroke and traumatic brain injury , or tbi , because many of the mechanisms of tissue damage and repair are similar . in addition , we believe that some of our research and development programs may have applicability beyond the nervous system , including in the field of cardiology . glial growth factor 2 we have completed our ggf2 phase 1 clinical trial in heart failure patients . story_separator_special_tag this was a dose-escalating trial designed to test the maximum tolerated single dose , with follow-up assessments at one , three , and six months . we have completed analysis of the three-month data , and we plan to present findings in a platform presentation at the american college of cardiology ( acc ) annual meeting in march 2013. we will also discuss the data with the fda before proceeding to a multiple dose study . if we are able to establish a proof of concept for treatment of heart failure through human clinical studies , we may decide to develop the product independently or to enter into a partnership , most likely with a cardiovascular-focused company . remyelinating antibodies we have an open ind application for one of the remyelinating antibodies , rhigm22 , for the treatment of ms and plan to initiate enrollment in a phase 1 safety study in ms patients in the first half of 2013. we had previously announced problems with a bioactivity assay that had delayed the filing but we successfully completed the qualification of the bioactivity assay in the second quarter of 2012. in preparation for an ind filing , we worked with a contract manufacturer to complete the scale-up manufacturing and purification processes and completed formal preclinical safety and toxicity studies . chondroitinase program we are continuing research on the potential use of chondroitinases for the treatment of injuries to the brain and spinal cord , as well as other neurotraumatic indications . the chondroitinase program is in the research and translational development phase and has not yet entered formal preclinical development . ac105 in june 2011 , we entered into a license agreement with medtronic , inc. and one of its affiliates , pursuant to which we acquired worldwide development and commercialization rights to certain formulations of magnesium with a polymer such as polyethylene glycol ( which we refer to as ac105 ) . pursuant to the license agreement , we paid medtronic an upfront fee of $ 3 million and are obligated to pay up to an additional $ 32 million upon the achievement of specified regulatory and development milestones . if we commercialize ac105 , we will also be obligated to pay a single-digit royalty on sales . we plan to study ac105 as an acute treatment for patients who have suffered neurological trauma , such as sci and tbi . we submitted a phase 2 clinical trial protocol for ac105 for acute treatment of sci to the fda for review . the protocol has been reviewed by the fda , and we are preparing to initiate the trial in the first half of 2013 . 73 corporate updates in july 2012 , we relocated our corporate headquarters from hawthorne , new york , to a facility in ardsley , new york consisting of an aggregate of approximately 138,000 square feet of office and laboratory space . base rent is initially $ 3.4 million per year , subject to a 2.5 % annual increase . our lease of the facility has a 15 year term , but we have options to extend the lease term for three additional five-year periods , and we may terminate the lease after 10 years , subject to payment of an early termination fee . we also have the right to lease up to approximately 120,000 additional square feet of space in additional buildings at the same location . in october 2012 , we named jane wasman as president , international . ms. wasman most recently has served as the company 's chief , strategic development and general counsel . in her new role , ms. wasman will lead our efforts to identify and launch inlicensing and commercial opportunities outside the united states . she will also be responsible for managing our collaboration with biogen idec in their international development and commercialization of fampyra ( prolonged-release fampridine tablets ) . ms. wasman will also continue to lead our global strategic development and will retain the title of general counsel and corporate secretary . outlook for 2013 financial guidance for 2013 we are providing the following guidance with respect to our 2013 financial performance : · we expect 2013 net revenue from the sale of ampyra to range from $ 285 million to $ 315 million . · we expect zanaflex ( tizanidine hydrochloride ) and ex-u.s. fampyra 2013 revenue to be $ 25 million , which includes sales of branded zanaflex products , royalties from ex-u.s. fampyra and authorized generic tizanidine hydrochloride capsules sales , and $ 9.1 million in amortized licensing revenue from the $ 110 million payment we received from biogen idec in 2009 for fampyra ex-u.s. development and commercialization rights . · research and development expenses in 2013 are expected to range from $ 60 million to $ 70 million , excluding share-based compensation charges . research and development expenses in 2013 related to ampyra include proof-of-concept studies in cp and post-stroke deficits , and sponsorship of investigator-initiated studies . additional expenses include clinical trials for ac105 and rhigm22 , continued development of diazepam nasal spray and ggf2 , as well as ongoing preclinical studies . a substantial portion of the increase in research and development in 2013 over 2012 is related to diazepam nasal spray expenses . · selling , general and administrative expenses in 2013 are expected to range from $ 170 million to $ 180 million , excluding share-based compensation charges . sg & a expenses will be primarily driven by commercial and administrative costs related to ampyra . the majority of the increase in sg & a in 2013 over 2012 is related to diazapam nasal spray expenses . · we expect to be cash flow positive in 2013. the range of sg & a and r & d expenditures for 2013 are non-gaap financial measures because they exclude share-based compensation charges . non-gaap financial measures are not an alternative for financial measures prepared in accordance with gaap .
| payment of coverage gap discounts is required under the affordable care act , the health care reform legislation enacted in 2010. discounts and allowances may increase as a percentage of sales as we enter into managed care contracts in the future . zanaflex we recognize product sales of zanaflex capsules and zanaflex tablets using a deferred revenue recognition model where shipments to wholesalers are recorded as deferred revenue and only recognized as revenue when end-user prescriptions of the product are reported . we also recognize product sales on the transfer price of product sold for an authorized generic of zanaflex capsules during the year ended december 31 , 2012. we recognized net revenue from the sale of zanaflex capsules and zanaflex tablets of $ 13.2 million for the year ended december 31 , 2012 , as compared to $ 45.8 million for the year ended december 31 , 2011. the decrease was primarily due to the commercial launch of generic versions of tizanidine hydrochloride capsules in february 2012. net product revenues also include $ 3.1 million , which represents the sale of our zanaflex capsules authorized generic product to watson pharma ( a subsidiary of actavis ) for the year ended december 31 , 2012. generic competition has caused a significant decline in net revenue of zanaflex capsules and is expected to cause the company 's net revenue from zanaflex capsules to decline further in 2013 and beyond . the decrease in net revenues was also the result of a disproportionate decrease in discounts and allowances due to the mix of customers continuing to purchase our product . these customers receive higher levels of rebates and allowances . discounts and allowances , which are included as an offset in net revenue , consist of allowances for customer credits , including estimated chargebacks , rebates , and discounts . adjustments are recorded for estimated chargebacks , rebates , and discounts . healthcare reform in march 2010 , healthcare reform legislation was enacted in the u.s. this legislation contained several provisions that affected our business . beginning in 2011 , the new law required drug manufacturers to provide a 50 % discount
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as part of the company 's customized prepaid card solutions 3pea provides transaction processing , card creation and fulfillment , cardholder enrollment , value loading , cardholder account management , reporting and in-house customer service . 3pea strives to provide its clients with significant time-to market , cost , scalability , reliability and security benefits the company divides prepaid cards into two general categories : corporate and consumer reloadable , and non-reloadable cards . reloadable cards : these types of cards are generally incentive , payroll or considered general purpose reloadable ( “ gpr ” ) cards . payroll cards are issued to an employee by an employer to receive the direct deposit of their payroll . gpr cards can also be issued to a consumer at a retail location or mailed to a consumer after completing an on-line application . gpr cards can be reloaded multiple times with a consumer 's payroll , government benefit , a federal or state tax refund or through cash reload networks located at retail locations . reloadable cards are generally open loop cards as described below . non-reloadable cards : these are generally one-time use cards that are only active until the funds initially loaded to the card are spent . these types of cards are gift or incentive cards . these cards may be open loop or closed loop . normally these types of cards are used for purchase of goods or services at retail locations and can not be used to receive cash . these prepaid cards may be open loop , closed loop or semi-closed loop . open loop cards can be used to receive cash at atm locations or purchase goods or services by pin or signature at retail locations . these cards can be used virtually anywhere that visa® or mastercard® is accepted . closed loop cards can only be used at a specific merchant . semi-closed loop cards can be used at several merchants such as a shopping mall . the prepaid card market is one of the fastest growing segments of the payments industry in the u.s. this market has experienced significant growth in recent years due to consumers and merchants embracing improved technology , greater convenience , more product choices and greater flexibility . prepaid cards have also proven to be an attractive alternative to traditional bank accounts for certain segments of the population , particularly those without , or who could not qualify for , a checking or savings account . we have developed prepaid card programs for healthcare reimbursement payments , pharmaceutical assistance , corporate and incentive rewards and expense reimbursement cards . we plan to expand our product offering to include payroll cards , general purpose re-loadable cards and travel cards . our cards are offered to end users through our relationships with bank issuers . our products and services are aimed at capitalizing on the growing demand for stored value and reloadable atm/prepaid card financial products in a variety of market niches . our proprietary platform is scalable and customizable , delivering cost benefits and revenue building opportunities to partners . we manage all aspects of the debit card lifecycle , from managing the card design and approval processes with banking partners and card associations , to production , packaging , distribution , and personalization . we also oversee inventory and security controls , renewals , lost and stolen card management and replacement . 32 currently , the primary market for our cards is the healthcare reimbursement market , pharmaceutical marketing or drug sampling market , and the corporate incentive card market . although we are expanding into other markets for stored value cards , including , pharmacy benefits cards , payment distribution and reimbursement cards and payroll cards . during the first quarter of 2013 we launched our proprietary payment platform , the paysign® platform . we expect to continue our practice of investing an appropriate level of resources to maintain , enhance and extend the functionality of our proprietary systems and existing software applications , to develop new and innovative software applications and systems in response to the needs of our customers , and to enhance the capabilities surrounding our infrastructure . in addition , we intend to offer products and services that are compatible with new and emerging delivery channels . as part of our platform expansion development process , we evaluate current and emerging technology for applicability to our existing and future software platform . to this end , we engage with various hardware and software vendors in evaluation of various infrastructure components . where appropriate , we use third-party technology components in the development of our software applications and service offerings . third-party software may be used for highly specialized business functions , which we may not be able to develop internally within time and budget constraints . our principal target markets for processing services include prepaid card issuers , retail and private-label issuers , small third-party processors , and small and mid-size financial institutions in the united states and in emerging international markets . to date , we have focused on extensive development and limited sales activities in each of our target markets , as well as putting in place the infrastructure and processes to be able to scale the business successfully . this includes the design and development of a fully integrated ivr system and in house call center of which we was taken live in the first quarter of 2013. the company has begun to devote more extensive resources to sales and marketing activities as we have added essential personnel to our marketing and sales department in late 2013. we sell our products directly to customers in the u.s. but may work with a small number of resellers and third parties in international markets to identify , sell and support targetedopportunities . story_separator_special_tag we have also identified large scale opportunities in the european union and are aggressively pursuing those opportunities . in order to expand into new markets , we will need to invest additional funds in technology improvements , sales and marketing expenses , and regulatory compliance costs . we are considering raising capital to enable us to diversify into new market verticals . if we do not raise new capital , we believe that we will still be able to expand into new markets using internally generated funds , but our expansion will not be as rapid . the company added an additional bank partner to our newest processing platform and launched new programs with this bank in early 2013. we will work with various banks to distribute prepaid cards to consumers throughout the u.s. the company will work with these banks to develop additional financial services for consumers , and to increase the functionality of both the programs and prepaid card usage . 33 story_separator_special_tag times , serif ; margin : 0pt 0 ; text-align : justify '' > selling , general and administrative expenses for the year ended december 31 , 2013 were $ 1,476,381 , an increase of $ 715,453 compared to the year ended december 31 , 2012 , when selling , general and administrative expenses were $ 760,928. the increase in selling , general and administrative expenses was consistent with our expectations of increased staffing and technological expenses relating to launch of several new programs . we ramped up our investment in infrastructure and processes to be able to scale our business successfully . this includes the design and development of a fully integrated ivr system and in house call center of which was taken live in the second quarter of 2013. the company has begun to devote more extensive resources to sales and marketing activities as we have added essential personnel to our marketing and sales department in late 2013. in the fiscal year ended december 31 , 2013 , we recorded an operating income of $ 669,818 , as compared to an operating income of $ 574,851 in the fiscal year ended december 31 , 2012 , and improvement of $ 94,967. other income ( expense ) for the year ended december 31 , 2013 was $ ( 59,084 ) , a decrease in net other income ( expense ) of $ 1,174,639 compared to the prior year ended december 31 , 2012 of other income ( expenses ) of $ 1,295,879. the overall decrease in net other income ( expense ) in 2013 is primarily due to a gain on debt extinguishment totaling $ 1,295,879 in 2012. our net income for the year ended december 31 , 2013 was $ 610,734 , a decrease of $ 1,197,840 compared to the year ended december 31 , 2012 , when we recorded a net income of $ 1,816,861. the overall change in net income is attributable to the aforementioned factors . liquidity and capital resources the following table sets forth the major sources and uses of cash for our last two fiscal years ended december 31 , 2013 and 2012 : replace_table_token_1_th 35 comparison of fiscal 2013 and 2012 in fiscal 2013 and 2012 , we financed our operations primarily through internally generated funds . operating activities provided ( used ) $ ( 620,273 ) of cash in 2013 , as compared to $ 2,055,152 of cash provided in fiscal 2012. major non-cash items that affected our cash flow from operations in 2013 were non-cash stock based expenses of $ 180,249 and depreciation and amortization of $ 58,012. our operating assets and liabilities used $ ( 1,469,268 ) of cash , which resulted from a decrease in our payables and accrued liabilities of $ ( 949,745 ) , an increase in accounts receivable of $ 310,278 , and an increase in prepaid expenses of $ 209,245. investing activities used $ ( 238,779 ) of cash in 2013 , as compared to $ ( 234,317 ) of cash used in 2012 , all of which related in both years to platform expansion and the purchase of equipment used in our business . financing activities provided ( used ) $ 13,380 of cash in 2013 as compared to $ ( 11,750 ) of cash in 2012. our cash provided by financing activities in 2013 primarily related to proceeds we received from equipment financing during 2013 , offset by payments on notes payable . liquidity and sources of financing in both 2013 and 2012 , our operations were focused on developing our paysign® platform , infrastructure and processes to be able to scale our business successfully which was financed from operations . we believe that our available cash on hand at december 31 , 2013 of $ 1,027,239 and revenues anticipated for 2014 will be sufficient to sustain our operations for the next twelve months . our revenues and cost of revenues from our healthcare reimbursement market and pharmaceutical marketing fluctuate widely due to a variety of factors beyond our control . the pharmaceutical companies often do not distribute the debit cards via their pharmaceutical sales representatives to various end points for distribution until days , weeks or months after they create a program , often with little advance warning to us . we also experience dramatic usage swings based on collateral marketing efforts by the pharmaceutical companies , such as print , web , radio and television advertising campaigns that run in association with one of our card programs . constant variations in program start and stop dates , variations in program timelines which range anywhere between six and thirty six months , and variations in program characteristics such as the monetary value of the load , all contribute to provide dramatic swings in the revenue generated from the programs . as a result , our revenues and cost of revenues do no correlate neatly to the number of cards in circulation or even the number of
| · increased our gross profit margins from 21 % in 2012 to 35 % in 2013 . · began providing additional card fulfillment services to our customers . · identified , researched and targeted large scale business opportunities in the european union . fiscal years ended december 31 , 2013 and 2012 revenues for the year ended december 31 , 2013 were $ 6,307,891 , a decrease of $ 392,497 compared to the year ended december 31 , 2012 , when revenues were $ 6,700,388. the decrease in revenue was primarily due to decline in our healthcare reimbursement market and pharmaceutical marketing as much our attention during 2013 were focused in developing and pursuing new corporate incentive reward programs to take advantage of our paysign® platform which we believe will provide much higher profit margins . we expect our revenues to trend upward as we roll out additional debit card programs utilizing our paysign® platform , diversify our product line and increase the number of support services offered to our customers . 34 cost of revenues for the year ended december 31 , 2013 were $ 4,103,680 , a decrease of $ 1,201,679 compared to the year ended december 31 , 2012 , when cost of revenues were $ 5,305,359. our costs of revenues have decreased primarily due to new corporate incentive reward programs utilizing our paysign® platform which has provided higher profit margins . cost of revenues constituted approximately 65 % and 79 % of total revenues in 2013 and 2012 , respectively . cost of revenues is comprised of transaction processing fees , data connectivity and data center expenses , network fees , card production costs , customer service and program management expenses , application integration setup and sales expense . gross profit for the year ended december 31 , 2013 was $ 2,204,211 , an increase of $ 809,182 compared to the year ended december 31 , 2012 , when gross profit was $ 1,359,029. our overall gross profit percentage approximated 35 % and 21 % during the
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through disciplined execution , we were able to capture annual run-rate savings from the exelis acquisition a full year ahead of schedule , while driving operational efficiencies and optimizing our portfolio to focus on businesses where technology is a differentiator . we completed the it services and caprock divestitures during the fiscal year and used the proceeds along with our net cash provided by operating activities to repurchase shares of our common stock , pay down debt and make a voluntary contribution to our pension plans . in fiscal 2018 , we intend to focus on continuing to create long-term , sustainable shareholder value by building on the positive momentum from our solid fiscal 2017 performance that included delivering against all of our strategic priorities . we expect the combination of our strong competitive position , differentiated technologies that address our customers ' most critical challenges and excellent operational execution to drive top-line growth and higher earnings in the medium-term . our strategic focus includes : growing revenue across all three business segments ; driving flawless execution while maintaining margins through operational excellence ; and maximizing cash flow with balanced capital deployment while continuing to invest for the future . as we have seen in the government fiscal year ( “ gfy ” ) 2017 omnibus appropriations bill , as well as the president 's 2018 budget request and congressional markups , the u.s. government funding outlook is improving , and our programs are expected to be largely well-supported , especially within the dod for our tactical communications business , electronic systems and in intelligence community budgets . an important part of our strategy is to grow revenue across the business in fiscal 2018 and beyond , and we expect all segments will contribute to this growth . for communication systems , we expect to begin seeing the benefits of dod modernizations towards the second half of fiscal 2018 as we start to deliver next-generation tactical radios with new features and capabilities to the u.s. special operations forces and the u.s. army , and we believe this will continue into fiscal 2019 and beyond . our international tactical business began to stabilize in the second half of fiscal 2017 , and we expect to return to growth in the medium-term as the middle east comes out of a trough and australia and u.k. modernizations get underway . in electronic systems , we expect to see growth across the board . our electronic warfare business has a solid and growing pipeline of opportunities on the f-35 , f-16 and f-18 platforms , as well as for the b-52 and c-130j platforms . for space and intelligence systems , we expect to see continued strong growth in the classified area , driven by budget increases and expansion into new adjacencies . we also expect increasing momentum in commercial space from recapitalizations . our operational excellence program , harris business excellence ( “ hbx ” ) , is focused on streamlining processes , optimizing program execution , and increasing customer satisfaction . hbx incorporates standardized , industry-proven processes and tools based on the principles of lean six sigma . since implementation , we have made significant strides in customer satisfaction , productivity and asset velocity through our efforts to optimize processes , eliminate waste , reduce costs and enhance quality across multiple aspects of our business . one method we use to drive continuous improvement is “ value engineering ” — continuously evaluating new materials , processes and technologies to insert into products already in production , helping to reduce costs and improve both quality and customer satisfaction . innovation is at the core of our success , and r & d investment represents the foundation for innovation . our r & d investments are focused on leveraging our existing technology portfolio to introduce new solutions or expand customer-centric features and functions on existing solutions . innovation also leads to natural extensions of our core capabilities for 35 capturing new opportunities in adjacent markets . innovation provides differentiation and is a key competitive advantage for our business . we have adopted a portfolio management approach designed to optimize investment in r & d at the company level rather than the business unit level . this approach is intended to ensure our r & d investment is cost-effective , supports innovation across the entire company and maximizes efficiency while maintaining our technological edge . we introduced standardized processes and common metrics to track progress and gauge success , and established core technology centers to more fully leverage r & d investment across our company . during fiscal 2017 , we thoughtfully deployed proceeds from divestitures and net cash provided by operating activities . we returned $ 710 million to our shareholders through share repurchases and another $ 262 million in dividends . we also used $ 499 million for net repayment of borrowings ( including retiring $ 575 million of debt ) and $ 400 million for a voluntary contribution to our u.s. defined benefit plans which helped reduce our unfunded defined benefit plans liability by 44 percent to $ 1.3 billion at the end of fiscal 2017. in fiscal 2018 , we expect to improve our operating cash flow and to use our capital to achieve our debt repayment commitment , as well as for share repurchases and dividends . key indicators we believe our value drivers , when implemented , will improve our financial results , including : revenue ; income from continuing operations and income from continuing operations per diluted common share ; income from continuing operations as a percentage of revenue ; net cash provided by operating activities ; return on invested capital ; return on average equity ; and consolidated total indebtedness to total capital ratio . the measure of our success is reflected in our results of operations and liquidity and capital resources key indicators as discussed below . story_separator_special_tag fiscal 2017 story_separator_special_tag international : we believe there is continuing international demand from military and government customers for tactical radios , public safety communications , electronic warfare equipment , air traffic management , electronic attack and release systems and isr . we believe we can leverage our domain expertise and proven technology provided in the u.s. to further expand our international business . we believe that our experience , technologies and capabilities are well aligned with the demand and requirements of the markets noted above in this report . however , we remain subject to the spending levels , pace and priorities of the u.s. government as well as international governments and commercial customers , and to general economic conditions that could adversely affect us , our customers and our suppliers . we also remain subject to other risks associated with these markets , including technological uncertainties , adoption of our new products and other risks that are discussed below in this report under “ forward-looking statements and factors that may affect future results ” and in “ item 1a . risk factors ” of this report . 37 operations review consolidated results of operations replace_table_token_5_th * not meaningful revenue fiscal 2017 compared with fiscal 2016 : the decrease in revenue in fiscal 2017 compared with fiscal 2016 was primarily due to lower tactical communications revenue in our communication systems segment and lower revenue due to the impact of the divestiture of our aerostructures business in the fourth quarter of fiscal 2016 , which contributed $ 60 million of revenue in fiscal 2016 in our electronic systems segment , and the impact of certain environmental and commercial space programs in our space and intelligence systems segment transitioning from a build-out to a sustainment phase , partially offset by higher revenue from the ramp up of the united arab emirates integrated battle management system ( bms-elts ) program and from electronic warfare in our electronic systems segment and by $ 36 million of higher revenue from classified customers in our space and intelligence systems segment . fiscal 2016 compared with fiscal 2015 : the increase in revenue in fiscal 2016 compared with fiscal 2015 was primarily due to the inclusion in our operating results of revenue from a full year of exelis operations as a result of our acquisition of exelis in the fourth quarter of fiscal 2015. revenue in fiscal 2016 also reflected weakness in our communication systems segment related to dod and international tactical radio markets . see the “ discussion of business segment results of operations ” discussion below in this md & a for further information . 38 gross margin percentage fiscal 2017 compared with fiscal 2016 : gross margin as a percentage of revenue ( “ gross margin percentage ” ) in fiscal 2017 was comparable with fiscal 2016 reflecting cost containment and integration-related synergy savings and higher pension income , mostly offset by lower margins from the ads-b program as it transitions from a build-out to a sustainment phase and the margin impact of lower revenue in our communication systems segment . fiscal 2016 compared with fiscal 2015 : the decrease in gross margin percentage in fiscal 2016 compared with fiscal 2015 was primarily due to a shift in the mix of contract types , toward an increased percentage of lower-margin cost-plus contracts . additionally , gross margin percentage in fiscal 2016 reflected a lower gross margin percentage in exelis legacy tactical radio and night vision product lines and write-downs , recorded in the second quarter of fiscal 2016 , of certain assets related to restructuring programs . see the “ discussion of business segment results of operations ” discussion below in this md & a for further information . engineering , selling and administrative expenses fiscal 2017 compared with fiscal 2016 : the decrease in engineering , selling and administrative ( “ esa ” ) expenses in fiscal 2017 compared with fiscal 2016 was primarily due to cost containment , integration-related synergy savings and a $ 63 million reduction in integration and other costs associated with our acquisition of exelis in the fourth quarter of 2015 , partially offset by the benefit in fiscal 2016 of $ 101 million net liability reduction for certain post-employment benefit plans recorded during the second quarter of fiscal 2016. esa expenses as a percentage of revenue ( “ esa percentage ” ) in fiscal 2017 was comparable with fiscal 2016. overall company-sponsored r & d costs were $ 310 million in fiscal 2017 compared with $ 305 million in fiscal 2016 . fiscal 2016 compared with fiscal 2015 : the increase in esa expenses in fiscal 2016 compared with fiscal 2015 was primarily due to the inclusion in our operating results of esa expenses from a full year of exelis operations as a result of our acquisition of exelis in the fourth quarter of fiscal 2015 , $ 109 million of amortization of intangible assets acquired , $ 121 million of integration and other costs associated with the acquisition ( including $ 11 million for amortization of a step-up in inventory ) and $ 33 million of charges , recorded in fiscal 2016 , for restructuring and other items . these drivers of the increase in esa expenses were partially offset by a net liability reduction of $ 101 million , recorded in the second quarter of fiscal 2016 , for certain post-employment benefit plans . the decrease in esa percentage in fiscal 2016 compared with fiscal 2015 was primarily due to the net liability reduction for certain post-employment benefits described in the preceding sentence , lower esa percentage from exelis businesses and cost savings realized after our acquisition of exelis , partially offset by the amortization , integration and other costs and charges for restructuring noted in this paragraph . overall company-sponsored r & d costs were $ 305 million in fiscal 2016 compared with $ 276 million in fiscal 2015 . see the “ discussion of business segment results of operations ” discussion below in this md & a for further information .
| percent in fiscal 2016 ; return on average equity ( defined as income from continuing operations divided by the two-point average of equity at the beginning and end of the fiscal year ) increased to 21 percent in fiscal 2017 from 19 percent in fiscal 2016 ; our consolidated total indebtedness to total capital ratio at june 30 , 2017 was 58 percent , compared to our 65 percent covenant limitation under our senior unsecured revolving credit facility ; our cash used for net repayment of borrowings decreased to $ 499 million ( including retiring $ 575 million of debt ) in fiscal 2017 from $ 669 million in fiscal 2016 ; and our unfunded defined benefit plans liability decreased $ 1.0 billion in fiscal 2017 to $ 1.3 billion at june 30 , 2017 compared to $ 2.3 billion at july 1 , 2016 . refer to md & a heading “ liquidity , capital resources and financial strategies ” below in this report for more information on net cash provided by ( used in ) operating , investing and financing activities . 36 industry-wide opportunities , challenges and risks department of defense and other u.s. federal markets : our largest customers are various departments and agencies of the u.s. government — the percentage of our revenue that was derived from sales to u.s. government customers , including foreign military sales funded through the u.s. government , whether directly or through prime contractors , in fiscal 2017 , 2016 and 2015 was approximately 74 percent , 77 percent and 66 percent , respectively . the gfy 2017 ( u.s. government fiscal years begin october 1 and end september 30 ) budget cycle ended with the omnibus appropriations bill being passed by congress and signed by president trump on may 5 , 2017. our programs were fully funded and continue to remain priorities for u.s. government customers . in addition , president trump 's
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sales volumes declined in the second half of 2019 compared to the first half of 2019 principally due to a sharp slowdown in well completion activity within north america 's onshore , unconventional oil and gas industry . nobelclad 's sales of $ 87,126 in 2019 decreased 2 % compared with 2018 primarily due to the impact of changes in exchange rates on euro-denominated sales . consolidated gross profit of 36 % in 2019 increased from 34 % in 2018 due to a higher proportion of net sales in dynaenergetics relative to nobelclad , the benefit of manufacturing efficiencies in dynaenergetics , improved project mix in nobelclad and the favorable impact of higher sales volume on fixed manufacturing overhead expenses . restructuring expenses of $ 19,503 in 2019 related to cumulative foreign currency translation losses , asset impairments , and severance liabilities in connection with the closure and substantial liquidation of dynaenergetics ' operations in tyumen , siberia . we also incurred severance , equipment moving expenses and contract termination costs , partially offset by a gain on assets sold in connection with the prior year closure of nobelclad 's manufacturing operations in france . consolidated selling , general , and administrative expenses were $ 65,451 in 2019 compared with $ 61,213 in 2018 . the increase primarily was due to headcount additions and merit raises , higher stock-based compensation , and increased costs for outside services , including expenses related to an enterprise resource planning ( `` erp '' ) upgrade in dynaenergetics as well as development and improvement of sales-related software . net cash of $ 6,081 ( comprised of $ 20,353 in cash net of $ 14,272 of total debt ) was an improvement from $ 27,980 of net debt at december 31 , 2018 . net cash , a non-gaap measure , is calculated as cash and cash equivalents less total debt . use of non-gaap financial measures adjusted ebitda is a non-gaap ( generally accepted accounting principles ) measure that we believe provides an important indicator of our ongoing operating performance and that we use in operational and financial decision-making . we define ebitda as net income or loss plus or minus net interest , taxes , depreciation and amortization . adjusted ebitda excludes from ebitda stock-based compensation , restructuring and impairment charges and , when appropriate , other items that management does not utilize in assessing dmc 's operating performance ( as further described in the tables below ) . as a result , internal management reports used during monthly operating reviews feature adjusted ebitda and certain management incentive awards are based , in part , on the amount of adjusted ebitda achieved during the year . 31 net cash or net debt is a non-gaap measure we use to supplement information in our consolidated financial statements . we define net debt as total debt less cash and cash equivalents and net cash as cash and cash equivalents less total debt . in addition to conventional measures prepared in accordance with gaap , the company uses this information to evaluate its performance , and we believe that certain investors may do the same . the presence of non-gaap financial measures in this report is not intended to suggest that such measures be considered in isolation or as a substitute for , or as superior to , dmc 's gaap information , and investors are cautioned that the non-gaap financial measures are limited in their usefulness . because not all companies use identical calculations , dmc 's presentation of non-gaap financial measures may not be comparable to other similarly titled measures of other companies . forward-looking statements this annual report and the documents incorporated by reference into it contain certain forward-looking statements within the meaning of the safe harbor provisions of the private securities litigations reform act of 1995. words such as “ anticipates , ” “ expects , ” “ intends , ” “ plans , ” “ believes , ” “ seeks , ” “ estimates , ” “ may , ” “ will , ” “ continue , ” “ project , ” “ forecast , ” and similar expressions , as well as statements in the future tense , identify forward-looking statements . such statements include statements regarding our future expected financial position and operating results , our growth and business strategy , our expectations regarding the oil and gas industry , expected product developments in dynaenergetics , planned capital expenditures in 2020 , our financing plans , our future liquidity position and factors impacting such position . these forward-looking statements are not guarantees of our future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements . these risks and uncertainties include those relating to : changes in global economic conditions ; the ability to obtain new contracts at attractive prices ; the size and timing of customer orders and shipments ; product pricing and margins ; our ability to realize sales from our backlog and our ability to adjust our manufacturing and supply chain ; fluctuations in customer demand ; our ability to manage periods of growth and contraction effectively ; general economic conditions , both domestic and foreign , impacting our business and the business of the end-market users we serve ; competitive factors ; the timely completion of contracts ; the timing and size of expenditures ; the timely receipt of government approvals and permits ; the price and availability of metal and other raw materials ; the adequacy of local labor supplies at our facilities ; current or future limits on manufacturing capacity at our various operations ; our ability to successfully integrate acquired businesses ; the ability to remain an innovative leader in our fields of business ; the impacts of pending or future litigation or regulatory matters ; the application of governmental regulation and oversight of our operations and products and the industries in which our customers operate ; 32 the impacts of trade and economic sanctions or other restrictions imposed by the european union story_separator_special_tag , the united states or other countries ; costs and risks associated with compliance with the united states foreign corrupt practices act ( “ fcpa ” ) and similar legislation ; the availability and cost of funds ; and fluctuations in foreign currencies . the effects of these factors are difficult to predict . new factors emerge from time to time and we can not assess the potential impact of any such factor on our business or the extent to which any factor , or combination of factors , may cause results to differ materially from those contained in any forward-looking statement . all forward-looking statements speak only as of the date of this annual report , and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of such statement or to reflect the occurrence of unanticipated events . in addition , see “ risk factors ” for a discussion of these and other factors that could materially affect our results of operations and financial condition . story_separator_special_tag style= '' line-height:120 % ; text-align : left ; font-size:10pt ; '' > dynaenergetics replace_table_token_9_th net sales were $ 72,976 higher than in 2018 primarily due to higher levels of perforating activity in u.s. well completions in the unconventional onshore oil and gas sector and growth in customer demand for dynaenergetics ' advanced perforating systems . 36 gross profit percentage increased to 39.5 % due to favorable product mix , the benefit of manufacturing efficiencies , and the impact of higher sales on fixed manufacturing overhead expenses . gross profit percentage in 2019 was negatively impacted by a $ 630 inventory write down associated with the shutdown of dynaenergetics ' operations in tyumen , siberia . general and administrative expenses decreased by $ 4,221 compared with 2018 primarily due to lower legal costs of $ 3,200 associated with the successful defense of patent infringement lawsuits in 2018 , partially offset by non-capitalizable training and data conversion expenses related to an erp upgrade . dynaenergetics also had lower payroll-related costs and taxes in 2019. selling and distribution expenses increased by $ 2,751 compared with 2018 primarily due to costs associated with the implementation of sales-related software of $ 942 and bad debt expense of $ 374 to record reserves for uncollectible accounts receivable in dynaenergetics . in addition , distribution expenses increased to support the growth in sales activity . amortization of purchased intangibles decreased by $ 1,379 compared with 2018 primarily due to fully amortizing certain customer relationship intangibles during 2019. restructuring expense of $ 18,624 in 2019 primarily related to the reclassification of cumulative foreign currency translation losses to the statement of operations , asset impairments , and severance liabilities in connection with the closure and substantial liquidation of dynaenergetics ' operations in tyumen , siberia . in 2019 , dynaenergetics also closed distribution facilities in canada and oklahoma and consolidated perforating system assembly operations in mt . braddock , pennsylvania , into its facility in blum , texas . anti-dumping duty penalties of $ 8,000 in 2018 represent an accrual for a mitigated amount of penalties on the ad/cvd matter that was asserted by u.s. customs . this amount was paid during the second quarter of 2019. operating income increased by $ 24,305 compared with 2018 primarily due to higher unit sales volume in 2019 and the non-recurring accrual for penalties on the ad/cvd matter recorded in 2018 , partially offset by restructuring expenses and asset impairments as well as increased selling and distribution expenses in 2019. adjusted ebitda increased compared with 2018 primarily due to the factors discussed above . see `` overview '' above for the explanation of the use of adjusted ebitda . the following is a reconciliation of the most directly comparable gaap measure to adjusted ebitda . replace_table_token_10_th 37 nobelclad replace_table_token_11_th net sales decreased by $ 1,855 compared with 2018 principally due to the impact of changes in exchange rates on euro-denominated sales . gross profit percentage increased to 26.2 % primarily due to better project mix . 2018 also was unfavorably impacted by several large , lower-margin international projects that shipped in the first quarter of 2018. general and administrative expenses increased by $ 181 compared with 2018 primarily due to higher outside service costs of $ 275 associated with six sigma projects and an assessment of erp upgrade options partially offset by lower payroll-related costs and taxes of $ 124. selling and distribution expenses increased by $ 1,807 compared with 2018 primarily due to higher salaries and wages from headcount additions of $ 653 , increased outside service costs of $ 326 related to improvement and development of nobelclad 's customer-facing website as well as its internal project quoting tool , increased variable commissions and bonus of $ 306 , and higher payroll related costs and taxes of $ 154. restructuring expense , net and asset impairments of $ 879 in 2019 primarily related to severance , equipment moving expenses and contract termination costs , partially offset by a gain on the sales of assets , in connection with the prior-year closure of nobelclad 's manufacturing operations in france . operating income increased by $ 694 compared to 2018 primarily due to improved gross profit in 2019 partially offset by increased general and administrative expenses and selling and distribution expenses in 2019. adjusted ebitda increased due to the factors discussed above . see `` overview '' above for the explanation of the use of adjusted ebitda . the following is a reconciliation of the most directly comparable gaap measure to adjusted ebitda . replace_table_token_12_th liquidity and capital resources we have historically financed our operations from a combination of internally generated cash flow , revolving credit borrowings , and various long-term debt arrangements . we believe that cash flow from operations and funds available under our current credit facilities and any future replacement thereof will be sufficient to fund the working capital , debt service , dividends , and other capital expenditure requirements of our current business operations for the foreseeable 38 future .
| amortization of purchased intangible assets decreased $ 1,400 compared with 2018 primarily due to fully amortizing certain customer relationship intangibles during 2019. restructuring expenses of $ 19,503 in 2019 primarily related to reclassification of the cumulative foreign currency translation losses to the statement of operations , asset impairments , and severance liabilities in connection with the closure and substantial liquidation of dynaenergetics ' operations in tyumen , siberia . additionally , we incurred severance , equipment moving expenses and contract termination costs , partially offset by a gain on assets sold , in connection with the prior year closure of nobelclad 's manufacturing operations in france . e xpenses in 2018 related to equipment moving expenses , legal fees and severance costs associated with the closure . anti-dumping duty penalties of $ 8,000 recorded in 2018 by the dynaenergetics segment represent an accrual for penalties related to the anti-dumping and countervailing duties ( “ ad/cvd ” ) matter asserted by u.s. customs . this amount was paid during the second quarter of 2019. operating income increased $ 21,001 compared with 2018 primarily due to improved earnings in dynaenergetics and nobelclad in 2019 and the anti-dumping duty penalty accrual that was recorded in 2018 , which was partially offset by current year restructuring expenses and asset impairments . other expense , net of $ 169 in 2019 primarily related to the non-service cost components of the annual adjustment to our defined benefit pension plans at certain foreign subsidiaries , which was partially offset by a net foreign currency exchange gain . in 2018 , other expense , net was driven by unrealized and realized foreign currency exchange losses . foreign currency exchange gains and losses can arise when subsidiaries enter into inter-company and third-party transactions that are denominated in currencies other than their functional currency , including foreign currency forward contracts used to offset foreign exchange rate fluctuations on certain foreign currency denominated asset and liability positions . interest expense , net of $ 1,554 decreased compared with last year due to a lower average outstanding debt balance in 2019 compared with 2018 and a $ 159 write-off of deferred debt issuance costs
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we believe established yet small web application development companies have the ability to market , sell and install our iapps platform in their local metropolitan markets . we believe these companies also have a .net customer base and a niche presence in the local markets in which they operate . we believe there is an opportunity for us to acquire companies that specialize in web application development that are based in large north american cities in which we currently do not operate . we believe that by acquiring certain of these companies and applying our business practices and efficiencies , we can accelerate our time to market of the iapps platform . during the fiscal year ended september 30 , 2012 we completed two acquisitions . on october 3 , 2011 , we completed the acquisition of magnetic corporation ( “ magnetic ” ) , a tampa , florida based interactive technology company . we acquired all of the outstanding capital stock of magnetic for consideration consisting of ( i ) $ 150 thousand in cash ( ii ) assumption of $ 130 thousand of indebtedness and ( iii ) contingent consideration of up to $ 600 thousand in cash and 166,666 shares of bridgeline digital common stock . the contingent consideration is payable quarterly over the 12 consecutive calendar quarters following the acquisition , contingent upon the acquired business achieving certain quarterly revenue and quarterly operating income targets during the period . the contingent common stock has been issued and is being held in escrow pending satisfaction of the applicable targets . to the extent that either the quarterly revenue targets or the quarterly operating income targets are not met in a particular quarter , the earn-out period will be extended for up to four additional quarters . on may 31 , 2012 , we completed the acquisition of marketnet , inc. ( “ marketnet ” ) , an interactive technology company based in dallas , texas . bridgeline acquired all of the outstanding capital stock of marketnet for consideration consisting of ( i ) $ 20 thousand in cash , ( ii ) assumption of debt of $ 244 thousand and ( ii ) contingent consideration of up to $ 650 thousand in cash and 204,331 shares of bridgeline digital common stock . this contingent consideration is payable quarterly over the 12 consecutive calendar quarters following the acquisition , contingent upon the acquired business achieving certain quarterly revenue and quarterly operating income targets during the period . to the extent that either the quarterly revenue target or the quarterly operating income target is not met in a particular quarter , the earn-out period will be extended for up to four additional quarters . marketnet is also eligible to earn additional bonus equity consideration of 200,000 shares , if annual net revenues of the acquired business exceed a certain threshold in any fiscal year through september 30 , 2015. the contingent common stock has been issued and is being held in escrow pending satisfaction of the applicable targets . each of magnetic and marketnet 's operating results are reflected in the condensed consolidated financial statements as of the acquisition date . we did not complete any acquisitions in the fiscal year ended september 30 , 2011 . 17 we may make additional acquisitions in the foreseeable future . these potential acquisitions are consistent with our iapps platform distribution strategy and growth strategy by providing bridgeline with new geographical distribution opportunities , an expanded customer base , an expanded sales force and an expanded developer force . in addition , integrating acquired companies into our existing operations allows us to consolidate the finance , human resources , legal , marketing , research and development of the acquired businesses with our own internal resources , hence reducing the aggregate of these expenses for the combined businesses and resulting in improved operating results . customer information we currently have over 500 active customers . for the years ended september 30 , 2012 and 2011 no one customer represented 10 % or more of the company 's total revenue . summary of results of operations total revenue for the fiscal year ended september 30 , 2012 ( “ fiscal 2012 ” ) increased to $ 26,296 thousand from $ 26,267 thousand for the fiscal year ended september 30 , 2011 ( “ fiscal 2011 ” ) . loss from operations for fiscal 2012 was ( $ 602 ) thousand compared with loss from operations of ( $ 547 ) thousand for fiscal 2011. we had a net loss for fiscal 2012 of ( $ 945 ) thousand compared with a net loss of ( $ 782 ) thousand for fiscal 2011. loss per share for fiscal 2012 was ( $ 0.07 ) compared with loss per share of ( $ 0.06 ) for fiscal 2011. highlights of fiscal 2012 highlights of fiscal 2012 include the achievement of record revenues , record iapps license sales and key iapps product releases and updates : financial · bridgeline achieved record revenues in fiscal 2012 of $ 26,296,000 . · total iapps related revenue increased 37 % to $ 16.6 million in fiscal 2012 from $ 12.1 million in fiscal 2011 . · recurring revenue , which reflects amounts that are contractually due to bridgeline , increased 27 % to $ 4.2 million in fiscal 2012 from $ 3.3 million in fiscal 2011 . · bridgeline sold a record number of iapps licenses within fiscal 2012. the 267 new iapps licenses during fiscal 2012 was a 25 % increase compared to licenses sold during fiscal 2011. new strategic alliances , products and enhancements · in the third quarter of fiscal 2012 bridgeline announced that united parcel service ( “ ups ” ) signed a multi-year partnership agreement with bridgeline to offer b2b and b2c ecommerce web stores with an end-to-end offering comprised of bridgeline 's ecommerce fulfilled solution and ups logistics and fulfillment services . story_separator_special_tag · in the fourth quarter of fiscal 2012 bridgeline announced the release of new poduct , iapps distributed subscription ( “ iapps ds ” ) , a platform that empowers large franchise and dealer networks with state-of-the-art web engagement management while providing superior oversight of corporate branding . iapps ds deeply integrates content management , ecommerce , emarketing and web analytics and is a self-service web platform that is offered to each authorized franchise or dealer for a monthly subscription fee . · in july of fiscal 2012 bridgeline signed a multi-year agreement with a large national franchise network of over 4,300 locations who will license the iapps ds platform . · bridgeline released two versions of the iapps platform during fiscal 2012. in the first quarter of fiscal 2012 bridgeline released iapps version 4.7 which provided many international ecommerce enhancements including multilingual and multi-currency support along with improvements in how iapps handles international fulfillment , tax and regulations logistics . in the third quarter of fiscal 2012 bridgeline released iapps version 4.8 which offered full integration of front- and back-end ecommerce capabilities with built-in warehouse management and inventory control . acquisitions · during the fiscal year bridgeline continued its geographic expansion strategy with two acquisitions ; magnetic corporation and marketnet , inc. these acquisitions expanded bridgeline 's footprint into the tampa and dallas regions . 18 story_separator_special_tag style= '' font-style : italic ; display : inline ; font-family : times new roman ; font-size : 10pt '' > impairment of intangible assets the increase in fiscal 2012 compared to 2011 is attributable to an impairment charge recorded in the first quarter of fiscal 2012. we incurred a charge to operations of $ 281 thousand for impairment charges related to an intangible asset assumed from our fiscal 2010 acquisition of e.magination and its wholly-owned subsidiary e.magination ig , llc . in the first quarter of fiscal 2012 , the company stopped servicing low margin non-iapps opportunities acquired from e.magination ig , llc . it was therefore determined that a portion of the customer list was impaired . 21 income ( loss ) from operations the loss from operations was ( $ 602 ) thousand for fiscal 2012 compared to a loss from operations of ( $ 547 ) for fiscal 2011. this increase in loss from operations is primarily due to an increase in selling and marketing expenses as a result of our fiscal 2012 acquisitions and the aforementioned impairment of the intangible asset , offset by the increase in gross profit . interest income ( expense ) , net interest income ( expense ) , net increased to a $ 275 thousand net expense for fiscal 2012 from a $ 211 thousand net expense for 2011. the increase in net expense in fiscal 2012 is attributable to increased interest expense incurred due to the company 's borrowing on its term loan faciltity near the end of fiscal 2011. provision for income taxes the provision for income tax expense was $ 68 thousand for fiscal 2012 compared to $ 24 thousand for fiscal 2011. income tax expense represents the estimated liability for federal , state and foreign income taxes owed by the company , including the alternative minimum tax . the increase in fiscal 2012 is due to an increase in foreign income taxes related to our india subsidiary . the company has net operating loss carryforwards and other deferred tax benefits that are available to offset future taxable income . a valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized . accordingly , the company has established a full valuation allowance against its net deferred tax asset at september 30 , 2012 and 2011. the federal net operating loss ( nol ) carryforward of approximately $ 6.0 million as of september 30 , 2012 expires on various dates through 2028. internal revenue code section 382 places a limitation on the amount of taxable income which can be offset by nol carryforwards after a change in control of a loss corporation . generally , after a change in control , a loss corporation can not deduct nol carryforwards in excess of the section 382 limitation . due to these “ change of ownership ” provisions , utilization of nol carryforwards may be subject to an annual limitation regarding their utilization against taxable income in future periods . the company has not performed a section 382 analysis . however , if performed , section 382 may be found to limit potential future utilization of our nol carryforwards . adjusted ebitda we also measure our performance based on a non-gaap ( “ generally accepted accounting principles ” ) measurement of earnings before interest , taxes , depreciation , and amortization and before stock compensation expense and impairment of goodwill and intangible assets ( “ adjusted ebitda ” ) . we believe this non-gaap financial measure of adjusted ebitda is useful to management and investors in evaluating our operating performance for the periods presented and provides a tool for evaluating our ongoing operations . adjusted ebitda , however , is not a measure of operating performance under gaap and should not be considered as an alternative or substitute for gaap profitability measures such as ( i ) income from operations and net income , or ( ii ) cash flows from operating , investing and financing activities , both as determined in accordance with gaap . adjusted ebitda as an operating performance measure has material limitations since it excludes the financial statement impact of income taxes , net interest expense , amortization of intangibles , depreciation , other amortization and stock-based compensation , and therefore does not represent an accurate measure of profitability . as a result , adjusted ebitda should be evaluated in conjunction with net income for a complete analysis of our profitability , as net income includes the financial statement impact of these items and is the most directly comparable gaap operating performance measure to adjusted ebitda .
| managed services revenue as a percentage of total revenue increased to 10 % from 8 % in fiscal 2011 due to the incremental revenue from our acquisitions . subscription and perpetual licenses revenue from subscription and perpetual licenses increased $ 123 thousand , or 5 % , to $ 2.5 million from $ 2.4 million in fiscal 2011. the increase is due primarily to a higher amount of subscription license revenues and annual maintenance renewals . subscription and perpetual license revenue as a percentage of total revenue remained at 9 % in fiscal 2012. costs of revenue total cost of revenue for the fiscal year ended september 30 , 2012 decreased $ 1.2 million , or 9 % , to $ 11.8 million from $ 13.0 million in fiscal 2011. cost of web application development services cost of web application development services decreased $ 0.9 million , or 8 % , compared to fiscal 2011. the cost of total web application development services as a percentage of total web application development services revenue decreased to 51 % from 54 % in fiscal 2011. this decrease is a result of our decision to stop servicing lower margin non-iapps engagements and , to a lesser extent , a decreased use of subcontractors . cost of iapps application development services increased $ 1.9 million to $ 6.3 million , an increase of 41 % when compared to fiscal 2011. the increase is a result of iapps application development service revenue increasing 42 % when compared to fiscal 2011. cost of iapps application development services as a percentage of iapps application development revenue remained steady at 47 % in each of fiscal 2012 and fiscal 2011. cost of other application development services for fiscal 2012 decreased $ 2.8 million to $ 4.6 million , a decrease of 38 % when compared to fiscal 2011. the cost of other application development services as a percentage of other application development service revenue decreased to 59 % in fiscal 2012 from 60 % in fiscal 2011. this decrease is a
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the company accrued a dividend payable for the fourth quarter on the preferred shares for $ 170,000 which will be paid in the first quarter of 2014. as of december 31 , 2013 , the bank 's tier 1 , tier 1 risk-based and total risk based capital ratios were 8.70 % , 12.41 % and 13.66 % respectively . 33 analysis of net interest income net interest income is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities . net interest income depends on the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them , respectively . the following tables set forth balance sheets , average yields and costs , and certain other information for the periods indicated . all average balances are daily average balances . the yields set forth below include the effect of deferred fees , discounts and premiums , which are included in interest income . replace_table_token_22_th _ ( 1 ) excludes allowance for loan losses . ( 2 ) includes federal home loan bank of new york stock . ( 3 ) interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities . ( 4 ) net interest margin represents net interest income as a percentage of average interest-earning assets . ( 5 ) average yields are computed using annualized interest income and expense for the periods . 34 analysis of net interest income ( continued ) replace_table_token_23_th _ ( 1 ) excludes allowance for loan losses . ( 2 ) includes federal home loan bank of new york stock . ( 3 ) interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities . ( 4 ) net interest margin represents net interest income as a percentage of average interest-earning assets . ( 5 ) average yields are computed using annualized interest income and expense for the periods . 35 rate/volume analysis the table below sets forth certain information regarding changes in our interest income and interest expense for the periods indicated . for each category of interest-earning assets and interest-bearing liabilities , information is provided on changes attributable to ( i ) changes in average volume ( changes in average volume multiplied by old rate ) ; ( ii ) changes in rate ( change in rate multiplied by old average volume ) ; ( iii ) changes due to combined changes in rate and volume ; and ( iv ) the net change . replace_table_token_24_th 36 results of operations for the years ended december 31 , 2013 and 2012 net income was $ 9.42 million for the year ended december 31 , 2013 compared with a net loss of ( $ 2.06 ) million for the year ended december 31 , 2012. our net income reflects increases in net interest income and non-interest income and decreases in non-interest expense and provision for loan losses , partially offset by an increase in income tax provision . net interest income increased by $ 5.1 million or 12.2 % to $ 46.8 million for the year ended december 31 , 2013 from $ 41.70 million for the year ended december 31 , 2012. this increase in net interest income resulted primarily from an increase in the average yield of interest earning assets to 4.97 % for the year ended december 31 , 2013 from 4.63 % for the year ended december 31 , 2012 , partially offset by a decrease of $ 4.5 million or 0.4 % in the average balance of interest earning assets to $ 1.153 billion for the year ended december 31 , 2013 from $ 1.158 billion for the year ended december 31 , 2012. the average balance of interest bearing liabilities decreased by $ 30.0 million or 3.0 % to $ 974.7 million for the year ended december 31 , 2013 from $ 1.005 billion for the year ended december 31 , 2012 , while the average cost of interest bearing liabilities decreased to 1.09 % for the year ended december 31 , 2013 from 1.19 % for the year ended december 31 , 2012. as a consequence of the aforementioned , our net interest margin increased to 4.06 % for the year ended december 31 , 2013 from 3.60 % for the year ended december 31 , 2012. the increase in the average yield of interest earning assets and the decrease in the average cost of interest bearing liabilities represents management 's efforts to competitively price certain products to maximize profitability . the decrease in the average balance of both interest earning assets and interest bearing liabilities represents a pre-planned minor deleveraging of the balance sheet . interest income on loans receivable increased by $ 5.76 million or 12.1 % to $ 53.52 million for the year ended december 31 , 2013 from $ 47.76 million for the year ended december 31 , 2012. the increase was primarily attributable to an increase in the average balance of loans receivable of $ 116.2 million or 13.4 % to $ 980.8 million for the year ended december 31 , 2013 from $ 864.6 million for the year ended december 31 , 2012 , partially offset by a slight decrease in the average yield of loans receivable to 5.46 % for the year ended december 31 , 2013 from 5.52 % for the year ended december 31 , 2012. the increase in the average balance of loans is primarily attributable to the re-allocation of excess liquidity into higher yielding loan products . the decrease in average yield reflects the competitive price environment prevalent in the bank 's primary market area on loan facilities as well as the repricing downward of variable rate loans . story_separator_special_tag interest income on securities decreased by $ 1.99 million or 34.4 % to $ 3.79 million for the year ended december 31 , 2013 from $ 5.78 million for the year ended december 31 , 2012. this decrease was primarily due to a decrease in the average balance of securities of $ 64.0 million or 31.3 % to $ 140.4 million for the year ended december 31 , 2013 from $ 204.4 million for the year ended december 31 , 2012 , as well as a decrease in the average yield of investment securities to 2.70 % for the year ended december 31 , 2013 from 2.83 % for the year ended december 31 , 2012. the decrease in the average balance represents the amortization of the portfolio in the absence of any material purchases of investment securities . the decrease in the average yield reflects the persistent low interest rate environment during the year ended december 31 , 2013. interest income on other interest-earning assets decreased by $ 60,000 or 53.6 % to $ 52,000 for the year ended december 31 , 2013 from $ 112,000 for the year ended december 31 , 2012. this decrease was primarily due to a decrease of $ 56.8 million or 64.0 % in the average balance of other interest-earning assets to $ 32.0 million for the year ended december 31 , 2013 from $ 88.8 million for the year ended december 31 , 2012. the average yield on other interest-earning assets increased slightly to 0.16 % for the year ended december 31 , 2013 from 0.13 % for the year ended december 31 , 2012. the somewhat static nature of the average yield on other interest-earning assets reflects the current philosophy by the fomc of keeping short term interest rates at historically low levels for the last several years . total interest expense decreased by $ 1.37 million or 11.5 % to $ 10.58 million for the year ended december 31 , 2013 from $ 11.95 million for the year ended december 31 , 2012. the decrease resulted primarily from a decrease in the average balance of interest bearing liabilities of $ 30.0 million or 3.0 % to $ 974.7 million for the year ended december 31 , 2013 from $ 1.005 billion for the year ended december 31 , 2012 as well as a decrease in the cost of interest-bearing liabilities of ten basis points to 1.09 % for the year ended december 31 , 2013 from 1.19 % for the year ended december 31 , 2012. the decrease in the average cost of interest bearing liabilities reflects the company 's reaction to the lower short term interest rate environment and our ability to reduce our pricing on a select number of retail deposit products . the provision for loan losses totaled $ 2.75 million and $ 4.9 million for the years ended december 31 , 2013 and 2012 , respectively . the provision for loan losses is established based upon management 's review of the bank 's loans and consideration of a variety of factors including , but not limited to , ( 1 ) the risk characteristics of the loan portfolio , ( 2 ) current economic conditions , ( 3 ) actual losses previously experienced , ( 4 ) the activity and fluctuating balance of loans receivable , and ( 5 ) the existing level of reserves for loan losses that are probable and estimable . during the year ended december 31 , 2013 , the company experienced $ 771,000 in net charge-offs ( consisting of $ 971,000 in charge-offs and $ 200,000 in recoveries ) . during the year ended december 31 , 2012 , the company experienced $ 3.05 million in net charge-offs ( consisting of $ 3.08 million in charge-offs and $ 35,000 in recoveries ) . the company had non-performing loans totaling $ 20.6 million or 1.98 % of gross loans at december 31 , 2013 and $ 22.9 million or 2.45 % of gross loans at december 31 , 2012. the decrease in non-performing loans resulted primarily from the sales of approximately $ 25.9 million in non-performing loans during the second and third quarters of 2012. the sale resulted in a pre-tax loss of approximately $ 10.8 million . the primary reason for these transactions was the elimination of carrying and legacy costs associated with these non-interest earning assets . the allowance for loan losses was $ 14.3 million or 1.38 % of gross loans at december 31 , 2013 as compared to $ 12.4 million or 1.32 % of gross loans at december 31 , 2012. the amount of the allowance is based on estimates and the ultimate losses may vary from such estimates . management assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses as necessary in order to maintain the adequacy of the allowance . while management uses available information to recognize losses on loans , future loan loss provisions may be necessary based on changes in the aforementioned criteria . in addition various regulatory agencies , as an integral part of their examination process , periodically review the allowance for loan losses and may require the company to recognize additional provisions based on their judgment of information available to them at the time of their examination . management believes that the allowance for loan losses was adequate at both december 31 , 2013 and december 31 , 2012. total non-interest income ( loss ) was $ 3.38 million for the year ended december 31 , 2013 compared with a loss of ( $ 7.23 ) million for the year ended december 31 , 2012. the increase in our non-interest income was primarily due to a decrease in loss on sale of loans of $ 10.3 million for the year ended december 31 , 2013 compared to december 31 , 2012. during the year ended december 31 , 2013 , we reflected a loss on sale of loans for $ 474,000 compared with a loss of $ 10.8 million for the year ended
| factors that could have a material adverse effect on the operations of the company and its subsidiaries include , but are not limited to , changes in market interest rates , general economic conditions , legislation , and regulation ; changes in monetary and fiscal policies of the united states government , including policies of the united states treasury and federal reserve board ; changes in the quality or composition of the loan or investment portfolios ; changes in deposit flows , competition , and demand for financial services , loans , deposits and investment products in the company 's local markets ; changes in accounting principles and guidelines ; war or terrorist activities ; and other economic , competitive , governmental , regulatory , geopolitical and technological factors affecting the company 's operations , pricing and services . readers are cautioned not to place undue reliance on these forward-looking statements , which speak only as of the date of this discussion . although the company believes that the expectations reflected in the forward-looking statements are reasonable , the company can not guarantee future results , levels of activity , performance or achievements . except as required by applicable law or regulation , the company undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made . 31 critical accounting policies critical accounting policies are those accounting policies that can have a significant impact on the company 's financial position and results of operations that require the use of complex and subjective estimates based upon past experiences and management 's judgment . because of the uncertainty inherent in such estimates , actual results may differ from these estimates . below are those policies applied in preparing the company 's consolidated financial statements that management believes are the most dependent on the application of estimates and assumptions . for additional accounting policies , see note 2 of “ notes to consolidated financial statements. ” allowance for loan losses loans receivable are presented net of an allowance for loan losses and net deferred loan fees . in determining the appropriate level of the allowance , management considers a combination of factors , such as economic and industry trends , real estate market conditions , size and type of loans in portfolio , nature and value of collateral held , borrowers ' financial strength and credit ratings , and prepayment and default history . the calculation of the appropriate allowance for loan losses requires a substantial amount of
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registered public accounting firm to the board of directors and stockholders of celsius holdings , inc. opinion on the financial statements we have audited the accompanying consolidated balance sheets of celsius holdings , inc. ( the company ) as of december 31 , 2020 , and the related consolidated statements of income , comprehensive income , stockholders ' equity , and cash flows for the year ended december 31 , story_separator_special_tag you should read the following discussion in conjunction with the audited financial statements and the corresponding notes , the unaudited financial statements and the corresponding notes included elsewhere in this information statement . this item 7 contains forward-looking statements . the matters discussed in these forward-looking statements are subject to risk , uncertainties , and other factors that could cause actual results to differ materially from those made , projected or implied in the forward-looking statements . please refer to “ item 1a . risk factors ” for a discussion of the uncertainties , risks and assumptions associated with these statements . story_separator_special_tag the entire 2020 year , which was present only for part of 2019 following the acquisition date on october 25 , 2019. as such , administrative expenses reflected an increase of $ 2.6 million , which included an increase of approximately $ 260,000 in our bad debt reserve , to cover potential collectability risks associated with the covid-19 pandemic . employee costs for the year ended december 31 , 2020 , reflect an increase of $ 1.6 million or 54.5 % , not only attributable to the consolidation of func food 's operations , but also additional investments in resources in order to properly support our higher business volume . additionally , we estimated the currency impact to account for 2 % of the increase in employee costs when compared to the prior year . all other increases for general and administrative expenses from 2019 to 2020 amounted to $ 2.4 million . these increases are mainly the result of higher stock option expense of $ 1.5 million , depreciation and amortization of $ 835,000 and net increases in all other administrative expenses of $ 82,000. other income/ ( expense ) total net other income for the year ended december 31 , 2020 was $ 730,000 which reflects a variance of 10.6 million when compared to net total other income of $ 11.4 million for the year ended december 31 , 2019. the variance of $ 10.6 million is mainly related to the recognition of a gain of $ 12.2 million pertaining to a note receivable from our chinese licensee . the note receivable is the part of an agreement executed with our china distributor , related to the restructuring of our business relationship to a royalty-based model , which requires the repayment , over a five-year period , pursuant to an unsecured , interest-bearing note , of the investment the company made in the china market during 2017 and 2018. net income/loss as a result of all of the above , for the year ended december 31 , 2020 , the company had net income of $ 8.5 million or $ 0.12 per share based on a weighted average of 70,195,085 shares outstanding and $ 0.11 per share based on a weighted average of 74,443,601 shares outstanding , which includes the dilutive impact of outstanding stock options to purchase 4,248,516 shares . in comparison , for the year ended december 31 , 2019 there was net income of $ 10.0 million or $ 0.16 per share based on a weighted average of 60,761,995 shares outstanding , and after adding back interest expense on convertible notes of $ 348,493 and the amortization on discount on notes payable of $ 239,570 , a diluted net income of $ 10.6 million or $ 0.16 per share based on a weighted average of 64,183,399 shares outstanding , which includes the dilutive impact of the stock options of 1,153,231 shares and the dilutive effect of the convertible notes of 2,268,173 shares . 18 liquidity and capital resources as of december 31 , 2020 , and december 31 , 2019 , we had cash of approximately $ 43.2 million and $ 23.1 million , respectively , and working capital of approximately $ 64.9 million and $ 24.8 million , respectively . in addition to cash flow from operations , our primary sources of working capital have been private placements and public offerings of our securities ( including a private placement of 1,437,909 shares at a price of $ 15.30 completed on august 25 , 2020 and an underwritten public offering of 7,986,110 shares at an offering price of $ 3.60 per share completed on september 16 , 2019 ) . our current operating plan for the next twelve ( 12 ) months reflects sufficient financial resources , notwithstanding the potential effects of the covid-19 pandemic nevertheless ; we do not contemplate obtaining additional financing . cash flows provided by operating activities cash flows provided by operating activities totaled $ 3.4 million in 2020 , representing a $ 2.4 million increase from $ 1.0 million in 2019. the increase was primarily driven by operating income adjusted for non-cash-items . the increase was further driven by efficient management of accounts payable , accrued expenses , and other liabilities . partially offsetting the increase in cash flows from operating activities was an increase in expenditures for prepaid expenses and other assets mainly related to deposits for inventory production , an increase accounts receivable mainly related to increase in sales volume and elimination of accounts receivable financing in europe , as well as increased inventory levels to properly service demand for our products . cash flows provided by ( used in ) investing activities cash flows provided by investing activities totaled $ 0.8 million in 2020 , representing a $ 15.1 million increase from net cash used in investing activities of $ 14.3 million in 2019. the increase was primarily due to the fact that story_separator_special_tag registered public accounting firm to the board of directors and stockholders of celsius holdings , inc. opinion on the financial statements we have audited the accompanying consolidated balance sheets of celsius holdings , inc. ( the company ) as of december 31 , 2020 , and the related consolidated statements of income , comprehensive income , stockholders ' equity , and cash flows for the year ended december 31 , story_separator_special_tag you should read the following discussion in conjunction with the audited financial statements and the corresponding notes , the unaudited financial statements and the corresponding notes included elsewhere in this information statement . this item 7 contains forward-looking statements . the matters discussed in these forward-looking statements are subject to risk , uncertainties , and other factors that could cause actual results to differ materially from those made , projected or implied in the forward-looking statements . please refer to “ item 1a . risk factors ” for a discussion of the uncertainties , risks and assumptions associated with these statements . story_separator_special_tag the entire 2020 year , which was present only for part of 2019 following the acquisition date on october 25 , 2019. as such , administrative expenses reflected an increase of $ 2.6 million , which included an increase of approximately $ 260,000 in our bad debt reserve , to cover potential collectability risks associated with the covid-19 pandemic . employee costs for the year ended december 31 , 2020 , reflect an increase of $ 1.6 million or 54.5 % , not only attributable to the consolidation of func food 's operations , but also additional investments in resources in order to properly support our higher business volume . additionally , we estimated the currency impact to account for 2 % of the increase in employee costs when compared to the prior year . all other increases for general and administrative expenses from 2019 to 2020 amounted to $ 2.4 million . these increases are mainly the result of higher stock option expense of $ 1.5 million , depreciation and amortization of $ 835,000 and net increases in all other administrative expenses of $ 82,000. other income/ ( expense ) total net other income for the year ended december 31 , 2020 was $ 730,000 which reflects a variance of 10.6 million when compared to net total other income of $ 11.4 million for the year ended december 31 , 2019. the variance of $ 10.6 million is mainly related to the recognition of a gain of $ 12.2 million pertaining to a note receivable from our chinese licensee . the note receivable is the part of an agreement executed with our china distributor , related to the restructuring of our business relationship to a royalty-based model , which requires the repayment , over a five-year period , pursuant to an unsecured , interest-bearing note , of the investment the company made in the china market during 2017 and 2018. net income/loss as a result of all of the above , for the year ended december 31 , 2020 , the company had net income of $ 8.5 million or $ 0.12 per share based on a weighted average of 70,195,085 shares outstanding and $ 0.11 per share based on a weighted average of 74,443,601 shares outstanding , which includes the dilutive impact of outstanding stock options to purchase 4,248,516 shares . in comparison , for the year ended december 31 , 2019 there was net income of $ 10.0 million or $ 0.16 per share based on a weighted average of 60,761,995 shares outstanding , and after adding back interest expense on convertible notes of $ 348,493 and the amortization on discount on notes payable of $ 239,570 , a diluted net income of $ 10.6 million or $ 0.16 per share based on a weighted average of 64,183,399 shares outstanding , which includes the dilutive impact of the stock options of 1,153,231 shares and the dilutive effect of the convertible notes of 2,268,173 shares . 18 liquidity and capital resources as of december 31 , 2020 , and december 31 , 2019 , we had cash of approximately $ 43.2 million and $ 23.1 million , respectively , and working capital of approximately $ 64.9 million and $ 24.8 million , respectively . in addition to cash flow from operations , our primary sources of working capital have been private placements and public offerings of our securities ( including a private placement of 1,437,909 shares at a price of $ 15.30 completed on august 25 , 2020 and an underwritten public offering of 7,986,110 shares at an offering price of $ 3.60 per share completed on september 16 , 2019 ) . our current operating plan for the next twelve ( 12 ) months reflects sufficient financial resources , notwithstanding the potential effects of the covid-19 pandemic nevertheless ; we do not contemplate obtaining additional financing . cash flows provided by operating activities cash flows provided by operating activities totaled $ 3.4 million in 2020 , representing a $ 2.4 million increase from $ 1.0 million in 2019. the increase was primarily driven by operating income adjusted for non-cash-items . the increase was further driven by efficient management of accounts payable , accrued expenses , and other liabilities . partially offsetting the increase in cash flows from operating activities was an increase in expenditures for prepaid expenses and other assets mainly related to deposits for inventory production , an increase accounts receivable mainly related to increase in sales volume and elimination of accounts receivable financing in europe , as well as increased inventory levels to properly service demand for our products . cash flows provided by ( used in ) investing activities cash flows provided by investing activities totaled $ 0.8 million in 2020 , representing a $ 15.1 million increase from net cash used in investing activities of $ 14.3 million in 2019. the increase was primarily due to the fact that
| the primary factors behind the increase in north american sales volume were related to growth in e-commerce channel , which accounted for 20.0 % of the growth and expansion in our dsd distributor network which generated significant revenue increases when compared to 2019. as noted above , the full consolidation of func food revenue in 2020 as well as the favorable impact of the strengthening of the euro also beneficially impacted revenues . we estimate that the strengthening of the euro accounted for approximately 5.0 % of the increase in european revenue in 2020 as compared to 2019. the following table sets forth the amount of revenues by category and changes therein for the years ended december 31 , 2020 and december 31 , 2019 : replace_table_token_1_th 17 gross profit for the year ended december 31 , 2020 , gross profit increased by approximately $ 29.7 million or 94.8 % to $ 61.0 million , from $ 31.3 million for the year ended december 31 , 2019. gross profit margins increased to 46.6 % for the year ended december 31 , 2020 from 41.7 % for the year ended december 31 , 2019. the increase in gross profit dollars and gross profit margins is mainly related to increases in volume , as opposed to increases in product pricing . specifically , we estimate that increases in volume account for approximately 90 % of the growth in gross profit ( expressed in dollars ) from 2019 to 2020. the impact of lower promotional allowances , together with supply chain savings or synergies as well as the favorable impact of the strength of the euro accounted for the remaining approximately 10 % of increase in gross profit dollars in 2020 when compared to 2019. sales and marketing expenses sales and marketing expenses for the year ended december 31 , 2020 were approximately $ 34.9 million , an increase of approximately $ 13.7 million or 65.1 % from approximately $ 21.1 million for the year ended december 31 , 2019. this increase reflects the impact of the consolidation of the operating results of func food following its october 2019 acquisition by the
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the 2014 reorganization software and its wholly-owned subsidiary , payroll software merger sub , llc ( merger sub ) were formed as delaware entities on october 31 , 2013 and december 23 , 2013 , respectively , in anticipation of an initial public offering ( ipo ) and were wholly-owned subsidiaries of holdings prior to december 31 , 2013. on january 1 , 2014 , we consummated a reorganization pursuant to which : ( i ) affiliates of welsh , carson , anderson & stowe , contributed wcas holdings and cp iv blocker , which collectively owned all of the series a preferred units of holdings , to software in exchange for shares of common stock of software , and ( ii ) the owners of outstanding series b preferred units of holdings contributed their series b preferred units of holdings to software in exchange for shares of common stock of software . immediately after these contributions , merger sub merged with and into holdings with holdings surviving the merger . upon consummation of the merger , the remaining holders of outstanding common and incentive units of holdings received shares of common stock of software for their common and incentive units by operation of delaware law and holdings ' ownership interest in software was cancelled . outstanding common units , series b preferred units and wcas holdings and cp iv blocker were contributed to software in exchange for , or converted into , 45,708,573 shares of common stock and 8,121,101 shares of restricted stock of software . prior to the reorganization , wcas holdings held series c preferred units of holdings in the amount of $ 46.2 million and wcas holdings had a note payable to a related party due april 3 , 2017 , in the amount of $ 46.2 million . following these transactions , all outstanding series c preferred units of holdings were eliminated in an intercompany transaction between holdings and wcas holdings , and we assumed the 2017 note . following the reorganization , software became a holding company with its principal assets being the series b preferred units of holdings and the outstanding capital stock of wcas holdings and cp iv blocker ( collectively , the 2014 reorganization ) . software 's acquisition of wcas holdings and holdings in the 2014 reorganization represented transactions under common control and were required to be retrospectively applied to the financial statements for all prior periods when the financial statements were issued for a period that included the date the transactions occurred . this includes a retrospective presentation for all equity related disclosures , including share , per share , and restricted stock disclosures , which have been revised to reflect the effects of the 2014 reorganization . therefore , our consolidated financial statements are presented as if wcas holdings and holdings were our wholly-owned subsidiaries in periods prior to the 2014 reorganization . the acquisition of cp iv blocker was not deemed to be a reorganization under common control and therefore our historical consolidated financial statements include the ownership of a minority equity interest in cp iv blocker , which was eliminated upon the acquisition of cp iv blocker in the 2014 reorganization on january 1 , 2014. trends , opportunities and challenges while we currently derive most of our revenues from payroll processing , we expect an increasing percentage of our recurring revenues to come from our additional hcm applications over time . our payroll application is the foundation of our solution and all of our clients are required to utilize this application in order 40 to access our other applications . as a result of our evolving revenue mix , coupled with the unique client benefits that our solution provides ( e.g. , enabling our clients to scale the number of hcm applications that they use on an as-needed basis ) , we are presented with a variety of opportunities , challenges and risks . we generate revenues from ( i ) fixed amounts charged per billing period plus a fee per employee or transaction processed or ( ii ) fixed amounts charged per billing period . we do not require clients to enter into long-term contractual commitments with us . our billing period varies by client based on when they pay their employees , which is either weekly , bi-weekly , semi-monthly or monthly . we do not have a traditional subscription-based revenue model and do not enter into long-term contractual commitments with our clients . we believe that the traditional subscription model hinders the buying decision by requiring clients to make significant commitments at inception , as well as at the end of each subscription term . by allowing clients to discontinue the use of our solution with 30 days ' notice , our team of trained specialists must focus on providing the best client service . in contrast , a long-term contract often forces a client to continue using a product that may not entirely fit its needs or , in some cases , incur expensive termination fees . because of our sales model and personalized service , we have maintained high client satisfaction , as evidenced by an average annual revenue retention rate of 91 % from existing clients for the three years ended december 31 , 2014. for the years ended december 31 , 2014 , 2013 and 2012 , our gross margin was approximately 82 % , 81 % and 79 % , respectively . we expect changes in our revenue mix to gradually improve gross margin over time as sales of applications other than payroll processing increase as a percentage of revenues , given that our current gross margin for our other hcm applications is higher than our gross margin for payroll processing . we expect that our total gross margin will gradually improve over time as ( i ) we add additional clients , ( ii ) our existing clients deploy additional hcm applications and ( iii ) we reduce our costs of revenues and administrative expenses as a percentage of total revenues . story_separator_special_tag growing our business has also resulted in , and will continue to result in , substantial investment in sales professionals , operating expenses , systems development and programming costs and general and administrative expenses , which has and will continue to increase our expenses . we intend to obtain new clients by ( i ) continuing to expand our presence in metropolitan areas where we currently have an existing sales office through adding sales teams or offices and increasing the number of our sales professionals and ( ii ) opening sales offices in new metropolitan areas . our ability to increase revenues and improve operating results depends on our ability to add new clients . as we have organically grown our operations and increased the number of our applications , the average size of our clients has also grown significantly . based on our total revenues , we have grown at an approximately 38 % cagr from january 1 , 2009 through december 31 , 2014. because we charge our clients on a per employee basis for certain services we provide , any increase or decrease in the number of employees that our clients have will have a positive or negative impact on our results of operations . our solution requires no adjustment to serve larger clients . we believe larger employers represent a substantial opportunity to increase the number of potential clients and to increase our revenue per client , with limited incremental cost to us . throughout our history , we have built strong relationships with our clients . as the hcm needs of our clients evolve , we believe that we are well-positioned to gain additional share of the hcm spending of our clients , and we believe this opportunity is significant . to be successful , we must continue to demonstrate the operational and economic benefits of our solution , as well as effectively hire , train , motivate and retain qualified personnel and executive officers . 41 key metrics in addition to the u.s. gaap metrics that we regularly monitor , we also monitor the following metrics to evaluate our business , measure our performance and identify trends affecting our business : replace_table_token_6_th clients . when we calculate the number of clients at period end , we treat client accounts with separate taxpayer identification numbers as separate clients , which often separates client accounts that are affiliated with the same parent organization . we track the number of our clients to provide an accurate gauge of the size of our business . unless we state otherwise or the context otherwise requires , references to clients throughout this annual report on form 10-k refer to this metric . clients ( based on parent company grouping ) . when we calculate the number of clients based on parent company grouping at period end , we combine client accounts that have identified the same person ( s ) as their decision-maker regardless of whether the client accounts have separate taxpayer identification numbers , which often combines client accounts that are affiliated with the same parent organization . we track the number of our clients based on parent company grouping to provide an alternate measure of the size of our business and clients . sales teams . we monitor our sales professionals by the number of sales teams at period end and each team is comprised of approximately six to nine sales professionals . certain larger metropolitan areas can support more than one sales team . we believe that the number of sales teams is an indicator of potential revenues for future periods . annualized new recurring revenue . while we do not enter into long-term contractual commitments with our clients , we monitor annualized new recurring revenue as we believe it is an indicator of potential revenues for future periods . annualized new recurring revenue is an estimate based on the annualized amount of the first full month of revenues attributable to new clients that were added or existing clients that purchased additional applications during the period presented . annualized new recurring revenue only includes revenues from these clients who have used our solution for at least one month during the period . since annualized new recurring revenue is only recorded after a client uses our solution for one month , it includes revenue that has been recognized in historical periods . revenue retention rate . our average annual revenue retention rate tracks the percentage of revenue that we retain from our existing clients . we monitor this metric because it is an indicator of client satisfaction and revenues for future periods . components of results of operations sources of revenues revenues are comprised of recurring revenues , and implementation and other revenues . recurring revenues are recognized in the period services are rendered . implementation and other revenues includes implementation revenues that are recorded as deferred revenues and recognized over the life of the client which is estimated to be ten years and other revenues which are recognized upon shipment of time clocks . implementation and other revenue comprised approximately 1.8 % of our total revenues for the year ended december 31 , 2014. we expect our revenues to increase as we introduce new applications , expand our client base and renew and expand relationships with existing clients . as a percentage of total revenues , we expect our mix of recurring revenues , and implementation and other revenues to remain relatively constant . 42 recurring . recurring revenues include fees for our talent acquisition , time and labor management , payroll , talent management and hr management applications as well as fees charged for delivery of client payroll checks and reports . these revenues are derived from : ( i ) fixed amounts charged per billing period plus a fee per employee or transaction processed or ( ii ) fixed amounts charged per billing period .
| 45 expenses cost of revenues replace_table_token_10_th cost of revenues was $ 27.3 million for the year ended december 31 , 2014 , compared to $ 20.9 million for the year ended december 31 , 2013 , an increase of $ 6.4 million , or 31 % . the increase of $ 6.4 million was due primarily to increases of $ 3.8 million in employee costs related to additional operating personnel , $ 1.0 million in shipping and paper costs related to increased client count , $ 0.1 million in increased bank fees related to increased sales of applications , and $ 0.1 million of time clock costs , related to increased sales of time clocks . depreciation expense increased $ 0.8 million , primarily due to additional assets purchased . cost of revenues was $ 20.9 million for the year ended december 31 , 2013 , compared to $ 16.3 million for the year ended december 31 , 2012 , an increase of $ 4.6 million , or 28 % . the increase of $ 4.6 million was due primarily to increases of $ 2.1 million in employee costs related to additional operating personnel , $ 0.6 million in bank fees related to increased sales , $ 0.5 million in shipping and paper costs , $ 0.5 million in technology expenses and time clock costs of $ 0.2 million , related to increased sales of time clocks . depreciation expense increased $ 0.4 million , primarily due to additional assets purchased . administrative expenses replace_table_token_11_th total administrative expenses were $ 107.9 million for the year ended december 31 , 2014 , compared to $ 77.2 million for the year ended december 31 , 2013 , an increase of $ 30.7 million , or 40 % . sales and marketing expenses increased $ 20.9 million primarily due to a $ 9.4 million increase in employee-related expenses , resulting from a 31 % increase in the number of personnel , a $ 6.7 million increase in commission and bonuses , resulting from increased sales , a $ 1.7 million increase in rent and building expenses due to the opening of
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income tax provision ( benefit ) consists primarily of income tax provision related to state income taxes , foreign operations and uncertain tax positions in foreign jurisdictions , and the tax effect of changes in deferred tax liabilities associated with tax deductible goodwill . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > of $ 4.6 million , or 9.5 % . the decrease was primarily due to a lower amount of legal expenses associated with the orthotec litigation incurred in 2014 than 2013. amortization of acquired intangible assets . amortization of acquired intangible assets was $ 3.0 million for the year ended december 31 , 2014 and compared to $ 3.0 million for the year ended december 31 , 2013 . this expense represents amortization in the period for intangible assets associated with general business assets obtained in acquisitions . 42 restructuring expenses . restructuring expenses were $ 0.7 million for the year ended december 31 , 2014 compared to $ 9.7 million for the year ended december 31 , 2013 . on september 16 , 2013 , we announced that scient ' x began a process to significantly restructure its business operations in france in an effort to improve operating efficiencies and rationalize its cost structure . the restructuring included a reduction in scient ' x 's workforce and closing of the manufacturing facilities in france . the company has recorded total costs of $ 10.4 million through december 31 , 2014 associated with this restructuring , which includes employee severance , social plan benefits and related taxes , facility closing costs , manufacturing transfer costs , and contract termination costs . w e have substantially completed the activities associated with the restructuring activities as of december 31 , 2014 , and a substantial portion of the restructuring costs related to this restructuring has been paid . litigation settlement expenses . litigation settlement expenses were $ 0 for the year ended december 31 , 2014 compared to $ 46.0 million for the year ended december 31 , 2013 . the 2013 amount relates to an accrual booked for litigation settlement in connection with the orthotec litigation matter described in part 1 , item 3 legal proceedings . interest expense . interest expense was $ 13.6 million for the year ended december 31 , 2014 compared to $ 4.0 million for the year ended december 31 , 2013 , representing an increase of $ 9.7 million , or 243.9 % . interest expense for the years ended december 31 , 2014 and 2013 consisted primarily of interest related to loan agreements and lines of credit and the associated amortization expenses related to debt issuance costs . the increase in interest expense in 2014 is primarily due to interest expense and amortization of debt discount related to the deerfield facility ( $ 6.2 million ) , imputed interest on the orthotec settlement ( $ 1.7 million ) and interest on higher levels of borrowings under the midcap facility ( $ 1.7 million ) . other income ( expense ) , net . other income ( expense ) was an expense of less than $ 0.1 million for the year ended december 31 , 2014 compared to an expense of $ 1.7 million for the year ended december 31 , 2013 , representing a decrease in this expense of $ 1.6 million . the decrease in expense was primarily due to a gain from the decrease in the fair market value of certain warrants ( $ 2.6 million ) , partially offset by an increase in unfavorable foreign currency exchange results due to u.s. denominated assets and liabilities on our foreign subsidiaries books and foreign currency losses ( $ 1.0 million ) . income tax provision ( benefit ) . income tax provision ( benefit ) was a provision of $ 1.1 million for the year ended december 31 , 2014 compared to a provision of $ 3.2 million for the year ended december 31 , 2013 , representing a decrease of $ 2.1 million , or 65.8 % . the income tax provision in 2014 and 2013 consists primarily of income tax provisions related to state income taxes , the tax effect of changes in deferred tax liabilities associated with tax deductible goodwill and operations in foreign jurisdictions where we operate . year ended december 31 , 2013 compared to the year ended december 31 , 2012 revenues . revenues were $ 204.7 million for the year ended december 31 , 2013 compared to $ 196.3 million for the year ended december 31 , 2012 , representing an increase of $ 8.4 million , or 4.3 % . the increase was comprised of $ 4.4 million related to sales in the u.s. and $ 4.0 million related to international sales . u.s. revenues were $ 135.0 million for the year ended december 31 , 2013 compared to $ 130.5 million for the year ended december 31 , 2012 , representing an increase of $ 4.5 million , or 3.4 % . the increase was due to growth in the sales of implants and instruments ( $ 8.2 million ) and biologics ( $ 2.1 million ) , offset by a decline in the sales of puregen due to the voluntary removal of puregen from the market ( $ 5.8 million ) . international revenues were $ 69.8 million for the year ended december 31 , 2013 compared to $ 65.8 million for the year ended december 31 , 2012 , representing an increase of $ 4.0 million , or 6.0 % . the increase was due to sales of alphatec implants and instruments internationally ( $ 6.5 million ) , offset by a reduction in the sales of scient ' x products internationally ( $ 2.5 million ) . the increase in revenue is inclusive of $ 5.9 million in unfavorable exchange rate effect . cost of revenues . story_separator_special_tag cost of revenues was $ 78.7 million for the year ended december 31 , 2013 compared to $ 70.8 million for the year ended december 31 , 2012 , representing an increase of $ 7.9 million , or 11.2 % . the increase was primarily due to one-time charges for increased inventory and instrument reserves related to the restructuring of the scient ' x organization ( $ 5.5 million ) , the obsolescence of the puregen inventory ( $ 3.5 million ) and the obsolescence of certain inventory related to an interbody fusion product ( $ 1.0 million ) . in addition to these charges , there is an increase related to higher product costs as a result of sales volume and variation in product mix ( $ 2.1 million ) , offset by an adjustment to milestone accruals ( $ 0.7 million ) , a reduction in inventory reserves ( $ 2.9 million ) and a reduction in inventory adjustments and other costs of sales ( $ 0.4 million ) . amortization of acquired intangible assets . amortization of acquired intangible assets was $ 1.7 million for the years ended december 31 , 2013 and december 31 , 2012. this expense represents amortization in the period for intangible assets associated with product related assets obtained in acquisitions . 43 gross profit . gross profit was $ 124.3 million for the year ended december 31 , 2013 compared to $ 123.8 million for the year ended december 31 , 2012 , representing an increase of $ 0.6 million , or 0.4 % . the increase was due to an increase in sales volume ( $ 6.8 million ) , a reduction in inventory reserves ( $ 2.9 million ) , a reversal of milestone accruals ( $ 0.7 million ) and a decrease in other cost of revenues ( $ 0.6 million ) , offset by an increase in the cost of revenues resulting from the restructuring ( $ 5.5 million ) , product obsolescence ( $ 4.5 million ) and an unfavorable variation in product mix ( $ 0.4 million ) . gross margin . gross margin was 60.7 % for the year ended december 31 , 2013 compared to 63.1 % for the year ended december 31 , 2012. the decrease of 2.4 percentage points was due to an increase in the cost of revenues resulting from the french restructuring ( 2.6 percentage points ) , product obsolescence ( 2.2 percentage points ) and an unfavorable variation in pricing and product mix ( 0.2 percentage points ) , offset by a reduction in inventory reserves ( 1.6 percentage points ) , an adjustment to milestone accruals ( 0.3 percentage points ) and a reduction in other cost of revenues ( 0.7 percentage points ) . gross margin in the u.s. was 66.1 % for the year ended december 31 , 2013 compared to 67.7 % for the year ended december 31 , 2012. the decrease of 1.6 percentage points was due to an increase in the cost of revenues resulting from product obsolescence ( 3.2 percentage points ) and an unfavorable variation in pricing and product mix ( 0.5 percentage points ) , offset by a reduction in inventory adjustments ( 1.1 percentage points ) and reduction in other cost of revenues ( 1.0 percentage points ) . gross margin for the international region was 50.3 % for the year ended december 31 , 2013 compared to 53.8 % for the year ended december 31 , 2012. the decrease of 3.5 percentage points was due to an increase in the cost of revenues resulting from the restructuring ( 7.9 percentage points ) , offset by a favorable variation in pricing and product mix ( 0.6 percentage points ) and a reduction in inventory reserves ( 3.8 percentage points ) . research and development . research and development expense was $ 14.2 million for the year ended december 31 , 2013 compared to $ 14.9 million for the year ended december 31 , 2012 , representing a decrease of $ 0.7 million , or 4.7 % . the decrease was primarily related to the variations in the timing of the cycle for development and testing ( $ 1.4 million ) , offset by increased surgeon consulting expenses ( $ 0.7 million ) . in-process research and development . ipr & d expense was $ 0 for the year ended december 31 , 2013 compared to $ 0.3 million for the year ended december 31 , 2012. during the fourth quarter of 2012 , we decided to not pursue development of ipr & d assets that had an indefinite life . we expensed $ 0.3 million for ipr & d related to the write-off of a portion of the ipr & d assets acquired in the scient ' x acquisition . sales and marketing . sales and marketing expense was $ 77.0 million for the year ended december 31 , 2013 compared to $ 75.2 million for the year ended december 31 , 2012 representing an increase of $ 1.8 million , or 2.4 % . the increase was primarily due to the additional expense created by the recently enacted medical device excise tax ( $ 1.5 million ) . general and administrative . general and administrative expense was $ 47.9 million for the year ended december 31 , 2013 compared to $ 39.9 million for the year ended december 31 , 2012 , representing an increase of $ 8.0 million , or 20.1 % . the increase was primarily related to legal fees associated with litigation ( $ 5.4 million ) , compensation expense ( $ 2.1 million ) , professional fees ( $ 1.3 million ) and expenses resulting from the phygen acquisition ( $ 0.4 million ) , offset by a decrease in international expenses related to currency translation ( $ 0.8 million ) and general cost reduction ( $ 0.4 million ) . amortization of acquired intangible assets .
| the decrease was partially due to the one-time charges in 2013 for increased inventory and instrument reserves related to the restructuring of the scient ' x organization ( $ 5.5 million ) , the obsolescence of the puregen inventory ( $ 3.5 million ) and the obsolescence of certain inventory related to an interbody fusion product ( $ 1.0 million ) . in addition , there was a reduction in amortization expense related to the cross medical settlement , for which expenses concluded in 2013 ( $ 3.8 million ) , a reduction in depreciation expense related to instruments ( $ 2.2 million ) , and a decrease in inventory adjustments ( $ 1.7 million ) , offset by an increase in product costs due to the growth in sales ( $ 0.3 million ) and an increase in inventory reserves ( $ 0.6 million ) . amortization of acquired intangible assets . amortization of acquired intangible assets was $ 1.7 million for the years ended december 31 , 2014 and december 31 , 2013 . this expense represents amortization in the period for intangible assets associated with product related assets obtained in acquisitions . gross profit . gross profit was $ 143.4 million for the year ended december 31 , 2014 compared to $ 124.3 million for the year ended december 31 , 2013 , representing an increase of $ 19.1 million , or 15.4 % . the increase was due to a reduction in the cost of revenues ( $ 17.3 million ) and an increase in sales volume ( $ 1.8 million ) . gross margin . gross margin was 69.3 % for the year ended december 31 , 2014 compared to 60.7 % for the year ended december 31 , 2013 . the increase of 8.6 percentage points was due to a reduction in non-recurring charges and benefits ( 5.0 percentage points ) , amortization expense related to the cross medical settlement , for which expenses concluded in 2013 ( 2.0 percentage points ) , a reduction in
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in april 2020 , we held an end-of-phase 2 meeting with the fda and in june 2020 , we met with the fda to discuss chemistry , manufacturing , and controls ( cmc ) for mt1621 . in the meetings , the fda outlined the additional clinical and non-clinical information needed for an nda submission . based on the feedback , we expect availability of all required data by end of 2021 to support an nda submission , which we are targeting for mid-2022 . in addition , we plan to conduct a phase 1 pharmacokinetic ( pk ) study in renal impairment which was recommended by the fda to provide dosing recommendations in the setting of impaired renal function and include the results in the nda submission . the fda also concurred with our proposed cmc plan for the prospective nda submission . collaborative arrangement with nippon shinyaku in march 2019 , we entered into an exclusive distribution agreement ( shinyaku agreement ) with nippon shinyaku co. , ltd. ( shinyaku ) for the potential commercialization of fintepla in japan . we retained responsibility for clinical development programs for fintepla , including completion of an additional phase 3 trial ( study 3 ) to expand the countries to include japan , amongst others , where fintepla for the treatment of dravet syndrome has been evaluated . upon signing of the agreement , shinyaku agreed to make upfront payments of $ 20.0 million over two years to support our research and development efforts . as of december 31 , 2020 , we have received $ 17.0 million , with the remaining amounts expected to be received in 2021. we will also be eligible to receive future regulatory and sales-based milestone payments of up to $ 108.5 million . once fintepla is approved for marketing in japan , if ever , we are obligated to supply product to shinyaku and will receive a tiered transfer price of up to a high-double digit percentage of the annual net sales of fintepla in japan . in september 2020 , we reported positive top-line results from study 3 , which corroborates the substantial impact of fintepla on convulsive seizure reduction in patients with dravet syndrome as previously demonstrated in studies 1 and 2. we expect to include study 3 as the pivotal study in our planned submission of a j-nda in the second half of 2021. tevard collaboration , option and license agreement in october 2019 , we entered into an option agreement with tevard biosciences ( tevard ) , a privately-held company focused on trna-based gene therapies . under the agreement , tevard granted us an option to license exclusive rights related to a preclinical development program to identify and develop novel trna-based gene therapies for dravet syndrome . during 2020 , we extended the option period to exercise our license rights prior to entering into a collaboration , option and license agreement with tevard . payments made under the option agreement were nonrefundable , but may be credited against the upfront payment due if we exercise our option on the preclinical development program . payments made under the option agreement of $ 2.0 million in 2019 and zogenix inc. | 2020 form 10-k | 66 $ 5.5 million in 2020 were included in acquired ipr & d expense and related costs in our consolidated statement of operations . in december 2020 , we exercised the option on the dravet syndrome program and entered into a collaboration , option and license agreement with tevard ( the tevard agreement ) . the financial terms of the tevard agreement included an upfront payment of $ 5.2 million . in connection with the transaction , we also purchased a convertible promissory note issued by tevard in the amount of $ 5.0 million . the note matures in december 2022 and carries interest at 3.5 % per year . the note will automatically convert into equity securities issued by tevard in their next equity financing transaction at a conversion price equal to the price paid per share by other investors of the financing transaction . in addition to the upfront payments , we have agreed to fund tevard 's early discovery activities under the licensed dravet syndrome program in accordance with the development plan as determined by the parties to the agreement . once tevard completes the early discovery activities for a program , we will be responsible for any potential future development and commercialization activities . tevard is also eligible to receive additional development , regulatory and commercial-related milestone payments of up to $ 100.0 million for the dravet program , as well as tiered royalties on future net sales in the single digits that result from the collaboration . we are also entitled to rights of negotiation and rights of first refusal to potentially obtain licenses to compounds subsequently discovered and developed by tevard . the agreement , if not terminated sooner , would expire upon the expiration of all applicable royalty terms under the agreement with respect to a licensed program or product ; however , we have the unilateral right to terminate the agreement with 180 days advanced notice see the above “ business ” section for a more complete discussion of our business . business update regarding the covid-19 pandemic the current covid-19 worldwide pandemic has presented substantial public health and economic challenges and is affecting our employees , patients and their families and caregivers , communities and business operations , as well as the u.s. and global economies and financial markets . international and u.s. governmental authorities in impacted regions are taking actions in an effort to slow the spread of covid-19 , including issuing varying forms of “ stay-at-home ” orders , and restricting business functions outside of one 's home . story_separator_special_tag in response , we closed our offices for all but the most essential activities and have implemented a policy allowing all employees to work from across all locations , following the guidelines or directives issued by federal , state and local government agencies in the u.s. as well as the u.k. government . we commenced the commercial launch of fintepla in the united states in july 2020 and in germany in february 2021. our commercialization efforts will need to navigate through the operational restrictions imposed on our sales force from quarantines , travel restrictions and bans and other governmental and healthcare restrictions related to covid-19 . as a result of these restrictions , our sales force has not been able to conduct in-person interactions with physicians and healthcare providers and have been restricted to primarily conducting educational and promotional activities for fintepla virtually , which may impact our ability to market fintepla . in addition , fintepla is being launched through our fintepla rems program in the u.s. and a controlled access program in europe , with each program requiring patients to obtain echocardiograms during this pandemic . to date , we have been able to continue to supply fintepla and mt1621 to our patients currently enrolled in our clinical trials and do not currently anticipate any interruptions in supply . any delays in the completion of our clinical trials and any disruption in our supply chain could have a material adverse effect on our business , results of operations and financial condition . the full extent to which the covid-19 pandemic will directly or indirectly impact our business , results of operations and financial condition , will depend on future developments that are highly uncertain , including as a result of new information that may emerge concerning covid-19 and the actions taken to contain it or treat covid-19 , as well as the economic impact on local , regional , national and international markets . critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in conformity with generally accepted accounting principles in the united states ( gaap ) . the preparation of these consolidated financial statements requires management to make judgments , assumptions , and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes . we evaluate our estimates and assumptions on an ongoing basis . zogenix inc. | 2020 form 10-k | 67 our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances . the significant accounting policies followed , and methods used , in the preparation of our financial statements are detailed in note 2 to the consolidated financial statements included in this form 10-k. we believe that the application of the policies discussed below are significantly affected by critical accounting estimates . such accounting policies require significant judgments , assumptions , and estimates used in the preparation of the consolidated financial statements and actual results could differ from these estimates under different assumptions or conditions . adjustments to these estimates would impact our financial position and future results of operations . revenue recognition our revenues consist of product sales of fintepla and revenues derived from our collaboration arrangement with nippon shinyaku co. , ltd. ( shinyaku ) . net product sales we recognize revenue when control of the promised good or service is transferred to the customer , in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services . we determine revenue recognition through the following steps : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) we satisfy a performance obligation . we only apply the five-step model to contracts when collectability of the consideration to which we are entitled in exchange for the goods or services we transfer to the customer is determined to be probable . we distribute fintepla in the u.s. through an arrangement with a specialty distributor who is our customer . the specialty distributor subsequently resells our product through its related specialty pharmacy to patients and health care providers . separately , we have or may enter into payment arrangements with various third-party payers including pharmacy benefit managers , private healthcare insurers and government healthcare programs who provide coverage and reimbursement for our products that have been proscribed to a patient . for the year ended december 31 , 2020 , our revenue from net product sales were only generated in the u.s. following the fda 's approval for marketing of fintepla for the treatment associated with seizures in dravet syndrome in june 2020. in europe , we launched fintepla for dravet syndrome in february 2021 following the ema 's approval for marketing in december 2020. revenue from product sales is recorded at the net sales price ( transaction price ) , which includes estimates of consideration payable to our customer and third-party payers for which reserves are established and that result from government rebates , chargebacks , co-pay assistance , prompt-payment discounts and other allowances that are offered under arrangements between us , our customer , and third-party payers related to the sales of fintepla . these reserves are classified as either reductions of accounts receivable ( if the amounts are payable to our customer ) or as refund liabilities within current liabilities ( if the amounts are payable to a party other than our customer ) . amounts billed or invoiced are included in accounts receivable , net on our consolidated balance sheet .
| cost of product sales may also include costs related to excess or obsolete inventory adjustment charges , abnormal costs , unabsorbed manufacturing and overhead costs , and manufacturing variances . for the year ended december 31 , 2020 , cost of sales primarily consisted of royalties payable on net sales of fintepla under a license agreement and labeling and packaging costs . substantially all of the cost of product sold in 2020 were for packaging and labeling as our inventory had a zero-cost basis . prior to receiving fda approval for fintepla , we recorded all manufacturing product costs as research and development expense . we expect our cost of sales for fintepla to increase as a percentage of net sales in beginning in mid-2021 in the future as we produce and then sell inventory that reflects the full cost of manufacturing . research and development expense research and development ( r & d ) expense consist of expenses incurred in developing , testing and seeking marketing approval of our product candidates , including : payments made to third-party clinical research organizations ( cros ) and investigational sites , which conduct our clinical trials on our behalf , and consultants ; expenses associated with regulatory submissions , pre-clinical development and clinical trials ; payments to third-party manufacturers , which produce our active pharmaceutical ingredient and finished product ; commercial quantities of certain product candidates prior to the date we anticipate that such products will receive regulatory zogenix inc. | 2020 form 10-k | 73 approval , personnel related expenses , such as salaries , benefits , travel and other related expenses , including stock-based compensation ; and facility , maintenance , depreciation and other related expenses . for each of our r & d programs , we incur both external and internal costs . external costs include clinical and non-clinical activities performed by cros , lab services , purchases of product candidate materials and manufacturing development costs . we track external r & d expenses for each of our key development programs . we have not tracked
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introduction uranium resources , inc. is a uranium exploration , development and production company . we were organized in 1977 to acquire and develop uranium projects in south texas using the isr process . we have historically produced uranium by isr methods in the state of texas where we currently have isr projects and two licensed processing facilities . we also have approximately 195,000 acres of mineral holdings in the prolific grants mineral belt of the state of new mexico and 17,000 acres in the south texas uranium province . we have a nuclear regulatory commission ( `` nrc '' ) license to produce up to 3.0 million pounds per annum of uranium on certain of our new mexico projects . the company acquired these properties over the past 25 years along with an extensive information database of historic drill-hole logs and analysis . none of uri 's properties are currently in production . results of operations story_separator_special_tag recognized as a gain on non-monetary exchange of assets and included in the company 's consolidated statements of operations . interest expense amounts drawn under the company 's loan agreement with rcf bear interest at 12 % per annum through january 29 , 2014 and 10 % per annum thereafter , payable quarterly in arrears in shares of the company 's common stock or , at rcf 's election , in cash . the following table outlines the interest payments and fees paid or accrued as of december 31 , 2014 : replace_table_token_5_th as of december 31 , 2014 , the company has accrued interest expense of $ 0.2 million payable to rcf relating to the three months ended december 31 , 2014. included in interest expense for the year ended december , 2014 is the amortization of the debt discount and establishment fee of $ 1.7 million . 62 financial position operating activities net cash used in operating activities was $ 12.0 million for the year ended december 31 , 2014 , as compared with $ 15.3 million for the same period in 2013. the decrease of $ 3.3 million in cash used is mostly the result of ( a ) a decrease in cash spent on mineral properties of $ 1.9 million which reflects the company 's completion of a settling pond clean-out project at the kingsville dome project and lower land holding costs as the company elected not to renew certain claims ; and ( b ) a decrease in cash spent of $ 1.2 million for general and administrative expenses ( net of non-cash stock compensation expense of $ 1.0 million and $ 0.3 million , respectively ) , which reflects the company 's ongoing efforts to reduce its cash burn rate . investing activities net cash used in investing activities was $ 0.1 million for the year ended december 31 , 2014 , as compared with net cash provided by investing activities of $ 5.3 million for the same period in 2013. the increase in cash used by investing activities of $ 5.4 million for the year ended december 31 , 2014 is primarily due to the release of restricted cash of $ 5.5 million during the same period in 2013. financing activities net cash provided by financing activities was $ 16.5 million for the year ended december 31 , 2014. for the year ended december 31 , 2014 cash proceeds in aggregate of $ 5.0 million were received from two separate advances made under our loan agreement with rcf . an advance of $ 2.0 million was received in january 2014 and an advance of $ 3.0 million was received in april 2014. also during the year ended december 31 , 2014 , the company received net proceeds of $ 9.3 million from a registered direct offering the company completed in february 2014 and $ 2.5 million in net proceeds from common stock sold through the company 's atm program . offsetting these amounts were payments made for withholding taxes on net share settlements of equity awards of $ 0.1 million and payments made for the purchase of treasury stock of $ 0.2 million . on october 3 , 2014 , the company entered into a second amendment to the uranium mining lease and agreement whereby , on october 6 , 2014 , the company repurchased 91,631 shares of common stock from the juan tafoya land corporation for an aggregate purchase price of $ 0.2 million net cash provided by financing activities was $ 6.5 million for the year ended december 31 , 2013 which resulted from the sale of common stock for net proceeds of $ 3.6 million in connection with a rights offering that was completed in march 2013 as well as the receipt of an initial $ 3.0 million advance under our loan agreement with rcf . this amount was partially offset by payments of $ 0.1 million made on existing lease obligations . liquidity and capital resources at december 31 , 2014 , our working capital was $ 3.8 million , as compared with a working capital deficit of $ 1.2 million as of december 31 , 2013 , which represents an increase of $ 5.0 million . this increase in working capital is primarily due to an increase of $ 4.5 million in the cash balance to $ 5.6 million as of december 31 , 2014. following the closing of the registered direct offering on march 6 , 2015 , the company expects that its existing cash balances will provide it the necessary liquidity through the first quarter of 2016. the company will continue to look for ways to reduce its monthly cash burn rate while exploring opportunities to raise additional funds , as needed . story_separator_special_tag the company ceased uranium production activities in 2009 due to sustained low uranium prices and does not anticipate receiving significant sales revenue and related cash inflows for 2015. since ceasing production , the company has primarily financed its operations through equity and debt financings . the company has been successful at raising capital in the past , most recently with the completion of a registered direct offering in march 2015 for estimated net proceeds of $ 5.4 million . in addition , the company was able to successfully raise capital in 2014 through debt and equity fundraising efforts . specifically , the completion of a registered direct offering in february 2014 for net proceeds of $ 9.3 million as well as procuring a convertible secured debt facility in november 2013 that provided the company with $ 8.0 million in cash , which debt matures in december 2016. the company also has an existing atm sales agreement that allows the company to sell from time-to-time , shares of its common stock in at-the-market offerings having an aggregate offering price up to $ 15.0 million of which the company has a total of $ 6.0 million for future sales available as of march 19 , 2015. while the company has been successful in the past raising funds through equity and debt financings , no assurance can be given that additional financing will be available to us in amounts sufficient to meet our needs , including upon the maturity of our outstanding debt , or on terms acceptable to us . in the event funds are not available , we may be required to change our planned business strategies or we could default under our secured debt facility . 63 off- balance sheet arrangements we have no off-balance sheet arrangements . subsequent events securities purchase agreement on march 6 , 2015 the company completed a registered direct offering for gross proceeds of $ 6.0 million . net proceeds to the company , after deducting agent 's fees and estimated offering expenses , were approximately $ 5.4 million . the company sold 4,000,000 units at a price of $ 1.50 per unit , with each unit entitling the purchaser to receive one share of common stock of the company and a warrant to purchase 0.55 shares of common stock at an exercise price of $ 2.00 per whole share . the warrants will be exercisable for a period of 5 years beginning on the six-month anniversary of original issuance and ending on a date that is five years after the first date of exercisability . critical accounting policies our significant accounting policies are described in note 3 to the consolidated financial statements in item 8 of this annual report on form 10-k. we believe our most critical accounting policies involve those requiring the use of significant estimates and assumptions in determining values or projecting future costs . property , plant and equipment we review and evaluate our long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable . impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets . an impairment loss is measured and recorded based on discounted estimated future cash flows or upon an estimate of fair value that may be received in an exchange transaction . future cash flows are estimated based on estimated quantities of recoverable minerals , expected u3o8 prices ( considering current and historical prices , trends and related factors ) , production levels , operating costs of production and capital and restoration and reclamation costs , based upon the projected remaining future uranium production from each project . the significant assumptions used in determining the future cash flows for our south texas mineral rights and asset group at december 31 , 2014 included an average long-term u3o8 price of $ 70.13 per pound and average operating costs and capital expenditure costs based on our knowledge of formerly producing in south texas . the significant assumptions used in determining the estimates of fair value that may be received in an exchange transaction for our new mexico asset group are based on comparable sales transactions . estimates and assumptions used to assess recoverability of our long-lived assets and measure fair value of our uranium properties are subject to risk uncertainty . changes in these estimates and assumptions could result in the impairment of our long-lived assets . events that could result in the impairment of our long-lived assets include , but are not limited to , decreases in the future u3o8 prices , decreases in the estimated recoverable minerals and any event that might otherwise have a material adverse effect on our costs . during 2014 and 2013 , we recorded impairments of $ 0.2 million and $ 4.1 million , respectively , to reduce the carrying value of property , plant and mine equipment . existing proven and probable reserves and value beyond proven and probable reserves , including mineralization that is not part of the measured , indicated or inferred resource base , are included when determining the fair value of uranium properties upon acquisition and , subsequently , in determining whether the assets are impaired . the term recoverable minerals refers to the estimated amount of uranium that will be obtained after taking into account losses during processing and treatment . in estimating future cash flows , assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of future cash flows from other asset groups . asset retirement obligations regarding our reserve for asset retirement obligations , significant estimates were utilized in determining the future costs to complete the groundwater restoration , plugging and abandonment of wellfields and surface reclamation at our isr sites . estimating future costs can be difficult and unpredictable as they are based principally on current legal and regulatory
| general and administrative charges significant expenditures for general and administrative expenses for the years ended december 31 , 2014 and 2013 were : replace_table_token_4_th general administrative charges decreased to $ 9.1 million for the year ended december 31 , 2014 as compared with $ 9.7 million for the year ended december 31 , 2013. the significant variances for the year ended december 31 , 2014 as compared with the 2013 period are as follows : · salaries and payroll burden costs decreased by $ 0.8 million , which was the result of a reduction of the employee headcount as a result of the company 's restructuring in 2013. also the company incurred severance charges during the 2013 period as a result of the restructuring and there were no similar costs during the 2014 period . · consulting and professional service expense decreased by $ 0.3 million , which was largely the result of the company 's reduced reliance on outside mining consultants and public relations firms . · insurance costs and bank fees decreased by $ 0.1 million , which was the result of a decrease in the company 's renewal rates for corporate insurance policies . · non-cash stock-based compensation expense increased by $ 0.7 million , which was mostly the result of an annual performance bonus awarded to executives in march 2014 which was paid in common stock of the company and vested immediately as well as an increase in the issuance of restricted stock units during 2014 as compared with the prior year . non-operating income and expenses gain/loss on derivative liability prior to the expiration of the anti-dilution clause on november 13 , 2014 contained within the loan agreement with rcf , the conversion feature of the loan agreement was required to be recorded as a derivative liability recorded at fair value and marked-to-market each period with the changes in fair value each period reported in the company 's consolidated statement of operations . upon expiration of the
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our strategic objective is to establish bempegaldesleukin as a key component of many i-o combination regimens with the potential to enhance the standard of care in multiple oncology settings . as a result , we expect to continue to make significant and increasing investments exploring the potential of bempegaldesleukin with mechanisms of action that we believe are synergistic with bempegaldesleukin based on emerging scientific findings in cancer biology and preclinical development work . with our non-bms clinical collaborations for bempegaldesleukin , generally each party supports the collaboration based on its expertise and resources . for example , our co-development collaboration agreement with sfj includes both financial support in the form of up to $ 150.0 million to fund the phase 2/3 registrational clinical study of bempegaldesleukin plus keytruda ® in head and neck cancer , as well as operational support in managing the clinical trial . in addition , we announced on february 17 , 2021 , that we had entered into a clinical trial collaboration and supply agreement with merck wherein we will receive supplies of keytruda ® at no cost to us . on october 22 , 2020 , we received fda clearance for an investigational new drug application for bempegaldesleukin to be evaluated in a phase 1b clinical study in adult patients who have been diagnosed with mild covid-19 infection . the study design allows us to evaluate whether bempegaldesleukin 's adaptive immune-stimulating mechanism to promote priming and proliferation of t cells and nk cells could be useful in the emerging treatment options for covid-19 . enrollment in the phase 1b randomized , double-blind , placebo-controlled study is planned to start in early november . 53 we are also combining bempegaldesleukin with nktr-262 . nktr-262 is a small molecule agonist that targets toll-like receptors ( tlrs ) found on innate immune cells in the body . nktr-262 is designed to stimulate the innate immune system and promote maturation and activation of antigen-presenting cells ( apcs ) , such as dendritic cells , which are critical to induce the body 's adaptive immunity and create antigen-specific cytotoxic t cells . nktr-262 is being developed as an intra-tumoral injection in combination with systemic bempegaldesleukin to induce an abscopal response and achieve the goal of tumor regression in cancer patients treated with both therapies . the phase 1/2 dose-escalation and expansion trial in patients with solid tumors is currently ongoing . our next most advanced i-o program is nktr-255 . nktr-255 is a biologic that targets the il-15 pathway in order to activate the body 's innate and adaptive immunity . activation of the il-15 pathway enhances the survival and function of nk cells and induces survival of both effector and cd8 memory t cells . recombinant human il-15 is rapidly cleared from the body and must be administered frequently and in high doses limiting its utility due to toxicity . through optimal engagement of the il-15 receptor complex , nktr-255 is designed to enhance functional nk cell populations and formation of long-term immunological memory , which may lead to sustained anti-tumor immune response . preclinical findings suggest nktr-255 has the potential to synergistically combine with antibody-dependent cellular toxicity molecules as well as enhance car-t therapies . we have initiated a phase 1 dose escalation and expansion clinical study of nktr-255 in adults with relapsed or refractory non-hodgkin lymphoma or multiple myeloma , as well as a phase 1/2 clinical study of nktr-255 in patients with relapsed or refractory head and neck squamous cell carcinoma or colorectal cancer . at the 2020 society for immunotherapy of cancer ( sitc ) annual meeting , we reported early findings from the phase 1 dose escalation study that demonstrated expansion of lymphocytes , increases in nk and cd8+ t cells in patients with multiple myeloma and non-hodgkin lymphoma . in immunology , we are developing nktr-358 , which is designed to correct the underlying immune system imbalance in the body that occurs in patients with autoimmune disease . nktr-358 is designed to optimally target the il-2 receptor complex in order to stimulate proliferation and growth of regulatory t cells . nktr-358 is being developed as a once or twice monthly self-administered injection for a number of autoimmune diseases . in 2017 , we entered into a worldwide license agreement with eli lilly and company ( lilly ) to co-develop nktr-358 . we received an initial payment of $ 150.0 million in september 2017 and are eligible for up to an additional $ 250.0 million for development and regulatory milestones . we were responsible for completing phase 1 clinical development and certain drug product development and supply activities . we also share phase 2 development costs with lilly , with lilly responsible for 75 % and nektar responsible for 25 % of these costs . we will have the option to contribute funding to phase 3 development on an indication-by-indication basis , ranging from zero to 25 % of the phase 3 development costs and receive a royalty rate on global nktr-358 sales up to the low twenties based upon our phase 3 development cost contribution and the level of annual global product sales . lilly will be responsible for all costs of global commercialization and we will have an option to co-promote in the u.s. under certain conditions . we have completed a phase 1 dose-finding trial of nktr-358 to evaluate single-ascending doses of nktr-358 in approximately 100 healthy subjects . results from this study demonstrated a multiple-fold increase in regulatory t cells with no change in cd8 positive or natural killer cell levels and no dose-limiting toxicities were observed . we also completed treatment of a phase 1 multiple-ascending dose trial to evaluate nktr-358 in patients with sle . lilly is conducting two phase 1b studies in patients with psoriasis and atopic dermatitis and has initiated phase 2 studies in sle and ulcerative colitis . under the terms of the agreement , lilly is to initiate two additional phase 2 studies in other auto-immune diseases . story_separator_special_tag we were developing nktr-181 for the treatment of chronic low back pain in adult patients and had submitted an nda for nktr-181 . at the fda advisory committee meeting held on january 14 , 2020 , the joint fda anesthetic drug products advisory committee and drug safety and risk management committee did not recommend approval of nktr-181 , and , as a result , we withdrew the nda and decided to make no further investment commitments to this program . the level of our future research and development investment will depend on a number of uncertainties including clinical outcomes , future studies required to advance programs to regulatory approval , and the economics related to potential future collaborations that may include up-front payments , development funding , milestones , and royalties . over the next several years , we plan to continue to make significant investments to advance our early drug candidate pipeline . we have historically derived all of our revenue and substantial amounts of operating capital from our collaboration agreements including the bms collaboration agreement , pursuant to which we have recognized $ 1.11 billion in revenue and recorded $ 790.2 million in additional paid in capital for shares of our common stock issued in the transaction . while in the near-term we continue to expect to generate substantially all of our revenue from collaboration arrangements , including the potential remaining $ 1.405 billion in development and regulatory milestones under the bms collaboration , in the medium- to long-term , our plan is to generate significant commercial revenue from our proprietary drugs including bempegaldesleukin . since we do not have experience commercializing products or an established commercialization organization , there will be substantial risks and uncertainties in future years as we build commercial , organizational , and operational capabilities . 54 up until september 30 , 2020 , we received royalties and milestones from two approved drugs : movantik ® , for which we have a collaboration with astrazeneca ; and adynovate ® , for which we have collaboration agreement with baxalta inc. ( a wholly owned-subsidiary of takeda pharmaceutical company ltd. ) . movantik ® is an oral , peripherally-acting mu-opioid antagonist for the treatment of opioid-induced constipation in adult patients with non-cancer pain which was approved by the fda and subsequently launched in march 2015 ( wherein in the eu , movantik ® is sold as moventig ® and is indicated for the treatment of opioid-induced constipation in adult patients who have an inadequate response to laxatives , which was approved by health authorities in the european union and many other countries beginning in 2014 ) . adynovate ® , a half-life extension product of factor viii was approved by the fda in late 2015 for use in adults and adolescents , aged 12 years and older , who have hemophilia a ( wherein in the eu , adynovate ® is sold as adynovi and was approved by health authorities in europe in january 2018 , and has also been approved in many other countries ) . beginning on october 1 , 2020 , our rights to receive royalties arising from the worldwide net sales of movantik ® /movantig ® and adynovate ® /adynovi ® , as well as rebinyn ® and specified licensed products under a right to sublicense agreement , dated october 27 , 2017 , were sold for $ 150.0 million pursuant to a capped sale arrangement to entities managed by healthcare royalty management , llc ( collectively , hcr ) pursuant to a purchase and sale agreement ( the 2020 purchase and sale agreement ) entered into on december 16 , 2020. with regard to the capped sale arrangement , the 2020 purchase and sale agreement will automatically expire , and hcr 's right to receive the sold royalties , will cease when hcr has received payments of equalling $ 210.0 million ( the 2025 threshold ) , if the 2025 threshold is achieved on or prior to december 31 , 2025 , or $ 240.0 million , if the 2025 threshold is not achieved on or prior to december 31 , 2025 ( or , if earlier , the date on which the last royalty payment under the relevant license agreements is made ) . after the 2020 purchase and sale agreement expires , all rights to receive these royalties return to nektar . our business is subject to significant risks , including the risks inherent in our development efforts , the results of our clinical trials , our dependence on the clinical development and commercialization efforts by our collaboration partners , uncertainties associated with obtaining and enforcing patents , the lengthy and expensive regulatory approval process and competition from other products . for a discussion of these and some of the other key risks and uncertainties affecting our business , see item 1a . risk factors . while the approved drugs and clinical development programs described above are key elements of our future success , we believe it is critically important that we continue to make substantial investments in our earlier-stage drug candidate pipeline . we have several drug candidates in earlier stage clinical development or being explored in research that we are preparing to advance into the clinic in future years . we are also advancing several other drug candidates in preclinical development in the areas of i-o , immunology , and other therapeutic indications . we believe that our substantial investment in research and development has the potential to create significant value if one or more of our drug candidates demonstrates positive clinical results , receives regulatory approval in one or more major markets and achieves commercial success . drug research and development is an inherently uncertain process with a high risk of failure at every stage prior to approval . the timing and outcome of clinical trial results are extremely difficult to predict . clinical development successes and failures can have a disproportionately positive or negative impact on our scientific and medical prospects , financial condition and prospects , results of operations and market value .
| 57 royalty revenue as discussed in note 7 to our consolidated financial statements , on december 16 , 2020 , we entered into the 2020 purchase and sale agreement with entities managed by healthcare royalty management , llc ( collectively , hcr ) , under which we agreed to sell to hcr certain of our rights to receive royalty payments arising on worldwide net sales of movantik ® , adynovate ® and rebinyn ® beginning october 1 , 2020. as a result , we recognized royalty revenue for these products only for the nine months ended september 30 , 2020 , and recognized these royalties as non-cash royalty revenue for the three months ended december 31 , 2020. accordingly , royalty revenue decreased for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019. please see note 7 to our consolidated financial statements for additional information on the 2020 purchase and sale agreement . we do not expect to recognize any royalty revenue during 2021 , because we will recognize all such royalties as non-cash royalty revenue as a result of the 2020 purchase and sale agreement . non-cash royalty revenue related to sale of future royalties for a discussion of our non-cash royalty revenue , please see our discussion below “ non-cash royalty revenue and non-cash interest expense. ” license , collaboration and other revenue license , collaboration and other revenue includes the recognition of upfront payments , milestone and other contingent payments received in connection with our license and collaboration agreements and certain research and development activities . the level of license , collaboration and other revenue depends in part upon the estimated recognition period of the upfront payments allocated to continuing performance obligations , the achievement of milestones and other contingent events , the continuation of existing collaborations , the amount of research and development work , and entering into new collaboration agreements , if any . during the year ended december 31 , 2020 , pursuant
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the company 's internal revg , which reports to the enterprise risk management group , performs either a technical or administrative review of all appraisals obtained in accordance with the company 's appraisal policy . the appraisal policy mirrors the federal regulations governing appraisals , specifically the interagency appraisal and evaluation guidelines and firrea . a technical review will ensure the overall quality of the appraisal , while an administrative review ensures that all of the required components of an appraisal are present . external appraisals are the primary source to value collateral dependent loans ; however , the company may also utilize values obtained through other valuation sources if it is deemed to be better aligned with the collateral resolution . independent appraisals or valuations are updated every 12 months for all impaired loans . the company 's impairment analysis documents the date of the appraisal used in the analysis . adjustments to appraised values are only permitted to be made by the revg . the impairment analysis is reviewed and approved by senior credit administration officers and the special assets loan committee . impairment analyses are updated , reviewed , and approved on a quarterly basis at or near the end of each reporting period . general reserve component the general reserve component covers non-impaired loans and is quantitatively derived from an estimate of credit losses adjusted for various qualitative factors applicable to both commercial and consumer loan segments . the estimate of credit losses is a function of the net charge-off historical loss experience to the average loan balance of the portfolio averaged during a period that management has determined to be adequately reflective of the losses inherent in the loan portfolio . the company has implemented a rolling 24-quarter look back period , which is re-evaluated on a periodic basis to ensure the reasonableness of the period being used . the following table shows the types of qualitative factors management considers : qualitative factors portfolio national / international local experience and ability of lending team interest rates gross state product pace of loan growth inflation unemployment rate footprint and expansion unemployment home prices execution of loan risk rating process level of economic activity cre prices degree of credit oversight political and trade uncertainty underwriting standards asset prices delinquency levels in portfolio charge-off trends in portfolio credit concentrations / nature and volume of the portfolio impaired loans- 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 in determining impairment include payment status , collateral value , and the probability of collecting scheduled principal and interest payments when due . loans that experience insignificant 36 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 . for the consumer loan segment , large groups of smaller balance homogeneous loans are collectively evaluated for impairment . this evaluation subjects each of the company 's homogenous pools to a historical loss factor derived from net charge-offs experienced over the preceding 24 quarters . the company applies payments received on impaired loans to principal and interest based on the contractual terms until they are placed on nonaccrual status . all payments received are then applied to reduce the principal balance and recognition of interest income is terminated , as discussed in note 1 “ summary of significant accounting policies ” in the “ notes to the consolidated financial statements ” contained in item 8 of this form 10-k. business combinations and divestitures - business combinations are accounted for under asc 805 , business combinations , using the acquisition method of accounting . the acquisition method of accounting requires an acquirer to recognize the assets acquired and the liabilities assumed at the acquisition date measured at their fair values as of that date . to determine the fair values , the company utilizes third party valuations , appraisals , and internal valuations based on discounted cash flow analysis or other valuation techniques . under the acquisition method of accounting , the company will identify the acquiree and the closing date and apply applicable recognition principles and conditions . if they are necessary to implement its plan to exit an activity of an acquiree , costs that the company expects , but is not obligated , to incur in the future are not liabilities at the acquisition date , nor are costs to terminate the employment or relocate an acquiree 's employees . the company does not recognize these costs as part of applying the acquisition method . instead , the company recognizes these costs as expenses in its post-combination financial statements in accordance with other applicable gaap . merger-related costs are costs the company incurs to effect a business combination . those costs include advisory , legal , accounting , valuation , and other professional or consulting fees . some other examples of costs to the company include systems conversions , integration planning consultants , contract terminations , and advertising costs . the company will account for merger-related costs as expenses in the periods in which the costs are incurred and the services are received . except for the costs to issue debt or equity securities in connection with a merger , which will be recognized in accordance with other applicable accounting guidance . story_separator_special_tag these merger-related costs are included on the company 's consolidated statements of income classified within the noninterest expense caption . goodwill and intangible assets - the company follows asc 350 , goodwill and other intangible assets , which prescribes the accounting for goodwill and intangible assets subsequent to initial recognition . goodwill resulting from business combinations prior to january 1 , 2009 represents the excess of the purchase price over the fair value of the net assets of businesses acquired . goodwill resulting from business combinations after january 1 , 2009 is generally determined as the excess of the fair value of the consideration transferred , plus the fair value of any noncontrolling interests in the acquiree , over the fair value of the net assets acquired and liabilities assumed as of the acquisition date . goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized , but tested for impairment at least annually or more frequently if events and circumstances exists that indicate that a goodwill impairment test should be performed . the company has selected april 30th as the date to perform the annual impairment test . intangible assets with definite useful lives are amortized over their estimated useful lives , which range from 4 to 10 years , to their estimated residual values . goodwill is the only intangible asset with an indefinite life on the company 's consolidated balance sheets . long-lived assets , including purchased intangible assets subject to amortization , such as the core deposit intangible asset , are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset . if the carrying amount of an asset exceeds its estimated future cash flows , an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset . assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell and are no longer depreciated . management concluded that no circumstances indicating an impairment of these assets existed as of the balance sheet date . 37 recent accounting pronouncements ( issued but not adopted ) in june 2016 , the fasb issued asu no . 2016-13 , “ financial instruments - credit losses ( topic 326 ) : measurement of credit losses on financial instruments . ” this asu contains significant differences from existing gaap and is effective for the company on january 1 , 2020. this asu updates the existing guidance to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date . this asu replaces the incurred loss impairment methodology in current gaap with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates . the cecl model will replace the company 's current accounting for pci and impaired loans . this asu also amends the debt securities otti model . the lifetime expected credit losses will be determined using macroeconomic forecast assumptions and management judgements applicable to and through the expected lives of the portfolios . while the implementation of the standard changes the measurement of the allowance for credit losses , it does not change the credit risk of the company 's lending portfolios or the losses of these portfolios . the company has established a cross-functional governance structure for the implementation of cecl . the final day 1 allowance for credit losses is subject to completion of the company 's governance and control processes , but is estimated to be within a reasonable range of $ 95 million . a large portion of the increase from the incurred loss model allowance is driven by the acquired loans portfolio and the consumer loan portfolio . future estimates of the allowance for credit losses will depend on the characteristics of the company 's portfolios , as well as the macroeconomic conditions and forecasts , changes and enhancements to models and methodologies , and other management judgements . in december 2019 , the fasb issued asu no . 2019-12 , “ income taxes ( topic 740 ) : simplifying the accounting for income taxes. ” this guidance was issued to simplify accounting for income taxes by removing specific technical exceptions that often produce information investors have a hard time understanding . the amendments also improve consistent application of and simplify gaap for other areas of topic 740 by clarifying and amending existing guidance . the amendments are effective for fiscal years beginning after december 15 , 2020 , including interim periods within those fiscal years . early adoption is permitted . the company is still evaluating the impacts from this standard . story_separator_special_tag interest income and net interest income ( fte ) were primarily the result of a $ 3.3 billion increase in average interest-earning assets and a $ 2.2 billion increase in average interest-bearing liabilities from the impact of the access acquisition during the first quarter of 2019. net accretion related to acquisition accounting increased $ 6.1 million from $ 19.2 million in 2018 to $ 25.3 million in 2019. for the year ended december 31 , 2019 , net interest margin decreased 6 bps and net interest margin ( fte ) decreased 5 bps compared to 2018. the net decline in net interest margin and net interest margin ( fte ) measures were primarily driven by an increase in the cost of funds , partially offset by a smaller increase in interest-earning asset yields .
| 38 balance sheet ● loans held for investment ( net of deferred fees and costs ) from continuing operations were $ 12.6 billion at december 31 , 2019 , an increase of $ 2.9 billion from december 31 , 2018. the increase was primarily a result of the access acquisition . ● total deposits from continuing operations at december 31 , 2019 were $ 13.3 billion , an increase of $ 3.3 billion from december 31 , 2018. the increase was primarily a result of the access acquisition . ● cash dividends per common share increased to $ 0.96 during 2019 from $ 0.88 per common share during 2018. net income 2019 compared to 2018 net income for the year ended december 31 , 2019 increased $ 47.3 million or 32.3 % from $ 146.2 million to $ 193.5 million and represented earnings per share of $ 2.41 , compared to $ 2.22 for the year ended december 31 , 2018. the increase was primarily due to the acquisition of access . net operating earnings ( non-gaap ) totaled $ 220.9 million and operating earnings per share ( non-gaap ) were $ 2.75 for the year ended december 31 , 2019 , which excludes $ 22.3 million in after-tax merger-related costs and $ 5.1 million in after-tax rebranding-related costs . for reconciliation of the non-gaap measures , refer to section “ non-gaap measures ” included within this item 7. included in net income for the year ended december 31 , 2019 was a net loss from discontinued operations of $ 170,000 and approximately $ 1.0 million in after-tax expenses related to branch closure costs , compared to a net loss from discontinued operations of $ 3.2 million for the year ended december 31 , 2018. refer to note 19 `` segment reporting & discontinued operations '' in item 8 `` financial statements and supplementary data '' of this form 10-k for further discussion regarding discontinued operations . net interest income for the year ended december 31 , 2019 increased $ 111.2 million from the prior year , primarily due to higher average loan balances and the acquisition of access . the provision for credit losses increased $ 7.4 million from $ 13.7 million in 2018 to
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revere term loan the company reduced the revere term loan to $ 1.06 million at december 31 , 2018 from $ 6.81 million at december 31 , 2017 , a decrease of $ 5.75 million , using the following sources : $ 4.27 million through sales of properties , $ 150 thousand though refinancing of properties and $ 1.33 million from operating cash . in addition , the company paid the $ 575 thousand exit fee with proceeds from the riversedge north refinance . per the november 5 , 2018 fourth amendment , the maturity date of the revere term loan is february 1 , 2019 at a rate of 10 % . on january 29 , 2019 , the company entered into a sixth amendment to loan documents to the revere term loan ( the “ revere sixth amendment ” ) . the revere sixth amendment extends the maturity date to april 1 , 2019 from february 1 , 2019 and creates an additional “ exit fee ” of $ 20 thousand . keybank credit agreement the company reduced the keybank line of credit to $ 52.10 million at december 31 , 2018 from $ 68.03 million at december 31 , 2017 , a decrease of $ 15.93 million by refinancing new market , ridgeland , georgetown , ladson crossing , lake 38 greenwood and south park collateralized portion of the december 21 , 2017 amended and restated credit agreement ( the `` amended and restated credit agreement '' ) for the keybank line of credit . these refinances resulted in a $ 3.83 million overadvance on the borrowing base availability . the company is to repay the overadvance of $ 3.83 million by february 28 , 2019 or otherwise properly balance the borrowing base availability . based on discussions and correspondence with keybank , keybank is drafting documents to extend the time which the company is to repay the overadvance until at least march 31 , 2019. as of december 31 , 2018 , the amended and restated credit agreement is collateralized by 10 properties , accruing interest at 5.02 % with a december 2019 maturity . goodwill during the last quarter of 2018 , the market capitalization of the company 's common stock sustained a significant decline so that it fell below the book value of the company 's net assets . the outcome of the annual goodwill impairment test resulted in an impairment of goodwill of $ 5.49 million , which was recorded in the audited consolidated financial statements during the year ended december 31 , 2018. sea turtle development and related receivables in 2016 , the company loaned $ 11.00 million for the partial funding of pineland station shopping center in hilton head , south carolina to be known in the future as sea turtle development and loaned $ 1.00 million for the sale of land to be used in the development . in 2018 and 2017 , the company recognized $ 1.74 million and $ 5.26 million impairment charges , respectively , on the notes receivable and in 2017 fully reserved $ 1.34 million in accrued interest of which $ 895 thousand was due at note maturity . in 2018 , the company placed the notes receivable on nonaccrual status and has not recognized $ 1.44 million of interest income due on the notes for the twelve months ended december 31 , 2018. in 2018 , the company 's agreement to perform development , leasing , property and asset management services for sea turtle development in hilton head , south carolina was terminated . sea turtle development is a related party as jon wheeler , the company 's former ceo and shareholder of the company , is the managing member . prior to the termination of the agreements , development fees of 5 % of hard costs incurred were due to the company . leasing , property and asset management fees were consistent with those charged for services provided to non-related properties . as of december 31 , 2018 , the company believes the estimated fair market value of the development upon stabilization and lease up at a future date will provide for the cash required to repay the $ 5.00 million carrying value of the notes receivable in the event of a sale . the company 's estimated fair value of the project is based upon cash flow models that include information available to the company at december 31 , 2018 , including assumptions on future lease up and the estimated fair value at full stabilization . capitalization rates utilized in these models are based upon rates that the company believes to be within a reasonable range of current market rates for the respective project . the notes are collateralized by a 2nd deed of trust on the property . if the holder of the $ 20.00 million 1st deed of trust proceeds to foreclosure , this may have an adverse effect on assumptions used in the company 's fair value analysis leading to further impairment . 39 new leases , leasing renewals and expirations the following table presents selected lease activity statistics for our properties . replace_table_token_6_th ( 1 ) lease data presented for the years ended december 31 , 2018 and 2017 is based on average rate per square foot over the renewed or new lease term . ( 2 ) 2017 lease data adjusted to reflect average rate per square foot over the renewed or new lease term for consistency with 2018 presentation . anchor lease modifications and early terminations during the year ended december 31 , 2018 , the company modified thirteen leases with southeastern grocers ' ( `` seg '' ) anchor tenants and recaptured four locations . these modifications include a combination of term adjustments , rent adjustments ( decreases and increases ) , deferred landlord contributions for remodels , and adjusted lease language . story_separator_special_tag the company elected to recapture ladson crossing , st. matthews , south park , and tampa festival in the second quarter of 2018. the cypress shopping center lease expired on march 31 , 2018. as part of the negotiated recaptures the company received $ 246 thousand in termination fees during the year ended december 31 , 2018. the remaining thirteen lease modifications were approved by the southeastern grocer 's bankruptcy court in the second quarter of 2018. the initial annualized base rent impact of these modifications and recaptures , including the cypress lease expiration , is approximately $ 2.50 million . three of these locations have been backfilled and two of these locations had rents commence in 2018 , with the third location commencing rent in february 2019 . 40 the berkley shopping center farm fresh lease was terminated effective june 30 , 2018. the company received $ 980 thousand in early lease termination fees as a result of the early termination . critical accounting policies the following discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements included in this form 10-k , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . on an on-going basis , we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . the critical accounting policies summarized in this section are discussed in further detail in the notes to the financial statements appearing elsewhere in this form 10-k. we believe that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition . revenue recognition principal components of our total revenues include base and percentage rents and tenant reimbursements . we accrue minimum ( base ) rent on a straight-line basis over the terms of the respective leases which results in an unbilled rent asset or deferred rent liability being recorded on the balance sheet . certain lease agreements contain provisions that grant additional rents based on tenants ' sales volumes ( contingent or percentage rent ) which we recognize when the tenants achieve the specified targets as defined in their lease agreements . we periodically review the valuation of the asset/liability resulting from the straight-line accounting treatment of our leases in light of any changes in lease terms , financial condition or other factors concerning our tenants . the new standard related to revenue recognition had an immaterial effect in our consolidated financial statements as the company only changed its accounting policies for revenue recognized on non-real estate lease contracts . real estate lease contracts continue to be reported in accordance with historic accounting under topic 605 , as discussed in note 2 of the audited consolidated financial statements . rents and other tenant receivables we record a tenant receivable for amounts due from tenants such as base rents , tenant reimbursements and other charges allowed under the lease terms . we periodically review tenant receivables for collectability and determine the need for an allowance for the uncollectible portion of accrued rents and other accounts receivable based upon customer creditworthiness ( including expected recovery of a claim with respect to any tenants in bankruptcy ) , historical bad debt levels and current economic trends . we consider a receivable past due once it becomes delinquent per the terms of the lease ; our standard lease form considers a rent charge past due after five days . a past due receivable triggers certain events such as notices , fees and other allowable and required actions per the lease . acquired properties and lease intangibles we allocate the purchase price of the acquired properties to land , building and improvements , identifiable intangible assets and to the acquired liabilities based on their respective fair values . identifiable intangibles include amounts allocated to acquired out-of-market leases , tenant relationships , the value of in-place leases and ground lease sandwich interest . we determine fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information . estimates of future cash flows are based on a number of factors including the historical operating results , known trends and specific market and economic conditions that may affect the property . management also estimates costs to execute similar leases including leasing commissions , tenant improvements , legal and other related expenses . such amounts are based on estimates and forecasts which , by their nature , are highly subjective and may result in future changes in the event forecasts are not realized . impairment of long-lived assets 41 we periodically review investment properties for impairment on a property-by-property basis whenever events or changes in circumstances indicate that the carrying value of investment properties may not be recoverable , with an evaluation performed at least annually . these circumstances include , but are not limited to , declines in the property 's cash flows , occupancy and fair market value . we measure any impairment of investment property when the estimated undiscounted future operating income before depreciation and amortization , plus its residual value , is less than the carrying value of the property . to the extent impairment has occurred , we charge to income the excess of carrying value of the property over its estimated fair value . we estimate fair value using unobservable data such as operating income , estimated capitalization rates or multiples , leasing prospects and local market information .
| general and administrative expenses during the year ended december 31 , 2017 included approximately $ 2.04 million of non-recurring expenses related to acquisitions , capital events and other miscellaneous costs . gain on disposal of properties - operations gain on disposal of properties from continuing operations was $ 1.02 million for the year ended december 31 , 2017 , which represents an increase of $ 1.02 million . the increase is primarily attributed to the sale of the steak n ' shake , a 1.06 acre outparcel at rivergate . interest income interest income was $ 1.44 million for the year ended december 31 , 2017 , which represents an increase of $ 751 thousand as compared to $ 692 thousand for the year ended december 31 , 2016. the increase is primarily attributed to interest income on the sea turtle development note receivable earned during the year ended december 31 , 2017. accrued interest income of $ 443 thousand , currently due and $ 895 thousand , due at maturity related to sea turtle development was reserved at december 31 , 2017 and included in provision for credit losses . interest expense interest expense increased $ 3.81 million or 28.52 % for the year ended december 31 , 2017 , compared to $ 13.36 million for the year ended december 31 , 2016. the increase is primarily attributed to the incremental debt service associated with the additional borrowings utilized to acquire the twenty-three retail properties representing new stores since january 1 , 2016. discontinued operations net income from discontinued operations totaled $ 1.52 million for the year ended december 31 , 2017 , compared to a net income of $ 824 thousand for the year ended december 31 , 2016. the income for both years primarily resulted from the gain on sale of assets held for sale . starbucks/verizon was sold in 2016 while ruby tuesday 's and outback steakhouse at pierpont centre was sold in 2017. same store and new store
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story_separator_special_tag style= '' font-family : times new roman , times , serif ; font-size : 10pt '' > although there was a net loss of $ 8,533,515 in 2016 , the company 's independent registered public accounting firm 's audit report for the year ended december 31 , 2016 , included with this annual report , does not contain a qualified opinion or an explanatory paragraph regarding the company 's ability to continue as a going concern . the accompanying consolidated financial statements have been prepared assuming that the company continues as a going concern and contemplates the realization of assets and the satisfaction of liabilities in the normal course of business . the ability of the company to continue as a going concern on a long-term basis will be dependent upon its ability to create and market innovative products and to sustain adequate working capital to finance its operations . we have historically financed our operations through operating revenues and sales of equity securities , and most recently through sales of notes convertible into our equity securities , to accredited investors . while we currently believe we have sufficient capital to continue our operations for the next 12 months , we may incur greater expenses than we currently anticipate . as a result , we could deplete our cash and working capital more rapidly than expected , which could result in our need to raise additional working capital through sale of equity securities or debt financing . sources and uses of cash replace_table_token_2_th operating activities : net cash used in operating activities during the year ended december 31 , 2016 was $ 3,593,184 , which was an increase of $ 727,499 , or 25 % , from $ 2,865,685 net cash used in operating activities during the year ended december 31 , 2015. the increase in accounts receivable of $ 310,712 and the increase in inventory of $ 341,090 , which both related to increased sales activity in 2016 , account for a significant portion of the increase in cash used in operations . the company expects the carrying costs of accounts receivable and inventory to increase in 2017 in line with anticipated increased revenues . 18 investing activities : net cash used in investing activities during the year ended december 31 , 2016 was $ 16,336 , which was a decrease of $ 312,891 , or 95 % , from $ 329,227 net cash used in investing activities during the year ended december 31 , 2015. in 2016 , the company purchased $ 16,336 in furniture and equipment . in 2015 , the company purchased $ 129,227 in furniture and equipment and expended $ 200,000 on the afi asset acquisition . the company expects the investment in furniture and equipment in 2017 to be no greater than the investment in furniture and equipment in 2015 , but we can give no assurance that such furniture and equipment costs will remain within that range in 2017. financing activities : net cash provided by financing activities was $ 2,965,000 in 2016 compared with $ 4,484,750 cash provided by financing activities for the same period in 2015 , a decrease of $ 1,519,750 , or 34 % . in 2016 , the company received $ 3,000,000 in proceeds from related party convertible notes payable and paid $ 35,000 to pay off the otcc loan . in 2015 , the company received $ 3,484,750 cash proceeds from the sale of common stock for cash as well as $ 1,000,000 cash proceeds from the sale of series g preferred stock . during 2016 , the company experienced negative cash flow from operations . significant negative cash flow from operations is likely to occur in 2017 as the company continues developing multi-rotor tethered drone products and marketing its aerostat and multi-rotor drone products . although we currently have adequate funds to sustain our operations in the near term , we may require additional funds to continue operations depending upon the level of interest in the company 's new and existing product offerings . we have no immediate plans to raise additional funds ; however , if we need to raise additional funds through the issuance of equity , equity-related or convertible debt securities in the future , these securities may have rights , preferences or privileges senior to those of the rights of holders of our common stock . we can not predict whether additional financing will be available to us on favorable terms when required , or at all . the issuance of additional common stock may have the effect of further diluting the proportionate equity interest and voting power of holders of our common stock . historically , we have financed our cash needs by private placements of our securities . there is no assurance that we will be able to obtain financing on terms consistent with our past financings or satisfactory to us , if at all . as of december 31 , 2016 , the company has common stock outstanding , as well as series a convertible preferred stock , and convertible notes payable to related persons of the company . off-balance sheet arrangements we do not have any off balance sheet arrangements that have had or are reasonably likely to have a current or future material effect on our financial condition , changes in financial condition , revenues , expenses , results of operations , liquidity , capital expenditures or capital resources . critical accounting policies and estimates the following is not intended to be a comprehensive list of our accounting policies or estimates . our significant accounting policies are more fully described in note 1–summary of significant accounting policies in the notes . story_separator_special_tag in preparing our financial statements and accounting for the underlying transactions and balances , we apply our accounting policies and estimates as disclosed in the notes . we consider the policies and estimates discussed below as critical to an understanding of our financial statements because their application places the most significant demands on our judgment , with financial reporting results dependent on estimates about the effect of matters that are inherently uncertain and may change in subsequent periods . specific risks for these critical accounting estimates are described in the following paragraphs . the impact and any associated risks related to these estimates on our business operations are discussed throughout this md & a where such estimates affect our reported and expected financial results . preparation of this annual report requires us to make estimates and assumptions that affect the reported amount of assets and liabilities , disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenue and expenses during the reporting period . actual results may differ from those estimates . besides estimates that meet the “ critical ” accounting estimate criteria , we make many other accounting estimates in preparing our financial statements and related disclosures . all estimates , whether or not deemed critical , affect reported amounts of assets , liabilities , revenue and expenses as well as disclosures of contingent assets and liabilities . estimates are based on experience and other information available prior to the issuance of the financial statements . materially different results can occur as circumstances change and additional information becomes known , including for estimates that we do not deem “ critical. ” 19 accounts receivable and credit policies : accounts receivable-trade consists of amounts due from the sale of tethered aerostats , accessories , spare parts , and customization and refurbishment of aerostats . such accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days of receipt of the invoice . we provide an allowance for doubtful accounts equal to the estimated uncollectible amounts based on historical collection experience and a review of the current status of trade accounts receivable . at december 31 , 2016 and 2015 , none of the company 's accounts receivable-trade was deemed uncollectible . revenue recognition and unearned income : the company recognizes revenue when all four of the following criteria are met : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred and title has transferred or services have been rendered ; ( 3 ) our price to the buyer is fixed or determinable ; and ( 4 ) collectability is reasonably assured . we record unearned revenue as a liability and their associated costs of sales as work in process inventory . in 2015 , the company recognized $ 7,896 in revenue from a 2014 sale that was delivered in 2015. there was a balance of $ 394,000 in accounts receivable at december 31 , 2016 for sales on account . long-lived assets : we account for long-lived assets in accordance with the provisions of asc 360-10-35 , “ impairment or disposal of long-lived assets. ” this accounting standard requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset . if the carrying amount of an asset exceeds its estimated future cash flows , an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset . we acquired the ltas customer list in 2014. the fair value of the customer list was determined by using a discounted cash flow model and $ 135,550 was recorded on the date of business combination . we recorded $ 31,941 of amortization expense for the year ended december 31 , 2014 , leaving a remaining carrying amount of $ 103,609. we recorded another $ 37,935 amortization expense for the year ended december 31 , 2015. after comparing the acquired customer list to the actual customers who placed orders following the acquisition of ltas , we determined that the customer list was impaired at december 31 , 2015 and amortized the remaining balance of $ 65,674 in 2015. on july 20 , 2015 , we , through our wholly-owned subsidiary afs , entered into an agreement to acquire exclusive commercial software licenses for the “ gust ” ( georgia tech uav simulation tool ) autopilot system from afi . through the purchase of the assets of afi , we assumed the transferable licenses from the georgia tech research corporation , which include flight simulation tools and fault tolerant flight control algorithms . in addition , we acquired afi 's dedicated flight computer and additional related hardware and airframes . we paid $ 100,000 in immediately available funds and $ 100,000 to be held in escrow . in addition , we issued 150,000 shares of unregistered common stock valued at $ 8.40 per share , on a post-reverse split basis , on the closing date of the acquisition , to be held in escrow . we issued 50,000 shares of common stock to afi in the second quarter of 2016 after all milestones had been met as a requirement of the terms of the acquisition because the value of the escrowed shares fell below $ 1,400,000 and triggered a ‘ make whole ' provision . the asset acquisition with afi did not qualify as a business combination under asc 805-10 , “ business combinations , ” and has been accounted for as a regular asset purchase . we account for goodwill and intangible assets in accordance with asc 350 , ” intangibles-goodwill and other. ” asc 350
| general and administrative expenses : general and administrative ( “ g & a ” ) expense increased by $ 568,663 , or 6 % , to $ 9,732,219 in 2016 from $ 9,163,556 in 2015. the company invested $ 1,218,614 in research and development , primarily related to multi-rotor tethered drone products , an increase of $ 474,162 from the investment of $ 744,452 in 2015. the engineering staff was increased by four during 2016 and development began on several new products . the company anticipates developing additional products based on past research and development efforts ; therefore , future research and development costs could be lower . executive salaries increased $ 67,500 in 2016 and executive bonuses increased $ 216,938 , including $ 195,000 in bonuses accrued in 2016 and paid in 2017. professional fees , including legal and accounting fees , increased by $ 48,288 primarily related to general corporate , securities and fundraising matters . marketing and advertising expenses increased by $ 43,513 primarily related to expanding product awareness through print media and consulting arrangements . depreciation expense increased $ 13,833 primarily due to increased investments in manufacturing equipment . amortization expense increased $ 132,398 primarily due to our acquisition of the assets of adaptive flight , inc. ( “ afi ” ) in 2015. stock based compensation , a non-cash expense , decreased by $ 381,962. loss from operations : loss from operations for 2016 of $ 8,821,482 was a decrease of $ 152,668 , or 2 % , less than the loss from operations in 2015 of $ 8,974,150. the decrease was primarily due to an increase in gross profit of $ 721,331 and an increase of g & a expenses of $ 568,663. other income and expense : total other income of $ 287,967 in 2016 was $ 289,967 , or $ 16,920 % , greater than the total other expense of $ 1,712 in 2015. this change was primarily due to a $ 562,961 non-cash income for derivative accounting under financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 815-15 , “ derivative and hedging , ” and $ 75,000 of income from debt forgiveness related to the settlement of the loan from the oklahoma technology commercialization center
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risk factors ” in this annual report on form 10-k. if one or more events related to these or other risks or uncertainties materialize , or if our underlying assumptions prove to be incorrect , actual 47 results may differ materially from what we anticipate . accordingly , you should not place undue reliance on any such forward-looking statements . any forward-looking statement speaks only as of the date on which it is made , and we do not undertake any obligation to update or review any forward-looking statement , whether as a result of new information , future developments or otherwise , except as required by applicable law . company overview fhi , a bank holding company , owns 100 % of the outstanding common stock of fhb . fhb was founded in 1858 under the name bishop & company and was the first successful banking partnership in the kingdom of hawaii and the second oldest bank formed west of the mississippi river . as of december 31 , 2018 , we were the largest full service bank headquartered in hawaii as measured by assets , loans and leases , deposits and net income . as of december 31 , 2018 , we had $ 20.7 billion of assets , $ 13.1 billion of gross loans and leases and $ 17.2 billion of deposits . we also generated $ 264.4 million of net income or diluted earnings per share of $ 1.93 per share for the year ended december 31 , 2018. we operate our business through three operating segments : retail banking , commercial banking and treasury and other . see “ note 23. reportable operating segments ” in the notes to the consolidated financial statements included in item 8. financial statements and supplementary data for more information . reorganization transactions on april 1 , 2016 , bnpp effected the reorganization transactions pursuant to which fhi , which was then known as bancwest , contributed bow , its subsidiary at the time , to bwhi , a newly formed bank holding company and a wholly‑owned subsidiary of bnpp . upon formation , bwhi was a direct wholly‑owned subsidiary of bancwest and , as part of the reorganization transactions , bancwest contributed 100 % of its interest in bow to bwhi . following the contribution of bow to bwhi , bancwest distributed its interest in bwhi to bnpp , and bwhi became a wholly‑owned subsidiary of bnpp . as part of these transactions , we amended our certificate of incorporation to change our name to first hawaiian , inc. , with the bank remaining our only direct wholly‑owned subsidiary . the reorganization transactions were made in connection with our transition to a stand‑alone public company and our separation from bnpp . on july 1 , 2016 , in order to comply with the federal reserve 's requirement ( under regulation yy ) applicable to bnpp that a foreign banking organization with $ 50 billion or more in u.s. non‑branch assets as of june 30 , 2015 establish a u.s. intermediate holding company and hold its interest in the substantial majority of its u.s. subsidiaries through the intermediate holding company by july 1 , 2016 , we became an indirect wholly‑owned subsidiary of bnp paribas usa , bnpp 's u.s. intermediate holding company . as part of that reorganization , we became a direct wholly‑owned subsidiary of bwc , the bnpp selling stockholder and a direct wholly‑owned subsidiary of bnp paribas usa . public offerings and separation from bnpp shares of fhi 's common stock began trading on the nasdaq under the ticker symbol “ fhb ” on august 4 , 2016. in august 2016 , fhi completed its ipo of 24,250,000 shares of common stock sold by bwc . in february 2017 , bwc sold an additional 28,750,000 shares of fhi common stock in a secondary offering . in may and june 2018 , bwc sold an additional 16,830,000 shares of fhi common stock in the aggregate in a secondary offering . bwc sold 20,000,000 additional shares of fhi common stock in secondary offerings completed in each of august and september 2018 , respectively . bwc sold shares of fhi common stock of 2,968,069 and 1,801,801 in may and august 2018 , respectively , to the company pursuant to share repurchase agreements . bwc sold 24,859,750 shares of fhi common stock in a secondary offering completed in february 2019. fhi did not receive any of the proceeds from the aforementioned sales of shares of its common stock by bwc . following the completion of the secondary offering completed on february 1 , 2019 , bnpp ( through bwc ) fully exited its ownership interest in fhi common stock . upon the completion of the august 2018 and september 2018 offerings , bnpp-directors jean-milan givadinovitch , xavier antiglio and j. michael shepherd resigned from the board of directors . the fhi board of directors appointed faye kurren , jenai wall and c. scott wo to fill such vacancies . following the completion of the february 2019 offering , michel vial and gérard gil , the remaining bnpp designees to the fhi board of directors , resigned from the board of directors . as a result , all directors designated by bnpp have resigned from the fhi board of directors . 48 the company and or bank entered into contractual arrangements with bnpp and or its affiliates to provide a framework for our ongoing relationship with bnpp , including a stockholder agreement , a transitional services agreement , a registration rights agreement , a license agreement and an insurance agreement . story_separator_special_tag among other things , the stockholder agreement set forth certain agreements that governed the relationship between the company and bnpp following the ipo until the “ non-control date ” , which is defined in the stockholder agreement as the date on which bnpp ceases to control the company for purposes of the bank holding company act of 1956 as provided for in a written determination from the board of governors of the federal reserve system or such earlier date as bnpp may designate in writing to the company . on february 12 , 2019 , following the completion of bnpp 's divestiture of the company 's common stock on february 1 , 2019 and the resignation from the company 's board of directors of all remaining directors nominated by bnpp , under the terms of the stockholder agreement , the non-control date under the stockholder agreement occurred . as a result , bnpp 's governance and consent rights under the stockholder agreement , and its substantive rights under the registration rights agreement , have terminated . pursuant to the transitional services agreement , bnpp , bwhi and bow provided us with certain services they provided prior to the ipo either directly or on a pass-through basis , and we provided , or arranged to provide , bnpp , bwhi and bow with certain services we provided to them prior to the ipo , either directly or on a pass-through basis . the transitional services agreement terminated on december 31 , 2018 , although the provision of certain services terminated prior to the agreement termination date and certain other services continue to be provided beyond the agreement termination date as agreed by the parties . in connection with our transition to a stand-alone public company and our separation from bnpp , we have incurred , and expect to continue to incur , incremental ongoing and one-time expenses , as well as increases in audit fees , insurance premiums , employee salaries and benefits ( including stock-based compensation expenses for employees and non-employee directors ) , and fees and expenses that may have been previously reimbursed by bnpp or its affiliates and consulting fees . these costs also include increases that we expect to result from the higher pricing of services by third-party vendors whose future contracts with us do not reflect bow volumes or the benefits of bnpp bargaining power . our one-time expenses incurred in connection with our ipo included professional fees , consulting fees and certain filing and listing fees . the actual amount of the incremental expenses we incur as a stand-alone public company may be higher , perhaps significantly , from our current estimates for a number of reasons and there may be additional related costs we may incur that we have not currently anticipated . basis of presentation for periods prior to april 1 , 2016 , the financial operations , assets and liabilities of bancwest ( now known as first hawaiian , inc. ) related to fhb ( and not bow ) have been combined with fhb and are presented on a basis of accounting that reflects a change in reporting entity as if we were a separate stand‑alone entity for all periods presented . the accompanying consolidated financial statements include allocations of certain assets of bancwest as agreed to by the parties and also certain expenses amounting to approximately $ 5.8 million for the year ended december 31 , 2016 , specifically applicable to the operations of bancwest related to fhb through the date of the reorganization transactions . management believes these allocations are reasonable . prior to april 1 , 2016 , the residual revenues and expenses not included in our consolidated financial statements represent those directly related to bwhi and bow . the allocated expenses included in our consolidated financial statements , residual revenues and expenses are not necessarily indicative of the financial position or results of operations of our company if we had operated as a stand‑alone public entity during the reporting periods prior to april 1 , 2016 and may not be indicative of our company 's future results of operations and financial condition . upon completion of the reorganization transactions on april 1 , 2016 , the consolidated financial statements of the company reflected the results of operations , financial position and cash flows of fhi and its wholly‑owned subsidiary , fhb . all significant intercompany account balances and transactions have been eliminated in consolidation . the consolidated financial statements do not reflect any changes that may occur in our operations and expenses as a result of the reorganization transactions or our ipo . hawaii economy hawaii 's economy continued to perform well during the year ended december 31 , 2018 , led in large part by a strong tourism industry and growth in personal income and tax revenues , offsetting a slight decline in real estate and labor market conditions . hawaii 's tourism industry remained robust , achieving new records in 2018 in visitor arrivals and spending . visitor arrivals for the year ended december 31 , 2018 increased by 5.9 % compared to 2017 , and total visitor spending for the year ended december 31 , 2018 increased by 6.8 % compared to 2017 according to the hawaii tourism 49 authority . visitor arrivals and spending increased , in particular , from u.s. mainland and canadian visitors . the statewide seasonally-adjusted unemployment rate was 2.5 % in december 2018 compared to 2.0 % in december 2017 according to the hawaii state department of labor & industrial relations . the national seasonally-adjusted unemployment rate was 3.9 % in december 2018 compared to 4.1 % in december 2017. the volume of single-family home sales on oahu decreased by 7.7 % for the year ended december 31 , 2018 compared to 2017 , while the volume of condominium sales on oahu decreased by 2.5 % for the year ended december 31 , 2018 compared to 2017 according to the honolulu board of realtors .
| net income was $ 183.7 million for the year ended december 31 , 2017 , a decrease of $ 46.5 million or 20 % as compared to the same period in 2016. basic and diluted earnings per share were $ 1.32 for the year ended december 31 , 2017 , a decrease of $ 0.33 or 20 % as compared to the same period in 2016. the decrease was primarily due to an increase in the provision for income taxes , a decrease in noninterest income , an increase in noninterest expense and an increase in the provision , partially offset by an increase in net interest income . net income for the year ended december 31 , 2017 was negatively impacted by a $ 47.6 million increase in the provision for income taxes as a result of the tax act . core net income was $ 230.4 million for the year ended december 31 , 2017 , an increase of $ 13.3 million or 6 % as compared to the same period in 2016. core basic and diluted earnings per share were $ 1.65 for the year ended december 31 , 2017 , an increase of $ 0.09 or 6 % as compared to the same period in 2016. core net income and core basic and diluted earnings per share are non-gaap financial measures . for a 50 reconciliation to the most directly comparable gaap financial measures for core net income and core basic and diluted earnings per share , see “ item 6. selected financial data - gaap to non-gaap reconciliation ” . our return on average total assets was 1.31 % for the year ended december 31 , 2018 , an increase of 39 basis points as compared to the same period in 2017 , and our return on average total stockholders ' equity was 10.76 % for the year ended december 31 , 2018 , an increase of 352 basis points as compared to the same period in 2017. our return on average tangible assets was 1.37 % for the year ended december 31 , 2018 , an increase of 40 basis points as compared to the same period in 2017 , and our return on average tangible stockholders ' equity was 18.08 % for the year ended december 31 , 2018 , an increase of 617 basis points as compared to the same period in 2017. we continued to
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a substantial portion of procyte dx ® analyzer placements continue to be made at veterinary clinics that elect to upgrade from their lasercyte ® analyzer to a procyte dx ® analyzer . however , a number of placements have been made at competitive accounts since the launch of this instrument in 2010. while customers continue to upgrade from their lasercyte ® analyzer to a procyte ® analyzer , we continue to place a substantial number of lasercyte ® instruments , both new and refurbished , as trade-ups from the vetautoread analyzer and at new and competitive accounts . in 2011 , a significant number of lasercyte ® instruments that were placed were refurbished instruments that had been received in trade in the sale of a procyte dx ® analyzer . as we continue to experience growth in placements of procyte ® and lasercyte ® analyzers and in sales of related consumables , we expect this growth to be partly offset by a decline in placements of vetautoread analyzers and in sales of related vetautoread consumables . our long-term success in this area of our business is dependent upon new customer acquisition , customer loyalty and retention and customer utilization of existing and new assays introduced for use on our analyzers . we continuously seek opportunities to enhance the care that veterinary professionals give to their patients and clients through supporting the implementation of real-time care testing workflows . our latest generation of chemistry and hematology instruments demonstrates this commitment by offering enhanced ease of use , faster time to results and greater sample throughput . utilization can increase due to a greater number of patient samples being run or to an increase in the number of tests being run per patient sample . our strategy is to increase both drivers . to increase utilization , we seek to educate veterinarians about best medical practices that emphasize the importance of chemistry and hematology testing at the point of care for a variety of diagnostic purposes . we also can offer protocol-based rebates when customers utilize the broad testing functionality of our analyzers . in addition , we provide marketing tools and consultative services that help drive efficiencies in veterinary practice processes and allow practices to increase the number of clients they see on a daily basis . with all of our instrument product lines , we seek to differentiate our products from our competitors ' products based on time-to-result , ease-of-use , throughput , breadth of diagnostic menu , flexibility of menu selection , accuracy , reliability , ability to handle compromised samples , analytical capability of software , integration with the idexx vetlab ® station , education and training , and superior sales and customer service . our success depends , in part , on our ability to differentiate our products in a way that justifies a premium price . rapid assay products . our rapid assay line of business consists primarily of single-use kits for point-of-care testing and , to a limited degree , microwell-based kits for laboratory testing for canine and feline diseases and conditions . our rapid assay strategy is to develop , manufacture , market and sell proprietary tests that address important medical needs for particular diseases prevalent in the companion animal population . we seek to differentiate our tests from those of other in-clinic test providers and reference laboratory diagnostic service providers through ease-of-use and superior performance , including by providing our customers with combination tests that test a single sample for multiple analytes . we further augment our product development and customer service efforts with sales and marketing programs that enhance medical awareness and understanding regarding certain diseases and the importance of diagnostic testing . we also seek to enhance the attractiveness of our tests by providing the snapshot dx ® analyzer , which automatically reads certain snap ® test results , and records those results in the electronic medical record . we continue to work on enhancing the functionality of the snapshot dx ® analyzer to read the results of additional tests from our canine and feline family of rapid assay products . 28 reference laboratory diagnostic and consulting services . we believe that more than half of all diagnostic testing by u.s. veterinarians is provided by outside reference laboratories such as our idexx reference laboratories . in many markets outside the u.s. , in-clinic testing is less prevalent and an even greater percentage of diagnostic testing is done in reference laboratories . we attempt to differentiate our reference laboratory testing services from those of our competitive reference laboratories and competitive in-clinic offerings primarily on the basis of test menu , technology employed , quality , customer service and the complementary manner in which our laboratory services work with our point of care offerings . revenue growth in this line of business is achieved both through increased sales to existing customers and through the acquisition of new customers , including through reference laboratory acquisitions , customer list acquisitions and the opening of new reference laboratories , including laboratories that are co-located with large practice customers . in november 2011 , we acquired the research and diagnostic laboratory ( “ radil ” ) business of the college of veterinary medicine from the university of missouri . radil provides health monitoring and diagnostic testing services to bioresearch customers . we believe the acquisition of radil allows us to leverage our expertise in veterinary diagnostics and expand our integrated offering of reference laboratory diagnostic and consulting services and in-clinic testing solutions in an adjacent market . profitability of our reference laboratory diagnostic and consulting services business is largely the result of our ability to achieve efficiencies from both volume and operational improvements . start-up laboratories that we open typically will operate at a loss until testing volumes reach a level that permits profitability . acquired laboratories frequently operate less profitably than our existing laboratories and acquired laboratories may not achieve the profitability of our existing laboratory network for several years until we complete the implementation of operating improvements and efficiencies . story_separator_special_tag therefore , in the short term , new and acquired reference laboratories generally will have a negative effect on the operating margin of the reference laboratory diagnostic and consulting services line of business . practice management systems and digital radiography . our strategy in the practice management systems line of business is to provide superior integrated information solutions , backed by superior customer support and education , to allow the veterinarian to practice better medicine and achieve the practice 's business objectives , including superior client experience , staff efficiency and practice profitability . we differentiate our practice management systems through enhanced functionality and ease of use . our veterinary-specific digital radiography systems allow veterinarians to capture digital radiographs with ease and without the use of hazardous chemicals . our strategy in digital radiography is to offer a convenient system that provides superior image quality and software capability at a competitive price , backed by the same customer support provided for our other products and services in cag . water our strategy in the water testing business is to develop , manufacture , market and sell proprietary products with superior performance , supported by exceptional customer service . our customers primarily consist of water utilities , government laboratories and private certified laboratories that highly value strong relationships and customer support . sales of water testing products outside of the u.s. represented 51 % of total water product sales in 2011 , and we expect that future growth in this business will be significantly dependent on our ability to increase international sales . growth also will be dependent on our ability to enhance and broaden our product line . most water microbiological testing is driven by regulation , and , in many countries , a test may not be used for compliance testing unless it has been approved by the applicable regulatory body . as a result , we maintain an active regulatory program that involves applying for regulatory approvals in a number of countries , primarily in europe . livestock and poultry diagnostics we develop , manufacture , market and sell a broad range of tests for various cattle , swine and poultry diseases and conditions , and have an active research and development , and in-licensing program in this area . our strategy is to offer proprietary tests with superior performance characteristics , with growth primarily coming from disease outbreaks and emerging markets . disease outbreaks are episodic and unpredictable , and certain diseases that are prevalent at one time may be substantially contained or eradicated at a later time . in response to outbreaks , testing initiatives may lead to exceptional demand for certain products in certain periods . conversely , successful eradication programs may result in significantly decreased demand for certain products . the performance of this business , therefore , can fluctuate . in 2011 , approximately 90 % of our sales in this business were from markets outside of the u.s. , and in particular europe . because of the significant dependence of this business on international sales , the performance of the business is particularly subject to the various risks described above that are associated with doing business internationally . see “ part i , item 1a . risk factors. ” 29 other dairy . our strategy in the dairy testing business is to develop , manufacture and sell antibiotic residue testing products that satisfy applicable regulatory requirements for testing of milk by processors and producers and provide reliable field performance . the manufacture of these testing products leverages , almost exclusively , the snap ® platform as well as the production equipment of our rapid assay business , incorporating customized reagents for antibiotic detection . the majority of our sales in this business are international . to successfully increase sales of dairy testing products , we believe that we need to increase penetration in the processor and producer segments of the dairy market , and to develop product line enhancements and extensions . because of the significant dependence of this business on international sales , the performance of the business is particularly subject to the various risks described above that are associated with doing business internationally . see “ part i , item 1a . risk factors. ” opti medical systems . our strategy in the opti medical systems business for the human market is to develop , manufacture , and sell electrolyte and blood gas analyzers and related consumable products for the medical point-of-care diagnostics market worldwide , with a focus on small- to mid-sized hospitals . we seek to differentiate our products based on ease of use , menu , convenience , international distribution and service , and instrument reliability . similar to our veterinary instruments and consumables strategy , a substantial portion of the revenues from this product line is derived from the sale of consumables for use on the installed base of electrolyte and blood gas analyzers . during the early stage of an instrument 's life cycle , relatively greater revenues are derived from instrument placements , while consumable sales become relatively more significant in later stages as the installed base of instruments increases and instrument placement revenues begin to decline . our long-term success in this area of our business is dependent upon new customer acquisition , customer retention and increased customer utilization of existing and new assays introduced on these instruments . opti medical systems also manufactures our vetstat ® analyzer , an instrument and consumable system that is a member of the idexx vetlab ® suite for the veterinary market . in addition , opti medical systems provides the electrolyte module and dry slide reagents that make up the electrolyte testing functionality of the catalyst dx ® analyzer .
| at the end of a quarter , we believe that our u.s. cag distributors typically hold inventory equivalent to approximately four weeks of our anticipated end-user demand for instrument consumables and rapid assay products . currency impact . for the years ended december 31 , 2011 , 2010 and 2009 , approximately 26 % , 25 % and 24 % , respectively , of idexx sales were derived from products manufactured in the u.s. and sold internationally in local currencies . strengthening of the rate of exchange for the u.s. dollar relative to other currencies has a negative impact on our revenues derived in currencies other than the u.s. dollar and on profits of products manufactured in the u.s. and sold internationally , and a weakening of the u.s. dollar has the opposite effect . similarly , to the extent that the u.s. dollar is stronger in current or future periods relative to the exchange rates in effect in the corresponding prior periods , our growth rate will be negatively affected . the impact of foreign currency denominated operating expenses and foreign currency denominated supply contracts partly offset this exposure . the impact on revenue resulting from changes in foreign currency exchange rates is a non-u.s. gaap measure that is calculated by applying the difference between the average exchange rates during the current year period and the comparable previous year period to foreign currency denominated revenues for the current year period . during the twelve months ended december 31 , 2011 , compared to the twelve months ended december 31 , 2010 , changes in foreign currency exchange rates increased total company revenue by approximately $ 27.1 million , due primarily to the weakening of the u.s. dollar against the euro and , to a lesser extent , the australian dollar , japanese yen , canadian dollar , british pound and swiss franc . 37 during the twelve months ended december 31 , 2010 , compared to the twelve months ended december 31 , 2009 , changes in foreign currency exchange rates increased total company revenue by approximately $ 2.9 million , due primarily to the weakening of the u.s. dollar against the canadian dollar ,
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replace_table_token_4_th _ ( 1 ) amounts reflect results for continuing operations and exclude results for discontinued operations related to non-core north sugar valley located in matagorda county , texas and white hawk petroleum , llc assets located in mcmullen county , texas , sold or held for sale as of december 31 , 2014 and 2013 . ( 2 ) assumes 6 mcf of natural gas equivalents to 1 barrel of oil . ( 3 ) excludes ad valorem and severance taxes . 65 detailed information about our business plans and operations , including our core dj basin asset is contained under “ part 1 ” - “ item 1. business ” beginning on page 4 of this annual report . d-j basin asset reserves estimates the following table sets forth as of december 31 , 2015 , the estimated net proved oil and natural gas reserves and the estimated present value ( discounted at an annual rate of ten percent ( 10 % ) ) of estimated future net revenues before future income taxes ( pv-10 ) of our reserves with respect solely to the niobrara “ a ” , “ b ” and “ c ” benches of our d-j basin asset after giving effect to the gge acquisition and the divestiture of our non-core niobrara interests to miej , each prepared in accordance with assumptions described by the sec . the information presented below does not reflect any reserves that may be attributable to the codell , greenhorn , j-sands or other prospective formations available for development in the d-j basin , formations that are actively being pursued by companies in our area and which we will be eagerly watching their operations and results . lastly , these numbers only reflect a development plan that contemplates developing approximately 6 % of our available d-j basin asset acreage . the pv-10 value is a widely used measure of value of oil and natural gas assets and represents a pre-tax present value of estimated cash flows discounted at ten percent ( 10 % ) . pv-10 is considered a non-gaap financial measure as defined by the sec . we believe that our pv-10 presentation is relevant and useful to our investors because it presents the discounted future net cash flows attributable to our proved reserves before taking into account the related future income taxes , as such taxes may differ among various companies because of differences in the amounts and timing of deductible basis , net operating loss carry forwards and other factors . we believe investors and creditors use our pv-10 as a basis for comparison of the relative size and value of our proved reserves to the reserve estimates of other companies . pv-10 is not a measure of financial or operating performance under gaap and is not intended to represent the current market value of our estimated oil and natural gas reserves . pv-10 should not be considered in isolation or as a substitute for the standardized measure of discounted future net cash flows as defined under gaap . these calculations were prepared using standard geological and engineering methods generally accepted by the petroleum industry and in accordance with sec financial accounting and reporting requirements . due to the inherent uncertainties and the limited nature of reservoir data , reserves are subject to change as additional information becomes available . the estimates of reserves are based on various assumptions , including those prescribed by the sec , and are inherently imprecise . although we believe these estimates are reasonable , actual future production , cash flows , taxes , development expenditures , operating expenses and quantities of recoverable oil and natural gas reserves may vary substantially from these estimates . replace_table_token_5_th ( 1 ) 6 mcf of natural gas is equivalent to 1 barrel of oil . ( 2 ) in accordance with applicable financial accounting and reporting requirements of the sec , the estimates of our proved reserves and the pv-10 set forth herein reflect estimated future gross revenue to be generated from the production of proved reserves , net of estimated production and future development costs , using prices and costs under existing economic conditions at december 31 , 2015. for purposes of determining prices , we used the unweighted arithmetical average of the prices on the first day of each month within the 12-month period ended at december 31 , 2015. the prices should not be interpreted as a prediction of future prices . the amounts shown do not give effect to non-property related expenses , such as corporate general administrative expenses and debt service , future income taxes or to depreciation , depletion and amortization . 66 how we conduct our business and evaluate our operations our use of capital for acquisitions and development allows us to direct our capital resources to what we believe to be the most attractive opportunities as market conditions evolve . we have historically acquired properties that we believe had significant appreciation potential . we intend to continue to acquire both operated and non-operated properties to the extent we believe they meet our return objectives . we will use a variety of financial and operational metrics to assess the performance of our oil and natural gas operations , including : ● production volumes ; ● realized prices on the sale of oil and natural gas , including the effects of our commodity derivative contracts ; ● oil and natural gas production and operating expenses ; ● capital expenditures ; ● general and administrative expenses ; ● net cash provided by operating activities ; and ● net income . production volumes production volumes will directly impact our results of operations . story_separator_special_tag after giving effect to the d-j basin asset acquisition and the divestiture of our non-core niobrara assets to miej as discussed above , we currently hold interests in 53 gross ( 15.6 net ) wells in our d-j basin asset , of which 14 gross ( 12.5 net ) wells are operated by our wholly-owned subsidiary , red hawk and are currently producing , 17 gross ( 3.1 net ) wells are non-operated , and 22 wells have an after-payout interest . additionally , we expect to increase production assuming drilling success in the future as we expand operations in our dj basin asset . liquidity and capital resources liquidity outlook we expect to incur substantial expenses and generate significant operating losses as we continue to explore for and develop our oil and natural gas prospects , and as we opportunistically invest in additional oil and natural gas properties , develop our discoveries which we determine to be commercially viable and incur expenses related to operating as a public company and compliance with regulatory requirements . our future financial condition and liquidity will be impacted by , among other factors , the success of our exploration and appraisal drilling program , the number of commercially viable oil and natural gas discoveries made and the quantities of oil and natural gas discovered , the speed with which we can bring such discoveries to production , and the actual cost of exploration , appraisal and development of our prospects . 67 we plan to make capital expenditures , excluding capitalized interest and general and administrative expense , of up to approximately $ 36 million during the period from january 1 , 2016 to december 31 , 2016 in order to achieve our plans . we expect our projected cash flow from operations combined with our existing cash on hand and the $ 13.5 million gross ( $ 11.0 million net , after origination-related fees and expenses ) available under our current debt facility and a $ 25 million debt facility we are seeking to close in april or may 2016 will be sufficient to fund our drilling plans and our operations for the next twelve months . in addition , we may seek additional funding through asset sales , farm-out arrangements , lines of credit , or public or private debt or equity financings to fund additional 2016 capital expenditures and or repay or refinance a portion or all of our outstanding debt . there is no assurance we will be able to complete the financing contemplated for april or may 2016. if we are unable to complete the financing , we will not be able to access the $ 13.5 million available under our current debt facility and our liquidity and the continuation of our operations will be adversely affected and our drilling plans will be delayed and we will be required to seek additional financing from other sources . there are no assurances that such alternative financing will be available . our capital budget may be adjusted as business conditions warrant . the amount , timing and allocation of capital expenditures are largely discretionary and within our control . if oil and natural gas prices continue to decline or fail to improve or costs increase significantly , we could defer a significant portion of our budgeted capital expenditures until later periods to prioritize capital projects that we believe have the highest expected returns and potential to generate near-term cash flows . we routinely monitor and adjust our capital expenditures in response to changes in prices , availability of financing , drilling and acquisition costs , industry conditions , timing of regulatory approvals , availability of rigs , success or lack of success in drilling activities , contractual obligations , internally generated cash flows and other factors both within and outside our control . secured debt funding during march 2014 , we entered into the transactions contemplated by a note purchase agreement ( the “ note purchase ” ) , between the company , bre bclic primary , bre bclic sub , bre wnic 2013 ltc primary , bre wnic 2013 ltc sub , and rj credit llc ( “ rjc ” ) , as investors ( collectively , the “ investors ” ) , and bam administrative services llc , as agent for the investors ( the “ agent ” ) . pursuant to the note purchase , we sold the investors secured promissory notes in the aggregate amount of $ 34.5 million ( the “ initial notes ” ) . we received $ 29,325,000 before expenses in connection with the sale of the initial notes after paying the investors an original issue discount in connection with the sale of the initial notes of $ 1,725,000 ( 5 % of the balance of the initial notes ) ; and an underwriting fee of $ 3,450,000 ( 10 % of the balance of the initial notes ) . in connection with the note purchase , we also reimbursed approximately $ 190,000 of the legal fees and expenses of the investors ' counsel , and paid casimir capital lp ( “ casimir ” ) , our investment banker in the transaction , a fee of $ 1,742,000 , resulting in net proceeds of approximately $ 27,393,000 which was received by us on march 7 , 2014. from time to time , subject to the terms and conditions of the note purchase ( including the requirement that we have deposited funds in an aggregate amount of any additional requested loan into a segregated bank account ( the “ company deposits ” ) ) , and prior to the maturity date ( defined below ) , we have the right to request additional loans ( to be evidenced by notes with substantially similar terms as the initial notes , the “ subsequent notes ” , and together with the initial notes , the “ notes ” ) from rjc , currently up to an additional $ 13.5 million in total or an aggregate of $ 50 million together with the initial notes and approximately $ 2 million of subsequent notes
| for the year ended december 31 , 2015 , we generated a total of $ 5,326,000 in revenues , compared to $ 4,812,000 for the year ended december 31 , 2014. the increase of $ 514,000 was primarily due to the increased revenue resulting from production acquired in the gge acquisition as of february 2015. production volume more than doubled from 73,583 boe in 2014 to 174,693 in 2015 ( mostly due to the acquisition in early 2015 ) , while the average selling price per barrel decreased from $ 80.06 in 2014 to $ 41.13 in 2015 due to the worldwide decline in oil prices . lease operating expenses . for the year ended december 31 , 2015 , lease operating expenses associated with the oil and gas properties were $ 1,830,000 , compared to $ 1,674,000 for the year ended december 31 , 2014. the increase of $ 156,000 was primarily due to the increased lease operating expenses from the increased production ( resulting from the gge acquisition as of february 2015 ) . the average production costs per boe decreased from $ 15.78 in 2014 to $ 6.63 in 2015. the decrease in production costs per boe was due to a much larger increase of production volume relative to the increase in costs incurred and diligent efforts to reduce the costs of repairs and improved efficiency of collection systems . exploration expense . for the year ended december 31 , 2015 , exploration expense was $ 701,000 compared to $ 1,306,000 for the year ended december 31 , 2014. the decrease of $ 605,000 was primarily related to the acquisition of seismic data and lease extension expense in the prior year period , as drilling activity for operated wells in 2015 was significantly lower than in the prior year ( no new operated wells were drilled in 2015 ) . selling , general and administrative expenses . for the year ended december 31 , 2015 , selling , general and administrative ( “ sg & a ” ) expenses were $ 6,962,000 , compared to $ 8,712,000 for the year ended december 31 , 2014. the decrease of $ 1,750,000 was primarily due to a decrease in stock compensation expense , as a result of reduced stock grants at reduced stock prices during the period , and decreased accounting , legal and other professional fees . the components
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in connection with our decision to sell globetec , we recognized estimated losses on disposal of $ 12.7 million for the year ended december 31 , 2012 , including $ 6.4 million of goodwill impairment charges . 29 directstar and globetec are each presented as a discontinued operation in the consolidated financial statements for all periods presented . see note 4 – discontinued operations in the notes to the consolidated financial statements for additional details . overview of financial results revenue in 2012 grew to $ 3.7 billion , an increase of $ 895 million , or 31.6 % , from the prior year . strong demand for power generation and industrial , oil and gas pipeline and facility and electrical transmission construction services contributed to this growth . organic revenue growth contributed $ 718 million , or 80 % , of the increase in revenue , while acquisitions contributed $ 178 million , or 20 % . as a percentage of revenue , costs of revenue , excluding depreciation and amortization were flat at 86.9 % . in dollar terms , depreciation and amortization expense and general and administrative costs increased , due in part to recent acquisitions , as well as from increased levels of investment in our business . as a percentage of revenue , depreciation and amortization and general and administrative costs declined versus the prior year , due largely to improved leverage of these costs as a result of higher revenues . our 2012 results were also affected by a $ 9.6 million legal settlement reserve , which was recorded within other expense , net . see note 17 – commitments and contingencies in the notes to the consolidated financial statements for additional information . income from continuing operations was $ 116.6 million , or $ 1.42 per diluted share in 2012 , which includes the after-tax effect of $ 5.8 million , or $ 0.07 cents per diluted share , of the legal settlement charge discussed above . excluding this charge , 2012 adjusted income from continuing operations and diluted earnings per share were $ 122.5 million and $ 1.50 cents per diluted share , respectively . our 2011 income from continuing operations includes a gain of $ 17.8 million , net of tax , or $ 0.20 cents per diluted share , from the remeasurement of our equity investment in ec source , and a charge of $ 3.9 million , net of tax , or $ 0.05 cents per diluted share , from our withdrawal from a multi-employer pension plan in which we participate . excluding the ec source gain and multi-employer pension plan charge , adjusted 2011 income from continuing operations and diluted earnings per share were $ 83.6 million and $ 0.97 cents per share , respectively . excluding the legal settlement charge , adjusted 2012 income from continuing operations and diluted earnings per share increased by approximately $ 38.9 million and $ 0.53 cents per share , or approximately 46.5 % and 54.6 % , respectively , as compared with our 2011 adjusted income from continuing operations and diluted earnings per share , which exclude the ec source gain and multi-employer pension plan charge . see `` adjusted income from continuing operations and adjusted income from continuing operations per diluted share , '' included in our non-u.s. gaap financial measures discussion following our `` comparison of fiscal year results '' section below . diluted earnings per share in 2012 was also favorably affected by the purchase of treasury shares . we repurchased 9.5 million shares of our common stock , or 6.5 million shares on a weighted average basis as of december 31 , 2012 , under a share repurchase program approved by our board of directors in the fourth quarter of 2011. see note 2 – earnings per share in the notes to the consolidated financial statements . economic , industry and market factors we continue to operate in a challenging business environment , as do our customers . we closely monitor the effect that changes in economic and market conditions may have on our customers . general economic conditions since 2008 have negatively affected demand for our customers products and services which has led to rationalization of our customers ' capital and maintenance budgets in certain end-markets . this influence as well as the highly competitive nature of our industry , particularly when work is deferred , have , in recent years , resulted in lower bids and lower profit on the services we provide . in the face of increased pricing pressure , we strive to maintain our profit margins through productivity improvements and cost reduction programs . other market and industry factors , such as access to capital for customers in the industries we serve , changes to our customers ' capital spending plans , changes in technology , tax and other incentives , renewable energy portfolio standards and new or changing regulatory requirements affecting the industries we serve , can affect demand for our services . fluctuations in market prices for , or availability of , oil , gas and other fuel sources can also affect demand for our pipeline and renewable energy construction services . while we actively monitor economic , industry and market factors affecting our business , we can not predict the impact such factors may have on our future results of operations , liquidity and cash flows . impact of seasonality and cyclical nature of business our revenues and results of operations can be subject to seasonal and other variations . these variations are influenced by weather , customer spending patterns , bidding seasons , project schedules and timing , particularly for large non-recurring projects , and holidays . typically , our revenues are lowest in the first quarter of the year because cold , snowy or wet conditions cause delays . revenues in the second quarter are typically higher than in the first quarter , as some projects begin , but continued cold and wet weather can often impact second quarter productivity . story_separator_special_tag the third and fourth quarters are typically the most productive quarters of the year , as a greater number of projects are underway and weather is normally more accommodating to work on projects . in the fourth quarter , many projects tend to be completed by customers seeking to spend their capital budget before the end of the year , which generally has a positive impact on our revenues . however , the holiday season and inclement weather can cause delays , which could reduce revenues and increase costs on affected projects . any quarter may be positively or negatively affected by out of the ordinary weather patterns , such as excessive rainfall or warm winter weather , making it difficult to predict quarterly revenue and margin variations . additionally , our industry can be highly cyclical . fluctuations in end-user demand within the industries we serve , or in the supply of services within those industries , can impact demand for our services . as a result , our business may be adversely affected by industry declines or by delays in new projects . variations in project schedules or unanticipated changes in project schedules , in particular in connection with large construction and installation projects , can create fluctuations in revenues , which may adversely affect us in a given period , even if not in total . the financial condition of our customers and their access to capital ; variations in project margins ; regional , national and global economic and market conditions ; regulatory or environmental influences ; and acquisitions , dispositions or strategic investments can also materially affect quarterly results . accordingly , our operating results in any particular period may not be indicative of the results that can be expected for any other period . 30 revenue we provide engineering , building , installation , maintenance and upgrade services to our customers . the primary industries served by our customers are communications and utilities . customer revenues by segment for the periods indicated were as follows ( in millions ) : replace_table_token_8_th see discussion of reportable segments within our `` comparisons of fiscal year results '' section below . over 40 % of our revenue is derived from projects performed under master service and other service agreements , which are generally multi-year agreements . certain of our master service agreements are exclusive up to a specified dollar amount per work order for each defined geographic area , but do not obligate our customers to undertake any large infrastructure projects or other work with us . work performed under master service and other service agreements is typically generated through work orders , each of which is performed for a fixed fee . services provided under these agreements range from engineering , project management and installation work to maintenance and upgrade services . master service and other service agreements are frequently awarded on a competitive bidding basis , although customers are sometimes willing to negotiate contract extensions beyond their original terms without re-bidding . our master service and other service agreements have various terms , depending upon the nature of the services provided , and typically provide for termination on short or no advance notice . the remainder of our work is generated pursuant to contracts for specific projects or jobs that may require the construction and installation of an entire infrastructure system or specified units within an infrastructure system . revenues from fixed price contracts are recognized using the percentage-of-completion method , measured by the percentage of costs incurred to date to total estimated costs for each contract . customers are billed with varying frequency , generally monthly or upon attaining specific milestones . such contracts generally include retainage provisions under which 2 % to 15 % of the contract price is withheld from us until the work has been completed and accepted by the customer . revenues from continuing operations by type of contract for the periods indicated were as follows ( in millions ) : replace_table_token_9_th as shown in the table above , 57 % of our 2012 revenues from continuing operations were from non-recurring , project specific work , which may experience greater variability than master service agreement work due to the need to replace the revenue as projects are completed . additionally , if we are not able to replace work from completed projects with new project work , we may not be able to maintain our current revenue levels , or our current level of capacity and resource utilization . we actively review our backlog of project work and take appropriate action to minimize such exposure . costs of revenue , excluding depreciation and amortization costs of revenue , excluding depreciation and amortization , consists principally of salaries , employee wages and benefits , including multi-employer pension plan withdrawal charges , subcontracted services , equipment rentals and repairs , fuel and other equipment expenses , material costs , parts and supplies , insurance and facilities expenses . project margins are calculated by subtracting a project 's costs of revenue , excluding depreciation and amortization , from project revenue . project profitability and corresponding project margins will be reduced if actual costs to complete a project exceed original estimates on fixed price and installation/construction service agreements . estimated losses on contracts are recognized immediately when estimated costs to complete a project exceed the remaining revenue to be received over the remainder of the contract . factors impacting our costs of revenue , excluding depreciation and amortization , and costs of revenue , excluding depreciation and amortization as a percent of sales , include : revenue mix . the mix of revenues derived from the projects we perform impacts overall project margins , as certain projects provide higher margin opportunities . installation work is often obtained on a fixed price basis , while maintenance work is often performed under pre-established or time and materials pricing arrangements .
| the growth in power generation and industrial project work has been driven largely by customers seeking to complete wind installation projects under the current federal production tax credit program , which , until reinstatement of these production tax credits in january 2013 , required that qualified facilities be placed in service by december 31 , 2012 . in addition to wind projects , solar project activity increased by $ 92 million versus the prior year . oil and gas pipeline and facility project work benefited from approximately $ 185 million of incremental revenue from natural gas and petroleum pipeline infrastructure project activities in 2012 as compared with 2011 . acquisitions contributed approximately $ 56 million of oil and gas pipeline and facility revenues in 2012 . electrical transmission project activity increased by approximately $ 114 million , including approximately $ 56 million of revenue from acquired businesses . communications revenues increased by $ 138 million , including $ 65 million of acquisition revenues , driven primarily by our expansion of install-to-the-home services as a result of our 2011 acquisition of halsted , which yielded approximately $ 52 million of incremental revenues . costs of revenue , excluding depreciation and amortization . our costs of revenue , excluding depreciation and amortization , were $ 3.2 billion for the year ended 2012 , compared to $ 2.5 billion in 2011 , or 86.9 % of revenue in both periods , a $ 779 million , or 31.7 % , increase . the dollar increase is largely a result of higher costs associated with increase d revenues , as described above . in addition , we incurred approximately $ 36 million of losses on two pipeline projects largely through the third quarter of 2012 , which suppressed average project margins throughout the year . as a percentage of revenue , costs of revenue , excluding depreciation and amortization , remained flat . depreciation and amortization . depreciation and amortization was $ 92 million in 2012 , or 2.5 % of revenue , as compared with $ 74 million in 2011 , or approximately 2.6 % of revenue , representing an increase of approximately $ 18 million , or 24.0 % . the increase was driven by $ 17 million of higher organic
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for the year ended december 31 , 2020 , medical margin declined when compared with 2019 , as the lower medical care costs from the curtailment of utilization were more than offset by retroactive medicaid premium refunds and underperformance in the marketplace program . ohio . for the year ended december 31 , 2020 , medical margin was higher when compared with 2019 , due to higher premiums and improved operating performance in medicaid . premium revenues were higher year-over-year , mainly due to increased membership , program changes and rate increases in medicaid established before covid-19 . the molina healthcare , inc. 2020 form 10-k | 39 net effects of covid-19 had an unfavorable impact on medical margins in all programs in 2020 , as the retroactive premium refunds exceeded the benefit from lower medical costs due to the curtailment of utilization . texas . for the year ended december 31 , 2020 , premium revenues and medical margin were both slightly higher when compared with 2019. medical margin increased due to higher premium revenues and a lower mcr in medicaid , mostly driven by curtailment of utilization related to covid-19 premiums , partially offset by underperformance in marketplace . the decline in marketplace resulted mainly from lower premiums and higher acuity mix for the new members we served . washington . for the year ended december 31 , 2020 , medical margin was higher when compared with 2019 , mainly due to improved results in medicaid . medicaid premium revenues increased in the year ended december 31 , 2020 , due to membership growth . in addition , results in the year ended december 31 , 2020 , benefited modestly from lower medical costs due to the curtailment of utilization driven by covid-19 , which was partially offset by covid-related provider payments mandated by the state in the second quarter of 2020. programs replace_table_token_9_th medicaid medicaid premium revenue increased $ 1,799 million in 2020 , when compared with 2019 , mainly due to membership growth and premium increases in several states , and the impact from suspension of redeterminations due to covid-19 . excluding acquisitions and our planned exit from puerto rico , we have added approximately 415,000 new medicaid members since march 31 , 2020 , when we first began to report on the impacts of the pandemic . we believe this membership increase was mainly due to the suspension of redeterminations . these premium increases were partially offset by premium refunds and related actions enacted in several states in response to the lower utilization of medical services stemming from covid-19 . the medical margin of our medicaid program increased $ 307 million , or 21 % , in 2020 when compared with 2019. the increase was driven by increased premium revenues and margin associated with the membership growth discussed above , and from a reduction in the mcr . the medicaid mcr decreased to 87.4 % in 2020 , from 88.0 % in 2019 , or 60 basis points . the decrease in the medicaid mcr in 2020 was due to improvements across all programs . the mcr benefited from operational improvements and premium increases in several states , but was partially offset by unfavorable effects of covid-19 , including the impact of the premium refunds and related actions , net of lower medical costs due to the curtailment of utilization . in the third quarter of 2020 , we recognized a $ 10 million premium deficiency reserve ( “ pdr ” ) associated with the puerto rico medicaid business . we exited this business on october 31 , 2020. the pdr represents the estimated remaining claims and administrative costs that exceed the estimated remaining premiums associated with the contract . these improvements were partially offset by unfavorable year-over-year changes in prior year reserve development . prior year reserve development in 2020 was not material ; however , 2019 was positively impacted by 100 basis points of favorable reserve development . medicare medicare premium revenue increased $ 269 million in 2020 , when compared with 2019 , primarily due to increases in premium revenue pmpm and member months . pmpms improved due to increased revenue resulting from risk scores that are more commensurate with the acuity of our population and increases in quality incentive premium revenues . these increases were partially offset by premium refunds , mainly in mmp , enacted in response to the lower utilization of medical services stemming from covid-19 . molina healthcare , inc. 2020 form 10-k | 40 the medical margin for medicare increased $ 21 million , or 6 % , in 2020 when compared with 2019 , primarily due to the increase in premium revenue discussed above , partially offset by increases in medical costs pmpm . the medicare mcr increased from 85.3 % in 2019 to 86.0 % in 2020 , or 70 basis points . the increase was primarily driven by an increase in medical care costs pmpm , which was mainly attributed to unfavorable changes in member mix , including higher acuity populations . the medical cost pmpm also reflected modestly lower utilization of medical services stemming from covid-19 . the impact of increased medical costs on the mcr was partially offset by the increase in the premium revenue pmpm discussed above . marketplace marketplace premium revenue increased $ 23 million in 2020 , when compared with 2019 , mainly due to increased membership , partially offset by a decrease in premium revenue pmpm . the decrease in premium revenue pmpm was mainly driven by lower pricing , in an effort to be more competitive and generate membership growth , and the impact of more health plans being subject to minimum medical loss ratio rebates when compared with the prior year . the factors decreasing premium revenue pmpm were partially offset by the impact of higher risk adjustment premiums , resulting from higher acuity of our membership . story_separator_special_tag the marketplace medical margin decreased $ 152 million in 2020 , despite the increase in premium revenues , due to an increase in the mcr compared to 2019. the marketplace mcr increased to 78.7 % in 2020 , compared to 68.2 % in 2019. the increase in mcr was driven by the impact of the decrease in premium revenue pmpm discussed above , combined with an increase in medical cost pmpm when compared with 2019. the higher medical cost pmpm was primarily due to a higher member acuity mix and increased medical costs related to covid-19 . the rebound in utilization for marketplace , following the curtailment from covid-19 , has been much more pronounced than our medicaid and medicare programs . additionally , our risk scores , though increased compared to 2019 , continue to lag the acuity of our membership . other the other segment includes certain corporate amounts not allocated to the health plans segment . in 2020 and 2019 , such amounts were immaterial to our consolidated results of operations . liquidity and financial condition liquidity we manage our cash , investments , and capital structure to meet the short- and long-term obligations of our business while maintaining liquidity and financial flexibility . we forecast , analyze , and monitor our cash flows to enable prudent investment management and financing within the confines of our financial strategy . we maintain liquidity at two levels : 1 ) the regulated health plan subsidiaries ; and 2 ) the parent company . our regulated health plan subsidiaries generate significant cash flows from premium revenue and net income . such cash flows are our primary source of liquidity . thus , any future decline in our profitability may have a negative impact on our liquidity . we generally receive premium revenue a short time before we pay for the related healthcare services . the majority of the assets held by our regulated health plan subsidiaries is in the form of cash , cash equivalents , and investments . when available and as permitted by applicable regulations , cash in excess of the capital needs of our regulated health plan subsidiaries is generally paid in the form of dividends to our parent company to be used for general corporate purposes . the regulated health plan subsidiaries paid dividends to the parent company amounting to $ 635 million in 2020 , and $ 1,373 million in 2019 , respectively . the parent company contributed capital of $ 107 million and $ 43 million in 2020 and 2019 , respectively , to our regulated health plan subsidiaries to satisfy statutory capital and surplus requirements . cash , cash equivalents and investments at the parent company amounted to $ 644 million and $ 997 million as of december 31 , 2020 , and 2019 , respectively . the decrease in 2020 was mainly due to cash used for magellan complete care and other acquisitions , and common stock repurchases . these outflows were partially offset by inflows from net debt financing transactions , and dividends received from regulated health plan subsidiaries , net of contributions , as described above . see further discussion below , in “ investing activities , ” and “ financing activities. ” molina healthcare , inc. 2020 form 10-k | 41 investments after considering expected cash flows from operating activities , we generally invest cash of regulated subsidiaries that exceeds our expected short-term obligations in longer term , investment-grade , and marketable debt securities to improve our overall investment return . these investments are made pursuant to board-approved investment policies which conform to applicable state laws and regulations . our investment policies are designed to provide liquidity , preserve capital , and maximize total return on invested assets , all in a manner consistent with state requirements that prescribe the types of instruments in which our subsidiaries may invest . these investment policies require that our investments have final maturities of less than 10 years , or less than 10 years average life for structured securities . professional portfolio managers operating under documented guidelines manage our investments and a portion of our cash equivalents . our portfolio managers must obtain our prior approval before selling investments where the loss position of those investments exceeds certain levels . we believe that the risks of the covid-19 pandemic , as they relate to our investments , are minimal . the overall rating of our portfolio remains strong and is rated aa . our investment policy has directives in conjunction with state guidelines to minimize risks and exposures in volatile markets . additionally , our portfolio managers assist us in navigating the current volatility in the capital markets . our restricted investments are invested principally in cash , cash equivalents , and u.s. treasury securities ; we have the ability to hold such restricted investments until maturity . all of our unrestricted investments are classified as current assets . cash flow activities our cash flows are summarized as follows : replace_table_token_10_th operating activities we typically receive capitation payments monthly , in advance of payments for medical claims ; however , government payors may adjust their payment schedules , positively or negatively impacting our reported cash flows from operating activities in any given period . for example , government payors may delay our premium payments , or they may prepay the following month 's premium payment . net cash provided by operations was $ 1,890 million in 2020 , compared with $ 427 million of net cash provided in 2019. the $ 1,463 million increase in year-over-year cash flow was due to cash flow timing benefits from the growth in membership in 2020 , and the net impact of timing differences in governmental receivables and payables . investing activities net cash used in investing activities was $ 400 million in 2020 , compared with $ 293 million of net cash used in 2019 , a decrease in year-over-year cash flow of $ 107 million .
| growth initiatives we made major strides in 2020 related to our growth strategy . on december 31 , 2020 , we closed on the acquisition of magellan complete care . in september 2020 , we signed a definitive agreement to purchase the net assets of affinity health plan in new york , which we expect to close as early as the second quarter of 2021. we closed on the passport acquisition in kentucky on september 1 , 2020 , and we closed on the yourcare acquisition in upstate new york on july 1 , 2020. each of these acquisitions involve financially underperforming health plans , but with stable membership and revenue bases . we believe they provide attractive opportunities for margin improvement , operating leverage and membership growth . our growth initiatives continue to be anchored by our capital allocation priorities : first , organic growth ; second , inorganic growth through accretive acquisitions ; and third , programmatically returning excess capital to shareholders . in summary , we continue to perform well , our fundamentals remain strong , and we continue to grow revenue as a result of our focus on top-line growth . molina healthcare , inc. 2020 form 10-k | 35 financial results summary replace_table_token_7_th ( 1 ) mcr represents medical care costs as a percentage of premium revenue . ( 2 ) g & a ratio represents general and administrative expenses as a percentage of total revenue . after-tax margin represents net income as a percentage of total revenue . ( 3 ) does not include approximately 200,000 magellan complete care members from the acquisition closed on december 31 , 2020. molina healthcare , inc. 2020 form 10-k | 36 consolidated results net income and operating income net income amounted to $ 673 million , or $ 11.23 per diluted share in 2020 , compared with net income of $ 737 million , or $ 11.47 per diluted share , in 2019. our after-tax margin decreased to 3.5 % for 2020 , compared to 4.4 % for 2019. operating income was $ 1,078 million in 2020 ,
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in connection with the agreement between ashford inc. and remington holdings to combine , on september 17 , 2015 , we entered into a letter agreement with ashford inc. approved by the independent directors of the company to clarify that for purposes of determining the termination fee under the advisory agreement , ashford llc 's earnings shall exclude earnings arising under the master management agreement under which remington lodging may manage any of our hotels . on july 9 , 2015 , we acquired a 100 % leasehold interest in the bardessono hotel and spa ( “ bardessono hotel ” ) in yountville , california for total consideration of $ 85.0 million . the acquisition was funded with proceeds from our recently completed preferred stock offering and cash on hand . see note 16 to our consolidated and combined consolidated financial statements . ashford inc. provided $ 2.0 million of key money consideration by paying approximately $ 206,000 in cash and issuing 19,897 shares of ashford inc. common stock to ashford prime . on july 13 , 2015 , ashford trust announced that its board of directors had declared the distribution ( 1 ) to its stockholders of approximately 4.1 million shares of common stock of ashford prime to be received by ashford trust upon redemption of ashford prime op common units and ( 2 ) to the common unitholders of ashford hospitality trust limited partnership of its remaining common units of ashford prime op . the distribution occurred on july 27 , 2015 , to stockholders and common unitholders of record as of the close of business of the new york stock exchange on july 20 , 2015. as a result of the distribution , ashford trust has no ownership interest in ashford prime . on july 31 , 2015 , we entered into a block trade with an unaffiliated third party pursuant to a sale arrangement between the company , ashford inc. and ashford trust . the block trade included the purchase from a third party of approximately 175,000 shares of ashford inc. common stock at a price of $ 95.00 per share , which approximated the 120-day volume weighted average price , for a total cost of approximately $ 16.6 million . the sale arrangement and block trade were evaluated and approved by the independent members of our board of directors . the block trade purchase price and other terms of the sale arrangement were the result of negotiations with the third party , and the board of directors received a fairness opinion from an independent financial advisor that the price paid for the ashford inc. shares by the company was fair to the company . we did not receive any concessions or economic benefits from ashford inc. pertaining to our current contractual arrangements with ashford inc. in connection with this block trade . the block trade settled on august 4 , 2015 , and the loss resulting from the block trade is recorded within “ unrealized loss on investment in ashford inc. ” in our consolidated statement of operations for the year ended december 31 , 2015 . on august 28 , 2015 , we announced that the independent directors of the board of directors had decided to explore a full range of strategic alternatives , including a possible sale of the company . the independent directors retained deutsche bank securities inc. as their financial advisor to assist in this process . there can be no assurance that the company will enter into any transaction at this time or in the future . on november 23 , 2015 , we completed the financing of a $ 40.0 million mortgage loan . the mortgage loan bears interest at a rate of libor + 4.95 % . the stated maturity date of the mortgage loan is december 2017 , with three one-year extension options . the mortgage loan is secured by the bardessono hotel . on december 4 , 2015 , we entered into an agreement to exchange the series a preferred stock for an equal number of shares of its series b preferred stock . the terms and conditions of the series b preferred stock are substantially similar to the series a preferred stock for which it is being exchanged , except that , in contemplation of a public offering of the series b preferred stock either pursuant to the terms of the series b registration rights agreement or the preemptive rights agreement , the series b preferred stock contains certain customary anti-dilution provisions . also in connection with the exchange , the company , together 78 with ashford hospitality prime limited partnership and ashford hospitality advisors llc , entered into a registration rights agreement for the benefit of certain holders of the series b preferred stock . on december 15 , 2015 , we acquired a 100 % interest in the ritz-carlton st. thomas in st. thomas , u.s. virgin islands for total consideration of $ 64.0 million . in connection with the acquisition , we completed the financing of a $ 42.0 million loan . this loan is interest only and provides for a floating interest rate of libor + 4.95 % . the stated maturity date of the mortgage loan is december 2017 , with three one-year extension options . the mortgage loan is secured by the ritz-carlton st. thomas . on february 1 , 2016 , prime gp , as general partner of ashford prime op , entered into that certain second amended and restated agreement of limited partnership of ashford hospitality prime limited partnership ( the “ amended partnership agreement ” ) . the amended partnership agreement was amended to broaden the rights of the company in ashford prime op in several ways . we conduct our business and own substantially all of our assets through our operating partnership . story_separator_special_tag while the holders of partnership units have the same economic rights as holders of the company 's common stock , unless and until holders of partnership units exercise their right to convert the units into shares of common stock such holders would not otherwise have the right to vote on matters submitted to the company 's stockholders . the amendments provide holders of partnership units the opportunity to acquire shares of series c preferred stock , which upon issuance will permit holders of partnership units to vote together with the holders of the company 's common stock . the amended partnership agreement was approved by prime gp and limited partners of ashford prime op holding more than sixty-six and two-thirds percent ( 66 2/3 % ) of the common units of ashford prime op . the amendments to the amended partnership agreement implement the following primary changes : the specified redemption date ( as defined in the amended partnership agreement ) has been changed from the third business day after the receipt by prime gp of the notice of redemption to the fifth business day after the receipt of such notice ; the indemnification rights of prime gp have been broadened to expressly include indemnification of indemnitees involved in any suit , action , inquiry , investigation or proceeding in which the indemnitees may be subpoenaed or otherwise requested to provide documents , information or testimony ; the obligation of ashford prime op to advance fees , costs , expenses and disbursements to prime gp has been made mandatory and such fees , costs , expenses and disbursements must be advanced within five business days after the receipt of a written request from prime gp for such advancement ; prime gp has been granted the power and authority to prosecute , defend , arbitrate or compromise any and all claims or liabilities in favor of or against ashford prime op , on such terms and in such manner as prime gp may determine in its sole discretion ; the minimum number of ashford prime op common units for which a limited partner may exercise its right to covert partnership units into shares of the company 's common stock ( the “ redemption right ” ) has been increased to 2,000 ashford prime op common units ; the amount of time that the company shall have to obtain company stockholder approval if necessary for the delivery of company common stock pursuant to the redemption right has been increased to 180 days and certain deadlines related thereto have been accordingly lengthened ; any partnership loans ( as defined in the amended partnership agreement ) to a limited partner must be paid within ten days after demand for payment is made by ashford prime op and , if not paid within such time , prime gp may elect to make the payment to ashford prime op and shall succeed to all rights and remedies of ashford prime op against the defaulting limited partner ; a limited partner is deemed to have provided any consent or approval required by the amended partnership agreement if such partner fails to respond or object to a request from prime gp for such partner 's consent with twenty days from its receipt of such request ; and the threshold for limited partners to call a special meeting of the partnership has been increased to sixty-six and two-thirds percent ( 66 2/3 % ) of the common percentage interests ( as defined in the amended partnership agreement ) . the amended partnership agreement also includes a number of technical , procedural , conforming and clarifying changes . as consideration for the limited partners of ashford prime op to approve the amended partnership agreement , the company agreed to create and provide qualified limited partners the opportunity to purchase shares of series c preferred stock of the company ( the “ series c preferred stock ” ) . the series c preferred stock will be permitted to vote alongside the holders of the company 's common stock on all matters submitted to stockholders on a one-for-one as-converted basis but will otherwise have de minimis economic and other rights . the series c preferred stock , with respect to rights upon the liquidation , winding-up or dissolution of the company , ranks senior to the common stock , par value $ 0.01 per share , of the company and junior to all other equity securities of the company other than any securities whose terms provide that such securities rank on parity with the series c preferred stock . the series c preferred stock is not entitled to any regular or special dividends or other distributions from the company . upon the voluntary or involuntary dissolution , liquidation or winding up of the company , the holders of shares of the 79 series c preferred stock then outstanding shall be entitled to receive , or to be paid out of , the assets of the company legally available for distribution to its stockholders $ 0.01 per share of series c preferred stock . limited partners of ashford prime op may purchase one share of series c preferred stock for each share of common stock of the company that the ashford prime op units ( the “ partnership units ” ) , which includes both common and ltip units and certain other preferred units that may be created by prime gp , held by such limited partners may be converted into . limited partners of ashford prime op that elect to purchase shares of series c preferred stock are required to pay the applicable subscription price of $ 0.01 per share of series c preferred stock and deliver to the company an executed subscription agreement in the form provided by the company .
| rooms revenue increased ( i ) $ 6.9 million as a result of the acquisition of the bardessono hotel in july 2015 ; ( ii ) $ 4.7 million at the pier house resort due to the inclusion of its operating results for the entire 2015 period as a result of its acquisition in 2014 , higher room rates of 5.9 % and a 497 basis point increase in occupancy at the hotel ; ( iii ) $ 2.6 million at the ritz carlton st. thomas due to the inclusion of its operating results since its acquisition on december 15 , 2015 ; ( iv ) $ 2.5 million at the philadelphia courtyard downtown as a result of 5.9 % higher room rates and a 322 basis point increase in occupancy due to a renovation during 2014 ; ( v ) $ 2.4 million at the seattle marriott waterfront due to higher room rates of 6.1 % and a 255 basis point increase in occupancy at the hotel ; ( vi ) $ 2.0 million at the plano marriott legacy town center as a result of 8.2 % higher room rates and a 191 basis point increase in occupancy at the hotel ; ( vii ) $ 2.0 million at the san francisco courtyard downtown as a result of 4.5 % higher room rates and a 121 basis point increase in occupancy at the hotel ; ( viii ) $ 1.8 million at the la jolla hilton torrey pines as a result of 7.2 % higher room rates and a 85 basis point increase in occupancy at the hotel ; ( ix ) $ 1.5 million at the chicago sofitel water tower due to the inclusion of its operating results for the entire 2015 period as a result of its acquisition in 2014 ; ( x ) $ 985,000 at the capital hilton as a result of 1.2 % higher room rates and higher occupancy of 67 basis points at the hotel ; ( xi ) $ 960,000 at the seattle courtyard downtown as a result of 8.6 %
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approximately 90 % of our revenues in fiscal 2014 were derived from us and canadian rental and cleaning , and corporate . a key driver of this business is the number of workers employed by our customers . our revenues are directly impacted by fluctuations in these employment levels . revenues from specialty garments , which accounted for approximately 7 % of our 2014 revenues , increase during outages and refueling by nuclear power plants , as garment usage increases at these times . first aid represented approximately 3 % of our total revenue in fiscal 2014. critical accounting policies and estimates we believe the following critical accounting policies reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements . use of estimates we prepare our financial statements in conformity with us gaap , which requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes . these estimates are based on historical information , current trends , and information available from other sources . the actual results could differ from our estimates . foreign currency translation the functional currency of our foreign operations is the local country 's currency . transaction gains and losses , including gains and losses on our intercompany transactions , are included in other ( income ) expense , in the accompanying consolidated statements of income . assets and liabilities of operations outside the united states are translated into u.s. dollars using period-end exchange rates . revenues and expenses are translated at the average exchange rates in effect during each month of the fiscal year . the effects of foreign currency translation adjustments are included in shareholders ' equity as a component of accumulated other comprehensive income in the accompanying consolidated balance sheets . revenue recognition and allowance for doubtful accounts we recognize revenue from rental operations in the period in which the services are provided . direct sale revenue is recognized in the period in which the services are performed or when the product is shipped . our judgment and estimates are used in determining the collectability of accounts receivable and evaluating the adequacy of the allowance for doubtful accounts . we consider specific accounts receivable and historical bad debt experience , customer credit worthiness , current economic trends and the age of outstanding balances as part of our evaluation . changes in our estimates are reflected in the period they become known . if the financial condition of our customers were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances may be required . material changes in our estimates may result in significant differences in the amount and timing of bad debt expense recognition for any given period . our revenues do not include taxes we collect from our customers and remit to governmental authorities . inventories and rental merchandise in service our inventories are stated at the lower of cost or market value , net of any reserve for excess and obsolete inventory . judgments and estimates are used in determining the likelihood that new goods on hand can be sold to our customers or used in our rental operations . historical inventory usage and current revenue trends are considered in estimating both excess and obsolete inventories . if actual product demand and market conditions are less favorable than the amount we projected , additional inventory write-downs may be required . we use the first-in , first-out ( “ fifo ” ) method to value our inventories , which primarily consist of finished goods . rental merchandise in service is being amortized on a straight-line basis over the estimated service lives of the merchandise , which range from 6 to 36 months . in establishing estimated lives for merchandise in service , our management considers historical experience and the intended use of the merchandise . material differences may result in the amount and timing of operating profit for any period if we make significant changes to our estimates . goodwill , intangibles and other long-lived assets in accordance with us gaap , we do not amortize goodwill . instead , current accounting guidance requires that companies test goodwill for impairment on an annual basis . in addition , us gaap requires that companies test goodwill if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit to which goodwill is assigned below its carrying amount . our evaluation considers changes in the operating environment , competitive information , market trends , operating performance and cash flow modeling . we complete our annual goodwill impairment test in the fourth quarter of each fiscal year and there have been no impairments of goodwill or other intangible assets in fiscal 2014 , 2013 or 2012. we can not predict future economic conditions and their impact on the company or the future market value of our stock . a decline in our market capitalization and or deterioration in general economic conditions could negatively and materially impact our assumptions and assessment of the fair value of our business . if general economic conditions or our financial performance deteriorate , we may be required to record a goodwill impairment charge in the future which could have a material impact on our financial condition and results of operations . property , plant and equipment , and definite-lived intangible assets are depreciated or amortized over their useful lives . useful lives are based on our estimates of the period that the assets will generate economic benefits . long-lived assets are evaluated for impairment whenever events or circumstances indicate an asset may be impaired . there were no material impairments of property , plant and equipment , or definite-lived intangible assets in fiscal 2014 , 2013 or 2012. insurance we self-insure for certain obligations related to health , workers ' compensation , vehicles and general liability programs . we also purchase stop-loss insurance policies to protect ourselves from catastrophic losses . story_separator_special_tag judgments and estimates are used in determining the potential value associated with reported claims and for events that have occurred , but have not been reported . our estimates consider historical claim experience and other factors . our liabilities are based on our estimates , and , while we believe that our accruals are adequate , the ultimate liability may be significantly different from the amounts recorded . changes in our claim experience , our ability to settle claims or other estimates and judgments we use could have a material impact on the amount and timing of expense for any given period . environmental and other contingencies we are subject to legal proceedings and claims arising from the conduct of our business operations , including environmental matters , personal injury , customer contract matters and employment claims . accounting principles generally accepted in the united states require that a liability for contingencies be recorded when it is probable that a liability has occurred and the amount of the liability can be reasonably estimated . significant judgment is required to determine the existence of a liability , as well as the amount to be recorded . we regularly consult with our attorneys and outside consultants , in our consideration of the relevant facts and circumstances , before recording a contingent liability . we record accruals for environmental and other contingencies based on enacted laws , regulatory orders or decrees , our estimates of costs , insurance proceeds , participation by other parties , the timing of payments , and the input of our attorneys and outside consultants . the estimated liability for environmental contingencies has been discounted as of august 30 , 2014 using risk-free interest rates ranging from 2.4 % to 3.1 % over periods ranging from ten to thirty years . the estimated current costs , net of legal settlements with insurance carriers , have been adjusted for the estimated impact of inflation at 3 % per year . changes in enacted laws , regulatory orders or decrees , our estimates of costs , risk-free interest rates , insurance proceeds , participation by other parties , the timing of payments , the input of our attorneys and outside consultants or other factual circumstances could have a material impact on the amounts recorded for our environmental and other contingent liabilities . refer to note 10 , “ commitments and contingencies ” , of our consolidated financial statements for additional discussion and analysis . asset retirement obligations under us gaap , asset retirement obligations generally apply to legal obligations associated with the retirement of long-lived assets that result from the acquisition , construction , development and or the normal operation of a long-lived asset . current accounting guidance requires that we recognize asset retirement obligations in the period in which they are incurred if a reasonable estimate of fair value can be made . the associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset . we have recognized as a liability the present value of the estimated future costs to decommission our nuclear laundry facilities in accordance with us gaap . we depreciate , on a straight-line basis , the amount added to property , plant and equipment and recognize accretion expense in connection with the discounted liability over the various remaining lives which range from approximately seven to thirty years . our estimated liability has been based on historical experience in decommissioning nuclear laundry facilities , estimated useful lives of the underlying assets , external vendor estimates as to the cost to decommission these assets in the future , and federal and state regulatory requirements . the estimated current costs have been adjusted for the estimated impact of inflation at 3 % per year . the liability has been discounted using credit-adjusted risk-free rates that range from approximately 7.0 % to 7.5 % . revisions to the liability could occur due to changes in the estimated useful lives of the underlying assets , estimated dates of decommissioning , changes in decommissioning costs , changes in federal or state regulatory guidance on the decommissioning of such facilities , or other changes in estimates . changes due to revisions in our estimates will be recognized by adjusting the carrying amount of the liability and the related long-lived asset if the assets are still in service , or charged to expense in the period if the assets are no longer in service . supplemental executive retirement plan and other pension plans we recognize pension expense on an accrual basis over our employees ' estimated service periods . pension expense is generally independent of funding decisions or requirements . the calculation of pension expense and the corresponding liability requires us to use of a number of critical assumptions , including the expected long-term rates of return on plan assets , the assumed discount rate , the assumed rate of compensation increases and life expectancy of participants . changes in our assumptions can result in different expense and liability amounts , and future actual expense can differ from these assumptions . pension expense increases as the expected rate of return on pension plan assets decreases . future changes in plan asset returns , assumed discount rates and various other factors related to the participants in our pension plans will impact our future pension expense and liabilities . we can not predict with certainty what these factors will be in the future . income taxes we compute income tax expense by jurisdiction based on our operations in each jurisdiction . deferred income taxes are provided for temporary differences between the amounts recognized for income tax and financial reporting purposes at currently enacted tax rates . we are periodically reviewed by u.s. domestic and foreign tax authorities regarding the amount of taxes due . these reviews typically include inquiries regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions . in evaluating our exposure associated with various filing positions , we have recorded estimated reserves .
| selling and administrative costs include costs related to our sales and marketing functions as well as general and administrative costs associated with our corporate offices and operating locations including information systems , engineering , materials management , manufacturing planning , finance , budgeting , and human resources . the price of fuel and energy needed to run our vehicles and equipment is unpredictable and fluctuates based on events outside our control , including geopolitical developments , supply and demand for oil and gas , actions by opec and other oil and gas producers , war and unrest in oil producing countries , regional production patterns , limits on refining capacities , natural disasters and environmental concerns . increases in the price of fuel or energy could negatively impact our financial results . the cost of healthcare that we provide to our employees has grown over the last few years at a rate in excess of our revenue growth and as a result , has negatively impacted our operating results . in fiscal 2015 , the affordable care act ( “ aca ” ) will require us to modify one of the healthcare plans we provide to our employees . in addition , we will incur additional costs related to aca transitional reinsurance fees that will be paid in fiscal years 2015 , 2016 and 2017. we expect that the required modifications to our healthcare plan and the incurrence of such fees will increase our cost of providing healthcare to our employees . there remains considerable uncertainty as to how significant the increase to the healthcare costs will be , including the effect of the plan modifications on the behavior of our employees as well as the potential for increased enrollment in our plans . although uncertainty exists , we anticipate that our future operating results will continue to be further adversely impacted by increasing healthcare costs . we are currently undertaking a company-wide initiative to update our customer relationship management systems . as of august 30 , 2014 , we have capitalized $ 36.4 million related to our crm project ( “ unity 20/20 ” ) . although we do not
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kidney function , as measured by estimated glomerular filtration rate ( egfr ) and iohexol measured gfr ( mgfr ) , remained stable following 18-24 months of treatment with migalastat in study 011. kidney function , as measured by egfr , continued to remain stable in patients receiving migalastat in study 011 for at least 18 months and continuing migalastat treatment in study 041 for an average of 32 months . mgfr was not collected in study 041. reduction in cardiac mass , as measured by left ventricular mass index ( lvmi ) , was statistically significant following treatment with migalastat for up to 36 months ( average of 22 months ) in patients in study 011 and 041. there was a significant decrease in diarrhea ( unadjusted p=0.03 ) in patients treated with migalastat versus placebo during the 6-month double-blind phase ( stage 1 ) . after 18-24 months of treatment with migalastat , significant improvements in diarrhea and indigestion were observed in addition to favorable trends in reflux and constipation . gastrointestinal symptoms were assessed using the gastrointestinal symptoms rating scale ( gsrs ) , a validated instrument migalastat was generally safe and well-tolerated study 012 , our second phase 3 registration study , is a randomized , open-label 18-month study investigating the safety and efficacy of oral migalastat ( 150 mg , every other day ) compared to -58- standard-of-care infused erts ( agalsidase beta and agalsidase alfa ) . the study also includes a 12 month open-label migalastat extension phase . the study enrolled a total of 60 patients ( males and females ) with fabry disease and genetic mutations identified as amenable to migalastat monotherapy in the clinical trial assay . subjects were randomized 1.5:1 to switch to migalastat or remain on ert . all subjects had been receiving ert infusions for a minimum of 12 months ( at least 3 months at the labeled dose ) prior to entering the study . based on the glp hek assay , there were changes in categorization from amenable to non-amenable in 4 of the 60 patients enrolled in study 012. taking into account scientific advice from european regulatory authorities , the pre-specified co-primary outcome measures of efficacy in study 012 are the descriptive assessments of comparability of the mean annualized change in mgfr and egfr for migalastat and ert . both mgfr and egfr are considered important measures of renal function . success on mgfr and egfr was prescribed to be measured in two ways : 1 ) a 50 % overlap in the confidence intervals between the migalastat and ert treatment groups ; and 2 ) whether the mean annualized changes for patients receiving migalastat are within 2.2 ml/min/1.73 m2/yr of patients receiving ert . we pre-specified that these renal function outcomes would be analyzed in patients with glp hek amenable mutations . in august 2014 , we announced positive 18-month data from the study 012. data from study 012 were also presented to the scientific community at the american society of nephrology ( `` asn '' ) in november 2014 and worldsymposium in february 2015. highlights were as follows : migalastat had a comparable effect to ert on patients ' kidney function as measured by the change in egfr and mgfr from baseline to month 18. levels of plasma lyso-gb3 , an important biomarker of disease , remained low and stable in patients with amenable mutations who switched from ert to migalastat . there was a statistically significant decrease in lvmi from baseline to month 18 in patients who switched from ert to migalastat measures of pain and quality of life from the brief pain inventory ( `` bpi '' ) and short form 36 ( `` sf36 '' ) remained stable when patients switched from ert to migalastat . migalastat was generally safe and well-tolerated . following a meeting with the european medicines agency ( `` ema '' ) held in the fourth quarter of 2014 , we are on track to submit a marketing application in europe in mid-2015 . we have also scheduled a meeting with the us fda in the first quarter of 2015 as we work to make migalastat available for all amenable fabry patients as quickly as possible . migalastat combination programs for fabry disease in support of our fabry franchise strategy to develop migalastat in combination with ert for fabry patients with non-amenable mutations , we plan to conduct a longer-term phase 2 fabry co-administration study in 2015. in parallel , we are internally developing our own fabry cell line for co-formulation with migalastat as a next-generation ert for fabry disease . we previously completed an open-label phase 2 safety and pharmacokinetics study ( `` study 013 '' ) that investigated two oral doses of migalastat ( 150 mg and 450 mg ) co-administered with agalsidase beta or agalsidase alfa in males with fabry disease . unlike study 011 and study 012 , patients in study 013 were not required to have alpha-gal mutations amenable to chaperone therapy because , when co-administered with ert , migalastat is designed to bind to and stabilize the exogenous enzyme in the circulation in any patient receiving ert . each patient received their current dose and regimen of ert at one infusion . a single oral dose of migalastat ( 150 mg or 450 mg ) was co-administered two hours prior to the next infusion of the same ert at the same dose and regimen . preliminary results from study 013 showed increased -59- levels of active alpha-gal a enzyme levels in plasma and skin following co-administration compared to ert alone . next-generation ert for pompe disease we are leveraging our biologics capabilities and chart platform to develop a next-generation pompe ert . this ert consists of a uniquely engineered rhgaa enzyme ( atb200 ) with an optimized carbohydrate structure to enhance uptake , administered in combination with a pharmacological chaperone to improve activity and stability . we acquired atb200 as well as our enzyme targeting technology through our purchase of callidus biopharma . story_separator_special_tag in preclinical studies , atb200 demonstrated greater tissue enzyme levels and further substrate reduction compared to the current approved ert for pompe disease ( alglucosidase alfa ) , which were further improved with the addition of a chaperone . clinical studies of pharmacological chaperones in combination with currently marketed erts have established initial human proof-of-concept that a chaperone can stabilize enzyme activity and potentially improve ert tolerability . in 2013 , we completed a phase 2 safety and pharmacokinetics study ( `` study 010 '' ) that investigated single ascending oral doses of a pharmacological chaperone co-administered with alglucosidase alfa marketed by genzyme , in patients with pompe disease . each patient received one infusion of ert alone , and then a single oral dose of the pharmacological chaperone just prior to the next ert infusion . results from this study showed an increase in gaa enzyme activity in plasma and muscle when co-administered compared to ert alone . taken together , these preclinical and clinical results support further development of atb200 in combination with a pharmacological chaperone as a next-generation pompe ert . the initiation of a phase 1/2 clinical study is expected in the second half of 2015. collaborations gsk in november 2013 , we entered into the revised agreement ( the `` revised agreement '' ) with gsk , pursuant to which we obtained global rights to develop and commercialize migalastat as a monotherapy and in combination with ert for fabry disease . the revised agreement amends and replaces in its entirety the expanded agreement entered into between us and gsk in july 2012 ( the '' expanded collaboration agreement '' ) . under the terms of the revised agreement , we obtained global commercial rights to migalastat , both as a monotherapy and co-formulated with ert . for migalastat monotherapy , gsk is eligible to receive post-approval and sales-based milestones , as well as tiered royalties in the mid-teens in eight major markets outside the u.s. there was no other consideration paid to gsk as part of the revised agreement . biogen in september 2013 , we entered into a collaboration agreement with biogen idec ( `` biogen '' ) to discover , develop and commercialize novel small molecules that target the glucocerobrosidase ( `` gcase '' ) enzyme for the treatment of parkinson 's disease . in september 2014 , we concluded our research collaboration with biogen . our most advanced parkinson 's candidate is at3375 , which was developed outside the collaboration and is wholly-owned by us . other potential alliances and collaborations we continually evaluate other potential collaborations and business development opportunities that would bolster our ability to develop therapies for rare and orphan diseases including licensing agreements and acquisitions of businesses and assets . we believe such opportunities may be important -60- to the advancement of our current product candidate pipeline , the expansion of the development of our current technology , gaining access to new technologies and in our transformation to a commercial biotechnology company . acquisition of callidus biopharma , inc. in november 2013 , we entered into a merger agreement ( the `` merger agreement '' ) with callidus biopharma , inc. ( `` callidus '' ) , a privately held biotechnology company . callidus was engaged in developing a next-generation pompe ert and complementary enzyme targeting technologies . in connection with our acquisition of callidus , we agreed to issue an aggregate of 7.2 million shares of our common stock to the former stockholders of callidus . in addition , we will be obligated to make additional payments to the former stockholders of callidus upon the achievement of certain clinical milestones of up to $ 35 million and regulatory approval milestones of up to $ 105 million set forth in the merger agreement , provided that the aggregate merger consideration shall not exceed $ 130 million . we may , at our election , satisfy certain milestone payments identified in the merger agreement aggregating $ 40 million in shares of our common stock . the milestone payments not permitted to be satisfied in common stock ( as well as any payments that we are permitted to , but chooses not to , satisfy in common stock ) , as a result of the terms of the merger agreement , will be paid in cash . critical accounting policies and significant judgments and estimates the discussion and analysis of our financial condition and results of operations are based on our financial statements , which we have prepared in accordance with u.s. generally accepted accounting principles ( `` 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 revenues and expenses during the reporting periods . on an ongoing basis , we evaluate our estimates and judgments , including those described in greater detail below . we base our estimates on historical experience and 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 . we believe that the following discussion represents our critical accounting policies . revenue recognition we recognize revenue when amounts are realized or realizable and earned . revenue is considered realizable and earned when the following criteria are met : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred or services have been rendered ; ( 3 ) the price is fixed or determinable ; and ( 4 ) collection of the amounts due are reasonably assured . in multiple element arrangements , revenue is allocated to each separate unit of accounting and each deliverable in an arrangement is evaluated to determine whether it represents separate units of accounting .
| adjustments to the restructuring liability were $ 0.1 million in 2014 and were due to the change in fair value of future minimum lease payments . restructuring charges were $ 2.0 million in 2013 due to the corporate restructuring implemented in the fourth quarter of 2013. this measure was intended to reduce costs and to align our resources with our key strategic priorities . depreciation and amortization . depreciation and amortization expense was $ 1.5 million in 2014 , representing a decrease of $ 0.2 million or 11.8 % as compared to $ 1.7 million in 2013. the decrease was mainly due to asset disposals from closure of san diego office in december 2013. interest income . interest income was $ 0.2 million in both 2014 and 2013. interest expense . interest expense was $ 1.5 million in 2014 as compared to $ 0.05 million in 2013. interest expense was higher due to the $ 15 million loan secured in december 2013. change in fair value of warrant liability . in connection with the sale of our common stock and warrants from the registered direct offering in march 2010 , we recorded the warrants as a liability at their fair value using a black-scholes model and remeasured the fair value at each reporting date until the warrants were exercised or expired . changes in the fair value of the warrant liability were reported in the statements of operations as non-operating income or expense . as these warrants expired in march 2014 , for the year ended december 31 , 2014 , there was no expense or income as compared to an income of $ 0.9 million related to the decrease in fair value of the warrant liability from the year ended december 31 , 2013. other income/expense . other income/expenses for 2014 included charges of $ 77 thousand for the increase in the fair value of the success fee payable , which was related to the $ 15 million secured
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where required , these contract manufacturers will operate within the specifications and in accordance with good manufacturing 52 index to financial statements practices as defined by the fda . these companies are located in the united states and have expertise and experience in contract manufacturing . we have no product sales to date , and we will not have product sales unless and until we receive approval from the fda , or equivalent foreign regulatory bodies , to market and sell our product candidate . accordingly , our success depends not only on the development , but also on our ability to finance the development of the product . we will require substantial additional funding to complete development and seek regulatory approval for these products . additionally , we currently have no sales , marketing or distribution capabilities and thus our ability to market our products in the future will depend in part on our ability to develop such capabilities either alone or with collaboration partners . 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 audited financial statements , which have been prepared in accordance with united states generally accepted accounting principles ( `` 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 results of operations 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 values of assets and liabilities that are not readily apparent from other sources . actual results could differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in the notes to our financial statements included elsewhere in this annual report on form 10-k , we believe that the accounting policies discussed below are those that are most critical to understanding our historical and future performance , as these policies relate to the more significant areas involving management 's judgments and estimates . we are an “ emerging growth company ” as defined in the jobs act . emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies . we have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards , and , therefore , will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies . research and development expenses research and development costs are charged to expense as incurred and consist of costs related to ( i ) furthering our research and development efforts , ( ii ) seeking regulatory approval of our primary drug candidate , qtrypta ( m207 ) , and ( iii ) pre-commercialization efforts for qtrypta ( m207 ) . research and development costs include salaries and related employee benefits , costs associated with clinical trials , nonclinical research and development activities , regulatory activities , costs of active pharmaceutical ingredients and raw materials , research and development related overhead expenses and fees paid to contract manufacturing organizations that conduct manufacturing activities on our behalf . stock-based compensation we account for stock-based compensation , recorded as an expense , based on the fair value of the stock-based awards on the date that the grants are ultimately expected to vest . the fair value of employee stock option grants is estimated on the date of grant using the black-scholes option pricing model and is recognized as expense on a straight-line basis over the employee 's requisite service period ( generally the vesting period ) , net of estimated forfeitures . financial operations overview general as of december 31 , 2018 , we had an accumulated deficit of approximately $ 261.2 million . we have incurred significant losses and expect to incur significant and increasing losses in the foreseeable future as we advance our qtrypta ( m207 ) product candidate into later stages of development and , if approved , commercialization . we can not assure you that we will receive additional capital or collaboration revenue in the future , as a result of any partnership that we might pursue . we expect our research and development expenses and manufacturing expenses related to the development of our qtrypta ( m207 ) product candidate to increase as we continue to advance this program towards regulatory filing and approval . because of the numerous risks and uncertainties associated with our technology and drug development , we can not forecast with any degree of certainty the timing or amount of expenses incurred or when , or if , we will be able to achieve profitability . we will require additional capital to undertake our planned research and development activities and to meet our operating requirements beyond 2018 . we intend to raise such capital through the issuance of additional equity through public or private 53 index to financial statements offerings , debt financing , strategic alliances with pharmaceutical partners , or any combination of the above . however , if such financing is not available at adequate levels or on acceptable terms , we could be required to further reduce our operating expenses and suspend , delay or reduce the scope of our qtrypta ( m207 ) development program , out-license intellectual property rights to our intracutaneous delivery technology , or a combination of the above , which may have a material adverse effect on our business , results of operations , financial condition and or our ability to fund our scheduled obligations on a timely basis or at all . financing in september 2018 , we entered into a build-to-suit arrangement with trinity with a maximum funding amount of $ 14.0 story_separator_special_tag million for the third party construction of our commercial coating and primary packaging system , expected to be completed in the second quarter of 2020. in september 2018 , we drew $ 5.0 million with a stated interest rate of 9.43 % and an effective interest rate of 26.28 % . in december 2018 , we drew $ 2.8 million with a stated interest rate of 9.68 % and an effective interest rate of 19.58 % . each drawdown has a 36-month-term beginning the first day of the month following the drawdown . the remaining $ 6.2 million is available to us in increments of not less than $ 500,000 until march 30 , 2020. any unused portion of the $ 14.0 million at march 30 , 2020 , is subject to a non-utilization fee equal to 3 % of the unused amount . in consideration of the financing arrangement , as collateral , trinity has a first-priority lien and security interest in substantially all of our assets . under the financing arrangement , each individual drawdown represents a separate financing arrangement with its own 36-month-term and stated interest rate . each drawdown is non-cancelable , with no prepayment options . each drawdown has embedded optional purchase options to ( i ) extend the term for an additional three months , with the option to purchase the equipment at 4 % of the total cost , which is equal to the drawdown amount , following the end of such extended term , or ( ii ) purchase the equipment at 12 % of total cost , which is equal to the drawdown amount , at the end of the 36-month-term . we intend to exercise the optional purchase option of 12 % at the end of each 36-month-term ( `` purchase option fee '' ) . the transfer of title from trinity to us will occur at the end of the final 36-month-term , provided that the purchase option was executed and the purchase option fee was paid in full at the end of each 36-month-term . failure to pay any of the purchase option fees will result in trinity retaining title to the commercial coating and primary packaging system and a 6 % restocking fee . in june 2014 , we entered into a loan and security agreement with hercules capital , inc. ( `` hercules '' ) . hercules provided us a $ 15.0 million loan ( `` hercules term loan '' ) of which equal installment payments of principal and interest were due monthly , with a scheduled maturity date of december 1 , 2018. on september 25 , 2018 , we paid all of our outstanding obligations under the hercules term loan , including an end of term charge of approximately $ 0.4 million . on april 3 , 2018 , we closed a public offering of 10,000,000 shares of common stock at a public offering price of $ 5.00 per share . we received approximately $ 45.6 million of net proceeds from this offering . we primarily used the net proceeds to fund continued advancement of our qtrypta ( m207 ) product candidate , to service our debt obligation with hercules , to fund clinical development , and for working capital and other general corporate purposes . research and development expenses research and development expenses represent costs incurred to conduct research , such as the discovery and development of our proprietary product candidates . we recognize all research and development expenses as they are incurred . research and development expenses consist of : production costs which include , but are not limited to , employee-related expenses , including salaries , benefits and stock-based compensation expense , drug formulation , and clinical trials ; expenses related to the purchase of active pharmaceutical ingredients and raw materials for the production of our intracutaneous delivery system , including fees paid to contract manufacturing organizations ; fees paid to cros , clinical consultants , clinical trial sites and vendors , including irbs , in conjunction with implementing 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 ; fees paid to conduct clinical studies , drug formulation , and cost of consumables used in nonclinical and clinical trials ; other consulting fees paid to third parties ; and allocation of certain shared costs , such as facilities-related costs . we expect our research and development expenses to increase in the future . the process of conducting the necessary clinical trials to obtain regulatory approval is costly and time consuming . we consider the active management and development of our 54 index to financial statements 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 . 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 . additionally , a future collaborative partner may only be interested in applying our technology in the development and advancement of their own product candidates . in 2018 , our research and development efforts and resources focused primarily on advancing the development of qtrypta ( m207 ) . while we currently intend to continue clinical development of qtrypta ( m207 ) through commercialization in the united states ourselves , we remain open to opportunities with potential strategic partners to ensure qtrypta ( m207 ) will receive the best chance of commercial success . we are actively seeking opportunities to evaluate collaborations with strategic partners to further the clinical and commercial development of our other product candidates .
| other income and expense replace_table_token_11_th for the years ended december 31 , 2018 and 2017 , interest income resulted primarily from interest recognized related to our marketable securities . the increase for the year ended december 31 , 2018 as compared to the same period in 2017 resulted from investing the proceeds of the april 2018 public offering in marketable securities in the second quarter of 2018. for the years ended december 31 , 2018 and 2017 , interest expense consisted primarily of interest , amortization of debt discount and amortization of deferred financing costs . the decrease in interest expense resulted from the decrease in the hercules term loan principal balance in 2018 as compared to 2017. interest of $ 0.3 million related to our build-to-suit arrangement with trinity was capitalized as construction-in-progress in 2018. for the year ended december 31 , 2018 and 2017 , other income , net consisted primarily of gains from the sale of equipment . income taxes as of december 31 , 2018 , we had net deferred tax assets of $ 16.5 million . the deferred tax assets primarily consisted of federal and state tax net operating losses and research and development tax credit carryforwards . due to uncertainties surrounding our ability to generate future taxable income to realize these tax assets , a full valuation allowance has been established to offset our deferred tax assets . as of december 31 , 2018 , we had federal net operating loss carryforwards of approximately $ 41.1 million and state net operating loss carryforwards of approximately $ 33.2 million . as of december 31 , 2017 , we had federal net operating loss carryforwards of approximately $ 43.8 million and state net operating loss carryforwards of approximately $ 43.5 million . if not utilized , certain of the federal net operating loss carryforwards will expire beginning in 2026 , and state net operating loss carryforwards will expire beginning in 2028 . as of december 31 , 2018 , we had federal and state research and development credit carryforwards of approximately $ 0.6
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general and administrativ e expense decreased by approximately $ 891 to $ 2 3 ,553 for t he year ended december 31 , 2017 from $ 2 4,44 4 f or the year ended december 31 , 2016 . general and administrative expense includes expense related to non-cash share based payments issued as incentive compensation to the company 's trustees , executives , and employees . expense relate d to share based compensation in creased $ 1,238 when comparing the year ended december 31 , 2017 to the same period in 2016. this increase in share based compensation expense is primarily related to the issuance of share awards under the 2014 multi-year ltip during the year ended december 31,2017 as the performance period ended december 31 , 2016. please refer to “ note 8 – share based payments ” of the notes to the consolidated financial statements for more information about our stock based compensation . amounts recorded on our consolidated statement of operations for acquisition and terminated transaction costs will fluctuate from period to period based on our acquisition activities . acquisition and terminated transaction costs typically consist of transfer taxes , legal fees and other costs associated with acquiring a hotel property and transactions that were terminated during the year . acquisition and terminated transaction costs de creased $ 357 from $ 2,560 for the year ended december 31 , 201 6 to $ 2,203 for the same period in 201 7 . the costs incurred in 201 7 were primarily related to our acquisition of the mystic marriott hotel & spa , groton , ct , the ritz-carlton , coconut grove , fl , the pan pacific hotel , seattle , w a , and the philadelphia westin , philadelphia , pa while the costs incurred in 201 6 were primarily related to our acquisition of the sanctuary beach resort , marina , ca , the hilton garden inn m street , washington , dc , the envoy hotel , boston , ma , the courtyard by marriott , sunnyvale , ca and the ambrose , santa monica , ca . also included in acquisi tion and terminated transaction cost s are charges related to transactions that were terminated during the period . during the year ended december 31 , 2017 , the company recorded a loss in excess of insurance recoveries of $ 4,268. this loss represents both the impairment loss and remediation costs , net of estimated insurance recoveries , associated with the damage to our hotel properties in south florida caused by hurricane irma . as of december 31 , 2017 the company has recorded an insurance receivable of $ 10,024. our current insurance policies also contain coverage for income lost due to business interruption from covered losses . any recoveries obtained through business interruption coverage will be recorded as a gain at such time that the recovery is probable . the company recorded $ 0 gain related to business interruption insurance coverage during the year ended december 31 , 2017 . operating income operating income for the year ended december 31 , 2017 was $ 49,569 compared to operating income of $ 65,522 during the same period in 2016. o perating income was negatively impacted by increased costs in areas such as hotel operating expenses , depreciation and amortization , property impairment , and losses in excess of insurance recoveries . these increases in operating costs were partially offset by an increase in hotel operating revenue and decreases in general and administrative expenses , and acquisition and terminated transaction costs . interest expense interest expense decreased $ 1,690 from $ 44,352 for the year ended december 31 , 2016 to $ 42,662 for year ended december 31 , 2017. the balance of our borrowings , excluding discounts and deferred costs , have decreased by $ 9,919 in total between december 31 , 2016 and december 31 , 2017 , as we drew an additional $ 68,380 on our credit facility which was offset by debt paydowns of $ 81,449 since december 31 , 2016. the sale of properties with mortgage debt and the pay-off of other property-level debt during 2016 and 2017 resulted in a reduction of interest expense of $ 11,624 for the year ended december 44 31 , 2017 compared to the corresponding period in 2016. this reduction in expense was partially offset by the credit facility which contributed $ 6,733 incrementally to interest expense when comparing the year ended december 31 , 2017 to the corresponding period in 2016 . 45 gain on disposition of hotel properties during the year ended december 31 , 2017 , the company recorded a gain of $ 90,350 related to the sales of the residence inn , greenbelt , md , courtyard , alexandria , va , hyatt house , scottsdale , az , the hyatt house , pleasanton , ca , hyatt house , pleasant hill , ca , and holiday inn express , chester , ny . this is compared to a gain on sale recognized during the year ended december 31 , 2016 of $ 115,839 related to the contribution of seven properties to the cindat joint venture transaction and the sales of the hyatt place , king of prussia , pa , hawthorn suites , franklin , ma , residence inn , framingham , ma , and residence inn , norwood , ma . unconsolidated joint venture investments the loss from unconsolidated joint ventures consists of our interest in the operating results of the properties we own in joint ventures . loss from our unconsolidated joint ventures increased by $ 650 to a loss of $ 2,473 for the year ended december 31 , 2017 compared to a loss of $ 1,823 during the same period in 2016 , primarily due to the loss we recognized on our equity interest in the cindat joint venture . story_separator_special_tag we recognized a $ 16,240 gain on the remeasurement of investment in unconsolidated joint ventures related to our transfer and redemption of our joint venture interest in mystic partners , llc . in exchange for our interest in the partnership , we received 100 % ownership of the mystic marriott hotel & spa and $ 11,623 in cash proceeds . income tax ( expense ) benefit during the year ended december 31 , 2017 , the company recorded an income tax expense of $ 5,262 compared to an income tax benefit of $ 4,888 for the year ended december 31 , 2016. the large increase in income tax expense is partially attributable to the change in the statutory tax rate applicable to the company as a result of the recent changes in tax regulations , the tax cuts & jobs act , which reduced our federal tax rate from 34 % in 2017 to 21 % for periods thereafter . the remaining increase in income tax expense is attributable to the improved operating results of the taxable reit subsidiary . this decrease in the tax rate required the company to remeasure our net deferred tax asset resulting in increased income tax expense of $ 4,6 0 1 . net income applicable to common shareholders net income applicable to common shareholders for the year ended december 31 , 2017 was $ 75,699 compared to income of $ 95,579 during the same period in 2016. this decrease in net income was primarily caused by a lower hotel operating margin of $ 15,953 , and increase in income tax expense of $ 10,15 0 , and a lower net gain on hotel dispositions of $ 25,489. offsetting these items were : ( 1 ) a decrease of $ 1,690 in interest expense and ( 2 ) a $ 16,831 expense incurred during 2016 as result of a lease buyout of a restaurant at our courtyard by marriott , miami , fl property made in conjunction with an overall property improvement and up-branding strategy that did not occur in 2017 . comprehensive income attributable to common shareholders comprehensive income attributable to common shareholders for the year ended december 31 , 201 7 was $ 7 8 , 075 compared to comprehensive income of $ 97 ,32 8 for the same period in 201 6 . this change can be attributed to the items affecting net income applicable to common shareholders as more fully described above . for the year ended december 31 , 201 7 , we recorded comprehensive income of $ 107 , 476 compared to $ 123 , 296 of comprehensive income for the year ended december 31 , 201 6 . comparison of the year ended december 31 , 2016 to december 31 , 2015 ( dollars in thousands , except adr and per share data ) revenue our total revenues for the years ended december 31 , 2016 and 2015 consisted entirely of hotel operating revenues , including room , food and beverage and other operating department revenues , and other revenue . hotel operating revenues are recorded for wholly-owned hotels that are leased to our wholly owned trs and hotels owned through joint venture or other interests that are consolidated in our financial statements . hotel operating revenues decreased $ 3,902 , or 0.8 % , from $ 470,272 for the year ended december 31 , 201 5 to $ 466,370 for the same period in 201 6 . this decrease in hotel operating revenues was primarily attributable to the impact of the hotels contributed to the cindat joint venture , offset by the acquisition of hotel properties , continued growth and stabilization of our existing assets . the decrease in hotel operating revenues can be explained by the following table : 46 replace_table_token_16_th expenses total hotel operating expenses , including room , food and beverage and other operating department expenses increased 3.4 % to approximately $ 262,956 for the year ended december 31 , 2016 from $ 254,313 for the year ended december 31 , 2015. this increase in operating expenses is primarily attributable to hotel properties acquired in our existing portfolio , offset by a decrease in hotel operating expenses recorded during the year ended december 31 , 2015 compared to 2016 due to the contribution of seven hotel properties to the joint venture with cindat as well as the other hotel dispositions . the increase in hotel operating expenses can be explained by the following table : replace_table_token_17_th depreciation and amortization increased by 1.3 % , or $ 1,000 , to $ 75,390 for the year ended december 31 , 2016 from $ 74,390 for the year ended december 31 , 2015. the increase was a result of depreciation and amortization recorded on the hotels recently acquired , offset by a decrease of approximately $ 5,685 in depreciation and amortization recorded during the year ended december 31 , 2015 compared to 2016 for properties part of the joint venture with cindat . real estate and personal property tax and property insurance decreased $ 2 , 361 , or 6 . 8 % , for the year ended december 31 , 2016 when compared to the same period in 2015. this was primarily attributable to a decrease of $ 6,000 in real estate and property insurance during the current year related to the seven hotel properties contributed to the joint venture with cindat in april of 2016. w e otherwise typically experience increases in tax assessments and tax rates as the economy improves which are often partially offset by reductions resulting from successful property tax appeals . 47 general and administrativ e expense increased by approximately $ 3,92 9 to $ 2 4,44 4 for t he year ended december 31 , 2016 from $ 20,515 f or the year ended december 31 , 2015 . general and administrative expense includes expense related to non-cash share based payments issued as incentive compensation to the company 's trustees , executives , and employees .
| · hilton garden inn m street – washington , dc ( acquired 3/9/2016 ) · the envoy hotel – boston , ma ( acquired 7/21/2016 ) · courtyard – sunnyvale , ca ( acquired 10/20/2016 ) · the ambrose – santa monica , ca ( acquired 12/1/2016 ) · mystic marriott hotel & spa – groton , ct ( acquired 1/3/2017 ) · the ritz-carlton – coconut grove , fl ( acquired 2/1/2017 ) · the pan pacific hotel – seattle , wa ( acquired 2/21/2017 ) · philadelphia westin – philadelphia , pa ( acquired 6/29/2017 ) for the comparison of december 31 , 2016 to december 31 , 2015 , comparable hotel operating results contain results from our consolidated hotels owned as of december 31 , 2016 , excluding : ( 1 ) the envoy because the hotel was not operational for the full year ended december 31 , 2015 ; ( 2 ) the ambrose hotel due to the fact that we owned the hotel for less than a month over the comparable period and determined its inclusion not meaningful to the analysis ; and ( 3 ) the results of all hotels sold during the years ended december 31 , 2016 and 2015. the comparison of december 31 , 2016 to december 31 , 2015 includes results as reported by the prior owners for the following hotels acquired during 2016 and 2015 : · st. gregory hotel – washington , dc ( acquired 6/16/2015 ) · towneplace suites – sunnyvale , ca ( acquired 8/25/2015 ) · ritz carlton georgetown – washington , dc ( acquired 12/29/2015 ) · sanctuary resort – monterey , ca ( acquired 1/28/2016 ) · hilton garden inn m street – washington , dc ( acquired 3/9/2016 ) · courtyard – sunnyvale , ca ( acquired 10/20/2016 ) 41 replace_table_token_11_th revpar for the year ended december 31 , 2017 increased 2.3 % for our comparable consolidated hotels when compared to 2016. the 2.3 % increase in 2017 is in line with the 2.1 % comparable hotel
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as of the date of this report , we have successfully acquired 46 businesses and or product lines since our formation in 1993. many of these acquisitions have been integrated into an existing transdigm production facility , which enables a higher production capacity utilization , which in turn improves gross profit levels due to the ability to spread the fixed manufacturing overhead costs over higher production volume . certain acquisitions and divestitures whippany actuation systems , llc on june 28 , 2013 , whippany actuation systems , llc , a newly formed subsidiary of transdigm inc. , acquired assets from ge aviation 's electromechanical actuation division ( whippany actuation ) for approximately $ 149.5 million in cash , subject to adjustments based on the level of working capital as of the closing date of the acquisition . whippany actuation manufactures proprietary , highly engineered aerospace electromechanical motion control subsystems for civil and military applications , with product offerings including control electronics , motors , high power mechanical transmissions and actuators . these products fit well with transdigm 's overall business direction . whippany is included in transdigm 's power & control segment . the company is in the process of obtaining information to value certain tangible and intangible assets of whippany actuation , and therefore the consolidated financial statements at september 30 , 2013 reflect a preliminary purchase price allocation for the business . arkwin industries , inc. on june 5 , 2013 , transdigm inc. acquired all of the outstanding stock of arkwin industries , inc. ( arkwin ) , for approximately $ 285.7 million in cash , which includes a purchase price adjustment of $ 0.2 received in the fourth quarter of fiscal 2013. arkwin manufactures proprietary , highly engineered aerospace 28 hydraulic and fuel system components for commercial and military aircraft , helicopters and other specialty applications . these products fit well with transdigm 's overall business direction . arkwin is included in transdigm 's power & control segment . the company is in the process of obtaining information to value certain tangible and intangible assets of arkwin , and therefore the consolidated financial statements at september 30 , 2013 reflect a preliminary purchase price allocation for the business . aerosonic , llc on june 5 , 2013 , buccaneer acquisition sub inc. , a newly formed subsidiary of transdigm inc. , completed the tender offer of a majority of the outstanding stock of aerosonic corporation ( aerosonic ) . buccaneer acquisition sub inc. was subsequently merged into aerosonic on june 10 , 2013 ; in connection therewith , all outstanding shares of aerosonic were cancelled and aerosonic became a wholly owned subsidiary of transdigm inc. the aggregate price paid in the tender offer and merger was approximately $ 39.8 million in cash . aerosonic designs and manufactures proprietary , highly engineered mechanical and digital altimeters , airspeed indicators , rate of climb indicators , microprocessor controlled air data test sets , angle of attack stall warning systems , integrated air data sensors and other aircraft sensors , monitoring systems and flight instrumentation for use on commercial and military aircraft . these products fit well with transdigm 's overall business direction . aerosonic is included in transdigm 's airframe segment . the company is in the process of obtaining information to value certain tangible and intangible assets of aerosonic , and therefore the consolidated financial statements at september 30 , 2013 reflect a preliminary purchase price allocation for the business . aero-instruments co. , llc on september 17 , 2012 , transdigm inc. acquired all of the outstanding equity interests in aero-instruments co. , llc ( aero-instruments ) , for approximately $ 34.6 million in cash , which includes a purchase price adjustment of $ 0.1 million received in the first quarter of fiscal 2013. aero-instruments designs and manufactures highly engineered air data sensors including pitot probes , pitot-static probes , static pressure ports , angle of attack , temperature sensors and flight test equipment for use primarily in the business jet and helicopter markets . these products fit well with transdigm 's overall business direction . aero-instruments has since been merged into aerocontrolex group and is included in transdigm 's power & control segment . amsafe global holdings , inc. on february 15 , 2012 , transdigm inc. acquired all of the outstanding stock of amsafe global holdings , inc. ( amsafe ) , for approximately $ 749.7 million in cash , which includes a purchase price adjustment of $ 0.5 million paid in the third quarter of fiscal 2012. amsafe is a leading supplier of innovative , highly engineered and proprietary safety and restraint equipment used primarily in the global aerospace industry . these products fit well with transdigm 's overall business direction . the majority of amsafe product lines are included in transdigm 's airframe segment , and the remaining product lines are included in the non-aviation segment . the distribution business acquired as part of amsafe was sold on august 16 , 2012 for approximately $ 17.8 million in cash , which includes a working capital adjustment of $ 0.1 million received in the first quarter of fiscal 2013. the equity investment in c-safe llc acquired as part of amsafe was sold in october 2012 for approximately $ 16.4 million , which consisted of $ 5.0 million in cash at closing and an $ 11.4 million short-term note receivable , which was subsequently received in installments during fiscal 2013. harco laboratories , incorporated on december 9 , 2011 , transdigm inc. acquired all of the outstanding stock of harco laboratories , incorporated ( harco ) , for approximately $ 83.3 million in cash , which includes a purchase price adjustment of $ 0.4 million paid in the second quarter of fiscal 2012. harco designs and manufactures highly engineered thermocouples , sensors , engine cable assemblies and related products for commercial aircraft . these products fit well with transdigm 's overall business direction . harco is included in transdigm 's power & control segment . 29 schneller holdings llc on august 31 , 2011 , transdigm inc. story_separator_special_tag acquired all of the outstanding equity interests in schneller holdings llc ( schneller ) for approximately $ 288.6 million in cash , which includes a purchase price adjustment of $ 1.0 million paid in the first quarter of fiscal 2012. schneller designs and manufactures proprietary , highly engineered laminates , thermoplastics , and non-textile flooring for use primarily on side walls , lavatories , galleys , bulkheads and cabin floors for commercial aircraft . these products fit well with transdigm 's overall business direction . schneller is included in transdigm 's airframe segment . talley actuation on december 31 , 2010 , aerocontrolex group , inc. , a wholly owned subsidiary of transdigm inc. , acquired the actuation business of telair international inc. ( talley actuation ) , a wholly-owned subsidiary of teleflex incorporated , for approximately $ 93.6 million in cash , which includes a purchase price adjustment of $ 0.3 million received in the third quarter of fiscal 2011. talley actuation manufactures proprietary , highly engineered electro-mechanical products and other components for commercial and military aircraft . these products fit well with transdigm 's overall business direction . talley actuation is included in transdigm 's power & control segment . mckechnie aerospace holdings , inc. on december 6 , 2010 , transdigm inc. acquired all of the outstanding stock of mckechnie aerospace holdings inc. ( mckechnie aerospace ) , for approximately $ 1.27 billion in cash , which includes a purchase price adjustment of $ 0.3 million paid in the third quarter of fiscal 2011. mckechnie aerospace , through its subsidiaries , is a leading global designer , producer and supplier of aerospace components , assemblies and subsystems for commercial aircraft , regional/business jets , military fixed wing and rotorcraft . some of the businesses acquired as part of mckechnie aerospace have since been divested ( see below ) . the remaining products fit well with transdigm 's overall business direction . product lines of mckechnie aerospace are included in both transdigm 's power & control and airframe segments . aero quality sales divestiture on april 7 , 2011 , the company completed the divestiture of aero quality sales ( aqs ) to satair a/s for approximately $ 31.8 million in cash , which includes a $ 1.8 million working capital adjustment received in the third quarter of fiscal 2011. aqs , which was acquired as part of the mckechnie aerospace acquisition , is a distributor and service center of aircraft batteries and battery support equipment . the company 's chairman and chief executive officer , w. nicholas howley was a director of satair a/s from 2006 through october 2011. mr. howley disclosed his relationship to satair a/s to the company 's board of directors and abstained from the related vote . fastener business divestiture on march 9 , 2011 , the company completed the divestiture of its fastener business for approximately $ 239.6 million in cash . this business , which was acquired as part of the mckechnie aerospace acquisition , is made up of valley-todeco , inc. and linread ltd. the business designs and manufactures fasteners , fastening systems and bearings for commercial , military and general aviation aircraft . 30 ebitda and ebitda as defined the following table sets forth a reconciliation of net income to ebitda and ebitda as defined : replace_table_token_11_th ( 1 ) ebitda represents earnings before interest , taxes , depreciation and amortization . ebitda as defined represents ebitda plus , as applicable for each relevant period , certain adjustments as set forth in the reconciliation of net income to ebitda and ebitda as defined . see non-gaap financial measures for additional information and limitations regarding these non-gaap financial measures . ( 2 ) represents accounting adjustments to inventory associated with acquisitions of businesses and product lines that were charged to cost of sales when the inventory was sold . ( 3 ) represents costs incurred to integrate acquired businesses and product lines into td group 's operations , facility relocation costs and other acquisition-related costs . ( 4 ) represents transaction-related costs comprising deal fees ; legal , financial and tax due diligence expenses ; and valuation costs that are required to be expensed as incurred . ( 5 ) represents the reversal of the earn-out liability related to the dukes aerospace acquisition based on lower growth projections relative to the required growth targets of the four-year earn-out arrangement . ( 6 ) represents the compensation expense recognized by td group under our stock option plans . ( 7 ) represents debt issue costs expensed in conjunction with the refinancing of our 2010 credit facility and 2011 credit facility in february 2013 . 31 the following table sets forth a reconciliation of net cash provided by operating activities to ebitda and ebitda as defined : replace_table_token_12_th ( 1 ) represents interest expense excluding the amortization of debt issue costs and note premium and discount . ( 2 ) represents the compensation expense recognized by td group under our stock option plans . ( 3 ) represents debt issue costs expensed in conjunction with the refinancing of our 2010 credit facility and 2011 credit facility in february 2013 . ( 4 ) ebitda represents earnings before interest , taxes , depreciation and amortization . ebitda as defined represents ebitda plus , as applicable for each relevant period , certain adjustments as set forth in the reconciliation of net cash provided by operating activities to ebitda and ebitda as defined . see non-gaap financial measures for additional information and limitations regarding these non-gaap financial measures . ( 5 ) represents accounting adjustments to inventory associated with acquisitions of businesses and product lines that were charged to cost of sales when the inventory was sold . ( 6 ) represents costs incurred to integrate acquired businesses and product lines into td group 's operations , facility relocation costs and other acquisition-related costs . ( 7 ) represents transaction-related costs comprising deal fees ; legal , financial and tax due diligence expenses ; and valuation costs that are required to be expensed as incurred .
| 37 excluding the impact of the retroactive contract pricing adjustments and the amsafe distribution sales indicated above , commercial oem sales increased $ 51.4 million , or an increase of 10.5 % , commercial aftermarket sales increased $ 3.3 million , or an increase of 0.5 % , and defense sales increased $ 33.1 million , or an increase of 8.3 % , for the fiscal year ended september 30 , 2013 compared to the fiscal year ended september 30 , 2012. the commercial aftermarket comparable sales , particularly in the second half of fiscal 2013 compared to the second half of fiscal 2012 , were negatively impacted by non-market items associated with changing past business practices of previously-acquired businesses , changes in distributors and related inventory fluctuations . we believe that the underlying demand in the commercial aftermarket channel began to trend up more positively during the second half of the fiscal year . cost of sales and gross profit . cost of sales increased by $ 120.3 million , or 16.0 % , to $ 874.8 million for the fiscal year ended september 30 , 2013 compared to $ 754.5 million for the fiscal year ended september 30 , 2012. cost of sales and the related percentage of total sales for the fiscal years ended september 30 , 2013 and 2012 were as follows ( amounts in millions ) : replace_table_token_15_th the increase in the dollar amount of cost of sales during the fiscal year ended september 30 , 2013 was primarily due to increased volume associated with the sales from acquisitions and organic sales growth and higher stock compensation expense related to the accelerated vesting ( discussed further below ) partially offset by lower acquisition-related costs as shown in the table above . gross profit as a percentage of sales decreased by 1.1 percentage points to 54.5 % for the fiscal year ended september 30 , 2013 from 55.6 % for the fiscal year ended september 30 , 2012. the dollar amount of gross profit increased by $ 103.8 million , or 11.0 % , for the fiscal year ended september 30 , 2013 compared to the comparable period last year due to the following items : gross profit on the sales from the acquisitions indicated above ( excluding acquisition-related costs ) was approximately $ 80 million for the fiscal year ended september 30 , 2013 , which represented gross profit of approximately 43 % of the acquisition sales . impact of lower inventory purchase accounting adjustments and acquisition integration costs charged to cost
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our strategy is to be the operator , directly or through our subsidiaries and joint ventures , in the majority of our acreage so we can dictate the pace of development in order to execute our business plan . we have listed below the total production volumes and total revenue net to the company for the years ended december 31 , 2016 , 2015 , and 2014 attributable to our d-j basin asset , including the calculated production volumes and revenue numbers for our d-j basin asset held indirectly through condor that would be net to our interest if reported on a consolidated basis . replace_table_token_4_th _ ( 1 ) assumes 6 mcf of natural gas equivalents to 1 barrel of oil . ( 2 ) excludes ad valorem and severance taxes . detailed information about our business plans and operations , including our core dj basin asset is contained under “ part 1 ” — “ item 1. business ” beginning on page 5 of this annual report . 78 the reserve estimates , including pv-10 , set forth above were prepared on january 6 , 2017 by south texas reservoir alliance , llc ( “ stxra ” ) . stxra is an independent professional engineering firm certified by the texas board of professional engineers ( registration number f1580 ) , under the direction of michael rozenfeld of stxra . stxra , and its employees , have no material interest in our company . stxra also performs internal reservoir engineering services for the company , previously participated in a joint venture with the company for which no substantial activity has occurred to date and was dissolved in april 2016 with an effective date of december 31 , 2015 , and periodically receives compensation for assistance in locating additional oil and gas properties . the reserve estimates were prepared by stxra using reserve definitions and pricing requirements prescribed by the sec . stxra estimated the proved reserves for our properties by performance methods and analogy . all of the proved producing reserves attributable to producing wells and or reservoirs were estimated by performance methods . these performance methods , such as decline curve analysis , utilized extrapolations of historical production and pressure data available through december 2016 in those cases where such data were considered to be definitive . the data utilized were furnished to stxra by the company or obtained from public data sources . all of the proved developed nonproducing and undeveloped reserves were estimated by analogy . a copy of the report issued by stxra is filed with this report as exhibit 99.1. the preliminary appraisal reports and changes in our reserves are reviewed by michael peterson , our president and chief executive officer , for completeness of the data presented and reasonableness of the results obtained . mr. peterson has over 14 years ' experience in the oil and gas industry . once any questions have been addressed , stxra issues the final appraisal reports , reflecting their conclusions . for more information regarding our oil and gas reserves , please refer to “ supplemental oil and gas disclosures ( unaudited ) ” beginning on page f-36 of this annual report , which information is incorporated by reference in this “ item 2. properties ” , by reference . 79 how we conduct our business and evaluate our operations our use of capital for acquisitions and development allows us to direct our capital resources to what we believe to be the most attractive opportunities as market conditions evolve . we have historically acquired properties that we believe had significant appreciation potential . we intend to continue to acquire both operated and non-operated properties to the extent we believe they meet our return objectives . we will use a variety of financial and operational metrics to assess the performance of our oil and natural gas operations , including : ● production volumes ; ● realized prices on the sale of oil and natural gas , including the effects of our commodity derivative contracts ; ● oil and natural gas production and operating expenses ; ● capital expenditures ; ● general and administrative expenses ; ● net cash provided by operating activities ; and ● net income . production volumes production volumes will directly impact our results of operations . as of december 31 , 2016 , we hold interests in 61 gross ( 17.4 net ) wells in our d-j basin asset , of which 14 gross ( 12.5 net ) wells are operated by red hawk and are currently producing , 25 gross ( 4.9 net ) wells are non-operated , and 22 wells have an after-payout interest . during the quarter-ended december 31 , 2016 , the company produced an average of approximately 1,232 gross ( 272 net ) barrels of oil equivalent per day ( “ boepd ” ) from its d-j basin asset . additionally , we expect to increase production assuming drilling success in the future as we expand operations in our dj basin asset . liquidity and capital resources liquidity outlook we expect to incur substantial expenses and generate significant operating losses as we continue to explore for and develop our oil and natural gas prospects , and as we opportunistically invest in additional oil and natural gas properties , develop our discoveries which we determine to be commercially viable and incur expenses related to operating as a public company and compliance with regulatory requirements . our future financial condition and liquidity will be impacted by , among other factors , the success of our exploration and appraisal drilling program , the number of commercially viable oil and natural gas discoveries made and the quantities of oil and natural gas discovered , the speed with which we can bring such discoveries to production , and the actual cost of exploration , appraisal and development of our prospects . our current liquidity uses and debt service requirements are managed under the terms of our senior debt facility whereby we are subject to a cash sweep of our net revenues after operating costs . story_separator_special_tag the debt service arrangement provides for budgeted general and administrative cost allowance of $ 150,000 each month which we believe is sufficient to meet our foreseeable recurring costs . such financing arrangement is sufficient to manage recurring cash requirements but provides no additional funds for extraordinary items , execution of our capital expenditure program or the repayment of outstanding debt obligations other than our senior debt facility . any equity funds we are able to raise through offerings is not subject to the cash sweep and is not subject to payment to or approval by the senior lenders . subject to the availability of the additional funding , which is not currently in place and requires approval of our senior lenders in the event of a debt offering , we plan to make capital expenditures , excluding capitalized interest and general and administrative expense , of up to approximately $ 11.1 million during the period from january 1 , 2017 to december 31 , 2017 in order to achieve our plans . we expect our projected cash flow from operations combined with our existing cash on hand , up to $ 2.0 million of gross proceeds available from the issuance of our common shares through nsc under our current “ at the market offering ” , and the approximately $ 18.0 million available under our current senior debt facility will be sufficient to fund our drilling plans and our operations in 2017 , noting that the advancement of all or any portion of the approximately $ 18.0 million gross available under our current senior debt facility is in the sole and absolute discretion of the senior lenders and no senior lender is obligated to fund all or any part of the requested funding . see “ part i , item 1. business ” — “ recent developments ” — “ senior debt restructuring ” and “ part i ” – “ item 1a . risk factors ” , including “ our tranche a notes and tranche b notes include various covenants , reduces our flexibility , increases our interest expense and may adversely impact our operations and our costs . ” in addition , we may seek additional funding through asset sales , farm-out arrangements , lines of credit , or public or private debt or equity financings to fund additional 2017 capital expenditures and or repay or refinance a portion or all of our outstanding debt . 80 our capital budget may be adjusted as business conditions warrant . the amount , timing and allocation of capital expenditures are largely discretionary and within our control . if oil and natural gas prices continue to decline or fail to improve or costs increase significantly , we could defer a significant portion of our budgeted capital expenditures until later periods to prioritize capital projects that we believe have the highest expected returns and potential to generate near-term cash flows . we routinely monitor and adjust our capital expenditures in response to changes in prices , availability of financing , drilling and acquisition costs , industry conditions , timing of regulatory approvals , availability of rigs , success or lack of success in drilling activities , contractual obligations , internally generated cash flows and other factors both within and outside our control . at the market offering on september 29 , 2016 , we entered into an at market issuance sales agreement ( the “ sales agreement ” ) with national securities corporation ( “ nsc ” ) , a wholly owned subsidiary of national holdings corporation ( nasdaqcm : nhld ) , pursuant to which the company may issue and sell shares of its common stock , having an aggregate offering price of up to $ 2,000,000 ( the “ shares ” ) from time to time , as the company deems prudent , through nsc ( the “ offering ” ) . upon delivery of a placement notice and subject to the terms and conditions of the sales agreement , nsc may sell the shares by methods deemed to be an “ at the market offering ” as defined in rule 415 promulgated under the securities act . with the company 's prior written approval , nsc may also sell the shares by any other method permitted by law , including in negotiated transactions . the company may elect not to issue and sell any shares in the offering and the company or nsc may suspend or terminate the offering of shares upon notice to the other party and subject to other conditions . nsc will act as sales agent on a commercially reasonable efforts basis consistent with its normal trading and sales practices and applicable state and federal law , rules and regulations and the rules of the nyse mkt . the company has agreed to pay nsc commissions for its services in acting as agent in the sale of the shares in the amount equal to 3.0 % of the gross sales price of all shares sold pursuant to the agreement . the company also agreed to pay various expenses in connection with the offering , including reimbursing up to $ 30,000 of nsc 's legal fees , which was paid in three ( 3 ) installments as follows : ( a ) $ 10,000 on the date of the parties ' entry into the sales agreement , ( b ) $ 10,000 on the date that was thirty ( 30 ) days from the date of the sales agreement , and ( c ) the balance due ( not to exceed $ 10,000 ) on the date that was sixty ( 60 ) days from the date of the sales agreement . the company has also agreed to provide nsc with customary indemnification and contribution rights . the company intends to use the net proceeds from the offering , if any , to fund development and for working capital and general corporate purposes , including general and administrative purposes .
| this volume decline was a result of a natural decline in well production , periodic wells being shut-in and three new d-j basin asset wells drilled and operated by the company being put on line in december 2014 which yielded higher production in the year ended december 31 , 2015 relative to their production in 2016 ( due to the natural decline in production from these wells ) . lease operating expenses . for the year ended december 31 , 2016 , lease operating expenses associated with the oil and gas properties were $ 1,687,000 , compared to $ 1,830,000 for the year ended december 31 , 2015. the decrease of $ 143,000 was primarily due to lower variable lease operating expenses associated with the lower volume resulting from the natural decline in well production and periodic wells being shut-in . exploration expense . for the year ended december 31 , 2016 , exploration expense was $ 231,000 compared to $ 701,000 for the year ended december 31 , 2015. the decrease of $ 470,000 was primarily due to less exploration activity undertaken by the company in the current year due to price volatility in the oil markets and capital constraints . selling , general and administrative expenses . for the year ended december 31 , 2016 , selling , general and administrative ( “ sg & a ” ) expenses were $ 3,912,000 , compared to $ 6,962,000 for the year ended december 31 , 2015. the decrease of $ 3,050,000 was primarily due to austerity measures taken by management , including ( i ) a reduction in payroll costs related to a work force reduction , and ( ii ) the reduction of professional and other fees and expenses , including a significant decrease in stock compensation expense that resulted from the grant of fewer stock awards at lower stock prices during the current year . the components of sg & a expense are summarized below ( amounts in thousands ) : replace_table_token_5_th impairment of oil and gas properties . for the year ended december 31 , 2016 ,
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this net charge includes a $ 316.4 million charge included in income taxes due to the estimated repatriation tax liability and adjustments to the company 's deferred tax assets and liabilities ; partially offset by a $ 19.9 million gain within other income due to the change in the value of a long-term liability following the change in the u.s. corporate tax rate beginning in 2018. benefit , net of tax , of $ 32.1 million or $ 0.25 per diluted share from the adoption of fasb accounting standards update 2016-09 , improvements to employee share-based accounting . 2016 net charge of $ 14.7 million , or $ 0.12 per diluted share , due to a $ 32.9 million non-cash goodwill impairment charge on the company 's backflip investment . consolidated net revenues for the year ended december 30 , 2018 declined 12 % to $ 4,579.6 million from $ 5,209.8 million for the year ended december 31 , 2017. net revenues in 2018 include an unfavorable foreign currency translation of $ 43.0 million , which is the result of weakening currencies primarily in our international segment in 2018 compared to 2017. in 2018 , net revenues from franchise brands declined 9 % compared to 2017 and comprised 53 % of consolidated net revenues . growth in franchise brands monopoly and magic : the gathering was more than offset by declines from nerf , my little pony , transformers , play-doh and , to a lesser extent , baby alive . consolidated net revenues for the year ended december 31 , 2017 grew 4 % to $ 5,209.8 million from $ 5,019.8 million for the year ended december 25 , 2016 and included a favorable foreign currency translation of $ 79.2 million , which was the result of stronger currencies across our international segment in 2017 compared to 2016. absent the impact of foreign currency translation , consolidated net revenues grew 2 % in 2017 compared to 2016. in 2017 , net revenues from franchise brands grew 13 % compared to 2016 and comprised 47 % of consolidated net revenues . growth in franchise brands transformers , nerf , monopoly , baby alive and my little pony was partially offset by declines in play-doh and , to a lesser extent , magic : the gathering . the following chart presents net revenues by brand portfolio for each year in the three years ended december 30 , 2018. replace_table_token_4_th 2018 versus 2017 franchise brands , partner brands and hasbro gaming net revenues declined in 2018 compared to 2017 , while net revenues from the emerging brands portfolio grew slightly . franchise brands the franchise brands portfolio declined 9 % in 2018 compared to 2017. higher net revenues from monopoly and magic : the gathering products were more than offset by net revenue declines from nerf products , which were impacted by the loss of sales related to the bankruptcy and subsequent liquidation of toysrus . also contributing to franchise brands net revenue declines in 2018 were my little pony products , 33 supported in 2017 by the theatrical release of my little pony : the movie , transformers products , also supported in 2017 by the major theatrical release of transformers : the last knight , and to a lesser extent , baby alive products . partner brands the partner brands portfolio declined 22 % in 2018 compared to 2017. lower net revenues from star wars , disney princess and dreamworks ' trolls products , as well as net revenue declines from disney frozen and disney 's decendants products were partially offset by net revenue increases from beyblade and marvel products in addition to contributions from new brands top wing and super monsters products in 2018. within the partner brands portfolio , there are a number of entertainment-based brands which , from year to year , may be supported by major theatrical releases . as such , category net revenues by brand fluctuate from year-to-year depending on movie popularity , release dates and related product line offerings and success . in 2018 , star wars products were supported by the second quarter 2018 major theatrical release solo : a star wars story . historically these entertainment-based brands experience revenue growth during film years with sharp declines in subsequent years . hasbro gaming the hasbro gaming portfolio declined 12 % in 2018 compared to 2017. lower net revenues from pie face and speak out and certain other hasbro gaming products were partially offset by net revenue increases from dungeons and dragons , do n't step in it , connect 4 and jenga products . net revenues for hasbro 's total gaming category , including the hasbro gaming portfolio as reported above , and all other gaming revenue , most notably magic : the gathering and monopoly , which are included in the franchise brands portfolio , totaled $ 1,443.2 million in 2018 , down 4 % , versus $ 1,497.8 million in 2017. emerging brands the emerging brands portfolio grew 1 % in 2018 compared to 2017. net revenue contributions from the introduction of hasbro 's new collectable product lines of lost kitties and yellies products , as well as contributions from power rangers licensing revenues , were partially offset by net revenue declines from furreal friends , furby and the company 's core playskool products . 2017 versus 2016 net revenue growth in franchise brands , hasbro gaming and emerging brands in 2017 compared to 2016 , was partially offset by lower net revenues from the partner brands portfolio . franchise brands the franchise brands portfolio grew 13 % in 2017 compared to 2016. contributing to growth were higher net revenues from transformers products , supported by the major theatrical release of transformers : the last knight during the second quarter of 2017 , in addition to higher net revenues from nerf , baby alive and monopoly products . to a lesser extent , my little pony products , also supported by the fourth quarter 2017 theatrical release of my little pony : the movie , contributed to growth during 2017 . story_separator_special_tag these increases were partially offset by lower net revenues from play-doh and magic : the gathering products in 2017. partner brands the partner brands portfolio declined 10 % in 2017 compared to 2016. higher net revenues from the introduction of beyblade , and to a lesser extent , marvel and sesame street products were more than offset by lower net revenues from star wars and yo-kai watch products in addition to lower net revenues from hasbro 's line of disney frozen products in 2017 compared to 2016. within the partner brands portfolio , there are a number of entertainment-based brands which , from year to year , may be supported by major theatrical releases . as such , category net revenues by brand fluctuate from year-to-year depending on movie popularity , release dates and related product line offerings and success . in 2017 , star wars products were supported by the fourth quarter 2017 major theatrical release star wars : the last jedi despite lower overall brand revenues in 2017. historically these entertainment-based brands experience revenue growth during film years with sharp declines thereafter however with yearly film releases during 2015 , 2016 and 2017 , star wars product revenues are not experiencing these highs and lows recently and have maintained a more consistent level as compared to past years without theatrical release support . hasbro gaming the hasbro gaming portfolio grew 10 % in 2017 compared to 2016. higher net revenues resulted from new social gaming products such as , speak out , toilet trouble and fantastic gymnastics and other hasbro gaming products such as dungeons and dragons as well as the successful launch of dropmix , an electronic music mixing game . these increases were partially offset by lower net revenues from pie face products . 34 net revenues for hasbro 's total gaming category , including the hasbro gaming portfolio as reported above and all other gaming revenue , most notably magic : the gathering and monopoly , which are included in the franchise brands portfolio , totaled $ 1,497.8 million in 2017 , up 8 % , versus $ 1,387.1 million in 2016. emerging brands the emerging brands portfolio declined 15 % in 2017 compared to 2016. higher net revenues from furreal friends products drove growth , which were more than offset by lower net revenues from furby and littlest pet shop products and the company 's core playskool products . segment results most of the company 's net revenues and operating profits are derived from its three principal segments : the u.s. and canada segment , the international segment and the entertainment and licensing segment , which are discussed in detail below . net revenues the chart below illustrates net revenues derived from our principal operating segments in 2018 , 2017 and 2016. replace_table_token_5_th u.s. and canada 2018 versus 2017 u.s. and canada segment net revenues declined 10 % in 2018 compared to 2017. revenues in the u.s. and canada segment were not materially impacted by foreign currency translation . segment net revenues declined in all product categories including franchise brands , partner brands and hasbro gaming , and to a lesser extent , net revenues declined in the emerging brands portfolio . in the franchise brands portfolio , higher net revenues from magic : the gathering and monopoly products were more than offset by lower net revenues from nerf , my little pony , baby alive and transformers products . in the partner brands portfolio , contributing to net revenue declines in 2018 were star wars , disney princess and dreamworks ' trolls products , as well as lower net revenues from disney 's descendants products and the company 's disney frozen products . these declines were partially offset by net revenue increases from beyblade and marvel products in addition to net revenue contributions from the introduction of the company 's top wing and super monsters products during 2018. in the hasbro gaming portfolio , higher net revenues from dungeons & dragons , connect 4 and do n't step in it products were more than offset by lower net revenues from pie face , speak out and toilet trouble products , as well as certain other games brands . in the emerging brands portfolio , net revenue increases from the introduction of the company 's line of lost kitties , yellies and certain other emerging brands products were more than offset by lower net revenues from furreal friends , littlest pet shop and core playskool products . 2017 versus 2016 u.s. and canada segment net revenues grew 5 % in 2017 compared to 2016. revenues in the u.s. and canada segment were not materially impacted by foreign currency translation . segment net revenues increased in 2017 from growth in franchise brands , hasbro gaming and the emerging brands portfolios , partially offset by declines in partner brands . in the franchise brands portfolio , higher net revenues from nerf , transformers , baby alive and monopoly products were partially offset by lower net revenues from play-doh and magic : the gathering products . in the partner brands portfolio , higher net revenues from the beyblade and marvel products and , to a lesser extent , revenue increases from disney 's descendants and dreamworks ' trolls products were more than offset by declines in revenues from star wars and yokai watch products as well as the company 's disney princess and disney frozen fashion and small dolls . in the hasbro gaming portfolio higher net revenues from dungeons & dragons products and new social gaming products including speak out , fantastic gymnastics and toilet trouble drove a revenue increase in 2017. these increases were only partially offset by lower net revenues from pie face products as well as certain other games brands . in the emerging brands portfolio , higher net revenues from furreal friends products were partially offset by lower net revenues from furby , littlest pet shop and core playskool products .
| absent favorable foreign currency translation , 2017 net revenues grew 2 % compared to 2016 . 2017 net revenues grew in all major operating segments : 5 % in the u.s. and canada segment ; 2 % in the international segment , including a favorable foreign currency translation impact of $ 75.3 million ; and 8 % in the entertainment and licensing segment . franchise brands net revenues grew 13 % ; hasbro gaming net revenues grew 10 % ; emerging brands net revenues declined 15 % ; and partner brands revenues declined 10 % . 2017 operating profit increased 3 % from $ 788.0 million in 2016 to $ 810.4 million in 2017 . 2017 operating profit was negatively impacted by the toysrus bankruptcy in the u.s. and canada as a result of incremental bad debt expense recorded during the third quarter of 2017 . 2016 operating profit was negatively impacted by a non-cash goodwill impairment charge of $ 32.9 million related to the company 's investment in backflip . u.s. tax reform , passed in december 2017 , resulted in a net charge of $ 296.5 million including a one-time repatriation tax payable over eight years . net earnings attributable to hasbro , inc. declined in 2017 to $ 396.6 million , or $ 3.12 per diluted share , compared to $ 551.4 million , or $ 4.34 per diluted share in 2016 . 31 share repurchases and dividends the company is committed to returning excess cash to its shareholders through dividends and share repurchases . the company seeks to return cash to its shareholders through the payment of quarterly dividends . hasbro increased the quarterly dividend rate from $ 0.63 per share in 2018 to $ 0.68 per share in 2019 , with this increase first being effective for the dividend payable in may 2019. this was the fifteenth dividend increase in the previous 16 years . during that period , the company has increased the quarterly cash dividend from $ 0.03 to
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other generated revenues of $ 139.4 million in 2018 , $ 114.0 million in 2017 and $ 120.1 million in 2016 , and adjusted oibda of $ 17.3 million in 2018 , $ 8.4 million in 2017 and $ 17.8 million in 2016 . economic environment our revenues and operating results are sensitive to fluctuations in advertising expenditures , general economic conditions and other external events beyond our control . business environment the outdoor advertising industry is fragmented , consisting of several companies operating on a national basis , as well as hundreds of smaller regional and local companies operating a limited number of displays in a single or a few local geographic markets . we compete with these companies for both customers and structure and display locations . we also compete with other media , including online , mobile and social media advertising platforms and traditional advertising platforms ( such as television , radio , print and direct mail marketers ) . in addition , we compete with a wide variety of out-of-home media , including advertising in shopping centers , airports , movie theaters supermarkets and taxis . increasing the number of digital displays in our prime audience locations is an important element of our organic growth strategy , as digital displays have the potential to attract additional business from both new and existing customers . we believe digital displays are attractive to our customers because they allow for the development of richer and more visually engaging messages , provide our customers with the flexibility both to target audiences by time of day and to quickly launch new advertising campaigns , and eliminate or greatly reduce print production and installation costs . in addition , digital displays enable us to run multiple advertisements on each display . digital billboard displays generate approximately four times more revenue per display on average than traditional static billboard displays . digital billboard displays also incur , on average , approximately two to four times more costs , including higher variable costs associated with the increase in revenue than traditional static billboard displays . as a result , digital billboard displays generate higher profits and cash flows than traditional static billboard displays . the majority of our digital billboard displays were converted from traditional static billboard displays . in 2017 , we commenced deployment of state-of-the-art digital transit displays in connection with several transit franchises and are planning to increase deployments significantly over the coming years . once the digital transit displays have been deployed at scale , we expect that revenue generated on digital transit displays will be a multiple of the revenue generated on comparable static transit displays . we intend to incur significant equipment deployment costs and capital expenditures in the coming years to continue increasing the number of digital displays in our portfolio . 39 we have built or converted 57 new digital billboard displays in the united states and 26 in canada in 2018 . additionally , in 2018 , we installed 56 small-format digital displays and entered into marketing arrangements to sell advertising on 18 third-party digital billboard displays in the u.s. with a net decrease of three third-party digital billboard displays in canada . in 2018 , we have built , converted or replaced 1,646 digital transit and other displays in the united states . the following table sets forth information regarding our digital displays . replace_table_token_7_th ( a ) digital display amounts ( 1 ) include displays reserved for transit agency use and ( 2 ) exclude : ( i ) all displays under our multimedia rights agreements with colleges , universities and other educational institutions ; and ( ii ) 1,649 metrocard vending machine digital screens . our number of digital displays is impacted by acquisitions , dispositions , management agreements , the net effect of new and lost billboards , and the net effect of won and lost franchises in the period . our revenues and profits may fluctuate due to seasonal advertising patterns and influences on advertising markets . typically , our revenues and profits are highest in the fourth quarter , during the holiday shopping season , and lowest in the first quarter , as advertisers adjust their spending following the holiday shopping season . we have a diversified base of customers across various industries . during 2018 , our largest categories of advertisers were retail , computers/internet and healthcare/pharmaceuticals , which represented 9 % , 8 % , and 8 % of our total u.s. media segment revenues , respectively . during 2017 , our largest categories of advertisers were retail , healthcare/pharmaceuticals and television , which represented 9 % , 8 % and 7 % of our total u.s. media segment revenues . during 2016 , our largest categories of advertisers were retail , television and healthcare/pharmaceuticals , which represented 9 % , 7 % and 7 % of our total u.s. media segment revenues , respectively . our large-scale portfolio allows our customers to reach a national audience and also provides the flexibility to tailor campaigns to specific regions or markets . in 2018 , we generated approximately 44 % of our u.s. media segment revenues from national advertising campaigns , compared to 45 % in 2017 and 47 % in 2016 . our transit businesses require us to periodically obtain and renew contracts with municipalities and other governmental entities . when these contracts expire , we generally must participate in highly competitive bidding processes in order to obtain or renew contracts . key performance indicators our management reviews our performance by focusing on the indicators described below . several of our key performance indicators are not prepared in conformity with generally accepted accounting principles in the united states of america ( “ gaap ” ) . we believe these non-gaap performance indicators are meaningful supplemental measures of our operating performance and should not be considered in isolation of , or as a substitute for , their most directly comparable gaap financial measures . story_separator_special_tag 40 replace_table_token_8_th ( a ) organic revenues exclude revenues associated with a significant acquisition , the impact of a new accounting standard ( see item 8. , note 2. summary of significant accounting policies : adoption of new accounting standards to the consolidated financial statements ) and the impact of foreign currency exchange rates ( “ non-organic revenues ” ) . we provide organic revenues to understand the underlying growth rate of revenue excluding the impact of non-organic revenue items . our management believes organic revenues are useful to users of our financial data because it enables them to better understand the level of growth of our business period to period . since organic revenues are not calculated in accordance with gaap , it should not be considered in isolation of , or as a substitute for , revenues as an indicator of operating performance . organic revenues , as we calculate it , may not be comparable to similarly titled measures employed by other companies . ( b ) see the “ reconciliation of non-gaap financial measures ” and “ revenues ” sections of this md & a for reconciliations of operating income to adjusted oibda , net income to ffo and affo and revenues to organic revenues . adjusted oibda we calculate adjusted oibda as operating income ( loss ) before depreciation , amortization , net ( gain ) loss on dispositions , stock-based compensation , restructuring charges , impairment charges and loss on real estate assets held for sale . we calculate adjusted oibda margin by dividing adjusted oibda by total revenues . adjusted oibda and adjusted oibda margin are among the primary measures we use for managing our business , evaluating our operating performance and planning and forecasting future periods , as each is an important indicator of our operational strength and business performance . our management believes users of our financial data are best served if the information that is made available to them allows them to align their analysis and evaluation of our operating results along the same lines that our management uses in managing , planning and executing our business strategy . our management also believes that the presentations of adjusted oibda and adjusted oibda margin , as supplemental measures , are useful in evaluating our business because eliminating certain non-comparable items highlight operational trends in our business that may not otherwise be apparent when relying solely on gaap financial measures . it is management 's opinion that these supplemental measures provide users of our financial data with an important perspective on our operating performance and also make it easier for users of our financial data to compare our results with other companies that have different financing and capital structures or tax rates . ffo and affo we calculate ffo in accordance with the definition established by the national association of real estate investment trusts ( “ nareit ” ) . ffo reflects net income ( loss ) adjusted to exclude gains and losses from the sale of real estate assets , impairment charges , depreciation and amortization of real estate assets , amortization of direct lease acquisition costs and the same adjustments for our equity-based investments , as well as the related income tax effect of adjustments , as applicable . we calculate affo as ffo adjusted to include cash paid for direct lease acquisition costs as such costs are generally amortized over a period ranging from four weeks to one year and therefore are incurred on a regular basis . affo also includes cash paid for maintenance capital expenditures since these are routine uses of cash that are necessary for our operations . in addition , affo excludes costs related to restructuring charges , as well as certain non-cash items , including non-real estate depreciation and amortization , stock-based compensation expense , accretion expense , the non-cash effect of straight-line rent and amortization of deferred financing costs , and the non-cash portion of income taxes , as well as the related income tax effect of adjustments , as applicable . we use ffo and affo measures for managing our business and for planning and forecasting future periods , and each is an important indicator of our operational strength and business performance , especially compared to other reits . our management believes users of our financial data are best served if the information that is made available to them allows them to align their analysis and evaluation of our operating results along the same lines that our management uses in managing , planning and executing our business strategy . our management also believes that the presentations of ffo and affo , as supplemental measures , are useful in evaluating our business because adjusting results to reflect items that have more bearing on the operating performance of reits highlight trends in our business that may not otherwise be apparent when relying solely on gaap financial measures . it is management 's opinion that these supplemental measures provide users of our 41 financial data with an important perspective on our operating performance and also make it easier to compare our results to other companies in our industry , as well as to reits . since adjusted oibda , adjusted oibda margin , ffo and affo are not measures calculated in accordance with gaap , they should not be considered in isolation of , or as a substitute for , operating income ( loss ) , net income ( loss ) and revenues , the most directly comparable gaap financial measures , as indicators of operating performance . these measures , as we calculate them , may not be comparable to similarly titled measures employed by other companies . in addition , these measures do not necessarily represent funds available for discretionary use and are not necessarily a measure of our ability to fund our cash needs . reconciliation of non-gaap financial measures the following table reconciles operating income to adjusted oibda , and net income to ffo and affo . replace_table_token_9_th ( a ) income tax effect related to net gain on disposition of real estate assets .
| in 2017 , we recorded restructuring charges of $ 6.4 million for severance charges primarily associated with the transaction . in 2016 , we recorded restructuring charges of $ 2.5 million for severance charges associated with the reorganization of our sales management and administrative functions . loss on real estate assets held for sale in connection with the disposition , the impact of including unrecognized foreign currency translation adjustment losses in the carrying value of assets held for sale resulted in a non-cash loss on real estate assets held for sale of approximately $ 1.3 million in 2016. upon completion of the disposition in 2016 , the unrecognized foreign currency translation adjustment loss was reclassified to earnings from accumulated other comprehensive loss on the consolidated statement of financial position . net gain on dispositions net gain on dispositions was $ 5.5 million in 2018 , $ 14.3 million in 2017 , which includes a gain of $ 14.1 million from the acquisition of digital billboards in the boston , massachusetts , dma in exchange for static billboards in four non-metropolitan market clusters , and $ 1.9 million in 2016 . depreciation depreciation decreased $ 3.8 million , or 4 % , in 2018 compared to 2017 , primarily due to the increase in fully-depreciated advertising billboards , partially offset by higher depreciation as a result of an increased number of digital billboards . depreciation decreased $ 19.2 million , or 18 % , in 2017 compared to 2016 , due primarily to the increase in fully-depreciated advertising billboards and the impact of the disposition , partially offset by higher depreciation associated with the increased number of digital billboards . 46 amortization amortization decreased $ 1.0 million , or 1 % , in 2018 compared to 2017 , principally driven by lower amortization of intangible assets , partially offset by higher direct lease acquisition costs . amortization decreased $ 15.2 million , or 13 % , in 2017 compared to 2016 , principally driven by
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the most complex and subjective estimates include recoverability of long-lived assets , including the values assigned to goodwill , intangible assets and property , plant and equipment , fair value calculations for stock based compensation , contingencies , anticipated collection period of accounts receivable and allowance for doubtful accounts . management reviews its estimates on a regular basis and the effects of any material revisions are reflected in the consolidated financial statements in the period they are deemed necessary . accordingly , actual results could differ from those estimates . comparison of the fiscal year ended september 30 , 2016 to the fiscal year ended september 30 , 2015 revenues product revenues for the fiscal years ended september 30 , 2016 and 2015 , we generated $ 2,538,202 and $ 5,435,776 in revenues from product sales , respectively . the decrease in product revenues of $ 2,897,574 or 53 % for the fiscal year ended september 30 , 2016 is attributable to a decrease in revenue of approximately $ 2,700,000 in the textile industry for protecting cotton supply chains as well as approximately $ 249,000 from military contracts due to the consolidation of our contracts with multiple individual suppliers of the dla to one contract directly with the dla , as well as other decreases in revenue from another military customer and cvit of $ 175,000. these decreases were offset by increases in dna production of $ 76,000 and consumer asset marking of $ 171,000. service revenues for the fiscal years ended september 30 , 2016 and 2015 , we generated $ 1,648,225 and $ 3,572,723 in revenues from sales of services , respectively . the decrease in service revenues of $ 1,924,498 or 54 % for the fiscal year ended september 30 , 2016 is attributable to a decrease in the two government contract awards of approximately $ 1,800,000 , of which one expired on july 14 , 2016 and the other one in august 2016 , as well as a decrease in industrial materials of $ 108,000 relating to pilots completed during the fiscal year ended september 30 , 2015 . 31 costs and expenses cost of revenues cost of revenues for the fiscal years ended september 30 , 2016 and 2015 were $ 746,582 and $ 384,269 , respectively . the increase in cost of revenues of $ 362,313 , or 94 % is attributable to the deployment of cotton dna transfer devices into the field and increased dnanet kit sales during fiscal 2016 as compared to fiscal 2015. selling , general and administrative selling , general and administrative expenses for the fiscal year ended september 30 , 2016 decreased by $ 2,170,859 or 16 % to $ 11,239,397 from $ 13,410,256 in the same period in 2015. the decrease is primarily attributable to a decrease in stock based compensation expense of $ 2,068,127 , associated to grants to employees that vested immediately during fiscal 2015 whereas the grants to employees during fiscal 2016 have a four year vesting period , as well as stock based compensation expense associated with stock option modifications resulting from the extension of certain stock options , and to a lesser extent , the acceleration of vesting terms . research and development research and development expenses increased by $ 1,116,503 or 43 % for the fiscal year ended september 30 , 2016 compared to the same period in 2015 to $ 3,693,810 from $ 2,577,307. the increase is primarily attributable to development costs incurred in relation to the two government development contract awards , as well as costs related to the cooperative research and development agreement with the usda for enhanced cotton genotyping . depreciation and amortization depreciation and amortization increased by $ 215,855 or 44 % compared to the same period in 2015 from $ 490,641 for the fiscal year ended september 30 , 2015 to $ 706,496 for the fiscal year ended september 30 , 2016.the increase is attributable to depreciation and amortization expense for the lab equipment purchased during the fiscal year ended september 30 , 2016 and a full year of amortization on the customer relationships and technology purchased from vandalia during september 2015. interest income ( expenses ) interest income ( expense ) for the fiscal year ended september 30 , 2016 , increased to income of $ 11,004 from expense of $ 23,468 in the same period of 2015. the increase in interest income was due to the return of escrow funds associated with the vandalia asset purchase agreement . loss from change in fair value of warrant liability loss from change in fair value of warrant liability during the fiscal year ended september 30 , 2015 was $ 2,994,540. this change in fair value related to warrants containing certain reset provisions which required us to classify them as liabilities , mark the warrants to market and record the change in fair value at each reporting period , and upon exercise as a non-cash adjustment to our current period operations . as discussed in note h of the accompanying consolidated financial statements , on november 21 , 2014 , we repurchased the remaining outstanding series b warrants . net loss net loss increased $ 294,842 , or 2 % to $ 12,175,979 for the fiscal year ended september 30 , 2016 compared to $ 11,881,137 for the fiscal year ended september 30 , 2015 due to the factors noted above . recent accounting pronouncements see note b , `` recent accounting principles , '' to the accompanying consolidated financial statements for a description of accounting standards which may impact our consolidated financial statements in future reporting periods . liquidity and capital resources our liquidity needs consist of our working capital requirements and research and development expenditure funding . story_separator_special_tag as of september 30 , 2016 , we had working capital of $ 7,267,005. for the fiscal year ended september 30 , 2016 , we used cash of $ 9,896,727 consisting primarily of our loss of $ 12,175,979 , net with non-cash adjustments of $ 706,496 in depreciation and amortization charges , $ 2,038,830 for stock-based compensation , $ 5,520 loss on sale of property plant and equipment , $ 78,130 in common stock issued for consulting services and $ 116,825 of bad debt expense . additionally , we had a net increase in operating assets of $ 2,878,753 and a net increase in operating liabilities of $ 2,202,204. cash used in investing activities was $ 779,762 , consisting of $ 112,403 for the purchase of intangibles assets and $ 672,859 for the purchase of property , plant and equipment . cash provided by financing activities was $ 7,843,579 , which included $ 7,853,155 in net proceeds from the sale of common stock and warrants related to one public offering with concurrent private placement , $ 4,410 of proceeds from the exercise of warrants , offset by $ 13,986 of deferred offering costs . 32 at september 30 , 2016 , there was approximately $ 1.5 million included in the long-term accounts receivable relating to a customer from the cotton industry that purchased signature t dna to mark the cotton supply chain . the nature of this contract includes extended payment terms that will result in a longer collection period and slower cash inflows , which will affect our liquidity and capital resources . we have recurring net losses , which have resulted in an accumulated deficit of $ 223,817,388 as of september 30 , 2016. we have incurred a net loss of $ 12,175,979 for the fiscal year ended september 30 , 2016. at september 30 , 2016 we had cash and cash equivalents of $ 4,479,274. our current capital resources include cash and cash equivalents , accounts receivable and inventories . historically , we have financed our operations principally from the sale of equity securities . as discussed in note j , to the accompanying consolidated financial statements , during the fiscal year ended september 30 , 2016 , we closed on a registered direct public offering and concurrent private placement of common stock and warrants for gross proceeds of approximately $ 8.75 million before deducting underwriting discounts and offering expenses . in addition , on november 7 , 2016 , we closed a private placement of common stock and warrants to purchase common stock , for aggregate gross proceeds of approximately $ 5 million , before deducting placement agent fees and offering expenses . we expect to finance operations primarily through cash received from the november 2016 private placement as well as collection of our current accounts receivables . we estimate that we will have sufficient cash and cash equivalents to fund operations for the next twelve months from the balance sheet date . we may require additional funds to complete the continued development of our products , product manufacturing , and to fund expected additional losses from operations , until revenues are sufficient to cover our operating expenses . if revenues are not sufficient to cover our operating expenses , and if we are not successful in obtaining the necessary additional financing , we will most likely be forced to reduce operations . we expect capital expenditures to be less than $ 300,000 in fiscal 2017. our primary investments will be in laboratory equipment to support prototyping , manufacturing , our authentication services , and outside services for our detector and reader development . substantially all of the real property used in our business is leased under operating lease agreements . recent debt and equity financing transactions fiscal 2016 on november 23 , 2015 , we entered into a securities purchase agreement with certain institutional investors providing for the purchase and sale of 2,500,000 shares of our common stock at a price of $ 3.49 per share in the registered direct offering . in the concurrent private placement , we sold to each investor that purchased shares in the registered direct offering warrants to purchase our common stock , each exercisable for 0.5 shares of common stock , in the amount of one warrant for each share of common stock purchased by such investor in the registered direct offering , aggregating to 1,250,000 shares of our common stock issuable upon exercise of such warrants . such warrants were sold at a price of $ 0.01 per warrant , with an exercise price of $ 4.30 per share of common stock issuable upon exercise of such warrants , subject to adjustment as provided therein . the warrants will be exercisable beginning six months following the closing date of the registered direct offering and the private placement and will expire upon the close of business on the date that is five years from the date on which they become exercisable . the aggregate gross proceeds to us from the registered direct offering and concurrent private placement before deducting the placement agent fees and offering expenses , were $ 8.75 million ( excluding proceeds from any future exercises of such warrants ) . in connection with our entry into the securities purchase agreement with certain institutional investors as part of the registered direct offering and the private placement , we agreed not to enter into any agreement to issue or announce the issuance or proposed issuance of any common stock or common stock equivalents for a period of 90 days following the closing of the offerings . in connection with the closing of the registered direct offering and the private placement , as partial compensation , on november 25 , 2015 , we granted warrants to purchase 50,000 shares of common stock to our placement agent .
| we believe that given current facts and circumstances , it is unlikely that applying any other reasonable judgments or estimate methodologies would cause a material effect on our condensed consolidated results of operations , financial position or liquidity for the periods presented in this report . the accounting policies identified as critical are as follows : ● revenue recognition ; ● equity based compensation ; and ● fair value of financial instruments . revenue recognition we recognize revenue in accordance with accounting standards codification ( “ asc ” ) 605 , revenue recognition ( “ asc 605 ” ) . asc 605 requires that four basic criteria must be met before revenue can be recognized : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred and or service has been performed ; ( 3 ) the selling price is fixed and determinable ; and ( 4 ) collectability is reasonably assured . determination of criteria ( 3 ) and ( 4 ) are based on management 's judgments regarding the fixed nature of the selling prices of the products delivered or services provided and the collectability of those amounts . provisions for allowances and other adjustments are provided for in the same period the related sales are recorded . we defer any revenue for which the product has not been delivered , service has not been provided , or is subject to refund until such time that we and the customer jointly determine that the product has been delivered , the service has been provided , or no refund will be required . at september 30 , 2016 and 2015 , we recorded total deferred revenue of $ 2,737,588 and $ 282,050 , respectively . 29 revenue arrangements with multiple components are divided into separate units of accounting if certain criteria are met , including whether the delivered component has stand-alone value to the customer . consideration received is allocated among the separate units of accounting based on their respective selling prices . the selling price for each unit is based on vendor-specific objective evidence , or vsoe , if available , third party evidence if vsoe is not available , or estimated selling price if neither vsoe nor third party is available . the applicable revenue recognition
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the most significant inputs used to value an equity award include current stock price , the amount the employee must pay to acquire the equity award , volatility rate , interest rate and estimated term . for equity awards that vest upon achieving a defined milestone , the underlying compensation charge is recorded , when it is probable that the milestone will be achieved . it is then amortized over the estimated period to satisfy vesting requirements . the probability of vesting is updated at each reporting period and compensation is adjusted accordingly . the significant judgments relate to the assumptions used in the valuation model to determine 33 the fair value of the equity instrument including the volatility rate , term and interest rate . any increases ( decreases ) in either of the volatility rate , the term or the interest rate would increase ( decrease ) the value of the equity instrument and the corresponding compensation expense recognized each period . estimates of performance based awards vesting can also have a significant impact on recognized stock compensation as the likelihood of a performance based award vesting can change from period-to-period with changes in estimates included in current period operations . fair value measurements we have adopted the provisions of fasb asc topic 820 , fair value measurements and disclosures as of january 1 , 2008 for financial instruments . this standard defines fair value , establishes a framework for measuring fair value in generally accepted accounting principles , and expands disclosures about fair value measurements . asc 820 clarifies that fair value is an exit price , representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants . asc 820 permits an entity to measure certain financial assets and financial liabilities at fair value with changes in fair value recognized in earnings each period . asc 820 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value . level 1 inputs are quoted prices in active markets for identical assets or liabilities . level 2 inputs are inputs other than quoted prices included in level 1 that are directly or indirectly observable for the asset or liability . such inputs include quoted prices in active markets for similar assets and liabilities , quoted prices for identical or similar assets or liabilities in markets that are not active , inputs other than quoted prices that are observable for the asset or liability , or inputs derived principally from or corroborated by observable market data by correlation or other means . level 3 inputs are unobservable inputs for the asset or liability . such inputs are used to measure fair value when observable inputs are not available . warrant liability we account for the 6,857,142 common stock warrants issued in connection with the october 31 , 2013 financing in accordance with the guidance contained in asc 815-40-15-7d , contracts in entity 's own equity whereby under that provision they do not meet the criteria for equity treatment and must be recorded as a liability . accordingly , we classified the warrant instrument as a liability at its fair value and adjust the instrument to fair value at each reporting period . this liability is subject to re-measurement at each balance sheet date until exercised , and any change in fair value is recognized in the company 's statements of operations . the fair value of warrants issued by the company in connection with the transaction has been estimated using a black-scholes valuation . we also accounted for 693,202 common stock warrants that were issued in connection with our debt financing , as a liability until we increased our authorized number of shares at the 2013 annual meeting of stockholders and then reclassed it into equity . we recorded a change in fair value over that period of approximately $ .09 million . recently issued accounting standards the financial accounting standards board ( fasb ) periodically issues new accounting standards in a continuing effort to improve standards of financial accounting and reporting . we have reviewed the recently issued pronouncements and concluded that there are no recently issued accounting pronouncements that the company has yet to adopt that are expected to have a material effect on the company 's financial position , results of operations or cash flows . year ended december 31 , 2013 compared to year ended december 31 , 2012 revenue revenue was $ 0.5 million for the year ended december 31 , 2013 as compared to revenue of $ 0.3 million for the year ended december 31 , 2012 , an increase of $ 0.2 million . this increase is the result of an increase in placement fees and system usage . in general , under the company 's previous rental model with respect to placement of melafind ® systems , the company signed a user agreement with its customers that usually included an installation fee for the placement of the melafind ® system and provided for the billing of usage based on the number of patient sessions or lesions examined , or a fixed monthly rental fee . in addition , the user agreement provided for the sale of consumables needed to operate the system . deferred revenue primarily reflects the timed recognition of the installation fee revenue over the term of the user agreement , which is generally two years . 34 cost of revenue costs of revenue were $ 4.3 million for the year ended december 31 , 2013 as compared to $ 2.0 million for the year ended december 31 , 2012 , an increase of $ 2.3 million . story_separator_special_tag costs of revenue were primarily made up of direct costs associated with the placement of the melafind ® system in the doctor 's office , the cost of consumables delivered at installation , the cost of the electronic record cards , technical support costs and depreciation expense of the melafind ® system placed with the customer , which under the company 's previous rental model with respect to placement of melafind ® systems , remains the property of the company . certain product quality and manufacturing overhead costs associated with supporting the contract manufacturers of melafind ® are allocated to costs of goods sold . the company had not recorded any cost of revenue prior to the commercial launch of melafind ® . research and development expense research and development ( r & d ) expenses decreased 44 % to approximately $ 3.8 million for the year ended december 31 , 2013 as compared to $ 6.8 million for the year ended december 31 , 2012. the decrease is the result of resources being redeployed from r & d activities to supporting product revenue and the cost reduction plan initiated in august 2013 , offset by reorganization costs . ongoing r & d efforts are for product enhancements . selling , general and administrative expense selling , general and administrative ( sg & a ) expenses increased $ 1.3 million or 9 % to approximately $ 15.5 million for the year ended december 31 , 2013 as compared to $ 14.2 million for the year ended december 31 , 2012. the increase is the result of increases in professional fees in connection with debt and equity financings and an increase in severance expense due to the resignation of certain executive officers during the year ended december 31 , 2013. impairment of long-lived assets during year ended december 31 , 2013 , our marketing shifted focus to large cancer centers and high risk patients , and we have taken an impairment charge of approximately $ 1.0 million against our melafind ® systems previously placed in locations that do not fit this profile . however , as these user agreements expire over the next 2 years , we anticipate that the affected systems will be redeployed in some capacity . interest ( income ) /expense interest income for the year ended december 31 , 2013 decreased to $ .008 million from $ .03 million for the comparable period of 2012. interest income decreased primarily as a result of smaller cash balances during the period in 2013. interest expense increased $ 0.6 million for the year ended december 31 , 2013 due to the company borrowing $ 6.0 million in march of 2013 and subsequently prepaying the loan in september of 2013 ( see write-off of unamortized loan costs ) . write-off of unamortized loan costs on march 15 , 2013 , we executed loan documents with hercules technology growth capital inc. , a venture capital lender , whereby we borrowed $ 6.0 million ( the loan . ) the loan accrued interest at a rate of 10.45 % . the term of the loan was 42 months with interest payments only during the first 12 months . on september 10 , 2013 , we elected to prepay the loan and paid hercules approximately $ 6.4 million , including the $ 0.4 million fee discussed below , to settle all obligations to hercules . hercules agreed to waive the prepayment penalty of approximately $ 0.2 million . upon executing the loan documents on march 15 , 2013 we became obligated to issue to the lender a warrant to purchase shares of our common stock upon approval by our stockholders of a proposal to increase our number of authorized shares of common stock at our 2013 annual meeting of stockholders . the number of shares that could be acquired upon exercise of the warrant and the exercise price per share , were not fixed on march 15 , 2013 but would be determined when the warrant was issued based on a defined formula using trading prices of our common stock during certain periods prior to the issuance of the warrant . our stockholders approved the increase in the number of authorized shares of common stock on april 25 , 2013 and on april 26 , 2013 the warrant was issued to the lender . the terms of the warrant were fixed on the date of issuance whereby the lender received a warrant to purchase 693,202 shares of common stock at an exercise price of approximately $ 1.12 per share ( warrant ) . the warrant expires on april 26 , 2018. for financial reporting purposes , the $ 6.0 million funded by the lender on march 15 , 2013 was allocated first to the fair value of our obligation to issue the warrant ( warrant obligation ) that totaled approximately $ 0.6 million and the balance was reduced further by the lender 's costs and fees ( costs ) , resulting in an initial carrying value of the loan of approximately $ 5.3 million . the company used a level 3 fair value measurement to determine fair value of the warrant obligation , which has significant unobservable inputs as defined in accounting standards codification 820 fair value measures . during the period from the loan inception date until the warrant obligation was fulfilled and the warrant was issued , the warrant obligation was reflected as a long- 35 term liability at fair value . changes in the fair value ( mark-to-market adjustments ) of the warrant obligation of approximately $ .09 million are included in operating results . the fair value of the warrant obligation was determined using the monte carlo pricing model that used various assumptions that included : stock prices ranging from $ 1.16 to $ 1.18 per share , volatility of 77 % , time to maturity of 5 years , exercise prices ranging from $ 1.15 to $ 1.16 and a risk free interest rate of return of .84 % .
| on november 11 , 2013 , a new ceo was brought on board and a newly refocused go-to-market strategy focusing on key institutions , opinion leaders and dermatologists who treat many of the patients at high risk for melanoma was adopted . as part of this strategy , in late december , we elected to change our business model from a rental to a sale model for the melafind ® device . we have reduced our costs , brought new and experienced talent to our management team and have reconsidered the approach to the commercialization of the melafind ® device . we have also begun the process of obtaining a coverage determination from the centers for medicare & medicaid services , the federal agency that administers medicare , in order to obtain reimbursement by medicare for use of the melafind ® device . we anticipate that this process could take up to two years . once a coverage determination has been made , we plan to seek reimbursement by medicaid , medicare and other third-party payers . our revenue for the foreseeable future will depend on the success of melafind ® , and may vary substantially from year-to-year and quarter-to-quarter . our operating expenses may also vary substantially from year-to-year and quarter-to-quarter . we believe that period-to-period comparisons of our results of operations may not be meaningful and should not be relied on as indicative of our future performance . 31 we commenced operations in december 1989 as a new york corporation and re-incorporated as a delaware corporation in september 1997. since our inception , we have generated significant losses . as of december 31 , 2013 , we had an accumulated deficit of approximately $ 168.1 million . we expect to continue to spend significant amounts on the commercialization of melafind ® . subsequent to year end , we raised approximately $ 11.5 million in net proceeds from the private placement of convertible preferred stock , common stock warrants and common stock .
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implementation of rule compliance will begin immediately , and full enforcement of the regulations will commence in 2017. with full implementation of the rules , industry analysts anticipate that the number of eld-equipped trucks on the road will increase from 1 million today to approximately 2.7 million in 2017. the upcoming fmcsa mandate on elds may significantly impact both drivers and trucking companies and offers an opportunity for the industry to increase the use of mobile technology to achieve better efficiencies while at the same time meet the new compliance requirements . in order to log their hours of service , or hos , the mandate requires all long-haul drivers to use elds rather than the old paper forms . using elds will assist drivers to accurately share reports of their hos electronically in real time . we estimate based on the compliance requirements that since all drivers must be in compliance by 2019 , a significant number of large trucking companies will need to purchase elds to meet the mandatory requirements of the mandate and hence the demand for eld compliance devices and or products will increase . non-gaap financial measures in addition to providing financial measurements based on generally accepted accounting principles in the united states of america , or gaap , we provide additional financial metrics that are not prepared in accordance with gaap , or non-gaap financial measures . management uses non-gaap financial measures , in addition to gaap financial measures , to understand and compare operating results across accounting periods , for financial and operational decision making , for planning and forecasting purposes and to evaluate our financial performance . management believes that these non-gaap financial measures reflect our ongoing business in a manner that allows for meaningful comparisons and analysis of trends in our business , as they exclude expenses and gains that are not reflective of our ongoing operating results . management also believes that these non-gaap financial measures provide useful information to investors in understanding and evaluating our operating results and future prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies . 28 the non-gaap financial measures do not replace the presentation of our gaap financial results and should only be used as a supplement to , not as a substitute for , our financial results presented in accordance with gaap . the non-gaap adjustments , and the basis for excluding them from non-gaap financial measures , are outlined below : · amortization of acquired intangible assets - we are required to amortize the intangible assets , included in our gaap financial statements , related to the acquisition and the transaction . the amount of an acquisition 's purchase price allocated to intangible assets and term of its related amortization are unique to these transactions . the amortization of acquired intangible assets are non-cash charges . we believe that such changes do not reflect our operational performance . therefore , we exclude amortization of acquired intangible assets to provide investors with a consistent basis for comparing pre- and post-transaction operating results . · amortization of note discount and related expenses - these interest expenses are non-cash and are related to amortization of discount of the uta capital llc notes , the last of which was paid in january 2015. such expenses do not reflect our on-going operations and all of them were incurred up to the end of fiscal 2014 . · change in fair value of call options and warrants – the change in fair value of the call options relating to the acquisition of micronet is recorded as interest expense . the change in fair value is derived primarily from micronet 's share price and does not reflect our on-going operations . · stock-based compensation is share based awards granted to certain individuals . they are non-cash and affected by our historical stock prices which are irrelevant to forward-looking analyses and are not necessarily linked to our operational performance . · expenses related to the purchase of a business - these expenses relate directly to the purchase of the vehicle business and consist mainly of legal and accounting fees , finder 's fees and travel expenses . we believe that these expenses do not reflect our operational performance . therefore , we exclude them to provide investors with a consistent basis for comparing pre-and post-vehicle business purchase operating results . the following table reconciles , for the periods presented , gaap net loss attributable to micronet enertec to non-gaap net income attributable to micronet enertec and gaap loss per diluted share attributable to micronet enertec to non-gaap net income per diluted share attributable to micronet enertec : replace_table_token_3_th 29 story_separator_special_tag ended december 31 , 2014. the increase in net loss decrease is mainly a result of the decrease in revenues . finance expenses , net financial expenses net , for the year ended december 31 , 2015 were $ 610,000 compared to $ 296,000 , for the year ended december 31 , 2014. this represents an increase of $ 314,000 , or 106 % , for the year ended december 31 , 2015. the increase in interest expenses in the year ended december 31 , 2015 as compared to the year ended december 31 , 2014 was primarily due to exchange rate fluctuations . net loss attributed to micronet enertec technologies , inc. our net loss attributable to micronet enertec was $ 2,467,000 , or 10 % as a percentage of sales , in the year ended december 31 , 2015 compared to net loss attributable to micronet enertec of $ 2,139,000 , or 6 % as a percentage of sales , in the year ended december 31 , 2014. this represents an increase in net loss of $ 328,000 , or 15 % , as compared with the year ended december 31 , 2014. the change is mainly a result of the changes in gross profit and operating expenses as described above . story_separator_special_tag liquidity and capital resources the company finances its operations through current revenues , loans and securities offerings . the loans are divided into bank loans and a loan from meydan family trust no 3 , or meydan , as described below . as of december 31 , 2015 , our total cash and cash equivalents and restricted cash and marketable securities balance was $ 12,139,000 ( of which marketable securities amounted to $ 5,643,000 ) , as compared to $ 14,998,000 ( of which marketable securities amounted to $ 6,406,000 ) as of december 31 , 2014. this reflects a significant decrease of $ 2,859,000 in cash and cash equivalents and restricted cash and marketable securities . the decrease in cash and cash equivalents is primarily a result of the decrease in trade account payable and repayments of loans to banks and others . 31 on september 2 , 2015 , enertec entered into a credit line agreement with a financing firm , or the financing firm , pursuant to which the financing firm agreed to grant enertec a credit line for the financing of certain payables of enertec . the maximum aggregate amount of the financing eligible under the credit line agreement is $ 675,000 and up to 85 % of each invoice . the financing pursuant to the credit line agreement is at an annual rate of prime plus 1.75 % . the credit line agreement will expire on may 31 , 2016. as of december 31 , 2015 , enertec had financed $ 661,000 pursuant to the credit line agreement . on december 30 , 2015 , the company entered into a loan agreement , or the meydan loan , with meydan , pursuant to which meydan agreed to loan the company $ 750,000 on certain terms and conditions . the proceeds of the meydan loan have been used by the company for working capital and general corporate needs . the meydan loan bears interest at the rate of libor plus 8 % per annum and is due and payable in 4 equal installments beginning on july 10 , 2016. in connection with our acquisition of the vehicle business , micronet entered into a loan agreement , or the fibi loan agreement , with the first international bank of israel , or fibi . under this agreement , fibi loaned micronet $ 4.85 million for the financing of this acquisition . pursuant to the terms of the fibi loan agreement , $ 2.425 million of the loan bears interest at a quarterly adjustable rate of prime plus 1.5 percent ( 3.75 % percent as of the date of the loan ) , or the long term portion . the long term portion plus interest is due and payable in twelve equal consecutive quarterly installments beginning on august 29 , 2014. the balance of the loan in the amount of $ 2.425 million bears interest at a quarterly adjustable rate of prime plus 1.2 % ( 3.45 % as of the date of the loan ) , or the short term portion . the short term portion is due and payable within one year from the date of the loan , and the interest on the short term portion is due and payable every quarter beginning on august 29 , 2014. the loan is secured mainly by a floating charge against micronet 's assets and a mortgage on a building owned by micronet . the loan is subject to customary covenants , terms , conditions , events of default and certain pre-payment provisions . as of may 28 , 2015 , micronet repaid the short term portion and borrowed a new loan for the same amount and on the same terms as the prior short term portion for a period of nine months ending on november 29 , 2016. as of december 31 , 2015 , the balance on this loan ( the long term portion and the short term portion ) was approximately $ 3,276,000 and the interest rates were prime plus 1.2 % and prime plus 1.5 % for the short term portion and the long term portion , respectively . on june 17 , 2014 , enertec entered into a loan agreement , or the mercantile loan agreement , with mercantile discount bank ltd. , or mercantile bank , pursuant to which mercantile bank agreed to loan the company approximately $ 3,631,000 on certain terms and conditions , or the mercantile loan . the proceeds of the mercantile loan were used by the company : ( 1 ) to refinance previous loans granted to the company in the amount of approximately $ 1,333,000 ; ( 2 ) to complete the purchase by the company , via enertec , of 1.2 million shares of micronet constituting 6.3 % of the issued and outstanding shares of micronet ; and ( 3 ) for working capital and general corporate purposes . pursuant to the terms of the mercantile loan agreement : 1 ) approximately $ 3,050,000 of the mercantile loan bears interest at a quarterly adjustable rate of prime plus 2.45 percent , or the mercantile long term portion , and 2 ) approximately $ 581,000 of the mercantile loan bears interest at a quarterly adjustable rate of prime plus 1.7 percent , or the mercantile short term portion . the mercantile long term portion is due and payable in five equal consecutive annual installments beginning on july 1 , 2015 , and the interest on the mercantile long term portion is due and payable in ten equal consecutive annual installments beginning at january 1 , 2015. the mercantile short term portion in the amount of approximately $ 581,000 bears interest of prime plus 1.7 % .
| selling and marketing selling and marketing costs are part of operating expenses . selling and marketing costs for the year ended december 31 , 2015 were $ 1,530,000 , as compared to $ 1,947,000 for the year ended december 31 , 2014. this represents a decrease of $ 417,000 , or 21 % for the year 2015. the decrease is primarily due to a decrease in sales commissions as a result of decreased revenues in the mrm market . general and administrative general and administrative costs are part of operating expenses . general and administrative costs for the year ended december 31 , 2015 were $ 4,723,000 as compared to $ 6,290,000 for the year ended december 31 , 2014. this represents a decrease of $ 1,567,000 , or 25 % , for the year ended december 31 , 2015. the decrease is mainly due decrease in the mrm division due to the consolidation of various administrative functions , reduction of headcount costs and the reduction of other expenses such as , legal , consulting and accounting fees related to the acquisition of the vehicle business . the decrease is also a result of a $ 1,000,000 provision for doubtful debts given the uncertainty regarding certain payments from a major customer in 2014 related to the mrm market . 30 research and development costs research and development costs are part of operating expenses . research and development costs , which include mainly wages , materials and sub-contractors , for the year ended december 31 , 2015 , were $ 2,453,000 compared to $ 2,807,000 for the year ended december 31 , 2014. this represents a decrease of $ 354,000 , or 13 % for the year ended december 31 , 2015. the decrease is mainly due to a reduction in research and development activities , including materials , subcontractors and a reduction in headcount costs . the research and development costs of micronet were $ 1,894,000 for the year ended december 31 , 2015 ,
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pinsley ( incorporated by reference to exhibit 10.9 to espey 's report on form 10-q dated may 12 , 2011 ) 10.10 retired director compensation program and mandatory retirement agreement – alvin sabo ( incorporated by reference to exhibit 10.10 to espey 's report on form 10-q dated may 12 , 2011 ) 10.11 retired director compensation program and mandatory retirement agreement – michael wool ( incorporated by reference to exhibit 10.11 to espey 's report on form 10-q dated may 12 , 2011 ) 10.12 executive employment agreement with mark st. pierre ( incorporated by reference to exhibit 10.12 on espey 's report on form 8-k dated march 4 , 2013 ) 10.13 executive employment agreement with david o'neil ( incorporated by reference to exhibit 10.13 on espey 's report on form 8-k dated march 4 , 2013 ) 10.14 executive employment agreement with peggy murphy ( incorporated by reference to exhibit 10.14 on espey 's report on form 8-k dated march 4 , 2013 ) 27 11.1 statement re : computation of per share net income ( filed herewith ) 14.1 code of ethics ( incorporated by reference to espey 's website www.espey.com ) 23.1 consent of efp rotenberg , llp ( filed herewith ) 31.1 certification of the chief executive officer pursuant to rules 13a-14 ( a ) and 15d-14 ( a ) under the securities exchange act of 1934 , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 ( filed herewith ) 31.2 certification of the principal financial officer pursuant to rules 13a-14 ( a ) and 15d-14 ( a ) under the securities exchange act of 1934 , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 ( filed herewith ) 32.1 certification of the chief executive officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 ( filed herewith ) 32.2 certification of the principal financial officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 ( filed herewith ) 28 s i g n a t u r e s pursuant to the requirements of section 13 and 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . espey mfg . & electronics corp. mark st. pierre mark st. pierre president and chief executive officer mark st. pierre president mark st. pierre ( chief executive officer ) september 12 , 2013 david o'neil treasurer david o'neil ( principal financial officer ) september 12 , 2013 katrina sparano assistant treasurer katrina sparano ( principal accounting officer ) september 12 , 2013 howard pinsley chairman of the board howard pinsley september 12 , 2013 barry pinsley director barry pinsley september 12 , 2013 michael w. wool director michael w. wool september 12 , 2013 paul j. corr director paul j. corr september 12 , 2013 alvin o. sabo director alvin o. sabo september 12 , 2013 carl helmetag director carl helmetag september 12 , 2013 29 story_separator_special_tag business outlook management expects revenues in fiscal 2014 to be less than fiscal year 2013 revenues . expectations are for product mix and margins to remain favorable for fiscal year 2014. during fiscal 2013 new orders received by the company were approximately $ 26.1 million . the order backlog of approximately $ 42.1 million at june 30 , 2013 gives the company a solid base of future sales . it is presently anticipated that a minimum of $ 27 million of orders comprising the june 30 , 2013 backlog will be filled during the fiscal year ending june 30 , 2014. the minimum of $ 27 million does not include any shipments , which may be made against orders subsequently received during the fiscal year ending june 30 , 2014. see discussions below for further detail on the customer mix included in the backlog . in addition to the backlog , the company currently has outstanding opportunities representing in excess of $ 56 million in the aggregate for both repeat and new programs . the outstanding quotations encompass various new and previously manufactured power supplies , transformers , and subassemblies . however , there can be no assurance that the company will acquire any or all of the anticipated orders described above , many of which are subject to allocations of the united states defense spending and factors affecting the defense industry and military procurement generally . three significant customers represented 63 % of the company 's total sales in fiscal 2013 and two significant customers represented 60 % of the company 's total sales in fiscal 2012. these sales are in connection with multiyear programs in which the company is a significant subcontractor . the june 30 , 2013 backlog of $ 42.1 million includes orders from two customers that represent 57 % and 11 % of the total backlog . a loss of one of these customers or programs related to these customers could significantly impact the company . historically , a small number of customers have accounted for a large percentage of the company 's total sales in any given fiscal year . for several years , management has pursued opportunities with current and new customers with an overall objective of lowering the concentration of sales , mitigating excessive reliance upon a single major product of a particular program and minimizing the impact of the loss of a single significant customer . management continues to evaluate its business development functions and potential revised courses of action in order to diversify its customer base . the company currently has a very high concentration level with two customers and this presents significant risk . management , along with the board of directors , continues to evaluate the need and use of the company 's working story_separator_special_tag pinsley ( incorporated by reference to exhibit 10.9 to espey 's report on form 10-q dated may 12 , 2011 ) 10.10 retired director compensation program and mandatory retirement agreement – alvin sabo ( incorporated by reference to exhibit 10.10 to espey 's report on form 10-q dated may 12 , 2011 ) 10.11 retired director compensation program and mandatory retirement agreement – michael wool ( incorporated by reference to exhibit 10.11 to espey 's report on form 10-q dated may 12 , 2011 ) 10.12 executive employment agreement with mark st. pierre ( incorporated by reference to exhibit 10.12 on espey 's report on form 8-k dated march 4 , 2013 ) 10.13 executive employment agreement with david o'neil ( incorporated by reference to exhibit 10.13 on espey 's report on form 8-k dated march 4 , 2013 ) 10.14 executive employment agreement with peggy murphy ( incorporated by reference to exhibit 10.14 on espey 's report on form 8-k dated march 4 , 2013 ) 27 11.1 statement re : computation of per share net income ( filed herewith ) 14.1 code of ethics ( incorporated by reference to espey 's website www.espey.com ) 23.1 consent of efp rotenberg , llp ( filed herewith ) 31.1 certification of the chief executive officer pursuant to rules 13a-14 ( a ) and 15d-14 ( a ) under the securities exchange act of 1934 , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 ( filed herewith ) 31.2 certification of the principal financial officer pursuant to rules 13a-14 ( a ) and 15d-14 ( a ) under the securities exchange act of 1934 , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 ( filed herewith ) 32.1 certification of the chief executive officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 ( filed herewith ) 32.2 certification of the principal financial officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 ( filed herewith ) 28 s i g n a t u r e s pursuant to the requirements of section 13 and 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . espey mfg . & electronics corp. mark st. pierre mark st. pierre president and chief executive officer mark st. pierre president mark st. pierre ( chief executive officer ) september 12 , 2013 david o'neil treasurer david o'neil ( principal financial officer ) september 12 , 2013 katrina sparano assistant treasurer katrina sparano ( principal accounting officer ) september 12 , 2013 howard pinsley chairman of the board howard pinsley september 12 , 2013 barry pinsley director barry pinsley september 12 , 2013 michael w. wool director michael w. wool september 12 , 2013 paul j. corr director paul j. corr september 12 , 2013 alvin o. sabo director alvin o. sabo september 12 , 2013 carl helmetag director carl helmetag september 12 , 2013 29 story_separator_special_tag business outlook management expects revenues in fiscal 2014 to be less than fiscal year 2013 revenues . expectations are for product mix and margins to remain favorable for fiscal year 2014. during fiscal 2013 new orders received by the company were approximately $ 26.1 million . the order backlog of approximately $ 42.1 million at june 30 , 2013 gives the company a solid base of future sales . it is presently anticipated that a minimum of $ 27 million of orders comprising the june 30 , 2013 backlog will be filled during the fiscal year ending june 30 , 2014. the minimum of $ 27 million does not include any shipments , which may be made against orders subsequently received during the fiscal year ending june 30 , 2014. see discussions below for further detail on the customer mix included in the backlog . in addition to the backlog , the company currently has outstanding opportunities representing in excess of $ 56 million in the aggregate for both repeat and new programs . the outstanding quotations encompass various new and previously manufactured power supplies , transformers , and subassemblies . however , there can be no assurance that the company will acquire any or all of the anticipated orders described above , many of which are subject to allocations of the united states defense spending and factors affecting the defense industry and military procurement generally . three significant customers represented 63 % of the company 's total sales in fiscal 2013 and two significant customers represented 60 % of the company 's total sales in fiscal 2012. these sales are in connection with multiyear programs in which the company is a significant subcontractor . the june 30 , 2013 backlog of $ 42.1 million includes orders from two customers that represent 57 % and 11 % of the total backlog . a loss of one of these customers or programs related to these customers could significantly impact the company . historically , a small number of customers have accounted for a large percentage of the company 's total sales in any given fiscal year . for several years , management has pursued opportunities with current and new customers with an overall objective of lowering the concentration of sales , mitigating excessive reliance upon a single major product of a particular program and minimizing the impact of the loss of a single significant customer . management continues to evaluate its business development functions and potential revised courses of action in order to diversify its customer base . the company currently has a very high concentration level with two customers and this presents significant risk . management , along with the board of directors , continues to evaluate the need and use of the company 's working
| employment of full time equivalents at june 30 , 2013 was 170 people compared with 165 people at june 30 , 2012. other income remained consistent for the fiscal years ended june 30 , 2013 and 2012 was $ 83,758 and $ 89,702 , respectively . 7 the effective income tax rate was 29.3 % in fiscal 2013 and 27.8 % in fiscal 2012. the effective tax rate is less than the statutory tax rate mainly due to the benefit the company receives on its “ qualified production activities ” under the american jobs creation act of 2004 and the benefit derived from the dividends paid on allocated esop shares . net income for fiscal 2013 , was $ 5,562,425 or $ 2.52 and $ 2.48 per share , basic and diluted , respectively , compared to net income of $ 4,390,268 or $ 2.02 and $ 1.99 per share , basic and diluted , respectively , for fiscal 2012. the increase in net income per share was primarily due to higher sales , higher gross profit on sales , offset slightly by higher selling , general and administrative expenses . liquidity and capital resources the company 's working capital is an appropriate indicator of the liquidity of its business , and during the past two fiscal years , the company , when possible , has funded all of its operations with cash flows resulting from operating activities and when necessary from its existing cash and investments . the company did not borrow any funds during the last two fiscal years . the company 's working capital as of june 30 , 2013 and 2012 was $ 29,591,453 and $ 27,199,385 , respectively . during the three months ended june 30 , 2013 and 2012 the company did not repurchase any shares of its common stock . during the fiscal years ended june 30 , 2013 and 2012 the company repurchased 5,753 and 6,269 shares , respectively , of its common stock from the company 's employee retirement plan and trust ( “ esop ” ) and in other open market transactions , for a total purchase price of $ 150,020 and $ 143,731 , respectively . under existing authorizations from the company 's
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all other costs are expensed as incurred . sales incentives , including pricing discounts and financing costs paid by the company , are recorded as a reduction of revenue in the company 's consolidated statements of income . sales incentives in the form of options or upgrades are recorded in homebuilding costs . inventory . inventory includes the costs of land acquisition , land development and home construction , capitalized interest , real estate taxes , direct overhead costs incurred during development and home construction , and common costs that benefit the entire community , less impairments , if any . land acquisition , land development and common costs ( both incurred and estimated to be incurred ) are typically allocated to individual lots based on the total number of lots expected to be closed in each community or phase , or based on the relative fair value , the relative sales value or the front footage method of each lot . any changes to the estimated total development costs of a community or phase are allocated proportionately to the homes remaining in the community or phase and homes previously closed . the cost of individual lots is transferred to homes under construction when home construction begins . home construction costs are accumulated on a specific identification basis . costs of home deliveries include the specific construction cost of the home and the allocated lot costs . such costs are charged to cost of sales simultaneously with revenue recognition , as discussed above . when a home is closed , we typically have not yet paid all incurred costs necessary to complete the home . as homes close , we compare the home construction budget to actual recorded costs to date to estimate the additional costs to be incurred from our subcontractors related to the home . we record a liability and a corresponding charge to cost of sales for the amount we estimate will ultimately be paid related to that home . we monitor the accuracy of such estimates by comparing actual costs incurred in subsequent months to the estimate . although actual costs to complete a home in the future could differ from our estimates , our method has historically produced consistently accurate estimates of actual costs to complete closed homes . inventory is recorded at cost , unless events and circumstances indicate that the carrying value of the land is impaired , at which point the inventory is written down to fair value as required by asc 360-10 , property , plant and equipment ( “ asc 360 ” ) . the company assesses inventory for recoverability on a quarterly basis if events or changes in local or national economic conditions indicate that the carrying amount of an asset may not be recoverable . in conducting our quarterly review for indicators of impairment on a community level , we evaluate , among other things , margins on sales contracts in backlog , the margins on homes that have been delivered , expected changes in margins with regard to future home sales over the life of the community , expected changes in margins with regard to future land sales , the value of the land itself as well as any results from third-party appraisals . from the review of all of these factors , we identify communities whose carrying values may exceed their estimated undiscounted future cash flows and run a test for recoverability . for those communities whose carrying values exceed the estimated undiscounted future cash flows and which are deemed to be impaired , the impairment recognized is measured by the amount by which the carrying amount of the communities exceeds the estimated fair value . due to the fact that the company 's cash flow models and estimates of fair values are based upon management estimates and assumptions , unexpected changes in market conditions and or changes in management 's intentions with respect to the inventory may lead the company to incur additional impairment charges in the future . because each inventory asset is unique , there are numerous inputs and assumptions used in our valuation techniques , including estimated average selling price , construction and development costs , absorption pace ( reflecting any product mix change strategies implemented or to be implemented ) , selling strategies , alternative land uses ( including disposition of all or a portion of the land owned ) , or discount rates , which could materially impact future cash flow and fair value estimates . 26 as of december 31 , 2018 , our projections generally assume a gradual improvement in market conditions . if communities are not recoverable based on estimated future undiscounted cash flows , the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets . the fair value of a community is estimated by discounting management 's cash flow projections using an appropriate risk-adjusted interest rate . as of december 31 , 2018 , we utilized discount rates ranging from 13 % to 16 % in our valuations . the discount rate used in determining each asset 's estimated fair value reflects the inherent risks associated with the related estimated cash flow stream , as well as current risk-free rates available in the market and estimated market risk premiums . our quarterly assessments reflect management 's best estimates . due to the inherent uncertainties in management 's estimates and uncertainties related to our operations and our industry as a whole as further discussed in “ item 1a . risk factors ” in part i of this annual report on form 10-k , we are unable to determine at this time if and to what extent continuing future impairments will occur . additionally , due to the volume of possible outcomes that can be generated from changes in the various model inputs for each community , we do not believe it is possible to create a sensitivity analysis that can provide meaningful information for the users of our financial statements . goodwill . story_separator_special_tag goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired and liabilities assumed in business combinations . as a result of the company 's acquisition of the homebuilding assets and operations of pinnacle homes in detroit , michigan on march 1 , 2018 , the company recorded goodwill of $ 16.4 million as of december 31 , 2018 , which is included as goodwill in our consolidated balance sheets . this amount was based on the estimated fair values of the acquired assets and assumed liabilities at the date of the acquisition in accordance with asc 350 , intangibles , goodwill and other ( “ asc 350 ” ) . please see note 12 to the company 's consolidated financial statements for further discussion . in january 2017 , the fasb issued asu 2017-04 , simplifying the test for goodwill impairment ( “ asu 2017-04 ” ) , which eliminates step 2 from the goodwill impairment test in order to simplify the subsequent measurement of goodwill . step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit 's goodwill with the carrying amount of that goodwill . as a result of asu 2017-04 , the company will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit 's carrying amount over its fair value , not to exceed the total amount of goodwill allocated to the reporting unit . asu 2017-04 is effective beginning january 1 , 2020 , with early adoption permitted , and applied prospectively . the company elected to early adopt this asu effective for the fiscal year ended december 31 , 2018 in its impairment testing and analyses . the adoption of asu 2017-04 on january 1 , 2018 did not have an impact on the company 's consolidated financial statements and disclosures . the company performed its annual goodwill impairment analysis during the fourth quarter of 2018 , and as no indicators for impairment existed at december 31 , 2018 , no impairment was recorded . in accordance with asc 350 , the company analyzes goodwill for impairment on an annual basis ( or more often if indicators of impairment exist ) . the company performs a qualitative assessment to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount . when performing a qualitative assessment , the company evaluates qualitative factors such as : ( 1 ) macroeconomic conditions , such as a deterioration in general economic conditions ; ( 2 ) industry and market considerations , such as deterioration in the environment in which the entity operates ; ( 3 ) cost factors , such as increases in raw materials and labor costs ; and ( 4 ) overall financial performance , such as negative or declining cash flows or a decline in actual or planned revenue or earnings , to determine if it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount . if the qualitative assessment indicates that it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount , then a quantitative assessment is performed to determine the reporting unit 's fair value . if the reporting unit 's carrying value exceeds its fair value , then an impairment loss is recognized for the amount of the excess of the carrying amount over the reporting unit 's fair value . the evaluation of goodwill for possible impairment includes estimating fair value using one or a combination of valuation techniques , such as discounted cash flows . these valuations require the company to make estimates and assumptions regarding future operating results , cash flows , changes in capital expenditures , selling prices , profitability , and the cost of capital . although the company believes its assumptions and estimates are reasonable , deviations from the assumptions and estimates could produce a materially different result . land option or purchase agreements . in accordance with asc 810-10 , consolidation ( “ asc 810 ” ) , we analyze our land option or purchase agreements to determine whether the corresponding land seller is a variable interest entity ( “ vie ” ) and , if so , whether we are the primary beneficiary ( using an analysis similar to that described in note 1 to our consolidated financial statements within the description of our significant accounting policy for vies ) . although we do not have legal title to the optioned land , asc 810 requires a company to consolidate a vie if the company is determined to be the primary beneficiary . in cases where we are the primary beneficiary , even though we do not have title to such land , we are required to consolidate these purchase/option agreements and reflect such assets and liabilities as consolidated inventory not owned on our consolidated balance sheets . at 27 both december 31 , 2018 and 2017 , we have concluded that we were not the primary beneficiary of any vies from which we are purchasing under land option or purchase agreements . in addition , we evaluate our land option or purchase agreements to determine for each contract if ( 1 ) a portion or all of the purchase price is a specific performance requirement , or ( 2 ) the amount of deposits and prepaid acquisition and development costs have exceeded certain thresholds relative to the remaining purchase price of the lots . if either is the case , then the remaining purchase price of the lots ( or the specific performance amount , if applicable ) is recorded as an asset and liability in consolidated inventory not owned on our consolidated balance sheets . please see note 1 to our consolidated financial statements and the “ off-balance sheet arrangements ” section below for additional information related to our off-balance-sheet arrangements . warranty reserves .
| 17 % to $ 2.29 billion - a record high for our company number of active communities at december 31 , 2018 increased 11 % to 209 summary of company financial results in 2018 the calculations of adjusted income before income taxes , adjusted net income available to common shareholders , and adjusted housing gross margin , which we believe provide a clearer measure of the ongoing performance of our business , are described and reconciled to income before income taxes , net income available to common shareholders , and housing gross margin , the financial measures that are calculated using our gaap results , below under “ non-gaap financial measures. ” income before income taxes for the twelve months ended december 31 , 2018 increased 17 % from $ 120.3 million for the year ended december 31 , 2017 to $ 141.3 million for the year ended december 31 , 2018 . income before income taxes for 2018 was unfavorably impacted by $ 5.1 million of charges for the amortization of inventory profit write-up related to purchase accounting adjustments on detroit homes that were delivered during 2018 incurred as a result of our acquisition of pinnacle homes in march 2018 ( as more fully discussed below and in note 12 to our consolidated financial statements ) , $ 1.7 million of acquisition and integration costs related to our acquisition of pinnacle homes , and asset impairment charges of $ 5.8 million . income before income taxes for 2017 was unfavorably impacted by an $ 8.5 million charge for stucco-related repair costs in certain of our florida communities ( as more fully discussed below and in note 8 to our consolidated financial statements ) and asset impairment charges of $ 7.7 million . excluding these acquisition-related and impairment charges in 2018 , and the stucco-related and impairment charges in 2017 , adjusted income before income taxes increased 13 % from $ 136.5 million in 2017 to
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as of december 31 , 2016 and 2015 , 14 % and 17 % of our customers , respectively , were located outside of the united states and these customers generated 10 % and 14 % of our total revenue for the years ended december 31 , 2016 and 2015 , respectively . we have focused on rapidly growing our business and believe that the future growth of our business is dependent on many factors , including our ability to increase the functionality of our platform and applications , expand our customer base , accelerate adoption of our applications beyond mass notification within our existing customer base and expand our international presence . our future growth will also depend on the growth in the market for critical communications solutions and our ability to effectively compete . in order to further penetrate the market for critical communications solutions and capitalize on what we believe to be a significant opportunity , we intend to continue to invest in research and development , build-out our data center infrastructure and services capabilities and hire additional sales representatives , both domestically and internationally , to drive sales to new customers and incremental sales of new applications to existing customers . nevertheless , we expect to continue to incur losses in the near term and , if we are unable to achieve our growth objectives , we may not be able to achieve profitability . recent developments in september 2016 , we closed our initial public offering , or ipo , at which time we sold a total of 6,250,000 shares of our common stock . we received net cash proceeds of $ 66.1 million , net of underwriting discounts and commissions and other costs associated with the offering paid or payable by us . in december 2016 , we acquired 100 % of the shares of svensk krisledning ab , or crisis commander . we acquired crisis commander for cash consideration of approximately $ 2.3 million with additional time and performance-based milestones that could result in additional payments of $ 0.4 million . crisis commander is a saas mobile crisis management company operating out of sweden . in january 2017 , we acquired 100 % of the shares of idv solutions , llc , or idv . we acquired idv for cash consideration of approximately $ 21.3 million , with additional time and performance-based milestones that could result in additional payments of $ 6.2 million . idv is a provider of threat assessment and operational visualization software located in lansing , michigan . presentation of financial statements our consolidated financial statements include the accounts of our wholly-owned subsidiaries . business acquisitions are included in our consolidated financial statements from the date of the acquisition . our purchase accounting resulted in all assets and liabilities of acquired businesses being recorded at their estimated fair values on the acquisition dates . all intercompany balances and transactions have been eliminated in consolidation . we report our financial results as one operating segment . our operating results are regularly reviewed on a consolidated basis by our chief executive officer , who is our chief operating decision maker , principally to make strategic decisions regarding how we allocate our resources and to assess our consolidated operating performance . 51 other metrics we regularly monitor a number of financial and operating metrics in order to measure our current performance and estimate our future performance . our other business metrics may be calculated in a manner different than similar other business metrics used by other companies . replace_table_token_7_th revenue retention rate . we calculate our revenue retention rate by dividing ( 1 ) total revenue in the current 12-month period from those customers who were customers during the prior 12-month period by ( 2 ) total revenue from all customers in the prior 12-month period . for the purposes of calculating our revenue retention rate , we count as customers all entities with whom we had contracts in the applicable period other than ( 1 ) customers of our wholly-owned subsidiary , microtech , which generates an immaterial amount of our revenue in any given year and ( 2 ) in the first year following our acquisition of another business , customers that we acquired in connection with such acquisition . we believe that our ability to retain our customers and expand their use of our solutions over time is an indicator of the stability of our revenue base and the long-term value of our customer relationships . our revenue retention rate provides insight into the impact on current period revenue of the number of new customers acquired during the prior 12-month period , the timing of our implementation of those new customers , growth in the usage of our solutions by our existing customers and customer attrition . if our revenue retention rate for a period exceeds 100 % , this means that the revenue retained during the period including upsells more than offset the revenue that we lost from customers that did not renew their contracts during the period . our revenue retention rate may decline or fluctuate as a result of a number of factors , including customers ' satisfaction or dissatisfaction with our platform and applications , pricing , economic conditions or overall reductions in our customers ' spending levels . adjusted ebitda . adjusted ebitda represents our net loss before interest income and interest expense , income tax expense and benefit , depreciation and amortization expense and stock-based compensation expense . we do not consider these items to be indicative of our core operating performance . the items that are non-cash include depreciation and amortization expense and stock-based compensation expense . adjusted ebitda is a measure used by management to understand and evaluate our core operating performance and trends and to generate future operating plans , make strategic decisions regarding the allocation of capital and invest in initiatives that are focused on cultivating new markets for our solutions . story_separator_special_tag in particular , the exclusion of certain expenses in calculating adjusted ebitda facilitates comparisons of our operating performance on a period-to-period basis . adjusted ebitda is not a measure calculated in accordance with gaap . we believe that adjusted ebitda provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors . nevertheless , use of adjusted ebitda has limitations as an analytical tool , and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under gaap . some of these limitations are : ( 1 ) although depreciation and amortization are non-cash charges , the capitalized software that is amortized will need 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 ; ( 2 ) adjusted ebitda does not reflect changes in , or cash requirements for , our working capital needs ; ( 3 ) adjusted ebitda does not reflect the potentially dilutive impact of equity-based compensation ; ( 4 ) adjusted ebitda does not reflect tax payments or receipts that may represent a reduction or increase in cash available to us ; and ( 5 ) other companies , including companies in our industry , may calculate adjusted ebitda or similarly titled measures differently , which reduces the usefulness of the metric as a comparative measure . because of these and other limitations , you should consider adjusted ebitda alongside our other gaap-based financial performance measures , net loss and our other gaap financial results . the following table presents a reconciliation of adjusted ebitda to net loss , the most directly comparable gaap measure , for each of the periods indicated : 52 replace_table_token_8_th adjusted gross margin . adjusted gross margin represents gross profit plus stock-based compensation and amortization of acquired intangibles . adjusted gross margin is a measure used by management to understand and evaluate our core operating performance and trends and to generate future operating plans . the exclusion of stock-based compensation expense and amortization of acquired intangibles facilitates comparisons of our operating performance on a period-to-period basis . in the near term , we expect these expenses to continue to negatively impact our gross profit . adjusted gross margin is not a measure calculated in accordance with gaap . we believe that adjusted gross margin provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors . nevertheless , our use of adjusted gross margin has limitations as an analytical tool , and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under gaap . you should consider adjusted gross margin alongside our other gaap-based financial performance measures , gross profit and our other gaap financial results . the following table presents a reconciliation of adjusted gross margin to gross profit , the most directly comparable gaap measure , for each of the periods indicated : replace_table_token_9_th free cash flow . free cash flow represents net cash provided by operating activities minus capital expenditures and capitalized software development costs . free cash flow is a measure used by management to understand and evaluate our core operating performance and trends and to generate future operating plans . the exclusion of capital expenditures and amounts capitalized for internally-developed software facilitates comparisons of our operating performance on a period-to-period basis and excludes items that we do not consider to be indicative of our core operating performance . free cash flow is not a measure calculated in accordance with gaap . we believe that free cash flow provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors . nevertheless , our use of free cash flow has limitations as an analytical tool , and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under gaap . you should consider free cash flow alongside our other gaap-based financial performance measures , net cash provided by operating activities , and our other gaap financial results . the following table presents a reconciliation of free cash flow to net cash for operating activities , the most directly comparable gaap measure , for each of the periods indicated : replace_table_token_10_th 53 additional supplemental non-gaap financial measures to supplement our consolidated financial statements , which are prepared and presented in accordance with gaap , we provide investors with certain additional supplemental non-gaap financial measures , including non-gaap cost of revenue , non-gaap gross profit , non-gaap sales and marketing expense , non-gaap research and development expense , non-gaap general and administrative expense , non-gaap total operating expenses , non-gaap operating loss and non-gaap net loss , which we collectively refer to as non-gaap financial measures . these non-gaap financial measures exclude all or a combination of the following ( as reflected in the following reconciliation tables ) : stock-based compensation expense and amortization of acquired intangibles . the presentation of the non-gaap financial measures is not intended to be considered in isolation or as a substitute for , or superior to , the financial information prepared and presented in accordance with gaap . we use these non-gaap financial measures for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons . we believe that these non-gaap financial measures provide useful information about our operating results , enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to metrics used by our management in its financial and operational decision making . while our non-gaap financial measures are an important tool for financial and operational decision making and for evaluating our own operating results over different periods of time , you should consider our non-gaap financial measures alongside our gaap financial results .
| gross margin percentage increased due to our continued investment in personnel to support our growth in revenue , which was greater than our growth in expenses . operating expenses sales and marketing expense replace_table_token_16_th sales and marketing expense increased by $ 8.9 million in 2016 compared to 2015. the increase was primarily due to an $ 8.2 million increase in employee-related costs associated with our increased headcount from 157 employees as of december 31 , 2015 to 182 employees as of december 31 , 2016. the remaining increase was principally the result of a $ 0.5 million increase in trade show and advertising costs and a $ 0.2 million increase in software costs to support our sales organization . research and development expense replace_table_token_17_th research and development expense increased by $ 3.2 million in 2016 compared to 2015. the increase was primarily due to a $ 2.7 million increase in employee-related costs associated with our increased headcount from 109 employees as of december 31 , 2015 to 123 employees as of december 31 , 2016. the remaining increase was principally the result of a $ 0.6 million increase for the use of outside consultants and a $ 0.5 million increase in hosting and software related cost to support research and development activities . a total of $ 5.5 million of internally-developed software costs during 2016 and $ 4.8 million of internally-developed software costs during 2015 were capitalized , resulting in a decrease of the expense by $ 0.7 million in 2016 . 59 general and administrative expense replace_table_token_18_th general and administrative expense increased by $ 2.0 million in 2016 compared to 2015. the increase was primarily due to a $ 2.0 million increase in employee-related costs associated with our increased headcount from 62 employees as of december 31 , 2015 to 64 employees as of december 31 , 2016. there was an additional increase of $ 0.4 million to support our operations and our preparations to become a public company . these increases were offset by
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. treasury ) , which was initiated during 2008 , both by issuing preferred shares ( series a ) in december 2008 and through the 2009 acquisition of provident bankshares corporation ( provident ) by assuming shares ( series c ) that had been issued by that corporation in november 2008. in august 2012 , the u.s. treasury sold its holdings of m & t 's series a ( 230,000 shares ) and series c ( 151,500 shares ) preferred stock to the public which allowed m & t to exit the tarp . m & t modified certain of the terms of the series a and series c preferred stock related to the dividend rate on the preferred shares at the reset dates , which was originally set to change to 9 % on november 15 , 2013 for the series c preferred shares and on february 15 , 2014 for the series a preferred shares . in each case , the dividend rate changed to 6.375 % on november 15 , 2013 rather than to the 9 % in the original terms . the other modification related to m & t agreeing to not redeem the series a and series c preferred shares until on or after november 15 , 2018 , except that if an event occurs such that the shares no longer qualify as tier 1 capital , m & t may redeem all of the shares within 90 days following that occurrence . on may 16 , 2011 , m & t acquired all of the outstanding common stock of wilmington trust corporation ( wilmington trust ) , headquartered in wilmington , delaware , in a stock-for-stock transaction . wilmington trust operated 55 banking offices in delaware and pennsylvania at the date of acquisition . the results of operations acquired in the wilmington trust transaction have been included in the company 's financial results since the acquisition date . wilmington trust shareholders received .051372 shares of m & t common stock in exchange for each share of wilmington trust common stock , resulting in m & t issuing a total of 4,694,486 common shares with an acquisition date fair value of $ 406 million . the wilmington trust transaction was accounted for using the acquisition method of accounting and , accordingly , assets acquired , liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date . assets acquired totaled approximately $ 10.8 billion , including $ 6.4 billion of loans and leases ( including approximately $ 3.2 billion of commercial real estate loans , $ 1.4 billion of commercial loans and leases , $ 1.1 billion of consumer loans and $ 680 million of residential real estate loans ) . liabilities assumed aggregated $ 10.0 billion , including $ 8.9 billion of deposits . the common stock issued in the transaction added $ 406 million to m & t 's common shareholders ' equity . immediately 39 prior to the closing of the wilmington trust transaction , m & t redeemed the $ 330 million of preferred stock issued by wilmington trust as part of the tarp of the u.s. treasury . in connection with the acquisition , the company recorded $ 112 million of core deposit and other intangible assets . the core deposit and other intangible assets are generally being amortized over periods of 5 to 7 years using accelerated methods . there was no goodwill recorded as a result of the transaction ; however , in accordance with generally accepted accounting principles ( gaap ) , a non-taxable gain of $ 65 million was realized , which represented the excess of the fair value of assets acquired less liabilities assumed over consideration exchanged . the acquisition of wilmington trust added to m & t 's market-leading position in the mid-atlantic region by giving m & t a leading deposit market share in delaware . recent legislative developments the dodd-frank wall street reform and consumer protection act ( dodd-frank act ) that was signed into law on july 21 , 2010 has and will continue to significantly change the bank regulatory structure and affect the lending , deposit , investment , trading and operating activities of financial institutions and their holding companies , and the system of regulatory oversight of the company . the dodd-frank act requires various federal agencies to adopt a broad range of new implementing rules and regulations , and to prepare numerous studies and reports for congress , many of which are not yet completed or implemented . the dodd-frank act could have a material adverse impact on the financial services industry as a whole , as well as on m & t 's business , results of operations , financial condition and liquidity . a discussion of the provisions of the dodd-frank act is included in part i , item 1 of this form 10-k. on july 31 , 2013 , the u.s. district court for the district of columbia issued an order granting summary judgment to the plaintiffs in a case challenging certain provisions of the federal reserve board 's rule concerning electronic debit card transaction fees and network exclusivity arrangements ( the current rule ) that were adopted to implement section 1075 of the dodd-frank act the so-called durbin amendment. the court held that , in adopting the current rule , the federal reserve violated the durbin amendment 's provisions concerning which costs are allowed to be taken into account for purposes of setting fees that are reasonable and proportional to the costs incurred by the issuer and therefore the current rule 's maximum permissible fees were too high . in addition , the court held that the current rule 's network non-exclusivity provisions concerning unaffiliated payment networks for debit cards also violated the durbin amendment . the court vacated the current rule . the court 's judgment was stayed in september 2013 pending appeal by the federal reserve . story_separator_special_tag the federal reserve filed its appeal in october 2013. the fee limits in the current rule will remain in effect until the federal reserve revises the rule , if it is ultimately required to do so . if the federal reserve is not successful in its appeal and re-issues rules for purposes of implementing the durbin amendment in a manner consistent with this decision , the amount of debit card interchange fees the company would be permitted to charge likely would be reduced . the amount of such reduction can not be estimated at this time . in july 2013 , the federal reserve board , the office of the comptroller of the currency and the federal deposit insurance corporation approved final rules ( the new capital rules ) establishing a new comprehensive capital framework for u.s. banking organizations . the new capital rules generally implement the basel committee on banking supervision 's ( the basel committee ) december 2010 final capital framework referred to as basel iii for strengthening international capital standards . the new capital rules substantially revise the risk-based capital requirements applicable to bank holding companies and their depository institution subsidiaries , including m & t and m & t bank , as compared to the current u.s. general risk-based capital rules . the new capital rules also preclude certain hybrid securities , such as trust preferred securities , from inclusion in bank holding companies ' tier 1 capital , subject to phase-out in the case of bank holding companies , such as m & t , that had $ 15 billion or more in total consolidated assets as of december 31 , 2009. as a result , beginning in 2015 25 % of m & t 's trust preferred securities will be includable in tier 1 capital , and in 2016 , none of m & t 's trust preferred securities will be includable in tier 1 capital . trust preferred securities no longer included in m & t 's tier 1 capital may nonetheless be included as a component of tier 2 capital on a permanent basis without phase-out and irrespective of whether such securities otherwise meet the revised definition of tier 2 capital set forth in the new capital rules . in the first quarter of 2014 , m & t will redeem $ 350 million of 8.50 % junior subordinated debentures associated with the trust preferred capital securities of m & t capital trust iv and issued preferred stock that qualifies as regulatory capital . a detailed discussion of the new capital rules is included in part i , item 1 of this form 10-k under the heading capital requirements. 40 management believes that the company will be able to comply with the targeted capital ratios upon implementation of the revised requirements , as finalized . more specifically , management estimates that the company 's ratio of common equity tier 1 ( cet1 ) to risk-weighted assets under the new capital rules ( and as defined therein ) on a fully phased-in basis was approximately 8.98 % as of december 31 , 2013 , reflecting a good faith estimate of the computation of cet1 and the company 's risk-weighted assets under the methodologies set forth in the new capital rules . the company 's regulatory capital ratios under risk-based capital rules currently in effect are presented in note 23 of notes to financial statements . on december 10 , 2013 , the federal reserve board , the office of the comptroller of the currency , the federal deposit insurance corporation and the securities and exchange commission adopted the final version of the volcker rule , which was mandated under dodd-frank . the volcker rule is intended to effectively reduce risks posed to banking entities from proprietary trading activities and investments in or relationships with covered funds . banking entities are generally prohibited from engaging in proprietary trading . the company does not believe that it engages in any significant amount of proprietary trading as defined in the volcker rule and that any impact would be minimal . in addition , a review of the company 's investments was undertaken to determine if any meet the volcker rule 's definition of covered funds . based on that review , the company believes that any impact related to investments considered to be covered funds would not have a significant effect on the company 's financial condition or its results of operations . nevertheless , the company may be required to divest certain investments subject to the volcker rule by mid-2015 . on october 24 , 2013 , the federal reserve board and other banking regulators issued an interagency proposal for the u.s. version of the basel committee 's liquidity coverage ratio ( lcr ) . the lcr requires a banking organization to maintain a minimum amount of liquid assets to withstand a 30-day standardized supervisory liquidity stress scenario . the proposed effective date is january 1 , 2015 , subject to a two-year phase-in period . critical accounting estimates the company 's significant accounting policies conform with gaap and are described in note 1 of notes to financial statements . in applying those accounting policies , management of the company is required to exercise judgment in determining many of the methodologies , assumptions and estimates to be utilized . certain of the critical accounting estimates are more dependent on such judgment and in some cases may contribute to volatility in the company 's reported financial performance should the assumptions and estimates used change over time due to changes in circumstances . some of the more significant areas in which management of the company applies critical assumptions and estimates include the following : accounting for credit losses the allowance for credit losses represents the amount that in management 's judgment appropriately reflects credit losses inherent in the loan and lease portfolio as of the balance sheet date . a provision for credit losses is recorded to adjust the level of the allowance as deemed necessary by management .
| an 18 basis point narrowing of the net interest margin , to 3.56 % in the recent quarter from 3.74 % in 2012 's fourth quarter , was offset by growth in average earning assets of $ 3.4 billion . the decline in the net interest margin reflects an 11 basis point decrease in the yield on loans and the impact of higher balances of interest-bearing deposits at the federal reserve bank and investment securities which have lower yields than loans . the increase in average earning assets was attributable to a $ 2.7 billion increase in average interest-bearing deposits held at the federal reserve bank and higher investment securities balances of $ 2.1 billion , partially offset by a $ 1.5 billion decrease in average loans and leases . the increase in the investment securities portfolio from the year-earlier quarter reflects the impact of purchases of ginnie mae residential mortgage-backed securities and the retention of similar securities resulting from mortgage securitization transactions during 2013 , partially offset by maturities and paydowns of mortgage-backed securities and the sale of $ 1.0 billion of privately issued mortgage-backed securities late in 2013 's second quarter . average commercial loan and lease balances were $ 18.1 billion in the recent quarter , up $ 1.1 billion or 6 % from $ 17.0 billion in the final quarter of 2012. commercial real estate loans averaged $ 26.2 billion in the fourth quarter of 2013 , up $ 899 million or 4 % from $ 25.3 billion in the corresponding 2012 quarter . the growth in commercial loans and commercial real estate loans reflects 87 higher loan demand by customers . average residential real estate loans outstanding declined $ 2.1 billion to $ 9.0 billion in the recent quarter from $ 11.1 billion in the fourth quarter of 2012. included in the residential real estate loan portfolio were average balances of loans held for sale , which declined to $ 463 million in the recent quarter from $ 997 million in the fourth quarter of 2012 , reflecting lower volumes of loans originated for sale . the decrease in average residential
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in 2013 , oil , natural gas and ngl sales increased 24 % from 2012 , driven primarily by a 19 % increase in production and partially aided by a 5 % increase in our average sales price per boe in 2013 as compared to 2012. in 2012 , oil , natural gas and ngl sales increased 86 % from 2011 due to a 95 % increase in production , partially offset by a 4 % decrease in our average sales price per boe in 2012 as compared to 2011. 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 production from existing wells . our production primarily increased due to the addition of 40.0 and 48.3 net productive wells in 2013 and 2012 , respectively . our production for each of the last three years is set forth in the following table : replace_table_token_17_th ( 1 ) 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 2013 , we incurred a loss on settled derivatives of $ 12.2 million , compared to losses of $ 0.4 million in 2012 and $ 13.4 million in 2011. our average realized price ( including all derivative settlements ) received during 2013 was $ 79.77 per boe compared to $ 78.79 per boe in 2012 and $ 75.85 per boe in 2011. mark-to-market derivative gains and losses was a loss of $ 21.3 million in 2013 compared to a $ 15.1 million gain in 2012 and a $ 3.1 million loss in 2011. 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 gains and losses from unsettled 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 , 2013 , all of our derivative contracts are recorded at their fair value , which was a net liability of $ 17.9 million , a decrease of $ 21.2 million from the $ 3.3 million net asset recorded as of december 31 , 2012. our open oil derivative contracts are summarized in “ item 7a . quantitative and qualitative disclosures about market risk—commodity price risk. ” 40 production expenses production expenses were $ 41.9 million in 2013 compared to $ 32.4 million in 2012 and $ 13.0 million in 2011. we experience increases in operating expenses as we add new wells and maintain production from existing properties . on a per unit basis , production expenses increased from $ 8.61 per boe in 2012 to $ 9.35 per boe in 2013. on an absolute dollar basis , our production expenses in 2013 were 29 % higher when compared to the same period in 2012 due primarily to a 19 % increase in production levels and a 38 % increase in the total number of net wells . also contributing to the increase were increased water production and costs associated with more workover , repair and maintenance and salt water trucking and disposal activities during 2013 as compared to 2012. on a per unit basis , production expenses per boe increased from $ 6.77 per barrel sold in 2011 to $ 8.61 in 2012. 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 taxes we pay production taxes based on realized oil and natural gas sales . these costs were $ 35.0 million in 2013 compared to $ 28.5 million in 2012 and $ 14.3 million in 2011. our average production tax rates were 9.5 % , 9.6 % and 9.0 % in 2013 , 2012 and 2011 , respectively . the 2013 average production tax rate was lower than the 2012 average due to well additions that qualified for reduced rates/or tax exemptions during 2013. 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 2012 average production tax rate was higher than the 2011 average due to fewer well additions that qualified for reduced rates for tax exemptions during 2012. 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 $ 16.6 million for 2013 compared to $ 22.6 million for 2012 and $ 13.6 million in 2011. the $ 6.0 million decrease in 2013 when compared to 2012 was primarily due to $ 5.5 million of severance charges recognized in 2012 in connection with the departures of our former president and our former chief operating officer . story_separator_special_tag additionally , salaries and benefit expenses decreased $ 1.5 million in 2013 as compared to 2012 , which was partially offset by increased insurance ( $ 0.6 million ) and legal and professional ( $ 0.2 million ) expenses . lower share based compensation in 2013 drove the year over year drop in salary and benefit expenses . the 2012 increase of $ 9.0 million when compared to 2011 is due to higher salary and benefit expenses ( $ 3.6 million ) , increased travel expenses ( $ 0.2 million ) and partially offset by lower office and other administrative expenses ( $ 0.3 million ) . our personnel costs in 2012 as compared to 2011 continued to increase as we invested in our technical teams and other staffing to support our growth . 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 . depletion , depreciation , amortization and accretion depletion , depreciation , amortization and accretion ( “ dd & a ” ) was $ 124.4 million in 2013 compared to $ 98.9 million in 2012 and $ 41.2 million in 2011. depletion expense , the largest component of dd & a , was $ 27.62 per boe in 2013 compared to $ 26.18 per boe in 2012 and $ 21.20 per boe in 2011. 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 2013 compared to 2012 was driven by a 19 % increase in production . additionally , depletion rates rose in 2013 primarily due to higher production expenses and revised reserve estimates in certain of our areas of operation . 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 aggregate increase in depletion expense for 2012 compared to 2011 was driven by a 95 % increase in production . depreciation , amortization and accretion was $ 0.8 million in 2013 compared to $ 0.5 million in 2012 and $ 0.4 million in 2011. the following table summarizes dd & a expense per boe for 2013 , 2012 and 2011 : 41 replace_table_token_18_th interest expense interest expense was $ 32.7 million for 2013 compared to $ 13.9 million in 2012. interest expense was $ 13.9 million for 2012 compared to $ 0.6 million in 2011. in may 2013 and 2012 , we issued $ 200 million and $ 300 million of 8 % senior unsecured notes , respectively . the increase in interest expense for 2013 as compared to 2012 was primarily due to different weighted average debt amounts outstanding between years . 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 $ 21,000 for 2013 compared to $ 1,000 in 2012. interest income was comparable between periods due to similar levels of cash and short term investments . 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 proceeds from the sale of common stock in november 2010. income tax provision the provision for income taxes was $ 31.8 million in 2013 compared to $ 43.0 million in 2012 and $ 26.8 million in 2011. the effective tax rate in 2013 was 37.4 % compared to an effective tax rate of 37.3 % in 2012. the effective tax rate was different than the statutory rate of 35 % primarily due to state tax rates . the 2012 effective tax rate was 37.3 % compared to an effective tax rate in 2011 of 39.8 % . 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 $ 53.1 million in 2013 compared to $ 72.3 million in 2012 and $ 40.6 million in 2011. the increase in net income in 2012 as compared to 2011 was driven by higher production levels and higher average sales prices received in 2012 compared to 2011. the decrease in net income in 2013 as compared to 2012 was driven by 2013 losses on settled derivatives and losses on the mark-to-market of derivative instruments of $ 12.2 million and $ 21.3 million , respectively . in 2012 , our loss on settled derivatives was $ 0.4 million and our gain on the mark-to-market of derivative instruments was $ 15.1 million . additionally , the higher oil and gas revenues in 2013 were partially offset by increased production expenses , production taxes , depletion expenses , and interest expense in 2013 compared to 2012. our net income translated to diluted net income per common share of $ 0.85 , $ 1.15 and $ 0.65 in 2013 , 2012 and 2011 , respectively . 42 non-gaap financial measures we define adjusted net income as net income excluding ( i ) loss ( gain ) on the mark-to-market of 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 1 % higher in 2013 compared to 2012. 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 . 36 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 . · ( loss ) gain on the mark-to-market of 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
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revenue recognition and receivables we recognize revenue as title to products and risk of loss is transferred to customers or when services are rendered . we record revenue for unbilled services performed based upon estimates of material and labor incurred in the installation and other services segment ; such amounts are recorded in receivables . we record estimated reductions to revenue for customer programs and incentive offerings , including special pricing and co-operative advertising arrangements , promotions and other volume-based incentives . we maintain allowances for doubtful accounts receivable for estimated losses resulting from the inability of customers to make required payments . in addition , we monitor our customer receivable balances and the credit worthiness of our customers on an on-going basis . during downturns in our markets , declines in the financial condition and creditworthiness of customers impact the credit risk of the receivables involved and we have incurred bad debt expense related to customer defaults . our bad debt expense was $ 12 million , $ 18 million and $ 34 million for the years ended december 31 , 2011 , 2010 and 2009 , respectively . inventories we record inventories at the lower of cost or net realizable value , with expense estimates made for obsolescence or unsaleable inventory equal to the difference between the recorded cost of inventories and their estimated market value based upon assumptions about future demand and market conditions . on an on-going basis , we monitor these estimates and record adjustments for differences between estimates and actual experience . historically , actual results have not significantly deviated from those determined using these estimates . 19 financial investments we follow accounting guidance that defines fair value , establishes a framework for measuring fair value and expands disclosures about fair value measurements for our financial investments and liabilities . this guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. further , it defines a fair value hierarchy , as follows : level 1 inputs as quoted prices in active markets for identical assets or liabilities ; level 2 inputs as observable inputs other than level 1 prices , such as quoted market prices for similar assets or liabilities or other inputs that are observable or can be corroborated by market data ; and level 3 inputs as unobservable inputs that are supported by little or no market activity and that are financial instruments whose value is determined using pricing models or instruments for which the determination of fair value requires significant management judgment or estimation . if applicable , we record investments in available-for-sale securities at fair value , and unrealized gains or losses ( that are deemed to be temporary ) are recognized , net of tax effect , through shareholders ' equity , as a component of other comprehensive income in our consolidated balance sheet . during 2011 and 2010 , we sold all of our shares of our investment in trimas common stock for cash of $ 43 million and $ 10 million , respectively . in the past , we have invested excess cash in auction rate securities . auction rate securities are investment securities that have interest rates which are reset every 7 , 28 or 35 days . at december 31 , 2011 , our investment in auction rate securities was $ 22 million ; we have not increased our investment in auction rate securities since 2007. the fair value of auction rate securities is estimated , on a recurring basis , using a discounted cash flow model ( level 3 input ) . if we changed the discount rate used in the fair value estimate by 75 basis points , the value of the auction rate securities would change by approximately $ 1 million . we have maintained investments in a number of private equity funds , which aggregated $ 86 million at december 31 , 2011. we carry our investments in private equity funds and other private investments at cost . it is not practicable for us to estimate a fair value for private equity funds and other private investments because there are no quoted market prices , and sufficient information is not readily available for us to utilize a valuation model to determine the fair value for each fund . these investments are evaluated , on a non-recurring basis , for potential other-than-temporary impairment when impairment indicators are present , or when an event or change in circumstances has occurred , that may have a significant adverse effect on the fair value of the investment . due to the significant unobservable inputs , the fair value measurements used to evaluate impairment are a level 3 input . impairment indicators we consider include the following : whether there has been a significant deterioration in earnings performance , asset quality or business prospects ; a significant adverse change in the regulatory , economic or technological environment ; a significant adverse change in the general market condition or geographic area in which the investment operates ; industry and sector performance ; current equity and credit market conditions ; and any bona fide offers to purchase the investment for less than the carrying value . we also consider specific adverse conditions related to the financial health of and business outlook for the fund , including industry and sector performance . the significant assumptions utilized in analyzing a fund for potential other-than-temporary impairment include current economic conditions , market analysis for specific funds and performance indicators in residential and commercial construction , bio-technology , health care and information technology sectors in which the applicable funds ' investments operate . at december 31 , 2011 , we have investments in 17 venture capital funds , with an aggregate carrying value of $ 17 million . the venture capital funds invest in start-up or smaller , early-stage established businesses , principally in the information technology , bio-technology and health care sectors . story_separator_special_tag at december 31 , 2011 , we also have investments in 22 buyout funds , with an aggregate carrying value of $ 69 million . the buyout funds invest in later-stage , established businesses and no buyout fund has a concentration in a particular sector . 20 since there is no active trading market for these investments , they are for the most part illiquid . these investments , by their nature , can also have a relatively higher degree of business risk , including financial leverage , than other financial investments . the timing of distributions from the funds , which depends on particular events related to the underlying investments , as well as the funds ' schedules for making distributions and their needs for cash , can be difficult to predict . as a result , the amount of income we record from these investments can vary substantially from quarter to quarter . future changes in market conditions , the future performance of the underlying investments or new information provided by private equity fund managers could affect the recorded values of these investments and the amounts realized upon liquidation . we record an impairment charge to earnings when an investment has experienced a decline in fair value that is deemed to be other-than-temporary . goodwill and other intangible assets we record the excess of purchase cost over the fair value of net tangible assets of acquired companies as goodwill or other identifiable intangible assets . in the fourth quarter of each year , or as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount , we complete the impairment testing of goodwill utilizing a discounted cash flow method . we selected the discounted cash flow methodology because we believe that it is comparable to what would be used by other market participants . we have defined our reporting units and completed the impairment testing of goodwill at the operating segment level , as defined by accounting guidance . our operating segments are reporting units that engage in business activities for which discrete financial information , including five-year forecasts , is available . determining market values using a discounted cash flow method requires us to make significant estimates and assumptions , including long-term projections of cash flows , market conditions and appropriate discount rates . our judgments are based upon historical experience , current market trends , consultations with external valuation specialists and other information . while we believe that the estimates and assumptions underlying the valuation methodology are reasonable , different estimates and assumptions could result in different outcomes . in estimating future cash flows , we rely on internally generated five-year forecasts for sales and operating profits , including capital expenditures , and generally a one to three percent long-term assumed annual growth rate of cash flows for periods after the five-year forecast . we generally develop these forecasts based upon , among other things , recent sales data for existing products , planned timing of new product launches , estimated housing starts and repair and remodeling estimates for existing homes . in 2011 , we utilized estimated housing starts , from independent industry sources , growing from current levels to 1.5 million units in 2016 ( terminal growth year ) and operating profit margins improving to approximate historical levels for those business units by 2016 ( terminal growth year ) . we utilize our weighted average cost of capital of approximately seven percent as the basis to determine the discount rate to apply to the estimated future cash flows . in 2011 , due to market conditions and based upon our assessment of the risks impacting each of our businesses , we applied a risk premium to increase the discount rate to a range of ten percent to 15 percent for most of our reporting units . in the fourth quarter of 2011 , we estimated that future discounted cash flows projected for most of our reporting units were greater than the carrying values . any increases in estimated discounted cash flows would have no effect on the reported value of goodwill . if the carrying amount of a reporting unit exceeds its fair value , we measure the possible goodwill impairment based upon an allocation of the estimate of fair value of the reporting unit to all of the underlying assets and liabilities of the reporting unit , including any previously unrecognized intangible assets ( step two analysis ) . the excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill . an impairment loss is recognized to the extent that a reporting unit 's recorded goodwill exceeds the implied fair value of goodwill . 21 in 2011 , we recognized non-cash , pre-tax impairment charges for goodwill aggregating $ 486 million ( $ 330 million , after tax ) . the pre-tax impairment charge of $ 44 million in the cabinets and related products segment relates to our european ready-to-assemble cabinet manufacturer and reflects the continued declining demand for certain products , as well as decreased operating margins . the pre-tax impairment charge of $ 75 million in the decorative architectural products segment relates to our builders ' hardware business and reflects increasing competitive conditions for this business . the pre-tax impairment charge of $ 367 million in the other specialty products segment relates to our north american window and door business . the charge reflects the continuing weak level of new home construction activity in the western u.s. in 2011 , the reduced levels of repair and remodel activity and the expectation that the recovery in these segments will be modestly slower than previously anticipated . a ten percent decrease in the estimated fair value of our reporting units at december 31 , 2011 would not have resulted in any additional analysis of goodwill impairment for any additional business unit .
| a weaker u.s. dollar increased sales by one percent compared to 2010. net sales for 2010 were adversely affected by lower sales volume of installed products and cabinets , which , in aggregate , reduced sales by approximately three percent compared to 2009. net sales for 2010 were also negatively affected by lower sales volume of builders ' hardware and north american plumbing products , which reduced net sales by approximately one percent compared to 2009. such declines were partially offset by a more favorable product mix of plumbing products and paints and stains , which increased sales by approximately one percent compared to 2009. net sales volume in 2010 of our international plumbing products and windows increased in local currencies and increased consolidated net sales by approximately one percent compared to 2009. a stronger u.s. dollar decreased sales by one percent compared to 2009. our gross profit margins were 23.9 percent , 24.5 percent and 26.3 percent in 2011 , 2010 and 2009 , respectively . the decrease in the 2011 gross profit margin reflects lower sales volume and a less favorable relationship between selling prices and commodity costs . such decreases were partially offset by the benefits associated with business rationalizations and other cost savings initiatives . selling , general and administrative expenses as a percent of sales were 21.2 percent in 2011 compared with 21.3 percent in 2010 and 21.9 percent in 2009. selling , general and administrative expenses as a percent of sales in 2011 reflect increased expenses related to growth initiatives , offset by lower business rationalization expenses and the benefits associated with such expenses . selling , general and administrative expenses as a percent of sales in 2010 reflect lower sales volume , increased advertising expenses related to new product introductions and increased system implementation costs . operating ( loss ) profit in 2011 , 2010 and 2009 includes $ 121 million , $ 208 million and $ 94 million , respectively , of costs and charges related to business rationalizations and other cost savings initiatives . operating ( loss ) profit in 2011 , 2010 and 2009 includes $ 494 million , $ 698 million and $ 262 million , respectively , of impairment charges for goodwill and other intangible assets . operating ( loss ) profit in 2011 and 2009 includes $ 9 million and $ 7 million , respectively , of charges for litigation settlements . operating ( loss ) profit margins , as reported , were ( 4.0 ) percent , ( 6.2 ) percent and 0.9 percent in 2011 , 2010
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options granted under the 2013 plan may story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes appearing elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business and financing needs , includes forward-looking statements that involve risks and uncertainties and should be read together with the “ risk factors ” section of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those discussed below and elsewhere in this annual report and in other reports we file with the securities and exchange commission , particularly those under “ risk factors. ” dollars in tabular format are presented in thousands , except per share data , or otherwise indicated . overview we are a clinical-stage biopharmaceutical company focused on creating value through the development of our lead product candidate , mat9001 , a highly purified , prescription-only omega-3 free fatty acid formulation specifically designed for the treatment of cardiovascular and metabolic conditions and ( ii ) the application of our lnc platform delivery technology to solve complex challenges relating to the delivery of small molecules , gene therapies , vaccines , proteins and peptides , including mat2203 , our lead product candidate based on the lnc platform delivery technology . based upon mat9001 's unique mixture of highly purified omega-3 free fatty acids and our observations of mat9001 's enhanced bioavailability and potency as compared to amarin corporation 's vascepa® ( icosapent ethyl ) in our initial head-to-head pk/pd , clinical study , we believe that the results of our forthcoming targeted clinical development activities and related clinical investigations may yield an improved therapeutic profile compared to currently-existing therapies . - 69 - we are focused on creating value through 1 ) the streamlined development of mat9001 for treating cardiovascular and metabolic conditions ; and 2 ) the application of our transformative lnc platform delivery technology to overcome current challenges in safely and effectively delivering small molecules , gene therapies , proteins/peptides , and vaccines . key elements of our strategy include : ● rapidly advancing the clinical development of mat9001 for the treatment of shtg and generating additional clinical data to further differentiate mat9001 from vascepa and other prescription omega-3 drugs in an emerging and rapidly expanding market . ● delivering efficacy data for mat2203 in the enact study for the treatment of cm with the non-dilutive financial support from the nih . ● expanding the application of our lnc platform delivery technology through collaborations with sophisticated and well-resourced biotech and pharmaceutical companies in innovative areas of medicine . we have incurred losses for each period from inception . our net loss was approximately $ 17.4 million and $ 14.1 million for the fiscal years ended december 31 , 2019 and 2018 , respectively . we expect to incur significant expenses and operating losses over the next several years . accordingly , we will need additional financing to support our continuing operations . we will seek to fund our operations through public or private equity offerings , debt financings , government or other third-party funding , collaborations and licensing arrangements . adequate additional financing may not be available to us on acceptable terms , or at all . our failure to raise capital as and when needed would impact our going concern and would have a negative impact on our financial condition and our ability to pursue our business strategy and continue as a going concern . we will need to generate significant revenues to achieve profitability , and we may never do so . financial operations overview revenue during each of the years ended december 31 , 2019 and 2018 , we generated approximately $ 0.1 million in contract research revenues , resulting from a grant with the cystic fibroses foundation . our ability to generate product revenue , which we do not expect to occur for many years , if ever , will depend heavily on the successful development and eventual commercialization of our early-stage product candidates . the company has adopted asc 606 as of january 1 , 2018. for the year ended december 31 , 2018 , there were no changes to our opening balances upon the adoption of asc 606 and the amounts which would have been reported under the standards in effect prior to adoption . research and development expenses research and development expenses consist of costs incurred for the development of product candidates mat9001 and mat2203 and advancement of our lnc platform delivery technology , which include : ● the cost of conducting pre-clinical work ; ● the cost of acquiring , developing and manufacturing pre-clinical and human clinical trial materials ; ● costs for consultants and contractors associated with chemistry and manufacturing controls ( cmc ) , pre-clinical and clinical activities and regulatory operations ; ● expenses incurred under agreements with contract research organizations , or cros , including the nih , that conduct our pre-clinical or clinical trials ; and ● employee-related expenses , including salaries and stock-based compensation expense for those employees involved in the research and development process . story_separator_special_tag - 70 - the table below summarizes our direct research and development expenses for our product candidates and development platform for the years ended december 31 , 2019 and 2018. our direct research and development expenses consist principally of external costs , such as fees paid to contractors , consultants , analytical laboratories and cros and or the nih , in connection with our development work . we typically use our employee and infrastructure resources for manufacturing clinical trial materials , conducting product analysis , study protocol development and overseeing outside vendors . included in “ internal staffing , overhead and other ” below is the cost of laboratory space , supplies , research and development ( r & d ) employee costs ( including stock option expenses ) , travel and medical education . replace_table_token_2_th research and development activities are central to our business model . we expect our research and development expenses to increase because 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 human trials . in addition , we will look to strategically expand the use of our drug platform technology through additional development work . during 2020 , we will be focused on advancing our lead product candidate , mat9001 through clinical development toward an initial indication for the treatment of shtg , expanding application of our lnc platform delivery technology through collaborations with third parties , and driving mat2203 to efficacy data in the treatment of cm . general and administrative expenses general and administrative expenses consist principally of salaries and related costs for personnel in executive and finance functions . other general and administrative expenses include facility costs , insurance , investor relations expenses , professional fees for legal , patent review , consulting and accounting/audit services . we anticipate that our general and administrative expenses will increase during 2020 due to the increased expenses related to our status as a publicly traded company , including expenses in support of compliance with the requirements of section 404 of the sarbanes oxley act as well as investor relations , protection of our intellectual property and insurance costs . sale of net operating losses ( nols ) income obtained from selling unused net operating losses ( nols ) and unused research tax credits under the new jersey technology business tax certificate program was $ 1.0 million for the year ended december 31 , 2019. we did not recognize income from the sale of nols for the year ended december 31 , 2018. other income , net other income , net is largely comprised of interest income ( expense ) and franchise taxes . - 71 - application of critical accounting policies and accounting estimates a critical accounting policy is one that is both important to the portrayal of our financial condition and results of operation and requires management 's most difficult , subjective or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . for a description of our significant accounting policies , refer to “ note 3 – summary of significant accounting policies . ” of these policies , the following are considered critical to an understanding of our consolidated financial statements as they require the application of the most difficult , subjective and complex judgments ; ( i ) stock-based compensation , ( ii ) fair value measurements , ( iii ) research and development costs , ( iv ) goodwill and other intangible assets , and ( v ) basic and diluted net loss per common share . current operating trends our current r & d efforts are focused on advancing our lead product candidate , mat9001 through clinical development toward an initial indication for the treatment of shtg , expanding application of our lnc platform delivery technology through collaborations with third parties , and driving mat2203 to efficacy data in the treatment of cm . our r & d expenses consist of manufacturing work and the cost of drug ingredients used in such work , fees paid to consultants for work related to clinical trial design and regulatory activities , fees paid to providers for conducting various clinical studies as well as for the analysis of the results of such studies , and for other medical research addressing the potential efficacy and safety of our drugs . we believe that significant investment in product development is a competitive necessity , and we plan to continue these investments in order to be in a position to realize the potential of our product candidates and proprietary technologies . we expect that all of our r & d expenses in the near-term future will be incurred in support of our current and future preclinical and clinical development programs rather than technology development . these expenditures are subject to numerous uncertainties relating to timing and cost to completion . we test compounds in numerous preclinical studies for safety , toxicology and efficacy . at the appropriate time , subject to the approval of regulatory authorities , we expect to conduct early-stage clinical trials for each drug candidate . we anticipate funding these trials ourselves , and possibly with the assistance of federal grants , contracts or other agreements . as we obtain results from trials , we may elect to discontinue or delay clinical trials for certain products in order to focus our resources on more promising products .
| the company granted the underwriters a 30-day option ( the “ option ” ) to purchase up to approximately 4.8 million additional shares of common stock subject to the same terms and conditions . no additional shares of the company 's common stock were sold pursuant to this option . 2019 common stock offering on march 19 , 2019 , the company closed an underwritten public offering of its common stock . the offering resulted in the sale of approximately 27.3 million shares to the public at a price of $ 1.10 per share . the company generated net proceeds of approximately $ 27.8 million . the company granted the underwriters a 30-day option ( the “ option ” ) to purchase up to approximately 4.1 million additional shares of common stock subject to the same terms and conditions . if the underwriters exercise the option in full , additional net proceeds of approximately $ 4.2 million will be generated . on march 28 , 2019 , approximately 2.2 million additional shares were sold pursuant to the option at a price of $ 1.10 per share , resulting in net proceeds to the company of approximately $ 2.3 million . 2018 series b preferred stock offering on june 19 , 2018 , the company entered into a placement agency agreement with thinkequity , a division of fordham financial management , inc. , as placement agent , relating to the offering , issuance and sale of up to 8,000 shares of the company 's series b convertible preferred stock , par value $ 0.0001 per share with a stated value of $ 1,000 per share which are convertible into an aggregate of up to 16,000,000 shares of the company 's common stock , par value $ 0.0001 per share at an initial conversion price of $ 0.50 per share of common stock and an additional up to 7,200,000 shares of common stock issuable upon payment of dividends under the series b preferred stock . the offering closed
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