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while future defense plans , changes in defense spending levels and changes in spending for mass transit projects could have a materially adverse effect on our consolidated financial position , we have and plan to continue to make strategic investments and acquisitions to align our businesses in growth areas of our respective markets that we believe are the most critical priorities and mission areas for our customers . segment overview cubic transportation systems cts is a systems integrator of payment and information technology and services for intelligent travel solutions . we deliver integrated systems for transportation and traffic management , delivering tools for travelers to choose the smartest and easiest way to travel and pay for their journeys , and enabling transportation authorities and agencies to manage demand across the entire transportation network all in real time . we offer fare collection devices , software , systems and multiagency , multimodal integration technologies , as well 34 as a full suite of operational services that help agencies and operators efficiently collect fares , manage operations , reduce revenue leakage and make transportation more convenient . through our nextbus and itms businesses , respectively , we also deliver real-time passenger information systems for tracking bus arrival times and we are a leading provider of intelligent transport solutions and technology maintenance services to uk and other international government road transport agencies . the transportation markets we serve are undergoing a substantial change . mounting pressure on transportation authorities to stretch their operating budgets is fueling a trend toward outsourced services and payment systems that lower operating cost . we believe we are positioned at the forefront of this change . we provide a wide range of services for transportation authorities in major markets worldwide , including computer hosting services , call center and web services , payment media issuance and distribution services , retail point of sale network management , payment processing , financial clearing and settlement , software application support and outsourced asset operations and maintenance . significant regions where we currently provide services include london , sydney , brisbane , sweden , washington d.c. , los angeles , san francisco and atlanta . cts operates full service operation centers in north america , europe and australia . in 2014 , revenues from services provided by cts were $ 315.0 million , or 53 % of cts sales . cts is a prime contractor and has active projects worldwide , including in the new york ( metrocard® ) / new jersey ( patco® , path smartlink® ) region , chicago ( ventra® ) , vancouver , sydney ( opal® ) , brisbane ( go card® ) , the frankfurt / rmv region , sweden , the washington , d.c. / maryland / virginia region ( smartrip® ) , the los angeles region , the san diego region , miami , minneapolis / st. paul and atlanta . in addition to helping us secure similar projects in new markets , our comprehensive suite of new technologies and capabilities enable us to benefit from a recurring stream of revenues in established markets resulting from innovative new services , technology obsolescence , equipment refurbishment and the introduction of new or adjacent applications . we are currently designing and building major new systems in sydney and vancouver . typically , profit margins during the design and build phase of major projects are lower than during the operate-and-maintain phase . this has in the past caused , and may in the future cause , swings in profitability from period to period . in addition , cash flows are often negative during portions of the design- and-build phase , until major milestones are reached and cash payments are received . this was the case in 2014 , for our chicago and vancouver contracts as we experienced negative cash flows from these two major projects . each of these projects includes a ten-year operate and maintain period and we expect cash flows from these projects to be positive in future years . cash payment terms offered by our mass transit customers in a competitive environment are sometimes not favorable to us . the customers ' budget constraints often result in less funding available for the build of a new system , with more funds becoming available when the system becomes operational . this , coupled with the inherent risks in managing large infrastructure projects , can yield negative cash flows and lower and less predictable profit margins on contracts during the design and build phase . conversely , during the operate-and-maintain phase , revenues and costs are typically more predictable and profit margins tend to be higher . in 2014 we did not experience this typical result in gross margins as we achieved higher gross margins on product sales than on service sales . this was due to strong product sales in the uk and improved product sales margins in australia ; while we experienced higher costs in providing the first year of services on a transportation contract in chicago than are expected in future years . gross profit margins from services sales in cts were 24 % and 37 % for fiscal years 2014 and 2013 , respectively , and gross profit margin from product sales was 28 % and 15 % in 2014 and 2013 , respectively . generally , the trend toward more services revenues has helped to generate higher profit margins from the segment in recent years that in the past ; however in 2014 service gross margins were lower than product gross margins mostly due to the increased costs of the first year of providing services on the chicago contract . the mix of product and services sales can produce fluctuations in margin from period-to-period ; however , we expect the trend of increasing services sales to continue in the next several years . most of our sales in cts for fiscal year 2014 were from fixed-price contracts . story_separator_special_tag however , some of our service contracts provide for variable payments , in addition to the fixed payments , based on meeting certain service level requirements and , in some cases , based on system usage . service level requirements are generally contingent upon factors that are under our control , while system usage payments are contingent upon factors that are generally not under our control , other than basic system availability . development and system integration contracts in cts are usually accounted for on a percentage-of-completion basis using the cost-to-cost method to measure progress toward completion , which requires us to estimate our costs to complete these contracts on a regular basis . our actual results can vary significantly from these estimates and changes in estimates can result in significant swings in revenues and profitability from period to period . generally , we are at risk for increases in our costs , unless an increase results from customer- requested changes . at times , there can be disagreement with a customer over who is responsible for increases in costs . in these situations we must use judgment to determine if it is probable that we will recover our costs and any profit margin . 35 revenue under contracts for services in cts is generally recognized either as services are performed or when a contractually required event has occurred , depending on the contract . revenue under such contracts is generally recognized on a straight-line basis over the period of contract performance , unless evidence suggests that the revenue is earned or the obligations are fulfilled in a different pattern . costs incurred under these services contracts are expensed as incurred , and may vary from period to period . incentive fees included in some of our cts service contracts are recognized when they become fixed and determinable based on the provisions of the contract . as described above , often these fees are based on meeting certain contractually required service levels or based on system usage levels . contractual terms can also result in variation of both revenues and expenses , resulting in fluctuations in earnings from period to period . for the new fare collection system for the chicago transit authority , the contract specifies that we would not begin to be paid until we entered the service period . in accordance with authoritative accounting literature , we did not begin recognizing revenue on this contract until it entered the service period in august 2013. as of september 30 , 2014 , we had capitalized $ 76.2 million , net , in direct costs associated with developing the new fare collection system . selling , general and administrative ( sg & a ) costs associated with this contract are not being capitalized , but are being expensed as incurred . capitalized costs are being recognized as cost of sales based upon the ratio of revenue recorded during a period compared to the revenue expected to be recognized over the term of the contract . on november 26 , 2013 we acquired all of the outstanding capital stock of itms , a wholly owned u.k. subsidiary of serco limited . itms is a provider of traffic management systems technology , traffic and road enforcement and maintenance of traffic signals , emergency equipment and other critical road and tunnel infrastructure . the total acquisition-date fair value of consideration transferred for itms was $ 72.2 million . for fiscal year 2014 , itms had $ 43.7 million of revenue and was slightly accretive to our earnings per share , after consideration of costs for transaction , integration and the amortization of purchased intangibles . mission support services mss is a leading provider of highly specialized support services to the u.s. government and allied nations . services provided include live , virtual and constructive training , real-world mission rehearsal exercises , professional military education , intelligence support , information technology , information assurance and related cyber support , development of military doctrine , consequence management , infrastructure protection and force protection , as well as support to field operations , force deployment and redeployment and logistics . mss is a highly specialized and customer centric business which we believe knows how to meet the unique requirements of each of its many customers . in the government services marketplace , reputation , quality and relationships are always important . we uphold our credentials for professional excellence by consistently providing high-value and cost-effective support for our customers . mss is focused on customers within the u.s. government , extending to the dod , all branches of the u.s. armed services , the department of homeland security , non-military agencies , and allied nations under fms contracts funded by the u.s. government . mss is the prime contractor at more than 40 military training and support facilities and supports some of the largest exercises and training events each year including the largest annual constructive simulation training event under our korea battle simulation center ( kbsc ) support contract . cubic won the recomplete of the kbsc contract which has a base and four option periods . the segment supports all four of the u.s. army 's combat training centers ( ctcs ) comprised of : the joint readiness training center ( jrtc ) in fort polk , louisiana , which is the nation 's premier training center for light infantry forces ; the national training center ( ntc ) in fort irwin , california , the army 's premier heavy maneuver ctc ; the joint multinational readiness center ( jmrc ) in hohenfels , germany , which is the u.s. army europe 's combat maneuver training center for realistic training from the individual to the brigade level ; and the mission command training program ( mctp ) in fort leavenworth , kansas , which delivers mission command training to the army 's senior commanders and is the army 's only worldwide deployable ctc . we also currently provide and or have provided defense modernization support for 13 nato entrants in central and eastern europe under fms contracts .
| cds operating income increased by 89 % in 2014 from 2013 due to an increase in operating margin on increased training system sales , and because cds operating profits were negatively impacted in 2013 by $ 7.8 million of restructuring charges and by a $ 2.8 million write- down of inventory in our global asset tracking product line in 2013. businesses acquired by cds in fiscal years 2014 and 2013 had operating losses of $ 8.0 million for 2014 , including a $ 3.7 million charge for compensation expense related to amounts paid to intific employees upon the close of the acquisition in february 2014. cts operating income decreased by 1 % . businesses we acquired in all of our segments in 2014 and 2013 generated operating losses of $ 11.5 million in 2014. the average exchange rates between the prevailing currencies in our foreign operations and the u.s. dollar resulted in an increase in operating income of $ 5.9 million in 2014 from 2013. operating income was $ 40.7 million in 2013 compared to $ 136.2 million in 2012 , a decrease of 70 % . operating income and operating margin percentages decreased in all three of our business segments . decreased operating profits on decreased sales in europe , as well as cost growth on contracts in sydney and vancouver contributed to the decrease in operating margins for cts . cds operating profits were negatively impacted in 2013 by lower margins on lower sales from a ground training system in the far east , a $ 2.8 million write- down of inventory in our global asset tracking product line and $ 7.8 million of restructuring charges incurred in 2013. mss recorded a $ 50.9 million goodwill impairment in 2013 as discussed in the mss segment disclosures below . mss also experienced a decrease in gross margins on a decrease in sales , particularly in the fourth quarter of 2013 due to lower training activity and continued pressure on bid prices . mss bid rates were impacted by the tougher competitive environment , where the lowest
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therefore , our warranty provisions are generally not significant . our cost of sales includes the cost of materials , electronic components and other materials that comprise the products we manufacture , the cost of labor and manufacturing overhead , and adjustments for excess and obsolete inventory . our procurement of materials for production requires us to commit significant working capital to our operations and to manage the purchasing , receiving , inspection and stocking of materials . although we bear the risk of fluctuations in the cost of materials and excess scrap , we periodically negotiate cost of materials adjustments with our customers . our gross margin for any product depends on the sales price , the proportionate mix of the cost of materials in the product and the cost of labor and manufacturing overhead allocated to the product . we typically have the potential to realize higher gross margins on products where the proportionate level of labor and manufacturing overhead is greater than that of materials . as we gain experience in manufacturing a product , we usually achieve increased efficiencies , which result in lower labor and manufacturing overhead costs for that product and higher gross margins . our operating results are impacted by the level of capacity utilization of manufacturing facilities . operating income margins have generally improved during periods of high production volume and high capacity utilization . during periods of low production volume , we generally have idle capacity and reduced operating income margins . severe flooding in thailand and suspension of thailand operations our facilities in ayudhaya , thailand were flooded and remained closed from october 13 , 2011 to december 20 , 2011. as a result of the flooding and temporary closing of our facilities , we recognized estimated property losses of $ 46.2 million and incurred $ 13.4 million of flood related costs during the three months ended december 31 , 2011. we carried property and business interruption insurance that we believe was appropriate and adequate for this situation . our combined limit for real and personal property as well as business interruption insurance was approximately $ 300 million . as such , during the three months ended december 31 , 2011 , we recorded estimated recoveries from insurance for these property losses and flood related costs totaling $ 56.2 million . these estimated insurance recoveries included $ 46.2 million of property losses from the involuntary conversion of property , plant and equipment and inventory and $ 10.0 million of other costs directly related to the flooding in thailand . during the year ended december 31 , 2012 , we reduced the previously estimated property losses and the corresponding estimated insurance recoveries for these property losses by $ 5.1 million . in addition , we received $ 58.2 million of insurance proceeds , which exceeded our previously recorded insurance receivable by $ 7.1 million . the insurance proceeds included $ 48.2 million for thailand property losses and $ 10.0 million for other flood related costs . as of december 31 , 2012 , we have collected our recorded insurance receivable for these property losses and flood related costs . 30 during the year ended december 31 , 2012 , we recognized additional thailand flood related charges totaling $ 16.1 million , which were offset by the insurance recoveries of $ 7.1 million in excess of previously recognized inventory and property , plant and equipment losses . while all of these charges consist of costs directly attributable to the thailand flood which we expect to recover from our insurance , we will record additional insurance recoveries when the appropriate recognition criteria have been met . we can not estimate the timing of the receipt of insurance proceeds we will ultimately realize . we do not expect to incur additional significant thailand flood related charges . as a result of the flooding , we have been unable to renew or otherwise obtain adequate cost-effective flood insurance to cover assets at our thailand facilities . we continue to investigate all flood risk-mitigation alternatives in thailand . in the event we were to experience a significant uninsured loss in thailand or elsewhere , it could have a material adverse effect on our business , financial condition and results of operations . the ayudhaya , thailand facilities are among our largest . as a result , the impact on revenue and operations was significant in the fourth quarter of 2011 . we and our customers implemented contingency and recovery plans as a result of the flood to help enable us to meet customer needs . as part of those plans , we restarted production at our korat , thailand facility in november 2011 , and we shifted production from our ayudhaya facilities to our various other sites around the globe . as a result of the capital purchases associated with our contingency and recovery plans , we have incurred approximately $ 25.4 million in capital expenditures . summary of 2012 results sales for the year ended december 31 , 2012 increased 9.5 % to $ 2.5 billion compared to $ 2.3 billion in 2011. this increase in sales was primarily due to increased demand from our existing customers , including new program wins , most notably in the computers and related products for business enterprises industry , the telecommunication equipment industry and the medical devices industry , in addition to our recovery from the thailand flooding that impacted us in the fourth quarter of 2011. these increases were partially offset by decreased demand from customers in the testing and instrumentation products industry as a result of a slowdown in the semiconductor industry and market uncertainty in the global economy . our future sales are dependent on the success of our customers , some of which operate in businesses associated with rapid technological change and consequent product obsolescence . developments adverse to our major customers or their products , or the failure of a major customer to pay for components or services , could have an adverse effect on us . story_separator_special_tag a substantial percentage of our sales have been made to a small number of customers , and the loss of a major customer , if not replaced , would adversely affect us . sales to our ten largest customers represented 56 % and 53 % of our sales in 2012 and 2011 , respectively . in 2012 and 2011 , sales to international business machines corporation represented 21 % and 14 % , respectively , of our sales . our gross profit as a percentage of sales increased to 7.2 % for the year ended december 31 , 2012 from 6.2 % in the same period of 2011. this increase was primarily due to an increase in sales , partially driven by new programs , our continued focus on cost controls , and our recovery from the 2011 thailand flood that resulted in lower sales volume and resulting under-absorbed manufacturing overhead costs . in addition , the 2011 gross profit was impacted by $ 4.4 million of settlement costs associated with the transfer of a major program . we experience fluctuations in gross profit from period to period . different programs contribute different gross profits depending on factors such as the types of services involved , location of production , size of the program , complexity of the product and level of material costs associated with the various products . moreover , new programs can contribute relatively less to our gross profit in their early stages when manufacturing volumes are usually lower , resulting in inefficiencies and unabsorbed manufacturing overhead costs . in addition , a number of our new and higher volume programs remain subject to competitive constraints that could exert downward pressure on our margins . during periods of low production volume , we generally have idle capacity and reduced gross profit . 31 we have undertaken initiatives to restructure our business operations with the intention of improving utilization and realizing cost savings in the future . during the year ended december 31 , 2012 , the company recognized $ 2.2 million ( pre-tax ) of restructuring charges , primarily related to capacity reduction and reductions in workforce of certain facilities worldwide , primarily in europe . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . our significant accounting policies are summarized in note 1 to the consolidated financial statements in item 8 of this report . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , including those related to accounts receivable , inventories , income taxes , long-lived assets , stock-based compensation and contingencies and litigation . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ materially from these estimates . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . allowance for doubtful accounts our accounts receivable balance is recorded net of allowances for amounts not expected to be collected from our customers . because our accounts receivable are typically unsecured , we periodically evaluate the collectibility of our accounts based on a combination of factors , including a particular customer 's ability to pay as well as the age of the receivables . to evaluate a specific customer 's ability to pay , we analyze financial statements , payment history and various information or disclosures by the customer or other publicly available information . in cases where the evidence suggests a customer may not be able to satisfy its obligation to us , we set up a specific allowance in an amount we determine appropriate for the perceived risk . 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 . inventory obsolescence reserve we purchase inventory based on forecasted demand and record inventory at the lower of cost or market . we reserve for estimated obsolescence as necessary in an amount equal to the difference between the cost of inventory and estimated market value based on assumptions of future demands and market conditions . we evaluate our inventory valuation on a quarterly basis based on current and forecasted usage and the latest forecasts of product demand and production requirements from our customers . customers frequently make changes to their forecasts , requiring us to make changes to our inventory purchases , commitments , and production scheduling and which may require us to cancel open purchase commitments with our vendors . this process may lead to on-hand inventory quantities and on-order purchase commitments that are in excess of our customers ' revised needs , or parts that become obsolete before use in production . we record inventory reserves on excess and obsolete inventory . these reserves are established on inventory which we have determined our customers are not responsible for or on inventory which we believe our customers will be unable to fulfill their obligation to ultimately purchase . if actual market conditions are less favorable than those we projected , additional inventory write-downs may be required . 32 income taxes we estimate our income tax provision in each of the jurisdictions in which we operate , including estimating exposures related to uncertain tax positions . we must also make judgments regarding the ability to realize the deferred tax assets .
| sales to customers in the telecommunication equipment industry for the year ended december 31 , 2012 increased 22 % to $ 637.9 million from $ 521.8 million in 2011 primarily as a result of our recovery from the thailand flooding that impacted us in the fourth quarter of 2011 as well as new program wins . 35 medical devices . sales to customers in the medical devices industry for the year ended december 31 , 2012 increased 15 % to $ 244.1 million from $ 212.2 million in 2011 primarily as a result of new program wins . testing and instrumentation products . sales to customers in the testing and instrumentation products industry for the year ended december 31 , 2012 decreased 28 % to $ 154.4 million from $ 214.5 million in 2011 as a result of a slowdown in the semiconductor industry and market uncertainty in the global economy . our future sales are dependent on the success of our customers , some of which operate in businesses associated with rapid technological change and consequent product obsolescence . developments adverse to our major customers or their products , or the failure of a major customer to pay for components or services , could have an adverse effect on us . adverse worldwide economic conditions have impacted our customers . see note 9 to the consolidated financial statements in item 8 of this report . a substantial percentage of our sales have been made to a small number of customers , and the loss of a major customer , if not replaced , would adversely affect us . sales to our ten largest customers represented 56 % and 53 % of our sales in 2012 and 2011 , respectively . in 2012 and 2011 , sales to international business machines corporation represented 21 % and 14 % , respectively , of our sales . our international operations are subject to the risks of doing business abroad . see item 1a for factors pertaining to our international sales and fluctuations in the exchange rates of foreign currency and for further discussion of potential adverse effects in operating results associated
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network costs increased $ 1.2 million , or 6.5 % , from $ 18.6 million for the year ended december 29 , 2011 to $ 19.8 million for the year ended december 27 , 2012. the increase was primarily due to an increase in year-end performance bonuses due to a better performance against internal goals and an increase in the average number of total network screens during 2012 compared to 2011. theatre access fees . theatre access fees increased $ 9.1 million , or 16.4 % , from $ 55.4 million for the year ended december 29 , 2011 to $ 64.5 million for the year ended december 27 , 2012. the increase was due in part to contractual rate increases specified in the esa , including an annual 5 % rate increase per digital 45 screen and an 8 % increase in the payment per patron fee which occurs every five years with the first such increase taking effect in 2012. theatre access fees also increased due to ncm llc 's founding member attendance increasing by 8.4 % for 2012 , compared to 2011. in addition , payments to ncm llc 's founding members to obtain access to higher quality digital cinema equipment increased due to a higher number of ncm llc 's founding member theatres equipped with this technology . selling and marketing costs . selling and marketing costs increased $ 0.7 million , or 1.2 % , from $ 59.8 million for the year ended december 29 , 2011 to $ 60.5 million for the year ended december 27 , 2012. this increase was primarily due to an increase in advertising related selling and marketing costs of $ 5.1 million , offset by a decrease in selling and marketing costs associated with the fathom events of $ 3.6 million , and a decrease in stock-based compensation expense of $ 0.6 million . advertising related selling and marketing costs increased due to an increase in online publisher expense ( related to the increase in online revenue ) , increase in commission expense related to higher online and mobile revenue ( related to the increase in online revenue ) , and an increase in promotional and merchandising expense . the $ 3.6 million decrease in fathom events selling and marketing costs was due primarily to the wind-down of the fathom business events division during the first quarter of 2012. administrative and other costs . administrative and other costs increased $ 1.1 million , or 3.6 % , from $ 30.4 million for the year ended december 29 , 2011 to $ 31.5 million for the year ended december 27 , 2012. the increase was primarily due to $ 1.6 million increase in performance bonus expense associated with the better performance against internal goals , $ 1.0 million increase in professional service fees primarily related to a one-time fee paid to consultants assisting us with the restructuring of the fathom business , a $ 1.1 million increase in salary and related employee expenses primarily related to software developers working on our new advertising proposal and inventory management systems , partially offset by a decline of $ 2.2 million in stock-based compensation expense . depreciation and amortization . depreciation and amortization expense increased $ 1.6 million to $ 20.4 million for the year ended december 27 , 2012 , compared to $ 18.8 million for the year ended december 29 , 2011 primarily from increased amortization expense recognized on intangible assets for new network affiliate agreements added during late 2011 and 2012. net income . net income decreased $ 18.1 million , or 57.5 % , from $ 31.5 million for the year ended december 29 , 2011 to $ 13.4 million for the year ended december 27 , 2012. the decrease was due primarily to a $ 26.7 million loss on the termination of our interest rate swap agreement associated with the portion of our term loan that was paid down during the second quarter of 2012 with the proceeds from the issuance of our senior secured notes . additionally , the decrease in net income was due to a $ 7.5 million increase in interest on borrowings due primarily to the issuance of senior unsecured notes in july 2011 and to a lesser extent the issuance of our senior secured notes in april 2012. also , our income tax expense increased $ 7.3 million primarily due an adjustment to the measurement of our deferred tax asset and the long-term payable to our founding member liability 's expected net realized tax benefit which included approximately $ 9.6 million attributable to prior periods . see note 6 to the audited consolidated financial statements . these decreases in net income were partially offset by a $ 17.2 million decrease in net income attributable to noncontrolling interest due to lower ncm llc net income during the periods . additionally , during the year ended december 29 , 2011 , we incurred an impairment charge of $ 6.7 million that we did not incur during the year ended december 27 , 2012 . 46 years ended december 29 , 2011 and december 30 , 2010 revenue . total revenue for the year ended december 29 , 2011 increased 1.8 % to $ 435.4 million compared to $ 427.5 million for the 2010 period . the increase in total revenue was the result of a 1.8 % increase in total advertising revenue ( including revenue from ncm llc 's founding member beverage concessionaire agreements , or beverage revenue ) and a 2.5 % increase in fathom events revenue . total advertising revenue ( including beverage revenue ) per attendee for the year ended december 29 , 2011 increased 1.8 % . total advertising revenue per attendee ( excluding beverage revenue ) increased 1.9 % to $ 0.547 from $ 0.537 for the 2010 period . the increase in the advertising revenue per attendee is due to the impact of a 1.8 % increase in total advertising revenue ( including beverage revenue ) , combined with the 0.1 % decrease in theatre attendance . story_separator_special_tag replace_table_token_13_th national advertising revenue . national advertising revenues of $ 305.6 million ( including $ 38.0 million of beverage revenue ) for the year ended december 29 , 2011 decreased 1.2 % from $ 309.2 million ( including $ 37.2 million of beverage revenue ) for the 2010 period . national advertising revenue ( excluding beverage revenue ) for the year ended december 29 , 2011 decreased $ 4.4 million , or 1.6 % to $ 267.6 million compared to $ 272.0 million for the 2010 period . below is a discussion of the national advertising revenue . a very strong tv upfront during may and june followed by a weakening of the economy in july through october when a large percentage of our fourth quarter national advertising commitments are secured . these factors combined with a reduction in the spending of one significant military client in the first quarter contributed to a decrease in inventory utilization ( excluding beverage revenue ) to 100.3 % for the year ended december 29 , 2011 as compared to 101.5 % for the year ended december 30 , 2010. inventory utilization is calculated based on eleven 30-second salable national advertising units in our pre-show , which can be expanded . the decrease in client budgets available to us and our lower utilization also contributed to a 0.4 % decrease in national advertising cpms ( excluding beverage revenue ) . a 2.2 % increase in payments from ncm llc 's founding members for their beverage concessionaire agreements was due primarily to the impact of the annual contractual 6 % beverage revenue cpm increase . a 2.0 % decrease in ncm llc 's founding member attendance for 2011 as compared to 2010. the decrease in ncm llc 's founding member attendance reflects lower overall industry attendance , offset by the acquisition of certain kerasotes theatres ( previously a network affiliate ) by amc in mid-2010 . our make-good reserve balance of $ 2.7 million as of december 29 , 2011 decreased slightly from a balance of $ 2.8 million as of december 30 , 2010. the company expects to recognize the majority of this make-good reserve balance in the first quarter of 2012. local advertising revenue . local advertising revenue increased $ 10.3 million , or 14.7 % , to $ 80.6 million for the year ended december 29 , 2011 compared to $ 70.3 million for the 2010 period . the increase was due to the continued expansion of our network that resulted in better geographic coverage allowing us to sell more 47 effectively to larger regional clients and nationally recognized clients that placed ads regionally . the company 's number of local advertising contracts decreased 7.5 % due to the continued impact of the weak economy on smaller businesses , while the average contract value increased 23.4 % due to increased sales to larger regional clients or nationally recognized clients placing ads regionally . local revenue per theatre attendee increased 15.5 % to $ 0.127 per attendee for the full year of 2011 compared to $ 0.110 for the 2010 period , due to the increase in revenue combined with a 0.1 % decrease in theatre attendance . fathom events revenue . fathom events revenue increased 2.5 % , or $ 1.2 million , to $ 49.2 million for the year ended december 29 , 2011 compared to $ 48.0 million for the 2010 period . our fathom consumer events revenue increased $ 3.5 million or 11.1 % due to a 40.5 % increase in the number of event nights offset by a 25.0 % decrease in revenue per event related to the testing of several new event genres . this increase was offset by a $ 2.3 million , or 13.9 % decrease in fathom business events revenue due to continued negative impact from the slow economic recovery and the competitive impact of better meeting facilities being built in hotels and more robust meeting services being offered on the internet . operating expenses . total operating expenses for the year ended december 29 , 2011 were $ 241.7 million , an increase of 2.0 % from $ 236.9 million for the 2010 period . set forth below is a discussion of the more significant operating expenses . advertising operating costs . advertising operating costs of $ 24.6 million for the year ended december 29 , 2011 increased 13.4 % from the $ 21.7 million for the 2010 period . this increase was primarily the result of the 14.7 % increase in local advertising revenue combined with the increase in the percentage of affiliate attendance in 2011 versus 2010 , which resulted in a $ 4.2 million , or 29.2 % increase in the network affiliate theatre circuits expense . this increase was partially offset by a $ 1.0 decrease in advertising supply costs . fathom events operating costs . fathom events operating costs of $ 34.1 million for the year ended december 29 , 2011 increased 5.2 % compared to $ 32.4 million during the 2010 period . the increase was primarily the result of the increased revenue generated by the fathom consumer division , which resulted in an increase in payments to content producers , as well as the increase in the revenue share payments to ncm llc 's founding members and affiliates . network costs . network costs of $ 18.6 million for the year ended december 29 , 2011 decreased 7.0 % compared to $ 20.0 million for the 2010 period due primarily to a decrease in personnel costs , resulting from lower cash incentive compensation related to not reaching internal financial targets , as well as decreases in maintenance costs related to the transition to digital cinema projectors at ncm llc 's founding member theatres . the number of screens in our network that utilized digital cinema projectors increased to 10,371 as of december 29 , 2011 versus 2,487 as of december 30 , 2010 , an increase of over 300 % .
| total attendance increased 8.4 % for the year ended december 27 , 2012 , with ncm llc 's founding members increasing 4.4 % and network affiliates increasing 35.2 % , which includes 15 new network affiliates added to our network in 2011 and 2012. ncm llc 's founding members ' advertising revenue from beverage concessionaire agreements increased 4.5 % due to a 4.4 % increase in ncm llc 's founding members ' attendance . online and mobile revenue increased 52.4 % during 2012 compared to 2011 as the company continues to place more focus on the online and mobile market , including selling advertising that combines on-screen , lobby and online and mobile marketing components . 44 branded content revenue increased 44.7 % during 2012 compared to 2011 , due to more branded content contracts sold . national inventory utilization decreased to 98.8 % for the year ended december 27 , 2012 compared to 100.3 % for the 2011 period as a result of a larger impression base in 2012 generated by an 8.4 % attendance increase . inventory utilization is calculated based on eleven 30-second salable national advertising units in our pre-show , which can be expanded should market demand dictate . national advertising cpms ( excluding beverage revenue ) decreased 2.5 % during 2012 due to pricing pressure in the broader advertising marketplace and a higher number of long-form ( longer than 30 seconds ) advertisements . local advertising revenue . local advertising revenue increased $ 0.5 million , or 0.6 % to $ 81.1 million for the year ended december 27 , 2012 compared to $ 80.6 million for the 2011 period . the company 's number of local advertising contracts increased 4.6 % as our smaller clients began to spend again with the improving economic climate . the number of our network screens increased 3.7 % , and the average contract value increased 1.0 % due to an increase in the number of regional contracts . the increase is partially offset by a 7.9 % decrease in local revenue per theatre attendee . fathom events revenue . fathom events revenue decreased $ 9.9 million , or 20.1 % to $ 39.3 million for the year ended december 27 , 2012 compared to $ 49.2 million for the 2011 period .
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our u.s. segment generated revenues of $ 1.38 billion in 2015 , $ 1.20 billion in 2014 and $ 1.13 billion in 2013 , and operating income before depreciation , amortization , net ( gain ) loss on dispositions , stock-based compensation , restructuring charges , loss on real estate assets held for sale and acquisition costs ( “ adjusted oibda ” ) of $ 459.6 million in 2015 , $ 416.2 million in 2014 and $ 406.4 million in 2013 . ( see the “ segment results of operations ” section of this md & a . ) international . our international segment includes our operations in canada and latin america , including mexico , argentina , brazil , chile and uruguay . our international segment generated revenues of $ 133.5 million in 2015 , $ 155.0 million in 2014 and $ 163.9 million in 2013 , and adjusted oibda of $ 15.8 million in 2015 , $ 24.3 million in 2014 , and $ 29.1 million in 2013 . on october 31 , 2015 , we entered into an agreement with jcdecaux sa ( “ jcdecaux ” ) , jcdecaux latin america investments holding sl unipersonal , a wholly-owned subsidiary of jcdecaux , and corporacion americana de equipamientos urbanos , s.l. , a majority-owned subsidiary of jcdecaux , to sell all of our equity interests in certain of our subsidiaries ( the “ transaction ” ) , which hold all of the assets of our outdoor advertising business in latin america for $ 82.0 million in cash , subject to working capital and indebtedness adjustments . the consummation of the transaction is expected to occur in the first half of 2016 , subject to customary closing conditions , including regulatory approval . 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 a large number of 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 platforms such as , broadcast and cable television , radio , print media and direct mail marketers . increasing the number of digital billboard displays in our most heavily trafficked locations is an important element of our organic growth strategy , as digital billboard displays have the potential to attract additional business from both new and existing customers . we believe digital billboard 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 production costs . in addition , digital billboard displays enable us to run multiple advertisements on each display ( up to eight per minute ) . as a result , digital billboard displays generate approximately four times more revenue per display on average than traditional static billboard displays , and digital billboard displays generate higher profits and cash flows than traditional static billboard displays . we believe the continued adoption and refinement of the out-of-home advertising industry 's audience measurement system , the “ tab out of home ratings , ” will enhance the value of the out-of-home medium by providing customers with improved audience measurement and the ability to target by gender , age , ethnicity and income . new refinements , including the impact of speed ( i.e. , how quickly a vehicle passes an individual billboard unit ) , and the recent inclusion of transit metrics , are making the measurement system more robust . additionally , we are developing a platform to enable us to utilize audience data and analytics for more effective ad targeting , which will factor location and time in addition to a more granular audience profile of our locations . by providing a consistent and standardized audience measurement metric , and increasingly available and reliable third-party data , we will be able to help advertisers impact increasingly mobile audiences with effective media plans in the out-of-home environment for both static and digital displays . 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 cut back on spending following the holiday shopping season . 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 2015 , we generated approximately 46 % of our u.s. revenues from national advertising 37 campaigns , compared to 41 % in 2014 and 42 % in 2013 .the increase in revenues from national advertising campaigns in 2015 compared to 2014 and 2013 is primarily due to the impact of the acquisition of certain outdoor advertising businesses of van wagner communications , llc ( the “ acquisition ” ) on october 1 , 2014. our transit businesses require us to 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 a new contract . in november 2014 , we were informed that we were not successful in the renewal of the new york city phone kiosk contract which we obtained as part of the acquisition and our operation of these kiosks ceased during the first quarter of 2015. in 2015 , we generated revenue of $ 1.6 million related to these operations . story_separator_special_tag on july 22 , 2015 , we entered into an agreement with the metropolitan transportation authority ( the “ mta ” ) to extend our existing transit contract for providing advertising services throughout the new york city subway system from december 31 , 2015 , to december 31 , 2016 , unless earlier terminated by the mta on or after july 1 , 2016. on july 22 , 2015 , we also entered into an agreement with the mta to modify our existing bus and commuter rail advertising contract to change the mta 's right to terminate the contract at any time , to a right to terminate at any time on or after july 1 , 2016 , and the right to exclude billboards on the mta 's properties from any termination . the december 31 , 2016 , expiration date of the bus and commuter rail advertising contract remains unchanged . our transit contract with the mta represents $ 226.3 million in revenues , representing 55 % of our u.s. transit and other revenues or 18 % of our total u.s. revenues in 2015. we expect that a request for proposal will be issued by the mta in 2016 . ( see “ item 1a . risk factors—risks related to our business and operations—the success of our transit advertising business is dependent on obtaining and renewing key municipal contracts on favorable terms. ” ) 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 . in 2015 , we incurred $ 32.6 million of costs associated with operating as a stand-alone public company ( $ 6.3 million incrementally over 2014 ) . in an effort to help users of our financial data evaluate our operating performance for 2015 and 2014 , where indicated , we present adjusted oibda , funds from operations ( “ ffo ” ) and adjusted ffo ( “ affo ” ) and related per adjusted weighted average share amounts , on a reit-comparable basis . replace_table_token_8_th * calculation not meaningful . ( a ) revenues on a constant dollar basis are calculated as reported revenues excluding the impact of foreign currency exchange rates between years . we provide constant dollar revenues to understand the underlying growth rate of revenue excluding the impact of changes in foreign currency exchange rates 38 between years , which are not under management 's direct control . our management believes constant dollar revenues are useful to users of our financial data because it enables them to better understand the level of growth of our business year to year . since constant dollar revenues are not calculated in accordance with gaap , they should not be considered in isolation of , or as a substitute for , revenues as an indicator of operating performance . constant dollar revenues , as we calculate them , may not be comparable to similarly titled measures employed by other companies . ( b ) see the “ reconciliation of non-gaap financial measures ” section of this md & a for a reconciliation of operating income to adjusted oibda , net income ( loss ) to ffo and affo , and results on a reit-comparable basis . adjusted oibda we calculate adjusted oibda as operating income before depreciation , amortization , net ( gains ) losses on dispositions , stock-based compensation , restructuring charges , loss on real estate assets held for sale and acquisition costs . 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 , depreciation and amortization of real estate assets , amortization of direct lease acquisition costs and the non-cash effect of loss on real estate assets held for sale , as well as the same adjustments for our equity-based investments , 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 constant dollars , revenues increased $ 183.4 million , or 14 % , and organic revenues increased $ 48.0 million , or 4 % , in 2015 compared to 2014 . total revenues increased $ 59.8 million , or 5 % , and organic revenues increased $ 29.9 million , or 2 % , in 2014 compared to 2013 . in constant dollars , revenues increased $ 72.3 million in 2014 , or 6 % , compared to 2013 . non-organic revenues primarily reflect the acquisition ( $ 194.7 million in 2015 and $ 55.2 million in 2014 ) , the discontinuation of a business line in april 2014 , the november 2013 sale of our transit shelter operations in the greater los angeles area and other acquisitions and dispositions . total billboard revenues increased $ 112.8 million , or 12 % , in 2015 compared to 2014 , principally driven by the impact of the acquisition , the conversion of traditional static billboard displays to digital billboard displays and an increase in production and installation revenues , partially offset by a decline in average revenue per display ( yield ) and the unfavorable foreign currency exchange impact of $ 20.3 million . in constant dollars , billboard revenues increased $ 133.1 million , or 14 % , in 2015 compared to 2014 . total billboard revenues increased $ 50.6 million , or 5 % , in 2014 compared to 2013 , principally driven by the impact of the acquisition , stronger local advertising sales and the conversion of traditional static billboard displays to digital billboard displays , partially offset by the unfavorable foreign currency exchange impact of $ 31.1 million . in constant dollars , billboard revenues increased $ 61.4 million , or 7 % , in 2014 compared to 2013 , due primarily to the acquisition . total transit and other revenues increased $ 47.2 million , or 12 % , in 2015 compared to 2014 , driven by the impact of the acquisition and stronger market conditions in local and national advertising
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net income per diluted share was $ 4.06 , $ 3.34 and $ 3.21 in 2010 , 2009 and 2008 , respectively . net income per diluted share was primarily impacted by the following factors in 2010 , 2009 and 2008 : the benefits from higher sales volumes and the benefits from a shift in pretax income to lower tax rate jurisdictions increased net income per diluted share in 2010 as compared to 2009 and 2008. in 2010 , an $ 8 million tax benefit was recorded related to the reversal for uncertain tax positions due to an audit settlement in the united kingdom and a $ 2 million tax benefit related to the resolution of a pre-acquisition tax exposure . these tax benefits added $ 0.10 per diluted share to 2010 . 20 the $ 6 million ta building lease termination expense recorded in 2009 increased selling and administrative expenses and lowered net income per diluted share by $ 0.04 in 2009. a $ 5 million tax benefit was recorded in 2009 related to the reorganization of certain foreign legal entities and added $ 0.05 per diluted share to 2009. the impact of the 2008 out-of-period adjustments related to capitalized software amortization increased 2008 net income per diluted share by $ 0.08. lower weighted-average shares and equivalents , as a result of the company 's share buyback program , increased net income per diluted share in 2010 as compared to 2009 and 2009 as compared to 2008. net cash provided by operating activities was $ 458 million , $ 418 million and $ 418 million in 2010 , 2009 and 2008 , respectively . the $ 40 million increase in the operating cash flow in 2010 as compared to 2009 was primarily a result of higher net income , lower incentive compensation payments made in 2010 as compared to 2009 and a $ 6 million litigation payment and $ 6 million ta building lease termination payment made in 2009 , as well as timing of receipts from customers and payments to vendors . the 2009 cash provided by operating activities was consistent with the 2008 cash provided by operating activities despite the lower sales volume and global economic recession . within cash flows used in investing activities , capital expenditures related to property , plant , equipment and software capitalization were $ 63 million , $ 94 million and $ 69 million in 2010 , 2009 and 2008 , respectively . capital expenditures were higher in 2009 primarily due to the acquisition of land and construction of a new ta facility , which was completed in june 2009. in 2010 , the company entered into an agreement ( subject to local regulatory approval ) to purchase land in the united kingdom to construct a new facility , which will consolidate certain existing primary manufacturing locations . the company spent $ 3 million in 2010 in relation to this new facility and expects to incur capital expenditures in the next few years in the range of $ 70 million to $ 90 million to construct this facility . the company acquired all of the remaining outstanding capital stock of thar instruments , inc. ( thar ) for $ 36 million in cash in february 2009. the company continues to evaluate the acquisition of businesses , product lines and technologies to augment the waters and ta operating divisions . within cash flows used in financing activities , the company received $ 101 million , $ 19 million and $ 29 million of proceeds from stock plans in 2010 , 2009 and 2008 , respectively . fluctuations in these amounts were primarily attributed to changes in the company 's stock price and the expiration of stock option grants . in february 2009 , the company 's board of directors authorized the company to repurchase up to $ 500 million of its outstanding common stock over a two-year period . during 2010 , 2009 and 2008 , the company repurchased $ 292 million , $ 210 million and $ 235 million of the company 's outstanding common stock , respectively , under the february 2009 authorization and previously announced stock repurchase programs . in february 2011 , the company 's board of directors authorized the company to repurchase up to an additional $ 500 million of its outstanding common stock over a two-year period . the company believes that it has the financial flexibility to fund these share repurchases given current cash and debt levels , as well as to invest in research , technology and business acquisitions to further grow the company 's sales and profits . in february 2010 , the company issued and sold five-year senior unsecured notes at an interest rate of 3.75 % with a face value of $ 100 million . this debt matures in february 2015. in march 2010 , the company issued and sold ten-year senior unsecured notes at an interest rate of 5.00 % with a face value of $ 100 million . this debt matures in february 2020. the company used the proceeds from the issuance of these senior unsecured notes to repay other outstanding debt and for general corporate purposes . as a result of these debt issuances , the company 's weighted-average interest rates have increased in 2010 due to higher rates paid on this fixed-rate debt . the company 's 2007 credit agreement expires in january 2012. the total outstanding debt balance of the 2007 credit agreement at december 31 , 2010 is $ 555 million . the company anticipates refinancing this credit agreement at current market interest rates and terms customary to investment grade borrowers . 21 story_separator_special_tag benefit related to the reversal of reserves for uncertain tax positions due to an audit settlement in the united kingdom and $ 2 million of tax benefit related to the resolution of a pre-acquisition tax exposure . story_separator_special_tag these tax benefits decreased the company 's effective tax rate by 2.1 percentage points in 2010. included in the income tax provision for 2009 was a $ 5 million tax benefit related to the reversal of a $ 5 million provision that was originally recorded in 2008 , relating to the reorganization of certain foreign legal entities . the recognition of this tax benefit in 2009 was a result of changes in income tax regulations promulgated by the u.s. treasury in february 2009. this tax benefit decreased the company 's effective tax rate by 1.2 percentage points in 2009. the remaining difference between the effective tax rates for 2010 as compared to 2009 was primarily attributable to higher pre-tax income in lower tax rate jurisdictions . the company 's effective tax rate is influenced by many significant factors including , but not limited to , the wide range of income tax rates in jurisdictions in which the company operates ; sales volumes and profit levels in each tax jurisdiction ; changes in tax laws , tax rates and policies ; and the impact of foreign currency transactions and translation . as a result of variability in these factors , the company 's effective tax rates in the future may not be similar to the effective tax rates reported for 2010 or 2009. a known factor that will increase the company 's effective tax rate in the future is that the company 's ireland statutory tax rate will increase to 12.5 % in 2011 from the historical contractual tax rate of 10 % . year ended december 31 , 2009 compared to year ended december 31 , 2008 net sales product sales were $ 1,052 million and $ 1,140 million for 2009 and 2008 , respectively , a decrease of 8 % . the decrease in product sales in 2009 as compared to 2008 was primarily due to the overall decline in waters and ta instrument system sales due to lower spending by the company 's customers as a result of the global economic recession and adverse effects from foreign currency translation . service sales were $ 447 million and $ 435 million in 2009 and 2008 , respectively , an increase of 3 % . the increase in service sales in 2009 as compared to 2008 was primarily attributable to increased sales of service plans and billings to a higher installed base of customers . waters division net sales waters division sales declined 4 % in 2009 as compared to 2008. the effect of foreign currency translation negatively impacted the waters division across all product lines , resulting in a decline in total sales of 2 % in 2009. the 2009 acquisition of thar and 2008 acquisition of analytical products group , inc. ( apg ) added 2 % to sales in 2009. chemistry consumables sales in 2009 were comparable to 2008 , with the effect of foreign currency translation negatively impacting chemistry consumable sales by 2 % . waters division service sales grew 3 % in 2009 due to increased sales of service plans and billings to a higher installed base of customers . the service sales growth rate was negatively impacted by 1 % from the effect of foreign currency translation . waters instrument system sales declined by 9 % in 2009. the decrease in instrument system sales was primarily attributable to weak industrial and pharmaceutical customer spending caused by the global recession . the effect of foreign currency translation negatively impacted 2009 instrument system sales by 2 % . waters division sales by product line in 2009 were 52 % for instrument systems , 18 % for chemistry consumables and 30 % for service , as compared to 55 % for instrument systems , 17 % for chemistry consumables and 28 % for service in 2008 . 23 waters division sales in europe declined 9 % in 2009 , primarily due to weak demand in eastern europe and the effects of foreign currency translation , which decreased 2009 sales in europe by 6 % . waters division sales in asia increased 2 % in 2009 , with strong sales growth in china partially offset by weakness in other asian markets . the effects of foreign currency translation increased asia 's 2009 sales by 2 % . waters division sales in the u.s. and the rest of the world declined 2 % and 13 % , respectively . the effects of foreign currency translation decreased 2009 sales in the rest of world by 3 % . ta division net sales ta 's sales were 11 % lower in 2009 as compared to the 2008 primarily as a result of weak instrument system demand from its industrial customers . foreign currency translation had minimal impact on ta 's 2009 sales as compared to 2008. the 2008 acquisition of vti added 1 % to sales in 2009. instrument system sales declined 15 % in 2009 and represented 74 % of sales in 2009 as compared to 78 % in 2008. ta service sales increased 4 % in 2009 due to sales of service plans and billings to a higher installed base of customers . geographically , sales decreased in each territory . gross profit gross profit for 2009 was $ 904 million compared to $ 914 million for 2008 , a decrease of 1 % . gross profit as a percentage of sales increased to 60.3 % in 2009 as compared to 58.0 % in 2008. the decrease in gross profit dollars in 2009 was primarily attributed to lower sales volume and lower prices in certain geographies offset by benefits from net favorable foreign currency translation , a favorable change in sales mix and lower manufacturing costs . gross profit in 2008 also had a $ 9 million charge from out-of-period adjustments related to capitalized software amortization .
| waters division sales in europe decreased 1 % in 2010 and the effects of foreign currency translation decreased european sales by 3 % in 2010. waters division sales in asia increased 19 % in 2010 , primarily due to strong sales growth in china and india . the effects of foreign currency translation increased sales in asia by 4 % in 2010. waters division sales in the u.s. and the rest of the world increased 8 % and 13 % , respectively . the effects of foreign currency translation increased 2010 sales in the rest of world by 3 % . ta division net sales ta 's sales were 17 % higher in 2010 as compared to 2009. the increase was primarily a result of higher demand for instrument systems from ta 's industrial customers due to improved economic conditions . foreign currency translation had minimal impact on ta 's 2010 sales as compared to 2009. instrument system sales increased 19 % in 2010 and represented 75 % of sales in 2010 as compared to 74 % in 2009. ta service sales increased 11 % in 2010 primarily due to increased sales of service plans and billings to a higher installed base of customers . geographically , sales increased in each territory . gross profit gross profit for 2010 was $ 990 million compared to $ 904 million for 2009 , an increase of 10 % . gross profit as a percentage of sales decreased slightly to 60.2 % in 2010 as compared to 60.3 % in 2009. the increase in gross profit dollars in 2010 was primarily attributed to higher sales volumes . during 2010 , as compared to 2009 , the company 's gross profit as a percentage of sales was slightly impacted by an unfavorable change in the sales mix and the unfavorable impact of movements in certain foreign exchange rates between the currencies where the company manufactures products and the currencies where the sales were transacted , principally the euro , japanese yen and british pound . these declines in gross profit as a percentage of sales were mostly offset by the
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service revenues increased $ 3.0 billion , or 12 % , to $ 27.8 billion in 2016 primarily due to growth in our average branded customer base as a result of strong customer response to our un-carrier initiatives and the success of our metropcs brand and continued growth in new markets . equipment revenues increased $ 2.0 billion , or 30 % , to $ 8.7 billion in 2016 primarily as a result of higher lease revenues , which are recognized over the lease term , resulting from the launch of our jump ! on demand program at the end of the second quarter of 2015 , an increase in the number of devices sold and a higher average revenue per device sold . operating income increased $ 1.7 billion , or 84 % , to $ 3.8 billion in 2016 primarily due to higher total revenues as well as increased gains on disposals of spectrum licenses , partially offset by higher depreciation and amortization from an increase in the number of devices leased under our jump ! on demand program , higher costs of equipment sales primarily from an increase in the number of devices sold and a higher average cost per device and higher selling , general and administrative expenses to support customer growth and retention . net income increased $ 727 million , or 99 % , to $ 1.5 billion in 2016 primarily due to higher operating income driven by the factors described above , partially offset by higher interest expense related to higher average debt and higher income tax expense . additionally , 2016 included $ 509 million of net , after-tax gains on disposal of spectrum licenses compared to $ 100 million in 2015. adjusted ebitda increased $ 3.0 billion , or 41 % , to $ 10.4 billion in 2016 primarily from higher service revenues and gains on disposal of spectrum licenses , partially offset by increases in selling , general and administrative expenses to support customer growth . lower losses on equipment in 2016 primarily due to an increase in lease revenues resulting from the launch of our jump ! on demand program at the end of the second quarter of 2015. revenues associated with leased devices are recognized over the lease term . net cash provided by operating activities increased $ 721 million , or 13 % , to $ 6.1 billion in 2016 . the increase was primarily due to an increase in net non-cash income and expenses included in net income primarily due to changes in depreciation and amortization , deferred income tax expense and gains on disposal of spectrum licenses expense , as well as an increase in net income . the increase was partially offset by an increase in net cash outflows from changes in working capital . free cash flow increased $ 743 million , or 108 % , to $ 1.4 billion in 2016 . the increase was primarily from higher net cash provided by operating activities as discussed above . cash purchases of property and equipment includes capitalized interest of $ 142 million and $ 246 million in 2016 and 2015 , respectively . 25 set forth below is a summary of our consolidated results : replace_table_token_7_th nm - not meaningful comparing 2016 results with 2015 results total revenues increased $ 5.2 billion or 16 % primarily due to : branded postpaid revenues increased $ 1.8 billion or 11 % primarily from : a 13 % increase in the number of average branded postpaid phone and mobile broadband customers , driven by strong customer response to our un-carrier initiatives and promotions for services and devices ; higher device insurance program revenues primarily from customer growth ; and higher regulatory program revenues ; partially offset by an increase in the non-cash net revenue deferral for data stash ; and the impact of reduced branded postpaid revenues resulting from the mvno transaction . 26 branded prepaid revenues increased $ 1.0 billion or 13 % primarily from : a 13 % increase in the number of average branded prepaid customers driven by the success of our metropcs brand ; and continued growth in new markets . wholesale revenues increased $ 211 million or 30 % primarily from : the impact of the increased wholesale revenues resulting from the mvno transaction ; growth in customers of certain mvno partners ; and an increase in data usage per customer . roaming and other service revenues increased $ 57 million or 30 % primarily due to higher international roaming revenues driven by an increase in inbound roaming volumes . equipment revenues increased $ 2.0 billion or 30 % primarily from : an increase of $ 1.2 billion in lease revenues resulting from the launch of our jump ! on demand program at the end of the second quarter of 2015 . revenues associated with leased devices are recognized over the lease term . an increase of $ 570 million in device sales revenues , primarily due to a 9 % increase in the number of devices sold . device sales revenue is recognized at the time of sale . gross eip device financing to our customers increased by $ 923 million to $ 6.1 billion primarily due to an increase in devices financed due to our focus on eip sales in 2016 , compared to focus on devices financed on jump ! on demand after the launch of the program at the end of the second quarter of 2015 . other revenues increased $ 157 million or 31 % primarily from : higher revenue from revenue share agreements with third parties ; and an increase in co-location rental income from leasing space on wireless communication towers to third parties . story_separator_special_tag our operating expenses consist of the following categories : cost of services consists primarily of costs directly attributable to providing wireless service through the operation of our network , including direct switch and cell site costs , such as rent , network access and transport costs , utilities , maintenance , associated labor costs , long distance costs , regulatory program costs , roaming fees paid to other carriers and data content costs . cost of equipment sales consists primarily of costs of devices and accessories sold to customers and dealers , device costs to fulfill insurance and warranty claims , costs related to returned and purchased leased devices , write-downs of inventory related to shrinkage and obsolescence , and shipping and handling costs . selling , general and administrative consists of costs not directly attributable to providing wireless service for the operation of sales , customer care and corporate activities . these include commissions paid to dealers and retail employees for activations and upgrades , labor and facilities costs associated with retail sales force and administrative space , marketing and promotional costs , customer support and billing , bad debt expense , losses from sales of receivables and back office administrative support activities . operating expenses increased $ 3.5 billion or 12 % primarily due to : cost of services increased $ 177 million or 3 % primarily from : higher regulatory program costs and expenses associated with network expansion and the build-out of our network to utilize our 700 mhz a-block spectrum licenses , including higher employee-related costs ; partially offset by lower long distance and toll costs ; and synergies realized from the decommissioning of the metropcs cdma network . 27 cost of equipment sales increased $ 1.5 billion or 16 % primarily from : a 9 % increase in the number of devices sold ; and an increase in the impact from returned and purchased leased devices . under our jump ! on demand program , the cost of the leased wireless device is capitalized and recognized as depreciation expense over the term of the lease rather than recognized as cost of equipment sales when the device is delivered to the customer . additionally , upon device upgrade or at lease end , customers must return or purchase their device . returned devices transferred from property and equipment , net are recorded as inventory and are valued at the lower of cost or market with any write-down to market recognized as cost of equipment sales . selling , general and administrative increased $ 1.2 billion or 12 % primarily from strategic investments to support our growing customer base including higher : employee-related costs ; commissions driven by an increase in branded customer additions ; and promotional costs . depreciation and amortization increased $ 1.6 billion or 33 % primarily from : $ 1.5 billion in depreciation expense related to devices leased under our jump ! on demand program launched at the end of the second quarter of 2015. under our jump ! on demand program , the cost of a leased wireless device is depreciated over the lease term to its estimated residual value . the total number of devices under lease was higher year-over-year , resulting in higher depreciation expense ; and the continued build-out of our 4g lte network . cost of metropcs business combination decreased $ 272 million or 72 % primarily from lower network decommissioning costs . in 2014 , we began decommissioning the metropcs cdma network and certain other redundant network cell sites as part of the business combination . on july 1 , 2015 , we officially completed the shutdown of the metropcs cdma network . network decommissioning costs , which are excluded from adjusted ebitda , primarily relate to the acceleration of lease costs for cell sites that would have otherwise been recognized as cost of services over the remaining lease term had we not decommissioned the cell sites . although we expect to incur additional network decommissioning costs in 2017 , these costs are not expected to be significant . gains on disposal of spectrum licenses increased $ 672 million primarily from a $ 636 million gain from a spectrum license transaction with at & t recorded in the first quarter of 2016 and $ 199 million from other transactions in 2016 , compared to $ 163 million in 2015. see note 5 – goodwill , spectrum licenses and other intangible assets of the notes to the consolidated financial statements . net income increased $ 727 million or 99 % primarily from : operating income , the components of which are discussed above , increased $ 1.7 billion or 84 % and interest expense to affiliates decreased $ 99 million or 24 % primarily from : changes in the fair value of embedded derivative instruments associated with our senior reset notes issued to deutsch telekom in 2015 ; partially offset by higher interest rates on certain senior reset notes issued to deutsch telekom , which were adjusted at reset dates in the second quarter of 2016 and in 2015 . partially offset by : income tax expense increased $ 622 million or 254 % primarily from : higher income before income taxes ; and a higher effective tax rate . the effective tax rate was 37.3 % in 2016 , compared to 25.1 % in 2015 . the increase in the effective income tax rate was primarily due to income tax benefits for discrete income tax items recognized in 2015 that did not impact 2016 ; partially offset by the recognition of $ 58 million of excess 28 tax benefits related to share-based payments following the adoption of asu 2016-09 as of january 1 , 2016. see note 1 – summary of significant accounting policies of the notes to the consolidated financial statements . based on recent earnings in certain jurisdictions , sufficient positive evidence may exist within the next twelve months such that we may release a portion of our valuation allowance .
| we financed $ 5.2 billion of devices through eip during 2015 , a decrease from $ 5.8 billion in 2014 , primarily due to a decline in devices financed through eip as customers increasingly shifted to leasing devices with jump ! on demand . other revenues increased $ 114 million or 29 % primarily attributable to higher non-service revenues from revenue share agreements with third parties . operating expenses increased $ 1.8 billion or 7 % primarily due to : cost of services decreased $ 234 million or 4 % primarily from : synergies realized from the decommissioning of the metropcs cdma network ; lower lease expense associated with spectrum license lease agreements ; and a reduction in certain regulatory program costs ; partially offset by increases related to our network expansion and build-out of our 700 mhz a-block spectrum . 30 cost of equipment sales decreased $ 277 million or 3 % primarily from : lower average cost per device sold , mainly due to the impact of customers shifting to leasing higher-end devices with jump ! on demand ; partially offset by growth in the number of devices and accessories sold . with jump ! on demand , the cost of the leased wireless device is capitalized and recognized as depreciation expense over the term of the lease rather than recognized as cost of equipment sales when the device is delivered to the customer . despite the increase in the number of devices leased in 2015 following the launch of jump ! on demand , the unit volume of device sales increased 5 % in 2015 , compared to 2014. selling , general and administrative increased $ 1.3 billion or 15 % primarily from supporting the growing customer base , which also increased 15 % and reflects increases in : employee-related costs ; promotional costs ; commissions ; and bad debt expense and losses from sales of receivables primarily resulting from growth in the customer base and in the eip program . depreciation and amortization increased $ 276 million or 6 % primarily from $ 312 million in depreciation expense related to devices leased under our
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% . segment results we operate in four segments : chicken , beef , pork and prepared foods . the following table is a summary of sales and operating income ( loss ) , which is how we measure segment income ( loss ) . replace_table_token_15_th 21 replace_table_token_16_th 2013 vs. 2012 – sales volume – sales volumes grew due to increased domestic and international production driven by stronger demand for our chicken products . average sales price – the increase in average sales price was primarily due to mix changes and price increases associated with higher input costs . since many of our sales contracts are formula based or shorter-term in nature , we were able to offset rising input costs through improved pricing and mix . operating income – operating income was positively impacted by increased average sales price , improved live performance and operational execution , as well as improved performance in our foreign-produced operations . these increases were partially offset by increased feed costs of $ 470 million . 2012 vs. 2011 – sales volume – the decrease in sales volumes in fiscal 2012 was primarily attributable to the impact of domestic production cuts we made in late fiscal 2011 and maintained throughout fiscal 2012 , in order to balance our supply with forecasted customer demand . these production cuts reduced our total domestic slaughter pounds by approximately 4 % in fiscal 2012 , but were partially offset by increases in international sales volumes and open-market meat purchases . average sales price – the increase in average sales prices is primarily due to mix changes and price increases associated with reduced industry supply and increased input costs . operating income – the increase in operating income was largely due to the increase in average sales price and operational improvements , partially offset by reduced sales volumes , increased grain , feed ingredients and other growout costs and losses incurred in our foreign start-up businesses . feed costs – operating results were negatively impacted in fiscal 2012 by an increase in feed costs of $ 320 million and an increase in other growout operating costs of $ 50 million . operational improvements – operating results were positively impacted by approximately $ 115 million of operational improvements , primarily attributed to improvements in yield , mix and processing optimization . start-up businesses – our foreign start-up businesses in brazil and china incurred operating losses of approximately $ 70 million in fiscal 2012 . 22 replace_table_token_17_th 2013 vs. 2012 – sales volume – sales volume decreased due to less outside trim and tallow purchases , partially offset by increased production volumes . average sales price – average sales price increased due to lower domestic availability of fed cattle supplies , which drove up livestock costs . operating income – operating income increased due to improved operational execution , less volatile live cattle markets and improved export markets , partially offset by increased operating costs . 2012 vs. 2011 – sales and operating income – average sales price increased due to price increases associated with increased livestock costs . sales volume decreased due to a reduction in live cattle processed and outside tallow purchases . operating income decreased due to higher fed cattle costs and periods of reduced demand for beef products , which made it difficult to pass along increased input costs , as well as lower sales volumes and increased employee related operating costs . replace_table_token_18_th 2013 vs. 2012 – sales volume – sales volume decreased as a result of balancing our supply with customer demand and reduced exports . average sales price – demand for pork products improved , which drove up average sales price and livestock cost despite a slight increase in live hog supplies . operating income – while reduced compared to prior year , operating income remained strong in fiscal 2013 despite brief periods of imbalance in industry supply and customer demand . we were able to maintain strong operating margins by maximizing our revenues relative to the live hog markets , partially due to operational and mix performance . derivative activities – operating results included net losses of $ 15 million in fiscal 2013 , compared to net gains of $ 66 million in fiscal 2012 for commodity risk management activities related to futures contracts . these amounts exclude the impact from related physical sale and purchase transactions , which impact current and future period operating results . 2012 vs. 2011 – sales and operating income – average sales price decreased due to increased domestic availability of pork products , which drove lower live hog costs . operating income decreased due to compressed pork margins caused by the excess domestic availability of pork products . we were able to maintain strong operating margins by maximizing our revenues relative to the live hog markets , partially due to strong export sales and operational and mix performance . derivative activities – operating results included net gains of $ 66 million in fiscal 2012 , compared to net losses of $ 32 million in fiscal 2011 from commodity risk management activities related to futures contracts . these amounts exclude the impact from related physical sale and purchase transactions , which impact current and future period operating results . 23 replace_table_token_19_th 2013 vs. 2012 – sales volume – sales volume increased as a result of improved demand for our prepared products and incremental volumes from the purchase of two businesses in fiscal 2013. average sales price – average sales price increased due to price increases associated with higher input costs . operating income – operating income decreased , despite increases in sales volumes and average sales price , as the result of increased raw material and other input costs of approximately $ 110 million and additional costs incurred as we invested in our lunchmeat business and growth platforms . because many of our sales contracts are formula based or shorter-term in nature , we are typically able to offset rising input costs through pricing . however , there is a lag time for price increases to take effect . story_separator_special_tag 2012 vs. 2011 – sales and operating income – operating margins were positively impacted by lower raw material costs of $ 75 million and increased average sales prices , which were partially offset by lower volumes and increased operational costs of approximately $ 30 million , largely due to costs related to revamping our lunchmeat business and the start-up of a new pepperoni plant . because many of our sales contracts are formula based or shorter-term in nature , we typically offset changing input costs through pricing . however , there is a lag time for price changes to take effect , which is what we experienced during fiscal 2011 . 24 fiscal 2014 outlook in fiscal 2014 , we expect overall domestic protein production ( chicken , beef , pork and turkey ) to increase approximately 1 % from fiscal 2013 levels . grain supplies are expected to increase in fiscal 2014 , which should result in lower input costs . the following is a summary of the fiscal 2014 outlook for each of our segments , as well as an outlook on sales , capital expenditures , net interest expense , debt and liquidity , share repurchases and dividends : chicken – we expect domestic chicken production to increase 3-4 % in fiscal 2014 compared to fiscal 2013. based on current futures prices , we expect lower feed costs in fiscal 2014 compared to fiscal 2013 of approximately $ 500 million . many of our sales contracts are formula based or shorter-term in nature , which allows us to adjust pricing when input costs fluctuate . however , there may be a lag time for price changes to take effect . for fiscal 2014 , we believe our chicken segment will be in or above its normalized range of 5.0 % -7.0 % . beef – we expect to see a reduction of industry fed cattle supplies of 2-3 % in fiscal 2014 as compared to fiscal 2013. although we generally expect adequate supplies in regions we operate our plants , there may be periods of imbalance of fed cattle supply and demand . for fiscal 2014 , we believe our beef segment 's profitability will be similar to fiscal 2013 , but could be below its normalized range of 2.5 % -4.5 % . pork – we expect industry hog supplies to increase 1-2 % in fiscal 2014 and exports to improve compared to fiscal 2013. for fiscal 2014 , we believe our pork segment will be in its normalized range of 6.0 % -8.0 % . prepared foods – we expect operational improvements and pricing to offset increased raw material costs . because many of our sales contracts are formula based or shorter-term in nature , we are typically able to offset rising input costs through increased pricing . as we continue to invest heavily in our growth platforms , we believe our prepared foods segment could be slightly below its normalized range of 4.0 % -6.0 % for fiscal 2014. sales – we expect fiscal 2014 sales to approximate $ 36 billion as we continue to execute our strategy of accelerating growth in domestic value-added chicken sales , prepared food sales and international chicken production . capital expenditures – we expect fiscal 2014 capital expenditures to approximate $ 700 million . net interest expense – we expect net interest expense will approximate $ 100 million for fiscal 2014. debt and liquidity – total liquidity at september 28 , 2013 , was $ 2.1 billion , well above our goal to maintain liquidity in excess of $ 1.2 billion . in october 2013 , our 2013 notes , with a principal amount of $ 458 million , matured and we paid them off using cash on hand . share repurchases – we expect to continue repurchasing shares under our share repurchase program . as of september 28 , 2013 , 14.2 million shares remain authorized for repurchases . the timing and extent to which we repurchase shares will depend upon , among other things , our working capital needs , market conditions , liquidity targets , our debt obligations and regulatory requirements . dividends – on november 14 , 2013 , the board of directors increased the quarterly dividend previously declared on august 1 , 2013 , to $ 0.075 per share on our class a common stock and $ 0.0675 per share on our class b common stock . the increased quarterly dividend is payable on december 13 , 2013 , to shareholders of record at the close of business on november 29 , 2013. the board also declared a quarterly dividend of $ 0.075 per share on our class a common stock and $ 0.0675 per share on our class b common stock , payable on march 14 , 2014 , to shareholders of record at the close of business on february 28 , 2014 . 25 liquidity and capital resources our cash needs for working capital , capital expenditures , growth opportunities , the repurchases of senior notes and share repurchases are expected to be met with current cash on hand , cash flows provided by operating activities , or short-term borrowings . based on our current expectations , we believe our liquidity and capital resources will be sufficient to operate our business . however , we may take advantage of opportunities to generate additional liquidity or refinance existing debt through capital market transactions . the amount , nature and timing of any capital market transactions will depend on our operating performance and other circumstances ; our then-current commitments and obligations ; the amount , nature and timing of our capital requirements ; any limitations imposed by our current credit arrangements ; and overall market conditions . replace_table_token_20_th cash flows associated with loss on early extinguishment of debt included the amount paid exceeding the par value of debt , unamortized discount and unamortized debt issuance costs related to the full extinguishment of the 2014 notes .
| the $ 1.2 billion impact of higher input costs was primarily driven by : increase in feed costs of $ 470 million in our chicken segment . increase in live cattle and hog costs of approximately $ 395 million . increase in raw material and other input costs in our prepared foods segment of approximately $ 110 million . increase due to net losses of $ 15 million in fiscal 2013 , compared to net gains of approximately $ 66 million in fiscal 2012 , from our pork segment commodity risk management activities . these amounts exclude the impact from related physical purchase transactions , which impact future period operating results . 2012 vs. 2011 – cost of sales increased by approximately $ 1.0 billion . higher input cost per pound increased cost of sales by approximately $ 2.2 billion , while lower sales volume decreased cost of sales $ 1.2 billion . the $ 2.2 billion impact of higher input costs per pound was primarily driven by : increase in live cattle and hog costs of approximately $ 1.5 billion . increase in feed costs of $ 320 million and increase in other growout operating costs of $ 50 million in our chicken segment . the $ 1.2 billion impact of lower sales volumes was driven by decreases in our chicken , beef and prepared foods segments , partially offset by an increase in sales volume in our pork segment . 19 replace_table_token_10_th 2013 vs. 2012 – increase of $ 79 million in selling , general and administrative is primarily driven by : increase of $ 44 million related to employee costs including payroll and stock-based and incentive-based compensation . increase of $ 32 million related to advertising and sales promotions . replace_table_token_11_th 2013/2012/2011 – interest income remained relatively flat due to continued low interest rates . replace_table_token_12_th 2013/2012/2011 – cash interest expense included interest expense related to the coupon rates for senior notes and commitment/letter of credit fees incurred on our revolving credit facilities . the decrease in cash interest expense in fiscal 2013 is due
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the acquisition closed with respect to 95 % of the outstanding shares of capital stock of uman on july 1 , 2019 and with respect to the remaining 5 % of the outstanding shares of capital stock of uman on august 1 , 2019. uman supplies neurofilament light ( nf-l ) antibodies and elisa kits , which are widely recognized by researchers and biopharmaceutical and diagnostics companies world-wide as the premier solution for the detection of nf-l to advance the development of therapeutics and diagnostics for neurodegenerative conditions . 72 as of december 31 , 2019 , we had cash and cash equivalents of $ 109.2 million . since inception , we have incurred net losses . our net loss was $ 40.8 million , $ 31.5 million , and $ 27.0 million for the years ended december 31 , 2019 , 2018 , and 2017 , respectively . as of december 31 , 2019 , we had an accumulated deficit of $ 216.2 million and stockholders ' equity of $ 128.7 million . we expect to continue to incur significant expenses and operating losses at least through the next 24 months . we expect our expenses will increase substantially as we : · expand our sales and marketing efforts to further commercialize our products ; · strategically acquire companies or technologies that may be complementary to our business ; · expand our research and development efforts to improve our existing products and develop and launch new products , particularly if any of our products are deemed by the united states food and drug administration , or fda , to be medical devices or otherwise subject to additional regulation by the fda ; · seek premarket approval , or pma , or 510 ( k ) clearance from the fda for our existing products or new products if or when we decide to market products for use in the prevention , diagnosis or treatment of a disease or other condition ; · hire additional personnel and continue to grow our employee headcount ; · enter into collaboration arrangements , if any , or in-license other products and technologies ; · add operational , financial and management information systems ; and · incur increased costs as a result of operating as a public company . financial operations overview revenue under topic 606 , an entity recognizes revenue when its customer obtains control of promised goods or services , in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services . to determine revenue recognition for arrangements that an entity determines are within the scope of topic 606 , the entity performs the following five steps : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price , including variable consideration , if any ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) the entity satisfies a performance obligation . we only apply the five-step model to contracts when it is probable that the entity will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer . once a contract is determined to be within the scope of topic 606 , we assess the goods or services promised within each contract and determine those that are performance obligations . arrangements that include rights to additional goods or services that are exercisable at a customer 's discretion are generally considered options . we assess if these options provide a material right to the customer and if so , they are considered performance obligations . the identification of material rights requires judgments related to the determination of the value of the underlying license relative to the option exercise price , including assumptions about technical feasibility and the probability of developing a candidate that would be subject to the option rights . the exercise of a material right is accounted for as a contract modification for accounting purposes . the transaction price is then determined and allocated to the identified performance obligations in proportion to their standalone selling prices ( “ ssp ” ) on a relative ssp basis . ssp is determined at contract inception and is not updated to reflect changes between contract inception and when the performance obligations are satisfied . determining the ssp for performance obligations requires significant judgment . in developing the ssp for a performance obligation , we consider applicable market conditions and relevant entity-specific factors , including factors that were contemplated in negotiating the agreement with the customer and estimated costs . we validate the ssp for performance obligations by evaluating whether changes in the key assumptions used to determine the ssp will have a significant effect on the allocation of arrangement consideration between multiple performance obligations . we generate product revenue primarily from sales of our hd-x , hd‑1 , sr‑x , and sp‑x instruments and related reagents and other consumables . we currently sell our products for research use only applications and our 73 customers are primarily laboratories associated with academic and governmental research institutions , as well as pharmaceutical , biotechnology and contract research companies . sales of our consumables have consistently increased due to an increasing number of instruments being installed in the field , all of which require certain of our consumables to run customers ' specific tests . consumable revenue consists of sales of complete assays which are developed internally by us , plus sales of “ homebrew ” kits which contain all the elements necessary to run tests with the exception of the specific antibodies utilized which are separately provided by the customer . service and other revenue consists of testing services provided by us in our accelerator laboratory on behalf of certain research customers , in addition to warranty and other service‑based revenue . story_separator_special_tag services provided in our accelerator laboratory include sample testing , homebrew assay development and custom assay development . collaboration and license revenue consists of revenue associated with licensing our technology to third parties and for related services . cost of products , services and collaboration revenue cost of goods sold for products consists of hd-x , hd‑1 , and sr‑x instrument costs from the manufacturer . cost of goods sold for sp‑x consists of costs based on the internal assembly of this item . raw material part costs , associated freight , shipping and handling costs , contract manufacturer costs , salaries , personnel costs , royalties , stock‑based compensation , overhead and other direct costs related to those sales are classified as cost of goods sold for products . cost of goods sold for services consists of salaries and other personnel costs , royalties , stock‑based compensation and facility costs associated with operating the accelerator laboratory on behalf of customers , in addition to costs related to warranties and other costs of servicing equipment at customer sites . cost of collaboration revenue consists of royalty expense due to third parties from revenue generated by collaboration or license deals . research and development expenses research and development expenses consist of salaries and other personnel costs , stock‑based compensation , research supplies , third‑party development costs for new products , materials for prototypes , and allocated overhead costs that include facility and other overhead costs . we have made substantial investments in research and development since our inception , and plan to continue to make substantial investments in the future . our research and development efforts have focused primarily on the tasks required to support development and commercialization of new and existing products . we believe that our continued investment in research and development is essential to our long‑term competitive position and expect these expenses to increase in future periods . selling , general and administrative expenses selling , general and administrative expenses consist primarily of salaries and other personnel costs , and stock‑based compensation for our sales and marketing , finance , legal , human resources and general management , as well as professional services , such as legal and accounting services . we expect selling , general and administrative expenses to increase in future periods as the number of sales , technical support and marketing and administrative personnel grows and we continue to introduce new products , broaden our customer base and grow our business . we also expect to incur additional expenses as a public company , including expenses related to compliance with the rules and regulations of the securities and exchange commission and the nasdaq stock market , additional insurance expenses , and expenses related to investor relations activities and other administrative and professional services . critical accounting policies , significant judgments and estimates our consolidated financial statements and the related notes included elsewhere in this annual report on form 10‑k are prepared in accordance with accounting principles generally accepted in the united states . the 74 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 base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . changes in accounting estimates may occur from period to period . accordingly , actual results could differ significantly from the estimates made by our management . we evaluate our estimates and assumptions on an ongoing basis . to the extent that there are material differences between these estimates and actual results , our future financial statement presentation , financial condition , results of operations and cash flows will be affected . we believe that the following critical accounting policies involve a greater degree of judgment and complexity than our other significant accounting policies . accordingly , these are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations . our significant accounting policies are more fully described in “ significant accounting policies ” ( note 2 ) in the notes to our consolidated financial statements included elsewhere in this annual report on form 10‑k . revenue recognition we recognize revenue when a customer obtains control of a promised good or service . the amount of revenue recognized reflects consideration that we expect to be entitled to receive in exchange for these goods and services , incentives and taxes collected from customers , that are subsequently remitted to governmental authorities . we adopted financial accounting standards board ( fasb ) accounting standards codification ( asc ) topic 606 , revenue from contracts with customers , or asc 606 , on january 1 , 2019 , using the modified retrospective method for all contracts not completed as of the date of adoption . the reported results for 2019 reflect the application of asc 606 guidance , while the reported results for 2018 were prepared under asc 605 , revenue recognition product revenue our products are composed of analyzer instruments , assay kits and other consumables such as reagents . products are sold directly to biopharmaceutical and academic research organizations or are sold through distributors in emea and asia pacific regions . the sales of instruments are generally accompanied by an initial year of implied service-type warranties and may be bundled with assays and other consumables and may also include other items such as training and installation of the instrument and or an extended service warranty . revenues from the sale of products are recognized at a point in time when we transfer control of the product to the customer , which is upon installation for instruments sold to direct customers , and based upon shipping terms for assay kits and other consumables . revenue for instruments sold to distributors is generally recognized based upon shipping terms ( either upon shipment or delivery ) .
| 79 cost of goods sold and services cost of product revenue increased by $ 8.2 million , or 64 % , to $ 20.9 million for the year ended december 31 , 2019 as compared to $ 12.7 million for the year ended december 31 , 2018. the increase was primarily due to an increase in sales of consumables and instruments , along with costs incurred from the amortization of the uman acquisition-related inventory valuation adjustment and acquired intangibles . cost of service revenue increased to $ 9.0 million for the year ended december 31 , 2019 from $ 7.0 million for the year ended december 31 , 2018. the increase was primarily due to higher utilization of the accelerator laboratory , plus increased personnel costs from the build out of our field service and accelerator organization . overall cost of goods sold and services as a percentage of revenue increased slightly to 53 % of total revenue for the year ended december 31 , 2019 as compared to 52 % for the year ended december 31 , 2018 , primarily as a result of the impact of the collaboration arrangement with biomérieux during the year ended december 31 , 2018 and the impact of the uman acquisition-related charges during the year ended december 31 , 2019. research and development expense research and development expense increased slightly by $ 0.4 million , or 2 % , to $ 16.2 million for the year ended december 31 , 2019 as compared to $ 15.8 million for the year ended december 31 , 2018. the increase was primarily due to the development of the sp-x and hd-x and increased headcount in research and development . selling , general and administrative expense selling , general and administrative expense increased by $ 18.6 million , or 55 % , to $ 52.2 million for the year ended december 31 , 2019 as compared to $ 33.7 million for the year ended december 31 , 2018. the increase was primarily due to headcount
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the company assesses such contingent liabilities , and such assessment inherently involves an exercise of judgment . in assessing loss contingencies related to legal proceedings that are pending against the company or unasserted claims that may result in such proceedings , the company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to story_separator_special_tag except for historical information contained in this report , the matters discussed are forward-looking statements that involve risks and uncertainties . when used in this report , words such as “ anticipates ” , “ believes ” , “ could ” , “ estimates ” , “ expects ” , “ may ” , “ plans ” , “ potential ” and “ intends ” and similar expressions , as they relate to the company or its management , identify forward-looking statements . such forward-looking statements are based on the beliefs of the company 's management , as well as assumptions made by and information currently available to the company 's management . among the factors that could cause actual results to differ materially are the following : the effect of business and economic conditions ; the impact of competitive products and their pricing ; unexpected manufacturing or supplier problems ; the company 's ability to maintain sufficient credit arrangements ; changes in governmental standards by which our environmental control products are evaluated and the risk factors reported from time to time in the company 's sec reports , including this report on form 10-k. the company undertakes no obligation to update forward-looking statements as a result of future events or developments . overview cemtrex was incorporated in 1998 , in the state of delaware and has evolved through strategic acquisitions and internal growth from a small environmental monitoring instruments company into a world leading multi-industry technology company . the company drives innovation in a wide range of sectors , including smart technology , virtual and augmented realities , advanced electronic systems , industrial solutions , and intelligent security systems . advanced technologies ( at ) cemtrex 's advanced technologies segment delivers cutting-edge technologies in the iot , wearables and smart devices , such as the smartdesk . through our advanced engineering and product design , we deliver progressive design and development solutions to create impactful experiences for mobile , web , virtual and augmented reality , wearables and television as well as providing cutting edge , mission critical security and video surveillance . through its cemtrex vr division , the company is developing a wide variety of applications for virtual and augmented reality markets . cemtrex has developed a cutting edge iot product , the smartdesk , over the last eighteen months to revolutionize the desktop pc market . the smartdesk is custom engineered and manufactured by cemtrex with over eighteen patents pending around the product . smartdesk combines and reimagines the needs of the modern office workstation in a sleek , clutter-free design . the product includes 72 inches of touch display monitors , proprietary patent-pending touch and gesture control , digital phone and webcam , integrated document scanner , wireless smartphone charging , and a built-in keyboard / trackpad with an electric-powered , adjustable-height desk . the company is marketing this product to both consumers and enterprises alike . the company currently markets this product directly to consumers but is also bringing on value added resellers ( vars ) to reach enterprise customers . cemtrex has received pre-orders from large fortune 500 organizations like black & decker and united airlines . the company will start fulfilling most smartdesk orders in its fiscal second quarter . the company also offers white glove installation , extended warranties , and accessories to go along with the smartdesk . the company began taking reservations for the smartdesk on may 22 , 2018 with most customers starting to receive delivery of the smartdesk in the second quarter of fiscal 2019. the company has received reservations for a total number of 815 reservations for smartdesk as of december 15 , 2018. the company expects to convert these reservations in to orders and thus sales in fiscal 2019. the company anticipates that demand will continue to rise for the smartdesk as the company increases its marketing efforts and deliveries start taking place . electronics manufacturing ( em ) cemtrex 's electronics manufacturing ( em ) segment , provides end to end electronic manufacturing services , which includes product design and sustaining engineering services , printed circuit board assembly and production , cabling and wire harnessing , systems integration , comprehensive testing services and completely assembled electronic products . cemtrex works with industry leading oems in their outsourcing of advanced manufacturing services by forming a long-term relationship as an electronics manufacturing partner . we work in close relationships with our customers throughout the entire electronic lifecycle of a product , from design , manufacturing , and distribution . we seek to grow our business through the addition of new , high quality customers , the expansion of our share of business with existing customers and participating in the growth of existing customers . 16 using our manufacturing capabilities , we provide our customers with advanced product assembly and system level integration combined with test services to meet the highest standards of quality . through our agile manufacturing environment , we can deliver low and medium volume and mix services to our clients . additionally , we design , develop , and manufacture various interconnects and cable assemblies that often are sold in conjunction with our pcbas to enhance our value to our customers . story_separator_special_tag the company also provides engineering services from new product introductions and prototyping , related testing equipment , to product redesigns . industrial technology ( it ) cemtrex 's industrial technology ( it ) segment , offers single-source expertise and services for rigging , millwrighting , in plant maintenance , equipment erection , relocation , and disassembly to diversified customers . the segment also sells a complete line of air filtration and environmental control products to a wide variety of customers in industries such as : chemical , cement , steel , food , construction , mining , & petrochemical worldwide . we believe our ability to attract and retain new customers comes from our ongoing commitment to understanding our customers ' business performance requirements and our expertise in meeting or exceeding these requirements and enhancing their competitive edge . we work closely with our customers from an operational and senior executive level to achieve a deep understanding of our customer 's goals , challenges , strategies , operations , and products to ultimately build a long lasting successful relationship . significant accounting policies and estimates the following discussion and analysis is based upon our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses , and assets and liabilities during the periods reported . estimates are used when accounting for certain items such as revenues , allowances for returns , early payment discounts , customer discounts , doubtful accounts , employee compensation programs , depreciation and amortization periods , taxes , inventory values , and valuations of investments , goodwill , other intangible assets and long-lived assets . we base our estimates on historical experience , where applicable and other assumptions that we believe are reasonable under the circumstances . actual results may differ from our estimates under different assumptions or conditions . please see note 2 for detailed information regarding our significant accounting policies and estimates in the notes to consolidated financial statements in this 2018 form 10-k. results of operations - for the fiscal years ending september 30 , 2017 and 2016 total revenue for the years ended september 30 , 2018 and 2017 was $ 89,936,519 and $ 120,628,200 , respectively , a decrease of $ 30,691,681 , or 25 % . net income/loss for the years ended september 30 , 2018 and 2017 was a loss of $ 9,240,409 and income of $ 4,389,915 , respectively , a decrease of $ 13,630,324 or 310 % . total revenue for the fiscal year decreased , as compared to total revenue in the same period last year , due to the loss of two customers in the electronics manufacturing segment going into 2018 , one as result of consolidation and other due to obsolescence of their product and lower sales in the industrial technology segment due to the softening demand for environmental products . net income available to common shareholders decreased due to lower revenues from the loss of two customers in the electronics manufacturing segment going into 2018 , one as result of consolidation and other due to obsolescence of their product and lower revenues in the industrial technology segment in response the decline in demand for environmental products and increased one-time expenses in research and development required to finish development of the smartdesk and increased sales & marketing expenses related to the business development of smartdesk and vr applications in the advanced technologies segment as well as the acquisition of the variable interest entity vicon industries , inc. revenues our advanced technologies segment revenues for the year ended september 30 , 2018 was $ 1,765,106. this is a new segment for the company and we anticipate revenues to grow with development and investment in this division . 17 our electronics manufacturing segment revenues for the year ended september 30 , 2018 decreased by $ 11,527,951 , or 18 % to $ 52,530,983 from $ 64,058,934 for the year ended september 30 , 2017. the primary reason for decreased sales was due to due to the loss of two customers in the em segment going into 2018 , one as result of consolidation and other due to obsolescence of their product . however currently , the company 's em backlog is approximately $ 52,000,000. our industrial technology segment revenues for the year ended september 30 , 2018 decreased by $ 20,928,836 or 37 % , to $ 35,640,430 from $ 56,569,266 for the year ended september 30 , 2017. the decrease was primarily due to decreased demand for environmental products globally and as result of relaxation of environmental regulations by the current administration . gross profit gross profit for the year ended september 30 , 2018 was $ 31,385,257 or 35 % of revenues as compared to gross profit of $ 39,913,552 or 33 % of revenues for the year ended september 30 , 2017. the increase in gross profit percentage in the year ended september 30 , 2018 , as compared to the prior year , was a direct result of projects with higher profit margins . story_separator_special_tag style= '' font-family : times new roman , times , serif ; font-size : 10pt '' > this outlook section , and other portions of this document , include certain “ forward-looking statements ” within the meaning of that term in section 27a of the securities act of 1933 , and section 21e of the securities exchange act of 1934 , including , among others , those statements preceded by , following or including the words “ believe , ” “ expect , ” “ intend , ” “ anticipate ” or similar expressions . these forward-looking statements are based largely on the current expectations of management and are subject to a number of assumptions , risks and uncertainties . our actual results could differ
| net income/ ( loss ) the company had a net loss of $ 9,240,409 or 10 % of revenues , for the year ended september 30 , 2018 as compared to a net income of $ 4,389,915 or 4 % of revenues , for the year ended september 30 , 2017. net income in this period as compared to the previous period was lower due to increased one-time research and development costs , acquisition costs as well as higher sales and marketing expenses as well as the inclusion of cemtrex 's share of vicon 's results . effects of inflation the company 's business and operations have not been materially affected by inflation during the periods for which financial information is presented . 18 liquidity and capital resources working capital was $ 10,011,896 at september 30 , 2018 compared to $ 26,366,437 at september 30 , 2017. this includes cash and cash equivalents and restricted cash of $ 2,315,935 at september 30 , 2018 and $ 11,974,752 at september 30 , 2017 , respectively . the decrease in working capital was primarily due to the decrease in the company 's current assets of $ 14,514,373 and an increase in the company 's current liabilities of $ 1,840,168. accounts receivable decreased by $ 1,515,484 or 10 % to $ 13,945,655 at september 30 , 2018 from $ 15,461,139 at september 30 , 2017. the decrease in accounts receivable is mainly attributed to the decrease in revenues . inventories decreased by $ 5,917,424 or 34 % to $ 11,354,458 at september 30 , 2018 from $ 17,271,882 at september 30 , 2017. the decrease in inventories is attributable to an increase in the allowance for inventory obsolescence of $ 599,847 , the execution of in-house orders , and reductions in purchases of raw materials during the year . operating activities used $ 2,802,336 for the year ended september 30 , 2018 compared to providing $ 995,490 of cash for the year ended september 30 , 2017. the decrease in operating cash flows in fiscal 2018 was mainly due to the net loss for the year . investing activities used $ 12,207,320 of cash during the year
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while this growth was modest compared to prior years , our noninterest-bearing deposit accounts increased by nearly $ 13.4 million , or 28 % , during 2011 . 26 our nonperforming assets totaled $ 5.3 million , or 1.32 % of total assets , at december 31 , 2012 , compared to $ 7.8 million , or 2.4 % of total assets , at december 31 , 2011 and $ 8.7 million , or 2.89 % of total assets , at december 31 , 2010. we had two loan totaling $ 249 thousand delinquent more than 90 days at december 31 , 2012 compared to $ 90 thousand ( one loan ) and $ 150 thousand ( one loan ) of such delinquencies at december 31 , 2011 and december 31 , 2010 , respectively . in addition , we provided $ 718 thousand for credit losses for the year ended december 31 , 2012 compared to $ 1.2 million for credit losses during the year ended december 31 , 2011 and $ 1.6 million during the year ended december 31 , 2010 , due to the decrease in nonperforming loans and a lower level of required specific reserves for the credit loss provision . critical accounting policies our accounting and financial reporting policies conform to the accounting principles generally accepted in the united states of america and general practice within the banking industry . accordingly , the financial statements require management to exercise significant judgment or discretion or make significant assumptions 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 . we consider the allowance for credit losses to be our most significant accounting policy , which is further described in the notes to our financial statements . 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 impacted 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 . 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 . compensation we follow the provisions of asc topic 718 `` compensation , '' which requires the expense recognition over a 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 . story_separator_special_tag 27 balance sheet analysis and comparison of financial condition a comparison between december 31 , 2012 and december 31 , 2011 balance sheets are presented below . assets total assets increased $ 78.6 million , or 24.3 % , to $ 401.7 million at december 31 , 2012 compared to $ 323.1 million at december 31 , 2011. this increase in assets was primarily due to a $ 45.7 million , or 16.5 % , increase in loans , to $ 322.2 million at december 31 , 2012 from $ 276.5 million at december 31 , 2011. additionally , there were increases in cash and cash equivalents and in the investment securities portfolio of $ 18.2 million and $ 13.5 million , respectively , or nearly a 100 % increase in each category . the asset growth was funded primarily from increases in customer deposits , which increased from $ 262.6 million at december 31 , 2011 to $ 314.9 million at december 31 , 2012 , an increase of $ 52.2 million or 19.9 % . from a funding efficiency perspective , most important was the growth in noninterest-bearing deposits of $ 33.8 million or 54.5 % from $ 62.0 million at december 31 , 2011 to $ 95.9 million at december 31 , 2012. in addition , our total capital levels increased by over $ 10.0 million or 27.5 % year over year , due to both the annual earnings and the additional funds we received as a result of our common stock offering which closed in the third quarter of 2012. securities available for sale we currently hold both u.s. agency securities and mortgage backed securities in our securities portfolio , all of which are considered as available for sale . our securities portfolio is used to provide the required collateral for funding via commercial customer repurchase agreements as well as to provide sufficient liquidity to fund our loans and provide funds for withdrawals of deposited funds . at december 31 , 2012 and december 31 , 2011 we held an investment in stock of the federal home loan bank of atlanta ( “ fhlb ” ) of $ 1.5 million and $ 1.3 million , respectively . this investment , which is required for continued membership , is based partially upon the dollar amount of borrowings outstanding from the fhlb . these investments are carried at cost . we have never held stock in fannie mae or freddie mac . the following tables set forth the composition of our investment securities portfolio at the dates indicated . replace_table_token_3_th we had securities available for sale of $ 26.9 million and $ 13.4 million at december 31 , 2012 and december 31 , 2011 , respectively , which were recorded at fair value . this represents an increase of $ 13.5 million , or 100.9 % , for the year ended december , 2012 from the prior year end . we did not record any gains or losses on the sales or calls of securities or mortgage backed securities in either the years ended december 31 , 2012 or 2011. with respect to our portfolio of securities available for sale , the portfolio contained one security with an unrealized loss of $ 52 and four securities with unrealized losses of $ 2,494 at december 31 , 2012 and 2011 , respectively . changes in the fair value of these securities resulted primarily from interest rate fluctuations . we do not intend to sell these securities nor is it more likely than not that we would be required to sell these securities before their anticipated recovery , and we believe the collection of the investment and related interest is probable . based on this analysis , we consider all of the unrealized losses to be temporary impairment losses . 28 portfolio maturities and yields the composition and maturities of the investment securities portfolio at december 31 , 2012 is summarized in the following table . maturities are based on the final contractual payment dates , and do not reflect the impact of prepayments or early redemptions that may occur . as of december 31 , 2012 after one after five ( in thousands ) one year or less through five years through ten years after ten years total weighted weighted weighted weighted weighted amortized average amortized average amortized average amortized average amortized average cost yield cost yield cost yield cost yield cost yield u.s. government agencies $ 23,511 0.17 % $ 3,015 0.60 % $ - - % $ - - % $ 26,526 0.22 % mortgage-backed 25 5.06 106 5.08 90 4.84 93 4.88 314 4.95 $ 23,536 0.18 % $ 3,121 0.75 % $ 90 4.84 % $ 93 4.88 % $ 26,840 0.27 % loan and lease portfolio total loans and leases increased by $ 45.7 million or 16.5 % , to $ 322.2 million at december 31 , 2012 from $ 276.5 million at december 31 , 2011. at december 31 , 2012 , total loans were 80.2 % of total assets compared to 85.6 % of total assets at december 31 , 2011. loan growth throughout the banking industry has been hampered by decreased loan demand resulting from uncertain economic conditions . the following table sets forth the composition of our loan portfolio at the dates indicated . we had loans held for sale of $ 1.6 million at december 31 , 2012 , and $ 646 thousand at december 31 , 2011. replace_table_token_4_th as is evident in the above table , we are primarily focused on lending to businesses for both commercial financing loans , and also commercial real estate lending . although there is a small amount of residential and consumer loans , our business model has always been to focus on the needs of small to mid-sized businesses and their owners .
| 33 interest expense interest expense slightly decreased $ 12 thousand , or less than 1.0 % , totaling $ 2.0 million for both the years ended december 31 , 2012 and december 31 , 2011. even though average interest bearing funds increased by $ 18.8 million or 8.5 % for 2012 versus 2011 , the overall rates paid on these funds decreased from 91 basis points for 2011 to 84 basis points during 2012. net interest income net interest income is our largest source of operating revenue . net interest income is affected by various factors including changes in interest rates and the composition of interest-earning assets and interest-bearing liabilities and maturities . net interest income is determined by the interest rate spread ( i.e. , the difference between the yields earned on interest-earning assets and the rates paid on interest-bearing liabilities ) and the relative amounts of interest-earning assets and interest-bearing liabilities . net interest income increased $ 909 thousand , or 7.2 % , during the year ended december 31 , 2012 compared to the same period in 2011. the increase in net interest income was primarily due to an increase in interest income driven by our continued balance sheet growth . as noted above , the increase in net interest income was primarily due to increased interest income of $ 897 thousand , or 6.1 % , for the year ended december 31 , 2012 compared to the same period in 2011 , while the interest expense remained essentially unchanged , even with the growth in deposits and borrowings . provision for credit losses we establish a provision for credit losses , which is a charge to earnings , in order to maintain the allowance for credit losses at a level we consider adequate to absorb credit losses incurred in the loan portfolio that are both probable and reasonably estimable at the balance sheet date . in determining the level of the allowance for credit losses , management considers past and current loss experience , evaluations of real estate collateral , current economic conditions , volume and type of lending , adverse situations that may affect a borrower 's ability to repay a loan and the levels of nonperforming loans . the amount of the allowance is based on estimates and actual losses may vary from
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the allocation of the purchase price was based on estimates of the fair value of assets acquired and liabilities assumed as of march 22 , 2017. as part of the purchase price allocation , we determined the identifiable intangible assets were developed technology of $ 736.0 million , in-process research and development of $ 107.0 million , trade names of $ 74.0 million , a distribution agreement of $ 42.0 million and customer relationships of $ 35.0 million . the fair value of the intangible assets were estimated using the income approach , specifically the excess earning method and relief from royalty method , and the cash flow projections were discounted using rates ranging from 11 % to 12 % . the cash flows were based on estimates used to price the transaction , and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model and the weighted average cost of capital . the developed technology assets comprise know-how , patents and technologies embedded in cynosure 's products and relate to currently marketed products . in-process research and development projects relate to in-process projects that have not reached technological feasibility as of the acquisition date and have no alternative future use . the primary basis for determining technological feasibility of these projects is obtaining regulatory approval to market the underlying product or expected commercial release depending on the project . we recorded $ 107.0 million of in-process research and development assets related to three projects , which were expected to be completed during fiscal 2018 and 2019 with a preliminary cost to complete of approximately $ 18.0 million . all of the in-process research and development assets were valued using the multiple-period excess earnings method approach using discount rates ranging from 14 % to 22 % . during the fourth quarter of fiscal 2017 , we obtained regulatory approval for two projects with an aggregate fair value of $ 61.0 million and these assets were reclassified to developed technology . the remaining project , which had an initial fair value of $ 46.0 million , was abandoned in the second quarter of fiscal 2018 due to unsuccessful clinical results . as a result , the company recorded a $ 46.0 million impairment charge in the second quarter of fiscal 2018. the calculation of the excess of the purchase price over the estimated fair value of the tangible net assets and intangible assets acquired was recorded to goodwill . the factors contributing to the recognition of the amount of goodwill were based on several strategic and synergistic benefits that were expected to be realized from the cynosure acquisition . these benefits included the expectation that the company 's entry into the aesthetics market would significantly broaden our offering in women 's health . the combined company was expected to benefit from a broader global presence , synergistic utilization of hologic 's direct sales force , primarily its gyn surgical sales force , with certain cynosure products and entry into an adjacent , cash-pay segment . during the second quarter of fiscal 2018 , we identified indicators of impairment and performed an interim goodwill impairment test . this analysis resulted in us recording a goodwill impairment charge of $ 685.7 million in the second quarter of fiscal 2018. for additional information , please refer to note 3 to our consolidated financial statements contained in item 15 of this annual report . medicor medical supply on april 7 , 2017 , we completed the acquisition of mms medicor medical supplies gmbh , or medicor , for a purchase price of $ 19.0 million . medicor was a long-standing distributor of our breast and skeletal health products in germany , austria and switzerland . based on the valuation , we allocated $ 5.4 million of the purchase price to the value of intangible assets and $ 8.9 million to goodwill . emsor , s.a. on december 11 , 2017 , we completed the acquisition of emsor s.a. , or emsor , for a purchase price of $ 16.3 million , which includes contingent consideration which we estimated at $ 4.9 million . the contingent consideration is payable upon emsor achieving predefined amounts of cumulative revenue over a two year period from the date of acquisition . emsor was a distributor of our breast and skeletal health products in spain and portugal . based on our preliminary valuation , we have allocated $ 4.6 million of the purchase price to the preliminary value of intangible assets and $ 5.7 million to goodwill . the allocation of the purchase price is preliminary as we continue to gather information supporting the acquired assets and liabilities . 41 faxitron on july 31 , 2018 , we completed the acquisition of faxitron bioptics , llc or faxitron , for a purchase price of $ 89.0 million , which include hold-backs of $ 11.7 million that are payable up to one year from the date of acquisition , and contingent consideration which we estimated at $ 2.9 million . the contingent consideration is payable upon meeting certain revenue growth metrics . faxitron , headquartered in tucson , arizona , develops , manufactures , and markets digital radiography systems . faxitron 's results of operations are reported in the our breast health reportable segment from the date of acquisition . based on our preliminary valuation , we have allocated $ 53.4 million of the purchase price to the preliminary value of intangible assets and $ 41.6 million to goodwill . the allocation of the purchase price is preliminary as we continue to gather information supporting the acquired assets and liabilities . focal therapeutics ( subsequent event ) on october 1 , 2018 , we completed the acquisition of focal therapeutics , inc. , or focal , for an initial purchase price of approximately $ 125.0 million . focal , headquartered in california , has commercialized its biozorb marker , which is an implantable three-dimensional marker that helps clinicians overcome challenges in breast conserving surgery , or lumpectomy . story_separator_special_tag blood screening business disposition in the first quarter of fiscal 2017 , we entered into a definitive agreement to sell our blood screening business to grifols for a sales price of $ 1.85 billion in cash , subject to adjustment based on the closing amount of inventory . the transaction closed on january 31 , 2017 and we received $ 1.865 billion . the sale resulted in a gain of $ 899.7 million recorded in the second quarter of fiscal 2017. as a result of this disposition and proceeds received , we recorded a tax obligation of $ 649.5 million , which was paid in fiscal 2017. upon the closing of the transaction , our existing collaboration agreement with grifols terminated , and a new collaboration agreement was executed as part of this transaction for us to provide certain research and development services to grifols . in addition , we agreed to provide transition services to grifols over a two to three year period depending on the nature of the respective service , including the manufacture of inventory , and we are in effect serving as a contract manufacturer of assays for grifols for a two to three year period from the disposal date . we also agreed to sell panther instrumentation and certain supplies to grifols as part of a long term supply agreement . following the closing of this disposition , we no longer operate our blood screening business , except to the limited extent we have agreed to support grifols . under the long term supply agreement , transition services agreement to manufacture assays , and research and development services , we recognized revenues of $ 55.4 million for the year ended september 29 , 2018. for the disposed blood screening business , in fiscal 2017 , revenue was $ 96.5 million , gross profit was $ 64.8 million and operating income was $ 45.8 million . for the disposed blood screening business , in fiscal 2016 , revenue was $ 235.4 million , gross profit was $ 163.3 million and operating income was $ 99.1 million . revenue , gross profit and operating income of the disposed business represents the financial impact of the business as it was operated prior to the date of disposition . the operating expenses include only those that were incurred directly by and were retained by the disposed business and are now incurred by grifols . see note 13 to our consolidated financial statements included herein . 42 results of operations the following table sets forth , for the periods indicated , the percentage of total revenues represented by items as shown in our consolidated statements of operations . all dollar amounts in tables are presented in millions . replace_table_token_3_th 43 fiscal year ended september 29 , 2018 compared to fiscal year ended september 30 , 2017 product revenues . replace_table_token_4_th we generated a 4.2 % increase in product revenues in fiscal 2018 compared to fiscal 2017 primarily due to our acquisition of cynosure on march 22 , 2017 and an increase in breast health sales . cynosure 's results ( after the date of the acquisition ) are reported in our new medical aesthetics segment . cynosure is the sole business in this segment . partially offsetting the increase , our diagnostics business product revenues declined as a result of the sale of our blood screening business effective january 31 , 2017 , and we had lower revenues in gyn surgical . excluding blood screening , diagnostics revenues increased $ 46.6 million in fiscal 2018 compared to fiscal 2017. in addition , fiscal 2018 was a 52-week year compared to a 53-week year in fiscal 2017. diagnostics product revenues decreased 3.6 % in fiscal 2018 compared to fiscal 2017 primarily due to the decrease in blood screening revenues of $ 88.2 million in the current year as a result of the divestiture of the business during the second quarter of fy17 . in connection with the divestiture agreement , we have committed to providing grifols manufacturing support through the defined transition services period and long term access to panther instrumentation and certain supplies . as such , we will continue to generate a level of revenues , but much lower than historical trends . product revenue under the new long term supply agreement and transition services agreement to manufacture assays for grifols was $ 45.4 million and $ 37.1 million for fiscal 2018 and fiscal 2017 , respectively . excluding the divestiture of the blood screening business , diagnostic product revenues grew driven by increases in molecular diagnostics of $ 43.6 million in the current year , respectively , while cytology & perinatal revenues were slightly higher by $ 3.0 million year over year primarily due to higher international sales volume . molecular diagnostics product revenue was $ 601.2 million in fiscal 2018 compared to $ 557.6 million in fiscal 2017. the increase was primarily attributable to sales of our aptima family of assays on a worldwide basis due to our increased installed base of panther instruments , which is driving higher volumes of assay testing . in addition , we had an increase in the number of our virology products , as we have recently received additional international regulatory approvals . these increases were partially offset by a slight decline in average selling prices , lower instrument sales and the loss of one week in fiscal 2018 compared to fiscal 2017. cytology & perinatal product revenue increased due to higher international thinprep volumes , partially offset by lower domestic thinprep test volumes , which we primarily attribute to screening internal expansion , as well as slight decline in average selling prices on a worldwide basis .
| in addition , fiscal 2017 expenses were lower primarily due to a reduction of legal fees and charges as fiscal 2016 included a $ 6.0 million settlement of a legal fee dispute , and fiscal 2016 included $ 2.8 million for the medical device excise tax . these decreases in operating expenses were partially offset by an increase in non-income taxes of $ 3.7 million recorded in fiscal 2017 and increased compensation from higher sales and marketing headcount . breast health . replace_table_token_20_th breast health revenues increased in fiscal 2017 compared to fiscal 2016 primarily due primarily due to an increase of $ 37.2 million in service revenue , partially offset by a $ 11.7 million decrease in product revenue discussed above . operating income for this business segment increased in fiscal 2017 compared to fiscal 2016 primarily due to an increase in gross profit from higher revenue partially offset by an increase in operating expenses in the current year . the overall gross margin increased to 60.9 % in the current year compared to 59.9 % in the prior year primarily due to the increase in service revenue and software product sales , which have higher gross margins than capital equipment sales . the gross margin increases were partially offset by the volume impact of the decreases in 3d dimensions systems and related component revenue in the us . operating expenses increased in fiscal 2017 compared to fiscal 2016. we experienced an increase in non-income tax charges of $ 5.8 million recorded in fiscal 2017 , an increase in compensation and commissions from increased head count , higher marketing expenditures internationally , increased legal fees , and operating expenses from medicor . these increases were partially offset by lower marketing initiatives and program spend on genius 3d , lower meeting and related expenses , lower 58 restructuring costs , and a $ 4.5 million refund received in the
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this resulted in a selling square footage increase of approximately 4 % in each of fiscal 2020 and fiscal 2019. net sales increased 27.2 % to $ 10.62 billion in fiscal 2020 from $ 8.35 billion in fiscal 2019 as we experienced significant demand for our products across all product categories , geographies and channels in fiscal 2020 as our customers focused on the care of their homes , land and animals while navigating the covid-19 pandemic . comparable store sales increased 23.1 % in fiscal 2020 versus a 2.7 % increase in fiscal 2019. gross profit increased 31.0 % to $ 3.76 billion in fiscal 2020 from $ 2.87 billion in fiscal 2019 , and gross margin increased 104 basis points to 35.42 % of net sales in fiscal 2020 from 34.38 % of net sales in fiscal 2019. operating income increased 49 basis points to 9.39 % of net sales in fiscal 2020 from 8.90 % of net sales in fiscal 2019. for fiscal 2020 , net income was $ 749.0 million , or $ 6.38 per diluted share , compared to $ 562.4 million , or $ 4.66 per diluted share , in fiscal 2019. we ended fiscal 2020 with $ 1.34 billion in cash and cash equivalents and outstanding debt of $ 984.3 million , after returning $ 517.6 million to our stockholders through stock repurchases and quarterly cash dividends . information regarding covid-19 coronavirus pandemic the company has been and continues to closely monitor the impact of the covid-19 pandemic on all facets of our business . this includes the impact on our team members , customers , suppliers , vendors , business partners , and supply chain networks . the health and safety of our team members and customers are the primary concerns of our management team . we have taken and continue to take numerous actions to promote health and safety , including , providing personal protective equipment to our team members , establishing mask protocols in our facilities , rolling out additional functionality to support contactless shopping experiences , adding services for cleaning and sanitation in our stores and distribution centers , hiring additional team members to assist in promoting social distancing and cleaning actions in our stores , and implementing remote work plans at our store support center . additionally , we have taken significant actions to support our team members during this pandemic including covid-19 paid medical leave , 100 % coverage of covid-19 testing and treatment under our medical plan , and the payment of incremental appreciation bonuses for frontline team members of approximately $ 44 million during fiscal 2020. effective june 28 , 2020 , we implemented permanent wage increases for all of our hourly team members in our stores and distribution centers of a minimum of $ 1 per hour and are now providing a new benefit package for part-time team members , including medical , vision and dental coverage , behavioral health services , paid sick time and life insurance . we have also implemented annual restricted stock unit grants to more than 2,000 frontline salaried managers in our stores and distribution centers . as further described in the results of operations , our net sales have significantly increased due to unprecedented customer demand across all major product categories , channels , and geographic regions . however , the net incremental costs of doing business during this crisis have increased as a result of the aforementioned actions we have taken to support and promote the safety and well-being of our team members and customers , and we believe many of these incremental costs will continue after the pandemic is over . there are numerous uncertainties surrounding the pandemic and its impact on the economy and our business , as further described in the risk factors section under part i item 1a . of this form 10-k , which make it difficult to predict the impact on our business , financial position , or results of operations in fiscal 2021 and beyond . while our stores , distribution centers , and e-commerce operations are open and plan to remain open , we can not predict the uncertainties , or the corresponding impacts on our business , at this time . comparable store metrics comparable store metrics are a key performance indicator used in the retail industry and by the company to measure the performance of the underlying business . comparable store metrics are calculated on an annual basis using sales generated from all stores open at least one year and all online sales , excluding certain adjustments to net sales . stores closed during the year are removed from our comparable store metrics calculations . stores relocated during the years being compared are not removed from our comparable store metrics . if the effect of relocated stores on our comparable store metrics becomes material , we would remove relocated stores from the calculations . 31 index significant accounting policies and estimates management 's discussion and analysis of our financial position and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with u.s. gaap . the preparation of these financial statements requires management to make informed estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . our financial position and or results of operations may be materially different when reported under different conditions or when using different assumptions in the application of such policies . in the event estimates or assumptions prove to be different from actual amounts , adjustments are made in subsequent periods to reflect more current information . our significant accounting policies are disclosed in note 1 to the consolidated financial statements . the following discussion addresses our most critical accounting policies , which are those that are both important to the portrayal of our financial condition and results of operations and that require significant judgment or use of complex estimates . story_separator_special_tag inventory valuation : inventory impairment we identify potentially excess and slow-moving inventory by evaluating turn rates , historical and expected future sales trends , age of merchandise , overall inventory levels , current cost of inventory , and other benchmarks . we have established an inventory valuation reserve to recognize the estimated impairment in value ( i.e. , an inability to realize the full carrying value ) based on our aggregate assessment of these valuation indicators under prevailing market conditions and current merchandising strategies . we do not believe our merchandise inventories are subject to significant risk of obsolescence in the near term . however , changes in market conditions or consumer purchasing patterns could result in the need for additional reserves . our impairment reserve contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding forecasted customer demand and the promotional environment . we have not made any material changes in the accounting methodology used to recognize inventory impairment reserves in the financial periods presented . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate impairment . however , if assumptions regarding consumer demand or clearance potential for certain products are inaccurate , we may be exposed to losses or gains that could be material . a 10 % change in our inventory impairment reserve as of december 26 , 2020 , would have affected net income by approximately $ 1.1 million in fiscal 2020. shrinkage our general policy is to perform physical inventories at least once a year for each store that has been open more than 12 months , and we have established a reserve for estimating inventory shrinkage between physical inventory counts . the reserve is established by assessing the chain-wide average shrinkage experience rate , applied to the related periods ' sales volumes . such assessments are updated on a regular basis for the most recent individual store experiences . while the company continued to operate as an essential retailer during the year , the covid-19 pandemic had a direct impact on our ability to complete all originally planned store physical inventories in fiscal 2020. our plan was complicated by state and local mandates such as shelter at home restrictions and social distancing requirements . our decision to revise our inventory schedule was based on these mandates as well as consideration of the health and safety of our team members , customers and vendor partners which are crucial to our business operations . we assessed the risks associated with the stores not inventoried and concluded there is no material risk of misstatement to the financial statements for the stores not inventoried and further concluded that effective compensating controls are in place to ensure completeness and accuracy of reported inventory balances and estimated shrink losses . the estimated store inventory shrink rate is based on historical experience . we believe historical rates are a reasonably accurate reflection of future trends . our shrinkage reserve contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding future shrinkage trends , the effect of loss prevention measures and merchandising strategies . 32 index we have not made any material changes in the accounting methodology used to recognize shrinkage in the financial periods presented . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our shrinkage reserve . however , if our estimates regarding inventory losses are inaccurate , we may be exposed to losses or gains that could be material . a 10 % change in our shrinkage reserve as of december 26 , 2020 , would have affected net income by approximately $ 2.9 million in fiscal 2020. vendor funding we receive funding from substantially all of our significant merchandise vendors , in support of our business initiatives , through a variety of programs and arrangements , including guaranteed vendor support funds ( “ vendor support ” ) and volume-based rebate funds ( “ volume rebates ” ) . the amounts received are subject to terms of vendor agreements , most of which are “ evergreen ” , reflecting the on-going relationship with our significant merchandise vendors . certain of our agreements , primarily volume rebates , are renegotiated annually , based on expected annual purchases of the vendor 's product . vendor funding is initially deferred as a reduction of the purchase price of inventory , and then recognized as a reduction of cost of merchandise as the related inventory is sold . during interim periods , the amount of vendor support and volume rebates are estimated based upon initial commitments and anticipated purchase levels with applicable vendors . the estimated purchase volume ( and related vendor funding ) is based on our current knowledge of inventory levels , sales trends and expected customer demand , as well as planned new store openings and relocations . although we believe we can reasonably estimate purchase volume and related volume rebates at interim periods , it is possible that actual year-end results could be different from previously estimated amounts . our allocation methodology contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding customer demand , purchasing activity , target thresholds , vendor attrition and collectability . we have not made any material changes in the accounting methodology used to establish our vendor funding reserves in the financial periods presented . at the end of each fiscal year , a significant portion of the actual purchase activity is known . thus , we do not believe there is a reasonable likelihood that there will be a material change in the amounts recorded as vendor funding .
| in addition , the company 's e-commerce sales experienced triple-digit percentage growth in fiscal 2020 as compared to fiscal 2019. in addition to comparable store sales growth in fiscal 2020 , sales from stores opened less than one year were $ 355.3 million in fiscal 2020 , which represented 4.3 percentage points of the 27.2 % increase over fiscal 2019 net sales . sales from stores opened less than one year were $ 237.6 million in fiscal 2019 , which represented 3.0 percentage points of the 5.6 % increase over fiscal 2018 net sales . 37 index the following table summarizes our store growth during fiscal 2020 and 2019 : replace_table_token_9_th the following table indicates the percentage of net sales represented by each of our major product categories during fiscal 2020 and 2019 : replace_table_token_10_th gross profit increased 31.0 % to $ 3.76 billion in fiscal 2020 compared to $ 2.87 billion in fiscal 2019. as a percent of net sales , gross margin increased 104 basis points to 35.42 % for fiscal 2020 compared to 34.38 % for fiscal 2019. the increase in gross margin was primarily attributable to the strong demand for our products resulting in a lower depth and frequency of sales promotions and less clearance activity . total selling , general and administrative ( “ sg & a ” ) expenses , including depreciation and amortization and asset impairment , increased 29.9 % to $ 2.76 billion in fiscal 2020 from $ 2.13 billion in fiscal 2019. sg & a expenses , as a percent of net sales , increased 55 basis points to 26.03 % in fiscal 2020 from 25.48 % in fiscal 2019. the sg & a expenses in fiscal 2020 were impacted by discrete non-cash impairment charges for the petsense business of $ 74.1 million due primarily to a strategic reassessment of the business and a decision to reduce the number of new store openings planned over the long term and , to a lesser extent , the impairment of long-lived assets at underperforming locations . in fiscal 2020 we also experienced incremental costs related to the covid-19 pandemic , increased incentive compensation given the company 's strong financial
| 11,691 |
for time periods after the spin-off , but prior to july 17 , 2015 , these terms refer to civeo us and its consolidated subsidiaries . for time periods after july 17 , 2015 , these terms refer to civeo canada and its consolidated subsidiaries . prior to the spin-off , our financial position , results of operations and cash flows consisted of the oil states ' accommodations business and an allocable portion of its corporate costs , which represented a combined reporting entity . the combined financial statements for periods prior to the spin-off have been prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of oil states . the combined financial statements reflect our historical financial position , results of operations and cash flows as we were historically managed , in conformity with accounting principles generally accepted in the u.s. ( u.s. gaap ) . the combined financial statements include certain assets and liabilities that have historically been held at the oil states corporate level , but are specifically identifiable or otherwise attributable to us . all financial information presented after the spin-off represents the consolidated results of operations , financial position and cash flows of civeo . accordingly : ● our consolidated statements of operations , comprehensive income ( loss ) , cash flows and changes in shareholders ' equity / net investment for the year ended december 31 , 2015 consist entirely of the consolidated results of civeo . ● our consolidated statements of operations , comprehensive income ( loss ) , cash flows and changes in shareholders ' equity / net investment for the year ended december 31 , 2014 consist of ( i ) the combined results of the oil states ' accommodations business for the five months ended may 30 , 2014 and ( ii ) the consolidated results of civeo for the seven months ended december 31 , 2014 . ● our consolidated statements of operations , comprehensive income ( loss ) , cash flows and changes in shareholders ' equity / net investment for the year ended december 31 , 2013 consist entirely of the combined results of the oil states ' accommodations business . ● our consolidated balance sheets at december 31 , 2015 and december 31 , 2014 consist entirely of the consolidated balances of civeo . the assets and liabilities in our consolidated financial statements have been reflected on a historical basis , as immediately prior to the spin-off all of the assets and liabilities presented were wholly owned by oil states and were transferred within the oil states consolidated group . all intercompany transactions and accounts have been eliminated . all affiliate transactions between civeo and oil states have been included in these consolidated financial statements . 49 the consolidated financial statements for periods prior to the spin-off included expense allocations for : ( 1 ) certain corporate functions historically provided by oil states , including , but not limited to finance , legal , risk management , tax , treasury , information technology , human resources , and certain other shared services , ( 2 ) certain employee benefits and incentives and ( 3 ) equity-based compensation . these expenses were allocated to us on the basis of direct usage when identifiable , with the remainder allocated based on estimated time spent by oil states personnel , a pro-rata basis of headcount or other relevant measures of oil states and its subsidiaries . we consider the basis on which the expenses were allocated to be a reasonable reflection of the utilization of services provided to or the benefit received by us during the periods presented . the allocations may not , however , reflect the expense we would have incurred as an independent , publicly traded company for the periods presented . actual costs that may have been incurred if we had been a stand-alone company would depend on a number of factors , including the chosen organizational structure , which functions were outsourced or performed by employees and strategic decisions made in areas such as information technology and infrastructure . following the spin-off , we perform these functions using our own resources or purchase services . until february 28 , 2015 , however , some of these functions were provided by oil states under a transition services agreement . please see note 17 – related party transactions to the notes to consolidated financial statements in item 8 of this annual report . macroeconomic environment we provide workforce accommodations to the natural resource industry in canada , australia and the united states . demand for our services can be attributed to two phases of our customers ' projects : ( 1 ) the development or construction phase and ( 2 ) the operations or production phase . initial demand for our services is driven by our customers ' capital spending programs related to the construction and development of oil sands and coal mines and associated infrastructure as well as the exploration for oil and natural gas . long-term demand for our services is driven by continued development and expansion of natural resource production and operation of oil sands and mining facilities . industry capital spending programs are generally based on the outlook for commodity prices , economic growth and estimates of resource production . as a result , demand for our products and services is largely sensitive to expected commodity prices , principally related to crude oil , metallurgical ( met ) coal and natural gas . in canada , western canadian select ( wcs ) crude is the benchmark price for our oil sands accommodations customers . pricing for wcs is driven by several factors , including the underlying price for west texas intermediate ( wti ) crude and the availability of transportation infrastructure . historically , wcs has traded at a discount to wti , creating a “ wcs differential , ” due to transportation costs and limited capacity to move canadian heavy oil production to refineries , primarily in the u.s. gulf coast . story_separator_special_tag depending on the extent of pipeline capacity availability , the wcs differential has varied . in the fourth quarter of 2015 and continuing into 2016 , global oil prices dropped to their lowest level in over ten years due to concerns over global oil demand , the economic growth rate in china , the overall economic health of europe and price cutting by major oil producing countries , such as saudi arabia . increasing global supply , including increased u.s. shale oil production , has also negatively impacted pricing . with falling brent crude and wti oil prices , wcs has also fallen . wcs prices in the fourth quarter of 2015 averaged $ 27.82 per barrel compared to $ 57.75 in the fourth quarter of 2014. the wcs differential narrowed from $ 16.00 per barrel at the end of the fourth quarter of 2014 to $ 13.25 per barrel by the end of the fourth quarter of 2015. as of february 19 , 2016 , the wti price was $ 29.64 and the wcs price was $ 19.20 resulting in a wcs differential of $ 10.44. there remains a significant risk that prices in the oil sands could continue to deteriorate or remain at current depressed levels for an extended period of time , and the discount between wcs crude prices and wti crude prices could widen . the continuation of these depressed price levels has negatively impacted exploration , development and production activity by canadian operators and , therefore , demand for our services in 2016. our canadian oil sands customers could continue to delay additional investments in their oil sands assets as well . 50 in australia , we have 9,296 total rooms in our ten villages , of which 7,392 rooms in five villages serve the bowen basin . our australian villages in the bowen basin primarily serve met coal mines in that region . met coal pricing and growth in production in the bowen basin region is influenced by levels of global steel production . global steel production has decreased 2.8 % during 2015 compared to the same period in 2014. furthermore , chinese steel production decreased 2.3 % during 2015 , and accordingly , chinese demand for imported steel inputs , such as met coal and iron ore , has continued to decrease during 2015 compared to prior periods . because of this , coupled with the fact that australian met coal output has decreased 1 % during 2015 compared to 2014 , met coal prices have decreased materially from over $ 160 per metric tonne at the beginning of 2013 to approximately $ 89.00 per metric ton for the fourth quarter of 2015. as of february 19 , 2016 , contract met coal prices were approximately $ 81.00 per metric ton . we expect the lower first quarter 2016 contract price to continue to negatively impact occupancy at our bowen basin villages into 2016. depressed met coal prices have led to the implementation of cost control measures by our customers , some coal mine closures and delays in the start-up of new coal mining projects in australia . a continued depressed met coal price will impact our customers ' future capital spending programs . long-term demand for steel will be driven by increased steel consumption per capita in developing economies , such as china and india , whose current consumption per capita is a fraction of developed countries . natural gas and wti crude oil prices , discussed above , have an impact on the demand for our u.s. accommodations . prices for natural gas in the u.s. averaged $ 2.63 per mcf in 2015 , a 38 % decrease over the average price in 2014. u.s. natural gas production has continued to outpace demand recently , which has caused prices to continue to be weak relative to historical prices . these weaker prices are expected to continue . at these levels , it is uneconomic to increase development in several domestic , gas-focused basins . if natural gas production growth continues to surpass demand in the u.s. and or the supply of natural gas were to increase , whether the supply comes from conventional or unconventional production or associated natural gas production from oil wells , prices for natural gas could be constrained for an extended period and result in fewer rigs drilling for natural gas in the near-term . recent wti crude , wcs crude , met coal and natural gas pricing trends are as follows : replace_table_token_9_th ( 1 ) source : wti crude and natural gas prices from u.s. energy information administration ( eia ) and wcs crude prices and seaborne hard coking coal contract price from bloomberg . overview as noted above , demand for our services is primarily tied to the outlook for crude oil and met coal prices . other factors that can affect our business and financial results include the general global economic environment and regulatory changes in the u.s. , canada , australia and other markets . our business is predominantly located in northern alberta , canada and queensland , australia , and we derive most of our business from resource companies who are developing and producing oil sands and met coal resources and , to a lesser extent , other hydrocarbon and mineral resources . more than three-fourths of our revenue is generated by our large-scale lodge and village facilities . where traditional accommodations and infrastructure are insufficient , inaccessible or not cost effective , our lodge and village facilities provide comprehensive accommodations services similar to those found in an urban hotel . we typically contract our facilities to our customers on a fee per day basis covering lodging and meals that is based on the duration of their needs which can range from several weeks to several years . 51 generally , our customers are making multi-billion dollar investments to develop their prospects , which have estimated reserve lives of ten years to in excess of thirty years .
| as further discussed below , net loss included the following items : ● a $ 202.7 million pre-tax loss ( $ 201.2 million after-tax , or $ 1.89 per diluted share ) from goodwill impairments , included in impairment expense below ; ● a $ 75.6 million pre-tax loss ( $ 50.9 million after-tax , or $ 0.48 per diluted share ) from fixed asset impairments , included in impairment expense below ; ● a $ 34.9 million tax expense ( $ 0.33 per diluted share ) from the establishment of a deferred tax liability related to a portion of our undistributed foreign earnings which we no longer intend to indefinitely reinvest and a valuation allowance related to deferred tax assets related to capital losses that are not expected to be realized , included in income tax provision below ; ● a $ 12.2 million pre-tax loss ( $ 8.4 million after-tax , or $ 0.08 per diluted share ) from intangible asset impairments , included in impairment expense below , ● a $ 7.8 million pre-tax loss ( $ 5.1 million after-tax , or $ 0.05 per diluted share ) from transition costs and debt extinguishment costs incurred in connection with the spin-off from oil states , included spin-off and formation costs and interest expense below ; ● a $ 4.1 million pre-tax loss ( $ 3.1 million after-tax , or $ 0.03 per diluted share ) from severance costs associated with the termination of an executive , included in sg & a expenses below ; and ● a $ 2.6 million pre-tax loss ( $ 1.7 million after-tax , or $ 0.02 per diluted share ) from costs associated with the proposed migration to canada , included in sg & a expenses below . revenues . consolidated revenues decreased $ 424.9 million , or 45 % , in 2015 compared to 2014. this decline was largely driven by decreases in canada and australia , due to lower occupancy , as well as weakening canadian and australian dollars . please see further description in the segment discussion below . cost of sales and services . our consolidated cost of sales decreased $ 217.3 million , or 40 % , in 2015 compared to 2014 primarily due to decreases in occupancy in both canada and australia , as well as the weakening canadian and australian dollars . please see further description in the segment discussion below . selling , general
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we had 704 employees in the philippines as of january 3 , 2015 . we had 768 employees in the philippines as of january 2 , 2016 . we believe that the cost advantages of our offshore operations provide us with the ability to grow our business in a cost-effective manner . automd . on october 8 , 2014 , automd entered into a common stock purchase agreement to sell seven million shares of automd common stock at a purchase price of $ 1.00 per share to third-party investors , reducing the company 's ownership interest in automd to 64.1 % . automd 's mission is to be the repair shop advocate for all vehicle owners , increase their confidence in the repair process and provide the most affordable and high quality options for automobile repair . automd 's current focus is on marketing and technology . automd 's current marketing strategy involves driving growth in their repair shop network . during 2015 , marketing efforts resulted in approximately 1,120 repair shops joining automd 's network , rising from about 2,100 repair shops at the end of fiscal 2014 to approximately 3,220 at the end of fiscal 2015 . automd now has repair shops participating in 43 states . in addition to marketing , automd continues to refine the online experience , including its mobile presence . e-commerce . to understand revenue generation through our network of e-commerce websites , we monitor several key business metrics , including the following : replace_table_token_4_th 26 1 excludes online marketplaces and media properties ( e.g . automd ) . unique visitors : a unique visitor to a particular website represents a user with a distinct ip address that visits that particular website . we define the total number of unique visitors in a given month as the sum of unique visitors to each of our websites during that month . we measure unique visitors to understand the volume of traffic to our websites and to track the effectiveness of our online marketing efforts . the number of unique visitors has historically varied based on a number of factors , including our marketing activities and seasonality . included in the unique visitors are mobile device based customers , who are becoming an increasing part of our business . shifting consumer behavior and technology enhancements indicates that customers are becoming more inclined to purchase auto parts through their mobile devices . user sophistication and technological advances have increased consumer expectations around the user experience on mobile devices , including speed of response , functionality , product availability , security , and ease of use . we believe enhancements to online solutions specifically catering to mobile based shopping can result in an increase in the number of orders and revenues . we believe an increase in unique visitors to our websites will result in an increase in the number of orders . we seek to increase the number of unique visitors to our websites by attracting repeat customers and improving search engine marketing and other internet marketing activities . during fiscal year 2015 , our unique visitors decreased by 2.6 % compared to the fiscal year 2014 . we expect the total number of unique visitors in 2016 to marginally improve , as we believe we have addressed the challenges we experienced from changes search engines have made to the formulas , or algorithms , that they use to optimize their search results and we have continued to invest in paid search advertising , as described in further detail under “ —executive summary ” below . total number of orders : we monitor the total number of orders as an indicator of future revenue trends . during the fiscal year 2015 , the total number of orders was up by 1.5 % compared to the fiscal year 2014 , with e-commerce and online marketplace orders up by 1.6 % and 1.1 % , respectively . we believe e-commerce and online marketplace orders improved through an enhanced customer experience and greater product selection . we expect the total number of orders in 2016 to marginally improve over our results for 2015 . we recognize revenue associated with an order when the products have been delivered , consistent with our revenue recognition policy . average order value : average order value represents our net sales on a placed orders basis for a given period of time divided by the total number of orders recorded during the same period of time . during the fiscal year 2015 , our average order value remained consistent when compared to the fiscal year 2014 . we seek to increase the average order value as a means of increasing net sales . average order values vary depending upon a number of factors , including the components of our product offering , the order volume in certain online sales channels , mix changes between private label and branded , macro-economic conditions , and the competition online . revenue capture : revenue capture is the amount of actual dollars retained after taking into consideration returns , credit card declines and product fulfillment . during the fiscal year 2015 , our revenue capture increased by 0.7 % to 85.6 % compared to 85.0 % in fiscal year 2014 . we expect our revenue capture level to marginally improve in 2016 as we continue to improve our product descriptions and in-stock inventory . conversion : conversion is the number of orders as a rate to the total number of unique visitors . this rate indicates how well we convert a visitor to a customer sales order . during fiscal year 2015 , our conversion improved by 0.1 % to 1.8 % compared to 1.7 % in fiscal year 2014 . as we continue to improve our product descriptions and in-stock inventory positions , we expect conversion rates to marginally improve . 27 executive summary for fiscal 2015 , base usap ( which excludes amd ) generated net sales of $ 290,833 , compared with $ 283,211 for fiscal year 2014 , representing an increase of 2.7 % . story_separator_special_tag base usap net loss for fiscal 2015 was $ 136 , compared to a net loss of $ 4,907 for fiscal 2014 . we generated adjusted ebitda , or net income before net interest expense , income tax provision , depreciation and amortization expense and amortization of intangible assets , plus share-based compensation expense , impairment loss and restructuring costs ( `` adjusted ebitda '' ) , of $ 10,029 in fiscal 2015 compared to $ 8,384 in fiscal 2014 . adjusted ebitda , which is not a generally accepted accounting principle ( gaap ) measure , is presented because management uses it as one measure of the company 's operating performance , as it assists in comparing the company 's operating performance on a consistent basis by removing the impact of stock compensation expense , as well as items that are not expected to be recurring . internally , this non-gaap measure is also used by management for planning purposes , including the preparation of internal budgets ; for allocating resources to enhance financial performance ; and for evaluating the effectiveness of operational strategies . the company also believes that such measure is used by rating agencies , securities analysts , investors and other parties in evaluating the company . it should not be considered , however , as an alternative to operating income , or as an alternative to cash flows as a measure of the company 's overall liquidity , as presented in the company 's consolidated financial statements . further , the adjusted ebitda measure shown may not be comparable to similarly titled measures used by other companies . refer to the table presented below for reconciliation of net loss to adjusted ebitda . for fiscal 2015 , automd generated net sales of $ 258 compared to $ 297 in fiscal 2014 . automd 's net loss was $ 2,288 for fiscal 2015 compared to a net loss of $ 2,179 for fiscal 2014 . automd 's adjusted ebitda was negative $ 1,663 in fiscal 2015 compared to negative $ 481 in fiscal 2014 . total revenues increased in fiscal 2015 compared to fiscal 2014 primarily due to growth in our online sales . our online sales , which include our e-commerce , online marketplace sales channels and online advertising , contributed 90.9 % of total revenues , and our offline sales , which consist of our kool-vue and wholesale operations , contributed 9.1 % of total revenues . our online sales for fiscal year 2015 increased by $ 7,561 , or 2.9 % , to $ 264,721 compared to $ 257,160 in fiscal 2014 primarily due to an increase in conversion , resulting in a 1.5 % increase in the total number of orders . our offline sales increased by $ 21 , or 0.1 % , to $ 26,370 compared to the same period last year . like most e-commerce retailers , our success depends on our ability to attract online consumers to our websites and convert them into customers in a cost-effective manner . historically , marketing through search engines provided the most efficient opportunity to reach millions of on-line auto part buyers . we are included in search results through paid search listings , where we purchase specific search terms that will result in the inclusion of our listing , and algorithmic searches that depend upon the searchable content on our websites . algorithmic listings can not be purchased and instead are determined and displayed solely by a set of formulas utilized by the search engine . we have had a history of success with our search engine marketing techniques , which gave our different websites preferred positions in search results . search engines , like google , revise their algorithms from time to time in an attempt to optimize their search results . during the last few years , google has changed its search results ranking algorithm . in some cases our unique visitor count , and therefore our financial results , were negatively impacted by these changes . while we continue to address the ongoing changes to the google methodology , during the fiscal year 2015 , our unique visitor count decreased by 3.1 million , or 2.6 % , to 116.7 million unique visitors compared to 119.8 million unique visitors in fiscal 2014 primarily due to there being 53 weeks in fiscal 2014 , compared to 52 weeks in fiscal 2015 . excluding the 53rd week , the level of unique visitors was essentially flat . as in the past we expect google will continue to make changes in their search engine algorithms to improve their user experience . as we are significantly dependent upon search engines for our website traffic , if we are unable to address these ongoing changes and attract unique visitors , our business and results of operations will be harmed . total expenses , which primarily consisted of cost of sales and operating costs , increased in fiscal year 2015 compared to the same period in 2014 . components of our cost of sales and operating costs are described in further detail under — “ basis of presentation ” below . in 2015 , we made positive strides towards achieving our strategic goals and in 2016 we will continue to pursue these strategies to continue our positive sales growth , improve gross profit while reducing operating costs as percent of sales : we expect to continue positive e-commerce growth by providing unique catalog content and providing better content on our websites with the goal of improving our ranking on the search results . in addition , we intend to improve mobile enabled websites to take advantage of shifting consumer behaviors . we expect revenue trends to remain positive in 2016 .
| capitalized costs include amounts directly related to website and software development , primarily payroll and payroll related costs for employees and outside contractors who are directly associated with and devote time to the internal use software project . we expect our capital expenditures to be flat or slightly higher in fiscal 2016 compared to fiscal 2015 . financing activities for the fiscal year ended january 2 , 2016 , net cash provided by financing activities was primarily due to the net draws made on debt , totaling $ 737 . for the fiscal year ended january 3 , 2015 , net cash provided by financing activities was primarily due to gross proceeds of $ 7,000 received from the sale of 35.9 % of automd 's outstanding common stock and the net draws made on debt , totaling $ 4,248 . ( see further discussion in “ debt and available borrowing resources ” below ) . for the fiscal year ended december 28 , 2013 , net cash provided by financing activities was primarily due to gross proceeds received from the issuance of series a preferred of $ 6,017 and common stock of $ 2,235 , and proceeds from the sale leaseback of our lasalle , illinois facility for $ 9,584 , partially offset by the net payments made on debt , totaling $ 9,447. debt and available borrowing resources total debt ( primarily comprised of a revolving loan payable of $ 11,759 , discussed further below , and capital leases of $ 10,689 ) was $ 22,448 as of january 2 , 2016 , compared to $ 20,561 ( primarily comprised of a revolving loan payable of $ 11,022 , discussed further below , and capital leases of $ 9,539 ) as of january 3 , 2015 . the company maintains an asset-based revolving credit facility that provides for , among other things , a revolving commitment , which is subject to a borrowing
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we use a binomial lattice valuation model to estimate the fair value of stock option grants made on or after january 1 , 2006. the binomial lattice model incorporates calculations for expected volatility , risk-free interest rates , employee exercise patterns and post-vesting employment termination behavior , and these factors affect the estimate of the fair value of the stock option grants . valuation of goodwill and other intangible assets goodwill is tested for impairment at least annually as of september 30th and between annual tests if indicators of potential impairment exist . we test goodwill for impairment at the reporting unit level . we perform a two-step test to assess goodwill for impairment . the first step of the goodwill impairment test requires a determination of whether the fair value of the reporting unit is less than its carrying value . if the fair value exceeds the carrying value , goodwill is not impaired and no further testing is performed . the second step is performed only if the carrying value exceeds the fair value . the second step involves an analysis reflecting the allocation of fair value determined in the first step ( as if it was the fair value of the consideration transferred in a business combination ) . this process may result in the determination of a new amount of goodwill . if the implied fair value of the goodwill resulting from this hypothetical acquisition accounting is lower than the carrying value of the goodwill in the reporting unit , the difference is reflected as a non-cash impairment loss . the purpose of the second step is only to determine the amount of goodwill that should be recorded on the balance sheet . the recorded amounts of other items on the balance sheet are not adjusted . we have determined that we have one reporting unit for purposes of goodwill testing . we estimate the fair value of our single reporting unit utilizing up to three valuation methods : market capitalization , income approach and market approach . revenue and expense forecasts used in the evaluation of goodwill are based on trends of historical performance and our estimate of future performance . 32 index revenues our revenues have been classified into two primary product families for the years ended december 31 , 2011 , 2010 , and 2009. additionally , we sell oem embedded products to third parties , and we continue to carry legacy plug-in connectivity products , and up through 2009 carried serial products until the sale of our serial product line in the third quarter of 2009. our product revenues are presented in the following table : replace_table_token_3_th replace_table_token_4_th our mobile handheld computer product revenues in 2011 increased by 32 % , or $ 2.1 million , from mobile handheld computer product revenues in 2010. increased mobile handheld computer product revenues in 2011 reflect higher sales volumes due to a growing customer base with larger average unit deployments , and a recovery from shortages in the supply of our mobile handheld computer from our contract manufacturer compared to 2010. beginning in late 2010 , major tablet and smartphone manufacturers secured a majority of the lcd touch screen manufacturing capacity causing short term supply disruptions as lcd touch screen manufacturers reprioritized their capacity commitments . consequently , beginning in the fourth quarter 2010 , sales of our mobile handheld computer products were reduced as a result of the shortages in the availability of lcd touch screens used in the manufacture of our mobile handheld computer . the shortages continued but to progressively lesser extents through the first three quarters of 2011 , resulting in an inability to fully ship our quarterly mobile handheld computer backlog within each quarter until resolution of the supply issue in the fourth quarter 2011. mobile handheld computer revenues in 2010 increased by 2 % , or $ 155,000 , from mobile handheld computer product revenues in 2009. sales of our mobile handheld computer through the first nine months of 2010 increased by 12 % compared to the same period in 2009 , due to an increase in the volume of mobile handheld computer sales combined with an increase in related service revenues as a result of an increased percentage of customers opting to purchase our socketcare extended warranty and accidental breakage coverage in conjunction with their deployments . however , in the fourth quarter 2010 , sales of our mobile handheld computer products were reduced as a result of the supply shortages mentioned previously . our mobile handheld product revenues in the fourth quarter 2010 declined to $ 1.2 million from $ 1.9 million in the third quarter 2010 as a consequence of the supply delays and our inability to ship our customer orders scheduled for shipment in the fourth quarter . 33 index our data collection product revenues in 2011 increased by 54 % , or $ 2.7 million from data collection revenues in 2010. revenue increases in 2011 were primarily from $ 2.5 million in increased sales volumes of our cordless hand scanner products including our new scanning products targeted at apple 's ios based products , and from $ 0.7 million in increased sales of our cordless ring scanner . partially offsetting these revenue increases in 2011 were declines totaling $ 0.6 million from reduced sales of our plug-in scanning products including our compactflash in-hand scan card , and our sdio in-hand scan card . in 2010 , our data collection product revenues decreased by 12 % , or $ 0.7 million from data collection revenues in 2009. revenue decreases in 2010 were primarily from declines of $ 0.6 million in sales of our sdio in-hand scan card due to reduced sales volumes of this product . remaining declines in 2010 were from reduced sales of our cordless hand scanner and cordless ring scanner . sales of our compactflash in-hand scan card were flat in 2010 compared to 2009. our data collection product revenues continue to be affected by the worldwide economic slowdown as customers defer their deployment decisions . story_separator_special_tag a significant sales volume of our plug-in scan cards are sold in conjunction with our mobile handheld computer . in the fourth quarter 2010 in particular , supply delays in our mobile handheld computer mentioned previously , adversely impacted our mobile handheld computer sales and consequently the companion plug-in scan card revenues as we were forced to defer shipments beyond year end . service revenues were $ 1.0 million or 5 % of our revenues in 2011 , $ 0.8 million or 6 % of our revenues in 2010 , and $ 0.3 million or 2 % of our revenues in 2009. increases in service revenues in 2011 were due to increases in out-of-warranty related services compared to 2010. service revenues related to our socketcare service program were flat in 2011 compared to 2010. increases in 2010 service revenues compared to 2009 were due to an increased percentage of customers opting to purchase our socketcare extended warranty and accidental breakage coverage in conjunction with their mobile handheld computer and data collection deployments , and increases in other out-of-warranty services . service revenues have been allocated to the respective mobile handheld computer and data collection revenues for each of the years presented in the table above . our oem embedded product revenues declined in 2011 by 52 % , or $ 0.7 million from revenues in 2010. revenue declines in 2011 reflect continued declines in sales of legacy products . declines of $ 0.5 million were from reductions in sales of our wireless lan plug-in cards . additional declines in 2011 were from reduced sales of our bluetooth products . in 2010 , o ur oem embedded product revenues declined by $ 1.9 million from revenues in 2009. approximately half of the revenue decrease in 2010 was due to reduced sales of bluetooth products . sales of our bluetooth modules to our oem customers declined as a result of phasing out older bluetooth technology and a last-buy purchase program through 2009. sales of bluetooth plug-in products declined as a result of last-buys of these products as we completed the phase out of these products in 2010. remaining declines in the 2010 were from reductions in sales of our wireless lan plug-in cards . 34 index our connectivity product revenues for the three years presented in the above table consist of our legacy products including our ethernet plug-in cards , modems , and accessory products including our mobile power pack , adapters and cables . connectivity product revenues in 2011 decreased by 6 % from connectivity product revenues in 2010 , and was due to slight declines in sales of our modem plug-in products and ethernet plug-in products . connectivity product revenues in 2010 decreased by 38 % , or $ 0.3 million from connectivity product revenues in 2009 , and was due primarily to declines in sales of our modem plug-in products with remaining declines from reduced sales of our ethernet plug-in products . overall connectivity product revenues have declined in the periods presented , reflecting a trend of year-over-year reductions in corporate deployments of these wired connection solutions as most users of mobile computing devices now connect to networks wirelessly . as a result of the sale of our serial product technology and business on september 30 , 2009 , there are no revenues from serial interface products recognized beyond fiscal 2009 ( see “ note 8 – sale of product line assets ” for more information ) . our standard serial pc card products were primarily sold to connect peripheral devices or other electronic equipment to notebook computers . gross margins gross margins for 2011 were 41 % of revenues compared to gross margins of 40 % in 2010 and 43 % in 2009. we generally price our products as a markup from our cost , and we offer discount pricing for higher volume purchases . increases in overall margins in 2011 compared to 2010 were due to higher overall revenues in 2011 combined with fixed overhead , manufacturing variances , and inventory write-downs comprising a lower percentage of overall cost of goods sold compared to 2010 , partially offset by margin declines in 2011 in our data collection product line due to a product mix emphasizing newer data collection products which typically begin with reduced margins that improve over time as unit volumes increase , and decreases in margins on our mobile handheld computer product line in 2011 due to a product mix within that line which emphasized lower margin oem models compared to 2010. declines in overall margins in 2010 compared to 2009 were due to declines in sales of above average margin products combined with fixed overhead costs which comprised a greater portion of the overall cost of goods sold due to lower revenues in 2010 compared to 2009. partially offsetting these margin declines in 2010 were increases in sales of our mobile handheld computer which comprised a greater portion of our overall revenues combined with improved margins on this particular product in 2010 compared to one year ago . research and development expense research and development expense in 2011 was $ 2.8 million , an increase of 13 % from research and development expense in 2010 of $ 2.5 million . research and development expense in 2010 decreased16 % from research and development expense in 2009 of $ 2.9 million . increases in 2011 compared to 2010 were primarily from increased personnel costs due to the elimination of a payroll salary cost savings program which had been in effect throughout fiscal 2010 , and increases in development activities . partially offsetting these increases were reductions in equipment costs in 2011 compared to 2010. in 2010 , approximately 31 % if the reduction in research and development expense compared to 2009 was due to lower personnel costs primarily from salary reductions as a result of the continued implementation of cost reduction programs in response to the economic climate .
| because our staffing and other operating expenses are based on anticipated revenue , a substantial portion of which is not typically generated until the end of each quarter , delays in the receipt of orders can cause significant variations in operating results from quarter to quarter . 38 index liquidity and capital resources during the years ended december 31 , 2011 , 2010 , and 2009 , we incurred net losses of $ 2.4 million , $ 4.0 million , $ 7.9 million , respectively . we have a history of operating losses and we may continue to be unprofitable in the foreseeable future . as of december 31 , 2011 , we have an accumulated deficit of $ 57.2 million . historically we have financed our operations through the sale of equity securities , equipment financing , and revolving bank lines of credit . since our inception we have raised approximately $ 42 million in equity capital to fund our operations . as reflected in our statements of cash flows , net cash used in operating activities in 2011 was $ 1.2 million , compared to $ 0.6 million used in operating activities in 2010 , and $ 0.1 million provided from operating activities in 2009. we calculate net cash used in operating activities by reducing our net loss ( $ 2.4 million , $ 4.0 million , and $ 7.9 million in 2011 , 2010 , and 2009 , respectively ) by those expenses that did not require the use of cash , and reversing gains that did not generate cash . these items consist of stock based compensation expense , depreciation , amortization of intangible assets , deferred tax expense , in 2011 and 2010 the amortization of debt discount , in 2010 the issuance of common stock for services , and in 2009 a reversal of deferred tax expense . these amounts totaled $ 2.2 million , $ 1.3 million , and $ 0.6 million in 2011 , 2010 , and 2009 , respectively . also , in 2009 our net loss includes a gain of $ 450,000 from the sale of our serial product line assets in september of 2009 and goodwill impairment
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powered by our patented vector segment technology our vst , web-key® and bsp development kits are fingerprint biometric solutions that provide true interoperability with all major reader manufacturers , enabling application developers and integrators to seamlessly integrate fingerprint biometrics into virtually any application . while our growth has been sluggish due to market acceptance , and lengthy processes involved with building relationships with large integrators , we believe that due to current market conditions , specifically identity theft , we are well-positioned for growth as solutions empower users to take control of their identities in a way that can not be replicated , stolen or mistaken for unauthorized use . organizations that employ bio-key 's solutions to authenticate employees and protect company data also experience a measurable return on investment . for example , we have received a large order in the first quarter of 2012 in the blood bank industry that we believe will materially increase our sales in this industry . 13 story_separator_special_tag fourth quarter , and delayed payments for other vendors due to inadequate cash to meet the current obligations , and an increase in accrued expenses of approximately $ 222,000 , attributable to the accrued commission , and an increase in deferred revenue for maintenance renewals and a new prepaid order . · the company recorded approximately $ 57,000 of charges in 2011 for the expense of issuing options to employees for services . investing activities overview net cash provided by investing activities of $ 3,293,796 was the result of the early receipt of proceeds from the note receivable of $ 3,350,000 net of capital expenditures of $ 56,204. financing activities overview net cash used for financing activities of $ 3,737,344 included the early repayment of the shaar note of $ 3,612,135 and outstanding dividends of $ 125,209. net working deficit at december 31 , 2011 was approximately $ 1,539,000 as compared to net working capital of approximately $ 88,000 at december 31 , 2010. the change was due to the company 's reduction in cash due primarily to funding the operating loss of the business . 16 since january 7 , 1993 ( date of inception ) , our capital needs have been principally met through proceeds from the sale of equity and debt securities . we do not expect any material capital expenditures during the next twelve months . we do not currently maintain a line of credit or term loan with any commercial bank or other financial institution . as of december 2011 , the company entered into a 24-month accounts receivable factoring arrangement with a financial institution ( the “ factor ” ) . pursuant to the terms of this arrangement , bio-key , from time to time shall sell to the factor certain of its accounts receivable balances on a non-recourse basis for credit approved accounts . the factor shall then remit 75 % of the accounts receivable balance to bio-key ( the “ advance amount ” ) , with the remaining balance , less fees to be forwarded to the company once the factor collects the full accounts receivable balance from the customer . factoring fees range from 2.75 % to 15 % of the face value of the invoice factored and are determined by the number of days required for collection of the invoice . bio-key expects to use this factoring arrangement periodically to assist with its general working capital requirements . liquidity outlook at december 31 , 2011 , our total of cash and cash equivalents was approximately $ 43,000 , as compared to approximately $ 1,010,000 at december 31 , 2010. as discussed above , the company has financed itself in the past through access to the capital markets by issuing secured and convertible debt securities , as well as convertible preferred stock and common stock . we currently require approximately $ 385,000 per month to conduct our operations . during 2011 , we generated approximately $ 3,500,000 of revenue , which is below our average monthly requirements . the balance of the company 's secured notes of approximately $ 346,000 will be due and payable to the holder together with all accumulated and unpaid interest on december 31 , 2012. if we are unable to generate sufficient revenue to meet our goals , we will need to obtain additional third-party financing to ( i ) conduct the sales , marketing and technical support necessary to execute our plan to substantially grow operations , increase revenue and serve a significant customer base ; and ( ii ) provide working capital . therefore , we may need to obtain additional financing through the issuance of debt or equity securities , or to restructure our financial position through similar transactions to those consummated during the 2009 to 2010 period . due to several factors , including our history of losses and limited revenue , our independent auditors have included an explanatory paragraph in their opinion related to our annual financial statements as to the substantial doubt about our ability to continue as a going concern . our long-term viability and growth will depend upon the successful commercialization of our technologies and our ability to obtain adequate financing . to the extent that we require such additional financing , no assurance can be given that any form of additional financing will be available on terms acceptable to us , that adequate financing will be obtained to meet our needs , or that such financing would not be dilutive to existing stockholders . if available financing is insufficient or unavailable or we fail to continue to generate meaningful revenue , we may be required to further reduce operating expenses , delay the expansion of operations , be unable to pursue merger or acquisition candidates , or continue as a going concern . story_separator_special_tag off-balance sheet arrangements we do not have any off-balance sheet arrangements that have , or are in the opinion of management reasonably likely to have , a current or future effect on our financial condition or results of operations . critical accounting policies our financial statements are prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires that we 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 revenue and expenses during the reporting periods . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ significantly from these estimates under different assumptions or conditions . there have been no material changes to these estimates for the periods presented in this annual report on form 10-k. 17 we believe that of our significant accounting policies , which are described in note a of the notes to our consolidated financial statements included in this annual report on form 10-k , the following accounting policies involve a greater degree of judgment and complexity . accordingly , these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations . 1. revenue recognition revenues from software licensing are recognized in accordance with asc 985-605 , “ software revenue recognition . accordingly , revenue from software licensing is recognized when all of the following criteria are met : persuasive evidence of an arrangement exists , delivery has occurred , the fee is fixed or determinable , and collectability is probable . the company intends to enter into arrangements with end users for items which may include software license fees , and services or various combinations thereof . for each arrangement , revenues will be recognized when evidence of an agreement has been documented , the fees are fixed or determinable , collection of fees is probable , delivery of the product has occurred and no other significant obligations remain . multiple-element arrangements : for multiple-element arrangements , the company applies the residual method in accordance with asc 985-605. the residual method requires that the portion of the total arrangement fee attributable to the undelivered elements be deferred based on its vsoe of fair value and subsequently recognized as the service is delivered . the difference between the total arrangement fee and the amount deferred for the undelivered elements is recognized as revenue related to the delivered elements , which is generally the software license . vsoe of fair value for all elements in an arrangement is based upon the normal pricing for those products and services when sold separately . vsoe of fair value for support services is additionally determined by the renewal rate in customer contracts . the company has established vsoe of fair value for support as well as consulting services . license revenues : amounts allocated to license revenues are recognized at the time of delivery of the software and all other revenue recognition criteria discussed above have been met . revenue from licensing software , which requires significant customization and modification , is recognized using the percentage of completion method , based on the hours of effort incurred by the company in relation to the total estimated hours to complete . in instances where third party hardware , software or services form a significant portion of a customer 's contract , the company recognizes revenue for the element of software customization by the percentage of completion method described above . otherwise , third party hardware , software , and services are recognized upon shipment or acceptance as appropriate . if the company makes different judgments or utilizes different estimates of the total amount of work expected to be required to customize or modify the software , the timing and revenue recognition , from period to period , and the margins on the project in the reporting period , may differ materially from amounts reported . anticipated contract losses are recognized as soon as they become known and are estimable . service revenues : revenues from services are comprised of maintenance and consulting and implementation services . maintenance revenues include providing for unspecified when-and-if available product updates and customer telephone support services , and are recognized ratably over the term of the service period . consulting services are generally sold on a time-and-materials basis and include a range of services including installation of software and assisting in the design of interfaces to allow the software to operate in customized environments . services are generally separable from other elements under the arrangement since performance of the services are not essential to the functionality of any other element of the transaction and are described in the contract such that the total price of the arrangement would be expected to vary as the result of the inclusion or exclusion of the services . revenues from services are generally recognized as the services are performed . the company provides customers , free of charge or at a minimal cost , testing kits which potential licensing customers may use to test compatibility/acceptance of the company 's technology with the customer 's intended applications . costs and other expenses : includes professional compensation and other direct contract expenses , as well as costs attributable to the support of client service professional staff , depreciation and amortization costs related to assets used in revenue-generating activities , and other costs attributable to serving the company 's client base . professional compensation consists of payroll costs and related benefits including stock-based compensation and bonuses .
| the company 's royalty income for the year ended december 31 , 2011 was derived from a december 2009 oem agreement , and resulted in a17 % increase in revenue from approximately $ 80,000 to $ 94,000. the company expects this revenue stream to be recurring . 14 costs of goods sold for the year ended december 31 , 2011 , cost of services increased from 2010 due to increased customer support , as needed for the expanding customer base and increased non-recurring custom services . the company expects these costs will increase in future periods as additional biometric customers are added and non-recurring custom services increase with diversification of markets . for the year ended december 31 , 2011 , cost of license and other increased from 2010 due to an increase in third party hardware costs commensurate with the increase in hardware orders discussed in the “ revenues ” section above . selling , general and administrative replace_table_token_5_th selling , general and administrative costs decreased 2 % for the year ended december 31 , 2011 as compared to the same period 2010. reductions included legal fees by approximately $ 59,000 including the costs incurred for exploring the previously announced sic acquisition , a decrease in accounting fees of approximately $ 81,000 and professional fees by $ 16,000 primarily attributable to our 2010 change in auditors and issues related to the sale of the law segment . the reduction in expenses also included decreases in channel marketing fees of approximately $ 86,000 related to decreased revenue from the healthcare industry , a decrease of $ 50,000 in director fees paid , a decrease of $ 94,000 for commission relative to reduced overall company revenues as well as decreased marketing expenses of approximately $ 19,000 , and decreased travel expenses of approximately $ 55,000. the decreases were offset by an increase in bad debt expense related to a contract whose payments are behind schedule , as a result of the payment delays , the company has reserved $ 386,000 which represents 50 % of the remaining balance owed under the contract . research , development and engineering replace_table_token_6_th for the year ended december
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in september 2018 , we acquired an exclusive worldwide license ( the “ jenrin agreement ” ) to develop , manufacture and market drug candidates from more than 600 compounds targeting the endocannabinoid system from jenrin discovery llc ( “ jenrin ” ) . the pipeline includes crb-4001 , jenrin 's 2nd generation , peripherally-restricted , cb1 inverse agonist targeting liver , lung , heart and kidney fibrotic diseases . the current portfolio for crb-4001 includes multiple issued and pending patent applications . crb-4001 was developed in collaboration with and with financial support from the nih . crb-4001 was specifically designed to eliminate blood-brain barrier penetration and brain cb1 receptor occupancy that mediate the neuropsychiatric issues associated with first-generation cb1 inverse agonists such as rimonabant . potential indications for crb-4001 include nash , primary biliary cholangitis , idiopathic pulmonary fibrosis , radiation-induced pulmonary fibrosis , myocardial fibrosis after myocardial infarction , and acute interstitial nephritis , among others . on january 3 , 2019 , we entered into a strategic collaboration with kaken pharmaceutical co. , ltd. ( “ kaken ” ) for the development and commercialization in japan of our investigational drug lenabasum for the treatment of systemic sclerosis ( “ ssc ” ) and dermatomyositis ( “ dm ” ) , two rare and serious autoimmune diseases . under the terms of the agreement , kaken receives an exclusive license to commercialize and market lenabasum in japan for ssc and dm . kaken will make an upfront payment to us of $ 27 million . corbus will be eligible to receive in addition up to $ 173 million upon achievement of certain regulatory , development and sales milestones as well as double- digit royalties . on january 30 , 2019 , we consummated an underwritten public offering of shares of its common stock pursuant to which the company sold an aggregate of 6,198,500 shares of its common stock at a purchase price of $ 6.50 per share with gross proceeds to the company totaling $ 40,290,250 , less estimated issuance costs incurred of approximately $ 2,667,000. financial operations overview we are a clinical stage pharmaceutical company and have not generated any revenues from the sale of products . we have never been profitable and at december 31 , 2018 , we had an accumulated deficit of approximately $ 121.4 million . our net losses for the years ended december 31 , 2018 and 2017 were approximately $ 55,672,000 and $ 32,422,000 , respectively . 68 we expect to continue to incur significant expenses and increasing operating losses for the foreseeable future . we expect our expenses to increase significantly in connection with our ongoing activities to develop , seek regulatory approval of and commercialize lenabasum . accordingly , we will need additional financing to support our continuing operations . we will seek to fund our operations through public or private equity or debt financings or other sources , which may include government grants and collaborations with third parties . adequate additional financing may not be available to us on acceptable terms , or at all . our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy . we will need to generate significant revenues to achieve profitability , and we may never do so . we expect to continue to incur significant expenses and increasing operating losses for at least the next several years . we expect our expenses will increase substantially in 2019 and in the future in connection with our ongoing activities , as we : ● conduct clinical trials for lenabasum in scleroderma , cystic fibrosis , dm , systemic lupus erythematosus and other indications ; ● continue our research and development efforts ; ● manufacture clinical study materials and develop commercial scale manufacturing capabilities ; ● seek regulatory approval for our product candidates ; ● add personnel to support development of our product candidates ; and ● operate as a public company . critical accounting policies and estimates our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities 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 . on an ongoing basis , we evaluate our estimates and judgments for all assets and liabilities , including those related to stock-based compensation expense . we base our estimates and judgments on historical experience , current economic and industry conditions and on various other factors that are believed to be reasonable under the circumstances . this forms 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 . revenue recognition in may 2014 , the fasb issued guidance codified in accounting standards codification ( asc ) 606 , revenue recognition — revenue from contracts with customers ( “ asc 606 ” ) which amends the guidance in former asc 605 , revenue recognition ( “ asc 605 ” ) , and is effective for public companies for annual and interim periods beginning after december 15 , 2017. specifically , the new standard differs from asc 605 in many respects , such as in the accounting for variable consideration received , including milestone payments or contingent payments . under our accounting policy prior to the adoption of asc 606 in the first quarter of 2018 , milestone payments were initially recognized only in the period that the payment-triggering event occurred or was achieved . story_separator_special_tag asc 606 , however , may require a company to recognize such payments before the payment-triggering event is completely achieved based on the company 's estimate of the amount of consideration to which it will be entitled in exchange for transferring the services , subject to management 's assessment of whether it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved . we adopted asc 606 in the first quarter of 2018 using the modified retrospective method according to which the cumulative effect of initially applying asc 606 is recognized at the date of initial application , and elected to utilize a practical expedient and did not restate contracts that were completed as of the date of adoption . since we have concluded our performance obligations and have completed recognizing revenue under the 2015 cfft award discussed in the third quarter of 2017 , there was no cumulative effect to record at the date of our adoption of asc 606 and no revenue to recognize for the first quarter of 2018 related to the 2015 cfft award . revenue for the year ended december 31 , 2018 was $ 4,822,272 recognized in accordance with asc 606 and pertains only to the 2018 cff award . 69 we will assess any new agreements we enter into under asc 606 , including whether such agreements fall under the scope of such standard . this standard applies to all contracts with customers , except for contracts that are within the scope of other standards , such as leases , insurance , collaboration arrangements and financial instruments . under asc 606 , an entity recognizes revenue when its customer obtains control of promised goods or services , in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services . to determine revenue recognition for arrangements that an entity determines are within the scope of asc 606 , the entity performs the following five steps : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) the entity satisfies a performance obligation . the five-step model is applied to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer . at contract inception , once the contract is determined to be within the scope of asc 606 , we assess the goods or services promised within each contract and determine those that are performance obligations , and assess whether each promised good or service is distinct . we then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when ( or as ) the performance obligation is satisfied . revenue associated with the performance obligation is being recognized as revenue as the research and development services are provided using an input method , according to the costs incurred as related to the research and development activities and the costs expected to be incurred in the future to satisfy the performance obligation . the transfer of control occurs over this time period and , in management 's judgment , is the best measure of progress towards satisfying the performance obligation . the research and development services related to this performance obligation are expected to be performed over an approximately two and a half-year period expected to be completed in the second quarter of 2020. amounts received prior to revenue recognition are recorded as deferred revenue . amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying consolidated balance sheets . amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue , net of current portion . amounts recognized as revenue , but not yet received or invoiced are generally recognized as contract assets . we believe that full consideration has been given to all relevant circumstances that we may be subject to , and the consolidated financial statements accurately reflect our best estimate of the results of operations , financial position and cash flows for the periods presented . revenue to date , we have not generated any revenues from the sales of products . we do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for the marketing of lenabasum , which we expect will take a number of years and is subject to significant uncertainty . we recognized $ 4,822,272 and $ 2,440,195 of revenue from awards in the years ended december 31 , 2018 and december 31 , 2017 , respectively . amounts recognized in revenue in 2017 were recognized in accordance with asc 605 and were related to an award agreement ( the “ 2015 cfft award agreement ) we entered into in fiscal 2015 with the cfft , pursuant to which we received a development award ( the “ 2015 cfft award ” ) for up to $ 5 million in funding . we received a total of $ 5 million in payments under the 2015 cfft award .
| revenue was recognized for the 2015 cfft award under asc 605 during 2017. research and development . research and development expenses for the year ended december 31 , 2018 totaled approximately $ 48,614,000 , an increase of $ 22,575,000 over the $ 26,039,000 recorded for the year ended december 31 , 2017. the increase in fiscal 2018 as compared to fiscal 2017 was primarily attributable to increases of $ 17,526,000 in clinical trial costs , $ 4,004,000 in compensation costs , and $ 1,045,000 in stock-based compensation expense . during 2018 , the company formed a subsidiary in each of the united kingdom and australia and approximately 33 % of research and development expenses recorded for the year ended december 31 , 2018 was recorded in these entities . general and administrative . general and administrative expense for the year ended december 31 , 2018 totaled approximately $ 12,956,000 , an increase of $ 3,992,000 over the $ 8,964,000 recorded for the year ended december 31 , 2017. the increase in 2018 as compared to 2017 was primarily attributable to increases of approximately $ 1,357,000 in compensation costs , $ 870,000 in stock-based compensation expense , $ 799,000 in legal costs , $ 438,000 in consulting costs , $ 165,000 in travel , meals , and conventions and $ 150,000 in facilities costs due to increased headcount , and an aggregate net increase of approximately $ 213,000 for other general and administrative expenses . other income , net . other income , net for 2018 was approximately $ 1,076,000 as compared to approximately $ 141,000 recorded for 2017. the increase in 2018 as compared to 2017 was primarily attributable to an increase in net interest income of approximately $ 800,000 due to increased cash balances in 2018 as compared to 2017 , plus increases in foreign currency exchange transaction gains of approximately $ 135,000 . 73 liquidity and capital resources since inception , we have experienced negative cash flows from operations . we have financed our operations primarily through sales of
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additionally , popular granted us a right of first refusal on the development of certain new financial technology products and services for the duration of the master services agreement . as of december 31 , 2018 , popular retained a 16.1 % interest in evertec . our msa with popular has an initial term that ends in 2025. for 2018 , we derived approximately 41 % of our revenue from such contract , which makes the msa our most significant client contract . we anticipate that we will enter into a negotiation with popular prior to the expiration of the initial term of the msa . we can not be certain that we will be able to negotiate an extension to the msa . in addition , even if we are able to negotiate an extension of the msa , any new master services agreement may be materially different from the existing msa . further , the anticipated negotiation of the msa extension may result in popular obtaining significant concessions from us with respect to pricing and other key terms , both in respect of the current term and any extension of the msa , particularly as we approach 2025. see “ item 1a . risk factors—risks related to our business—we expect to continue to derive a significant portion of our revenue from popular . '' 2018 developments on july 26 , 2018 , the company 's board of directors ( `` board '' ) voted to reinstate a quarterly dividend on the company 's common stock , which had been suspended since november of 2017 , and declared a regular quarterly cash dividend of $ 0.05 per share on the company 's outstanding shares of common stock . the board also declared a dividend on october 25 , 2018 . the board anticipates declaring this dividend in future quarters on a regular basis ; however future declarations of dividends are subject to the board 's approval and may be adjusted as business needs or market conditions change . on november 27 , 2018 , evertec and evertec group , entered into a credit agreement setting forth the terms of the senior secured credit facilities , consisting of a $ 220.0 million term loan a facility that matures on november 27 , 2023 , a $ 325.0 million term loan b facility that matures on november 27 , 2024 and a $ 125.0 million revolving credit facility that matures on november 27 , 2023 , with a syndicate of lenders and bank of america , n.a. , as administrative agent , collateral agent , swingline lender and line of credit issuer . the net proceeds received from this transaction , together with other cash available to evertec group , were used , among other things , to refinance evertec group 's previous senior secured credit facilities , which consisted of a $ 191.4 million term a loan facility and a $ 379.0 million term b loan facility . factors and trends affecting the results of our operations the ongoing migration from cash and paper methods of payment to electronic payments continues to benefit the transaction- processing industry globally . we believe that the penetration of electronic payments in the markets in which we operate is significantly lower relative to the u.s. market , and that this ongoing shift will continue to generate growth opportunities for our business . for example , currently the adoption of banking products , including electronic payments , in the latin american and caribbean region is lower relative to the mature u.s. and european markets . we believe that the unbanked and underbanked population in our markets will continue to shrink , and therefore drive incremental penetration and growth of electronic payments in puerto rico and other latin american regions . we also benefit from the trend for financial institutions and government agencies to outsource technology systems and processes . many medium- and small-size institutions in the latin american markets in which we operate have outdated computer systems and updating these it legacy systems is financially and logistically challenging , which presents a business opportunity for us . finally , our financial condition and results of operations are , in part , dependent on the economic and general conditions of the geographies in which we operate . on june 30 , 2016 , the u.s. president signed into law promesa . promesa establishes a fiscal oversight and the oversight board comprised of seven voting members appointed by the president . the oversight board has broad budgetary and financial powers over puerto rico 's budget , laws , financial plans and regulations , including the power to approve restructuring agreements with creditors , file petitions for restructuring and reform the electronic system for the tax collection . the oversight board has ultimate authority in preparing the puerto rico government 's budget and any issuance of future debt by the government and its instrumentalities . in addition , promesa imposes an automatic stay on all litigation against puerto rico 33 and its instrumentalities , as well as any other judicial or administrative actions or proceedings to enforce or collect claims against the puerto rico government . on may 1 , 2017 , the automatic stay expired . promptly after the expiration of the stay , creditors of the puerto rico government filed various lawsuits involving defaults on more than $ 70 billion of bonds issued by puerto rico , having failed to reach a negotiated settlement on such defaults with the puerto rico government during the period of the automatic stay . on may 3 , 2017 , the oversight board filed a voluntary petition of relief on behalf of the commonwealth pursuant to title iii of promesa for the restructuring of the commonwealth 's debt . subsequently , the oversight board filed voluntary petitions of relief pursuant to title iii of promesa on behalf certain public corporations and instrumentalities . story_separator_special_tag title iii is an in-court debt restructuring proceeding similar to protections afforded debtors under chapter 11 of the united states code ( the “ bankruptcy code ” ) ; the bankruptcy code is not available to the commonwealth or its instrumentalities . as the solution to the puerto rican government 's debt crisis remains unclear , we continue to carefully monitor our receivables with the government as well as monitor general economic trends to understand the impact the crisis has on the economy of puerto rico and our card payment volumes . to date our receivables with the puerto rican government and overall payment transaction volumes have not been significantly affected by the debt crisis ; however ; we remain cautious . in the aftermath of the 2017 hurricanes , economic activity and consumer spending in puerto rico and the virgin islands has been erratic . for the year ended december 31 , 2018 , we experienced elevated sales volumes as consumers and businesses spent on hurricane recovery and rebuilding activities . this spending increased our merchant acquiring revenues and we believe our elevated sales volume was in large part driven by a stimulus of relief funding and private insurance proceeds received by consumers and businesses . we believe that this pattern will likely continue through 2019 as incremental insurance and relief funds are projected to be received by consumers and businesses . in addition to the macroeconomic trends described above , management currently estimates that we will continue to experience a revenue attrition in latin america of approximately $ 3 million to $ 5 million for previously disclosed migrations anticipated in 2019. clients ' decision to migrate , which were made prior to 2015 , were driven by a variety of historical factors , including primarily a desire to enhance customer service experience . management believes that these customer decisions are unlikely to change ; however , the timing of the migration is subject to change based on each customer 's conversion schedule . critical accounting estimates our consolidated financial statements are prepared in accordance with gaap . in connection with the preparation of our financial statements , we are required to make estimates and assumptions about future events , and apply judgments that affect the reported amounts of certain assets and liabilities , and in some instances , the reported amounts of revenues and expenses during the period . we base our assumptions , estimates , and judgments on historical experience , current events and other factors that management believes to be relevant at the time our consolidated financial statements are prepared . however , because future events are inherently uncertain and their effects can not be determined with certainty , actual results could differ from our assumptions and estimates , and such differences could be material . a summary of significant accounting policies is included in note 1 of the notes to audited consolidated financial statements appearing elsewhere in this annual report on form 10-k. we believe that the following accounting estimates are the most critical ; require the most difficult , subjective or complex judgments ; and thus result in estimates that are inherently uncertain . revenue recognition the company 's revenue recognition policy follows the guidance from accounting standards codification ( `` asc ' ) 606 , revenue from contracts with customers , which provide guidance on the recognition , presentation , and disclosure of revenue from contracts with customers in consolidated financial statements . the company recognizes revenue when ( or as ) control of goods or services are transferred to a customer . the transfer of control occurs when the customer can direct the use of and receive substantially all the benefits from the transferred good or service . therefore , revenue is recognized over time ( typically for services ) or at a point in time ( typically for goods ) . the assessment of revenue recognition is performed by the company based on the five-step model established in topic 606 , as follows : step 1 : identify the contract with customer ; step 2 : identify the performance obligations in the contract ; step 3 : determine the transaction price ; step 4 : allocate the transaction price to the performance obligations in the contract ; and step 5 : recognize revenue when or as the entity satisfies a performance obligation . 34 at contract inception , the company evaluates whether the contract ( i ) is legally enforceable ; ( ii ) approved by both parties ; ( iii ) properly defines rights and obligations of the parties , including payment terms ; ( iv ) has commercial substance ; and ( v ) collection of substantially all consideration entitled is probable , before proceeding with the assessment of revenue recognition . if any of these requirements is not met , the contract does not exist for purposes of the model and any consideration received is recorded as a liability . a reassessment may be performed in a later date upon change in facts and circumstances . the company also evaluates within this step if contracts issued within a period of 6 months with the same customer should be accounted for as a single contract . the company 's contracts with customers may be modified through amendments , change requests and waivers . upon receipt , modifications of contracts with customers are evaluated to determine if must be accounted for : ( i ) as a separate contract , ( ii ) a cumulative catch-up , or ( iii ) as a termination and creation of a new contract . contract modifications must also comply with the requirements to determine if a contract with a customer exists for accounting purposes . to identify performance obligations within contracts with customers , the company first identifies all the promises in the contract ( i.e. , explicit and implicit ) . this includes the customer 's options to acquire additional goods or services for free or at a discount in exchange for an upfront payment .
| the increase in cost of revenue is primarily related to $ 12.8 million in charges taken in connection with an exit activity for a third party software solution that was no longer commercially viable and a $ 5.0 million impairment loss related to a software asset under development . the remaining increase was primarily attributable to the acquisition of the business formerly known as paygroup . selling , general and administrative selling , general and administrative expenses in 2018 increased $ 12.6 million or 22 % when compared with 2017. the increase is mainly driven by an increase in share based compensation expense , added salaries from the acquisition of the business formerly known as paygroup , $ 3.5 million in expenses incurred in connection with the company 's refinancing of outstanding long-term debt and an increase in professional fees . selling , general and administrative expenses in 2017 increased $ 9.2 million when compared with 2016. the increase is primarily related to an increase in share based compensation , expenses related to the paygroup acquisition and an increase in payroll and other taxes in our latin america operations . depreciation and amortization depreciation and amortization expense decreased by $ 1.2 million in 2018 compared to 2017 primarily driven by lower amortization from software packages related to software that became fully amortized during the year . depreciation and amortization expense increased by $ 4.7 million in 2017 compared to 2016 mainly related to an increase in amortization expense related to intangible assets acquired as part of business combinations completed in the prior and current year . non-operating income ( expenses ) replace_table_token_4_th total non-operating expenses in 2018 remained relatively flat at $ 26.0 million when compared to 2017 . other income , net is comprised of $ 2.7 million in foreign currency transaction gains , $ 1.8 million from federal relief funds received in connection with wages paid in the aftermath of hurricane maria , partially offset by a $ 2.6 million loss on extinguishment of
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this rise in healthcare costs has driven a broad transition from consumption-based payment models to quality and value-based payment models across the healthcare landscape . as a result , the specific disease and comorbidity status , clinical and quality outcomes , resource utilization , and care details of the individual patient have become increasingly relevant to the various constituents across the healthcare delivery system . concurrently , the count and complexity of diseases , diagnostics , and treatments—as well as payment models and regulatory oversight requirements—have soared . in this setting , granular data has become critical to determining and improving quality and financial performance in healthcare . our more 2 registry ® is our largest principal dataset and serves as a proxy for our general growth of datasets within inovalon . the growth of our datasets that inform our analytical capabilities and comparative analytics is a key aspect of our provision of value to our clients and is indicative of our overall growth and capabilities . innovation and platform development . our business model is based upon our ability to deliver value to our clients through our platform solutions and related services focused on the achievement of meaningful and measurable improvements in clinical quality outcomes and financial performance in healthcare . our ability to deliver this value is dependent in part on our ability to continue to innovate , design new capabilities , enter into new agreements with clients for new platforms , and bring these capabilities to market in an enterprise scale . our continued ability to innovate our platform and bring differentiated capabilities to market is an important aspect of our business success . our investment in innovation includes costs for research and development , capitalized software development , and capital expenditures related to hardware and software platforms on which our platform solutions are deployed as summarized below ( in thousands , except percentages ) . replace_table_token_4_th _ ( 1 ) research and development primarily includes employee costs related to the development and enhancement of our service offerings . ( 2 ) capitalized software development includes capitalized costs incurred to develop and enhance functionality for our platform solutions . ( 3 ) research and development infrastructure investments include strategic capital expenditures related to hardware and software platforms under development or enhancement . mix of subscription-based platform offerings and legacy solutions . in 2018 , we executed an intentional transition in our offering portfolio from legacy platform solutions to subscription-based cloud-based platform offerings with add-on advisory services . subscription-based cloud-based platform offerings are generally defined as modular , cloud-based solutions that utilize dynamic , high-speed cloud-based compute and storage , offer enhanced data visualization capabilities , and are tied to subscription-based contract structures where revenue is predominantly based on factors such as the number of patients under contract or similar relevant metrics ( e.g. , the number of prescriptions issued ) , the size of the client , and or a specific period of time . additionally , in 2019 we expanded our offerings of cloud-based saas solutions enabled by the inovalon one ® platform which utilize artificial intelligence and machine learning application . legacy platform solutions are generally defined as solutions historically not cloud- 35 based in nature and not tied to subscription-based contract structures . we believe subscription-based cloud-based platform offerings provide more advanced capabilities , higher value , and greater visibility to clients , as well as improved visibility , market differentiation , and financial performance for us . we expect that subscription-based cloud-based platform offerings will continue to represent an increasing share of our total revenue , contributing to an increasing base of recurring revenue . additionally , through the ability acquisition in april 2018 , we expanded our subscription-based cloud-based platform offering revenues and we continue to achieve revenue synergies realized through i ) the infusion of inovalon 's data and analytics into ability 's existing offerings , ii ) the combination of the inovalon one ® platform and my ability ® platform capabilities to introduce new and more vertically integrated offerings which appeal to both organizations ' traditional market base , iii ) the enhancement of inovalon 's offerings from ability 's provider point-of-care data , connectivity , and workflow presence , and iv ) the leveraging of ability 's sales channel , techniques and capacity . breadth of healthcare industry connectivity . the healthcare industry is undergoing a significant transition as it becomes increasingly data-driven . as part of this transition , participants across the healthcare industry , including health plans , pharmaceutical companies , medical device manufacturers , and diagnostic companies , are increasingly interested in achieving timely and seamless access to relevant data and being able to drive impact directly with providers and their patients . concurrently , providers are also increasingly interested in access to more advanced analytical tools to support and improve their clinical and financial performance . enhancing and expanding our industry connectivity with payer administrative systems , provider facilities , diagnostic systems , pharmacy systems , healthcare industry systems ( e.g. , electronic healthcare record systems , health information exchange systems , claims processing systems , decision support systems , etc . ) , and other healthcare clinical and business systems , offers the potential for increased differentiation in the healthcare marketplace as well as improved efficiency of our operations . client and analytical process count growth . our business is generally driven by the number of underlying patients for which our platform solutions are being utilized . as such , we track the number of analytical processes that we run on patients each month in fulfillment of our client contracts , as totaled for the trailing 12 months . we believe that pam is indicative of our overall level of analytical activity , and we expect our period-to-period comparisons of our pam to be indicative of underlying growth of our business , although changes in levels of analytical activity do not always directly translate to changes in financial performance of our business . story_separator_special_tag differences in fees charged for different analytical packages exist and differences in how analytics trigger the applicability of our data-driven intervention toolsets may result in increases in analytical activity that do not result in proportional increases in revenue , or net income ( and vice versa ) . therefore , in situations in which a new engagement is initiated for analytical processes that have a higher than average fee rate , revenue could expand disproportionately faster than the increase in pam . likewise , if engagements for analytical processes that have a higher than average fee rate are concluded then such conclusions can negatively affect revenue disproportionately more than pam . seasonality . the nature of our customers ' end-market results in partial seasonality reflected in both revenue and cost of revenue differences during the year . regulatory impact of data submission deadlines in , for example , january , march , june , and september drive some degree of predictable timing of analytics and data processing activity variances from quarter to quarter . further , regulatory clinical encounter deadlines of june 30th and december 31st drive predictable data-driven intervention toolset concentrations variances from quarter to quarter . the timing of these factors results in analytical and data-driven intervention toolset activity mix variances , which have limited predictable impact in the aggregate on our financial performance from quarter to quarter . however , quarter to quarter financial performance may increasingly vary from historical seasonal trends as we continue to expand into adjacent markets and increase the portion of our revenue generated from new offerings . further , we also expect the impact of seasonality to decrease over time as we expand our mix of revenue generated from a subscription-based model . the timing of new contract signings and their respective implementations can also lead to variances in our seasonal revenue performance . regulatory , economic and industry trends . our clients are affected , sometimes directly and sometimes counter-intuitively , by macro-economic trends such as economic growth ( or economic recession ) , inflation , and unemployment . further , industry trends in federal and state laws and regulations , as well as emerging trends in private sector payment models , affect our clients ' businesses and their need for technologies and services to support these challenges . these factors have various effects on our business , and on occasion have resulted in the slowing or cessation of the decision-making process by clients adopting our technologies and services . on the other hand , changes in macro-economic trends and the industry landscape have accelerated the need for our technologies and services from time-to-time , particularly as regulators introduce complex requirements with which our clients must comply . components of results of operations revenue we earn revenue primarily through the sale or subscription licensing of our platform solutions , as well as revenue from related arrangements for advisory , implementation , and support services . platform solutions include arrangements for technology-based offerings representing subscription-based cloud-based platform offerings , including solutions offered through the my ability ® software platform , and legacy platform solutions that are not 36 cloud-based and not billed under a subscription-based contract structure . our platform solutions revenue is driven primarily by cloud-based data connectivity , analytics , data-driven intervention toolsets , and visualization software that enables the identification and resolution of gaps in care , quality , utilization , compliance , and or other gaps that may impact our clients ' achievement of greater healthcare quality and financial performance associated with value-based care . revenue is predominantly based on the number of clients , the number of patients or similar relevant metrics ( e.g. , the number of prescriptions issued ) , the size of the client , the number of analytical services contracted for by a client and the contractually negotiated price of such services . additionally , revenue is based on the number of identified and or resolved gaps in care , quality , utilization , compliance , and or other gaps resulting from our analytical services at a contractually negotiated transactional price for each identified and or resolved gap . the majority of our platform solutions contracts contain a series of separately identifiable and distinct services that represent performance obligations that are satisfied over time . revenue is allocated to platform solutions by determining the standalone selling price of each performance obligation . revenue is generally recognized on our platform offerings over the contract term . for certain contracts , we have determined that we will recognize revenue when we have the right to invoice . as our platform solutions are increasingly integrated into our clients ' operations , the timing and delivery of implementations vary . service revenue represents revenue that is generated from strategic advisory , implementation and support services . revenue from our services arrangements is generally provided under time and materials , fixed-price , or retainer-based contracts , based on agreed upon billing rates applied to direct labor hours expended plus the costs of other items used in the performance of the contract . we recognize revenue when we have the right to invoice the customer using the allowable practical expedient since the right to invoice the customer corresponds with the performance obligations completed . revenues under fixed-price and retainer-based contracts are recognized ratably over the contract period or upon contract completion . cost of revenue cost of revenue consists primarily of expenses for employees who provide direct contractual services to our clients , including salaries , benefits , discretionary incentive compensation , employment taxes , severance , and equity compensation costs . cost of revenue also includes expenses associated with the integration , and verification of data and other service costs incurred to fulfill our revenue contracts . cost of revenue does not include allocated amounts for occupancy expense and depreciation and amortization . many of the elements of our cost of revenue are relatively variable and semi-variable , and can be reduced in the near-term to help offset any decline in our revenue .
| the increase in cost of revenue was primarily attributable to an increase in employee-related expense and third-party client-servicing expense , which together contributed $ 16.5 million , and incremental cost of revenue of $ 5.0 million attributable to the acquired business of ability , through the anniversary date of the acquisition . cost of revenue as a percentage of revenue was 26 % and 28 % for the years ended december 31 , 2019 and 2018 , respectively . sales and marketing during the year ended december 31 , 2019 , sales and marketing expense increased by $ 16.9 million , or 37 % , compared with the year ended december 31 , 2018 . the increase was primarily attributable to an increase in employee-related expense of $ 8.7 million , incremental expense of $ 5.3 million attributable to the acquired business of ability , through the anniversary date of the acquisition , and an increase in advertising expense of $ 2.1 million . sales and marketing expense as a percentage of revenue was 10 % and 9 % for the years ended december 31 , 2019 and 2018 , respectively . research and development during the year ended december 31 , 2019 , research and development expense increased by $ 5.0 million , or 18 % , compared with the year ended december 31 , 2018 . the increase was primarily attributable to incremental expense of $ 2.5 million attributable to the acquired business of ability , through the anniversary date of the acquisition , an increase in employee-related expense of $ 1.6 million , and an increase in professional third-party costs of $ 1.1 million . 40 general and administrative during the year ended december 31 , 2019 , general and administrative expense decreased by $ 4.3 million , or 2 % , compared with the year ended december 31 , 2018 . the decrease was primarily attributable to an adjustment in the prior year to increase the fair value of contingent consideration that was not
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by : gianluca cicogna mozzoni gianluca cicogna mozzoni director date : march 21 , 2012 -22- story_separator_special_tag historical losses as shown in the consolidated financial statements included in this report , we incurred a loss of $ 45,554 in 2011 and $ 49,977 in 2010 , and had an accumulated deficit of $ 5,050,857 and $ 5,005,303 at december 31 , 2011 and december 31 , 2010 , respectively . because of the dissolution of the business and the liquidation of all liabilities , our current business objective for the next 12 months is to investigate and , if such investigation warrants , acquire a target company or business seeking the perceived advantages of being a publicly held corporation . we will not restrict our potential candidate target companies to any specific business , industry or geographical location and , thus , may acquire any type of business . operational strategy and trends we do not currently engage in any business activities that provide us with positive cash flows . as such , the costs of investigating and analyzing business combinations for the next approximately 12 months and beyond will be paid through funds from financing to be obtained . -11- during the next 12 months , we anticipate incurring costs related to filing sec reports and costs relating to consummating a possible acquisition . we believe we will be able to meet these costs with amounts to be loaned to or invested in us by our stockholders or other investors , although we have no such agreement or other commitment in place . we may consider a business which has recently commenced operations , is a developing company in need of additional funds for expansion into new products or markets , is seeking to develop a new product or service , or is an established business which may be experiencing financial or operating difficulties and is in need of additional capital . in the alternative , a business combination may involve the acquisition of , or merger with , a company which does not need substantial additional capital , but which desires to establish a public trading market for its shares , while avoiding , among other things , the time delays , significant expense , and loss of voting control which may occur in a public offering . any target business that is selected may be a financially unstable company or an entity in its early stages of development or growth , including entities without established records of sales or earnings . in that event , we will be subject to numerous risks inherent in the business and operations of financially unstable and early stage or potential emerging growth companies . in addition , we may effect a business combination with an entity in an industry characterized by a high level of risk , and , although our management will endeavor to evaluate the risks inherent in a particular target business , there can be no assurance that we will properly ascertain or assess all significant risks . story_separator_special_tag judgments about 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 . off-balance sheet arrangements we have no off-balance sheet arrangements , obligations under any guarantee contracts or contingent obligations . we also have no other commitments , other than the costs of being a public company that will increase our operating costs or cash requirements in the future . recent accounting pronouncements in may 2011 , fasb issued asu no . 2011-04 “ fair value measurement ( topic 820 ) : amendments to achieve common fair value measurement and disclosure requirements in u.s. gaap and ifrss. ” the amendments in this update result in common fair value measurement and disclosure requirements in u.s. gaap and ifrss . consequently , the amendments change the wording used to describe many of the requirements in u.s. gaap for measuring fair value and for disclosing information about fair value measurements . some of the amendments clarify the board 's intent about the application of existing fair value measurement requirements . other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements . asu 2011-04 shall be effective for public entities for interim and annual periods beginning after december 15 , 2011 , and should be applied prospectively . early adoption is not permitted for public entities . for nonpublic entities , the amendments are effective for annual periods beginning after december 15 , 2011 , and should be applied prospectively . nonpublic entities may elect to apply the amendments early , but no earlier than interim periods beginning after december 15 , 2011. we do not expect that the adoption of asu 2011-04 will have a material effect on our financial statements . in june 2011 , fasb issued asu no . 2011-05 “ comprehensive income ( topic 220 ) : presentation of comprehensive income. ” under the amendments to topic 220 , “ comprehensive income , ” in this update , an entity has the option to present the total of comprehensive income , the components of net income , and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements . in both choices , an entity is required to present each component of net income along with total net income , each component of other comprehensive income along with a total for other comprehensive income , and a total amount for comprehensive income . the amendments in this update should be applied retrospectively . for public entities , the amendments are effective for fiscal years , and interim periods within those years , beginning after december 15 , 2011. for nonpublic entities , the amendments are effective for fiscal years ending after december 15 , 2012 , and interim and story_separator_special_tag by : gianluca cicogna mozzoni gianluca cicogna mozzoni director date : march 21 , 2012 -22- story_separator_special_tag historical losses as shown in the consolidated financial statements included in this report , we incurred a loss of $ 45,554 in 2011 and $ 49,977 in 2010 , and had an accumulated deficit of $ 5,050,857 and $ 5,005,303 at december 31 , 2011 and december 31 , 2010 , respectively . because of the dissolution of the business and the liquidation of all liabilities , our current business objective for the next 12 months is to investigate and , if such investigation warrants , acquire a target company or business seeking the perceived advantages of being a publicly held corporation . we will not restrict our potential candidate target companies to any specific business , industry or geographical location and , thus , may acquire any type of business . operational strategy and trends we do not currently engage in any business activities that provide us with positive cash flows . as such , the costs of investigating and analyzing business combinations for the next approximately 12 months and beyond will be paid through funds from financing to be obtained . -11- during the next 12 months , we anticipate incurring costs related to filing sec reports and costs relating to consummating a possible acquisition . we believe we will be able to meet these costs with amounts to be loaned to or invested in us by our stockholders or other investors , although we have no such agreement or other commitment in place . we may consider a business which has recently commenced operations , is a developing company in need of additional funds for expansion into new products or markets , is seeking to develop a new product or service , or is an established business which may be experiencing financial or operating difficulties and is in need of additional capital . in the alternative , a business combination may involve the acquisition of , or merger with , a company which does not need substantial additional capital , but which desires to establish a public trading market for its shares , while avoiding , among other things , the time delays , significant expense , and loss of voting control which may occur in a public offering . any target business that is selected may be a financially unstable company or an entity in its early stages of development or growth , including entities without established records of sales or earnings . in that event , we will be subject to numerous risks inherent in the business and operations of financially unstable and early stage or potential emerging growth companies . in addition , we may effect a business combination with an entity in an industry characterized by a high level of risk , and , although our management will endeavor to evaluate the risks inherent in a particular target business , there can be no assurance that we will properly ascertain or assess all significant risks . story_separator_special_tag judgments about 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 . off-balance sheet arrangements we have no off-balance sheet arrangements , obligations under any guarantee contracts or contingent obligations . we also have no other commitments , other than the costs of being a public company that will increase our operating costs or cash requirements in the future . recent accounting pronouncements in may 2011 , fasb issued asu no . 2011-04 “ fair value measurement ( topic 820 ) : amendments to achieve common fair value measurement and disclosure requirements in u.s. gaap and ifrss. ” the amendments in this update result in common fair value measurement and disclosure requirements in u.s. gaap and ifrss . consequently , the amendments change the wording used to describe many of the requirements in u.s. gaap for measuring fair value and for disclosing information about fair value measurements . some of the amendments clarify the board 's intent about the application of existing fair value measurement requirements . other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements . asu 2011-04 shall be effective for public entities for interim and annual periods beginning after december 15 , 2011 , and should be applied prospectively . early adoption is not permitted for public entities . for nonpublic entities , the amendments are effective for annual periods beginning after december 15 , 2011 , and should be applied prospectively . nonpublic entities may elect to apply the amendments early , but no earlier than interim periods beginning after december 15 , 2011. we do not expect that the adoption of asu 2011-04 will have a material effect on our financial statements . in june 2011 , fasb issued asu no . 2011-05 “ comprehensive income ( topic 220 ) : presentation of comprehensive income. ” under the amendments to topic 220 , “ comprehensive income , ” in this update , an entity has the option to present the total of comprehensive income , the components of net income , and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements . in both choices , an entity is required to present each component of net income along with total net income , each component of other comprehensive income along with a total for other comprehensive income , and a total amount for comprehensive income . the amendments in this update should be applied retrospectively . for public entities , the amendments are effective for fiscal years , and interim periods within those years , beginning after december 15 , 2011. for nonpublic entities , the amendments are effective for fiscal years ending after december 15 , 2012 , and interim and
| the principal and accrued interest under these notes were converted into 201,400 shares of common stock on march 15 , 2012. future private capital , if sought , will be sought from management and private investors referred to us by management . to date , we have not sought any significant funding source and have not authorized any person or entity to seek out funding on our behalf . if a market for our shares ever develops , of which there can be no assurance , we may use restricted shares of our common stock to compensate employees/consultants and independent contractors wherever possible . based on our available cash of approximately $ 511 on december 31 , 2011 , we do not have adequate cash on hand to cover our anticipated expenses for the next 12 months . if we fail to raise a significant amount of capital , we may need to significantly curtail or cease operations in the near future . these conditions have caused our auditors to raise substantial doubt about our ability to continue as a going concern . consequently , the audit report prepared by our independent public accounting firm relating to our financial statements for the year ended december 31 , 2011 included a going concern explanatory paragraph . -12- we have become a public company and , by doing so , have incurred and will continue to incur additional significant expenses for legal , accounting and related services . since we became a public entity , subject to the reporting requirements of the securities exchange act of 1934 , we are incurring ongoing expenses associated with professional fees for accounting , legal and a host of other expenses for annual reports and proxy statements . these obligations will reduce our ability and resources to fund other aspects of our business . we will reduce the compensation levels paid to management if there is insufficient cash generated from operations to satisfy these costs . there are no current plans to seek private investment . we do not have any
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our investments and partnerships provide us the grounding to deliver cloud capabilities now and in the future . market sizing data from ovum indicates that spend on saas and paas payment systems is growing faster than spend on installed applications . electronic payments fraud and compliance . as electronic payment transaction volumes increase , organized criminal organizations continue to find ways to commit a growing volume of fraudulent transactions using a wide range of techniques . banks , financial intermediaries , merchants , and billers continue to seek ways to leverage new technologies to identify and prevent fraudulent transactions and other attacks such as denial of service attacks . due to concerns with international terrorism and money laundering , banks and financial intermediaries in particular are being faced with increasing scrutiny and regulatory pressures . we continue to see opportunity to offer our fraud detection solutions to help customers manage the growing levels of electronic payments fraud and compliance activity . adoption of smartcard technology . in many markets , card issuers are being required to issue new cards with embedded chip technology , with the liability shift having gone into effect in 2015 in the united states . chip-based cards are more secure , harder to copy , and offer the opportunity for multiple functions on one card ( e.g. , debit , credit , electronic purse , identification , health records , etc. ) . this results in greater card-not-present fraud ( e.g. , fraud at ecommerce sites ) . single euro payments area ( sepa ) . the sepa , primarily focused on the european economic community and the u.k. , is designed to facilitate lower costs for cross-border payments and reduce timeframes for settling electronic payment transactions . the transition to sepa payment mechanisms will drive more volume to these systems with the potential to cause banks to review the capabilities of the systems supporting these payments . our retail payments and real-time payments solutions facilitate key functions that help banks and financial intermediaries address these mandated regulations . 27 european payment service directive ( psd2 ) . psd2 , which was ratified by the european parliament in 2015 , required member states to implement new payment regulations in 2018. the xs2a provision effectively creates a new market opportunity where banks in european union member countries must provide open api standards to customer data , thus allowing authorized third-party providers to enter the market . financial institution consolidation . consolidation continues on a national and international basis , as financial institutions seek to add market share and increase overall efficiency . such consolidations have increased , and may continue to increase , in their number , size , and market impact as a result of recent economic conditions affecting the banking and financial industries . there are several potential negative effects of increased consolidation activity . continuing consolidation of financial institutions may result in a smaller number of existing and potential customers for our products and services . consolidation of two of our customers could result in reduced revenues if the combined entity were to negotiate greater volume discounts or discontinue use of certain of our products . additionally , if a non-customer and a customer combine and the combined entity decides to forego future use of our products , our revenue would decline . conversely , we could benefit from the combination of a non-customer and a customer when the combined entity continues use of our products and , as a larger combined entity , increases its demand for our products and services . we tend to focus on larger financial institutions as customers , often resulting in our solutions being the solutions that survive in the consolidated entity . global vendor sourcing . global and regional banks , financial intermediaries , merchants , and billers are aiming to reduce the costs in supplier management by picking suppliers who can service them across all their geographies instead of allowing each country operation to choose suppliers independently . our global footprint from both a customer and a delivery perspective enable us to be successful in this globally sourced market . however , projects in these environments tend to be more complex and therefore of higher risk . electronic payments convergence . as electronic payment volumes grow and pressures to lower overall cost per transaction increase , banks and financial intermediaries are seeking methods to consolidate their payment processing across the enterprise . we believe that the strategy of using soa to allow for re-use of common electronic payment functions , such as authentication , authorization , routing and settlement , will become more common . using these techniques , banks and financial intermediaries will be able to reduce costs , increase overall service levels , enable one-to-one marketing in multiple bank channels , leverage volumes for improved pricing and liquidity , and manage enterprise risk . our product strategy is , in part , focused on this trend , by creating integrated payment functions that can be re-used by multiple bank channels , across both the consumer and wholesale bank . while this trend presents an opportunity for us , it may also expand the competition from third-party electronic payment technology and service providers specializing in other forms of electronic payments . many of these providers are larger than us and have significantly greater financial , technical and marketing resources . mobile banking and payments . there is a growing demand for the ability to carry out banking services or make payments using a mobile phone . according to analysis from the deloitte center for financial services in 2018 , 84 % of global consumers use online banking and 72 % use mobile banking applications . additionally , digital channels are used more frequently than bank branches and atms across all generations and in all countries . our customers have been making use of existing products to deploy mobile banking , mobile payments , and mobile commerce solutions for their customers in many countries . story_separator_special_tag in addition , aci has invested in mobile products of our own and via partnerships to support mobile functionality in the marketplace . electronic bill payment and presentment . ebpp encompasses all facets of bill payment , including biller direct , where customers initiate payments on biller websites , the consolidator model , where customers initiate payments on a financial institution 's website , and walk-in bill payment , as one might find in a convenience store . the ebpp market continues to grow as consumers move away from traditional forms of paper-based payments . nearly three out of four ( 73 % ) online payments are made at the billers ' sites rather than through banking websites . the biller-direct solutions are seeing strong growth as billers migrate these services to outsourcers , such as aci , from legacy systems built in house . we believe that ebpp remains ripe for outsourcing , as a significant amount of biller-direct transactions are still processed in house . as billers seek to manage costs and improve efficiency , we believe that they will continue to look to third-party ebpp vendors that can offer a complete solution for their billing needs . several other factors related to our business may have a significant impact on our operating results from year to year . for example , the accounting rules governing the timing of revenue recognition are complex and it can be difficult to estimate when we will recognize revenue generated by a given transaction . factors such as creditworthiness of the customer and timing of transfer of control or acceptance of our products may cause revenues related to sales generated in one period to be deferred and recognized in later periods . for arrangements in which services revenue is deferred , related direct and incremental costs may also be deferred . additionally , while the majority of our contracts are denominated in the u.s. dollar , a substantial portion of our sales are made , and some of our expenses are incurred , in the local currency of countries other than the united states . fluctuations in currency exchange rates in a given period may result in the recognition of gains or losses for that period . 28 we continue to seek ways to grow through organic sources , partnerships , alliances , and acquisitions . we continually look for potential acquisitions designed to improve our solutions ' breadth or provide access to new markets . as part of our acquisition strategy , we seek acquisition candidates that are strategic , capable of being integrated into our operating environment , and accretive to our financial performance . chief executive officer on february 18 , 2020 , we announced the appointment of odilon almeida as the company 's new president and chief executive officer , effective march 9 , 2020. mr. almeida will also be appointed to serve as a member of aci 's board of directors . acquisition speedpay on may 9 , 2019 , we acquired speedpay for $ 754.1 million in cash , including working capital adjustments , pursuant to a stock purchase agreement , among the company , western union , and aci worldwide corp. , our wholly owned subsidiary . to fund the acquisition , we amended our existing credit agreement , dated february 24 , 2017 , for an additional $ 500.0 million senior secured term loan , in addition to drawing $ 250.0 million on the available revolving credit facility . see note 5 , debt , to our notes to consolidated financial statements in part iv , item 15 of this form 10-k for terms of the credit agreement . the remaining acquisition consideration was funded with cash on hand . backlog backlog is comprised of : committed backlog , which includes ( 1 ) contracted revenue that will be recognized in future periods ( contracted but not recognized ) from software license fees , maintenance fees , services fees , and saas and paas fees specified in executed contracts ( including estimates of variable consideration if required under asc 606 ) and included in the transaction price for those contracts , which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods and ( 2 ) estimated future revenues from software license fees , maintenance fees , services fees , and saas and paas fees specified in executed contracts . renewal backlog , which includes estimated future revenues from assumed contract renewals to the extent we believe recognition of the related revenue will occur within the corresponding backlog period . we have historically included assumed renewals in backlog estimates based upon automatic renewal provisions in the executed contract and our historic experience with customer renewal rates . our 60-month backlog estimates are derived using the following key assumptions : license arrangements are assumed to renew at the end of their committed term or under the renewal option stated in the contract at a rate consistent with historical experience . if the license arrangement includes extended payment terms , the renewal estimate is adjusted for the effects of a significant financing component . maintenance fees are assumed to exist for the duration of the license term for those contracts in which the committed maintenance term is less than the committed license term . saas and paas arrangements are assumed to renew at the end of their committed term at a rate consistent with our historical experiences . foreign currency exchange rates are assumed to remain constant over the 60-month backlog period for those contracts stated in currencies other than the u.s. dollar . our pricing policies and practices are assumed to remain constant over the 60-month backlog period . in computing our 60-month backlog estimate , the following items are specifically not taken into account : anticipated increases in transaction , account , or processing volumes by our customers . optional annual uplifts or inflationary increases in recurring fees . services engagements , other than saas and paas arrangements , are not assumed to renew over the 60-month backlog period .
| under the program to date , we have repurchased 45,357,495 shares for approximately $ 583.4 million . as of december 31 , 2019 , the maximum remaining amount authorized for purchase under the stock repurchase program was approximately $ 141.0 million . see note 7 , common stock and treasury stock , to our notes to consolidated financial statements in part iv , item 15 of this form 10-k for additional information . contractual obligations and commercial commitments we lease office space and equipment under operating leases that run through october 2028 . additionally , we have entered into a credit agreement that matures in april 2024 and have issued senior notes that mature in august 2026 . 38 contractual obligations as of december 31 , 2019 , are as follows ( in thousands ) : replace_table_token_9_th ( 1 ) based on the term loans debt outstanding and interest rate in effect at december 31 , 2019 , of 4.05 % . ( 2 ) based on revolving credit facility debt outstanding and interest rate in effect at december 31 , 2019 , of 3.99 % . ( 3 ) based on 2026 notes issued of $ 400.0 million with an annual interest rate of 5.750 % . ( 4 ) during the year ended december 31 , 2019 , we financed certain multi-year license agreements for internal-use software for $ 10.4 million with annual payments through april 1 , 2022 . as of december 31 , 2019 , $ 13.8 million is outstanding under these and other agreements previously entered into , of which $ 6.0 million and $ 7.8 million is included in other current liabilities and other noncurrent liabilities , respectively , in our consolidated balance sheet in part iv , item 15 of this form 10-k as of december 31 , 2019 . we are unable to reasonably estimate the ultimate amount or timing of settlement of our reserves for income taxes under asc 740 , income taxes . the liability for unrecognized tax benefits at december 31 , 2019 , is
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operating segment overview since the consummation of the business combination with morinda in december 2018 , our operating segments have consisted of the noni by newage segment and the newage segment . upon completion of the business combination with ariix , which comprised a portion of the noni by newage segment , we rebranded this segment as the direct / social selling segment to better reflect the overall characteristics shared by the business units that comprise this segment . 25 the net revenue and total assets of the direct / social selling segment increased significantly with the closing of our acquisition of ariix on november 16 , 2020. the direct / social selling segment is engaged in the development , manufacturing , and marketing of products in three core category platforms including health and wellness , healthy appearance , and nutritional performance . the direct /direct / social selling segment has manufacturing operations in tahiti , germany , japan , the united states , and china . the direct / social selling segment 's products are sold and distributed in more than 50 countries using brand partners through our direct-to-consumer selling network and e-commerce business model . over 60 % of the net revenue of the direct /direct / social selling segment is generated in the key asia pacific markets of japan , china , taiwan , and indonesia . on july 10 , 2019 , we completed a business combination with brands within reach , llc ( “ bwr ” ) whereby bwr became a wholly owned subsidiary . with the changing economics in the retail brand beverage sector exacerbated by covid-19 , on september 24 , 2020 , we sold bwr and the related rights to the brands with substantially all of our u.s. retail brands to focus on the more profitable , larger scale , higher potential direct /direct / social selling segment of our business . bwr and the u.s. retail brands are included in the direct store segment from the date of acquisition through the disposal date and are referred to herein as the “ divested business ” . for periods after disposal of the divested business , the direct store segment is primarily comprised of our dsd network that distributes snacks , beverages , and other products direct to stores in colorado and surrounding states , to wholesale distributors , key account owned warehouses and international accounts using several distribution channels . in addition , the direct store segment includes substantially all of our corporate overhead activities . recent developments on november 16 , 2020 , we completed our business combination with ariix for total purchase consideration with an estimated fair value of approximately $ 155.1 million . ariix is an international direct selling business that provides products in the health and wellness industry for complete and balanced nutrition , weight loss management , water and air filtration , personal care products , essential oils , and anti-aging skincare . to fund the cash payments required under the amended and restated merger agreement with ariix , we replaced our debt agreement with east west bank on december 1 , 2020 through the completion of a private placement that included 8.00 % original issue discount senior secured notes with an initial principal balance of $ 32.4 million ( the “ senior notes ” ) , issuance of 800,000 shares of our common stock and issuance of warrants for an aggregate of 1.5 million shares of common stock . on january 29 , 2021 , we entered into a letter of clarification ( the “ clarification letter ” ) to the ariix merger agreement . the clarification letter explained the intent of the parties as of the ariix closing date whereby ( i ) a restricted cash account of ariix with a chinese bank that had a balance of $ 3.1 million as of the ariix closing date remained an asset of the sellers and , accordingly , was not conveyed to the company , and ( ii ) the number of shares of our common stock issuable to the sellers on the first anniversary of the closing date was reduced by 0.5 million shares . in addition , the impact of the $ 3.1 million reduction of restricted cash reduced the number of shares issuable by 0.6 million shares due to the impact of the working capital adjustment . on february 9 , 2021 , we notified roth capital partners llc of our election to terminate the atm agreement that was a significant source of liquidity in 2019 and 2020. on february 11 , 2021 , we entered into a sales agreement with a.g.p./alliance global partners but the maximum number of shares that may be sold pursuant to the sales agreement is currently limited to less than 3.0 million shares based on the number of authorized shares of common stock available as of february 28 , 2021. on february 16 , 2021 , we entered into a securities purchase agreement in connection with a private placement for an aggregate of approximately 14.6 million shares of common stock and warrants to purchase an aggregate of 7.3 million shares of our common stock . at the closing on february 22 , 2021 , we received gross proceeds of approximately $ 58.0 million . after deducting placement agent fees , we received net proceeds of approximately $ 53.9 million . on march 3 , 2021 , we entered into a modification and transition addendum to employment agreement and indemnification agreement with gregory a. gould , our chief financial officer ( the “ gould agreement ” ) . the gould agreement amends the employment agreement with mr. gould whereby he will continue to serve as our chief financial officer until july 2 , 2021. the agreement also modifies the indemnification agreement , dated december 28 , 2019 , between the company and mr. gould . story_separator_special_tag as part of the transition , mr. gould will receive additional cash compensation and a grant of stock options for 125,000 shares of common stock that vest on july 2 , 2021. on march 4 , 2021 , we entered into a letter of intent to acquire aliven inc. ( “ aliven ” ) , a japan-based direct selling company . aliven currently generates approximately $ 20 million in annualized net revenue with more than 100,000 customers and brand partners . aliven sells a portfolio of differentiated healthy products including skin care products infused with cultured stem cells , nutritional products , and their patented far-infrared technology products designed for reduction of localized pain . consideration for the acquisition of aliven is approximately 1.1 million shares of our common stock . completion of the proposed transaction is subject to negotiation and execution of a definitive agreement and the satisfaction of customary conditions to closing . these recent developments are discussed further under the caption liquidity and capital resources . key components of consolidated statements of operations net revenue . we recognize revenue when we satisfy our performance obligations and we transfer control of the promised products to our customers , which generally occurs over a very short period of time . performance obligations are typically satisfied by shipping or delivering products to customers , which is also the point when title transfers to customers . revenue consists of the gross sales price , net of estimated returns and allowances , discounts , and personal rebates that are accounted for as a reduction from the gross sale price . shipping and handling charges that are billed to customers are included as a component of revenue . cost of goods sold . cost of goods sold primarily consists of direct costs attributable to the purchase from third party suppliers or the internal manufacture of beverage products . it also includes freight costs , shrinkage , e-commerce fulfillment , distribution , and warehousing costs related to products sold . selling , general and administrative expenses . selling , general and administrative ( “ sg & a ” ) expenses consist primarily of personnel costs for our administrative , human resources , finance and accounting employees , and executives . general and administrative expenses also include contract labor and consulting costs , travel-related expenses , legal , auditing and other professional fees , rent and facilities costs , repairs and maintenance , advertising and marketing costs , and general corporate expenses . commissions . commissions earned by our brand partners are charged to expense in the same period that the related sales transactions are recognized . 26 depreciation and amortization expense . depreciation and amortization expense is comprised of depreciation expense related to property and equipment , amortization expense related to leasehold improvements , and amortization expense related to identifiable intangible assets . loss on disposal of divested business . in september 2020 , we sold our bwr reporting unit along with substantially all of our u.s. retail brands . the loss that resulted from the disposal is presented as a separate component of our operating expenses . business combination expenses . when we enter into business combinations , the acquisition-related transaction costs are accounted for as expenses in the periods in which such costs are incurred . a portion of the consideration in business combinations may be contingent on future operating performance of the acquired business or upon an event such as the approval of our stockholders . in these circumstances , we determine the fair value of the contingent consideration as a component of the purchase price , and all future changes in the fair value of our obligations are reflected as an adjustment to our operating expenses in the period in which the change is determined . in periods when the fair value of contingent consideration increases , we recognize an expense and when the fair value of contingent consideration decreases , we recognize a gain . impairment expense . we periodically consider if events and circumstances have occurred that would indicate if it is “ more likely than not ” that an impairment of our long-lived assets has occurred . we also perform an annual goodwill impairment evaluation during the fourth quarter of each calendar year . evaluating whether impairment exists involves substantial judgment and estimation . if we determine that impairment exists , we recognize an impairment charge to reduce the carrying value of the long-lived assets to the expected discounted cash flows associated with the impaired assets . interest expense . interest expense is incurred under our revolving credit facilities , term debt , senior notes , and other debt obligations . the components of interest expense include the amount of interest payable in cash at the stated interest rate , accretion and amortization of debt discounts and issuance costs , and “ make-whole ” premiums incurred and write-offs of debt discounts and issuance costs if we prepay the debt before the scheduled maturity date . gain ( loss ) on change in fair value of derivatives . we periodically enter into certain debt instruments that contain embedded derivatives that are required to be bifurcated and recorded at fair value . examples of embedded derivatives are provisions that require us to pay the lender default interest upon the existence of an event of default and to pay “ make-whole ” interest or premiums for certain mandatory and voluntary prepayments of the outstanding principal balance . we also may enter into interest rate swap agreements to effectively convert variable rate debt to fixed rate debt . we perform valuations of all material derivatives on a quarterly basis . changes in the fair value of derivatives are reflected as net non-operating gains or losses in our consolidated statements of operations . interest and other income ( expense ) , net . interest and other income ( expense ) , net consists of non-operating expenses offset by interest and other non-operating income . gain from sale of property and equipment .
| net revenue for the direct / social selling segment increased by $ 21.4 million from $ 200.7 million for the year ended december 31 , 2019 to $ 222.1 million for the year ended december 31 , 2020. this increase was attributable to $ 32.0 million of net revenue from the ariix reporting unit , partially offset by a reduction in net revenue of $ 10.6 million for the legacy portion of the direct / social selling segment . we believe the decrease in net revenue for the legacy portion of the direct / social selling segment was primarily caused by lower quantities of products purchased by consumers during the covid-19 pandemic and the related mass quarantines and government mandated stay-in-place orders that were in effect beginning in march 2020. our direct-to-consumer selling model typically relies heavily on the use of our brand partner sales force in close contact with our customers . however , the covid-19 pandemic required alternative selling approaches , such as through social media , which was less effective than in-person selling in certain regions . as a result , the legacy portion of the direct / social selling segment 's net revenue decreased by 5 % for the year ended december 31 , 2020. the geographic breakdown of this decrease was 18 % in china , 2 % in japan , and 11 % in all other foreign countries as a group . however , the legacy portion of the direct / social selling segment 's net revenue in the united states increased by 12 % for the year ended december 31 , 2020. in addition to the impact of covid-19 , we believe our net revenue in china related to the legacy portion of the direct / social selling segment was negatively impacted by the introduction in may 2020 of a new compensation plan for our brand partners , which typically results in tentative buying patterns until the mechanics of the new plan are fully understood . net
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while we saw these improvements in throughput and weather that was colder than last year by 10 % in maryland , 17 % in new jersey and 6 % in virginia , weather did not completely return to normal and consequently our earnings continue to be negatively impacted by warmer-than-normal weather . we attempt to stabilize and mitigate the impact to our earnings due to weather through hedging activities at southstar and through wna regulatory mechanisms in distribution operations . while our hedging activities in 2007 at southstar largely offset the negative impact to earnings due to weather that was warmer than normal , distribution operations earnings were negatively impacted by $ 9 million due to weather that was warmer than normal and because the wna regulatory mechanisms did not completely offset the negative impact to earnings from decreased consumption resulting from the warmer weather . these wna regulatory mechanisms are most effective in reasonable temperature ranges relative to normal weather using historical averages due in part to their inherent design but also due to customer consumption patterns that are affected by weather conditions other than temperature . these other weather conditions include wind , cloud cover , precipitation and the duration of colder weather , among others , that are not captured in weather normalization adjustments , which are based primarily on average temperatures . there are a number of legislative and regulatory proposals to address greenhouse gas emissions such as carbon dioxide , which are in various phases of discussion or implementation . we continue to actively monitor these proposals and discussions because the results could negatively impact our operations through reduced demand for natural gas and increased costs to our business . while we are unable to predict the outcome and quantify any impacts from these discussions and proposals at this point , we are active in promoting natural gas as the cleanest and most efficient burning fossil fuel with the lowest carbon content as compared to oil and coal . volatility in wholesale markets lower volatility in the natural gas markets , as compared to last year , has limited sequent 's asset optimization and arbitrage opportunities to generate operating margin in 2007. an important component of sequent 's business is its ability to capture operating margin based on seasonal and locational spreads , both of which were significantly reduced in 2007 as compared to 2006. we continue to expect less volatility in the natural gas markets and , therefore , we expect sequent 's abilities to capture economic value from asset optimization and arbitrage opportunities to be more consistent with those captured in 2007 as opposed to 2006 and 2005. operational efficiency and cost control we continue to focus on operating our business as efficiently as possible , especially within our distribution operations and corporate segments through control of our operating costs . one of the key metrics we monitor in distribution operations is our operation and maintenance expenses per customer that was $ 145 per customer for 2007 as compared to $ 156 per customer in 2006 , a 7 % decrease year-over-year . this decrease was largely driven by a decrease in incentive compensation for employees at distribution operations and corporate as compared to last year due to lower payouts resulting from lower earnings per share in 2007 as compared to our aip earning per share goals . additionally in 2006 our earnings per share results were at the top end of the goals under the aip , resulting in higher incentive compensation for 2006. we further utilize outside vendors to assist us with the execution of business processes that are ancillary to our delivery of natural gas and related to the performance of basic business functions . this allows us to control operating costs , increase the efficiency through which these functions are executed and improve our service levels to customers . most recently , we partnered with third parties in india to provide certain call center operations , as well as certain support functions related to information technology , finance , supply chain and engineering . 28 new market growth and regulatory opportunities the four previous operating priorities require us to actively and continuously monitor the emerging issues and trends within our current operations and industry to allow us to take advantage of opportunities that complement and add value to our existing business operations . in 2007 , we continued to expand sequent 's operations into the western united states and canada , as well as southstar 's operations into ohio and florida . further , in october 2007 , we acquired and have included within our wholesale services operating segment compass energy , which has enabled us to serve a broader geography of commercial and industrial customers . additionally , we continued to focus our efforts around our storage business , particularly our golden triangle storage underground natural gas storage project . we achieved a significant milestone in this project at the end of 2007 as the ferc issued an order granting a certificate of public convenience and necessity to construct and operate the underground storage project and approving market-based rates for the services golden triangle storage will provide . in january 2008 , we accepted the ferc 's certificate and expect construction to begin in the first half of 2008. in distribution operations , we were also successful with certain regulatory initiatives that are critical to the fundamentals of our business as they help to preserve the long-term success and earnings potential of our utility businesses . in september 2007 , we received approval from the georgia commission on our capacity supply plan in georgia , and a key part of that agreement was the ability to diversify our supply sources by gaining more access to the elba island lng facility . story_separator_special_tag as a result , we have negotiated an agreement with sng to obtain an undivided interest in pipelines connecting our georgia service territory to the elba island lng facility and have filed a joint application with the ferc for approval of the project , which is expected to cost $ 22 million . in october 2007 , the georgia commission approved the extension of the asset management agreement between sequent and atlanta gas light through march 2012. we are actively working with the respective commissions to renew or amend the existing agreements set to expire in 2008 in our other jurisdictions . in september 2007 , the virginia commission approved virginia natural gas ' wna rider for commercial customers that applies to the 2007 and 2008 heating seasons . in florida , we received approval from the florida commission in december 2007 to include the amortization of certain components of the purchase price we paid for florida city gas in our return on equity calculation for regulatory reporting purposes . additionally , the florida commission 's approval included provisions for a five-year stay out . as a result , florida city gas ' base rates will not change during this period , except for unforeseen events beyond our control and the florida commission initiating base rate proceedings . in november 2007 , elkton gas filed a base rate case with the maryland commission requesting a rate increase of less than $ 1 million . starting in 2009 through 2011 , we will be required to file base rate cases for atlanta gas light , virginia natural gas , elizabethtown gas and chattanooga gas . while we are unable to predict the outcome of these base rate proceedings , we will focus on incorporating and potentially proposing regulatory solutions into our base rate filings for many of the areas related to our key operation priorities as well as other emerging issues and trends impacting our utilities . story_separator_special_tag operating margin ( 13 ) decreased bad debt expense at retail energy operations ( 3 ) increased incentive compensation costs due to growth and improved operations at retail energy operations 3 increased depreciation and amortization 6 increased payroll and other operating costs at wholesale services due to continued expansion 7 increased costs at retail energy operations due to customer care , marketing costs and higher payroll in support of customer and market growth initiatives 5 other , net primarily at distribution operations due to pension , outside services and reduction in customer service expense ( 6 ) operating expenses for year ended dec. 31 , 2007 $ 636 our other income increased by $ 5 million . this was primarily due to lower charitable contributions in 2007 at distribution operations and retail energy operations . interest expense the increased interest expense of $ 2 million or 2 % in 2007 was due primarily to higher short-term interest rates and a $ 3 million premium paid for the early redemption of the $ 75 million notes payable to agl capital trust i , which was recorded as interest expense in 2007. as indicated in the following table , this was partially offset by lower average debt , primarily from reduced commercial paper borrowings for most of 2007. replace_table_token_17_th ( 1 ) daily average of all outstanding debt . ( 2 ) excluding $ 3 million premium paid for early redemption of debt , average rate in 2007 would have been 6.2 % . income tax expense the decrease in income tax expense of $ 2 million or 2 % in 2007 , compared to the same period in 2006 was primarily due to lower consolidated earnings and a slightly lower effective tax rate of 37.6 % in 2007 compared to an effective tax rate of 37.8 % in 2006. the decrease in our effective tax rate was primarily a result of our 2007 investment in a guaranteed affordable housing tax credit fund . we expect our effective tax rate in 2008 to remain consistent with our 2007 rate . for more information on our income taxes , including a reconciliation between the statutory federal income tax rate and the effective rate , see note 8 . 33 2006 compared to 2005 in 2006 our net income increased by $ 19 million or 10 % , our basic earnings per share increased by $ 0.23 or 9 % and our diluted earnings per share increased by $ 0.24. this was primarily due to increased ebit of $ 41 million in wholesale services which primarily reflected the recognition of unrealized hedge gains during 2006 , as forward nymex prices declined significantly . in contrast , nymex price increases experienced during 2005 had the opposite effect , but to a lesser extent . in the distribution operations segment , ebit improved by $ 11 million , due to reduced operating expenses of $ 19 million , offset by lower operating margin of $ 7 million . our retail energy operations segment 's ebit was flat compared to 2005. the energy investments segment 's ebit was down $ 9 million primarily due to the loss of ebit contributions as the result of the sale in 2005 of certain assets that were originally acquired with the 2004 acquisition of nui . operating margin our operating margin increased $ 47 million or 4 % from 2005. this was primarily due to increases at wholesale services and retail energy operations offset by declines at distribution operations . wholesale services increased its operating margin $ 47 million or 51 % as compared to 2005 due to significant arbitrage opportunities brought on by natural gas price volatility and periods of extreme weather .
| the table below sets forth a reconciliation of our operating margin and ebit to our operating income and net income , together with other consolidated financial information for the years ended december 31 , 2007 , 2006 and 2005. replace_table_token_10_th 30 selected weather , customer and volume metrics for 2007 , 2006 and 2005 , are presented in the following table . replace_table_token_11_th ( 1 ) obtained from the national oceanic and atmospheric administration . national climatic data center . normal represents the ten-year averages from january 1998 to december 2007. replace_table_token_12_th replace_table_token_13_th 31 segment information operating revenues , operating margin , operating expenses and ebit information for each of our segments are contained in the following tables for the years ended december 31 , 2007 , 2006 and 2005. replace_table_token_14_th ( 1 ) these are non-gaap measurements . a reconciliation of operating margin and ebit to our operating income and net income is contained in “ results of operations ” herein . ( 2 ) includes intercompany eliminations 2007 compared to 2006 in 2007 our net income decreased by $ 1 million primarily due to decreased ebit from wholesale services largely due to lower operating margin . this was offset by increased ebit at distribution operations , retail energy operations and energy investments due to higher operating margin as compared to 2006. additionally , distribution operations ebit contribution increased due to lower operating expenses as compared to 2006. our basic earnings per share increased by $ 0.01 primarily due to the reduction in the average number of shares outstanding as a result of our share repurchase program . our diluted earnings per share were flat . operating margin our operating margin in 2007 , decreased $ 14 million or 1 % primarily due to lower operating margin at our wholesale services segment . distribution operations ' operating margin increased $ 13 million or 2 % primarily due to a 21,000 or .9 % increase in customers as compared to last year , a $ 2 million increase in base rates at chattanooga gas ( effective january
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the noi increases for both 2015 and 2014 , as compared to the prior year , consist of changes in the following categories ( dollars in thousands ) : 46 replace_table_token_25_th the increase in our established communities ' noi in 2015 and 2014 is due to increased rental rates , partially offset by decreased economic occupancy and increased operating expenses . rental and other income increased in both 2015 and 2014 compared to the prior years due to additional rental income generated from newly developed and existing operating communities and an increase in rental rates at our established communities . overall portfolio—the weighted average number of occupied apartment homes for consolidated communities increased to 64,211 apartment homes for 2015 , as compared to 61,686 homes for 2014 and 57,240 homes for 2013 . the weighted average monthly revenue per occupied apartment home increased to $ 2,388 for 2015 as compared to $ 2,254 in 2014 and $ 2,171 in 2013 . established communities—rental revenue increased $ 66,136,000 , or 5.0 % , to $ 1,382,895,000 for 2015 from $ 1,316,759,000 in the prior year . the increase is due to an increase in average rental rates of 5.3 % to $ 2,358 per apartment home , partially offset by a decrease in economic occupancy of 0.3 % to 95.6 % . rental revenue increased $ 36,096,000 , or 3.9 % , for 2014 , as compared to the prior year . economic occupancy takes into account the fact that apartment homes of different sizes and locations within a community have different economic impacts on a community 's gross revenue . economic occupancy is defined as gross potential revenue less vacancy loss , as a percentage of gross potential revenue . gross potential revenue is determined by valuing occupied homes at leased rates and vacant homes at market rents . we experienced increases in rental revenue for all of our established communities ' regions in 2015 as compared to the prior year , as discussed in more detail below . the metro new york/new jersey region accounted for approximately 27.6 % of the established community rental revenue for 2015 and experienced a rental revenue increase of 3.4 % for 2015 over the prior year . average rental rates increased 4.0 % to $ 2,928 per apartment home , and were partially offset by a 0.6 % decrease in economic occupancy to 95.6 % for 2015 as compared to 2014 . while new york city is absorbing a larger pipeline of new apartment deliveries , suburban markets surrounding the city are more insulated from this new competition , and we expect to see continued growth over the prior year in the metro new york/new jersey region in 2016. the northern california region accounted for approximately 19.8 % of the established community rental revenue for 2015 and experienced a rental revenue increase of 9.5 % for 2015 over the prior year . average rental rates increased 10.4 % to $ 2,593 per apartment home , and were partially offset by a 0.9 % decrease in economic occupancy to 95.4 % for 2015 as compared to 2014 . although we project job growth to moderate and new apartment deliveries to remain elevated , we expect the northern california region will continue to produce strong revenue growth in 2016. the southern california region accounted for approximately 18.2 % of the established community rental revenue for 2015 and experienced a rental revenue increase of 6.3 % for 2015 over the prior year . average rental rates increased 6.5 % to $ 1,984 per apartment home , and were partially offset by a 0.2 % decrease in economic occupancy to 95.8 % for 2015 as compared to 2014 . southern california has seen steady job growth and limited new apartment supply , which we expect will continue to support favorable operating results during 2016. the mid-atlantic region accounted for approximately 15.1 % of the established community rental revenue for 2015 and experienced a rental revenue increase of 0.8 % for 2015 over the prior year . average rental rates increased 0.5 % to $ 2,070 per apartment home , and economic occupancy increased 0.3 % to 95.6 % for 2015 as compared to 2014 . although new apartment supply will remain elevated , accelerating job growth is expected to support continued modest growth in 2016. the new england region accounted for approximately 13.8 % of the established community rental revenue for 2015 and experienced a rental revenue increase of 4.5 % for 2015 over the prior year . average rental rates increased 4.1 % to $ 2,283 per apartment home , and economic occupancy increased 0.4 % to 95.7 % for 2015 as compared to 2014 . stable job growth in the boston metro area is expected to support healthy apartment demand in 2016. the fairfield market continues to experience moderate economic growth due to the area 's greater exposure to the financial services sector , which has experienced slower job growth during this recovery than other industries . 47 the pacific northwest region accounted for approximately 5.5 % of the established community rental revenue for 2015 and experienced a rental revenue increase of 7.1 % for 2015 over the prior year . average rental rates increased 7.3 % to $ 1,945 per apartment home , and were partially offset by a 0.2 % decrease in economic occupancy to 95.1 % for 2015 as compared to 2014 . we believe that healthy rental revenue growth will continue in 2016 , although it may be tempered by the delivery of new apartment homes . management , development and other fees decreased $ 1,103,000 or 10.0 % , and $ 452,000 , or 3.9 % , in 2015 and 2014 , respectively , as compared to the prior years . the decrease in 2015 was primarily due to lower property and asset management fees earned as a result of dispositions from fund i and fund ii , partially offset by an increase in disposition fees in 2015 related to the sale of communities owned within the residual jv . story_separator_special_tag the decrease in 2014 was primarily due to lower property and asset management fees earned as a result of dispositions from fund i and fund ii , partially offset by increased property and asset management fees related to the archstone acquisition for related private real estate investment management funds ( the u.s. fund and the ac jv ) . direct property operating expenses , excluding property taxes increased $ 31,471,000 , or 9.1 % , and $ 50,696,000 , or 17.2 % , in 2015 and 2014 , respectively , as compared to the prior years . the increases in 2015 and 2014 were primarily due to the addition of newly developed and acquired apartment communities . the increase in 2015 was also due to snow removal and other costs related to the severe winter storms in our northeast markets during the first quarter of 2015. for established communities , direct property operating expenses , excluding property taxes , increased $ 8,207,000 , or 3.1 % , and $ 7,475,000 , or 4.0 % , in 2015 and 2014 , respectively , as compared to the prior years . the increase in 2015 was primarily due to increased repairs and maintenance costs , payroll and benefit costs , and insurance costs , as well as snow removal and other costs related to the severe winter storms in our northeast markets during the first quarter of 2015. the increase in 2014 was primarily due to increased repairs and maintenance , utilities and payroll costs . property taxes increased $ 14,865,000 , or 8.3 % , and $ 19,860,000 , or 12.5 % , in 2015 and 2014 , respectively , as compared to the prior years . the increases in 2015 and 2014 were primarily due to the addition of newly developed apartment communities , coupled with increased tax rates and assessments across our portfolio . the increase in 2015 was also due to successful appeals and reductions of supplemental taxes in the prior year in excess of the current year . the increase in 2014 was partially offset by reductions in expected supplemental billings related to communities acquired as part of the archstone acquisition . for established communities , property taxes increased $ 3,829,000 , or 2.8 % , and $ 6,206,000 , or 6.7 % , in 2015 and 2014 , respectively , as compared to the prior years . the increase in 2015 was primarily due to successful appeals and reductions of supplemental taxes in the prior year period in excess of the current year , related primarily to the company 's west coast markets . the increase in 2014 was primarily due to higher rates and assessments , as well as refunds received in the prior year in excess of the current year period . for communities in california , property tax changes are determined by the change in the california consumer price index , with increases limited by law ( proposition 13 ) . massachusetts also has laws in place to limit property tax increases . we evaluate property tax increases internally and also engage third-party consultants to assist in our evaluations . we appeal property tax increases when appropriate . corporate-level property management and other indirect operating expenses increased $ 6,719,000 , or 11.1 % , and $ 7,236,000 , or 13.6 % , in 2015 and 2014 , respectively , as compared to the prior years . the increases in 2015 and 2014 were primarily due to an increase in compensation related costs including certain employee separation costs . the increase in 2014 was also due to increased activities related to re-branding and corporate initiatives , and was also impacted as the first full year of operations following the archstone acquisition . investments and investment management costs decreased $ 115,000 , or 2.6 % , in 2015 and increased by $ 495,000 , or 12.4 % , in 2014 as compared to the prior years . the decrease in 2015 was primarily due to a decline in our investment fund management activity , partially offset by an increase in compensation costs . the increase in 2014 was primarily due to an increase in compensation costs , partially offset by a decline in our investment fund management activity . expensed acquisition , development and other pursuit costs , net of recoveries primarily reflect the costs incurred related to our asset investment activity , abandoned pursuit costs , which include costs incurred for development pursuits not yet considered probable for development , as well as the abandonment of development rights , acquisition pursuits and disposition pursuits , offset by any recoveries associated with acquisitions for periods prior to our ownership . these costs can be volatile , particularly in periods of increased acquisition activity , periods of economic downturn or when there is limited access to capital , and the costs may vary significantly from period to period . these costs increased $ 10,539,000 in 2015 and decreased $ 48,767,000 in 2014 , as compared to the prior years . the increase in 2015 was primarily due to receipts in 2014 related to communities acquired as part of the archstone acquisition for periods prior to the company 's ownership , which are primarily comprised of property tax and mortgage insurance refunds , as well as increased costs associated with the acquisition of real estate and abandonment of pursuits , as compared to the prior year . the decrease in 2014 as compared to the prior year was due to the archstone acquisition in 2013 , as well as 48 receipts in 2014 related to communities acquired as part of the archstone acquisition for periods prior to the company 's ownership discussed above . interest expense , net decreased $ 5,003,000 , or 2.8 % , and increased $ 8,216,000 , or 4.8 % , in 2015 and 2014 , respectively , as compared to the prior years . this category includes interest costs offset by capitalized interest pertaining to development and redevelopment activity , amortization of premium/discount on debt , and interest income .
| in addition , during 2015 we completed the redevelopment of four communities for a total investment of $ 59,600,000 , excluding costs incurred prior to the redevelopment . 43 we believe that our balance sheet strength , as measured by our current level of indebtedness , our current ability to service interest and other fixed charges , and our current moderate use of financial encumbrances ( such as secured financing ) provide us with adequate access to liquidity from the capital markets . we expect to be able to meet our reasonably foreseeable liquidity needs , as they arise , through a combination of one or more of the following sources : existing cash on hand ; operating cash flows ; borrowings under our credit facility ; secured debt ; the issuance of corporate securities ( which could include unsecured debt , preferred equity and or common equity ) ; the sale of apartment communities ; or through the formation of joint ventures . see the discussion under liquidity and capital resources . during the year ended december 31 , 2015 , we sold three communities , containing an aggregate of 851 apartment homes for an aggregate gross sales price of $ 265,500,000 and an aggregate gain in accordance with gaap of $ 115,625,000 . we also sold two undeveloped land parcels and air rights , representing the right to increase density for future residential development , for $ 23,820,000 , resulting in a gain in accordance with gaap of $ 9,647,000 . communities overview as of december 31 , 2015 we owned or held a direct or indirect ownership interest in 285 apartment communities containing 83,696 apartment homes in 11 states and the district of columbia , of which 26 communities were under construction and nine communities were under reconstruction . of these communities , 20 were owned by entities that were not consolidated for financial reporting purposes , including six owned by subsidiaries of fund ii and nine owned by the u.s. fund . in addition , we owned
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this resulted in a loss of $ 7.2 million , which comprised most of the total other charges of $ 8.2 million recorded during the year . technologies net sales in 2016 decreased to $ 84.9 million from $ 91.2 million in the prior year due to $ 6.4 million of lower shipment volumes . the decrease in sales volume was primarily due to the loss of a single customer 's amr purchases from 2015 , which was partially offset by increases in sales of ami products and mobile and fixed leak detection solutions . gross profit was essentially flat at $ 17.2 million in 2016 compared to $ 17.1 million in the prior year . gross margin increased to 20.3 % in 2016 compared to 18.8 % in the prior year due primarily to favorable product mix , particularly the partial replacement of amr sales with higher-margin ami sales . sg & a decreased to $ 27.4 million in 2016 compared to $ 29.9 million in the prior year . sg & a decreased primarily due to personnel-related cost savings . sg & a decreased to 32.3 % of net sales for 2016 from 32.8 % of net sales in the prior year . corporate sg & a increased to $ 35.4 million in 2016 from $ 33.0 million in the prior year primarily due to higher personnel-related expenses . 28 index to financial statements financial condition cash and cash equivalents were $ 361.7 million at september 30 , 2017 and $ 195.0 million at september 30 , 2016 . cash proceeds received from the sale of anvil were $ 305.7 million . in addition to these proceeds , cash and cash equivalents increased during 2017 as a result of cash provided by operating activities of $ 59.4 million , which was offset by cash used in investing activities of $ 66.3 million , primarily capital expenditures and the acquisition of singer valve , and cash used in financing activities of $ 81.4 million , primarily our share repurchases and dividend payments . cash and cash equivalents also increased by $ 1.2 million during 2017 due to changes in currency exchange rates . receivables , net were $ 145.3 million at september 30 , 2017 and $ 131.8 million at september 30 , 2016 . receivables at september 30 , 2017 and september 30 , 2016 represented approximately 64 and 60 days net sales , respectively . inventories were $ 138.9 million at september 30 , 2017 and $ 130.7 million at september 30 , 2016 . inventories increased during 2017 due primarily to the acquisition of singer valve . property , plant and equipment , net was $ 122.3 million at september 30 , 2017 and $ 108.4 million at september 30 , 2016 , and depreciation expense was $ 19.8 million in 2017 compared to $ 18.3 million in 2016 . capital expenditures , including external-use software development costs capitalized , were $ 40.6 million in 2017 . intangible assets were $ 439.3 million at september 30 , 2017 and $ 434.6 million at september 30 , 2016 . finite-lived intangible assets , $ 159.6 million of net book value at september 30 , 2017 , are amortized over their estimated useful lives . this amortization expense was $ 22.1 million during 2017 and is expected to be approximately $ 22 million to $ 24 million in each of the next five years . indefinite-lived intangible assets , $ 279.7 million at september 30 , 2017 , are not amortized , but tested at least annually for possible impairment . accounts payable and other current liabilities were $ 136.0 million , which included the liabilities of singer valve , at september 30 , 2017 and $ 135.4 million at september 30 , 2016 . net outstanding borrowings were $ 480.6 million at september 30 , 2017 and $ 484.4 million at september 30 , 2016 . deferred income taxes were net liabilities of $ 114.0 million at september 30 , 2017 and net liabilities of $ 108.8 million at september 30 , 2016 . the $ 5.2 million increase in the net liability was primarily due to a decrease in the deferred tax asset related pension plans after the 2017 pension contribution . deferred tax liabilities related to intangible assets and other were $ 158.4 million and $ 180.8 million at september 30 , 2017 and 2016 , respectively . liquidity and capital resources we amended our term loan credit agreement in february , which reduced the applicable interest rate spread by 75 basis points . we had cash and cash equivalents of $ 361.7 million at september 30 , 2017 and approximately $ 113 million of additional borrowing capacity under our abl agreement based on september 30 , 2017 data . undistributed earnings from our subsidiaries in canada and china are considered to be permanently invested outside of the united states . at september 30 , 2017 , cash and cash equivalents included $ 15.1 million and $ 7.5 million in canada and china , respectively . on january 6 , 2017 , we sold anvil to affiliates of one equity partners for cash proceeds of $ 305.7 million and the agreement by the purchaser to reimburse us for expenditures to settle certain previously existing liabilities . in 2017 , we acquired singer valve , a manufacturer of automatic control valves , and its affiliates that distribute singer valve products in the u.s. and china for an aggregate cash consideration of $ 26.6 million net of post-closing adjustments . singer valve is included in infrastructure . cash flows from operating activities are categorized below . replace_table_token_8_th 29 index to financial statements we collected $ 28.5 million more in 2017 than in 2016 , which is relatively consistent with the $ 25.4 million increase in net sales in 2017 compared with 2016 . capital expenditures were $ 40.6 million during 2017 and $ 31.5 million during 2016 . we estimate 2018 capital expenditures will be $ 38 million to $ 44 million . story_separator_special_tag while we were not required to make any contributions to our u.s. pension plan in 2017 , we made a voluntary contribution of $ 35 million . the proportion of the assets held by our u.s. pension plan invested in fixed income securities , instead of equity securities , has increased over historical levels . because of this shift in the strategic asset allocation , the estimated rate of return on pension plan assets has decreased , which could ultimately cause our pension expense and our required contributions to this plan to increase . income tax payments were higher during 2017 compared to the prior year due to the timing of our income and our required quarterly payments . we expect the effective tax rate in 2018 to be between 33 % and 35 % . in2015 , we announced the authorization of a stock repurchase program for up to $ 50.0 million of our common stock . the program does not commit us to any particular timing or quantity of purchases , and we may suspend or discontinue the program at any time . in 2015 , we acquired 523,851 shares of our common stock through open market purchases . in 2017 , we announced an increase in the authorization of the program to $ 250 million and acquired 4,581,227 shares of our common stock . at september 30 , 2017 , we had remaining authorization of $ 190.0 million to repurchase shares of our common stock . we anticipate our existing cash , cash equivalents and borrowing capacity combined with our expected operating cash flows will be sufficient to meet our anticipated operating expenses , capital expenditures and debt service obligations as they become due through september 30 , 2018 . however , our ability to make these payments will depend partly upon our future operating performance , which will be affected by general economic , financial , competitive , legislative , regulatory , business and other factors beyond our control . abl agreement at september 30 , 2017 , the abl agreement consisted of a revolving credit facility for up to $ 225 million of revolving credit borrowings , swing line loans and letters of credit . the abl agreement permits us to increase the size of the credit facility by an additional $ 150 million in certain circumstances subject to adequate borrowing base availability . we may borrow up to $ 25 million through swing line loans and may have up to $ 60 million of letters of credit outstanding . borrowings under the abl agreement bear interest at a floating rate equal to libor plus a margin ranging from 125 to 150 basis points , or a base rate , as defined in the abl agreement , plus a margin ranging from 25 to 50 basis points . at september 30 , 2017 , the applicable libor-based margin was 125 basis points . the abl agreement terminates on july 13 , 2021 . we pay a commitment fee for any unused borrowing capacity under the abl agreement of 25 basis points per annum . the abl agreement is subject to mandatory prepayments if total outstanding borrowings under the abl agreement are greater than the aggregate commitments under the revolving credit facility or if we dispose of overdue accounts receivable in certain circumstances . the borrowing base under the abl agreement is equal to the sum of ( a ) 85 % of the value of eligible accounts receivable and ( b ) the lesser of ( i ) 70 % of the value of eligible inventory or ( ii ) 85 % of the net orderly liquidation value of the value of eligible inventory , less certain reserves . prepayments can be made at any time with no penalty . substantially all of our u.s. subsidiaries are borrowers under the abl agreement and are jointly and severally liable for any outstanding borrowings . our obligations under the abl agreement are secured by a first-priority perfected lien on all of our u.s. inventory , accounts receivable , certain cash and other supporting obligations . borrowings are not subject to any financial maintenance covenants unless excess availability is less than the greater of $ 17.5 million and 10 % of the loan cap as defined in the abl agreement . the abl agreement contains customary negative covenants and restrictions on our ability to engage in specified activities , such as : limitations on other debt , liens , investments and guarantees ; restrictions on dividends and redemptions of our capital stock and prepayments and redemptions of debt ; and restrictions on mergers and acquisition , sales of assets and transactions with affiliates . 30 index to financial statements term loan we had $ 486.3 million face value outstanding under the term loan at september 30 , 2017 . term loan borrowings accrue interest at a floating rate equal to libor , subject to a floor of 0.75 % , plus 250 basis points . we may voluntarily repay amounts borrowed under the term loan at any time . the principal amount of the term loan is required to be repaid in quarterly installments of $ 1.225 million . the term loan matures on november 25 , 2021. the term loan is guaranteed by substantially all of our u.s. subsidiaries and secured by essentially all of our assets , although the abl agreement has a senior claim on certain collateral securing borrowings thereunder . as described more fully in note 8. of the notes to consolidated financial statements , we entered into interest rate swap contracts in april 2015 that hedge interest payments on $ 150 million of our term loan borrowings from september 30 , 2016 through september 30 , 2021. our corporate credit rating and the credit rating for our debt are presented below .
| interest expense associated with the term loan decreased due to the repricing we completed in february 2017 , which reduced the applicable interest rate spread by 75 basis points . the components of interest expense , net are provided below . replace_table_token_5_th income tax expense was $ 24.2 million for both 2017 and 2016 , but the effective income tax rate decreased to 30.8 % in 2017 from 34.9 % in the prior year primarily due to increased domestic manufacturing deductions and excess tax benefits related to stock compensation . segment analysis infrastructure net sales for 2017 increased 3.4 % to $ 739.9 million from $ 715.7 million in the prior year . net sales increased primarily due to higher shipment volumes of $ 14.0 million and $ 10.3 million in net sales of singer valve , which we acquired in february 2017. domestic shipments of valves , hydrants and brass products increased 1.7 % in 2017 compared to 2016 . gross profit for 2017 increased 3.5 % to $ 259.5 million from $ 250.7 million in the prior year primarily due to increased shipment volumes . gross margin was 35.1 % for 2017 and 35.0 % in the prior year . sg & a in 2017 increased 5.7 % to $ 93.4 million from $ 88.4 million in the prior year primarily due to personnel-related costs and the acquisition of singer valve . sg & a was 12.6 % and 12.4 % of net sales for 2017 and 2016 , respectively . technologies net sales in 2017 increased to $ 86.1 million from $ 84.9 million in the prior year primarily due to $ 1.4 million of higher shipment volumes . gross profit in 2017 decreased $ 9.2 million to $ 8.0 million from $ 17.2 million in the prior year . gross margin declined to 9.3 % in 2017 from 20.3 % in the prior year . these decreases are primarily due to the $ 9.8 million warranty charge related to certain radio products produced between
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our manager is responsible for , among other matters , the selection , origination or purchase and sale of our portfolio investments , our financing activities and providing us with investment advisory services . our manager is also responsible for our day-to-day operations and performs ( or causes to be performed ) such services and activities relating to our investments and business and affairs as may be appropriate . our investment decisions are approved by an investment committee of our manager that is comprised of senior investment professionals of tpg , including senior investment professionals of tpg 's real estate equity group and tpg 's executive committee . for a summary of certain terms of the management agreement between us and our manager ( the “ management agreement ” ) , see note 11 to our consolidated financial statements included in this form 10-k. fourth quarter 2020 activity operating results : gaap net income of $ 14.6 million , gaap net income attributable to common shareholders of $ 6.6 million , and diluted earnings per common share of $ 0.09. distributable earnings of $ 11.7 million , or $ 0.15 per weighted-average diluted common share . generated interest income of $ 62.0 million and incurred interest expense of $ 21.5 million , resulting in net interest income of $ 40.6 million . recorded an increase in our allowance for credit loss of $ 3.5 million , for a total allowance for credit losses of $ 62.8 million . declared dividends of $ 29.5 million , consisting of a quarterly cash dividend of $ 0.20 per common share , and a special cash dividend of $ 0.18 per common share . investment portfolio activity : received $ 365.1 million in loan repayments and $ 112.0 million from the extinguishment of a first mortgage loan converted to real estate owned , causing a total reduction in loan principal balance of $ 477.1 million . took ownership of $ 99.2 million of real estate owned comprising 27 acres across two undeveloped commercially-zoned land parcels on the las vegas strip pursuant to a negotiated deed-in-lieu of foreclosure . financing activity : closed in october 2020 with a single institutional counterparty a new secured credit facility with a commitment amount and unpaid principal balance of $ 249.5 million , with no mark-to-market provisions through october 2022 . 68 full year 20 20 activity operating results : gaap net loss of $ 136.8 million , gaap net loss attributable to common shareholders of $ 155.5 million , and diluted loss per common share of $ 2.03. distributable earnings of $ ( 106.6 ) million , or $ ( 1.39 ) per weighted-average diluted common share . declared dividends of $ 93.6 million , or $ 1.21 per common share , representing a dividend yield of 7.3 % on a book value per common share of $ 16.50 as of december 31 , 2020. dividends declared included a special dividend of $ 0.18 per common share . investment portfolio activity : originated five first mortgage loans in the first quarter of 2020 , with an aggregate commitment amount of $ 437.4 million , an initial unpaid principal balance of $ 353.5 million , unfunded commitments upon closing of $ 83.9 million , and a weighted average interest rate of libor plus 2.84 % . originated one loan in the third quarter of 2020 , through the modification , amendment and assumption by a new borrower of an existing first mortgage loan with a commitment of $ 88.9 million , an initial unpaid principal balance of $ 78.4 million , an unfunded commitment of $ 10.5 million , and an interest rate of libor plus 3.00 % . funded $ 237.9 million in future funding obligations associated with existing loans . sold at no gain or loss a $ 46.4 million mezzanine loan ( commitment amount of $ 50.0 million ) associated with a $ 300.8 million ( commitment amount ) first mortgage loan secured by a class a-office building in new york city . sold one loan with an unpaid principal balance of $ 99.3 million for $ 85.5 million resulting in a loss on sale of $ 13.8 million . received loan repayments of $ 997.6 million , with $ 865.6 million of repayments and sales and $ 112.0 million from the extinguishment of a first mortgage loan converted to real estate owned through a deed-in-lieu of foreclosure . sold 50 separate cre debt securities investments with an aggregate face value of $ 969.8 million , generating gross sales proceeds of $ 766.4 million . generated net cash proceeds of $ 43.7 million after repaying related secured indebtedness of $ 722.7 million . we recorded a loss of $ 203.4 million recognized as expense in securities impairments on the consolidated statement of income ( loss ) and comprehensive income ( loss ) , offset by a small realized gain . financing activity : issued $ 225.0 million of series b 11 % preferred stock and simultaneously granted to the purchaser 12 million 5-year warrants on our common stock at a strike price of $ 7.50 per common share , incurring issuance costs of $ 15.2 million . closed with a single institutional counterparty a new secured credit facility with a commitment amount and unpaid principal balance of $ 249.5 million . this borrowing arrangement is without mark-to-market provisions until november 2022. reinvested $ 618.8 million in trtx 2018-fl2 and trtx-fl3 involving 26 loans or participation interests therein . extended the maturities of four secured credit agreements totaling $ 1.35 billion of commitment amount through dates ranging from may 4 , 2021 through october 30 , 2023. made voluntary deleveraging payments totaling $ 157.7 million to seven of our secured lenders to reduce our borrowings and limit our exposure to margin calls through december 2020 , subject to certain conditions . story_separator_special_tag 69 repaid $ 824.9 million in daily mark-to-market secured credit agreements relating to our now-discontinued cre debt securities investment portfolio using cash margin posted by us , and proceeds from the sale of $ 969.8 million face amount of cre debt securities . liquidity : available liquidity at december 31 , 2020 of $ 342.6 million consisted of : cash-on-hand of $ 319.7 million , of which $ 300.6 million was available for investment , net of $ 19.1 million held to satisfy a cash liquidity covenant under our secured credit agreements . $ 0.1 million of cash in trtx 2019-fl3 available for investment dependent upon our ability to contribute eligible collateral . undrawn capacity ( liquidity available to us without the need to pledge additional collateral to our lenders ) of $ 22.8 million under secured agreements with seven lenders . financing capacity at december 31 , 2020 was comprised of : $ 3.2 billion of loan financing capacity under secured credit agreements provided by seven lenders . our ability to draw on this capacity is dependent upon our lenders ' willingness to accept as collateral loan investments we pledge to them to secure additional borrowings . these financing arrangements have credit spreads based upon the ltv and other risk characteristics of collateral pledged , and provide stable financing with mark-to-market provisions generally limited to collateral-specific events and , in only one instance , to capital markets-specific events . as of december 31 , 2020 , borrowings under these financing arrangements had a weighted average credit spread of 2.16 % and a weighted average term to extended maturity ( assuming we have exercised all extension options and term-out provisions ) of 2.6 years . these financing arrangements are generally 25 % recourse to holdco . key financial measures and indicators as a commercial real estate finance company , we believe the key financial measures and indicators for our business are earnings per share , dividends declared per common share , distributable earnings , and book value per share . for the three months ended december 31 , 2020 , we recorded diluted earnings per common share of $ 0.09 , declared a cash dividend of $ 0.20 per common share , and a special cash dividend of $ 0.18 per common share attributable to our estimated 2020 reit taxable income which was previously undistributed , and reported $ 0.15 per share of distributable earnings . for the year ended december 31 , 2020 , we recorded diluted loss per common share of $ 2.03 , declared cash dividends of $ 1.21 per common share , and reported distributable earnings per share of $ ( 1.39 ) . in addition , our book value per common share as of december 31 , 2020 was $ 16.50. as further described below , distributable earnings is a measure that is not prepared in accordance with gaap . we use distributable earnings to evaluate our performance excluding the effects of certain transactions and gaap adjustments that we believe are not necessarily indicative of our current loan activity and operations . earnings ( loss ) per common share and dividends declared per common share the computation of diluted earnings ( loss ) per share is based on the weighted average number of participating securities outstanding plus the incremental shares that would be outstanding assuming exercise of warrants , which may be exercised on a net-settlement basis . the number of incremental shares is calculated by applying the treasury stock method . we exclude participating securities and warrants from the calculation of diluted earnings ( loss ) per share in periods of net losses since their effect would be anti-dilutive . for the three months ended december 31 , 2020 , we present diluted earnings per share because the average market price of our common stock during the three months ended december 31 , 2020 was $ 9.47 , which exceeds the strike price of $ 7.50 per common share for warrants currently outstanding . 70 the following table sets forth the calculation of basic and diluted net income ( loss ) per share and dividends declared per share ( in thousands , except share and per share data ) : replace_table_token_3_th ( 1 ) represents net income ( loss ) attributable to holders of our common stock and class a common stock after deducting series a and series b preferred stock dividends . ( 2 ) weighted average number of common shares outstanding , earnings per common share and dividends declared per common share includes common stock and class a common stock . all then-outstanding shares of class a common stock were converted to common stock on february 14 , 2020 . ( 3 ) includes a quarterly cash dividend of $ 0.20 per common share , and a special cash dividend of $ 0.18 per common share attributable to our estimated 2020 reit taxable income which was previously undistributed . distributable earnings we use distributable earnings to evaluate our performance excluding the effects of certain transactions and gaap adjustments we believe are not necessarily indicative of our current loan activity and operations . distributable earnings is a non-gaap measure , which we define as gaap net income ( loss ) attributable to our stockholders , including realized gains and losses not otherwise included in gaap net income ( loss ) , and excluding ( i ) non-cash equity compensation expense , ( ii ) depreciation and amortization , ( iii ) unrealized gains ( losses ) , and ( iv ) certain non-cash items . distributable earnings may also be adjusted from time to time to exclude one-time events pursuant to changes in gaap and certain other non-cash charges as determined by our manager , subject to approval by a majority of our independent directors . the exclusion of depreciation and amortization from the calculation of distributable earnings only applies to debt investments related to real estate to the extent we foreclose upon the property or properties underlying such debt investments .
| core earnings , as defined in our management agreement , resulting in no incentive compensation being earned by our manager for the year ended december 31 , 2020. see note 11 to our consolidated financial statements in this form 10-k for details regarding our management agreement ; and a decrease of $ 0.8 million in management fees due to a reduction in our core earnings as defined in our management agreement . we incurred total non-recurring expenses caused by covid-19 of $ 3.6 million during the year ended december 31 , 2020 , and none during the year ended december 31 , 2019. securities impairments securities impairment expense of $ 203.4 million for the year ended december 31 , 2020 include losses on sales of cre debt securities of $ 203.5 million , offset by a $ 0.1 million realized gain on sale of one position in connection with cre debt securities owned at march 31 , 2020. we had no such impairment expenses for the year ended december 31 , 2019. credit loss expense credit loss expense for the year ended december 31 , 2020 increased to $ 69.8 million due to a $ 43.2 million credit loss expense recorded in accordance with asu 2016-13 for the year ended december 31 , 2020 , and realized losses of $ 12.8 million on the extinguishment of a loan and conversion to real estate owned , and $ 13.8 million on the sale of a loan . this increase reflects the macroeconomic impact of the covid-19 pandemic on our loans , particularly those collateralized by hospitality assets , and a $ 10.0 million specific reserve on one first mortgage loan secured by a retail property . dividends declared per common share during the year ended december 31 , 2020 , we declared cash dividends of $ 1.21 per common share , or $ 93.6 million . during the year ended december 31 , 2019 , we declared cash dividends
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25 in august 2018 , we reached a definitive agreement to buy the keystone foods business ( “ keystone ” ) from marfrig global foods for $ 2.16 billion in cash . the anticipated acquisition of keystone , a major supplier to the growing global foodservice industry , is our latest investment in the furtherance of our growth strategy and expansion of our value-added protein capabilities . the transaction is expected to close in the first quarter or early second quarter of fiscal 2019 and is subject to customary closing conditions , including regulatory approvals , however , there can be no assurance that the acquisition will close at such time . we expect the majority of keystone 's domestic results to be included in the chicken segment and its international results to be in included in other for segment presentation . during fiscal 2018 , we sold four non-protein operations for net proceeds of $ 805 million , as part of our strategic focus on protein brands . these operations , which were all part of our prepared foods segment , included sara lee® frozen bakery , van's® , kettle and tnt crust . for further description refer to part ii , item 8 , notes to the consolidated financial statements , note 3 : acquisitions and dispositions . in the fourth quarter of fiscal 2017 , our board of directors approved a multi-year restructuring program ( the “ financial fitness program ” ) , which is expected to contribute to the company 's overall strategy of financial fitness through increased operational effectiveness and overhead reduction . through a combination of synergies from the integration of business acquisitions and additional elimination of non-valued added costs , the program is focused on supply chain , procurement and overhead improvements , and net savings are expected to be realized in the prepared foods and chicken segments . the financial fitness program included the elimination of approximately 550 positions across several areas and job levels with most of the eliminated positions originating from the corporate offices in springdale , arkansas ; chicago , illinois ; and cincinnati , ohio . as a result , the company recognized restructuring and related charges of $ 59 million and $ 150 million , in fiscal 2018 and fiscal 2017 , respectively . in fiscal 2018 , these charges consisted primarily of incremental costs to implement new technology and accelerated depreciation of technology assets . in fiscal 2017 , these charges consisted of $ 53 million severance and employee related costs , $ 72 million technology impairment and related costs and $ 25 million of contract termination costs . the company currently anticipates the financial fitness program will result in cumulative pretax charges , once implemented , of approximately $ 253 million which consist primarily of severance and employee related costs , impairments and accelerated depreciation of technology assets , incremental costs to implement new technology , and contract termination costs . through september 29 , 2018 , $ 209 million of the estimated $ 253 million total pretax charges , has been recognized . the majority of the remaining estimated charges are related to incremental costs to implement new technology . the following tables set forth the pretax impact of restructuring and related charges in the consolidated statements of income and the pretax impact by our reportable segments . for further description refer to part ii , item 8 , notes to the consolidated financial statements , note 6 : restructuring and related charges . replace_table_token_7_th replace_table_token_8_th 26 replace_table_token_9_th 2018 – included the following items : $ 1,003 million post tax , or $ 2.71 per diluted share , tax benefit from remeasurement of net deferred tax liabilities at lower enacted tax rates . $ 109 million pretax , or ( $ 0.22 ) per diluted share , related to one-time cash bonus to frontline employees . $ 68 million pretax , or ( $ 0.34 ) per diluted share , impairments net of realized gains associated with the divestitures of non-protein businesses . $ 59 million pretax , or ( $ 0.12 ) per diluted share , of restructuring and related charges . 2017 – included the following items : $ 103 million pretax , or ( $ 0.18 ) per diluted share , of advancepierre purchase accounting and acquisition related costs , which included a $ 36 million purchase accounting adjustment for the amortization of the fair value step-up of inventory , $ 49 million of acquisition related costs and $ 18 million of acquisition bridge financing fees . $ 150 million pretax , or ( $ 0.15 ) per diluted share , of restructuring and related charges . $ 52 million pretax , or ( $ 0.09 ) per diluted share , impairment charge related to our san diego prepared foods operation . $ 45 million pretax , or $ 0.01 per diluted share , impairment net of tax benefit related to the expected sale of a non-protein business . 2016 – included the following items : $ 53 million post tax , or $ 0.14 per diluted share , related to recognition of previously unrecognized tax benefits and audit settlements . story_separator_special_tag style= '' line-height:120 % ; text-align : left ; font-size:10pt ; '' > increase of $ 35 million related to restructuring and related charges . increase in input cost per pound related to the acquisition of advancepierre on june 7 , 2017. increase due to net realized derivative losses of $ 79 million for fiscal 2017 , compared to net realized derivative gains of $ 96 million for fiscal 2016 due to our risk management activities . these amounts exclude offsetting impacts from related physical purchase transactions , which are included in the change in live cattle and hog costs and raw material and feed costs described above . additionally , cost of sales increased due to net unrealized losses of $ 40 million for fiscal 2017 , compared to net unrealized gains of $ 11 million for fiscal 2016 , primarily due to our beef segment commodity risk management activities . story_separator_special_tag decrease in live cattle costs of approximately $ 600 million in our beef segment . 28 remainder of net change is mostly due to increased cost per pound from a mix upgrade in the chicken segment as we increased sales volume in value-added products as well as increased operating costs , freight , and plant variances across all segments , which also included $ 71 million of compensation and benefit integration expense . the $ 405 million impact of higher sales volume was driven by increases in sales volume in all segments , with the majority of the increase in the beef and prepared foods segment . replace_table_token_12_th 2018 vs. 2017 decrease of $ 81 million in selling , general and administrative was primarily driven by : decrease of $ 92 million in employee costs primarily from stock-based and incentive-based compensation , which also included a reduction of $ 24 million compensation and benefit integration expense incurred in fiscal 2017 that did not recur in fiscal 2018. decrease of $ 56 million from restructuring and related charges . decrease of $ 49 million in advancepierre acquisition related fees incurred as part of the acquisition in fiscal 2017 that did not recur in fiscal 2018. decrease of $ 18 million in commission and brokerage fees . decrease of $ 14 million in non-restructuring severance related expenses . decrease of $ 10 million in marketing , advertising , and promotion expense . increase of $ 153 million related to the advancepierre acquisition through the first anniversary of the acquisition on june 7 , 2018 , which included $ 91 million in incremental amortization and $ 62 million from the inclusion of advancepierre results post-acquisition . increase of $ 15 million from technology related costs . remainder of net change was primarily related to reduction in professional fees . 2017 vs. 2016 – increase of $ 288 million in selling , general and administrative was primarily driven by : increase of $ 124 million related to the advancepierre acquisition , which was composed of $ 49 million in acquisition related costs , $ 37 million in incremental amortization and $ 38 million from the inclusion of advancepierre results post-acquisition . increase of $ 115 million from restructuring and related charges . increase of $ 53 million in employee costs including $ 34 million in non-restructuring severance related expenses and $ 24 million compensation and benefit integration expense , which was partially offset by reduced incentive-based compensation . increase of $ 8 million due to an impairment related to our san diego prepared foods operation . remainder of net change was primarily related to professional fees . replace_table_token_13_th 2018 / 2017 / 2016 – interest income remained relatively flat as lower deposit levels offset higher interest rates . replace_table_token_14_th 2018 / 2017 / 2016 – cash interest expense primarily included interest expense related to our senior notes , term loans and commercial paper . the increase in cash interest expense in fiscal 2018 and fiscal 2017 was primarily due to debt issued in connection with business acquisitions and higher interest rates . 29 non-cash interest expense primarily included amounts related to the amortization of debt issuance costs and discounts/premiums on note issuances , offset by interest capitalized . replace_table_token_15_th 2018 – included $ 21 million of equity earnings in joint ventures and $ 11 million in insurance proceeds . 2017 – included $ 28 million of legal costs related to two former subsidiaries of hillshire brands , which were sold by hillshire brands in 1986 and 1994. also , included $ 18 million of bridge financing fees related to the advancepierre acquisition and $ 19 million of income from equity earnings in joint ventures . 2016 – included $ 12 million of equity earnings in joint ventures and $ 4 million in net foreign currency exchange losses . replace_table_token_16_th our effective income tax rate was ( 10.3 ) % for fiscal 2018 compared to 32.3 % for fiscal 2017. the effective tax rate for fiscal 2018 reflects impacts of the tax cuts and jobs act signed into law on december 22 , 2017. these impacts include a $ 1,004 million benefit related to the remeasurement of deferred taxes existing at the date of enactment , which reduced the fiscal year effective tax rate by 36.6 % , as well as a 24.5 % statutory federal income tax rate for fiscal 2018 compared to the 35 % statutory federal income tax rate effective for the prior year . additionally , current year favorable timing differences currently deductible at the 24.5 % blended tax rate , but reversing in future years at 21 % , reduced the fiscal 2018 rate 1.3 % . the non-deductible impairment and sale of certain assets in our non-protein businesses increased the fiscal 2018 rate 3.1 % . the fiscal 2018 effective tax rate also includes a 1.7 % benefit related to domestic production activity deduction which is less than the 3.1 % benefit in fiscal 2017 , primarily due to the lower enacted federal tax rate . the fiscal 2018 effective tax rate includes 3.3 % expense for state taxes , net of federal tax benefit , compared to 2.3 % in fiscal 2017. this increase is also due in part to the lower enacted federal tax rate . the fiscal 2017 effective tax rate was 32.3 % compared to 31.8 % in fiscal 2016. this change was due in part to 1.7 % benefit for unrecognized tax benefits activity in fiscal 2016 that did n't recur in fiscal 2017 , partially offset by more favorable domestic production activity deduction and state income taxes in 2017. we currently expect an annual effective tax rate of approximately 23.5 % in 2019. for further description of drivers for these rates refer to part i , item 1 , notes to the consolidated condensed financial statements , note 9 : income taxes . segment results we operate in four reportable segments : beef , pork , chicken , and prepared foods .
| each segment had an increase in average sales price with the pork , chicken and prepared foods segments contributing to the majority of the increase due to strong demand for our pork products , improved mix and higher chicken pricing in our chicken segment and better product mix in our prepared foods segment which was positively impacted by the acquisition of advancepierre . the above amounts include a net increase of $ 508 million related to the inclusion of advancepierre results post acquisition . 27 replace_table_token_11_th 2018 vs. 2017 – cost of sales increased $ 1,749 million . higher input cost per pound increased cost of sales $ 918 million while higher sales volume increased cost of sales $ 831 million . these amounts include an incremental impact of $ 797 million related to the inclusion of advancepierre results post acquisition through the first anniversary of the acquisition on june 7 , 2018. the $ 918 million impact of higher input cost per pound was primarily driven by : increase in freight of approximately $ 270 million incurred across all our segments . increase from one-time cash bonus to frontline employees of $ 108 million . increase due to impairment charges of $ 101 million associated with the divestiture of a non-protein business in fiscal 2018 , partially offset by $ 33 million of realized gains related to the sale of non-protein businesses in fiscal 2018 and impairment charges of $ 44 million related to our san diego prepared foods operation in fiscal 2017. increase of approximately $ 52 million in our chicken segment related to net increases in feed ingredient costs , growout expenses and outside meat purchases . decrease in live cattle costs of approximately $ 25 million in our beef segment . decrease in live hog costs of approximately $ 90 million in our pork segment . decrease due to net realized derivative losses of $ 30 million for fiscal 2018 , compared to net realized derivative loss of $ 79 million for fiscal 2017 due to our risk management activities . these amounts exclude offsetting impacts from related physical purchase transactions , which are included in
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our depreciation , depletion and amortization expense increased $ 88.6 million , or 63 % , to $ 228.8 million for the year ended december 31 , 2014 from $ 140.2 million for the year ended 68 december 31 , 2013. our depreciation , depletion , and amortization expense per boe increased $ 2.91 , to $ 26.66 for the year ended december 31 , 2014 as compared to $ 23.75 for the year ended december 31 , 2013. the increase was primarily the result of a sales volumes growth of 45 % outpacing the corresponding growth in proved reserves of 28 % . impairment of oil and gas properties . our impairment of oil and gas properties was $ 167.6 million for the year ended december 31 , 2014. we impaired $ 127.3 million of proved properties within the dorcheat macedonia field due to low commodity prices , $ 25.0 million of non-core proved properties within the mckamie patton field due to low commodity prices , and $ 15.3 million of proved properties in our mccallum field due to low commodity prices and a strategic shift to horizontal drilling . the company incurred no impairment charges for the year ended december 31 , 2013. please refer to note 1 - summary of significant accounting policies in part ii , item 8 of this annual report on form 10-k for additional discussion . general and administrative . our general and administrative expense increased $ 26.1 million , or 47 % , to $ 81.6 million for the year ended december 31 , 2014 from $ 55.5 million for the year ended december 31 , 2013 and increased on an equivalent basis from $ 9.40 per boe to $ 9.51 per boe . during the year ended december 31 , 2014 , wages and benefits ( excluding executive departures ) were $ 13.8 million higher than the comparable period in 2013. the increase in wages and benefits is primarily due to an increase in headcount as a result of our drilling program between the two years . cash severance and stock-based compensation for executive departures was $ 14.1 million for the year ended december 31 , 2014. derivative gain ( loss ) . our derivative gain increased $ 134.1 million to $ 121.6 million for the year ended december 31 , 2014 from a loss of $ 12.5 million for the comparable period in 2013. the gain incurred was primarily the result of realized prices being less than the contract prices as commodity strip prices , particularly oil , decreased during 2014. please refer to note 13 - derivatives in part ii , item 8 of this annual report on form 10-k for additional discussion . interest expense . our interest expense increased $ 24.4 million , or 111 % , to $ 46.4 million for the year ended december 31 , 2014 from $ 22.0 million for the year ended december 31 , 2013. the increase for the year ended december 31 , 2014 is primarily due to the $ 200.0 million 6.75 % senior notes add-on that occurred during the fourth quarter of 2013 and the issuance of the $ 300.0 million 5.75 % senior notes at the beginning of the third quarter of 2014. interest expense , including amortization of the premium and financing costs , on the senior notes for the year ended december 31 , 2014 and 2013 was $ 42.3 million and $ 17.0 million , respectively . interest expense on our revolving credit facility was $ 3.0 million and amortization of deferred financing costs was $ 1.1 million for the year ended december 31 , 2014. average debt outstanding during 2014 was $ 644.4 million as compared to $ 306.0 million for the comparable period in 2013. income tax expense . our estimate for federal and state income taxes for the year ended december 31 , 2014 was $ 11.0 million from continuing operations as compared to $ 42.9 million for the year ended december 31 , 2013. we are allowed to deduct various items for tax reporting purposes that are capitalized for purposes of financial statement presentation . our effective tax rate for the year ended december 31 , 2014 was 39.3 % as compared to 38.2 % for the year ended december 31 , 2013. these rates differ from the u.s. statutory income tax rate primarily due to the effects of state income taxes . results for discontinued operations during june of 2012 , the company began marketing , with an intent to sell , all of its oil and gas properties in california . the company determined that our intent to sell out of an entire region qualified for discontinued operations accounting and these assets have been presented as discontinued operations in the accompanying statements of operations . the majority of these properties were sold in 2012. the remaining property located in the midway sunset field sold on march 21 , 2014 for approximately $ 6.0 million and resulted in a $ 5.5 million gain . the operating results before income taxes for our california properties for the year ended december 31 , 2014 were net revenues of $ 0.4 million , and operating expenses of $ 0.4 million , as compared to net revenues of $ 1.7 million , and operating expenses of $ 2.3 million for the year ended december 31 , 2013. sales volumes for the years ended december 31 , 2014 and 2013 were 10 boe/d and 47 boe/d , respectively . liquidity and capital resources we fund our operations , capital expenditures and working capital requirements with cash flows from our operating activities , borrowings under our revolving credit facility , divestitures of assets and by accessing the debt and capital markets . we currently anticipate funding our 2016 operations with operating cash flows and the revolving credit facility , until such point that we execute a divestiture . we believe that we will have sufficient story_separator_special_tag our depreciation , depletion and amortization expense increased $ 88.6 million , or 63 % , to $ 228.8 million for the year ended december 31 , 2014 from $ 140.2 million for the year ended 68 december 31 , 2013. our depreciation , depletion , and amortization expense per boe increased $ 2.91 , to $ 26.66 for the year ended december 31 , 2014 as compared to $ 23.75 for the year ended december 31 , 2013. the increase was primarily the result of a sales volumes growth of 45 % outpacing the corresponding growth in proved reserves of 28 % . impairment of oil and gas properties . our impairment of oil and gas properties was $ 167.6 million for the year ended december 31 , 2014. we impaired $ 127.3 million of proved properties within the dorcheat macedonia field due to low commodity prices , $ 25.0 million of non-core proved properties within the mckamie patton field due to low commodity prices , and $ 15.3 million of proved properties in our mccallum field due to low commodity prices and a strategic shift to horizontal drilling . the company incurred no impairment charges for the year ended december 31 , 2013. please refer to note 1 - summary of significant accounting policies in part ii , item 8 of this annual report on form 10-k for additional discussion . general and administrative . our general and administrative expense increased $ 26.1 million , or 47 % , to $ 81.6 million for the year ended december 31 , 2014 from $ 55.5 million for the year ended december 31 , 2013 and increased on an equivalent basis from $ 9.40 per boe to $ 9.51 per boe . during the year ended december 31 , 2014 , wages and benefits ( excluding executive departures ) were $ 13.8 million higher than the comparable period in 2013. the increase in wages and benefits is primarily due to an increase in headcount as a result of our drilling program between the two years . cash severance and stock-based compensation for executive departures was $ 14.1 million for the year ended december 31 , 2014. derivative gain ( loss ) . our derivative gain increased $ 134.1 million to $ 121.6 million for the year ended december 31 , 2014 from a loss of $ 12.5 million for the comparable period in 2013. the gain incurred was primarily the result of realized prices being less than the contract prices as commodity strip prices , particularly oil , decreased during 2014. please refer to note 13 - derivatives in part ii , item 8 of this annual report on form 10-k for additional discussion . interest expense . our interest expense increased $ 24.4 million , or 111 % , to $ 46.4 million for the year ended december 31 , 2014 from $ 22.0 million for the year ended december 31 , 2013. the increase for the year ended december 31 , 2014 is primarily due to the $ 200.0 million 6.75 % senior notes add-on that occurred during the fourth quarter of 2013 and the issuance of the $ 300.0 million 5.75 % senior notes at the beginning of the third quarter of 2014. interest expense , including amortization of the premium and financing costs , on the senior notes for the year ended december 31 , 2014 and 2013 was $ 42.3 million and $ 17.0 million , respectively . interest expense on our revolving credit facility was $ 3.0 million and amortization of deferred financing costs was $ 1.1 million for the year ended december 31 , 2014. average debt outstanding during 2014 was $ 644.4 million as compared to $ 306.0 million for the comparable period in 2013. income tax expense . our estimate for federal and state income taxes for the year ended december 31 , 2014 was $ 11.0 million from continuing operations as compared to $ 42.9 million for the year ended december 31 , 2013. we are allowed to deduct various items for tax reporting purposes that are capitalized for purposes of financial statement presentation . our effective tax rate for the year ended december 31 , 2014 was 39.3 % as compared to 38.2 % for the year ended december 31 , 2013. these rates differ from the u.s. statutory income tax rate primarily due to the effects of state income taxes . results for discontinued operations during june of 2012 , the company began marketing , with an intent to sell , all of its oil and gas properties in california . the company determined that our intent to sell out of an entire region qualified for discontinued operations accounting and these assets have been presented as discontinued operations in the accompanying statements of operations . the majority of these properties were sold in 2012. the remaining property located in the midway sunset field sold on march 21 , 2014 for approximately $ 6.0 million and resulted in a $ 5.5 million gain . the operating results before income taxes for our california properties for the year ended december 31 , 2014 were net revenues of $ 0.4 million , and operating expenses of $ 0.4 million , as compared to net revenues of $ 1.7 million , and operating expenses of $ 2.3 million for the year ended december 31 , 2013. sales volumes for the years ended december 31 , 2014 and 2013 were 10 boe/d and 47 boe/d , respectively . liquidity and capital resources we fund our operations , capital expenditures and working capital requirements with cash flows from our operating activities , borrowings under our revolving credit facility , divestitures of assets and by accessing the debt and capital markets . we currently anticipate funding our 2016 operations with operating cash flows and the revolving credit facility , until such point that we execute a divestiture . we believe that we will have sufficient
| ( 4 ) amounts reflect results for continuing operations and exclude results for discontinued operations related to non‑core properties in california sold or held for sale as of december 31 , 2014. revenues decreased by 48 % to $ 292.7 million for the year ended december 31 , 2015 compared to $ 558.6 million for the year ended december 31 , 2014 largely due to a 56 % decrease in oil equivalent pricing . the decreased pricing was offset by increased sales volumes of 20 % for the year ended december 31 , 2015 compared to the same period in 2014 . the increased 64 volumes are a direct result of $ 404.0 million expended for drilling and completion during 2015 . during the period from december 31 , 2014 through december 31 , 2015 , we drilled 84 gross ( 66 net ) and completed 95 gross ( 77.1 net ) wells in the rocky mountain region and drilled 24 gross ( 22.2 net ) and completed 21 gross ( 19.4 net ) wells in the mid-continent region . the following table summarizes our operating expenses for the periods indicated . replace_table_token_17_th _ ( 1 ) effective as of january 1 , 2015 , the company revised the agreements with its natural gas processors in the rocky mountain region to report operated sales volumes on a three stream basis , which allows for separate reporting of ngls extracted from the natural gas stream and sold as a separate product . the contract revisions necessitated a change in our reporting of sales volumes . prior period sales volumes , revenues , and prices have not been reclassified to conform to the current presentation given the prospective nature of the agreements . ( 2 ) amounts reflect results for continuing operations and exclude results for discontinued operations related to non-core properties in california sold or held for sale as of december 31 , 2014. lease operating expense . our lease operating expense increased $ 4.0 million or 6 % , to $ 76.4 million for the year ended december 31 , 2015 from $ 72.4 million for the year ended december 31 , 2014 and decreased on an equivalent basis from $ 8.44 per boe to $ 7.40 per boe . the increase in aggregate lease operating
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we received net loan proceeds in the aggregate amount of approximately $ 20.1 million and will use the loan proceeds for general corporate purposes or other activities permitted under the credit agreement . on july 2 , 2015 , we filed a shelf registration statement which registered up to $ 150 million of our securities for potential future issuance , and such registration statement was declared effective on july 13 , 2015. concurrent with the filing of such registration statement , we established an at-the-market offering program utilizing the universal shelf registration for up to $ 40 million of common stock . on august 13 , 2015 , we announced the approval by the fda of a supplemental new drug application ( snda ) for a new formulation of onsolis ® schedule ii for the management of breakthrough pain in patients with cancer who are opioid tolerant . the new formulation was submitted to address previously announced appearance-related changes . approval of this new formulation is expected to allow onsolis ® to return to the u.s. market sometime in 2016. on september 8 , 2015 , we secured a two-year contract with tennessee medicaid , also referred to as tenncare , making bunavail ® the only buprenorphine/naloxone treatment for opioid dependence with preferred coverage status on tenncare 's preferred drug list ( pdl ) . preferred coverage status for bunavail ® means that all covered patients will receive bunavail ® , with the exception that non-preferred products can be used only following trial and failure , contraindication or intolerance to the preferred product , bunavail ® . the tenncare contract began october 1 , 2015. on october 26 , 2015 , bdsi and endo announced that the fda approved belbuca for use in patients with chronic pain severe enough to require daily , around-the-clock , long-term opioid treatment for which alternative treatment options are inadequate . fda approval of belbuca has triggered a milestone payment to us from endo of $ 50 million pursuant to the endo agreement , less approximately $ 6 million of cumulative pre-payments received . the aforementioned $ 20 million is contingently refundable to endo based on a third party generic introduction in the u.s. during the patent extension period from 2020 to 2027. should such introduction occur any time during the 2020 to 2027 period , a refund would be due to endo based on the number of complete calendar months beyond december 31 , 2019 where the first generic was sold over the denominator of 84 months times $ 20 million . for example , if a generic product were to be introduced in the u.s. in january of 2026 , that would mean that 72 of the 84 months of patent exclusivity would have been earned and 12 months would have to be refunded . the calculation would be 12/84 , multiplied by $ 20 million , or a refund of $ 2.9 million . the method of the refund payment to endo would be accomplished first by crediting against milestone payments , second by reducing the royalty by 50 % until the $ 2.9 million is paid back , and third by bdsi making a payment in the amount due to endo . otherwise , the $ 20 million will be earned as revenue each month over the patent extension period from 2020 to 2027. on february 22 , 2016 , the company and endo announced the commercial availability of belbuca buccal film . belbuca , distributed and promoted by endo , is now available nationwide . our products and related trends our product portfolio currently consists of five products . as of the date of this report , three products are approved by the fda and two are in development . three of these five products utilize our patented bema ® thin film drug delivery technology . bunavail ® was approved by the fda in june 2014 for the maintenance treatment of opioid dependence . bunavail ® also uses our bema ® technology . we are commercializing bunavail ® ourselves and launched the product during the fourth quarter of 2014. we undertook significant steps in 2015 to augment our sales , marketing and managed care capabilities for bunavail ® . as with all other buprenorphine containing products for opioid dependence , the approval of bunavail ® carries a standard post-approval requirement by the fda to conduct a study to determine the effect of bunavail ® on qt prolongation ( i.e. , an abnormal lengthening of the heartbeat ) . the clinical study results must be reported to the fda by the end of 2016. belbuca ( which also uses our bema ® technology ) is for the management of pain severe enough to require daily , around-the-clock , long-term opioid treatment and for which alternative treatment options are inadequate . this product is licensed on a worldwide basis to endo . on october 26 , 2015 , we announced with endo that the fda approved belbuca . belbuca was launched by endo in february 2016 , and the commercialization of this product may trigger additional milestone payments from endo in the future if certain sales milestones are met . we may also be entitled to receive tiered royalties that start in the mid-teens on net sales of belbuca . onsolis ® is approved in the u.s. , canada , eu ( where it is marketed as breakyl ) and taiwan ( where it is marketed as painkyl ) , for the management of breakthrough pain in opioid tolerant adult patients with cancer . the commercial rights to onsolis ® are licensed to meda for all territories worldwide except for taiwan ( licensed to tty ) . onsolis ® utilizes our bema ® thin film drug delivery technology . 50 clonidine topical gel is a non- bema ® product which is currently in phase 3 development for the treatment of painful diabetic neuropathy ( or pdn ) . story_separator_special_tag we licensed this product from arcion in march 2013. in june 2014 , we announced the completion of patient enrollment for our phase 3 study of clonidine topical gel . in august 2014 , we announced our completion of a pre-specified interim analysis of the ongoing initial pivotal phase 3 trial for clonidine topical gel , at which point we re-opened enrollment to complete recruitment . on march 30 , 2015 , we announced that the primary efficacy endpoint in our initial phase 3 clinical study of clonidine topical gel compared to placebo for the treatment of pdn did not meet statistical significance , although certain secondary endpoints showed statistically significant improvement over placebo . final analysis of the study identified a sizeable patient population with a statistically significant improvement ( n=158 ; p < 0.02 ) in pain score vs placebo . following thorough analysis of the data and identification of the reasons behind the study results , we initiated a second study . the study incorporates significant learnings from previously conducted studies and involves tightened and additional inclusion criteria to improve assay sensitivity , reduce bias and ensure compliance with enrollment criteria . the final study subject is expected to complete treatment by the end of 2016. buprenorphine depot injection is in development as an injectable , extended release , microparticle formulation of buprenorphine for the treatment of opioid dependence and chronic pain , the rights to which we secured when we entered into a definitive development and exclusive license option agreement from evonik in october 2014. this product candidate is currently in the pre-clinical stage of development . as we focus on the growth of our existing products and other product candidates , we also continue to position ourselves to execute upon the licensing and acquisition opportunities that will facilitate future growth . our organization is fully committed to this effort , and we believe we will be successful in executing upon our corporate strategy in ways that will provide this future growth . in order to do so , we will need to continue to maintain our strategic direction , manage and deploy our available cash efficiently and strengthen our alliance and partner relationships . we believe these actions , combined with the experience and expertise of our management team , position us well to deliver future growth of our revenue and income . we expect to continue our research and development of pharmaceutical products and related drug delivery technologies , some of which will be funded by our commercialization agreements . we will continue to seek additional license agreements , which may include upfront payments . we anticipate that funding for the next several years will come primarily from milestone payments and royalties from meda , endo and tty , earnings from sales of bunavail ® , potential sales of securities and collaborative research agreements , including those with pharmaceutical companies . we have a very limited history of commercial operations , having focused the vast majority of our corporate effort on research and development activities . we have , since our founding , received revenue in the form of : ( i ) contract revenue from endo related to an upfront , non-refundable payment for a license of our belbuca product in 2012 ( a portion of which was recorded as deferred revenue that is being recognized as revenue under prevailing revenue recognition rules ) , ( ii ) payment from endo for a certain patent-related milestones ( a portion of which might be refundable based on the entry of generic competition into the marketplace ) , ( iii ) royalty revenue from meda for sales of breakyl and onsolis ® , ( iv ) upfront non-refundable license and milestone payments from meda in 2007 , 2008 , 2009 and 2012 ( which were initially classified as deferred revenue and subsequently , a substantial amount was reclassified as recognized revenue under prevailing revenue recognition rules ) , ( v ) product sales revenue related to bunavail ® sales ( vi ) contract revenue from endo related to two full database locks in 2014 , ( vii ) contract revenue from endo upon fda acceptance of the filed nda of our belbuca product in 2015 and subsequent regulatory approval , ( viii ) and sponsored research revenue from both endo and meda . only the bunavail ® product sales and breakyl royalty revenues have the potential to be repeating or predictable . until recurring revenue from product sales ( bunavail ® is the foremost opportunity ) becomes a larger portion of our total revenue , we anticipate that our quarterly results of operations will fluctuate significantly for the foreseeable future . readers are cautioned that period-to-period comparisons of our operating results should not be relied upon as predictive of future performance . our prospects must be considered in light of the risks , expenses and difficulties normally encountered by companies that are involved in the development and commercialization of their products and related technologies , particularly companies in new and rapidly changing markets such as pharmaceuticals , drug delivery and biotechnology . for the foreseeable future , we must , among other things , invest in non-clinical and clinical trials of , and seek regulatory approval for and commercialization of , our product candidates , the outcomes of which are subject to numerous risks , many of which are beyond our control . we must also maintain our relationships with our key commercial partners and address regulatory , legal and or commercial issues and risks that relate to our business from time to time , many of which could impact , perhaps negatively , our planned operations . we may not be able to appropriately address these risks and difficulties . update on relaunch activities in the u.s. for onsolis ® on march 12 , 2012 , we announced the postponement of the u.s. re-launch of onsolis ® following the initiation of the class-wide risk evaluation and mitigation strategy ( rems ) and until the product formulation could be modified to address two 51 appearance-related issues .
| contract revenue in 2014 consisted of two $ 10 million milestone payments received from endo as a result of finalizing clinical trials . the remaining $ 2.7 million of 2014 contract revenue is from recognition of a portion of the deferred revenue arising from the $ 30 million upfront payment received in 2012 from endo . of the $ 30 million initially received , $ 14.4 million was deferred and recognized over the life of our research and development spending on the endo-related clinical trials . cost of sales . we incurred $ 8.1 million and $ 4.9 million in cost of sales during the years ended 2015 and 2014 , respectively . in 2015 , we had a standard , minimum $ 1.5 million contractual royalty due to cdc related to our onsolis ® and breakyl product . also in 2015 , we incurred $ 5.9 million in cost of sales for bunavail ® . the remaining $ 0.7 million in 2015 represents cost of sales for breakyl in europe . in 2014 , we incurred the same $ 1.5 million royalty to cdc and $ 1.3 million for our increased breakyl sales in europe . in addition for 2014 , we incurred $ 2.1 million in cost of sales for bunavail ® which included immediate expensing of certain production that did not meet specifications during product validation and batch size scale up . 57 expenditures for research and development programs ( 2015 vs. 2014 ) bunavail ® we incurred research and development expenses for bunavail ® of approximately $ 6.2 million for the year ended december 31 , 2015 and approximately $ 2.9 million for the year ended december 31 , 2014. we have incurred approximately $ 33.5 million in the aggregate since inception of our development of this product . bunavail ® was approved by the fda in 2014. therefore , bunavail ® research and development expenses in 2015 primarily
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the following financial items have been added back to our net income when calculating adjusted ebitda : interest expense may be useful to investors for determining current cash flow ; debt extinguishment may be useful to investors for determining current cash flow ; income tax expense may be useful to investors because it represents the taxes which may be payable for the period and the change in deferred taxes during the period , and may reduce cash flow available for use in our business ; depreciation may be useful to investors because it generally represents the wear and tear on our property and equipment used in our operations ; amortization expense may be useful to investors because it represents the estimated attrition of our acquired customer base and the diminishing value of product rights ; stock-based compensation may be useful to our investors for determining current cash flow ; asset impairments ( including goodwill and intangible assets ) may be useful to our investors because it generally represents a decline in value in our assets used in our operations ; and restructuring charges may be useful to our investors in evaluating our core operating performance . reconciliations of net ( loss ) income to adjusted ebitda and the presentation of adjusted ebitda as a percentage of net sales were as follows : 25 replace_table_token_4_th ( 1 ) 2015 includes goodwill impairment related to the ss operating segment . ( 2 ) 2015 includes intangible asset impairment related to the es operating segment . ( 3 ) 2013 includes asset impairment charges for the embraer legacy 450/500 contracts and boeing 777 wing tip contract . adjusted ebitda decreased in 2015 compared to 2014 primarily due to a net loss as a result of lower net revenues and lower gross margin . adjusted ebitda increased in 2014 compared to 2013 primarily due to fourth quarter 2013 charges of approximately $ 14.1 million for the embraer legacy 450/500 and boeing 777 wing tip contracts which for the year , net to approximately $ 7.0 million . 26 story_separator_special_tag ( 3 ) includes restructuring charges for severance and benefits and loss on early exit from leases of approximately $ 0.8 million and $ 1.3 million recorded in the es and ss operating segments , respectively . ( 4 ) insurance recoveries related to property and equipment included as other income . ( 5 ) intangible asset impairment related to es operating segment . structural systems ss 's net revenues in 2015 decreased approximately 15 % compared to 2014 primarily due to an approximate 40 % decrease in military and space revenue mainly due to the decrease in u.s. government defense spending and shifting spending priorities which impacted scheduled deliveries on our fixed-wing and helicopter platforms , partially offset by an approximate 1 % increase in commercial aerospace revenue . ss 's operating income decreased in 2015 compared to 2014 primarily as a result of an approximate $ 57.2 million non-cash goodwill impairment charge and higher forward loss reserves related to a regional jet program of approximately $ 10.6 million . other factors contributing to the reduction in operating income from the prior year include an approximate $ 8.0 million due to lower manufacturing volume and an approximate $ 7.3 million due to unfavorable product mix . the difference in the results was also impacted by a 2014 nonrecurring reversal of an approximate $ 3.4 million forward loss reserve related to a customer settlement . an additional factor contributing to the reduction in operating income from the prior year include an approximate $ 1.3 million of higher costs associated with moving into a new facility . adjusted ebitda was approximately $ 16.5 million or 6 % of revenue for 2015 , compared to approximately $ 48.5 million or 15 % of revenue for 2014. electronic systems es 's net revenues in 2015 decreased approximately 7 % compared to 2014 primarily due to an approximate 12 % decrease in military and space revenue mainly due to the decrease in u.s. government defense spending and shifting spending priorities which impacted scheduled deliveries on our fixed-wing and helicopter platforms and an approximate 4 % decrease in non-a & d markets revenues , partially offset by an approximate 10 % increase in commercial aerospace revenue . es 's segment operating income decreas ed in 2015 compared to 2014 primarily due to a non-cash charge of approximately $ 32.9 million from the impairment of an indefinite-lived trade name intangible asset and an approximate $ 6.0 million from lower manufacturing volume . adjusted ebitda was approximately $ 47.3 million or 12 % of revenue for 2015 , compared to approximately $ 52.5 million or 12 % of revenue for 2014. corporate general and administrative ( “ cg & a ” ) cg & a expenses was essentially flat in 2015 compared to 2014 primarily due to approximately $ 1.0 million of higher professional service fees , partially offset by an approximate $ 0.7 million of lower accrued compensation and benefit costs and lower discretionary expenses as a result of the cost savings initiatives we have implemented . backlog backlog is subject to delivery delays or program cancellations , which are beyond our control . backlog is affected by timing differences in the placement of customer orders and tends to be concentrated in several programs to a greater extent than our net sales . backlog in non-a & d end-use markets tends to be of a shorter duration and is generally fulfilled within a 3-month period . as a result of these factors , trends in our overall level of backlog may not be indicative of trends in our future net sales . backlog was approximately $ 545.8 million at december 31 , 2015 , compared to approximately $ 559.3 million at december 31 , 2014 , as shown in more detail below . the decrease in backlog was primarily in the defense technologies end-use markets . approximately $ 436.6 million of total backlog is expected to be delivered during 2016 . story_separator_special_tag the following table summarizes our backlog for 2015 and 2014 : 32 replace_table_token_9_th ( 1 ) 2015 backlog includes an aggregate total of approximately $ 16.1 million related to our pittsburgh , pennsylvania operation that was sold on january 22 , 2016 and our miltec operation that we expect to complete the sale by the end of the second fiscal quarter of 2016 . 33 2014 compared to 2013 the following table sets forth net revenues , selected financial data , the effective tax ( benefit ) rate and diluted earnings per share : replace_table_token_10_th nm = not meaningful 34 net revenues by end-use market and operating segment net revenues by end-use market and operating segment during 2014 and 2013 , respectively , were as follows : replace_table_token_11_th net revenues for 2014 were approximately $ 742.0 million compared to approximately $ 736.7 million for 2013. the net revenue increase reflects an approximate 14 % increase in revenue in the commercial aerospace end-use markets and an approximate 7 % increase in revenue in the non-a & d end-use markets , partially offset by an approximate 8 % decrease in revenue in the military and space end-use markets . net revenues by major customers a significant portion of our net revenues are from our top ten customers as follows : replace_table_token_12_th the revenues from boeing and raytheon are diversified over a number of commercial , military and space programs and were made by both operating segments . gross profit gross profit margin and dollars increased in 2014 primarily due to reversal of forward loss reserve as a result of a settlement with a customer , a favorable product mix , an approximately $ 0.8 million workers ' compensation audit refund related to prior 35 years , combined with charges in the prior year of approximately $ 14.1 million in the ss operating segment , partially offset by an increase in accrued compensation and benefit costs . selling , general and administrative expenses sg & a expenses increased in 2014 primarily due to to higher accrued compensation and benefit costs that was partially offset by lower non-recurring professional fees and the prior year included an approximate $ 0.5 million charge related to our debt repricing transaction . interest expense interest expense decreased in 2014 primarily due to lower outstanding debt balances and interest rate reduction as a result of repricing our term loan towards the end of the first quarter of 2013. see note 9 to our consolidated financial statements included in part iv , item 15 ( a ) of this annual report on form 10-k for further information on our long-term debt . income tax expense ( benefit ) we recorded income tax expense of approximately $ 6.4 million ( an effective tax rate of 24 % ) in 2014 , compared to an income tax benefit of approximately $ 2.0 million ( an effective tax benefit rate of 21 % ) in 2013. our effective tax rate of approximately 24 % for 2014 was lower than the federal statutory rate of 35 % primarily due to the benefit of the federal qualified domestic production activities deduction and the federal research and development tax credit . these benefits were approximately $ 0.6 million and $ 2.4 million , respectively . our effective tax benefit rate of approximately 21 % in 2013 was lower than the federal statutory rate of 35 % primarily due to the benefit of the federal qualified domestic production activities deduction and the federal research and development tax credit . these benefits were approximately $ 0.8 million and $ 4.5 million , respectively . the approximately $ 4.5 million benefit included approximately $ 2.0 million of 2012 federal research and development tax credit benefit recognized in the first quarter of 2013. the 2012 benefit was recognized in 2013 as a result of the american taxpayer relief act of 2012 ( the “ act ” ) . the act extended the federal research and development tax credit for the years 2013 and 2012. net income and earnings per diluted share net income and earnings per diluted share for 2014 were approximately $ 19.9 million , or $ 1.79 per diluted share , compared to approximately $ 11.4 million , or $ 1.05 per diluted share , for 2013. net income for 2014 increased primarily due to higher gross profit , insurance recoveries related to property and equipment , lower interest expense combined with charges of approximately $ 14.1 million recorded in the prior year related to the embraer legacy 450/500 and boeing 777 wing tip contracts , partially offset by higher income tax expense . 36 business segment performance we report our financial performance based upon the two reportable operating segments ; ss and es . the results of operations differ between our reportable operating segments due to differences in competitors , customers , extent of proprietary deliverables and performance . the following table summarizes our business segment performance for 2014 and 2013 : replace_table_token_13_th ( 1 ) includes costs not allocated to either the ss or es operating segments . ( 2 ) 2013 includes approximately $ 14.1 million in charges related to fourth quarter asset impairment charges of $ 5.7 million on the embraer legacy 450/500 contracts and $ 1.3 million on the boeing 777 wing tip contract which are added back to adjusted ebitda ; forward loss reserves of $ 3.9 million on the embraer legacy 450/500 contracts and $ 1.3 million on the boeing 777 wing tip contract ; and inventory write-offs of $ 1.9 million on the embraer legacy 450/500 contracts . ( 3 ) 2013 includes approximately $ 1.2 million of workers ' compensation insurance expenses included in gross profit and not allocated to the operating segments . ( 4 ) insurance recoveries related to property and equipment included as other income . 37 structural systems ss 's net revenues in 2014 increased approximately 1 % primarily due to an approximate 10 % increase in commercial aerospace revenue that was partially offset by an approximate 9 % decrease in military and space revenue .
| another factor contributing to the reduction in gross profit include an approximate $ 7.8 million due to unfavorable product mix . the difference in the results was also impacted by a 2014 nonrecurring reversal of an approximate $ 3.4 million forward loss reserve related to a customer settlement . selling , general and administrative expenses ( “ sg & a ” ) sg & a expenses decreased in 2015 primarily due to to lower accrued compensation and benefit costs of approximately $ 2.9 million and lower discretionary expenses as a result of the cost savings initiatives we have implemented , partially offset by higher professional service fees of approximately $ 1.9 million and restructuring charges related to severance and benefits and early termination of leases of approximately $ 2.1 million . goodwill impairment in 2015 , the non-cash charge from the impairment of the entire goodwill in the ss reporting unit was the result of the annual impairment test during the fourth quarter of 2015 that indicated the carrying value exceeded the fair value . the decrease in fair value was due to the lowered revenue outlook in our military and space end-use markets caused by the decrease in u.s. government defense spending . therefore , requiring us to perform step two of the goodwill impairment test . based on the step two test , we impaired the entire goodwill for the ss reporting unit of approximately $ 57.2 million . no such impairment was required in 2014. intangible asset impairment in 2015 , the non-cash charge from the impairment of an intangible asset in es was due to divesting businesses in es and discontinued use of the indefinite-lived trade name intangible asset going forward of approximately $ 32.9 million . no such impairment was required in 2014. interest expense interest expense decreased in 2015 compared to 2014 primarily due to lower outstanding debt balance and lower interest rate on our outstanding debt as a result of completing the refinancing of our debt
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since inception , we have devoted substantially all of our resources to research and development activities , including the clinical development of our current product candidates , momelotinib , sra737 and sra141 , and our former lead product candidate pnt2258 , and to provide general and administrative support for these operations . we have never generated revenue and have incurred significant net losses since inception . our net losses were $ 88.3 million , $ 53.3 million and $ 42.0 million for the year ended december 31 , 2019 , 2018 and 2017 , respectively . as of december 31 , 2019 , we had an accumulated deficit of $ 765.7 million , of which approximately $ 428 million pertained to the revaluation and conversion of redeemable convertible preferred stock upon our initial public offering in july 2015. during the second quarter of 2019 , we announced plans to prioritize our existing resources on the development of momelotinib , our lead product candidate . we also announced we have launched a campaign exploring non-dilutive strategic options to support any future continued development of our portfolio of ddr assets , consisting of sra737 and sra141 . we expect to incur significant expenses and increasing operating losses for the foreseeable future . we anticipate that our expenses will increase substantially as we : invest to further develop our lead product candidate , momelotinib ; hire additional clinical , scientific , drug development and management personnel , as well as personnel to support any future commercialization efforts ; invest in scaling our manufacturing capacity to support development and our global commercialization strategy ; seek regulatory and marketing approvals for any product candidates that we may develop ; achieve regulatory milestones that trigger payments due under our asset purchase agreement with gilead ; ultimately establish a sales , marketing and distribution infrastructure to commercialize any drugs for which we may obtain marketing approval ; acquire or in-license additional product candidates and technologies ; develop additional product candidates ; defend against potential lawsuits or other legal issues ; 80 maintain , expand and protect our intellectual property portfolio ; and add operational , financial and management information systems and personnel to continue to operate as a public company . in november 2019 , we completed an underwritten public offering of an aggregate of ( i ) 103,000 shares of series a convertible voting preferred stock ( series a preferred stock ) that all converted into 7,803,273 shares of common stock in january 2020 , ( ii ) series a warrants to purchase up to an aggregate of 7,802,241 shares of our common stock at an exercise price equal to $ 13.20 , and ( iii ) series b warrants to purchase up to an aggregate of 2,574,727 shares of common stock . each share of series a preferred stock and the accompanying series a and series b warrants were issued at a combined price to the public of $ 1,000. the aggregate net proceeds received by us from the offering were $ 97.7 million , net of underwriting discounts and commissions and offering expenses . the series b warrants may only be exercised by paying the exercise price in cash , and if fully exercised would amount to approximately $ 34.0 million in proceeds to us . we have funded our operations to date primarily from the issuance and sale of our common stock and convertible voting preferred stock through public offerings , and our convertible and redeemable convertible preferred stock in private financings and , to a lesser extent , through debt financings and exercises of our preferred stock warrants issued in private financings . as of december 31 , 2019 , we had cash and cash equivalents of $ 147.5 million . on january 21 , 2020 , our shareholders approved an amendment to our certificate of incorporation to effect a reverse split of our common stock ( reverse stock split ) . following the approval of our shareholders , on january 21 , 2020 , our board of directors approved the specific ratio for the reverse stock split , which became effective on january 22 , 2020 , at 1-for-40 . the authorized shares and par value of the common and preferred stock were not adjusted as a result of the reverse stock split . all issued and outstanding common stock , warrants for common stock , options for common stock and per share amounts contained in this annual report and the consolidated financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented . components of statements of operations operating expenses research and development research and development expenses consist primarily of the following : fees , milestone payments or other expenses incurred in connection with license and asset purchase agreements and their related amendments ; personnel-related costs , which include salaries , benefits , stock-based compensation , recruitment fees and travel costs ; costs associated with research and preclinical studies , clinical trials , regulatory activities and manufacturing activities to support clinical activities ; fees paid to external service providers that conduct certain research and development , clinical and manufacturing activities on our behalf ; and facility-related costs , which include direct and allocated expenses for rent and maintenance of facilities , depreciation and amortization expenses and other supplies . the largest recurring component of our total operating expenses has historically been our investment in research and development activities , including the development of our lead product candidate momelotinib and sra737 and sra141 . we expect our research and development expenses will increase over the next few years as we advance momelotinib , achieve regulatory milestones that trigger payments due under our asset purchase 81 agreement with gilead , pursue regulatory approval of momelotinib in the united states and other jurisdictions , expand our portfolio of product candidates and prepare for potential commercialization , which will require a significant investment in areas related to contract manufacturing and inventory buildup . the process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming . story_separator_special_tag we may never succeed in achieving marketing approval for our lead product candidate , momelotinib . the probability of success of our product candidates may be affected by numerous factors , including clinical data , regulatory developments , competition , manufacturing capability and commercial viability . as a result , we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization of momelotinib . general and administrative general and administrative expenses consist of personnel-related costs , facility-related costs , business insurance allocated expenses and professional fees for services , including legal , patent prosecution and maintenance , human resources , audit and accounting services . personnel-related costs consist of salaries , benefits , stock-based compensation , recruitment fees , severance costs and travel costs . we expect to incur additional expenses associated with supporting our growing research and development activities , preparing for potential commercialization , continuing to operate as a public company and other administration and professional services . other income ( expense ) , net changes in fair value of warrant liabilities our common stock warrants issued in connection with our november 2019 financing are classified as liabilities on our consolidated balance sheets and , as such , are re-measured to fair value at each balance sheet date , with the corresponding gain or loss from the adjustment recorded in the consolidated statement of operations . the changes in the fair value is directly attributable to the change in the fair value of the underlying stock . other income ( expense ) , net other income ( expense ) , net primarily consists of ( i ) interest earned on our cash and cash equivalents , ( ii ) interest expense , including final payment and prepayment fees and the full non-cash amortization of debt issuance costs , associated with our term loan , ( iii ) offering expenses incurred pertaining to the issuance of warrants , and ( iv ) foreign currency exchange gains and losses related to transactions and monetary asset and liability balances denominated in currencies other than the u.s. dollar . foreign currency exchange gains and losses may fluctuate in the future due to changes in foreign currency exchange rates . provision for ( benefit from ) income taxes , net provision for ( benefit from ) income taxes , net consists of federal and state income taxes in the united states , income tax benefit resulting from research and development tax credits in canada , income taxes in canada and australia , as well as deferred income taxes reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes , and changes in related valuation allowance . we did not record a provision for u.s. federal income taxes for the year ended december 31 , 2019. our tax benefit relates to research and development tax credits in canada and our income tax provision relates to income taxes in canada and australia . our net u.s. deferred tax assets continue to be offset by a full valuation allowance . 82 story_separator_special_tag style= '' margin-top:1em ; margin-bottom:0em ; page-break-before : always '' > invest in scaling our manufacturing capacity to support development and our global commercialization strategy ; seek regulatory and marketing approvals for any product candidates that we may develop ; achieve regulatory milestones that trigger payments due under our asset purchase agreement with gilead ; ultimately establish a sales , marketing and distribution infrastructure to commercialize any drugs for which we may obtain marketing approval ; acquire or in-license additional product candidates and technologies ; develop additional product candidates ; defend against potential lawsuits or other legal issues ; maintain , expand and protect our intellectual property portfolio ; and add operational , financial and management information systems and personnel to continue to operate as a public company . to fund our current operating plans , we will need to raise additional capital . our existing cash and cash equivalents will not be sufficient for us to complete development and prepare for commercializing momelotinib . accordingly , we will continue to require substantial additional capital to continue our clinical development and potential commercialization activities ; however , we believe that our existing cash and cash equivalents will be sufficient to fund our current operating plans into the second half of 2022. we can not assure you that we will ever be profitable or generate positive cash flow from operating activities . however , our forecast for the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties , and actual results could vary materially . the amount and timing of our future funding requirements will depend on many factors , including the pace and results of our preclinical and clinical development efforts . we plan to continue to fund our current operating plans ' needs through equity financings or other arrangements . to the extent that we raise additional capital through future equity financings , the ownership interest of our stockholders will be diluted , and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders . if we raise additional funds through the issuance of debt securities , these securities could contain covenants that would restrict our operations . there can be no assurance that such additional financing , if available , can be obtained on terms acceptable to us . if we are unable to obtain such additional financing , we would need to reevaluate our future operating plans . we intend to seek non-dilutive strategic options to support the continued development of sra737 and sra141 in the future .
| attributable to a $ 0.5 million decrease in personnel-related and allocated overhead costs and a $ 0.2 million decrease in business development costs , partially offset by a $ 0.1 million increase in professional fees for the year ended december 31 , 2019. changes in fair value of warrant liabilities the changes in the fair value of our warrant liabilities were directly attributable to the change in the fair value of the underlying stock . 83 other income ( expense ) , net other income ( expense ) , net increased $ 2.3 million , from $ 1.8 million of other income , net in 2018 to $ 0.5 million of other expense , net in 2019. the increase was primarily attributable to offering expenses of $ 1.3 million pertaining to warrants issued in the 2019 public offering , $ 0.7 million increase in interest expense incurred on the term loan , a $ 0.2 million decrease in interest income due to a lower average cash and cash equivalents balance during the year ended december 31 , 2019 , and a $ 0.1 million increase in foreign exchange loss for the year ended december 31 , 2019. benefit from income taxes , net net benefit from income taxes was $ 0.2 million in 2019 , compared to $ 0.3 million in 2018. the net benefit from income taxes during the year ended december 31 , 2019 primarily represented benefit from foreign research and development tax credits . liquidity and capital resources capital resources since our inception , we have never generated revenue and have incurred significant net losses . we have funded our operations to date primarily from the issuance and sale of our common stock and convertible voting preferred stock through public offerings , our convertible and redeemable convertible preferred stock in private financings and , to a lesser extent , through debt financings and exercises of our preferred stock warrants issued
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we believe players choose to pay for virtual items for the same reasons they are willing to pay for other forms of entertainment – they enjoy the additional playing time or added convenience , the ability to personalize their own game boards , the satisfaction of leveling up and the opportunity for sharing creative expressions . we believe players are more likely to purchase virtual items when they are connected to and playing with their friends , whether those friends play for free or purchase virtual items . players may also elect to pay a one-time fee to play certain mobile games free of third-party advertisements for limited periods of time . 31 on mobile platforms , players purchase our virtual items through various widely accepted payment methods offered in the games , including apple itunes accounts and google play accounts . advertising and other . advertising revenue primarily includes display advertisements , engagement advertisements and offers and branded virtual items and sponsorships . other revenue primarily consists of royalties received from the licensing of our brands . key metrics we regularly review a number of metrics , including the following key financial and operating metrics , to evaluate our business , measure our performance , identify trends in our business , prepare financial projections and make strategic decisions . key financial metrics revenue and bookings . bookings is a non-gaap financial measure that is equal to revenue recognized plus or minus the change in deferred revenue during the period . we record the sale of virtual items as deferred revenue and then recognize that revenue over the estimated average playing period of payers or as the virtual items are consumed . advertising sales consisting of certain branded virtual items and sponsorships are also initially recorded to deferred revenue and then recognized ratably over the estimated life of the branded virtual item , similar to online game revenue , or over the term of the advertising arrangement , depending on the nature of the agreement . bookings is a fundamental top-line metric we use to manage our business , as we believe it is a useful indicator of the sales activity in a given period . over the long-term , the factors impacting our revenue and bookings are the same . however , in the short term , there are factors that may cause revenue to exceed or be less than bookings in any period . we use revenue and bookings to evaluate the results of our operations , generate future operating plans and assess the performance of our company . while we believe that bookings are useful in evaluating our business , this information should be considered as supplemental in nature and is not intended to be considered in isolation of , as a substitute for , or as superior to , revenue recognized in accordance with u.s. gaap . in addition , other companies , including companies in our industry , may calculate bookings differently or not at all , which reduces its usefulness as a comparative measure . key operating metrics we manage our business by tracking several operating metrics : “ mobile daus , ” which measure daily active users of our mobile games , “ mobile maus , ” which measure monthly active users of our mobile games , “ mobile muus , ” which measure monthly unique users of our mobile games , “ mobile mups , ” which measure monthly unique payers in our mobile games , and “ mobile abpu , ” which measures our average daily mobile bookings per average mobile daus , each of which is recorded and estimated by our internal analytics systems . we determine these operating metrics by using internal company data based on tracking of user account activity . we also use information provided by third parties , including third party network logins provided by platform providers , to help us track whether a player logged in under two or more different user accounts is the same individual . we believe that the amounts are reasonable estimates of our user base for the applicable period of measurement and that the methodologies we employ and update from time-to-time are reasonably based on our efforts to identify trends in player behavior ; however , factors relating to user activity and systems and our ability to identify and detect attempts to replicate legitimate player activity may impact these numbers . mobile daus . we define mobile daus as the number of individuals who played one of our mobile games during a particular day . under this metric , an individual who plays two different mobile games on the same day is counted as two mobile daus . we use information provided by third parties to help us identify individuals who play the same mobile game to reduce this duplication . however , because we do not always have the third party network login data to link an individual who has played under multiple user accounts , a player may be counted as multiple mobile daus . average mobile daus for a particular period is the average of the mobile daus for each day during that period . we use mobile daus as a measure of mobile audience engagement . mobile maus . we define mobile maus as the number of individuals who played one of our mobile games in the 30-day period ending with the measurement date . under this metric , an individual who plays two different mobile games in the same 30-day period is counted as two mobile maus . we use information provided by third parties to help us identify individuals who play the same mobile game to reduce this duplication . however , because we do not always have the third party network login data to link an individual who has played under multiple user accounts , a player may be counted as multiple mobile maus . average mobile maus for a particular period is the average of the mobile maus at each month-end during that period . story_separator_special_tag we use mobile maus as a measure of total mobile game audience size . mobile muus . we define mobile muus as the number of individuals who played one or more of our mobile games , which we were able to verify were played by the same individual in the 30-day period ending with the measurement date . an individual who plays more than one of our mobile games in a given 30-day period would be counted as a single mobile muu to the extent we can verify that the mobile games were played by the same individual . however , because we do not always have the third party network login data necessary to link an individual who has played under multiple user accounts in a given 30-day period , an individual may be counted as multiple mobile muus . because many of our players play more than one mobile game in a given 30-day period , mobile muus are always equal to or lower than mobile maus in any given time period . average mobile muus for a particular period is the average of the mobile muus at each month end during that period . we use mobile muus as a measure of total audience reach across our network of mobile games . 32 mobile mups . we define mobile mups as the number of individuals who made a payment in a mobile game at least once during the applicable 30-day period t hrough a payment method for which we can quantify the number of individuals . mobile mups do not include individuals who use certain payment methods for which we can not quantify the number of unique payers . however , because we do not always have the third p arty network login data necessary to link an individual who has paid under multiple user accounts in a 30-day period , a player who has paid using multiple user accounts may be counted as multiple mobile mups . mobile mups are presented as an average of the three months in the applicable quarter . we use mobile mups as a measure of the number of individuals who made payments across our network of mobile games during a 30-day period . mobile abpu . we define mobile abpu as our total mobile bookings in a given period , divided by the number of days in that period , divided by the average mobile daus during the period . we believe that mobile abpu provides useful information to investors and others in understanding and evaluating our results in the same manner as management . we use mobile abpu as a measure of overall monetization across all of our mobile players through the sale of virtual items and advertising . our business model around our social games is designed so that , as more players play our games , social interactions increase and the more valuable our games and our business become . all engaged players of our games help drive our bookings , online game revenue and advertising revenue . virtual items are purchased by players who are socializing with , competing against or collaborating with other players , most of whom do not buy virtual items . accordingly , we primarily focus on the aforementioned key operating metrics , which we believe collectively best reflect key audience metrics . consistent with our focus on mobile gaming platforms , beginning with the first quarter of 2019 , we now report these audience-related metrics based only on mobile platforms . we have ceased including our web-based games in these audience metrics as a result of their decreasing significance as part of our overall financial and operating results and the technical challenges resulting from increased volumes of apparent player activity that we are unable to reliably validate and de-duplicate , as these web-based games are generally more susceptible than mobile platforms to attempts to replicate legitimate player activity . in order to provide our best estimates of actual player metrics , we continually evaluate our methodologies including estimating audience metrics by applying data science techniques to identify suspicious player behavior . while we devote significant time and effort to developing player metrics , our estimates may not accurately reflect the actual amount of players in a reported period and our methodologies do not consistently identify all invalid traffic in prior reporting periods . specifically , in the first quarter of 2019 , we updated our methodologies and approaches for identifying automated attempts to replicate legitimate player activity . our estimation of such invalid traffic can vary from period to period , and we have identified periodic spikes in such activity ( for example , in december 2018 when we previously included web-based games in our audience metrics , an invalid spike in web-based zynga poker player activity resulted in our exclusion of the game 's web-based audience data from that month ) . the table below shows average mobile daus , mobile maus , mobile muus , mobile mups and mobile abpu for the three and twelve months ended december 31 , 2019 and 2018 : replace_table_token_6_th ( 1 ) we do not always have the third party network login data to link an individual who has played under multiple user accounts and accordingly , actual mobile dau and mobile mau may be lower than reported due to the potential duplication of these individuals . specifically , mobile daus and mobile maus incrementally include merge magic ! and games acquired from gram games in may 2018 and small giant in january 2019 . ( 2 ) excluded from mobile muus and mobile mups are players of our facebook instant games , snapchat game , merge magic ! , games acquired from gram games ( beginning with and subsequent to our second quarter 2018 acquisition ) and small giant ( beginning with and subsequent to our first quarter 2019 acquisition ) .
| these increases were offset by a decrease in mobile online game revenue from zynga poker and dawn of titans , in the amounts of $ 23.9 million and $ 10.6 million , respectively , due to the overall decline in bookings and audience metrics in these games . all other mobile games accounted for the remaining net increase of $ 5.1 million in mobile online game revenue . the decrease in other online game revenue of $ 14.3 million was primarily attributable to a decrease in revenue from farmville 2 and zynga poker in the amounts of $ 9.9 million and $ 4.4 million , respectively , generally due to the overall decline in bookings and audience metrics in these games . 36 during 2019 , there was no significant impact from discontinued games or from changes in our estimated average playing period of payers that required adjusting the recognition period of deferred revenue generated in prior periods . during 2018 , we recogni zed $ 0.9 million of online game revenue and income from operations from games that have been discontinued as there is no further performance obligation , which did no t impact our reported earnings per share . further , there were no changes in our estimated a verage playing period of payers that required adjusting the recognition period of deferred revenue generated in prior periods during 2018. in the year ended december 31 , 2019 , merge dragons ! , empires & puzzles and zynga poker were our top online revenue-generating games and comprised 20 % , 17 % and 11 % , respectively , of our online game revenue for the period . during 2018 , zynga poker , csr racing 2 and hit it rich ! slots were our top online revenue-generating games and comprised 21 % , 14 % and 10 % , respectively , of our online game revenue for the period . no other game generated more than 10 % of online game revenue during either of these periods . consumable virtual items accounted for 26 % and 43 % of online game revenue
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our live events segment is composed of a diverse range of live events , which we create , promote and produce , including music concerts , multi-day music festivals , consumer expositions and trade shows , athletic events , lifestyle events and other forms of entertainment . our other media and entertainment is primarily composed of our digital marketing services offering , national digital assets and e-commerce offering and also includes tower and other miscellaneous revenue . local advertising our local advertising segment is composed of 311 owned and operated radio stations and over 325 owned and operated local websites in 66 small and mid-sized markets . almost all of our radio stations have local companion websites that utilize the station brands and are populated with proprietary , original content created or curated by our local media personalities . our primary source of local advertising net revenue is the sale of advertising and sponsorship on our radio stations , local companion websites , radio stations ' online streams and mobile applications . our sales of advertisements and sponsorship are primarily affected by the demand for advertising from local , regional and national advertisers and the advertising rates we charge . we believe that the sale of our online ( in-stream ) and mobile advertisements , which currently have rates per advertisement that are less than those of terrestrial radio advertisements , has not negatively impacted our terrestrial radio advertising net revenue . should a significant and sudden shift in demand for these products toward in-stream and mobile occur , there could be a material adverse impact on our financial condition and results of operations if we are unable to increase rates accordingly . we believe that as a result of our strong brands and quality in-stream and mobile offerings we are well positioned to increase rates as demand increases for these products . advertising demand and rates are based primarily on our ability to attract audiences to our various products in the demographic groups targeted by its advertisers , as measured principally by various services on a periodic basis . we endeavor to develop strong audience loyalty and believe that the diversification of formats on our radio stations and websites helps to insulate our radio stations and websites from the effects of changes in musical tastes of the public with respect to any particular format . we strive to maximize net revenue by managing our advertising inventory time and adjusting prices up or down based on supply and demand . our selling and pricing activity is based on demand for our advertising inventory and , in general , we respond to this demand by varying prices rather than by varying our target inventory levels . the optimal number of advertisements available for sale depends on the platform and in the case of our radio stations and their streams , the programming format of a particular radio station . each of our products has a general target level of inventory available for advertising . we seek to broaden our base of advertisers in each of our markets by providing a wide array of audience demographic segments across our platforms , thereby providing each of our potential advertisers with an effective means of reaching a targeted demographic group . 48 our local advertising contracts are generally short-term . in the local media industry , companies sometimes utilize barter agreements that exchange advertising time for goods or services such as travel or lodging , instead of cash . barter revenue totaled $ 8.0 million , $ 9.3 million and $ 13.1 million for the years ended december 31 , 2012 , 2013 and 2014 , respectively . barter expense totaled $ 7.5 million , $ 8.5 million and $ 12.0 million for the years ended december 31 , 2012 , 2013 and 2014 , respectively . our most significant local advertising expenses are sales , programming , digital , marketing and promotional , engineering and general and administrative expenses . we strive to control these expenses by closely monitoring and managing each local advertising market and through efficiencies gained from the centralization of finance , accounting , legal and human resources functions and management information systems . we also use our scale and diversified geographic portfolio to negotiate favorable rates with vendors , where feasible . a portion of our local advertising segment 's expenses are variable . these variable expenses primarily relate to sales costs , such as commissions as well as certain programming costs , such as music license fees . other programming , digital , engineering and general and administrative expenses are primarily fixed costs . marketing and promotions expenses are discretionary and are primarily incurred in an effort to maintain and or increase our audience share . live events our primary source of live events segment 's net revenue is from ticket sales . our live events also generate substantial net revenue through the sale of sponsorships , concessions , merchandise and other ancillary products and services . live event ticket pricing is based on consumer demand for each event and the geographic location and target audience demographic of each event . unforeseen events such as inclement weather conditions can have an adverse impact on our live event revenue . in certain cases , we mitigate this risk with insurance policies , which cover a portion of lost revenue as a result of unforeseen events including inclement weather . a portion of the expenses attributable to the live events business is variable , including sponsorship sales commissions and certain costs related to production . other media and entertainment the other media and entertainment business is primarily composed of our digital marketing services offering , national digital assets and e-commerce offering and also includes tower and other miscellaneous revenue . these assets extend our audience and advertiser reach into and beyond our local advertising markets . our primary source of other media and entertainment net revenue is from national digital advertising and digital marketing services . demand for natural digital advertising is primarily for display advertisements . story_separator_special_tag our national digital assets are subject to general advertising trends as well as advertisers ' perception and demand for our products . a downturn in advertising spending or the economy could have an adverse effect on this net revenue . we believe this risk is mitigated by the subscription nature of our digital marketing services as well as the level of investment in our advertising products , services and brands . other sources of revenue within our other media and entertainment segment include tower and other miscellaneous revenue . we generate revenue from leasing space on our own tower facilities sold generally to communications companies and local authorities , as well as from other miscellaneous revenue sources . a portion of the expenses attributable to the other media and entertainment business is variable . these variable expenses primarily relate to sales costs , such as commissions . certain technology infrastructure related to our digital marketing services , national digital assets and e-commerce business are generally fixed costs in nature . seasonality our net revenue varies throughout the year . we expect that our first calendar quarter will produce the lowest net revenue for the year , as advertising expenditures generally decline following the winter holidays , and the second 49 and third calendar quarters will generally produce the highest net revenue for the year . during even-numbered years , net revenue generally includes increased advertising expenditures by political candidates , political parties and special interest groups . political spending is typically highest during the fourth quarter . our operating results in any period may be affected by the incurrence of advertising and promotion expenses that typically do not have an effect on net revenue generation until future periods , if at all . in addition to advertising revenue seasonality , our live events net revenue exhibits seasonality resulting in the second quarter being the highest revenue period . macroeconomic indicators our advertising revenue for our businesses is highly correlated to changes in gross domestic product ( “ gdp ” ) as advertising spending has historically trended in line with , and in our experience often lags , changes in gdp . according to the u.s. department of commerce , u.s. gdp growth for 2014 was 2.4 % for the year ended december 31 , 2014. equity compensation charge related to conversion in connection with the company 's conversion from a limited liability company to a delaware corporation , the company replaced its existing management equity compensation program with 186,922 shares of the company 's class a common stock and 267,624 shares of the company 's class b common stock and a new grant of options to purchase 3,082,298 shares of class a common stock and options to purchase 3,876,040 shares of class b common stock , in each case based on the offering price of $ 11.00 per share . this was the result of the conversion of the company 's outstanding class b incentive units , which constituted the company 's management equity compensation program , into the shares of class a common stock and class b common stock pursuant to the conversion , and via a grant of the options following the conversion but prior to the completion of the offering . the options granted have an exercise price equal to the public offering price of between $ 11.00 and $ 11.48 per share . in connection with these grants , in the third calendar quarter of 2014 , the company recorded a one-time , non-recurring , non-cash stock based compensation expense , of approximately $ 37.6 million . this amount consisted of approximately $ 5.0 million with respect to the conversion of class b units into shares of class a common stock and class b common stock , and approximately $ 32.6 million with respect to the options granted . this one-time charge reduced our net income for the year ended 2014 by approximately $ 24.9 million . the company does not expect to record any future stock-based compensation expense in connection with the conversion of its class b units pursuant to the conversion or the grant of options described above . initial public offering on july 24 , 2014 , our shares began trading on the nyse in connection with our ipo of 8,333,333 shares of common stock , at an offering price of $ 11.00 per share . our shares are traded on nyse under the symbol `` tsq . '' we received proceeds from the ipo of $ 82.1 million , net of underwriting discounts and commissions of $ 6.4 million and offering expenses of $ 3.2 million . offering expenses incurred as of december 31 , 2014 of $ 3.2 million were recorded as a reduction in paid-in capital . subsequently , on august 15 , 2014 , the underwriters of our ipo partially exercised their option to purchase additional shares electing to purchase 590,000 shares of class a common stock at the offering price of $ 11.00 per share . we recognized net incremental proceeds of approximately $ 6.0 million , net of underwriting discounts and commissions of $ 0.5 million . emerging growth company the company is an “ emerging growth company , ” as defined in the jumpstart our business startups act of 2012 ( “ jobs act ” ) , and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “ emerging growth companies ” including , but not limited to , not being required to comply with the auditor attestation requirements of section 404 ( b ) , and exemptions from the requirements of sections 14a ( a ) and ( b ) of the securities exchange act to hold a nonbinding advisory vote of stockholders on executive compensation and any golden parachute payments not previously approved . executive summary the key developments in our business for the year ended december 31 , 2013 are summarized below : ▪ consolidated net revenue increased $ 45.8 million , or 20.6 % , primarily due to several acquisitions made during the year .
| the $ 28.3 million of growth related to acquisitions is attributable to ( i ) $ 24.0 million from cumulus i assets , ( ii ) $ 1.2 million from peak 's boise market and ( iii ) $ 9.0 million from cumulus ii assets , offset by ( iv ) a $ 0.1 million decline in net revenue attributable to double o and ( v ) a $ 5.8 million decline in net revenue attributable to markets divested to cumulus as part of the cumulus i transaction . the $ 3.0 million of growth related to our existing business was primarily driven by an increase in non-political net revenue of $ 5.7 million offset by a decrease in political net revenue of $ 2.7 million . live events net revenue for the year ended december 31 , 2013 increased $ 7.2 million , or 52.9 % , as compared to the year ended december 31 , 2012. the increase was composed of $ 2.5 million of growth from our existing business and $ 4.7 million of growth from acquisitions made during the years ended december 2012 and 2013 , including their subsequent performance from the date of acquisition . the $ 4.7 million of growth related to acquisitions is attributable to ( i ) $ 0.2 million from double o , ( ii ) $ 1.1 million from cumulus i assets , ( iii ) $ 0.1 million from cumulus ii assets and ( iv ) $ 3.7 million from various live events acquisitions , partially offset by ( v ) a $ 0.4 million decline in net revenue attributable to markets divested to cumulus as part of the cumulus i transaction . the $ 2.5 million of growth related to our existing business was primarily attributable to increases in the number , attendance and revenue per attendee of our live events . other media and entertainment net revenue for the year ended december 31 , 2013 increased $ 7.3 million , or 67.4 % , as compared to the year ended
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in the mendoza province , the maximum area allowed per type of production and activity per non-national is as follows : mining—25,000 hectares ( 61,776 acres ) , cattle ranching—18,000 hectares ( 44,479 acres ) , cultivation of fruit or vines—15,000 hectares ( 37,066 acres ) , horticulture—7,000 hectares ( 17,297 acres ) , private lot—200 hectares ( 494 acres ) , and other—1,000 hectares ( 2,471 acres ) . a hectare is a unit of area in the metric system equal to approximately 2.471 acres . however , these maximums will only be considered if the total 15 percent is reached . although currently , the area under foreign ownership in mendoza is approximately 8.6 percent , this law may apply to the company in the future and could affect the company 's ability to acquire additional real property in argentina . currently , the company owns approximately 4,138 acres of argentine rural land through awe , 2,050 acres are considered land held for cultivation of fruit or vines and 2,088 was purchased during 2017 to provide additional access to awe . because the maximum area for this type of land allowed per non-national is 25,000 hectares , the company is compliant with the law 's limit , were it to apply today . costs of compliance with the law may be significant in the future . currently , awld is developing lots for sale to third party builders and is not engaged in any construction activity . during the first quarter of 2018 , the company closed on the sale of certain of its phase 1 lots and recorded revenue of $ 870,000. in the next twelve months , the company expects to be able to deed the remaining phase 1 lots . revenue is recorded when the deeds are issued . as of december 31 , 2017 , the company has $ 1.7 million of deposits for pending sales . as reflected in our consolidated financial statements we have generated significant losses from operations of $ 7,685,390 and $ 6,560,871 for the years ended december 31 , 2017 and 2016 , 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 2017 and 2016 , we raised , net of repayments , approximately $ 9,271,000 and $ 7,056,000 , respectively 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 . 34 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 . in august 2017 , the company completed a strategic acquisition of land directly adjacent to its existing property at awe for $ 700,000 , which more than doubles the size of awe and provides room for continued expansion and growth . 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 . liquidity as reflected in our accompanying consolidated financial statements , we have generated significant losses which have resulted in a total accumulated deficit of approximately $ 75.5 million , 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 the years ended december 31 , 2017 and 2016 , stating that we have incurred significant losses and need to raise additional funds to meet our obligations and sustain our 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 . 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 the marketing of our products and continue the development of our real estate holdings . 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 on a timely basis ( including acquiring additional capital ) , our stockholders may lose their entire investment in us , because 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 we could ultimately be forced to discontinue our operations , liquidate and or seek reorganization under the u.s. bankruptcy code . 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 . story_separator_special_tag in addition , the company submitted its application for quotation on the otcqb marketplace and was approved on march 7 , 2016. the first trade on the over-the-counter market occurred on september 23 , 2016 . 35 story_separator_special_tag serif ; font-size : 10pt '' > 37 selling and marketing expenses selling and marketing expenses were approximately $ 348,000 and $ 155,000 from continuing operations , for the years ended december 31 , 2017 and 2016 , respectively , representing an increase of approximately $ 193,000 or 125 % . the increase is primarily due to expenses incurred during 2017 of which approximately $ 100,000 was related to a shareholder event held during 2017 and approximately $ 93,000 related to marketing efforts to promote our international wine sales . general and administrative expenses general and administrative expenses were approximately $ 7,015,000 and $ 6,107,000 from continuing operations for the years ended december 31 , 2017 and 2016 , respectively , representing an increase of approximately $ 908,000 or 15 % . the increase in general and administrative expenses is primarily related to approximately $ 721,000 increase in compensation related to increased corporate headcount , as certain cap employees were hired for corporate management positions , $ 222,000 in increases of legal and professional fees related to the uplisting of our common stock , and approximately $ 288,000 increase in argentine tax expense were partially offset by a $ 148,000 decrease in severance pay expense as well as the $ 152,000 impact of the decline in the value of the argentine peso vis-à-vis the u.s. dollar for the year ended december 31 , 2017 compared to the year ended december 31 , 2016. depreciation and amortization expense depreciation and amortization expense was approximately $ 193,000 and $ 65,000 during the years ended december 31 , 2017 and 2016 , respectively , an increase of approximately $ 128,000 or 197 % . it should be noted that approximately an additional $ 94,000 and $ 103,000 of depreciation and amortization expense was capitalized to inventory during the years ended december 31 , 2017 and 2016 , respectively . the increase in depreciation expense results from the purchases of property and equipment during the year . most of our property and equipment is located in argentina and the gross cost being depreciated is impacted by the devaluation of the argentine peso relative to the u.s. dollar . interest expense , net interest expense was approximately $ 321,000 and $ 208,000 during the years ended december 31 , 2017 and 2016 , respectively , representing an increase of approximately $ 113,000 or 54 % . the increase is primarily due to the argentine bank loan ( for principal of approximately $ 519,000 ) received during 2017 , as well as amortization of debt discount on a loan for the purchase of land in argentina . loss from discontinued operations on november 29 , 2016 , our board of directors determined that it was in the company 's best interest to close down dpec capital and we ceased our broker-dealer operations december 31 , 2016. on february 21 , 2017 , our request to finra for broker-dealer withdrawal ( “ bdw ” ) became effective . the loss from discontinued operations , incurred by the broker dealer operations , was approximately $ 106,000 for the year ended december 31 , 2017. awld also owned approximately 96.5 % of mercari communications group , ltd. ( “ mercari ” ) , a public shell corporation current in its sec reporting obligations . on december 20 , 2016 , we entered into a stock purchase agreement with a purchaser , whereby the purchaser agreed to purchase all of our shares or mercari for $ 260,000. the sale of mercari stock was completed on january 20 , 2017 and we received net proceeds after expenses of $ 199,200 . 38 liquidity and capital resources we measure our liquidity in variety of ways , including the following : for the years ended december 31 , 2017 2016 cash $ 358,303 $ 131,190 working capital deficiency $ ( 62,464 ) $ ( 1,643,034 ) based upon our working capital situation as of december 31 , 2017 , 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 , 2017 and 2016 , 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. which was discontinued at year end . during the year ended december 31 , 2017 , we issued 775,931 shares of series b convertible preferred stock at $ 10.00 per share to accredited investors in a private placement transaction for gross proceeds of approximately $ 7,759,500 , received proceeds of $ 1,280,000 from the issuance of convertible debt ( of which $ 1,260,000 was subsequently converted to series b convertible preferred stock ) , and issued 22,500 shares of common stock at $ 2.00 per share to accredited investors in a private placement transaction for net proceeds of $ 40,500. we also received $ 519,157 of cash proceeds from a bank loan . during the year ended december 31 , 2016 , we issued 3,146,875 shares of common stock at prices from $ 2.00 to $ 2.50 per share for cash proceeds of $ 7,097,862. on june 1 , 2016 , we issued an additional 470,771 common shares for no consideration , to investors who had purchased shares between december 2015 and may 2016 at a price of $ 2.50 per share , in order to effectively reduce the per share price to $ 2.00 per share . all shares were issued to accredited investors in private placement transactions .
| hotel room and event revenues were approximately ars $ 14.1 million and ars $ 12.5 million during both years ended december 31 , 2017 and 2016 , representing an increase of approximately ars $ 1.6 million , or 12.7 % due to higher occupancy and average room rates . restaurant revenues were approximately ars $ 5.2 million and 4.7 million during the years ended december 31 , 2017 and 2016. argentine winemaking revenues were approximately ars $ 4.4 million and 7.7 million during the years ended december 31 , 2017 and 2016 , respectively , representing a decrease of approximately ars $ 3.3 million or 43.1 % ; however , this decrease was offset by an increase in wine sale revenues in the united states and europe as a result of our expansion of distribution channels and additional investments in marketing and sales staff . other revenues , including golf , tennis and agricultural revenues , were ars $ 3.3 million and ars $ 1.7 million during the years ended december 31 , 2017 and 2016 , respectively . the increase of ars $ 1.6 million is primarily due to an increase in agricultural revenues . gross loss we generated a gross loss of approximately $ 130,000 from continuing operations for the year ended december 31 , 2017 as compared to a gross loss of approximately $ 234,000 from continuing operations for the year ended december 31 , 2016 , representing a decrease of $ 105,000 or 45 % . the improvement results primarily from the increase in winemaking revenues of approximately $ 280,000 and the increase in hotel and restaurant sales of approximately $ 125,000 , partially offset by the $ 30,000 impact of the decline in the value of the argentine peso vis-à-vis the u.s. dollar for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , and by the increase in the cost of goods sold as described below . cost of sales , which consists of
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tong lung manufactures and sells commercial and residential locksets . the residential portion of the business was part of the december 2012 sale of the hardware and home improvement business ( `` hhi '' ) and closed in april 2013 , as discussed below . the commercial portion of tong lung was retained by the company and is included within the security segment . in june 2012 , the company acquired aeroscout for $ 238.8 million , net of cash acquired . aeroscout is the market leader in real-time location systems ( `` rtls '' ) for healthcare and certain industrial markets and has been integrated into the security and industrial segments . in may 2012 , the company acquired powers fasteners ( `` powers '' ) for $ 220.5 million , net of cash acquired . powers is a distributor of several complementary product groups , including mechanical anchors , adhesive anchoring systems and powered forced-entry systems , mainly for commercial construction end customers . powers has been integrated into the cdiy segment . in january 2012 , the company acquired lista north america ( `` lista '' ) for $ 89.7 million , net of cash acquired . lista 's storage and workbench solutions complement the industrial & automotive repair division 's tool , storage , radio frequency identification ( “ rfid ” ) -enabled systems , and specialty supply product and service offerings . lista has been integrated into the company 's industrial segment . hhi and tong lung residential divestiture in december 2012 , the company sold hhi to spectrum brands holdings , inc. ( `` spectrum '' ) for approximately $ 1.4 billion in cash . hhi is a provider of residential locksets , residential builders hardware and plumbing products marketed under the 21 kwikset , weiser , baldwin , stanley , national and pfister brands . the majority of the hhi business was part of the company 's security segment , while the remainder was part of the company 's cdiy segment . the divestiture of the hhi business is part of the continued diversification of the company 's revenue streams and geographic footprint consistent with the company 's strategic framework . the purchase and sale agreement stipulated that the sale occur in a first and second closing , for approximately $ 1.3 billion and approximately $ 94 million , respectively . the first closing , which excluded the residential portion of the tong lung business , occurred on december 17 , 2012. the second closing , relating to the residential portion of the tong lung business , occurred on april 8 , 2013. the operating results of hhi , as well as the residential portion of tong lung , have been reported as discontinued operations in the consolidated financial statements . during 2013 , the company completed the 2012 income tax return filings which included the final calculations of the tax gain on hhi sale which took place in 2012. as a result of these tax return filings , the company recorded an income tax benefit of approximately $ 19.1 million within discontinued operations related to finalization of the taxable gain on the hhi sale . changes to the original tax gain were driven primarily by the determination of the final purchase price allocation and the finalization of the u.s. tax basis calculation , both of which were finalized during the year . the net proceeds from this divestiture were used to repurchase $ 850 million of the company 's common stock and for debt reduction , to ensure the company 's leverage ratios remain in its target range . the company used existing sources of liquidity to fund the infastech acquisition described above . refer to note e , acquisitions , and note t , discontinued operations , for further discussion of the company 's acquisitions and divestitures . driving further profitable growth within existing platforms while diversifying the business portfolio through expansion in the company 's specified growth platforms is important , management recognizes that the branded tool and storage product offerings in the cdiy and industrial segment businesses are important foundations of the company that continue to provide strong cash flow and growth prospects . management is committed to growing these businesses through innovative product development , as evidenced by cdiy 's success with the first ever battery powered framing nailer under the d e walt brand , the black+decker steam mop and the stanley fatmax autolock tape measure . brand support , continued investment in emerging markets and a sharp focus on global cost competitiveness are all expected to foster vitality over the long term . the company 's iar business within the industrial segment continues to reap benefits from its vertical integration of hand and power tools used for industrial and automotive repair purposes as well as advanced industrial storage solutions . continuing to invest in the stanley black & decker brands the company has a strong portfolio of brands associated with high-quality products including stanley® , black+decker® , d e walt® , porter-cable® , bostitch® , proto® , mac® , facom® , aeroscout® , powers® , lista® , sidchrome® , vidmar® , sonitrol® , and gq® . the stanley® , black+decker® and d e walt® brands are recognized as three of the world 's great brands and are amongst the company 's most valuable assets . sustained brand support has yielded a steady improvement across the spectrum of legacy stanley brand awareness measures , notably a climb in unaided stanley hand tool brand awareness from 27 % in 2005 to 40 % in 2013. during 2013 , stanley and d e walt had prominent signage at 10 major league baseball stadiums or 33 % of all major league baseball games . story_separator_special_tag the company has also maintained long-standing nascar racing sponsorships which provided brand exposure in over 38 race weekends in 2013. the company is in year six of a ten year alliance agreement with the walt disney world resort® whereby stanley® logos are displayed on construction walls throughout the theme parks and stanley® , mac® , proto® , and vidmar® brand logos and or products are featured in various attractions where they will be seen by millions of visitors each year . additionally , stanley is “ the official tool provider of the walt disney world resort®. ” in 2009 , the company also began advertising in the english premier league , which is the number one soccer league in the world , watched weekly by 650 million people . from the beginning of 2012 through the end of 2013 , the company advertised in approximately 361 televised events . starting in 2011 , the company became a sponsor of the liverpool football club and the fulham football club including player rights , hospitality assets and stadium signage . the company advertises in 60 televised professional bull riders events in the us and brazil and sponsors five riders . additionally , the company sponsors a team and two riders in moto gp , the world 's premiere motorcycle racing series , and has entered a partnership with the chinese basketball association ( cba ) . the company will continue to allocate its brand and advertising spend wisely generating more than 100 billion brand impressions annually . 22 the stanley fulfillment system ( sfs ) sfs employs continuous improvement techniques to streamline operations and drive efficiency throughout the supply chain . sfs has five primary elements that work in concert : sales and operations planning ( “ s & op ” ) , operational lean , complexity reduction , global supply management , and order-to-cash excellence . s & op is a dynamic and continuous unified process that links and balances supply and demand in a manner that produces world-class fill rates while minimizing dsi ( days sales of inventory ) . operational lean is the systemic application of lean principles in progressive steps throughout the enterprise to optimize flow toward a pre-defined end state by eliminating waste , increasing efficiency and driving value . complexity reduction is a focused and overt effort to eradicate costly and unnecessary complexity from the company 's products , supply chain and back room process and organizations . complexity reduction enables all other sfs elements and , when successfully deployed , results in world-class cost , speed of execution and customer satisfaction . global supply management focuses on strategically leveraging the company 's scale to achieve the best possible price and payment terms with the best possible quality , service and delivery among all categories of spend . order-to-cash excellence is a methodical , process-based approach that provides a user-friendly , automated and error-proof customer experience from intent-to-purchase to shipping and billing to payment , while minimizing cash collection cycle time and dso ( days sales outstanding ) . other benefits of sfs include reductions in lead times , rapid realization of synergies during acquisition integrations , and focus on employee safety . sfs disciplines helped to mitigate the substantial impact of material and energy price inflation that was experienced in recent years . sfs is instrumental in the reduction of working capital evidenced by the 40 % improvement in working capital turns for the company from 5.7 at the end of 2010 , after the merger with black & decker , to 8.0 at the end of 2013. the continued efforts to deploy sfs across the entire company and increase turns have created significant opportunities to generate incremental free cash flow . going forward , the company plans to further leverage sfs to generate ongoing improvements both in the existing business and future acquisitions in working capital turns , cycle times , complexity reduction and customer service levels , with a goal of ultimately achieving 10 working capital turns . certain items impacting earnings merger and acquisition-related and other charges impacting 2013 , 2012 and 2011 earnings throughout md & a , the company has provided a discussion of the outlook and results both inclusive and exclusive of the merger and acquisition-related and other charges . merger and acquisition-related charges relate primarily to the black & decker merger and niscayah and infastech acquisitions , while other charges relate to the losses on debt extinguishments that occurred in 2012 and 2013. the amounts and measures , including gross profit and segment profit , on a basis excluding such charges are considered relevant to aid analysis and understanding of the company 's results aside from the material impact of these charges . in addition , these measures are utilized internally by management to understand business trends , as once the aforementioned anticipated cost synergies from the black & decker merger and other acquisitions are realized , such charges are not expected to recur . the merger and acquisition-related and other charges are as follows : 2013 the company reported $ 394 million in pre-tax merger and acquisition-related and other charges during 2013 , which were comprised of the following : $ 30 million reducing gross profit primarily pertaining to integration-related matters and amortization of the inventory step-up adjustment for the infastech acquisition ; $ 136 million in selling , general & administrative expenses primarily for integration-related administrative costs and consulting fees , as well as employee related matters ; $ 52 million in other-net primarily related to deal transaction costs and the $ 21 million pre-tax loss on the extinguishment of $ 300 million of debt in the fourth quarter of 2013 ; and $ 176 million in net restructuring charges , which primarily represent niscayah-related restructuring charges and cost containment actions associated with the severance of employees . the tax effect on the above charges , some of which were not tax deductible , in 2013 was $ 121 million , resulting in an after-tax charge of $ 273 million , or $ 1.72 per diluted share .
| the hand tools & storage business sells measuring , leveling and layout tools , planes , hammers , demolition tools , knives , saws , chisels , tool boxes , sawhorses and storage units . the fastening & 26 accessories business sells pneumatic tools and fasteners including nail guns , nails , staplers and staples , concrete and masonry anchors , as well as power tool accessories which include drill bits , router bits , abrasives and saw blades . replace_table_token_5_th cdiy net sales increased $ 291.2 million , or 6 % , in 2013 compared to 2012 . overall , cdiy grew 4 % organically in 2013 largely due to successful new product introductions and promotions within the d e walt , black & decker and bostitch power tool lines . in north america , organic sales increased 4 % , which was primarily driven by promotions , new products and a strengthening residential construction market . the segment also realized 9 % organic growth in emerging markets as a result of increasing penetration in connection with the company 's growth initiatives . europe volumes increased 2 % due to new product introductions and market share gains despite continuing stagnant economic conditions . acquisitions contributed an additional 2 % of sales growth while the impacts from foreign currency translation were relatively flat . segment profit amounted to $ 798.0 million , or 14.6 % of net sales , in 2013 compared to $ 720.9 million or 13.9 % of net sales in 2012. excluding $ 13.0 million in merger and acquisition-related charges , segment profit totaled $ 811.0 million , or 14.8 % of net sales , in 2013 compared to $ 762.6 million , or 14.7 % of net sales , in 2012 ( excluding $ 41.7 million in merger and acquisition-related charges ) . the slight increase in segment profit year over year resulted primarily from higher volumes and productivity , partially offset by incremental investments in organic growth initiatives and negative impacts from foreign currency . cdiy net sales increased $ 186.7 million , or 4 % , in 2012 compared with 2011 . cdiy grew 5 % organically in 2012 largely due to market share gains and successful new products such as the 18/20v d e walt
| 11,714 |
% to $ 7.91 billion in fiscal 2018 from $ 7.26 billion in fiscal 2017 . comparable store sales increased 5.1 % in fiscal 2018 versus a 2.7 % increase in fiscal 2017 . gross profit increased 8.4 % to $ 2.70 billion in fiscal 2018 from $ 2.49 billion in fiscal 2017 , and gross margin decreased 18 basis points to 34.16 % of net sales in fiscal 2018 from 34.34 % of net sales in fiscal 2017 . operating income decreased 59 basis points to 8.87 % of net sales in fiscal 2018 from 9.46 % of net sales in fiscal 2017 . for fiscal 2018 , net income was $ 532.4 million , or $ 4.31 per diluted share , compared to $ 422.6 million , or $ 3.30 per diluted share , in fiscal 2017 . excluding the impact of the revaluation of the company 's net deferred tax asset resulting in a one-time , non-cash charge of approximately $ 4.9 million , or $ 0.03 per diluted share , adjusted net income for fiscal 2017 was $ 427.5 million , or $ 3.33 per diluted share . we ended the year with $ 86.3 million in cash and outstanding debt of $ 407.4 million , after returning $ 496.9 million to our stockholders through stock repurchases and quarterly cash dividends . significant accounting policies and estimates management 's discussion and analysis of our financial position and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with u.s. gaap . the preparation of these financial statements requires management to make informed estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . our financial position and or results of operations may be materially different when reported under different conditions or when using different assumptions in the application of such policies . in the event estimates or assumptions prove to be different from actual amounts , adjustments are made in subsequent periods to reflect more current information . our significant accounting policies are disclosed in note 1 to the consolidated financial statements . the following discussion addresses our most critical accounting policies , which are those that are both important to the portrayal of our financial condition and results of operations and that require significant judgment or use of complex estimates . description judgments and uncertainties effect if actual results differ from assumptions inventory valuation : inventory impairment we identify potentially excess and slow-moving inventory by evaluating turn rates , historical and expected future sales trends , age of merchandise , overall inventory levels , current cost of inventory , and other benchmarks . we have established an inventory valuation reserve to recognize the estimated impairment in value ( i.e. , an inability to realize the full carrying value ) based on our aggregate assessment of these valuation indicators under prevailing market conditions and current merchandising strategies . we do not believe our merchandise inventories are subject to significant risk of obsolescence in the near term . however , changes in market conditions or consumer purchasing patterns could result in the need for additional reserves . our impairment reserve contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding forecasted customer demand and the promotional environment . we have not made any material changes in the accounting methodology used to recognize inventory impairment reserves in the financial periods presented . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate impairment . however , if assumptions regarding consumer demand or clearance potential for certain products are inaccurate , we may be exposed to losses or gains that could be material . a 10 % change in our inventory impairment reserve as of december 29 , 2018 , would have affected net income by approximately $ 0.8 million in fiscal 2018 . 24 index description judgments and uncertainties effect if actual results differ from assumptions shrinkage we perform physical inventories at least once a year for each store that has been open more than 12 months , and we have established a reserve for estimating inventory shrinkage between physical inventory counts . the reserve is established by assessing the chain-wide average shrinkage experience rate , applied to the related periods ' sales volumes . such assessments are updated on a regular basis for the most recent individual store experiences . the estimated store inventory shrink rate is based on historical experience . we believe historical rates are a reasonably accurate reflection of future trends . our shrinkage reserve contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding future shrinkage trends , the effect of loss prevention measures and merchandising strategies . we have not made any material changes in the accounting methodology used to recognize shrinkage in the financial periods presented . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our shrinkage reserve . however , if our estimates regarding inventory losses are inaccurate , we may be exposed to losses or gains that could be material . a 10 % change in our shrinkage reserve as of december 29 , 2018 , would have affected net income by approximately $ 2.2 million in fiscal 2018. vendor funding we receive funding from substantially all of our significant merchandise vendors , in support of our business initiatives , through a variety of programs and arrangements , including vendor support funds ( “ vendor support ” ) and volume-based rebate funds ( “ volume rebates ” ) . the amounts received are subject to terms of vendor agreements , most of which are “ evergreen ” , reflecting the on-going relationship with our significant merchandise vendors . story_separator_special_tag certain of our agreements , primarily volume rebates , are renegotiated annually , based on expected annual purchases of the vendor 's product . vendor funding is initially deferred as a reduction of the purchase price of inventory , and then recognized as a reduction of cost of merchandise as the related inventory is sold . during interim periods , the amount of vendor support and volume rebates is estimated based upon initial commitments and anticipated purchase levels with applicable vendors . the estimated purchase volume ( and related vendor funding ) is based on our current knowledge of inventory levels , sales trends and expected customer demand , as well as planned new store openings and relocations . although we believe we can reasonably estimate purchase volume and related volume rebates at interim periods , it is possible that actual year-end results could be different from previously estimated amounts . our allocation methodology contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding customer demand , purchasing activity , target thresholds , vendor attrition and collectability . we have not made any material changes in the accounting methodology used to establish our vendor funding reserves in the financial periods presented . at the end of each fiscal year , a significant portion of the actual purchase activity is known . thus , we do not believe there is a reasonable likelihood that there will be a material change in the amounts recorded as vendor funding . we do not believe there is a significant collectability risk related to vendor funding amounts due to us at the end of fiscal 2018. if a 10 % reserve had been applied against our outstanding vendor funding due as of december 29 , 2018 , net income would have been affected by approximately $ 1.7 million in fiscal 2018. although it is unlikely that there will be any significant reduction in historical levels of vendor funding , if such a reduction were to occur in future periods , the company could experience a higher inventory balance and higher cost of sales . freight we incur various types of transportation and delivery costs in connection with inventory purchases and distribution . such costs are included as a component of the overall cost of inventories ( on an aggregate basis ) and recognized as a component of cost of merchandise sold as the related inventory is sold . we allocate freight as a component of total cost of sales without regard to inventory mix or unique freight burden of certain categories . this assumption has been consistently applied for all years presented . we have not made any material changes in the accounting methodology used to establish our capitalized freight balance or freight allocation in the financial periods presented . if a 10 % increase or decrease had been applied against our current inventory capitalized freight balance as of december 29 , 2018 , net income would have been affected by approximately $ 11.7 million in fiscal 2018 . 25 index description judgments and uncertainties effect if actual results differ from assumptions self-insurance reserves : we self-insure a significant portion of our employee medical insurance , workers ' compensation insurance , and general liability ( including product liability ) insurance plans . we have stop-loss insurance policies to protect from individual losses over specified dollar values . provisions for losses related to our self-insured liabilities are based upon periodic independent actuarially determined estimates that consider a number of factors including historical claims experience , demographic factors , and severity factors . the full extent of certain claims , especially workers ' compensation and general liability claims , may not become fully determined for several years . our self-insured liabilities contain uncertainties because management is required to make assumptions and to apply judgment to estimate the ultimate cost to settle reported claims and claims incurred but not reported as of the balance sheet date based upon historical data and experience , including actuarial calculations . we have not made any material changes in the accounting methodology used to establish our self-insurance reserves in the financial periods presented . we do not believe there is a reasonable likelihood that there will be a material change in the assumptions we use to calculate insurance reserves . however , if we experience a significant increase in the number of claims or the cost associated with these claims , we may be exposed to losses that could be material . a 10 % change in our self-insurance reserves as of december 29 , 2018 , would have affected net income by approximately $ 5.1 million in fiscal 2018. impairment of long-lived assets : long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable . when evaluating long-lived assets for potential impairment , we first compare the carrying value of the asset to the asset 's estimated future cash flows ( undiscounted and without interest charges ) . the evaluation for long-lived assets is performed at the lowest level of identifiable cash flows , which is generally the individual store level . the significant assumptions used to determine estimated undiscounted cash flows include cash inflows and outflows directly resulting from the use of those assets in operations , including margin on net sales , payroll and related items , occupancy costs , insurance allocations , and other costs to operate a store . if the estimated future cash flows are less than the carrying value of the asset , we calculate an impairment loss . the impairment loss calculation compares the carrying value of the asset to the asset 's estimated fair value , which may be based on an estimated future cash flow model . we recognize an impairment loss if the amount of the asset 's carrying value exceeds the asset 's estimated fair value . if we recognize an impairment loss , the adjusted carrying amount of the asset becomes its new cost basis .
| the growth in comparable store sales was led by strength in everyday merchandise , including consumable , usable , and edible ( “ c.u.e. ” ) products , along with strong demand for seasonal merchandise in each quarter of the year . in addition to comparable store sales growth in fiscal 2018 , sales from stores opened less than one year were $ 300.5 million in fiscal 2018 , which represented 4.1 percentage points of the 9.0 % increase over fiscal 2017 net sales . sales from stores opened less than one year , including acquired petsense stores , were $ 405.0 million in fiscal 2017 , which represented 6.0 percentage points of the 7.0 % increase over fiscal 2016 net sales . the following table summarizes our store growth during fiscal 2018 and 2017 : replace_table_token_12_th the following table indicates the percentage of net sales represented by each of our major product categories during fiscal 2018 and 2017 : replace_table_token_13_th gross profit increased 8.4 % to $ 2.70 billion in fiscal 2018 compared to $ 2.49 billion in fiscal 2017 . as a percent of net sales , gross margin decreased 18 basis points to 34.16 % for fiscal 2018 compared to 34.34 % for fiscal 2017. the decline in gross margin resulted primarily from an increase in freight expense driven by higher carrier rates and increased diesel fuel prices as well as a 29 index negative impact from a mix shift of products sold during the fourth quarter , partially offset by strength in the company 's price management program and strong sell through of seasonal merchandise throughout the year . total selling , general and administrative ( “ sg & a ” ) expenses , including depreciation and amortization , increased 10.8 % to $ 2.00 billion in fiscal 2018 from $ 1.81 billion in fiscal 2017 . sg & a expenses , as a percent of net sales , increased 41 basis points to 25.29 % in fiscal 2018
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21 the company recorded the following restructuring costs associated with the consolidations discussed above for the years ended december 31 , 2016 and 2015 ( in thousands ) : replace_table_token_6_th the 2016 costs were reclassified in the consolidated statement of income as “ restructuring costs ” from cost of sales . the 2015 costs were reclassified in the consolidated statement of income as “ restructuring costs ” as follows : $ 1,669,000 from cost of sales , $ 36,000 from selling , general and administrative expenses and $ 51,000 from gain on sales of property , plant and equipment . material overcharge settlement the company was a participant in a class action lawsuit against a number of polyurethane foam suppliers ( “ defendants ” ) that recently reached settlement . the suit was filed to recover damages and obtain injunctive relief for defendants ' alleged violations of the federal antitrust laws with respect to the fixing of prices of polyurethane foam sold from january 1 , 1999 through august 2010. the company recorded a gain of approximately $ 2.1 million during the year ended december 31 , 2016. the settlement amount is recorded as “ material overcharge settlement ” in the operating income section of the consolidated statements of income . interest income and expense the company had net interest income of approximately $ 80,000 for the year ended december 31 , 2016 , compared to net interest income of approximately $ 27,000 for the year ended december 31 , 2015. the increase in net interest income is due primarily to an increase in interest earned on money market accounts and certificates of deposit and decreasing interest costs on the company 's term loans . income taxes the company recorded income tax expense as a percentage of income before income tax expense , of 35.3 % for each of the years ended december 31 , 2016 and 2015. the company has deferred tax assets on its books associated with net operating losses generated in previous years . the company has considered both positive and negative available evidence in its determination that the deferred tax assets are more likely than not to be realized , and has not recorded a tax valuation allowance at december 31 , 2016. the company will continue to assess whether the deferred tax assets will be realizable and , when appropriate , will record a valuation allowance against these assets . the amount of the net deferred tax asset considered realizable , however , could be reduced in the near term if estimates of future taxable income during the carry-forward period are reduced . liquidity and capital resources the company generally funds its operating expenses , capital requirements , and growth plan through internally generated cash and bank credit facilities . cash flows net cash provided by operations for the year ended december 31 , 2017 was approximately $ 17.5 million and was primarily a result of net income generated of approximately $ 9.2 million , depreciation and amortization of approximately $ 5.6 million , share-based compensation of approximately $ 1.1 million , a decrease in inventory of approximately $ 1.3 million primarily due to management initiatives , a decrease in prepaid expenses of approximately $ 0.4 million due to reduced equipment prepayments , and an increase in accounts payable and accrued expenses of approximately $ 1.1 million due to the timing of vendor payments in the ordinary course of business . these cash inflows and adjustments to income were partially offset by a decrease in deferred income taxes of approximately $ 1.0 million due primarily to the result of a change in the statutory federal tax rate for 2018 and beyond and an increase in refundable income taxes of approximately $ 0.2 million . 22 net cash used in investing activities during the year ended december 31 , 2017 was approximately $ 10.4 million of which approximately $ 4.7 million was the result of an expansion to our manufacturing facility in newburyport , massachusetts , and approximately $ 5.7 million the result of other additions of technology , manufacturing machinery , and equipment across the company . net cash used in financing activities was approximately $ 0.5 million for the year ended december 31 , 2017 , representing cash used to service term debt of approximately $ 0.9 million and to pay statutory withholding for stock options exercised and restricted stock units vested of approximately $ 0.3 million , partially offset by net proceeds received upon stock option exercises of approximately $ 0.7 million . outstanding and available debt as of december 31 , 2017 , the company had an unsecured $ 40 million revolving credit facility with bank of america , n.a . pursuant to the credit agreement dated december 2 , 2013 , as amended . the credit facility called for interest of libor plus a margin that ranged from 1.0 % to 1.5 % or , at the discretion of the company , the bank 's prime rate less a margin that ranges from 0.25 % to zero . in both cases the applicable margin was dependent upon company performance . under the credit facility , the company was subject to a minimum fixed-charge coverage financial covenant as well as a maximum total funded debt to ebitda financial covenant . the company 's $ 40 million credit facility was to mature on november 30 , 2018. as of december 31 , 2017 , the company had no borrowings outstanding under the credit facility . included in the credit facility were approximately $ 0.6 million in standby letters of credit drawable as a financial guarantee on worker 's compensation insurance policies . as of december 31 , 2017 , the company was in compliance with all covenants under the credit facility . subsequent events dielectrics acquisition as previously disclosed , on february 1 , 2018 , the company acquired dielectrics , inc. pursuant to a stock purchase agreement and related agreements for an aggregate purchase price of $ 80 million in cash . story_separator_special_tag in connection with its acquisition of dielectrics , the company expects to expense approximately $ 1.1 million in transaction costs in the first quarter of 2018. for more information , see item 1a risk factors— “ we may pursue acquisitions or other strategic relationships that involve inherent risks , any of which may cause us to not realize anticipated benefits ” . amended and restated credit agreement on february 1 , 2018 , the company , as the borrower , entered into an unsecured $ 70 million amended and restated credit agreement ( the “ amended and restated credit agreement ” ) with certain of the company 's subsidiaries ( the “ subsidiary guarantors ” ) and bank of america , n.a. , in its capacity as the initial lender , administrative agent , swingline lender and l/c issuer , and certain other lenders from time to time party thereto . the amended and restated credit agreement amends and restates the company 's prior credit agreement , originally dated as of december 2 , 2013. the credit facilities under the amended and restated credit agreement consist of a $ 20 million unsecured term loan to ufp and an unsecured revolving credit facility , under which the company may borrow up to $ 50 million . the amended and restated credit facilities mature on february 1 , 2023. the proceeds of the amended and restated credit agreement may be used for general corporate purposes , including funding the acquisition of dielectrics , as well as certain other permitted acquisitions . included in the amended and restated credit facilities is approximately $ 0.6 million in standby letters of credit drawable as a financial guarantee on worker 's compensation insurance policies . the company 's obligations under the amended and restated credit agreement are guaranteed by the subsidiary guarantors . 23 the amended and restated credit facilities call for interest of libor plus a margin that ranges from 1.0 % to 1.5 % or , at the discretion of the company , the bank 's prime rate less a margin that ranges from .25 % to zero . in both cases the applicable margin is dependent upon company performance . under the amended and restated credit agreement , the company is subject to a minimum fixed-charge coverage financial covenant as well as a maximum total funded debt to ebitda financial covenant . the amended and restated credit agreement contains other covenants customary for transactions of this type , including restrictions on certain payments , permitted indebtedness and permitted investments . as of the date of this report , the company had approximately $ 56 million in borrowings outstanding under the amended and restated credit facilities , which were used as partial consideration for the dielectrics acquisition . in connection with the amended and restated credit agreement , the company entered into a $ 20 million , 5-year interest rate swap agreement under which the company receives three-month libor plus the applicable margin and pays a 2.7 % fixed rate plus the applicable margin . the swap modifies the company 's interest rate exposure by converting the term loan from a variable rate to a fixed rate in order to hedge against the possibility of rising interest rates during the term of the loan . future liquidity the company requires cash to pay its operating expenses , purchase capital equipment , and to service its contractual obligations . the company 's principal sources of funds are its operations and its amended and restated credit facility . the company generated cash of approximately $ 17.5 million in operations during the year ended december 31 , 2017 ; however , the company can not guarantee that its operations will generate cash in future periods . the company 's longer-term liquidity is contingent upon future operating performance . throughout fiscal 2018 , the company plans to continue to add capacity to enhance operating efficiencies in its manufacturing plants . the company may consider additional acquisitions of companies , technologies , or products that are complementary to its business . the company believes that its existing resources , including its revolving credit facility , together with cash expected to be generated from operations and funds expected to be available to it through any necessary equipment financings and additional bank borrowings , will be sufficient to fund its cash flow requirements , including capital asset acquisitions , through the next twelve months . stock repurchase program the company accounts for treasury stock under the cost method , using the first-in , first out flow assumption , and includes treasury stock as a component of stockholders ' equity . on june 16 , 2015 , the company announced that its board of directors authorized the repurchase of up to $ 10.0 million of the company 's outstanding common stock . under the program , the company is authorized to repurchase shares through rule 10b5-1 plans , open market purchases , privately negotiated transactions , block purchases or otherwise in accordance with applicable federal securities laws , including rule 10b-18 of the securities exchange act of 1934. the stock repurchase program will end upon the earlier of the date on which the plan is terminated by the board or when all authorized repurchases are completed . the timing and amount of stock repurchases , if any , will be determined based upon our evaluation of market conditions and other factors . the stock repurchase program may be suspended , modified or discontinued at any time , and the company has no obligation to repurchase any amount of its common stock under the program . there were no share repurchases during the years ended december 31 , 2017 and december 31 , 2016. during the year ended december 31 , 2015 , the company repurchased 29,559 shares of common stock at a cost of approximately $ 587,000. at december 31 , 2017 , approximately $ 9.4 million was available for future repurchases of the company 's common stock under this authorization .
| sales for the company 's mercedes benz program were approximately $ 3.0 million in 2017 and are expected to be modest in 2018 , as the program ends in the first quarter of 2018. following the cessation of the mercedes benz program , the company plans to cease operations and vacate its georgia facility when that lease expires in april of 2018. gross profit gross profit as a percentage of sales ( “ gross margin ” ) increased to 24.0 % for the year ended december 31 , 2017 , from 23.7 % in 2016. as a percentage of sales , material and direct labor costs collectively decreased approximately 1.2 % , while overhead increased approximately 1.0 % . the decrease in material and direct labor costs was primarily due to manufacturing efficiencies realized as a result of initiatives began in the second half of 2017. the increase in overhead was primarily due to higher indirect labor and benefits associated with hires made in the second half of 2017. selling , general and administrative expenses selling , general , and administrative expenses ( “ sg & a ” ) decreased 1.1 % to $ 23.8 million for the year ended december 31 , 2017 , from $ 24.1 million in 2016. as a percentage of sales , sg & a decreased to 16.1 % in 2017 from 16.5 % in 2016. the decrease in sg & a for the year ended december 31 , 2017 , is primarily due to general cost containment efforts . in connection with its acquisition of dielectrics , the company expects to expense approximately $ 1.1 million in transaction costs in the first quarter of 2018. restructuring costs on march 18 , 2015 , the company committed to move forward with a plan to cease operations at its raritan , new jersey , plant and consolidate operations into its newburyport , massachusetts , facility and other ufp facilities . the company 's decision was in response to a continued decline in business at the raritan facility and the purchase of the facility in newburyport . the activities related to this consolidation are complete . 19 the company also relocated all operations in its haverhill , massachusetts , and byfield , massachusetts facilities and certain operations in its georgetown , massachusetts facility to newburyport . the haverhill and byfield relocations were complete at december 31 , 2015 and the partial georgetown relocation was complete at june 30 , 2017. the company has incurred approximately $ 2.1 million in one-time expenses in connection with the massachusetts consolidations . included in this amount are approximately $ 180,000 relating to employee severance payments
| 11,716 |
we believe the investments we have made in our corporate infrastructure will enable us to deliver higher levels of net revenues without proportionate increases in research and development , sales and marketing , and general and administrative expenses . research and development expense includes personnel-related expenses such as salaries , stock-based compensation and employee benefits . research and development employees are engaged in the design and development of power electronics , semiconductors , powerline communications and networking and software functionality . research and development expense also includes third-party design and development costs , testing and evaluation costs , depreciation expense and other indirect costs . we devote substantial resources in ongoing research and development programs that focus on enhancements to and cost efficiencies in our existing products and timely development of new products that utilize technological innovation to drive down product costs and enhance reliability . we intend to continue to invest substantial resources in our research and development efforts because we believe they are critical to maintaining our competitive position . sales and marketing expense consists primarily of personnel-related expenses such as salaries , commissions , stock-based compensation , employee benefits and travel . it also includes trade shows , marketing , customer support and other indirect costs . we expect to continue to make the necessary investments to enable us to execute our strategy to increase our market penetration geographically and into new markets by expanding our customer base of distributors , large installers , oems and strategic partners . historically , substantially all of our sales have been in the united states and canada . we began selling into france , italy and the benelux region in the fourth quarter of 2011 and commenced volume shipments to such regions in the second quarter of 2012. in addition , we opened a sales office in the united kingdom during the second quarter of 2012 and began shipping products to the united kingdom in the third quarter of 2012. we believe the investments we have made in sales and marketing to date will enable us to deliver higher levels of net revenues without proportionate increases from current levels of sales and marketing expenses . however , we expect to continue to expand the geographic reach of our product offerings and explore new sales channels in addressable markets in the future . general and administrative expense consists primarily of salaries , stock-based compensation and employee benefits for personnel related to our executive , finance , human resources , information technology and legal organizations . general and administrative expense also includes facilities costs and fees for professional services . professional services consist primarily of outside legal , accounting and information technology consulting costs . we believe the investments we have made in our corporate infrastructure to date will enable us to deliver higher levels of net revenues without proportionate increases from current levels of general and administrative expenses . other income ( expense ) , net other income ( expense ) , net includes interest income on invested cash balances and interest expense on amounts outstanding under our credit and convertible note facilities and non-cash interest expense related to the amortization of debt discounts and deferred financing costs . other income ( expense ) , net also includes mark-to-market adjustments to record our preferred stock warrants at fair value prior to our initial public offering of our common stock , or ipo , which were issued in conjunction with credit facilities , as well as losses or gains on conversion of non-u.s. dollar transactions into u.s. dollars and foreign currency forward contracts . provision for income taxes we are subject to income taxes in the countries where we sell our products . historically , we have primarily been subject to taxation in the united states because we have sold the vast majority of our products to customers in the united states . as we have expanded the sale of products to customers outside the united states , we have become subject to taxation 30 based on the foreign statutory rates in the countries where these sales took place . as sales in foreign jurisdictions increase in the future , our effective tax rate may fluctuate accordingly . we have not recorded any u.s. federal or state income tax provision for any of the periods presented because we have experienced operating losses since inception . in 2012 , a provision for income taxes of $ 0.7 million has been recognized related to our foreign operations . due to the history of losses we have generated since inception , we have recorded a full valuation allowance on our net deferred tax assets . story_separator_special_tag administrative expenses increased by $ 9.6 million in 2012 as compared to 2011 , primarily due to a $ 3.6 million increase in personnel-related costs as a result of increases in general and administrative headcount and a $ 2.8 million increase in accounting , legal and other professional services incurred to assist us with building an infrastructure to support operating as a public company . in addition , depreciation and amortization and facilities costs contributed $ 2.4 million to the increase due to increased capital expenditures and facilities costs incurred to support our increased headcount and the expansion of our operations . the remaining $ 0.8 million of the increase was attributable to insurance and other corporate expenses . 2011 compared to 2010. general and administrative expenses increased by $ 8.9 million in 2011 as compared to 2010 , primarily due to a $ 4.7 million increase in personnel-related costs as a result of increases in general and administrative headcount and a $ 2.5 million increase in accounting , legal and other professional services incurred to assist us with building an infrastructure to support public company requirements . in addition , depreciation and amortization and facilities costs contributed $ 1.7 million to the increase in 2011 compared to 2010 as a result of increased capital expenditures and facilities costs incurred to support our increased headcount and the expansion of our operations . story_separator_special_tag other income ( expense ) , net replace_table_token_11_th 2012 compared to 2011. other expense increased by $ 2.8 million in 2012 as compared to 2011. the increase was attributable to a $ 3.4 million increase in interest expense from write-offs of deferred financing costs and debt discount as a result of the early extinguishment of convertible debt and term loans and the termination of a revolving line of credit . in addition , foreign currency losses contributed $ 0.4 million to the increase . the increases were partially offset by a $ 0.8 million decrease in the fair value of our convertible preferred stock warrant prior to the liability being reclassified as equity upon our ipo . 2011 compared to 2010. other expense increased by $ 2.5 million in 2011 as compared to 2010. this increase was primarily due to an increase in interest expense from higher debt balances and non-cash interest charges . non-cash interest charges totaled $ 1.8 million and $ 0.1 million for 2011 and 2010 , respectively , and consisted of amortization of debt discounts as well as paid-in-kind interest on our convertible notes . 34 liquidity and capital resources prior to our ipo in april 2012 , we funded our operations primarily through private placements of convertible preferred stock and convertible notes , and proceeds from term loans . on april 4 , 2012 , we completed our ipo , in which we issued and sold 10,315,151 shares of our common stock and received net proceeds of approximately $ 53.8 million . as of december 31 , 2012 , we had $ 45.3 million in cash and cash equivalents , which are held primarily in bank deposits and money market accounts , and $ 61.1 million in working capital . the following table summarizes our cash flows for the periods indicated : replace_table_token_12_th net cash used in operating activities we have experienced negative operating cash flows as we invested significant resources to develop new product offerings and focused on critical research and development activities required to reduce product costs , increase performance and foster innovation . in addition , we used cash to expand our operations into new product markets and geographies and invested in our operational infrastructure to support the growth of our business . for 2012 , net cash used in operating activities was $ 44.6 million primarily resulting from a net loss of $ 38.2 million . the net loss was partially offset by non-cash items including , depreciation and amortization of $ 5.6 million , stock-based compensation of $ 4.8 million and interest expense of $ 4.8 million . in addition , the effect of changes in net operating assets and liabilities resulted in the use of cash totaling $ 22.2 million . the primary use of cash from changes in net operating assets and liabilities was attributable to an $ 18.6 million decrease in deferred revenues , which was primarily due to shipments of products during 2012 for which upfront payments of $ 23.0 million were received from customers in december 2011 , as discussed below . in addition , other uses of cash from changes in net operating assets and liabilities included an $ 11.0 million increase in accounts receivable and an $ 8.6 million increase in inventory-related purchases , both consistent with the overall growth of our business in 2012 as compared to 2011. offsetting these uses of cash was an increase in accounts payable of $ 16.8 million , which was also driven by the growth of our business . for 2011 , notwithstanding a net loss of $ 32.3 million , net cash used in operating activities approximated break-even primarily due to a $ 25.4 million increase in deferred revenues . in december 2011 , we entered into several agreements to sell microinverters to customers , with product delivery in 2012. these agreements were due , in part , to the anticipated expiration of certain government incentives for investments in renewable energy projects on december 31 , 2011. prior to december 31 , 2011 , we received $ 29.4 million in cash in advance from these customers , of which $ 6.4 million and $ 23.0 million were recorded as revenues and deferred revenues , respectively . our net loss included non-cash charges in the form of depreciation and amortization of $ 3.0 million , stock-based compensation of $ 2.1 million and non-cash interest expense of $ 1.8 million related to the amortization of debt discounts and deferred financing costs . changes in working capital items other than deferred revenues used $ 1.0 million of operating cash flow and consisted of increases in accounts receivable , inventory and prepaid and other assets offset by increases in accounts payable and other accrued liabilities . for 2010 , net cash used in operating activities was $ 17.9 million primarily resulting from a net loss of $ 21.8 million offset by the effect of non-cash expenses of $ 1.6 million associated with depreciation and amortization and $ 0.8 million in stock-based compensation . additionally , the primary source of cash from changes in our net operating assets and liabilities was attributable to a $ 1.4 million increase in deferred revenues . net cash used in investing activities net cash used in investing activities primarily relates to capital expenditures to support our growth . for 2012 , net cash used in investing activities of $ 13.0 million included purchases of manufacturing test equipment and expenditures on leasehold improvements and furniture and fixtures in connection with our relocation to a new headquarter facility . for 2011 , net cash used in investing activities of $ 14.7 million included purchases of manufacturing test equipment and 35 the development of software for internal use . for 2010 , net cash used in investing activities of $ 3.3 million included cash outlays for leasehold improvements at our corporate offices , manufacturing test equipment , lab equipment for research and development , and the development of software for internal use .
| the number of microinverter units sold increased by 142 % from approximately 414,000 units in 2010 , to approximately 1,002,000 units in 2011. the overall increase in units sold was attributable primarily to sales of our third generation microinverter , which was introduced during the second quarter of 2011. in addition , the increase in unit sales was driven by deeper penetration of our existing customer base , the addition of new customers , and broader acceptance of our products resulting from , among other factors , investments made in sales and marketing . cost of revenues and gross margin replace_table_token_7_th 2012 compared to 2011. cost of revenues increased by 34 % in 2012 , as compared to 2011. the increase in cost of revenues was primarily due to an increase in the number of microinverter units sold to customers , consistent with the overall increase in net revenues as described above . gross profit increased by 90 % in 2012 , as compared to 2011 , primarily due to increased revenue . gross margin increased by 6 percentage points to 25.5 % in 2012 , as compared to 19.4 % in 2011. the increase was primarily driven by a 8 percentage point increase from a larger mix of our higher-margin third generation microinverter , which has a lower per unit manufacturing cost than our second generation microinverter . the lower per unit cost was achieved primarily through design enhancements , which resulted in a higher level of semiconductor integration , and improved efficiencies on increased production volume . in addition , gross margin improved by 2 percentage points in 2012 as a result of a reduction in usage of expedited air-freight for finished goods due to improvements in delivery scheduling . these increases were partially offset by a 4 percentage point reduction to gross margin due to a net increase in warranty expense primarily attributable to changes in estimates to warranty obligations associated with our previous generation products . 2011 compared to 2010. cost of revenues increased by 118 % in 2011 , as compared to 2010. the increase in cost of revenues was primarily due to an increase in the number of microinverter units sold to customers , consistent with the overall increase in net revenues as described above . gross profit increased by 347 % in 2012 , as compared to 2011 , primarily due to increased revenue . gross margin increased by
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we intend to invest to advance the business through acquisitions , share repurchases or debt repayment depending on what we deem to be the best option at any given time . we are implementing optimization initiatives throughout the company to increase efficiency , productivity and profitability . although we expect a level of macro-economic uncertainty in 2020 , we expect demand will continue for our technology-driven functional coatings and color solutions in the niche markets we focus on , and that we will continue to develop innovative new products . we have identified a number of optimization opportunities in our manufacturing and logistics operations and will continue to implement strategic optimization initiatives . foreign currency rates may continue to be volatile through 2020 and changes in interest rates could adversely impact reported results . we expect cash flow from operating activities to continue to be positive for 2020 , providing additional liquidity . factors that could adversely affect our future performance include those described under the heading “ risk factors ” in item 1a of part i of this annual report on form 10-k for the year ended december 31 , 2019 . 22 results of operations - consolidated comparison of the years ended december 31 , 2019 and 2018 for the year ended december 31 , 2019 , net income from continuing operations was $ 35.4 million , compared with $ 56.9 million in 2018. for the year ended december 31 , 2019 , net income attributable to common shareholders was $ 6.0 million , or $ 0.07 earnings per share , compared with $ 80.1 million , or $ 0.95 earnings per share in 2018. net sales replace_table_token_3_th net sales decreased by $ 63.9 million , or 5.9 % , in the year ended december 31 , 2019 , compared with the prior year , with decreased sales in performance colors and glass and color solutions of $ 42.5 million and $ 21.4 million , respectively . gross profit gross profit decreased $ 30.9 million , or 9.1 % , in 2019 to $ 308.8 million , compared with $ 339.7 million in 2018 and , as a percentage of net sales , it decreased 110 basis points to 30.3 % . the decrease in gross profit was attributable to decreases in both of our segments , with decreases in performance colors and glass and color solutions of $ 18.9 million and $ 9.9 million , respectively . the decrease in gross profit was primarily attributable to lower sales volumes and mix of $ 29.9 million , higher manufacturing and product costs of $ 15.7 million and unfavorable foreign currency impacts of $ 8.9 million , partially offset by lower raw material costs of $ 13.5 million , gross profit from acquisitions of $ 6.6 million and favorable product pricing of $ 5.5 million . geographic revenues the following table presents our sales on the basis of where sales originated . replace_table_token_4_th the decrease in net sales of $ 63.9 million , compared with 2018 , was driven by lower sales across all regions . the decrease in sales from emea was attributable to lower sales in performance colors and glass and color solutions of $ 30.1 million and $ 5.2 million , respectively . the decrease in sales from the united states was attributable to lower sales in color solutions and performance colors and glass of $ 11.1 million and $ 9.5 million , respectively . the decrease in sales from asia pacific was attributable to lower sales in color solutions and performance colors and glass of $ 4.2 million and $ 1.2 million , respectively . the decrease in sales from latin america was attributable to lower sales in performance colors and glass and color solutions of $ 1.7 million and $ 0.9 million , respectively . 23 selling , general and administrative expense the following table includes sg & a components with significant changes between 2019 and 2018 : replace_table_token_5_th sg & a expenses were $ 7.5 million lower in 2019 compared with the prior year . as a percentage of net sales , sg & a expenses increased 60 basis points from 20.3 % in 2018 to 20.9 % in 2019. the lower sg & a expenses compared with the prior year were primarily driven by lower personnel expenses . the decrease in incentive compensation is the result of the company 's performance relative to targets for certain awards compared to the prior year and the decrease in stock-based compensation expense of $ 1.0 million is the result of the company 's performance relative to targets for certain awards compared with the prior year , as well as decreases in the company 's stock price . the following table presents sg & a expenses attributable to sales , research and development , and operations costs as strategic services and presents other sg & a costs as functional services . replace_table_token_6_th restructuring and impairment charges replace_table_token_7_th restructuring and impairment charges increased $ 3.8 million in 2019 , compared with 2018. the increase primarily relates to higher employee costs associated with our recent optimization programs in 2019. during the second and third quarters of 2019 , the company recorded $ 9.0 million of goodwill impairment charges related to our tile coatings business , which was historically recorded within our performance coatings reportable segment . the goodwill impairment charge recorded was a result of the finalization of purchase accounting of the recent quimicer , fmu , and gardenia acquisitions that changed the carrying amount of net assets attributable to the reporting unit that represented an impairment indicator . based on our 2019 annual impairment test performed as of october 31 , 2019 , the company recorded additional goodwill impairment charges of $ 33.5 million associated with the tile coatings business . the impairment charge and related assets are recorded within discontinued operations and as assets held-for-sale , respectively , in our consolidated financial statements as of december 31 , 2019 . story_separator_special_tag 24 interest expense replace_table_token_8_th interest expense in 2019 increased $ 0.6 million compared with 2018. the increase in interest expense was primarily due to an increase in the average long-term debt balance during 2019 , compared with 2018 , partially offset by increased interest capitalization during 2019 and interest swap amortization . income tax expense in 2019 , we recorded an income tax expense of $ 8.1 million , or 18.7 % of income before income taxes , compared to an income tax expense of $ 14.1 million , or 19.9 % of income before income taxes in 2018. the 2019 effective tax rate is less than the statutory income tax rate of 21 % primarily as a result of a net effect of a $ 7.6 million net benefit related to the release of valuation allowances related to deferred tax assets that were utilized in the current year or are deemed no longer necessary based upon changes in the current and expected future years of operating profits and a $ 4.3 million net expense related to foreign tax rate differences . the 2018 effective tax rate is less than the statutory income tax rate of 21 % primarily as a result of a net effect of a $ 4.3 million net benefit related to the release of valuation allowances related to deferred tax assets that were utilized in the current year or are deemed no longer necessary based upon changes in the current and expected future years of operating profits and a $ 5.3 million net expense related to foreign tax rate differences . comparison of the years ended december 31 , 2018 and 2017 for the year ended december 31 , 2018 , income from continuing operations was $ 56.9 million , compared with $ 36.9 million in 2017. for the year ended december 31 , 2018 , net income attributable to common shareholders was $ 80.1 million , or $ 0.95 earnings per share , compared with net income attributable to common shareholders of $ 57.1 million , or $ 0.68 earnings per share in 2017. net sales replace_table_token_9_th net sales increased by $ 85.8 million , or 8.6 % , in the year ended december 31 , 2018 , compared with the prior year , with increased sales in performance colors and glass and color solutions of $ 52.8 million and $ 33.0 million , respectively . the increase in net sales was driven by both acquisitions and organic growth . organic sales increased in performance colors and glass by $ 32.7 million and color solutions by $ 28.1 million . gross profit gross profit increased $ 13.0 million , or 4.0 % , in 2018 to $ 339.7 million , compared with $ 326.7 million in 2017 and , as a percentage of net sales , it decreased 140 basis points to 31.4 % . the increase in gross profit was attributable to increases in both of our segments , with increases in color solutions and performance colors and glass of $ 11.2 million and $ 3.2 million , respectively . the increase in gross profit was primarily attributable to favorable product pricing of $ 25.9 million , gross profit from acquisitions of $ 6.0 million , higher sales volumes and mix of $ 6.0 million , favorable foreign currency impacts of $ 3.5 million and lower manufacturing and product costs of $ 3.5 million , partially offset by higher raw material costs of $ 30.5 million . 25 geographic revenues the following table presents our sales on the basis of where sales originated . replace_table_token_10_th the increase in net sales of $ 85.8 million , compared with 2017 , was driven by higher sales from emea , the united states and asia pacific , partially offset by a decrease in sales in latin america . the increase in sales from emea was attributable to higher sales in performance colors and glass and color solutions of $ 43.3 million and $ 8.0 million , respectively . the increase in sales from the united states was attributable to higher sales in color solutions and performance colors and glass of $ 18.2 million and $ 5.2 million , respectively . the increase in sales from asia pacific was attributable to higher sales in performance colors and glass and color solutions of $ 8.0 million and $ 5.3 million , respectively . the decrease in sales from latin america was attributable to lower sales in performance colors and glass of $ 3.7 million , partially mitigated by higher sales in color solutions of $ 1.5 million . selling , general and administrative expense the following table includes sg & a components with significant changes between 2018 and 2017. replace_table_token_11_th sg & a expenses were $ 2.7 million higher in 2018 compared with the prior year . as a percentage of net sales , sg & a expenses decreased 150 basis points from 21.8 % in 2017 to 20.3 % in 2018. the higher sg & a expenses compared with the prior year were primarily driven by businesses acquired within the last year . the acquisitions were the primary driver of the increase in personnel expenses . the decrease in incentive compensation is the result of the company 's performance relative to targets for certain awards compared to the prior year and the decrease in stock-based compensation expense of $ 3.3 million is the result of the company 's performance relative to targets for certain awards compared with the prior year , as well as decreases in the company 's stock price . the following table presents sg & a expenses attributable to sales , research and development , and operations costs as strategic services and presents other sg & a costs as functional services .
| additionally , an increase in inflation , interest rates or the risk-adjusted , weighted-average cost of capital could also lead to a reduction in the fair value of one or more of our reporting units and therefore lead to the impairment of goodwill . during the second and third quarters of 2019 , the company recorded $ 9.0 million of goodwill impairment charges related to our tile coatings business , which was historically recorded within our performance coatings reportable segment . the goodwill impairment charge recorded was a result of the finalization of purchase accounting of the recent quimicer , fmu , and gardenia acquisitions that changed the carrying amount of net assets attributable to the reporting unit that represented an impairment indicator . based on our 2019 annual impairment test performed as of october 31 , 2019 , the company recorded additional goodwill impairment charges of $ 33.5 million associated with a reporting unit within the tile coatings business . the impairment charge and related assets are recorded within discontinued operations and as assets held-for-sale , respectively , in our consolidated financial statements as of december 31 , 2019. future potential impairments are possible for any of the company 's remaining reporting units if actual results are materially less than forecasted results . some of the factors that could negatively affect our cash flows and , as a result , not support the carrying values of our reporting units are : new environmental regulations or legal restrictions on the use of our products that would either reduce our product revenues or add substantial costs to the manufacturing process , thereby reducing operating margins ; new technologies that could make our products less competitive or require substantial capital investment in new equipment or manufacturing processes ; and substantial downturns in economic conditions . long-lived asset impairment the company 's long-lived assets include property , plant and equipment , and intangible assets . we review property , plant
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considering current information and events regarding a borrower 's ability to repay its obligations , management considers a loan to be impaired when the ultimate collectability of all amounts due , according to the contractual terms of the loan agreement , is in doubt . when a loan is considered to be impaired , the amount of impairment is measured based on the present value of expected future cash flows discounted at the loan 's effective interest rate or if the loan is collateral-dependent , the fair value of the collateral is used to determine the amount of impairment . impairment losses are included in the allowance for loan losses through a charge to the provision for loan losses . subsequent recoveries are credited to the allowance for loan losses . cash receipts for accruing loans are applied to principal and interest under the contractual terms of the loan agreement . cash receipts on impaired loans for which the accrual of interest has been discontinued are applied first to principal and then to interest income . certain economic and interest rate factors could have a material impact on the determination of the allowance for loan losses . an improving economy could result in the expansion of businesses and creation of jobs which would positively affect our loan growth and improve our gross revenue stream . conversely , certain factors could result from an expanding economy which could increase our credit costs and adversely impact our net earnings . a significant rapid rise in interest rates could create higher borrowing costs and shrinking corporate profits which could have a material impact on a borrower 's ability to pay . we will continue to concentrate on maintaining a high quality loan portfolio through strict administration of our loan policy . another factor that we have considered in the determination of the allowance for loan losses is loan concentrations to individual borrowers or industries . based on total committed exposure at december 31 , 2018 , we had 15 individual loans/lines of credit that exceeded our normal in-house credit limit of $ 30.0 million . total exposure from these 15 individual loans/lines of credit amounted to $ 647.4 million as of december 31 , 2018. the largest total committed exposure for a single loan/line of credit at december 31 , 2018 was $ 75.0 million , and we had one line of credit at this level extended to a client of our warehouse lending division . as of december 31 , 2018 , we had 18 relationships consisting of 35 loans/lines of credit that exceeded $ 30.0 million . total exposure from these 18 relationships amounted to $ 781.3 million as of december 31 , 2018. the largest total committed exposure for a single relationship at december 31 , 2018 was $ 75.0 million , and we had one relationship at this level which is a client of our warehouse lending division as well . additional disclosure concerning the company 's largest loan relationships is provided in the “ balance sheet comparison ” section below . a substantial portion of our loan portfolio is in the commercial real estate and residential real estate sectors . the majority of these loans are secured by real estate in our primary market areas . a substantial portion of oreo is located in those same 37 markets . therefore , the ultimate collectability of a substantial portion of our loan portfolio and the recoverability of a substantial portion of the carrying amount of oreo are susceptible to changes to market conditions in our primary market area . fair value accounting estimates gaap requires the use of fair values in determining the carrying values of certain assets and liabilities , as well as for specific disclosures . the most significant fair values used in determining carrying value include investment securities available for sale , loans held for sale , derivative financial instruments , impaired loans , oreo , and the net assets acquired in business combinations . certain of these assets do not have a readily available market to determine fair value and require an estimate based on specific parameters . when market prices are unavailable , we determine fair values utilizing estimates , which are constantly changing , including interest rates , duration , prepayment speeds and other specific conditions . in most cases , these specific parameters require a significant amount of judgment by management . at december 31 , 2018 , the percentage of the company 's assets measured at fair value on a recurring basis was 11 % . see note 23 , “ fair value measures ” , in the notes to consolidated financial statements herein for additional disclosures regarding the fair value of our assets and liabilities . when a loan is considered impaired , a specific valuation allowance is allocated , if necessary , 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 collateral . in addition , foreclosed assets are carried at the net realizable value , following foreclosure . although management believes its processes for determining the value of these assets are appropriate and allow ameris to arrive at a fair value , the processes require management judgment and assumptions and the value of such assets at the time they are revalued or divested may be different from management 's determination of fair value . business combinations assets purchased and liabilities assumed in a business combination are recorded at their fair value . the fair value of a loan portfolio acquired in a business combination requires greater levels of management estimates and judgment than the remainder of purchased assets or assumed liabilities . story_separator_special_tag on the date of acquisition , when the loans have evidence of credit deterioration since origination and it is probable at the date of acquisition that the company will not collect all contractually required principal and interest payments , the difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference . the company must estimate expected cash flows at each reporting date . subsequent decreases to the expected cash flows will generally result in a provision for loan losses . subsequent increases in cash flows result in a reversal of the provision for loan losses to the extent of prior charges and adjusted accretable yield which will have a positive impact on future interest income . income taxes as required by gaap , we use the asset and liability method of accounting for deferred income taxes and provide deferred income taxes for all significant income tax temporary differences . see note 16 , “ income taxes , ” in the notes to consolidated financial statements for additional details . as part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate . this process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items , such as the provision for loan losses and gains on fdic-assisted transactions , for tax and financial reporting purposes . these differences result in deferred tax assets and liabilities that are included in our consolidated balance sheet . we must also assess the likelihood that our deferred tax assets will be recovered from future taxable income , and to the extent we believe that recovery is not likely , we must establish a valuation allowance . significant management judgment is required in determining our provision for income taxes , our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets . to the extent we establish a valuation allowance or adjust this allowance in a period , we must include an expense within the tax provisions in the statement of income . long-lived assets , including intangibles goodwill represents the excess of cost over the fair value of the net assets purchased in business combinations . goodwill is required to be tested annually for impairment or whenever events occur that may indicate that the recoverability of the carrying amount is not probable . in the event of an impairment , the amount by which the carrying amount exceeds the fair value is charged to earnings . the company performs its annual impairment testing of goodwill in the fourth quarter of each year . 38 intangible assets include core deposit premiums from various past bank acquisitions as well as intangible assets recorded in connection with the uspf acquisition for insurance agent relationships , the `` us premium finance '' trade name and a non-compete agreement . core deposit premiums acquired in various past bank acquisitions are based on the established value of acquired customer deposits . the core deposit premium is initially recognized based on a valuation performed as of the acquisition date and is amortized over an estimated useful life of seven to ten years . the insurance agent relationships , the `` us premium finance '' trade name and non-compete agreement intangible assets acquired in the uspf acquisition are based on the established values as of the acquisition date and are being amortized over estimated useful lives of eight years , seven years and three years , respectively . the valuation of intangible assets involves significant forward looking assumptions such as economic conditions , market interest rates , asset growth rates , credit losses , etc . changes in any of these assumptions could materially affect the valuation of the intangible assets . amortization periods for intangible assets are reviewed annually in connection with the annual impairment testing of goodwill . net income/ ( loss ) and earnings per share the company 's net income during 2018 was $ 121.0 million , or $ 2.80 per diluted share , compared with $ 73.5 million , or $ 1.98 per diluted share , in 2017 , and $ 72.1 million , or $ 2.08 per diluted share , in 2016. for the fourth quarter of 2018 , the company recorded net income of $ 43.5 million , or $ 0.91 per diluted share , compared with $ 9.2 million , or $ 0.24 per diluted share , for the quarter ended december 31 , 2017 , and $ 18.2 million , or $ 0.52 per diluted share , for the quarter ended december 31 , 2016. earning assets and liabilities average earning assets were approximately $ 8.86 billion in 2018 , compared with approximately $ 6.76 billion in 2017. the earning asset and interest-bearing liability mix is regularly monitored to maximize the net interest margin and , therefore , increase return on assets and shareholders ' equity . the following statistical information should be read in conjunction with the remainder of “ management 's discussion and analysis of financial condition and results of operation ” and the consolidated financial statements and related notes included elsewhere in this annual report and in the documents incorporated herein by reference . 39 the following tables set forth the amount of average balance , interest income or interest expense , and average interest rate for each category of interest-earning assets and interest-bearing liabilities , net interest spread and net interest margin on average interest-earning assets .
| during 2018 , average noninterest-bearing accounts amounted to $ 2.16 billion and comprised 27.5 % of average total deposits , compared with $ 1.67 billion , or 28.6 % of average total deposits , during 2017. average balances of time deposits amounted to $ 1.67 billion and comprised 21.2 % of average total deposits during 2018 , compared with $ 1.00 billion , or 17.2 % of average total deposits , during 2017. on a taxable-equivalent basis , net interest income for 2018 was $ 347.5 million , compared with $ 267.1 million in 2017 , an increase of $ 80.4 million , or 30.1 % . the company 's net interest margin , on a tax equivalent basis , decreased three basis points to 3.92 % for the year ended december 31 , 2018 , compared with 3.95 % for the year ended december 31 , 2017. accretion income for 2018 increased to $ 11.8 million , compared with $ 10.6 million for 2017. excluding the effect of accretion , the company 's net interest margin for 2018 remained unchanged from 2017 at 3.79 % . 2017 compared with 2016. for the year ended december 31 , 2017 , interest income was $ 294.3 million , an increase of $ 55.3 million , or 23.1 % , compared with the same period in 2016. average earning assets increased $ 1.16 billion , or 20.7 % , to $ 6.76 billion for the year ended december 31 , 2017 , compared with $ 5.60 billion as of december 31 , 2016. yield on average earning assets on a taxable equivalent basis increased during 2017 to 4.46 % , compared with 4.35 % for the year ended december 31 , 2016.average yields on all interest-earning asset categories increased from 2016 to 2017 with the exception of purchased loans , which experienced a decrease in accretion income . interest expense on deposits and other borrowings for the year ended december 31 , 2017 was $ 34.2 million , an increase of $ 14.5 million , or 73.8 % , compared with $ 19.7 million for the year ended december 31 , 2016. during 2017 , average noninterest-bearing accounts amounted to $ 1.67 billion and comprised 28.6 % of average total deposits , compared with
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our enterprise pbx service allows clients to eliminate traditional voice infrastructure with communication services delivered through the cloud . this unified communication service offering includes fully hosted and hybrid models for maximum flexibility . video transport we provide a suite of fully-managed video transport services . our services are designed to support our clients ' requirements for stringent broadcast quality , providing 100 % quality of service for transmission of live events , sports entertainment , and news . our service options include dedicated , occasional use , and ip video . we manage individual services , multicast distribution , and entire client networks , supporting all forms of signal management required for media workflow . gtt 's video transport services are based on the core principle of `` any signal , any format , anywhere . '' our clients include many of the world 's top broadcasters and cable programming providers . access services within north america , gtt operates an access infrastructure composed of approximately 1,750 central offices , which includes 835 cos that are ethernet over copper enabled . gtt access services include eoc and dsl services , which are designed to provide reliable and affordable network access utilizing traditional copper wire infrastructure . eoc is available in both asymmetric and symmetric configurations . our symmetric service offers guaranteed bandwidth , with available speeds from 2mbps to 45mbps . customer and network contracts 20 our customer contracts generally range from three to five years or more for the initial term . following the initial term , these agreements typically provide for automatic renewal for specified periods ranging from one month to one year . our prices are fixed for the duration of the contract , and we typically bill monthly in advance for such services . if a customer terminates its agreement , the terms of our customer contracts typically require full recovery of any amounts due for the remainder of the term or , at a minimum , our liability to any underlying suppliers . our revenue is composed of three primary categories : recurring revenue , non-recurring revenue , and usage revenue . recurring revenue relates to contracted ongoing service that is generally fixed in price and paid by the customer on a monthly basis for the contracted term . for the year ended december 31 , 2017 , recurring revenue was approximately 94 % of our total revenue . non-recurring revenue primarily includes installation and equipment charges to customers , and one-time termination charges for customers who cancel their services prior to the contract termination date . usage revenue represents variable revenue based on whether a customer exceeds its committed usage threshold as specified in the contract . our network supplier contracts do not have any market related net settlement provisions . we have not entered into , and do not plan to enter into , any supplier contracts which involve financial or derivative instruments . the supplier contracts are entered into solely for the direct purchase of telecommunications capacity , which is resold by us in the normal course of business . other than cost of telecommunication services provided , our most significant operating expenses are employment costs . as of december 31 , 2017 , we had 1,257 full-time equivalent employees . for the year ended december 31 , 2017 , the total employee cash compensation and benefits represented approximately 12 % of total revenue . recent developments affecting our results business acquisitions since our formation , we have consummated a number of transactions accounted for as business combinations as part of our strategy of expanding through acquisitions . these acquisitions , which are in addition to our periodic purchases of customer contracts , have allowed us to increase the scale at which we operate , which in turn affords us the ability to increase our operating leverage , extend our network , and broaden our customer base . the accompanying consolidated financial statements include the operations of the acquired entities from their respective acquisition dates . custom connect in december 2017 , we acquired custom connect international b.v. ( `` custom connect '' ) . we paid $ 28.9 million in cash consideration , of which $ 0.6 million was net cash acquired , and 49,941 unregistered shares of our common stock valued at $ 2.2 million at closing . $ 3.2 million of the initial cash consideration is held in escrow for one year , subject to reduction for any indemnification claims made by us prior to such date . the results of custom connect have been included from december 31 , 2017. the acquisition was considered a stock purchase for tax purposes . transbeam in october 2017 , we acquired transbeam , inc. ( `` transbeam '' ) . we paid $ 26.4 million , of which $ 0.8 million was net cash acquired , and $ 2.0 million was deferred as holdback consideration for a 12-month period , subject to reduction for any indemnification claims made by us prior to such date . the results of transbeam have been included from october 1 , 2017. the acquisition was considered a stock purchase for tax purposes . global capacity in september 2017 , we acquired global capacity for $ 104.0 million in cash consideration , of which $ 4.0 million was net cash acquired , and 1,850,000 unregistered shares of our common stock valued at $ 53.6 million at closing . $ 10.0 million of the initial cash consideration is held in escrow for one year , subject to reduction for any indemnification claims made by us prior to such date . the results of global capacity have been included from september 15 , 2017. the acquisition was considered an asset purchase for tax purposes . perseus in june 2017 , we acquired perseus telecom ( `` perseus '' ) . we paid $ 37.5 million in cash consideration , of which $ 0.1 million was net cash acquired , and assumed $ 1.9 million in capital leases . story_separator_special_tag $ 4.0 million of the initial cash consideration is held in escrow 21 for one year , subject to reduction for any indemnification claims made by us prior to such date . the results of perseus have been included from june 1 , 2017. the acquisition was considered a stock purchase for tax purposes . hibernia in january 2017 , we acquired hibernia networks ( `` hibernia '' ) for $ 529.6 million in cash consideration , of which $ 14.6 million was net cash acquired , and 3,329,872 unregistered shares of our common stock , initially valued at $ 75.0 million on the date of announcement , and ultimately valued at $ 86.1 million at closing . $ 15.0 million of the initial cash consideration is held in escrow for one year , subject to reduction for any indemnification claims made by us prior to such date . the results of hibernia have been included from january 1 , 2017. the acquisition was considered an asset purchase for tax purposes . telnes in february 2016 , we completed the acquisition of telnes broadband ( `` telnes '' ) . we paid $ 15.5 million in cash and issued 178,202 unregistered shares of our common stock valued at $ 2.0 million . $ 1.8 million of the cash consideration was deferred for one year subject to reduction for any indemnification claims made by us prior to such date . the acquisition was considered an asset purchase for tax purposes . one source in october 2015 , we completed the acquisition of one source networks inc. ( `` one source '' ) . we paid $ 169.3 million in cash and issued 185,946 unregistered shares of our common stock valued at $ 2.3 million . we also issued 289,055 unregistered shares of our common stock to certain one source employees as compensation for continuous employment valued at $ 3.6 million . the net working capital was finalized in 2016 for additional consideration of $ 0.4 million . the acquisition was considered a stock purchase for tax purposes . megapath in april 2015 , we acquired megapath corporation ( `` megapath '' ) . we paid $ 141.4 million in cash consideration , assumed approximately $ 3.4 million in capital leases , and issued 610,843 unregistered shares of our common stock valued at $ 7.5 million . in april 2016 , we also settled a dispute related to closing date working capital with megapath in 2016 , resulting in an increase to total consideration and goodwill of $ 4.1 million . $ 10.0 million of the initial cash consideration was deferred for one year , subject to reduction for any indemnification claims made by us prior to such date . the acquisition was considered an asset purchase for tax purposes . the acquisition of custom connect , transbeam , global capacity , perseus , and hibernia are collectively referred to as `` 2017 acquisitions , '' the acquisition of telnes is referred to as the `` 2016 acquisition , '' and the acquisition of one source and megapath are collectively referred to as `` 2015 acquisitions '' for purposes of explaining our results of operations . asset purchases periodically we acquire customer contracts that we account for as an asset purchase and record a corresponding intangible asset that is amortized over its assumed useful life . during 2017 , we acquired customer contracts for an aggregate purchase price of $ 37.4 million , of which $ 14.9 million was paid in 2017 on the respective closing dates . of the remaining $ 22.5 million , $ 4.5 million was subsequently paid during the year ended december 31 , 2017. the remaining $ 18.0 million is expected to be paid in 2018 , subject to any indemnification claims made through the final payment date . during 2016 , we acquired customer contracts for an aggregate purchase price of $ 41.3 million , of which $ 20.0 million was paid in 2016 on the respective closing dates . the remaining $ 21.3 million was paid during the year ended december 31 , 2017. we did not have any asset purchases in 2015. indebtedness the following summarizes our long-term debt at december 31 , 2017 and 2016 ( amounts in millions ) : 22 replace_table_token_4_th 2017 credit agreement in january 2017 , we entered into a credit agreement ( the `` 2017 credit agreement '' ) that provides a $ 700.0 million term loan facility and a $ 75.0 million revolving line of credit facility ( which includes a $ 25.0 million letter of credit facility ) . in addition , we may request incremental term loan and or incremental revolving loan commitments in an aggregate amount not to exceed the sum of $ 150.0 million and an unlimited amount that is subject to pro forma compliance with certain net secured leverage ratio tests provided , however , that incremental revolving loan commitments may not exceed $ 25.0 million . the maturity date of the term loan facility is january 2024 and the maturity date of the revolving loan facility is january 2022. the principal amount of the term loan facility is payable in equal quarterly installments of $ 1.8 million , commencing on march 31 , 2017 and continuing thereafter until the maturity date , when the remaining balance of outstanding principal amount is payable in full . in addition to scheduled mandatory repayments , we are also required to repay an amount of up to 50 % of excess cash flow ( as defined in the 2017 credit agreement ) . no such excess cash payments were made during the year ended december 31 , 2017 . we may prepay loans under the 2017 credit agreement at any time , subject to certain notice requirements and libor breakage costs . at our election , the loans under the 2017 credit agreement may be made as either base rate loans or eurodollar loans . the eurodollar loans are subject to a floor of 1.00 % . in july 2017 , we entered into amendment no .
| selling , general and administrative expenses increased by $ 72.2 million , or 50.4 % , from $ 143.2 million for the year ended december 31 , 2016 to $ 215.4 million for the year ended december 31 , 2017 . the 25 following table summarizes the major categories of selling , general and administrative expenses for the years ended december 31 , 2017 and 2016 ( amounts in millions ) : replace_table_token_6_th ( 1 ) includes bad debt expense , professional fees , marketing costs , facilities , and other general support costs . employee related compensation increased primarily due to the hibernia acquisition . share-based compensation expense increases were driven by the recognition of share-based compensation for performance awards and an increase in the aggregate value of employee equity awards . transaction and integration costs increases were driven by 2017 acquisitions . other sg & a expense increases were principally driven by the acquisition of hibernia . on a constant currency basis using the average exchange rates in effect during the year ended december 31 , 2016 , selling , general and administrative expenses would have been higher by $ 0.3 million for the year ended december 31 , 2017 . severance , restructuring and other exit costs . for the year ended december 31 , 2017 , we incurred restructuring charges of $ 22.4 million relating to 2017 acquisitions . we incurred restructuring charges of $ 0.9 million for the year ended december 31 , 2016 related to the acquisition of telnes . depreciation and amortization . amortization of intangible assets increased $ 28.3 million or 69.7 % , from $ 40.7 million for the year ended december 31 , 2016 to $ 69.0 million for the year ended december 31 , 2017 , primarily due to the additional definite-lived intangible assets recorded in the hibernia acquisition . depreciation expense increased $ 41.5 million , or 187.3 % from $ 22.1 million to $ 63.6 million for the year ended december 31 , 2017 , primarily due to the assets acquired from the hibernia acquisition . other expense . other expense increased by $ 48.0 million , or 151.6 % from $ 31.6 million for the
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our operating costs represent property-related costs , such as repairs and maintenance , landscaping , snow removal , utilities , property insurance costs , security , ground rent expense related to properties for which we are the lessee and various other property related costs . increases in our operating costs , to the extent they are not offset by revenue increases , may impact our overall performance . for a further discussion of these and other factors that could impact our future results , performance or transactions , see item 1a . “ risk factors. ” story_separator_special_tag style= '' line-height:120 % ; text-align : left ; font-size:10pt ; '' > during the year ended december 31 , 2016 , $ 892.4 million of secured loans were repaid , resulting in a $ 1.7 million net gain on extinguishment of debt . in addition , the company recognized a $ 2.5 million loss on extinguishment of debt in connection with the execution of the unsecured credit facility . during the year ended december 31 , 2015 , $ 868.9 million of secured loans and $ 225.0 million of unsecured notes were repaid , resulting in a $ 1.7 million net gain on extinguishment of debt . other the increase in other expense , net for the year ended december 31 , 2016 of $ 4.6 million , as compared to the corresponding period in 2015 , was primarily due to ( i ) $ 4.7 million of income in 2015 related to net adjustments to pre-ipo tax reserves and receivables ; ( ii ) $ 1.8 million of income in 2015 related to the resolution of an environmental contingency ; ( iii ) $ 0.8 million of income in 2015 related to the resolution of certain contingencies for disposed properties ; partially offset by ( v ) a $ 1.8 million decrease in transaction expenses . equity in income of unconsolidated joint ventures ( in thousands ) replace_table_token_14_th - 36 - equity in income of unconsolidated joint ventures equity in income of unconsolidated joint ventures remained generally consistent for the year ended december 31 , 2016 as compared to the corresponding period in 2015. comparison of the year ended december 31 , 2015 to the year ended december 31 , 2014 revenues ( in thousands ) replace_table_token_15_th rental income the increase in rental income for the year ended december 31 , 2015 of $ 23.8 million , as compared to the corresponding period in 2014 , was primarily due to an $ 18.0 million increase in base rent . the base rent increase was driven primarily by contractual rent increases from properties owned for the entirety of both periods as well as positive rent spreads of 14.9 % in 2015 and 12.6 % in 2014 for new and renewal leases and option exercises . expense reimbursements the increase in expense reimbursements for the year ended december 31 , 2015 of $ 8.0 million , as compared to the corresponding period in 2014 , was primarily due to the expense recovery percentage for our properties increasing 1.4 % in 2015. other revenues the decrease in other revenues for the year ended december 31 , 2015 of $ 2.4 million , as compared to the corresponding period in 2014 , was primarily due to a decrease in percentage rent revenue . the decrease in percentage rents was primarily due to the timing of recognition . operating expenses ( in thousands ) replace_table_token_16_th operating costs operating costs remained generally consistent for the year ended december 31 , 2015 as compared to the corresponding period in 2014. real estate taxes the increase in real estate taxes for the year ended december 31 , 2015 of $ 1.4 million , as compared to the corresponding period in 2014 , was primarily due to increased tax assessments in several jurisdictions , primarily in texas and florida . - 37 - depreciation and amortization the decrease in depreciation and amortization for the year ended december 31 , 2015 of $ 23.7 million , as compared to the corresponding period in 2014 , was primarily due to the continued decrease in acquired in-place lease intangibles with remaining net book value . provision for doubtful accounts the decrease in provisions for doubtful accounts for the year ended december 31 , 2015 of $ 2.0 million , as compared to the corresponding period in 2014 , was primarily due to an increase in recoveries of amounts previously written off . impairment of real estate assets during the year ended december 31 , 2015 , one of the shopping centers and one of the outparcels that were disposed for net proceeds of $ 13.8 million resulted in an aggregate impairment of $ 1.0 million . general and administrative the increase in general and administrative costs for the year ended december 31 , 2015 of $ 18.3 million , as compared to the corresponding period in 2014 , was primarily due to a $ 13.9 million increase in equity based compensation expense and $ 2.5 million of expenses related to the audit committee review . the equity based compensation expense increase is primarily associated with the vesting of certain pre-ipo equity awards in 2015. during the years ended december 31 , 2015 and 2014 , we capitalized personnel costs of $ 6.3 million and $ 5.8 million , respectively , to building and improvements for anchor space repositioning and redevelopment projects and $ 15.1 million and $ 15.1 million , respectively , to deferred charges and prepaid expenses , net for deferred leasing costs . other income and expenses ( in thousands ) replace_table_token_17_th dividends and interest the decrease in dividends and interest for the year ended december 31 , 2015 of $ 0.3 million , as compared to the corresponding period in 2014 , was primarily due to a $ 4.1 million decrease in interest bearing receivables . story_separator_special_tag interest expense the decrease in interest expense for the year ended december 31 , 2015 of $ 17.8 million , as compared to the corresponding period in 2014 , was primarily due to the 2015 and 2014 secured loan , unsecured note and financing liability repayments of $ 2.1 billion with a weighted-average interest rate of 5.68 % , partially offset by $ 1.8 billion of proceeds from the issuance of senior unsecured notes and the term loan as well as borrowings under our unsecured credit facility with a weighted average interest rate of 2.6 % . gain on sale of real estate assets during the year ended december 31 , 2015 , four of the shopping centers and two of the outparcel buildings that were disposed for net proceeds of $ 40.4 million resulted in an aggregate gain of $ 11.7 million . during the year ended december 31 , 2014 , we disposed of one building resulting in an aggregate gain of $ 0.4 million . - 38 - gain ( loss ) on extinguishment of debt , net during the year ended december 31 , 2015 , $ 868.9 million of secured loans and $ 225.0 million of unsecured notes were repaid , resulting in a $ 1.7 million net gain on extinguishment of debt . during the year ended december 31 , 2014 , $ 763.3 million of secured loans and $ 110.2 million of unsecured notes were repaid resulting in a $ 13.8 million net loss on extinguishment of debt . other the decrease in other expense , net for the year ended december 31 , 2015 of $ 8.1 million , as compared to the corresponding period in 2014 , was primarily due to ( i ) $ 4.7 million of income in 2015 related to net adjustments to pre-ipo tax reserves and receivables , ( ii ) $ 1.8 million of income in 2015 related to an environmental contingency and ( iii ) a $ 1.4 million expense in 2014 related to a litigation settlement . equity in income of unconsolidated joint ventures ( in thousands ) replace_table_token_18_th equity in income of unconsolidated joint ventures equity in income of unconsolidated joint ventures remained generally consistent for the year ended december 31 , 2015 as compared to the corresponding period in 2014. gain on disposition of investments in unconsolidated joint ventures during the year ended december 31 , 2014 , in connection with our initial public offering ( “ ipo ” ) , we distributed our interests in three unconsolidated joint ventures to the blackstone group l.p. resulting in a gain on disposition of $ 1.8 million . discontinued operations ( in thousands ) replace_table_token_19_th discontinued operations as a result of adopting asu no . 2014-08 , “ reporting discontinued operations and disclosures of disposals of components of an entity , ” there were no disposals classified as discontinued operations for the year ended december 31 , 2015. results from discontinued operations for the year ended december 31 , 2014 include the results of 34 shopping centers disposed of during the year ended december 31 , 2014. liquidity and capital resources we anticipate that our cash flows from the sources listed below will provide adequate capital for the next 12 months for all anticipated uses , including all scheduled principal and interest payments on our outstanding indebtedness , current and anticipated tenant improvements , stockholder distributions to maintain the parent company 's qualification as a reit and other capital obligations associated with conducting our business . - 39 - our primary expected sources and uses of capital are as follows : sources cash and cash equivalent balances ; operating cash flow ; available borrowings under our existing unsecured credit facility ; issuance of long-term debt ; dispositions ; and issuance of equity securities . uses recurring maintenance capital expenditures ; leasing related capital expenditures ; anchor space repositioning , redevelopment and development projects ; debt maturities and repayment requirements ; acquisitions ; and dividend/distribution payments . we believe our current capital structure provides us with the financial flexibility and capacity to fund our current capital needs as well as future growth opportunities . on july 25 , 2016 , the operating partnership amended and restated the unsecured credit facility to provide for a $ 1.0 billion tranche a term loan , a $ 500.0 million tranche b term loan and a $ 1.25 billion revolving credit facility ( the `` revolving facility '' ) , under which we had $ 1.13 billion of undrawn capacity as of december 31 , 2016. in addition , we believe we have access to multiple forms of capital , including unsecured corporate level debt , preferred equity and common equity , including through our at-the-market equity offering program . we currently have investment grade credit ratings from all three major credit rating agencies . we intend to continue to enhance our financial and operating flexibility through ongoing commitment to ladder and extend the duration of our debt , and further expand our unencumbered asset base . in june 2016 , the operating partnership issued $ 600.0 million aggregate principal amount of 4.125 % senior notes due 2026 ( the “ 2026 notes ” ) , the proceeds of which were utilized to repay outstanding indebtedness , including borrowings under the revolving facility , and for general corporate purposes . the 2026 notes bear interest at a rate of 4.125 % per annum , payable semi-annually on june 15 and december 15 of each year , commencing december 15 , 2016. the 2026 notes will mature on june 15 , 2026. in august 2016 , the operating partnership issued $ 500.0 million aggregate principal amount of 3.250 % senior notes due 2023 ( the “ 2023 notes ” ) , the proceeds of which were utilized to repay outstanding indebtedness , including borrowings under the revolving facility , and for general corporate purposes . the 2023 notes bear interest at a rate of 3.250 % per annum , payable semi-annually on march 15 and september 15 of each year , commencing march 15 , 2017.
| comparison of the year ended december 31 , 2016 to the year ended december 31 , 2015 revenues ( in thousands ) replace_table_token_11_th rental income the increase in rental income for the year ended december 31 , 2016 of $ 13.6 million , as compared to the corresponding period in 2015 , was primarily due to ( i ) a $ 20.2 million increase in base rent and ( ii ) a $ 9.4 million increase in lease settlement income primarily from a former bankrupt tenant , partially offset by ( iii ) a $ 10.0 million decrease in accretion income from above and below market lease intangibles , ( iv ) a $ 3.2 million decrease in straight-line rent and ( v ) a $ 0.9 million increase in amortization of tenant inducements . the base rent increase was driven primarily by contractual rent increases from properties owned for the entirety of both periods as well as positive rent spreads of 12.0 % in 2016 and 14.9 % in 2015 for new and renewal leases and option exercises . expense reimbursements the decrease in expense reimbursements for the year ended december 31 , 2016 of $ 5.5 million , as compared to the corresponding period in 2015 , was primarily due to a decrease in reimbursable real estate tax expenses as a result of annual real estate tax reconciliations and the receipt of tax refunds . other revenues the increase in other revenues for the year ended december 31 , 2016 of $ 1.7 million , as compared to the corresponding period in 2015 , was primarily due to an increase of $ 2.3 million in percentage rents , partially offset by a reduction in management fees as a result of fewer properties being managed . the increase in percentage rents was primarily due to the timing of recognition . - 34 - operating expenses ( in thousands ) replace_table_token_12_th operating costs the increase in operating costs for the year ended december 31 , 2016 of $ 4.0 million , as compared to the corresponding period in 2015 , was primarily due to an increase in repair and maintenance costs and insurance expenses , partially offset by a decrease in utility expenses . real estate taxes the decrease in real estate taxes for the year ended december 31 , 2016 of $ 6.4 million , as compared to the corresponding period in 2015 , was primarily due to annual real estate tax reconciliations and the receipt of tax refunds . depreciation and amortization the decrease in depreciation and amortization for the year ended december 31 , 2016 of $ 30.6 million , as compared to
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in october 2010 , we announced several critical shifts in our business strategy , including an increased focus on the chinese and asian markets , the pursuit of telecom and cable network customers in parallel and using our expertise in building and operating technology and service platforms for iptv and internet tv to sell more end-to-end solutions to service providers . sale leaseback transaction and early termination of hangzhou building in december 2009 , we entered into a property transfer and leaseback agreement ( the `` sale leaseback agreement '' ) for the sale of our manufacturing , research and development and administrative office facility in hangzhou , china ( the `` hangzhou facility '' ) to a third party for proceeds of approximately $ 138.8 million and the leaseback of approximately one-third of the property through 2016. as of may 31 , 2010 , we had received all of the sales proceeds and met all criteria for consummation of sale of the hangzhou facility . on may 31 , 2010 , the buyer and us agreed that all conditions precedent to the closing had been met and the leaseback commenced on june 1 , 2010. on december 8 , we formally notified the landlord of our decision to early terminate the lease in june 2011.the termination clause requires the company to pay total penalties of $ 9.5 million . a termination penalty charge of $ 1.3 million was recorded in december 2010 as a result of the full termination penalty off set by the release of the deferred gain and deferred rental liabilities other than the portion that would have been normally amortized in the next six month period to june 8 , 2011 if there were no early termination . as of december 31 , 2010 , the company has a net balance of $ 4.0 million related to the early termination penalty recorded in other liabilities which consists of the $ 9.5 million total penalty less the prepaid rent and security deposit paid in the second quarter of 2010. see note 6 of notes to our consolidated financial statements included under part ii , item 8 of this annual report on form 10-k. 52 divestitures on july 1 , 2008 , we sold utstarcom personal communications llc , a wholly-owned subsidiary of the company ( `` pcd '' ) , to an entity controlled by aig global investment group and certain other investors for a total sale consideration of approximately $ 237.7 million . additionally , on july 31 , 2008 , we completed the divestiture of our mobile solutions business unit ( `` msbu '' ) to a global private equity firm . on july 31 , 2009 , we completed a sale of its korea operations to an entity founded by a former employee and received total consideration of approximately $ 2.0 million . in january 2010 , we completed a sale of certain assets and liabilities related to our remote access server ( `` ras '' ) product line and received total consideration of approximately $ 1.5 million . in june 2010 , we completed a sale of our ip messaging and us pdsn assets which were located in north america , caribbean , and latin america regions and were part of the multimedia communications segment . we received consideration of approximately $ 0.9 million as of december 31 , 2010. in september 2010 , we entered into an agreement to transfer our emea ( `` europe , middle east and africa '' ) operations for no consideration . in the third quarter of 2010 , we recognized expenses of approximately $ 0.9 million as a divestiture loss for our obligations primarily arising out of local statutory requirements such as severance fund for transferred employees and other miscellaneous operational costs . in the third quarter of 2010 , we completed a sale of our china pdsn assets and recorded a gain of $ 1.6 million . see note 3 of notes to our consolidated financial statements included under part ii , item 8 of this annual report on form 10-k. restructuring programs on june 9 , 2009 , our board of directors approved a restructuring plan ( the `` 2009 restructuring plan '' ) designed to reduce our operating costs . the 2009 restructuring plan includes a worldwide reduction in force of approximately 50 % of our headcount , or approximately 2,300 employees located primarily in china and the united states and , to a lesser degree , other international locations . during 2010 , we recorded restructuring costs of approximately $ 15.7 million related to the 2009 restructuring plan and prior year restructuring plans . we will continue our efforts to evaluate certain operations and will consider opportunities to divest additional non-core assets and may incur additional costs associated with future actions to further align our business operations and streamline our business processes . investments during the first quarter of 2008 , we sold our remaining investment in gemdale co. , ltd ( `` gemdale '' ) for approximately $ 32.9 million and recognized a gain of $ 32.4 million in other income , net . we also sold our investment in infinera corporation ( `` infinera '' ) for approximately $ 9.2 million and recognized a gain of $ 7.3 million in other income , net . during 2009 , we recorded approximately $ 5.5 million of other-than-temporary impairment charges related to our investments in mrv communications ( `` mrv '' ) and xalted networks ( `` xalted '' ) . during the fourth quarter of 2009 , we sold our investment in mrv for approximately $ 1.0 million and recognized a gain of approximately $ 0.4 million . see note 4 of notes to our consolidated financial statements included under part ii , item 8 of this annual report on form 10-k. in december 2010 , we invested $ 2.1 million into aceland investments limited ( `` aceland '' ) . story_separator_special_tag aceland was formed by zte h.k limited and us , and the investment objective is to participate in the investment in wireless city planning operated by softbank to develop xgp business . we own approximately 35 % interest of aceland at december 31 , 2010 and accounts for the investment in aceland using the equity method . 53 acquisition on october 16 , 2010 , we entered into an ordinary shares purchase agreement with stage smart limited ( `` stage smart '' ) and smart frontier holdings limited ( `` smart frontier '' ) , the sole shareholder of stage smart , to enable us to launch an internet tv platform to generate revenue through subscription , advertising and value-added service in the coming years . pursuant to the ordinary shares purchase agreement , we agreed to purchase from smart frontier 5,100,000 ordinary shares of stage smart held by smart frontier ( the `` purchase shares '' ) for an aggregate purchase price of $ 10.0 million paid in the form of the number of shares of our common stock calculated by dividing $ 10.0 million by the average closing price per share of our common stock quoted on the nasdaq stock market for the thirty day period immediately preceding the date of closing of the transaction which closely approximates the market value on the day of issuance . pursuant to the ordinary shares purchase agreement , the company has the right to repurchase the company 's shares issued as part of the consideration to stage smart shareholders if by the one year anniversary of the closing date regulatory approvals have not been obtained as outlined in the post-closing covenants . concurrent with entering into the ordinary shares purchase agreement , we also entered into a series a preference shares purchase agreement with stage smart and its affiliated entity , its wholly owned subsidiaries , and smart frontier . pursuant to the series a preference shares purchase agreement , we agreed to purchase from stage smart 9,600,000 series a preference shares of stage smart at a price of $ 2.08333 per share , for an aggregate consideration of $ 20.0 million payable in cash . the purchase shares and the series a preference shares together constitute 75 % of the total shares of stage smart which gives the company control over stage smart . from the date of acquisition of november 8 , 2010 , stage smart and its affiliated entity and its wholly owned subsidiary will be consolidated into our results . we recorded intangible assets and goodwill of $ 5.0 million and $ 13.8 million , respectively . see note 11 of notes to our consolidated financial statements included under part ii , item 8 of this annual report on form 10-k. decline in pas business and wind-down of handset segment we expect pas networks will be phased out by january 1 , 2012. miit has granted 3g mobile licenses to china telecom , china mobile and china unicom . on january 9 , 2009 , the miit officially issued a notice to unconditionally phase out the personal handy-phone system ( `` phs '' ) by the end of 2011 to guarantee the bandwidth for china 's 3g services . consequently , in the fourth quarter of 2009 , we have determined the remaining expected period of support for our pas infrastructure products sold in prior years as 2 years and hence the remaining deferred revenue associated with pas infrastructure will be recognized ratably through the fourth quarter of 2011. for additional discussion see `` results of operations-net sales '' section of this item 7. we have completed the wind-down of our worldwide handset operations and thus have not had significant revenue and gross margin in 2010 , except for sales related to inventory clearing , and do not expect any in 2011 and beyond . strategic investment and changes in management and the board of directors on february 1 , 2010 , we entered into agreements for a strategic relationship with beijing e-town international investment and development co. , ltd ( `` beiid '' ) , an investment company established by the beijing municipality which includes a proposed investment in the common stock of the company by beiid and two unrelated investment funds , elite noble limited and shah capital opportunity fund lp . the stock purchase agreements were subsequently amended on may 4 , 2010 , june 4 , 2010 and july 7 , 2010 , respectively . these investment transactions closed in september 2010. under the terms of agreements , as revised , we received cash of $ 34.6 million and issued approximately 18.1 million shares of common stock and an option to purchase up to an additional 4.0 million shares 54 of common stock for approximately $ 8.1 million through november 8 , 2010. the option had expired unexercised as of december 31 , 2010. in connection with the transaction and in furtherance of our strategic goals in china , ying ( jack ) lu was appointed our new chief executive officer and president effective upon the closing of the investment . from march 1 , 2010 , until he assumed the ceo position , he served as the company 's chief operating officer . on september 7 , 2010 , peter blackmore resigned as our ceo and president upon ying ( jack ) lu 's assumption of the ceo position . upon the closing of the transaction , three new members were appointed as directors to our board of directors , and two then current board members resigned at that time . the total number of directors on the board was increased from six to seven in connection with the transaction . we also moved our operational headquarters from alameda , california to beijing , china as part of an agreement with beijing development authority , which is related to the beijing municipality . that agreement was effective upon closing of the beiid investment .
| broadband infrastructurefocused on our world class portfolio of broadband products , including related services revenue . 55 handsetsfocused on mobile phone business including pas and cdma handset market , as well as data cards markets . handset sales to pcd llc , which commenced after the july 1 , 2008 sale of pcd , are included in this segment . we have reclassified our previously reported segment information for the year ended december 31 , 2009 and 2008 to conform to the current segment presentation . net sales replace_table_token_6_th fiscal 2010 vs. 2009 net sales decreased by 25 % to $ 291.5 million for 2010 compared to $ 386.3 million for 2009. the decrease was primarily due to the wind-down of our handset business which resulted in a decrease of $ 95.5 million in revenue . this decrease was partially offset by the $ 2.7 million increase in sales of broadband infrastructure segment mainly due to more tn product sales to international customers . multimedia communications net sales were $ 175.0 million for the year ended december 31 , 2010 as compared to $ 177.1 million for 2009 , mainly due to the decrease in revenue of all the multimedia communications product lines except stb and ip signage product and partially offset by the accelerated amortization of pas deferred product revenue . for additional discussion , see the `` segment reporting '' section of this item 7. in 2010 and beyond , we do not expect significant new contracts for our pas handsets and infrastructure equipment . as of december 31 , 2010 , we have approximately $ 93.4 million of deferred revenue associated with pas infrastructure sales to be recognized ratably over the expected period of support through december 2011. we review assumptions regarding the estimated post contract support periods on a regular basis . due to the china telecommunication industry restructuring and launching of 3g services in china , the ministry of industry and information technology of china announced that pas services in china will be phased out by
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declining real estate values may also significantly increase the likelihood that we will incur losses on our loans in the event of default because the value of our collateral may be insufficient to cover our cost on the loan . any sustained period of increased payment delinquencies , foreclosures or losses could adversely affect both our net interest income from loans as well as our ability to originate , sell and securitize loans , which would significantly impact our results of operations , financial condition , business prospects and our ability to make distributions to our stockholders . the economic environment over the past few years has seen continued improvement in commercial real estate values , which has generally increased payoffs and reduced the credit exposure in our loan and investment portfolio . we have made , and continue to make , modifications and extensions to loans when it is economically feasible to do so . in some cases , a modification is a more viable alternative to foreclosure proceedings when a borrower can not comply with loan terms . in doing so , lower borrower interest rates , combined with non-performing loans , would lower our net interest margins when comparing interest income to our costs of financing . however , since 2013 , the levels of modifications and delinquencies have generally declined as property values have increased and borrowers ' access to financing has improved . if the markets were to deteriorate and the u.s. experienced a prolonged economic downturn , we believe there could be additional loan modifications and delinquencies , which may result in reduced net interest margins and additional losses throughout our sector . changes in financial condition assetscomparison of balances at december 31 , 2018 to december 31 , 2017 : restricted cash increased $ 41.2 million , primarily due to payoffs on our clo loans in excess of loans transferred into our clo vehicles . restricted cash is kept on deposit with the trustees for our clos and primarily represents proceeds received from loan payoffs and paydowns that have not yet been disbursed to bondholders or redeployed into new assets , as well as unfunded loan commitments and interest payments received from loans . our structured loan and investment portfolio balance was $ 3.28 billion and $ 2.65 billion at december 31 , 2018 and 2017 , respectively . this increase was primarily due to loan originations exceeding payoffs and other reductions by $ 700.4 million . see below for details . our portfolio had a weighted average current interest pay rate of 7.02 % and 6.28 % at december 31 , 2018 and 2017 , respectively . including certain fees earned and costs associated with the structured portfolio , the weighted average current interest rate was 7.66 % and 6.99 % at december 31 , 2018 and 2017 , respectively . advances on our financing facilities totaled $ 2.89 billion and $ 2.24 billion at december 31 , 2018 and 2017 , respectively , with a weighted average funding cost of 4.66 % and 4.12 % , respectively , which excludes financing costs . including financing costs , the weighted average funding rate was 5.24 % and 4.83 % at december 31 , 2018 and 2017 , respectively . 44 activity from our structured business portfolio was comprised of the following ( $ in thousands ) : replace_table_token_9_th loans held-for-sale from the agency business increased $ 184.2 million , primarily related to loan originations exceeding loan sales during 2018 as noted in the following table ( in thousands ) . these loans are generally sold within 60 days from the loan origination date . replace_table_token_10_th capitalized mortgage servicing rights increased $ 21.2 million , primarily due to msrs recorded on new loan originations , partially offset by amortization and write-offs . our capitalized mortgage servicing rights represent the estimated value of our rights to service mortgage loans for others . at december 31 , 2018 , the weighted average estimated life remaining of our msrs was 7.6 years . securities held-to-maturity increased $ 48.5 million as a result of additional purchases of b piece bonds from freddie mac sbl program securitizations . see note 7securities held-to-maturity for details . other assets increased $ 23.8 million , primarily due to an increase in interest and other receivables from new loan originations , as well as increases in the fair market value of our rate lock commitments and deferred tax assets in our agency business . liabilitiescomparison of balances at december 31 , 2018 to december 31 , 2017 : credit facilities and repurchase agreements increased $ 607.1 million , primarily due to funding of new structured loan activity and an increase in financings on our loans held-for-sale , as a result of loan originations exceeding loan sales during 2018. collateralized loan obligations increased $ 175.1 million , primarily due to the issuance of a new clo , where we issued $ 441.0 million of notes to third party investors , partially offset by the unwind of a clo totaling $ 267.8 million . senior unsecured notes increased $ 27.2 million , primarily due to the issuance of $ 125.0 million aggregate principal amount of our 5.625 % senior unsecured notes , partially offset by the full redemption of our 7.375 % notes totaling $ 97.9 million . 45 convertible senior unsecured notes , net increased $ 23.5 million , primarily due to the issuance of $ 264.5 million of 5.25 % convertible notes , partially offset by the settlements of $ 138.3 million of our 5.375 % convertible notes and $ 99.9 million of our 6.50 % convertible notes . in january 2018 , we paid $ 50.0 million in full satisfaction of the related party financing entered into with acm to finance a portion of the acquisition purchase price . due to borrowers decreased $ 21.2 million , primarily due to a decrease in funds held on loan originations . story_separator_special_tag other liabilities increased $ 19.0 million , primarily due to the accrual of the special dividend declared by our board of directors in december 2018. equity we completed a public offering where we sold 8,700,000 shares of our common stock for $ 11.57 per share , and received net proceeds of $ 100.5 million . we used a portion of the net proceeds from this offering to purchase an aggregate of 870,000 shares of our common stock from our chief executive officer , acm and an estate planning family vehicle established by our chief executive officer , at the same price the underwriters paid to purchase the shares . we completed a public offering where we sold 5,500,000 shares of our common stock for $ 8.72 per share , and received net proceeds of $ 47.8 million . we issued 7,296,893 shares of our common stock in connection with the initial exchanges and subsequent settlements of our 5.375 % convertible notes and 6.50 % convertible notes . distributions the following table presents dividends declared ( on a per share basis ) for 2018 : replace_table_token_11_th ( 1 ) the dividend declared on october 31 , 2018 was for september 1 , 2018 through november 30 , 2018. the dividend declared on august 1 , 2018 was for june 1 , 2018 through august 31 , 2018. the dividend declared on may 2 , 2017 was for march 1 , 2018 through may 31 , 2018. the dividend declared on february 3 , 2018 was for december 1 , 2017 through february 28 , 2018 . ( 2 ) on december 13 , 2018 , our board of directors declared a special dividend of $ 0.15 per common share , which was paid in a combination of $ 2.5 million of cash and 901,432 common shares in january 2019. common stock on february 13 , 2019 , the board of directors declared a cash dividend of $ 0.27 per share of common stock . the dividend is payable on march 20 , 2019 to common stockholders of record as of the close of business on march 1 , 2019. preferred stock on february 1 , 2019 , the board of directors declared a cash dividend of $ 0.515625 per share of 8.25 % series a preferred stock ; a cash dividend of $ 0.484375 per share of 46 7.75 % series b preferred stock ; and a cash dividend of $ 0.53125 per share of 8.50 % series c preferred stock . these amounts reflect dividends from december 1 , 2018 through february 28 , 2019 and are payable on february 28 , 2019 to preferred stockholders of record on february 15 , 2019. deferred compensation in 2018 , we issued 329,028 shares of restricted stock to our employees , including our chief executive officer , and 67,002 shares to the independent members of the board of directors . we also issued up to 381,503 performance-based restricted common stock units and 294,985 shares of performance-based restricted stock to our chief executive officer . see note 17equity for details . comparison of results of operations for years ended 2018 and 2017 the following table provides our consolidated operating results ( $ in thousands ) : replace_table_token_12_th nmnot meaningful 47 the following table presents the average balance of our structured business interest-earning assets and interest-bearing liabilities , associated interest income ( expense ) and the corresponding weighted average yields ( $ in thousands ) : replace_table_token_13_th ( 1 ) based on upb for loans , amortized cost for securities and principal amount for debt . ( 2 ) weighted average yield calculated based on annualized interest income or expense divided by average carrying value . net interest income the increase in interest income is primarily due to an increase of $ 90.2 million , or 66 % , from our structured business , which was primarily the result of a 53 % increase in our average core interest-earning assets ( due to loan originations exceeding loan runoff ) and an 8 % increase in the average yield on core interest-earning assets ( largely due to increases in the average libor rate , partially offset by lower fee income received from accelerated runoff ) . the increase in interest expense is primarily due to an increase of $ 63.6 million , or 86 % , from our structured business , partially offset by a decrease of $ 3.5 million from the pay off in january 2018 of the seller financing entered into in connection with the acquisition . the increase from our structured business was primarily due to a 67 % increase in the average balance of our interest-bearing liabilities and an 11 % increase in the average cost of our interest-bearing liabilities . the increase in the average debt balance was due to growth in our loan portfolio , resulting in the issuance of additional clos , unsecured debt and a luxembourg commercial real estate debt fund ( `` debt fund '' ) . the increase in the average cost of our interest-bearing liabilities was primarily due to $ 5.3 million of accelerated deferred financing costs recorded in 2018 related to the redemption of unsecured debt and the unwind of a clo , along with an increase in the average libor rate . 48 agency business revenue the increase in income from msrs was primarily due to a $ 759.7 million , or 17 % , increase in loan commitment volume , along with a 10 % increase in the msr rate ( income from msrs as a percentage of loan commitment volume ) from 1.77 % to 1.94 % in 2018. the increase in servicing revenue , net was primarily due to an increase in our servicing portfolio and an increase in earnings on escrows due to an increase in the average libor rate .
| fees and other revenue recognized from originating , selling and servicing mortgage loans through the gse and hud programs . revenue recognized from the origination and sale of mortgage loans consists of gains on sale of loans ( net of any direct loan origination costs incurred ) , commitment fees , broker fees , loan assumption fees and loan origination fees . these gains and fees are collectively referred to as gain on sales , including fee-based services , net . we record income from msrs at the time of commitment to the borrower , which represents the fair value of the expected net future cash flows associated with the rights to service mortgage loans that we originate , with the recognition of a corresponding asset upon sale . we also record servicing revenue which consists of fees received for servicing mortgage loans , net of amortization on the msr assets recorded . although we have long-established relationships with the gse and hud agencies , our operating performance would be negatively impacted if our business relationships with these agencies deteriorate . income earned from our structured transactions . our structured transactions are primarily comprised of investments in equity affiliates , which represent unconsolidated joint venture investments formed to acquire , develop and or sell real estate-related assets . if interest rates continue to rise , it is likely that income from these investments will continue to be significantly impacted , particularly from our investment in a residential mortgage banking business , since rising interest rates generally decrease the demand for residential real estate loans and the number of loan originations . in addition , we periodically receive distributions from our equity investments . it is difficult to forecast the timing of such payments , which can be substantial in any given quarter . we account for structured transactions within our structured business . 41 credit quality of our loans and investments , including our servicing portfolio . effective portfolio management is essential to maximize the
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we continue to manage our costs carefully and create strategies for cost reduction . we are focusing our research and development efforts in our strategic growth markets , namely new programming technology , automated programming systems and their enhancements for the manufacturing environment and software . we continue to focus on extending the capabilities and support for our product lines and supporting the latest semiconductor devices , including nand flash , e-mmc , and microcontrollers on our newer products . in 2015 , we announced our new psv5000 and our new lumenx programmer . our customer focus has been on strategic high volume manufacturers in key market segments like automotive electronics , iot ( internet of things ) , industrial controls , consumer electronics and wireless as well as programming centers . critical accounting policy judgments and estimates the preparation of financial statements in accordance with accounting principles generally accepted in the united states of america requires that we make estimates and judgments , which affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . on an on-going basis , we evaluate our estimates , including those related to sales returns , bad debts , inventories , intangible assets , income taxes , warranty obligations , restructuring charges , contingencies such as litigation and contract terms that have multiple elements and other complexities typical in the capital equipment industry . we base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements : revenue recognition : we recognize revenue at the time the product is shipped . we have determined that our programming equipment has reached a point of maturity and stability such that product acceptance can be assured by testing at the factory prior to shipment and that the installation meets the criteria to be considered a separate element . these systems are standard products with published product specifications and are configurable with standard options . the evidence that these systems could be deemed as accepted was based upon having standardized factory production of the units , results from batteries of tests of product performance to our published specifications , quality inspections and installation standardization , as well as past product operation validation with the customer and the history provided by our installed base of products upon which the current versions were based . 19 the revenue related to products requiring installation that is perfunctory is recognized at the time of shipment . installation that is considered perfunctory includes any installation that can be performed by other parties , such as distributors , other vendors , or in most cases the customers themselves . this takes into account the complexity , skill and training needed as well as customer expectations regarding installation . we enter into multiple deliverables arrangements that arise during the sale of a system that includes an installation component , a service and support component and a software maintenance component . we allocate the value of each element based on relative selling prices . relative selling price is based on the selling price of the standalone system . for the installation and service and support components , we use what we charge to distributors who perform these components . for software maintenance components , we use what we charge for annual software maintenance renewals after the initial year the system is sold . revenue is recognized on the system sale based on shipping terms , installation revenue is recognized after the installation is performed , and hardware service and support and software maintenance revenue is recognized ratably over the term of the agreement , typically one year . when we sell software separately , we recognize software revenue upon shipment provided that only inconsequential obligations remain on our part and substantive acceptance conditions , if any , have been met . we recognize revenue when persuasive evidence of an arrangement exists , shipment has occurred , the price is fixed or determinable , the buyer has paid or is obligated to pay , collectability is reasonably assured , substantive acceptance conditions , if any , have been met , the obligation is not contingent on resale of the product , the buyer 's obligation would not be changed in the event of theft , physical destruction or damage to the product , the buyer acquiring the product for resale has economic substance apart from us and we do not have significant obligations for future performance to directly bring about the resale of the product by the buyer . we establish a reserve for sales returns based on historical trends in product returns and estimates for new items . we transfer certain products out of service from their internal use and make them available for sale . the products transferred are our standard products in one of the following areas : service loaners , rental or test units ; engineering test units ; or sales demonstration equipment . once transferred , the equipment is sold by our regular sales channels as used equipment inventory . these product units often involve refurbishing and an equipment warranty , and are conducted as sales in our normal and ordinary course of business . the transfer amount is the product unit 's net book value and the sale transaction is accounted for as revenue and cost of goods sold . allowance for doubtful accounts : we base the allowance for doubtful accounts receivable on our assessment of the collectability of specific customer accounts and the aging of accounts receivable . story_separator_special_tag if there is deterioration of a major customer 's credit worthiness or actual defaults are higher than historical experience , our estimates of the recoverability of amounts due to us could be adversely affected . inventory : inventories are stated at the lower of cost or market . adjustments are made to standard cost , which approximates actual cost on a first-in , first-out basis . we estimate reductions to inventory for obsolete , slow-moving , excess and non-salable inventory by reviewing current transactions and forecasted product demand . we evaluate our inventories on an item by item basis and record inventory adjustments accordingly . if there is a significant decrease in demand for our products , uncertainty during product line transitions , or a higher risk of inventory obsolescence because of rapidly changing technology and customer requirements , we may be required to increase our inventory adjustments and our gross margin could be adversely affected . warranty accruals : we accrue for warranty costs based on the expected material and labor costs to fulfill our warranty obligations . if we experience an increase in warranty claims , which are higher than our historical experience , our gross margin could be adversely affected . tax valuation allowances : given the uncertainty created by our loss history , as well as the ongoing uncertain economic outlook for our industry and capital and geographic spending , we expect to continue to limit the recognition of net deferred tax assets and accounting for uncertain tax positions and maintain the tax valuation allowances . at the current time , we expect , therefore , that reversals of the tax valuation allowance will take place only as we are able to take advantage of the underlying tax loss or other attributes in carry forward . the transfer pricing and expense or cost sharing arrangements are complex areas where judgments , such as the determination of arms-length arrangements , can be subject to challenges by different tax jurisdictions . 20 share-based compensation : we account for share-based awards made to our employees and directors , including employee stock option awards and restricted stock unit awards , using the estimated grant date fair value method of accounting . for options , we estimate the fair value using the black-scholes valuation model and an estimated forfeiture rate , which requires the input of highly subjective assumptions , including the option 's expected life and the price volatility of the underlying stock . the expected stock price volatility assumption was determined using the historical volatility of our common stock . changes in the subjective assumptions required in the valuation model may significantly affect the estimated value of the awards , the related stock-based compensation expense and , consequently , our results of operations . restricted stock unit awards are valued based on the average of the high and low price on the date of the grant . for both options and restricted awards , expense is recognized as compensation expense on the straight-line basis . employee stock purchase plan ( “ espp ” ) shares were issued under provisions that do not require us to record any equity compensation expense . 21 story_separator_special_tag 0pt '' > financial condition : liquidity and capital resources 2015 change 2014 ( in thousands ) working capital $ 13,823 $ 760 $ 13,063 at december 31 , 2015 , our principal sources of liquidity consisted of existing cash and cash equivalents . our working capital increased by $ 760,000 for the twelve month period ending december 31 , 2015 primarily due to the net income for the year . our current ratio was 4.1 and 3.5 for december 31 , 2015 and 2014 , respectively . for the twelve month period ending december 31 , 2015 , our cash position increased $ 1,907,000 primarily resulting from unusually strong collections converting customer receivables to cash . we expect our working capital cash mix will revert back to historical levels during 2016. although we have no significant external capital expenditure plans currently , we expect that we will continue to make capital expenditures to support our business . we plan to increase our internally developed sales demonstration and test equipment as we develop and release new products . capital expenditures are expected to be funded by existing and internally generated funds or lease financing . as a result of our significant product development , customer support , selling and marketing efforts , we have required substantial working capital to fund our operations . in 2015 and recent years , we have managed balancing profitable operations , while addressing rising costs and foreign exchange rate challenges . this included geographic shifts in our operations , optimized real estate usage strategies and differentiated product development and cost strategies . we believe that we have sufficient cash or working capital available under our operating plan to fund our operations and capital requirements through at least the next one-year period . we may require additional cash for u.s. operations , which could cause potential repatriation of cash from the $ 6.2 million held in our foreign subsidiaries . although we have no current repatriation plans , there may be tax and other impediments to any repatriation actions . our working capital may be used to fund possible losses , business growth , project initiatives , share repurchases and business development initiatives including acquisitions , which could reduce our liquidity and result in a requirement for additional cash before that time . any substantial inability to achieve our current business plan could have a material adverse impact on our financial position , liquidity , or results of operations and may require us to reduce expenditures and or seek additional financing . off-balance sheet arrangements except as noted in the accompanying consolidated financial statements in note 7 , “ operating lease commitments ” and note 8 , “ other commitments ” , we had no off-balance sheet arrangements . share repurchase program
| in addition to product development , a significant part of r & d spending is on creating software and support for new devices introduced by the semiconductor companies . we are focusing our r & d efforts on solutions for strategic growth markets , including new programming technology , automated programming systems for the manufacturing environment and extending the capabilities and support for our programmer architecture . our r & d spending fluctuates based on the number , type , and the development stage of our product initiatives and projects . 22 selling , general and administrative replace_table_token_6_th selling , general and administrative ( “ sg & a ” ) expenses decreased $ 147,000 for the year ended december 31 , 2015 compared to 2014. the decrease was primarily related to lower commissions due to channel mix , rent and it consulting savings , offset in part by the one-time expense of our redmond headquarters move and higher investor relations and marketing costs . interest replace_table_token_7_th interest income was lower for the year ended december 31 , 2015 compared to 2014 , primarily due to lower invested cash balances . income taxes 2015 change 2014 ( in thousands ) income tax ( expense ) benefit $ 5 * ( $ 7 ) * not meaningful income tax expense decreased by $ 12,000 for the year ended december 31 , 2015 compared to 2014 , primarily resulting from foreign subsidiary income tax offset in part by a refund adjustment for the 2014 tax year relating to foreign subsidiary incentive tax credits and deductions . the effective tax rate differed from the statutory tax rate primarily due to the effect of valuation allowances , as well as foreign taxes . we have a valuation allowance of $ 11.7 million and $ 11.8 million as of december 31 , 2015 and 2014 , respectively . our deferred tax assets and valuation allowance have been reduced by approximately $ 210,000 and $ 197,000 associated with the requirements of accounting for uncertain tax positions as of december 31 , 2015 and 2014 , respectively .
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cost of products and services sold increased in 2013 compared with 2012 principally due to an increase in direct material costs of approximately $ 585 million and indirect material costs of approximately $ 115 million ( driven by higher sales volume and acquisitions ) and increased repositioning and other charges of approximately $ 140 million partially offset by a decrease in pension expense of approximately $ 760 million , primarily driven by the $ 650 million decrease in the pension mark-to-market adjustment allocated to cost of products and services sold ( approximately $ 30 million in 2013 versus approximately $ 680 million in 2012 ) . 16 gross margin percentage increased in 2013 compared with 2012 principally due to lower pension expense ( approximately 2.0 percentage point impact primarily driven by the decrease in the pension mark-to-market adjustment allocated to cost of products and services sold ) , higher segment gross margin in all of our business segments ( approximately 0.5 percentage point impact collectively ) and lower other postretirement expense ( 0.1 percentage point impact ) partially offset by higher repositioning and other charges ( approximately 0.4 percentage point impact ) . selling , general and administrative expenses replace_table_token_5_th selling , general and administrative expenses ( sg & a ) increased in 2014 compared with 2013 as a percentage of sales primarily driven by an estimated $ 435 million increase in labor costs ( primarily acquisitions , incentive compensation , merit increases and investment for growth ) and an estimated $ 30 million increase in pension and other postretirement benefit expense , partially offset by a $ 25 million decrease in repositioning charges . selling , general and administrative expenses decreased in 2013 compared with 2012 as a percentage of sales primarily driven by ( i ) higher sales as a result of the factors discussed in the review of business segments section of this md & a , ( ii ) an estimated $ 270 million decrease in pension expense primarily driven by an approximately $ 250 million decrease in the pension mark-to-market charge allocated to sg & a ( approximately $ 20 million in 2013 versus approximately $ 270 million in 2012 ) partially offset by an estimated $ 215 million increase in labor costs ( primarily acquisitions , merit increases and investment for growth ) and an $ 80 million increase in repositioning charges . tax expense replace_table_token_6_th for discussion of income taxes and the effective income tax rate , see note 5 income taxes in the notes to financial statements . the effective income tax rates for 2014 , 2013 and 2012 reflect pension mark-to-market adjustments and tax benefits associated with lower tax rates on non-u.s. earnings , the vast majority of which we intend to permanently reinvest outside the united states . net income attributable to honeywell replace_table_token_7_th earnings per share of common stockassuming dilution increased in 2014 compared with 2013 primarily due to increased segment profit in each of our business segments and lower repositioning and other charges , partially offset by higher pension and other postretirement expense and increased tax expense . earnings per share of common stockassuming dilution increased in 2013 compared with 2012 primarily due to lower pension expense , increased segment profit in each of our business segments and higher other income , partially offset by increased tax expense and higher repositioning and other charges . 17 business overview our consolidated operating results are principally impacted by : change in global economic growth rates and industry conditions and demand in our key end markets ; overall sales mix , in particular the mix of aerospace original equipment and aftermarket sales and the mix of acs products , distribution and services sales ; the impact of fluctuations in foreign currency exchange rates ( in particular the euro ) , relative to the u.s. dollar ; the extent to which cost savings from productivity actions are able to offset or exceed the impact of material and non-material inflation ; and the impact of the pension discount rate and asset returns on pension expense , including mark-to-market adjustments , and funding requirements . our 2015 areas of focus are supported by the honeywell enablers , including the honeywell operating system ( hos gold ) , velocity product development , functional transformation and the honeywell user experience . these areas of focus are generally applicable to each of our operating segments and include : driving profitable growth through r & d , technological excellence and optimized manufacturing capability to deliver innovative products that customers value ; expanding margins by maintaining and improving the company 's cost structure through manufacturing and administrative process improvements , repositioning , and other actions , which will drive productivity and enhance the flexibility of the business as it works to proactively respond to changes in end market demand ; proactively managing raw material costs through formula and long-term supply agreements and hedging activities , where feasible and prudent ; driving strong cash flow conversion through effective working capital management which will enable the company to undertake strategic actions to benefit the business including capital expenditures , strategic acquisitions , and returning cash to shareholders ; driving organic growth through expansion of our localized footprint in high growth regions , including china , india , eastern europe , the middle east and latin america ; driving inorganic growth through the identification of appropriate acquisition targets and deployment of our disciplined , rigorous m & a and integration processes ; aligning and prioritizing capital expenditures for long-term growth , while considering short-term demand volatility ; monitoring both suppliers and customers for signs of liquidity constraints , limiting exposure to any resulting inability to meet delivery commitments or pay amounts due , and identifying alternate sources of supply as necessary ; and controlling corporate and other non-operating costs , including costs incurred for asbestos and environmental matters , pension and other post-retirement expenses and tax expense . story_separator_special_tag 18 review of business segments replace_table_token_8_th aerospace replace_table_token_9_th replace_table_token_10_th 2014 compared with 2013 aerospace sales decreased primarily due to the friction materials divestiture and an increase in incentive payments due to air transport and regional and business and general aviation original equipment ( oe ) manufacturers ( oem incentive payments ) , partially offset by an increase in organic sales , as discussed below . commercial original equipment sales decreased by 2 % ( increased by 3 % organic ) primarily due to an increase in oem incentive payments to air transport and regional oe manufacturers , partially offset by higher air transport volumes , consistent with the oe manufacturers ' higher production rates , and business and general aviation engine shipments . commercial aftermarket sales increased by 3 % driven primarily by higher sales of spare parts to air transport and regional customers , partially offset by a decline in retrofits , modifications and 19 upgrades and lower repair and overhaul activities for our business and general aviation customers . defense and space sales decreased by 2 % primarily due to lower u.s. government services revenue and the absence of a prior year royalty gain , partially offset by growth in international programs . transportation systems sales decreased by 3 % ( increased by 5 % organic ) primarily due to the friction materials divestiture , partially offset by continued growth from new platform launches , higher global turbo gas penetration and increased commercial vehicle demand in europe . aerospace segment profit increased by 2 % due to an 8 % increase in operational segment profit , partially offset by a 6 % unfavorable impact from acquisitions , divestitures and other ( predominantly higher oem incentive payments and the absence of a prior year royalty gain ) , as discussed above . the increase in operational segment profit is driven primarily by favorable price and productivity , net of inflation . cost of products and services sold totaled $ 11.7 billion in 2014 , a decrease of $ 190 million , primarily due to the factors discussed above ( excluding price ) . 2013 compared with 2012 aerospace sales increased primarily due to favorable pricing , increased volumes in our commercial original equipment business and increased licensing revenue ( primarily due to a royalty gain in the fourth quarter ) , offset by decreased volumes in our defense and space and commercial aftermarket businesses and an increase in incentive payments due to business and general aviation and air transport and regional oe manufacturers to partially offset their pre-production costs associated with new aircraft platforms . commercial original equipment sales increased by 3 % driven primarily by higher air transport volumes , consistent with the oe manufacturers ' higher production rates , and strong demand in the business jet mid to large cabin segment , partially offset by an increase in oem incentive payments to business and general aviation customers . commercial aftermarket sales increased by 2 % driven primarily by higher retrofits , modifications and upgrades activities and higher repair and overhaul activities for air transport and regional customers , partially offset by fewer repair and overhaul activities for business and general aviation customers . defense and space sales decreased by 5 % primarily due to u.s. government program ramp downs and lower defense budget , partially offset by a royalty gain in the fourth quarter . transportation systems sales increased by 5 % primarily due to an increase in organic sales driven by continued strong growth from new platform launches and higher global turbo gas penetration . aerospace segment profit increased by 6 % primarily due to an increase in operational segment profit driven by commercial sales growth , as discussed above , including favorable pricing and productivity , net of inflation , partially offset by lower defense and space sales , as discussed above . cost of products and services sold totaled $ 11.9 billion in 2013 , an increase of approximately $ 26 million , primarily due to the factors discussed above ( excluding price ) . automation and control solutions replace_table_token_11_th 20 replace_table_token_12_th 2014 compared with 2013 acs sales increased by 8 % in 2014 compared with 2013 , primarily due to growth from acquisitions , net of divestitures and organic sales growth , partially offset by the unfavorable impact of foreign exchange . sales in our energy , safety & security businesses increased by 11 % ( 4 % organic ) in 2014 principally due to ( i ) acquisitions , net of divestitures , ( ii ) higher global sales volumes in our environmental and combustion controls business driven by strong u.s. residential market conditions and new product introductions , ( iii ) increases in sales volumes in our fire and industrial safety businesses driven by organic growth in all regions and ( iv ) increases in sales volumes in our scanning and mobility business in the second half of 2014. sales in building solutions & distribution increased by 1 % ( 2 % organic ) in 2014 principally due to increased sales volumes in our americas distribution business partially offset by softness in the u.s. energy retrofit business . building solutions backlog increased in 2014. acs segment profit increased by 11 % in 2014 compared with 2013 due to a 9 % increase in operational segment profit and a 3 % increase from acquisitions , net of divestitures , partially offset by the unfavorable impact of foreign exchange . the increase in operational segment profit is primarily the result of higher sales volumes as discussed above , and the positive impact of price and productivity , net of inflation partially offset by continued investment for growth . cost of products and services sold totaled $ 9.4 billion in 2014 , an increase of $ 575 million which is primarily due to higher sales volume , acquisitions , net of divestitures and inflation , partially offset by productivity and the favorable impact of foreign exchange .
| cash used for financing activities increased by $ 1,839 million primarily due to a decrease in the net proceeds from debt issuances of $ 1,589 million , an increase in cash dividends paid of $ 157 million and lower net proceeds from the issuance of common stock of $ 33 million . 2013 compared with 2012 cash provided by operating activities increased by $ 818 million primarily due to ( i ) reduced cash contributions to our pension plans of $ 883 million , ( ii ) a $ 447 million increase of net income before the non-cash pension mark-to-market adjustment , ( iii ) a $ 135 million favorable impact from working capital ( driven by improved accounts payable performance and inventory , partially offset by higher receivables primarily due to sales growth and timing of sales ) , partially offset by higher cash tax payments of approximately $ 352 million and a $ 260 million increase in net payments for repositioning and other charges ( most significantly the narco trust establishment payments of $ 164 million ) . 24 cash used for investing activities increased by $ 531 million primarily due to an increase in cash paid for acquisitions of $ 695 million ( most significantly intermec and rae systems inc. ) , partially offset by an increase of approximately $ 190 million in settlement receipts of foreign currency exchange contracts used as economic hedges on certain non-functional currency denominated monetary assets and liabilities . cash used for financing activities decreased by $ 773 million primarily due to an increase in the net proceeds from debt issuances of $ 1,462 million , partially offset by an increase in net repurchases of common stock of $ 651 million and an increase in cash dividends paid of $ 142 million . liquidity each of our businesses is focused on implementing strategies to increase operating cash flows through revenue growth , margin expansion and improved working capital turnover . considering the current economic environment in which each of the businesses operate and their business plans and strategies , including the focus on growth , cost reduction and productivity initiatives , we believe that cash balances and operating cash flow will continue to be
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on july 9 , 2014 , we acquired substantially all of the assets and assumed certain liabilities of litco systems inc. ( litco ) for $ 0.7 million in cash and 4,999 shares of our common stock . the common stock was subject to a vesting schedule tied to continued services to be rendered by litco 's principal equity holder post acquisition ; as such , we will record share-based payment expense over the underlying stock vesting period . litco is a long-time reseller and integration partner of our document automation products , principally in the canadian marketplace . financial highlights for fiscal year 2015 , our revenue increased to $ 330.9 million from $ 300.6 million in the prior year . this revenue increase was attributable to revenue increases in our hosted solutions segment ( $ 18.8 million ) , digital banking segment ( $ 9.4 million ) and our payments and transactional documents segment ( $ 2.1 million ) . the revenue increase in our hosted solutions segment was primarily due to increased revenue from our financial messaging solutions and , to a lesser extent , increased revenue from our legal spend management and paymode-x solutions . the digital banking segment 's revenue increase was primarily due to increased subscription and transaction revenue from a full year impact of our acquisition of andera . the revenue increase in our payments and transactional documents segment was related to higher north american revenue in our payment and document automation products . our revenue for fiscal year 2015 was unfavorably impacted by $ 5.6 million due to the impact of foreign currency exchange rates primarily related to the british pound sterling which depreciated against the us dollar when compared to the prior year . we had a net loss of $ 34.7 million in the fiscal year ended june 30 , 2015 compared to a net loss of $ 19.1 million in the prior year . our fiscal year 2015 net loss includes the impact of income tax expense of $ 16.0 million to establish a reserve against certain us-based deferred tax assets . the 2015 net loss also reflects the impact of increased operating expenses of $ 19.8 million , offset by increased gross margins of $ 21.5 million . the increases in our operating expenses were due primarily to increased employee related costs as we continued to grow our business and the operating impact of our recent acquisitions , including an increase of $ 4.1 million in intangible asset amortization expense . the increase in our gross margin was driven primarily by revenue increases across all operating segments . in fiscal year 2015 , we derived approximately 43 % of our revenue from customers located outside of north america , principally in the united kingdom , continental europe and the asia-pacific and middle east regions . our customers operate in many different industries , a diversification that we believe helps us in a challenging economic climate . additionally , we believe that our recurring and subscription revenue base helps position us defensively against any short term economic downturn . while we believe that we continue to compete favorably in all of the markets we serve , ongoing or worsening economic stresses could negatively impact our business in the future . over the past several years we have made strategic investments in innovative new technology offerings that we believe will extend our leadership position , help us win new business , drive accelerated subscription revenue growth and expand our operating margins . we believe that we will complete the last portion of these investments during our fiscal year 2016 and that these initiatives will position us effectively for accelerated revenue growth and non-gaap profitability in fiscal year 2017 and beyond . 32 revenue sources our revenues are derived from multiple sources and are reported under the following classifications : subscriptions and transactions fees . we derive subscriptions and transactions fees from a number of sources , principally our saas offerings . subscription revenues are typically recognized on a ratable basis over the subscription period . transaction revenues are typically recorded at the time transactions are processed . some of our saas products require customers to pay non-refundable set up or installation fees . in these cases , since the up-front fees do not represent a separate revenue earnings process , these fees are deferred and recognized as revenue over the estimated life of the customer relationship , which is generally between five and ten years . a significant part of our focus remains on growing the revenue contribution from our saas offerings and subscriptions and transactions based revenue streams . software license fees . software license revenues , which we derive from our software applications , are generally based on the number of software applications and user licenses purchased . fees from the sale of perpetual software licenses are generally recognized upon delivery of the software to the customer , assuming that payment from the customer is probable and there are no extended payment terms . however , certain of our software arrangements , particularly those related to financial institution customers , are recognized on a percentage of completion basis over the life of the project because they require significant customization and modification and involve extended implementation periods . service and maintenance fees . our service and maintenance revenues consist of professional services fees and customer support and maintenance fees . revenues relating to professional services not associated with highly customized software solutions are normally recognized at the time services are rendered . professional services revenues associated with software license arrangements that include significant customization and modification are generally recognized on a percentage of completion basis over the life of the project . software maintenance fees are recognized as revenue ratably over the respective maintenance period , which is typically one year . other revenues . we derive other revenues from the sale of printers , check paper and magnetic ink character recognition toners . these revenues are normally recognized at the time of delivery . story_separator_special_tag critical accounting policies and significant judgments and estimates we believe that several accounting policies are important to understanding our historical and future performance . we refer to these policies as critical because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate , and different estimateswhich also would have been reasonablecould have been used . these critical accounting policies and estimates relate to revenue recognition , the valuation of goodwill and intangible assets , the valuation of acquired deferred revenue and income taxes . these critical policies and our procedures related to these policies are discussed below . in addition , refer to note 2 to the accompanying consolidated financial statements for a discussion of all of our significant accounting policies . revenue recognition software arrangements we recognize revenue on our software license arrangements when four basic criteria are met : persuasive evidence of an arrangement exists , delivery of the product has occurred , the fee is fixed and determinable and collectability is probable . we consider a fully executed agreement or a customer purchase order to be persuasive evidence of an arrangement . delivery is deemed to have occurred upon transfer of the product to the customer or the completion of services rendered . we consider the arrangement fee to be fixed and determinable if it is not subject to adjustment and if the customer has not been granted extended payment terms . excluding our long term contract arrangements for which revenue is recorded on a percentage of completion basis , extended payment 33 terms are deemed to be present when any portion of the software license fee is due in excess of 90 days after the date of product delivery . in arrangements that contain extended payment terms , software revenue is recorded as customer payments become contractually due , assuming all other revenue recognition criteria have been met . we consider the arrangement fee to be probable of collection if our internal credit analysis indicates that the customer will be able to pay contractual amounts as they become due . our software arrangements often contain multiple revenue elements , such as software licenses , professional services and post-contract customer support . for multiple element software arrangements which qualify for separate element treatment , revenue is recognized for each element when each of the four basic criteria is met which , excluding post-contract customer support , is typically upon delivery . revenue for post-contract customer support agreements is recognized ratably over the term of the agreement , which is generally one year . revenue is allocated to each element , excluding the software license , based on vendor specific objective evidence ( vsoe ) . vsoe is limited to the price charged when the element is sold separately or , for an element not yet being sold separately , the price established by management having the relevant authority . we do not have vsoe for our software licenses since they are seldom sold separately . accordingly , revenue is allocated to the software license using the residual value method . under the residual value method , revenue equal to vsoe of each undelivered element is recognized upon delivery of that element . any remaining arrangement fee is then allocated to the software license . this has the effect of allocating any sales discount inherent in the arrangement to the software license fee . certain of our software arrangements require significant customization and modification and involve extended implementation periods . these arrangements do not qualify for separate element revenue recognition treatment as described above , and instead must be accounted for under contract accounting . under contract accounting , companies must select from two generally accepted methods of accounting : the completed contract method and the percentage of completion method . the completed contract method recognizes revenue and costs upon contract completion , and all project costs and revenues are reported as deferred items in the balance sheet until that time . the percentage of completion method recognizes revenue and costs on a contract over time , as the work progresses . we use the percentage of completion method of accounting for our long-term contracts , as we believe that we can make reasonably reliable estimates of progress toward completion . progress is measured based on labor hours , as measured at the end of each reporting period , as a percentage of total expected labor hours . accordingly , the revenue we record in any reporting period for arrangements accounted for on a percentage of completion basis is dependent upon our estimates of the remaining labor hours that will be incurred in fulfilling our contractual obligations . our estimates at the end of any reporting period could prove to be materially different from final project results , as determined only at subsequent stages of project completion . to mitigate this risk , we solicit the input of our project professional staff on a monthly basis , as well as at the end of each financial reporting period , for purposes of evaluating cumulative labor hours incurred and verifying the estimated remaining effort to completion ; this ensures that our estimates are always based on the most current projections available . non-software arrangements for arrangements governed by general revenue recognition literature , such as with our saas offerings or equipment and supplies only sales , we recognize revenue when four basic criteria are met . these criteria are similar to those governing software transactions : persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , the arrangement fee is fixed or determinable and collectability is reasonably assured . for our saas offerings , revenue is generally recognized on a subscription or transaction basis over the period of performance . for arrangements consisting of multiple elements , revenue is allocated to each element based on a selling price hierarchy .
| the segment profit decrease of $ 4.3 million for the fiscal year ended june 30 , 2015 compared to the prior fiscal year was due to increased operating expenses primarily related to increased sales and marketing and product development costs and the impact of our recent intellinx acquisition . we expect revenue and profit for the payments and transactional documents segment to increase in fiscal year 2016 as a result of increased sales of our cyber fraud and risk management solutions , payment and document automation solutions and continued improvement of gross margins . hosted solutions . the revenue increase in our hosted solutions segment for the fiscal year ended june 30 , 2015 compared to the prior fiscal year was due to increased financial messaging revenue of $ 12.6 million and , to 38 a lesser extent , from revenue increases in our legal spend management and paymode-x solutions . the increased revenue includes the unfavorable effect of foreign exchange rates of approximately $ 2.2 million when compared to the prior fiscal year . the segment profit increase of $ 7.0 million for the fiscal year ended june 30 , 2015 compared to the prior fiscal year arose from improved gross margins of $ 12.7 million as a result of the increased revenue and improved subscriptions and transactions gross margins from our financial messaging solution , offset in part by increased operating expenses of $ 5.8 million . we expect revenue and profit for the hosted solutions segment to increase in fiscal year 2016 as a result of increased revenue from our legal spend management , financial messaging and paymode-x solutions . digital banking . the revenue increase in our digital banking segment for the fiscal year ended june 30 , 2015 compared to the prior fiscal year was primarily due to an increase of $ 14.3 million in subscriptions and transactions revenue , partially offset by a decrease of $ 5.3 million in professional services revenue as a result of the de-emphasis of certain large , highly customized banking
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while our significant accounting policies are more fully described in note 3 to our financial statements , we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our financial statements . 48 fair value measurements the company records recurring and non-recurring financial assets and liabilities as well as all non-financial assets and liabilities subject to fair value measurement at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants . these fair value principles prioritize valuation inputs across three broad levels . level 1 inputs are quoted prices ( unadjusted ) in active markets for identical assets or liabilities . level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability , either directly or indirectly through market corroboration , for substantially the full term of the financial instrument . level 3 inputs are unobservable inputs based on the company 's assumptions used to measure assets and liabilities at fair value . an asset or liability 's classification within the various levels is determined based on the lowest level input that is significant to the fair value measurement . financial instruments with characteristics of both liabilities and equity during the year ended december 31 , 2017 , the company issued certain financial instruments , consisting of warrants to purchase common stock , which have characteristics of both liability and equity . financial instruments such as warrants that are classified as liabilities are fair valued upon issuance and are re-measured at fair value at subsequent reporting periods with the resulting change in fair value recorded in “ change in fair value of common stock warrants ” in the consolidated statements of operations . the fair value of warrants is estimated using valuation models that require the input of subjective assumptions including stock price volatility , expected life , and the probability of future equity issuances and their impact to the price protection feature . no warrants that are classified as liabilities were outstanding at december 31 , 2017. intangible assets intangible assets consist of intellectual property and software acquired . intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the assets might not be recoverable . to the extent an analysis is required to be performed and estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount , we record an impairment to the extent the fair value of the asset is below its carrying amount . estimating future cash flows related to an intangible asset involves significant estimates and assumptions . if our assumptions are not correct , there could be an impairment loss or , in the case of a change in the estimated useful life of the asset , a change in amortization expense . we have evaluated our research and development pipeline , and have concluded that it may be necessary to update fda marketing authorizations prior to commercializing the acueity assets that we acquired in 2012. because of these additional potential regulatory activities and costs related to the acueity assets , we have re-evaluated the assets for potential impairment . we have concluded that these assets are impaired and have recorded asset impairment charges of $ 461,715 for the year ended december 31 , 2017 to adjust the carrying value of these intangible assets to their estimated fair values , which were deemed to be nominal , as of december 31 , 2017. we determined the fair values of the acueity intangibles using an income approach ( level 3 of the fair value hierarchy ) . for purposes of the income approach , fair value was determined based on the present value of estimated future cash flows that a market participant could be expected to generate from the development of products using the patented technology we acquired in the acueity transaction , discounted at an appropriate risk-adjusted rate reflecting the weighted average cost of capital for a potential market participant . the discount rate used in valuation for these intangible assets was approximately 48.5 % . the estimated future cash flows , including an estimate of long-term future growth rates , reflect our own assumptions of what market participants would utilize to price the assets pursuant to asc 820 , fair value measurements . share-based payments we follow the provisions of asc 718 , compensation – stock compensation , which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees , non-employee directors , and consultants , including employee stock options . stock compensation expense based on the grant date 's fair value was estimated in accordance with the provisions of asc 718 and is recognized as an expense over the requisite service period . the fair value of each option grant is estimated using the black-scholes option-pricing model , which requires assumptions regarding the expected volatility of our stock options , the expected life of the options , an expectation regarding future dividends on our common stock , and estimation of an appropriate risk-free interest rate . our expected common stock price volatility assumption is based upon the volatility of our stock price . the expected life assumption for stock option grants was based upon the simplified method provided for under asc 718-10 , which averages the contractual term of the options of ten years with the average vesting term of one to four years . the dividend yield assumption of zero is based upon the fact that we have never paid cash dividends and presently have no intention of paying cash dividends in the future . the risk-free interest rate used for each grant was based upon prevailing short-term interest rates over the expected life of the options . story_separator_special_tag we adopted asu no . 2016-09 , compensation - stock compensation , effective january 1 , 2017. as a result of the adoption of this guidance , we made an accounting policy election to recognize the effect of forfeitures in compensation cost when they occur . 49 story_separator_special_tag text-indent : 0.5in '' > during the first quarter of 2016 , we sold 405,747 shares of common stock to aspire capital under the november 2015 agreement with them for aggregate gross proceeds to us of $ 2.2 million , or net proceeds of $ 2.1 million after deducting costs of the offering . on may 25 , 2016 we entered into a new common stock purchase agreement with aspire capital which provides that we may sell up to $ 10 million in common stock to aspire capital over the 30 month term of the agreement , subject to the terms and conditions set out in the stock purchase agreement , none of which have been sold as of the date of filing this report with the sec . on august 4 , 2016 , we entered into a settlement agreement with besins healthcare pursuant to which besins paid us a total of approximately $ 1,762,931. see “ part i , item 3 legal proceedings. ” in august 2016 , we completed an underwritten public offering of 1,150,000 shares of common stock at a price per share of $ 2.50 , with gross proceeds to us of $ 2.9 million , or proceeds of $ 2.6 million after deducting underwriter discounts , commissions , non-accountable expense allowance and expense reimbursement . on april 3 , 2017 we completed an underwritten public offering that generated gross proceeds to the company of approximately $ 4.4 million and net proceeds of approximately $ 3.9 million after deducting underwriting discounts and commissions and other offering expenses paid by the company . the offering included 664,000 class a units at a public offering price of $ 0.75 per class a unit , which consisted of 664,000 shares of common stock and warrants to purchase 664,000 shares of common stock . the offering also included 3,502 class b units at a public offering price of $ 1,000 per class b unit , which consisted of 3,502 shares of series a convertible preferred stock convertible into a total of 4,669,329 shares of common stock and warrants to purchase 4,669,329 shares of common stock . in addition , the underwriter exercised the over-allotment to purchase an additional 530,000 shares of common stock and warrants to purchase 530,000 shares of common stock , which are included in the gross proceeds of $ 4.4 million . the warrants had a per share exercise price of $ 0.9375 , were exercisable immediately and were scheduled to expire five years from the date of issuance . all of these warrants were exercised , and all of the preferred stock was converted into common stock , in 2017 . 51 on october 30 , 2017 , the company completed an underwritten public offering that generated gross proceeds to the company of approximately $ 5.5 million and net proceeds of $ 4.9 million after deducting underwriting discounts , commissions and other offering costs paid by the company . on december 22 , 2017 , the company completed a public offering of 5,300,000 shares of company common stock at a public offering price of $ 0.27 per share . the offering generated gross proceeds to the company of approximately $ 1.4 million and net proceeds of $ 1.2 million after deducting underwriting discounts , commissions , and other offering costs paid by the company . concurrently with the december 22 , 2017 public offering , the company also commenced a private placement whereby it issued and sold class a and class b warrants , exercisable for an aggregate of 10,600,000 shares of common stock , at an exercise price of $ 0.315 per share . the public offering and the private placement involve the same purchasers . the class a and class b warrants exercise price is fixed at $ 0.315 per warrant , and will become exercisable commencing six months from issuance . the class a warrants will expire eight months from issuance , while the class b warrants will expire on the first anniversary of the date of issuance . other than the different expiration dates , the class a warrants and class b warrants have identical terms . none of the class a warrants , the class b warrants nor the shares issuable upon exercise of such warrants have been registered with the securities and exchange commission ; however , the company intends to register the shares issuable upon exercise of these warrants prior to the date they become exercisable . as of the date of filing this annual report , we expect that our existing resources will be sufficient to fund our planned operations for the next 6-8 months ; however , additional capital resources will be needed to fund operations longer-term . our ability to continue as a going concern is dependent on our obtaining additional adequate capital to fund additional operating losses until we become profitable . if we are unable to obtain adequate capital , we could be forced to cease operations . cash flows as of december 31 , 2017 , we had cash and cash equivalents of $ 7.2 million . net cash flows from operating activities : net cash used in operating activities was $ 6,593,950 for the year ended december 31 , 2017 , an increase of $ 1,219,361 , or 22.7 % , compared to net cash used in operating activities for the year ended december 31 , 2016 of $ 5,374,589. the increase in the 2017 period as compared to 2016 resulted primarily from increased spending on r & d activities .
| we expect our r & d expenses to increase throughout 2018 as we commence phase 2 clinical studies of endoxifen , continue the clinical trial of fulvestrant administered via our microcatheters and as we continue the development of other indications and therapeutics , including car-t and immunotherapies administered via our intraductal microcatheters . 50 impairment of intangible assets : during the years ended december 31 , 2017 and 2016 , we evaluated our acueity intangible assets for impairment and concluded that the fair values as of december 31 , 2017 and 2016 , were below the carrying values of $ 461,715 and $ 1,237,970 , respectively . therefore , we reduced the carrying value of these assets to their fair value of zero and $ 519,000 , as of december 31 , 2017 and 2016 , respectively . warrant financing costs and change in fair value of common stock warrants : the april 2017 financing included the issuance of common stock liability warrants . the company incurred financing costs associated with these common stock liability warrants of $ 192,817 upon issuance . the company also recorded changes in the fair value of the liability warrants during the year ended december 31 , 2017 of $ 280,747. there were no common stock liability warrants issued during the year ended december 31 , 2016. other income ( expense ) : in august 2016 , the company received a termination payment of $ 1,762,931 pursuant to the settlement agreement with besins healthcare luxembourg sarl . there were no settlement payments received by the company for the year ended december 31 , 2017. income taxes : we have incurred net operating losses from inception ; we did not record an income tax benefit for our incurred losses for the years ended december 31 , 2017 and 2016 due to uncertainty regarding utilization of our net operating carryforwards and due to our history of losses . liquidity and capital resources we have a history of operating losses as we have focused our efforts on raising capital and building our products and services in our pipeline . the company 's consolidated financial statements are
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na modular revenue drivers for the year ended december 31 , 2020 include : – modular space average monthly rental rate of $ 685 for the year , increased 11.6 % representing a continuation of the long-term price optimization initiative and vaps penetration opportunities across our portfolio . – average modular space units on rent for the year decreased 4,808 units , or 5.2 % driven by lower deliveries , including reduced demand for new project deliveries as a result of the covid-19 pandemic in 2020. average modular space units on rent dropped 0.5 % sequentially from q3 into q4 to 86,011 , which compares to a 1.3 % drop from q3 to q4 in 2019 , as delivery volumes returned to prior year levels and return volumes remained lower than 2019 levels . – average modular space monthly utilization decreased 310 basis points to 68.9 % for the year ended december 31 , 2020 , but only dropped 10 basis points sequentially from q3 into q4 . generated consolidated net income of $ 71.9 million for the year ended december 31 , 2020 , represented an increase of $ 83.4 million , and included a $ 42.4 million loss on extinguishment of debt related to our recent financing activities and $ 93.8 million of discrete costs expensed in the period related to transaction and integration activities , partly offset by a $ 51.5 million non-cash income tax benefit . discrete costs in the period included $ 64.1 million of merger transaction costs , $ 18.3 million of integration costs , and $ 11.4 million of restructuring costs , lease impairment expense and other related charges . as discussed in note 13 to the consolidated financial statements , the $ 51.5 million income tax benefit was primarily driven by the reversal of $ 54.6 million of the federal valuation allowance and certain state valuation allowances during the year ended december 31 , 2020 due to the merger , which partly offset these other discrete costs . generated adjusted ebitda of $ 530.3 million for the year ended december 31 , 2020 , representing an increase of $ 173.8 million , or 48.8 % , as compared to 2019. of this increase , $ 135.5 million was driven by the addition of mobile mini to our consolidated results and the remainder was driven by strong organic growth in our na modular segment . – adjusted ebitda in our na modular segment , which represents the activities of willscot prior to the merger , increased $ 38.3 million , or 10.7 % primarily driven by increases in leasing gross profit driven by increased pricing , including vaps , and significant cost reductions both from acquisition synergy realization and actions taken to reduce variable costs in a reduced demand environment during the second and third quarters of 2020 . – consolidated adjusted ebitda margin was 38.8 % and increased 530 bps versus prior year driven by a 410 bps increased in the na modular segment , as well as the addition of the higher margin mobile mini operations . generated free cash flow of $ 162.3 million for the year ended december 31 , 2020 , representing an increase of $ 142.3 million as compared to 2019. net cash provided by operating activities increased $ 132.2 million to $ 304.8 million . additionally , net cash used in investing activities , excluding cash acquired from the merger , decreased $ 10.0 million as a result of reduced capital spending needs across all segments given reduced demand for new project deliveries . excluding the impact of $ 64.1 million of merger transaction costs paid during the year , we generated $ 226.3 million of free cash flow for year ended december 31 , 2020 and have repaid approximately $ 162.4 million of the 2020 abl facility since the merger that closed on july 1 , 2020. this was possible due to our resilient lease revenues and strong margin expansion and capex reductions across the na modular , na storage , and uk segments , as well as reduced interest costs due to our financing activity during the year . free cash flow increased sequentially to $ 87.4 million in the fourth quarter of 2020 , including $ 7.4 million of integration costs , which is the best indicator of our run-rate heading into 2021. in addition to using gaap financial measurements , we use adjusted ebitda and free cash flow , which are non-gaap financial measures , to evaluate our operating results . as such , we include in this annual report on form 10-k reconciliations to their most directly comparable gaap financial measures . these reconciliations and descriptions of why we believe these measures provide useful information to investors as well as a description of the limitations of these measures are included in `` item 6. selected financial data . '' recent developments refer to the recent developments section in part i , item 1 , business , herein for further information about the mobile mini merger and certain related financing transactions and the impact of covid-19 on our business . 46 business environment and outlook our customers operate in a diversified set of end markets , including construction , commercial and industrial , retail and wholesale trade , education , energy and natural resources , government and healthcare . we track several market leading indicators in order to predict demand , including those related to our two largest end markets , the commercial and industrial sector and the construction sector , which collectively accounted for approximately 85 % of our revenues in the year ended december 31 , 2020. market fundamentals underlying these end markets were impacted in 2020 as a result of the covid-19 pandemic which resulted in delivery volume declines , primarily in the second and third quarters , in response to shelter-in-place orders and other market restrictions . story_separator_special_tag gross domestic product ( `` gdp '' ) in the us , where the majority of our revenues are generated , is estimated to have declined by over 2 % in 2020 , and estimates from dodge data & analytics suggest that non-residential construction square footage starts in the us declined by over 15 % as compared to 2019. based on our analyses of industry forecasts and macroeconomic indications , we expect modest market recovery in 2021 following the declines experienced in 2020 , and expect both gdp and non-residential construction square footage starts in the us to grow 2-3 % in 2021. core to our operating model is the ability to redeploy standardized assets across end markets , and we have recently serviced emerging demand in the healthcare and government sectors related to covid-19 , as well as expanded space requirements related to social distancing . current improving market conditions , potential market catalysts such as increased infrastructure spending , and idiosyncratic growth levers such as continued penetration of our customer base with our vaps offering , long-term pricing tailwinds , cross-selling between our modular and storage segment customers , and other commercial best practice sharing between our segments provide us confidence in our continued organic growth outlook . our business and growth strategies we will maintain a leading market position and continue pursuing the following strategies , all of which we have demonstrated in our historical results and are contributing to our growth , expanding profitability and free cash flow , and overall growth in return on invested capital : optimize pricing across fleet we continue to advance multiple pricing strategies across our fleet to drive revenue growth . leveraging our expertise developed in na modular , we plan to implement dynamic pricing , customer segmentation , and contract standardization in our other segments . our long history of success , demonstrated by 13 consecutive quarters of double-digit rate growth as of december 31 , 2020 in the u.s. within our na modular segment , gives us confidence that we can successfully deploy this strategy . the turnover of our fleet , with average lease durations of nearly three years , creates natural and recurring opportunities to capture incremental price increases . as the market leader in our industry , with an estimated 45 % market share in the modular sector and 25 % market share in the storage sector , we offer the broadest fleet portfolio , the most differentiated turnkey vaps , and the most consistent service capabilities across the largest branch network to help our customers be 'ready to work ' . expand penetration of value-added products and services as of december 31 , 2020 , we estimate that we have over $ 150 million of annual organic revenue growth opportunity as the average vaps rate of our units on rent in our na modular segment converges over time to the vaps price and penetration levels achieved on our most recently delivered units , and as we begin to cross-sell this offering into our na storage segment ground level office fleet . we believe this growth opportunity could be substantially larger if we successfully penetrate more of our modular space orders , and expand our vaps offering for portable storage units . enhance cross-selling between segments the combination of willscot and mobile mini created a leading business services provider specializing in innovative flexible work space and portable storage solutions . at the outset of the merger , we recognized that there was 80 % end-market overlap and 40 % customer overlap , a clear strategic opportunity for our complementary product lines . by offering a combined product suite , we simplify our customers ' procurement needs and enable productivity from start to finish for projects . we believe cross-selling will also increase utilization and yield of our combined fleet . our sales force is optimally positioned to improve efficiency by leveraging our management information systems and using real-time information to monitor and optimize conversion of customer opportunities across our core segments . in turn , we expect that our broadened and enhanced fleet will attract new customers , increase customer retention , and increase margins and return on invested capital . generate cash flow through operational efficiencies , cost reductions , and technology we are implementing many initiatives designed to improve operations and increase profitability . we continually assess our branch operating footprint , vendor base , and operating structure to maximize revenue generation while minimizing costs . the merger provides us with increased scale , numerous operational best practices from both the legacy willscot and legacy mobile mini businesses , and a state-of-the-art sap erp platform , all of which we believe will significantly improve the operating efficiency of the combined businesses . we have a proven track record of efficiently integrating acquisitions and quickly eliminating operational redundancies while maintaining acquired customer relationships . 47 deploy capital to strategically support organic growth and optimize returns we maintain a disciplined focus on our return on capital and the merger allows us to invest opportunistically across multiple attractive asset classes prioritizing our investments to where we see the strongest potential returns . we continually assess both our existing lease fleet and customer demand for opportunities to deploy capital more efficiently . we manage our maintenance capex and growth capex to align with the economic conditions in which we operate . within our existing lease fleet , we examine the potential cash and earnings generation of an asset sale versus continuing to lease the asset . in addition , we examine the relative benefits of organic expansion opportunities versus expansion through acquisition to obtain a favorable return on capital . leverage scale and organic initiatives with accretive acquisitions our markets for modular space and portable storage solutions are fragmented . we estimate that approximately 55 % of the modular market and approximately 75 % of the portable storage market in north america are supplied by regional and local competitors .
| gross profit : gross profit increased $ 38.3 million , or 9.3 % , to $ 451.6 million for the year ended december 31 , 2020 from $ 413.3 million for the year ended december 31 , 2019. the increase in gross profit was driven by a $ 44.9 million increase in leasing gross profit driven by improved pricing and vaps , as well as by lower modular leasing cost due to lower delivery demand in the second and third quarter of 2020 and reduced variable costs . the increase in gross profit from leasing revenues was partially offset by a $ 7.9 million increase in depreciation of rental equipment primarily as a result of capital investments made over the past twelve months in our existing rental equipment for the year ended december 31 , 2020. adjusted ebitda : adjusted ebitda increased $ 38.3 million , or 10.7 % , to $ 394.8 million for the year ended december 31 , 2020 from $ 356.5 million for the year ended december 31 , 2019. the increase was driven by higher leasing 56 gross profits discussed above , partially offset by increases in sg & a , excluding discrete and other items , of $ 6.8 million . sg & a increases were primarily related to increases in occupancy and office costs , insurance costs , and increased bad debt expense , partially offset by decreased travel and entertainment costs due to the covid-19 pandemic . capex for rental equipment : capex for rental equipment decreased $ 51.8 million , or 25.3 % , to $ 153.3 million for the year ended december 31 , 2020 from $ 205.1 million for the year ended december 31 , 2019. net capex also decreased $ 31.3 million , or 20.5 % , to $ 121.3 million . the decreases for both were driven by decreased spend for refurbishments and vaps due to less constrained fleet and reduced demand as a result of the covid-19 pandemic , and cost improvements experienced over the prior year related to better unit selection and scoping on refurbishments . decrease to net capex was also partially driven by lower demand for sales of rental units . comparison of years ended december 31 , 2019 and 2018 revenue : total revenue increased $ 312.3 million , or 41.6 % , to $ 1,063.7 million for the year ended december 31 , 2019 from $ 751.4 million for the year ended december 31 ,
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extended payment terms on patent license arrangements may not be fixed or determinable when payments are due beyond our standard payment terms and there is substantial risk of future modification to the license terms . in these cases , revenue is recognized as fees become due and payable rather than when the license rights are transferred . 23 results of operations—the years ended december 31 , 2017 and december 31 , 2016 the following tables present our consolidated statements of operations data for the periods indicated . replace_table_token_3_th 24 replace_table_token_4_th summary total revenue increased $ 3.4 million or 16 % to $ 25.2 million , primarily as the result of higher license revenue driven by a one-time $ 3.5 million license fee from an existing licensee . total operating expenses increased $ 8.0 million or 23 % to $ 43.2 million , reflecting higher investment in sales , marketing and engineering , primarily additional headcount , as we continue to address important opportunities in market development and delivery for digimarc discover and digimarc barcode . revenue replace_table_token_5_th 25 service . service revenue consists primarily of software development and consulting services . the majority of service revenue arrangements are structured as time and materials consulting agre ements . most of our service revenue is derived from contracts with the central banks and government agency contractors . the agreements range from several months to several years in length , and our longer term contracts are subject to work plans that are re viewed and agreed upon at least annually . these contracts generally provide for billing hours worked at predetermined rates and , to a lesser extent , reimbursement for third party costs and services . increases or decreases in the services provided under the se contracts are generally subject to both volume and price changes . the volume of work is generally negotiated at least annually and can be modified as the customer 's needs change . we also have provisions in our longer term contracts that allow for specif ic hourly rate price increases on an annual basis to account for cost of living variables . contracts with government agency contractors are generally shorter term in nature , less linear in billings and less predictable than our longer term contracts becaus e the contracts with government agency contractors are subject to government budgets and funding . the increase in service revenue was primarily due to higher billable rates under our agreement with the central banks . subscription . subscription revenue includes digimarc discover , digimarc barcode and guardian products and services , and is generally recurring in nature , paid in advance and recognized over the term of the subscription . the decrease in subscription revenue was primarily due to lower guardian revenue , partially offset by higher digimarc barcode revenue . license . license revenue originates primarily from licensing our intellectual property where we receive license fees and or royalties as our income stream . the increase in license revenue was primarily due to the recognition of a one-time $ 3.5 million license fee from an existing licensee . in exchange for the upfront license fee , we waived any future royalty obligations from this licensee in one of the licensed fields of use . the license fee was paid in two equal installments of $ 1.75 million in october 2017 and january 2018. revenue by geography replace_table_token_6_th the increase in domestic revenue was primarily due to digimarc barcode revenue from domestic customers and higher license revenue from a domestic licensee , partially offset by lower guardian revenue from domestic customers . the increase in international revenue was primarily due to the recognition of a one-time $ 3.5 million license fee from an existing international licensee and higher service revenue from the central banks , partially offset by lower guardian revenue from international customers . 26 cost of revenue service . cost of service revenue primarily includes costs that are allocated from research , development and engineering , sales and marketing and intellectual property that relate directly to performing services under our customer contracts and direct costs of program delivery . costs include : compensation , benefits , incentive compensation in the form of stock-based compensation and related costs of our software developers , quality assurance personnel , product managers , business development managers and other personnel where we bill our customers for time and materials costs ; payments to outside contractors that are billed to customers ; charges for equipment directly used by customers ; depreciation for machinery , equipment and software directly used by customers ; travel costs directly attributable to development and consulting contracts ; and charges for infrastructure and centralized costs of facilities and information technology . subscription . cost of subscription revenue primarily includes : compensation , benefits , incentive compensation in the form of stock-based compensation and related costs of operations personnel ; cost of outside contractors that provide operational support ; amortization of existing technology acquired in the acquisition of attributor corporation ; and internet service provider connectivity charges and image search data fees to support the services offered to our subscription customers . license . cost of license revenue primarily includes : amortization of capitalized patent costs ; and amortization of patent maintenance fees . gross profit replace_table_token_7_th the increase in total gross profit was primarily due to the recognition of a one-time $ 3.5 million license fee from an existing licensee . the increase in license gross profit as a percentage of license revenue was due to the recognition of a one-time $ 3.5 million license fee from an existing licensee . 27 operating expenses we allocate certain costs of research , development and engineering , sales and marketing , and intellectual property to cost of revenue when they relate directly to our customer contracts . we record all remaining , or “ residual , ” costs as sales and marketing , research , development and engineering , general and administrative , and intellectual property expenses . story_separator_special_tag sales and marketing replace_table_token_8_th sales and marketing expenses consist primarily of : compensation , benefits , incentive compensation in the form of stock-based compensation and related costs of sales and marketing employees and product managers ; travel and market research costs , and costs associated with marketing programs , such as trade shows , public relations and new product launches ; professional services and outside contractors for product and marketing initiatives ; and charges for infrastructure and centralized costs of facilities and information technology . the increase in sales and marketing expenses was due primarily to : increased headcount and compensation-related expenses of $ 3.2 million ; increased travel expenses of $ 0.4 million due to increased headcount ; increased marketing and professional fees of $ 0.3 million related to market initiatives ; increased charges for infrastructure and centralized costs of $ 0.3 million due to increased costs and headcount ; and increased recruiting costs of $ 0.3 million . research , development and engineering replace_table_token_9_th research , development and engineering expenses arise primarily from three areas that support our business model : fundamental research : investigation of new digital watermarking algorithms to increase robustness and or computational efficiency ; mobile device usage models and imaging sub-systems in camera-phones ; industry conference participation and authorship of papers for industry journals ; survey and study of human and computer interaction models with a focus on mobile devices and modeling of intent ; 28 development of new intellectual property , including documentation of claims and production of supporting diagrams and materials ; research in multi-spectral analyses , machine learning , barcodes , qr codes , fingerprinting , and other content identification technologies ; metadata ranking algorithms for matching internet file content against reference database ; and investigation of substrates , printing techniques , and printing technology relating to consumer packaged goods and thermal labels . platform development : tuning and optimization of implementation models to improve resistance to non-malicious attacks and routine transformations , such as jpeg , cropping and printing ; mobile platform creation to leverage device-specific capabilities ( e.g. , instruction sets and graphics processing units ) ; mobile platform optimization involving usage of multiple sensors simultaneously ; embedded systems platform creation and tuning for barcode scanners , thermal label printers , and machine vision environments ; tuning big data analytics transformation and metrics aggregation engine ; tuning data-driven internet crawling infrastructure with policy-driven feedback loop ; and assembly of master book publishing catalog based on aggregation and reconciliation of multiple public data sources . product development : deliver and enhance digimarc barcode for an expanding list of applications including packaging for consumer packaged goods and thermal labels for fresh foods ; maintaining the digimarc barcode manager to provide campaign management and routing services for the digimarc discover platform ; maintaining the web-hosted image enhancement service in support of digimarc discover platform ; development and optimization of production level image enhancement tools and quality control services ; iterative development and release of the digimarc discover application for the ios and android platforms ; and real-time analytics portal to support anti-piracy services for the publishing industry . research , development and engineering expenses consist primarily of : compensation , benefits , incentive compensation in the form of stock-based compensation and related costs of software and hardware developers and quality assurance personnel ; payments to outside contractors ; the purchase of materials and services for product development ; and charges for infrastructure and centralized costs of facilities and information technology . 29 the increase in research , development and engineering expenses was due primarily to : increased headcount and compensation-related expenses of $ 1.6 million ; and increased charges for infrastructure and centralized costs of $ 0.2 million due to increased costs and headcount . general and administrative replace_table_token_10_th we incur general and administrative costs in the functional areas of finance , legal , human resources , executive and board of directors . costs for facilities and information technology are also managed as part of the general and administrative processes and are allocated to this area as well as each of the areas in cost of revenue , sales and marketing , research , development and engineering and intellectual property . general and administrative expenses consist primarily of : compensation , benefits and incentive compensation in the form of stock-based compensation and related costs of general and administrative personnel ; third party and professional fees associated with legal , accounting and human resources ; costs associated with being a public company ; and charges for infrastructure and centralized costs of facilities and information technology . the increase in general and administrative expenses was due primarily to : increased compensation-related expenses of $ 0.8 million ; increased professional consulting fees of $ 0.3 million ; increased facilities related expenses of $ 0.3 million ; and increased legal and accounting expenses of $ 0.2 million ; partially offset by decreased charges for infrastructure and centralized costs of $ 0.5 million , which were allocated to sales and marking and research , development and engineering due to increased headcount in those areas . intellectual property replace_table_token_11_th we incur intellectual property expenses that arise primarily from costs associated with documenting , applying for , and maintaining domestic and international patents and trademarks . 30 gross expenditures for intellectual property costs , before reflecting the effect of capitalized patent costs , primarily consist of : compensation , benefits and incentive compensation in the form of stock-based compensation and related costs of attorneys and legal assistants ; third party costs , including filing and governmental regulatory fees and fees for outside legal counsel and translation costs , each incurred in the patent process ; charges to write off previously capitalized patent costs for patent assets we abandon ; consulting costs related to marketing our intellectual property portfolio ; and charges for infrastructure and centralized costs of facilities and information technology . intellectual property expenses can vary from period to period based on the level of capitalized patent activity .
| research , development and engineering replace_table_token_20_th the increase in research , development and engineering expenses was due primarily to increased headcount and compensation-related expenses of $ 0.7 million . general and administrative replace_table_token_21_th the increase in general and administrative expenses was due primarily to : increased compensation-related expenses of $ 0.5 million ; and increased professional consulting fees of $ 0.2 million , partially offset by decreased charges for infrastructure and centralized costs of $ 0.3 million , which were allocated out to sales and marking due to increased headcount in that area . 35 intellectual property replace_table_token_22_th the increase in intellectual property expenses was due primarily to increased compensation-related expenses of $ 0.1 million . stock-based compensation replace_table_token_23_th the increase in stock-based compensation expense was due primarily to increased headcount . other income , net replace_table_token_24_th * less than 1 % the increase in other income , net was primarily due to higher interest income as a result of higher cash and investment balances , higher interest rates on cash and investments , and changes in foreign currency . provision for income taxes for the year ended december 31 , 2016 , our effective tax rate was 0 % reflecting a full valuation allowance recorded against our deferred tax assets . the valuation allowance against deferred tax assets as of december 31 , 2016 was $ 24.9 million , an increase of $ 9.5 million from $ 15.4 million as of december 31 , 2015. for the year ended december 31 , 2015 , our effective tax rate was 0 % reflecting a full valuation allowance recorded against our deferred tax assets . the valuation allowance against deferred tax assets as of december 31 , 2015 was $ 15.4 million , an increase of $ 8.1 million from $ 7.3 million as of december 31 , 2014 . 36 liquidity and capital resources replace_table_token_25_th ( 1 ) the current ( liquidity ) ratio is calculated by dividing total current assets by total current liabilities . the $ 7.2 million increase in cash , cash equivalents and marketable securities at december 31 ,
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the results of operations for this new service will be included in the information services business segment beginning in january 2012. in 2011 , total fee revenue and other income increased $ 6,678,000 , or 12 % , net interest income after provision for loan losses increased $ 3,640,000 , or 9 % , and total operating expenses increased $ 6,745,000 , or 10 % . these results were driven by a 3,932,000 , or 10 % , increase in items processed and $ 4,519,000,000 , or 16 % , increase in dollars processed . the asset quality of the company 's loans and investments as of december 31 , 2011 remained strong . currently , management views cass ' major opportunity as the continued expansion of its payment and information processing service offerings and customer base . management intends to accomplish this by maintaining the company 's leadership position in applied technology , which when combined with the security and processing controls of the bank , makes cass unique in the industry . 10 impact of new and not yet adopted accounting pronouncements in june 2011 , the fasb issued accounting standards update ( asu ) no . 2011-05 comprehensive income ( asc topic 220 ) presentation of comprehensive income . this asu improves the comparability , consistency , and transparency of financial reporting and increases the prominence of items reported in other comprehensive income . this asu requires companies to present the total of comprehensive income , the components of net income , and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements . this asu eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders ' equity . this asu is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2011 , and should be applied retrospectively . asu no . 2011-12 deferred the presentation of reclassification adjustments and superseded certain pending paragraphs in asu no . 2011-05. as these asu 's address financial statement presentation , the adoptions will not impact the company 's consolidated financial statements or results of operations . in september 2011 , the fasb issued asu no . 2011-08 intangibles goodwill and other ( asc topic 350 ) testing of goodwill for impairment . this asu simplifies how entities test goodwill for impairment . the amendments under this asu permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test . the more-likely-than-not threshold is defined as having a likelihood of more than 50 percent . if an entity concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount , it would not be required to perform the two-step impairment test for that reporting unit . this asu is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after december 15 , 2011. the adoption of this asu is not expected to have a material impact on the company 's consolidated financial statements or results of operations . critical accounting policies the company has prepared the consolidated financial statements in this report in accordance with the fasb accounting standards codification ( asc ) . in preparing the consolidated financial statements , management makes estimates and assumptions that affect the reported amount of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenue and expenses during the reporting period . these estimates have been generally accurate in the past , have been consistent and have not required any material changes . there can be no assurances that actual results will not differ from those estimates . certain accounting policies that require significant management estimates and are deemed critical to the company 's results of operations or financial position have been discussed with the audit committee of the board of directors and are described below . allowance for loan losses . the company performs periodic and systematic detailed reviews of its loan portfolio to assess overall collectability . the level of the allowance for loan losses reflects management 's estimate of the collectability of the loan portfolio . although these estimates are based on established methodologies for determining allowance requirements , actual results can differ significantly from estimated results . these policies affect both segments of the company . the impact and associated risks related to these policies on the company 's business operations are discussed in the provision and allowance for loan losses section of this report . the company 's estimates have been materially accurate in the past , and accordingly , the company expects to continue to utilize the present processes . impairment of assets . the company periodically evaluates certain long-term assets such as intangible assets including goodwill , foreclosed assets and assets held for sale for impairment . generally , these assets are initially recorded at cost , and recognition of impairment is required when events and circumstances indicate that the carrying amounts of these assets will not be recoverable in the future . if impairment occurs , various methods of measuring impairment may be called for depending on the circumstances and type of asset , including quoted market prices , estimates based on similar assets , and estimates based on valuation techniques such as discounted projected cash flows . the company had no impairment of goodwill and intangible assets for fiscal years ended december 31 , 2011 , 2010 and 2009 and management does not anticipate any future impairment loss . investment securities available-for-sale are measured at fair value as calculated by an independent research firm . story_separator_special_tag the market evaluation utilizes several sources which include observable inputs rather than significant unobservable inputs. these policies affect both segments of the company and require significant management assumptions and estimates that could result in materially different results if conditions or underlying circumstances change . 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 addressing the future tax consequences of events that have been recognized in the company 's financial statements or tax returns such as the realization of deferred tax assets or changes in tax laws or interpretations thereof . in addition , the company is subject to the continuous examination of its income tax returns by the internal revenue service and other taxing authorities . in accordance with fasb asc 740 , income taxes , the company has unrecognized tax benefits related to tax positions taken or expected to be taken . see note 13 to the consolidated financial statements . 11 pension plans . the amounts recognized in the consolidated financial statements related to pension plans are determined from actuarial valuations . inherent in these valuations are assumptions including expected return on plan assets , discount rates at which the liabilities could be settled at december 31 , 2011 , rate of increase in future compensation levels and mortality rates . these assumptions are updated annually and are disclosed in note 10 to the consolidated financial statements . there have been no significant changes in the company 's long-term rate of return assumptions for the past three fiscal years ended december 31 and management believes they are not reasonably likely to change in the future . pursuant to fasb asc 715 , compensation retirement benefits , the company has recognized the funded status of its defined benefit postretirement plan in its consolidated balance sheet and has recognized changes in that funded status through comprehensive income . the funded status is measured as the difference between the fair value of the plan assets and the projected benefit obligation as of the date of its fiscal year-end . summary of results replace_table_token_4_th * presented on a tax-equivalent basis the results of 2011 compared to 2010 include the following significant items : payment and processing fee revenue increased as the number of transactions processed increased . this increase was due to increased activity from both base and new customers . net interest income after provision for loan losses increased $ 3,640,000 , or 9 % , due to the 12 % growth in average earning assets . the net interest margin on a tax equivalent basis decreased from 4.61 % in 2010 to 4.31 % in 2011. the growth in average earning assets was funded by increases in deposits and accounts and drafts payable . gains from the sale of securities were $ 43,000 in 2011 and $ 0 in 2010. bank service fees were down $ 56,000 , or 4 % , and other income was up $ 229,000 primarily due to an increase in bank-owned life insurance income . operating expenses increased $ 6,745,000 , or 10 % , primarily in response to the increase in business volume . the results of 2010 compared to 2009 include the following significant items : payment and processing fee revenue increased as the number of transactions processed increased . this increase was due to increased activity from both base and new customers . net interest income after provision for loan losses increased $ 3,390,000 , or 9 % , due to the 18 % growth in average earning assets . the net interest margin on a tax equivalent basis was 4.61 % in 2010 compared to 4.79 % in 2009. the growth in average earning assets was funded mainly by the increase in deposits . gains from the sale of securities were $ 0 in 2010 and $ 697,000 in 2009. bank service fees were up $ 86,000 , or 6 % , and other income was approximately the same in 2010 and 2009. operating expenses increased $ 1,899,000 , or 3 % , primarily in response to the increase in business volume , as well as higher professional fees as the company invested for future growth . 12 fee revenue and other income the company 's fee revenue is derived mainly from transportation and utility payment and processing fees . as the company provides its processing and payment services , it is compensated by service fees which are typically calculated on a per-item basis and by the accounts and drafts payable balances generated in the payment process which can be used to generate interest income . processing volumes , fee revenue and other income were as follows : replace_table_token_5_th fee revenue and other income in 2011 compared to 2010 include the following significant pre-tax components : transportation dollar volume increased by 21 % during the past year , primarily due to increased activity from both base and new customers . utility transaction dollar volume had a slight increase of 2 % . overall , revenues for the year were up 12 % . fee revenue and other income in 2010 compared to 2009 include the following significant pre-tax components : transportation dollar volume increased by 21 % during 2010. this increase was due to the increased activity from both base and new customers . utility transaction dollar volume was up a solid 8 % . overall , revenues for the year were up 11 % . net interest income net interest income is the difference between interest earned on loans , investments , and other earning assets and interest expense on deposits and other interest-bearing liabilities . net interest income is a significant source of the company 's revenues .
| income tax expense income tax expense in 2011 totaled $ 8,497,000 compared to $ 7,623,000 in 2010 and $ 5,405,000 in 2009. when measured as a percent of income , the company 's effective tax rate was 27 % in 2011 , 27 % in 2010 and 25 % in 2009. the effective tax rate varies from year-to-year primarily due to changes in the company 's pre-tax income and the amount of investment in tax-exempt municipal bonds . 18 investment portfolio investment portfolio changes from december 31 , 2010 to december 31 , 2011 : state and political subdivision securities increased $ 42,793,000 , or 16 % , to $ 307,362,000. the investment portfolio provides the company with a significant source of earnings , secondary source of liquidity , and mechanisms to manage the effects of changes in loan demand and interest rates . therefore , the size , asset allocation and maturity distribution of the investment portfolio will vary over time depending on management 's assessment of current and future interest rates , changes in loan demand , changes in the company 's sources of funds and the economic outlook . during this period , the size of the investment portfolio increased as the company purchased state and political subdivision securities . these securities all had a or better credit ratings and maturities approaching fifteen years . with the additional liquidity provided by the increase in deposits and accounts and drafts payable , the company made these purchases to continue to reduce the level of short-term rate sensitive assets . all purchases were made in accordance with the company 's investment policy . as of december 31 , 2011 , the company had no mortgage-backed securities in its portfolio . there was no single issuer of securities in the investment portfolio at december 31 , 2011 for which the aggregate amortized cost exceeded 10 % of total shareholders ' equity . investments by type replace_table_token_13_th investment securities by maturity ( at december 31 , 2011 ) replace_table_token_14_th 1 weighted average yield is presented on a tax-equivalent basis assuming a tax rate of 35 % . deposits and accounts and drafts payable noninterest-bearing demand deposits increased $ 18,859,000 , or 17 % , from december 31 , 2010 to $ 131,956,000 at december 31 , 2011. the average balances of these deposits increased $ 18,965,000 , or 17 % , from 2010 to $ 132,603,000 in 2011. these balances are primarily maintained by commercial customers and
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based on our initial projections and current activity level , we expect recurring corporate overhead to be at least $ 1.5 million per quarter . we expect to incur capital costs in the next few years to integrate our operations , including the consolidation of some of our manufacturing facilities . as a result of these efforts , we expect to operate more efficiently and effectively . we also expect to incur additional costs as a result of being a public company , such as additional employee-related costs , costs to start up certain standalone corporate functions , information systems costs and other organizational-related costs . we expect the synergies that may be achieved through our integration efforts to offset the additional costs in the longer term . we believe that our broad portfolio of products and markets served and our brand recognition will continue to provide opportunities ; however , we face ongoing challenges affecting many companies , such as environmental and other regulatory compliance and overall global economic uncertainty . during the year ended march 31 , 2016 , we experienced spending declines at many of our customers in the energy and mining end markets as they addressed market issues related to lower market prices for crude oil , gas and other natural resources . to a lesser extent , these spending declines also indirectly impacted other end markets that we serve including rail and industrial . we expect that certain challenges relating to the current energy environment will persist throughout 2016. during the fiscal year ended march 31 , 2016 , we saw strong sales growth in other key end markets such as hvac , where our innovative mechanical products and chemicals have increased market penetration , and architecturally specified building products , which is currently benefitting from a robust commercial construction cycle . our markets the following discussion should be read in conjunction with the outlook for fiscal year 2017 section included below . hvac the hvac market is our largest market served and it represented approximately 22 % and 24 % of our net sales in the fiscal years ended march 31 , 2016 and 2015 , respectively . we provide an extensive array of products 30 for repair and maintenance of hvac systems that includes our largest product family , condensate switches , as well as condensate pans , air diffusers , condensate pumps , refrigerant caps , line set covers and other mechanical products . the industry is driven by new construction projects , as well as replacement and repair of existing hvac systems . new hvac systems are heavily influenced by macro trends in building construction . hvac tends to be seasonal with the peak sales season beginning in march and continuing through august . construction and repair is typically performed by contractors , and we utilize our global distribution network to drive sales of our brands to such contractors . for the fiscal year ending march 31 , 2017 , we anticipate growth in the hvac market to be stronger than the gross domestic product , but lower than recent historical growth due to the slowdown in the installation of new hvac units in the u.s. industrial the industrial end market represented approximately 19 % and 18 % of our net sales in the fiscal years ended march 31 , 2016 and 2015 , respectively . the industrial end market includes customers who manufacture chemicals , steel equipment and a wide variety of materials . we include sales of industrial coatings , lubricants and breathers , as well as various other industrial products in the industrial end market . we serve this market primarily through a network of industrial distributors . we expect our sales into this market in the next fiscal year to grow slightly higher than the gross domestic product due to our innovative technologies and recent acquisitions . rail the rail market represented approximately 16 % and 5 % of our net sales in the fiscal years ended march 31 , 2016 and 2015 , respectively . we provide an array of products into the rail industry , including lubricants and lubricating devices for rail lines , which increase efficiency and reduce noise for and extend the life of rail cars , and coating of tank cars and locomotives . we leverage our technical expertise to build relationships with key decision-makers to ensure that our products meet required specifications . the rail industry is driven by the transportation of natural resources , including coal and petrochemical products , and has experienced slowdowns as a result of declines in the mining and energy markets , which in turn , has resulted in a reduction in rail miles traveled and reduced production of new tank cars . for the fiscal year ending march 31 , 2017 , we anticipate ongoing challenges in the rail coatings industry as it continues to be impacted by the mining and energy markets and due to the increased use of natural gas , which is transported by pipeline , for domestic power generation . plumbing the plumbing market represented approximately 15 % and 16 % of our net sales in the fiscal years ended march 31 , 2016 and 2015 , respectively . we provide many products to the plumbing industry including thread sealants , solvent cements , fire-stopping products , condensate switches and traps , as well as other mechanical products . installation is typically performed by contractors , and we utilize our global distribution network to drive sales of our brands to contractors . we are not anticipating any significant changes in the overall plumbing industry in the fiscal year ending march 31 , 2017. architecturally-specified building products architecturally-specified building products represented approximately 14 % and 15 % of our net sales in the fiscal years ended march 31 , 2016 and 2015 , respectively . we manufacture and sell products such as expansion joints , stair nosings and smoke and fire protection systems for large commercial buildings and parking garages . story_separator_special_tag sales of these products are driven by architectural specifications and safety codes , and the sales process is typically long as these are multi-year construction projects . international expansion is driving revenues in this end market as larger buildings are being designed and built . the construction market is a key driver for sales of architecturally-specified building products and our outlook for growth in new construction is stronger than the gross domestic product in the fiscal year ending march 31 , 2017 . 31 energy the energy market represented approximately 7 % and 13 % of our net sales in the fiscal years ended march 31 , 2016 and 2015 , respectively . we provide market-leading lubricants and anti-seize compounds , as well as greases , for use in maintenance of oilfield drilling equipment . we also provide coatings to the energy industry for storage tanks , drum containers and general refinery maintenance . the outlook for the energy industry is heavily dependent on the demand growth from both mature markets and developing geographies . we believe increased crude oil supply resulted in the significant decline in the price of oil beginning in the fourth quarter of 2014 , and we believe the lower oil prices will continue to negatively impact energy upstream investment most acutely and impact mid-stream and downstream investment to a lesser extent . we expect this will negatively impact the demand for our products used in oil and gas drilling applications in the fiscal year ending march 31 , 2017. mining the mining market represented approximately 4 % and 7 % of our net sales in the fiscal years ended march 31 , 2016 and 2015 , respectively . we provide market-leading lubricants to open gear boxes used in large mining excavation equipment , primarily through our distribution network . the mining industry has experienced headwinds recently due to reduced coal prices , which is caused by lower oil and gas prices . we are not anticipating any significant improvement in the mining industry in the fiscal year ending march 31 , 2017. results of operations the following discussion provides an analysis of our consolidated results of operations and results for each of our segments . currency effects included in the discussion below are calculated by translating current fiscal year results on a monthly basis at prior fiscal year exchange rates for the same periods . the acquisitions listed below impact comparability : acquisition effective date segment leak freeze december 16 , 2015 specialty chemicals deacon october 1 , 2015 coatings , sealants & adhesives strathmore april 1 , 2015 coatings , sealants & adhesives sureseal january 2 , 2015 industrial products evo-crete , polyslab august 15 , 2014 industrial products fluid defense january 31 , 2014 industrial products resource conservation technologies , inc. january 2 , 2014 industrial products the operations of each acquired business have been included in the applicable segment since the effective date of the acquisition . all acquisitions are described in note 2 to our consolidated financial statements included in item 8 of this annual report . replace_table_token_3_th 32 replace_table_token_4_th net revenues net revenues for the fiscal year ended march 31 , 2016 increased $ 58.0 million , or 22.2 % , as compared with the fiscal year ended march 31 , 2015 , including $ 58.9 million related to acquisitions . excluding the impact of acquisitions , decreased sales volumes into the energy and mining industries were mostly offset by higher sales volumes of both existing products and new products , particularly into the hvac and architecturally-specified building products markets . net revenues for the fiscal year ended march 31 , 2015 increased $ 30.1 million , or 13.0 % , as compared with the fiscal year ended march 31 , 2014 , including $ 15.2 million related to acquisitions . the remaining increase was primarily attributable to an increase in sales volumes in the industrial products segment due to hvac products , and to a lesser degree , in the coatings , sealants & adhesives segment due to caulking products , partially offset by a decrease in sales volumes in the specialty chemicals segment due largely to a slowdown in global mining activity . net revenues into the americas , europe , middle east and africa , and asia pacific represented approximately 89 % , 7 % , and 4 % of net revenues , respectively , for the fiscal year ended march 31 , 2016 , 84 % , 9 % , and 7 % of net revenues , respectively , for the fiscal year ended march 31 , 2015 and 82 % , 11 % , and 7 % of net revenues , respectively , for the fiscal year ended march 31 , 2014. the increase in net revenue into the americas for the fiscal year ended march 31 , 2016 as compared with the prior periods is attributable to the acquisition of strathmore , whose customers are generally u.s.-based . the presentation of net revenues by geographic region is based on the location of the customer . for additional information regarding net revenues by geographic region , see note 16 to our consolidated financial statements included in item 8. financial statements and supplementary data ( item 8 ) of this annual report . gross profit and gross profit margin gross profit for the fiscal year ended march 31 , 2016 increased $ 21.4 million , or 17.0 % , as compared with the fiscal year ended march 31 , 2015 , including $ 15.9 million related to acquisitions . gross profit margin for the fiscal year ended march 31 , 2016 of 46.2 % decreased from 48.3 % for the fiscal year ended march 31 , 2015. the decrease was caused primarily by the addition of the lower gross margin associated with strathmore products , partially offset by a pension plan curtailment benefit ( $ 2.7 million ) , changes in product mix and lower materials costs for certain products .
| operating income for the fiscal year ended march 31 , 2016 decreased $ 0.5 million , or 4.0 % , as compared with the fiscal year ended march 31 , 2015. the improvement was primarily due to a decrease in expenses due to a pension plan curtailment benefit ( $ 3.4 million ) and lower freight and commissions expenses resulting from the decrease in sales volumes , as well as expenses recorded in the prior year that did not recur , including retention and severance costs associated with the consolidation of selected manufacturing activities ( $ 1.3 million ) and bad debt related to one non-u.s. customer ( $ 1.2 million ) . these benefits were mostly offset by the impact of the decrease in net revenues , as well as transaction costs ( $ 0.5 million ) and increased system costs , personnel-related expenses and professional fees . 37 operating income for the fiscal year ended march 31 , 2015 decreased $ 2.9 million , or 18.0 % , as compared with the fiscal year ended march 31 , 2014. the decline was a result of the decreases in sales volumes referenced above and increases in cost of revenues , due primarily to higher raw material and packaging costs for certain products , and operating expenses . the increase in operating expenses resulted from an increase in the reserve for bad debts ( $ 1.2 million ) , retention and severance costs associated with the consolidation of selected manufacturing activities ( $ 1.3 million ) , incentive plan accruals ( $ 0.4 million ) and erp system implementation costs ( $ 0.3 million ) , which were partially offset by lower commissions due to the decrease in sales volumes and lower travel and marketing costs ( $ 0.8 million ) . for additional information on segments , see note 16 to our consolidated financial statements included in item 8 of this annual report . liquidity and capital resources cash flow analysis replace_table_token_10_th existing cash , cash generated by operations and borrowings available under our revolving credit facility are our primary sources of short-term liquidity . we monitor the depository institutions that hold our cash and cash equivalents on a regular basis , and we believe that we have placed our deposits with creditworthy financial institutions . our sources of operating cash generally include the sale of our products and services and the conversion of our working capital , particularly accounts receivable and inventories . our cash balance ( including cash and equivalents , restricted cash and bank time deposits ) at march
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our products and related trends our product portfolio currently consists of four products . as of the date of this report , three products are approved by the fda and one is development . three of these four products utilize our patented bema ® thin film drug delivery technology . one product candidate has been discontinued . belbuca ® is for the management of chronic pain severe enough to require daily , around-the-clock , long-term opioid treatment and for which alternative treatment options are inadequate . this product was licensed on a worldwide basis to endo pharmaceuticals , inc. ( endo ) . on october 26 , 2015 , we announced with endo that the fda approved belbuca ® of which belbuca ® was launched by endo in february 2016. on december 8 , 2016 , we announced an agreement with endo terminating endo 's licensing of rights for belbuca ® . this announcement followed a strategic decision made by endo regarding its decision to discontinue commercial efforts in the branded pain business . on january 6 , 2017 , we announced the closing of the transaction to reacquire the license to belbuca ® from endo . as a result , the worldwide rights to belbuca ® were transferred back to us . going forward , we are not responsible for future royalties or milestone payments to endo and endo will not be obligated to any future milestone payments to us . behind a revised commercialized plan based on market research conducted primarily by endo that took into consideration the current climate for prescribing opioids for chronic pain , as such we are initially leveraging our existing sales force to capitalize on commercial synergies with bunavail ® for a focused commercial approach targeting identified healthcare providers which we believe creates the potential to incrementally grow belbuca ® sales without the requirement of significant resources . as such , we are initially leveraging our existing sales force to capitalize on commercial synergies with bunavail ® for a focused commercial approach targeting identified healthcare providers which we believe creates the potential to incrementally grow belbuca ® sales without the requirement of significant resources . we also will explore other options for longer-term growth for belbuca ® . in mid-january 2017 , we completed the expansion and training of our sales force , allowing for promotion of belbuca ® to commence in late january . belbuca ® and bunavail ® are supported by a field force of approximately sixty-five sales representatives and five regional sales managers . the launch has been more challenging , as previously disclosed , because of the increased scrutiny of prescribing opioids driven by the centers for disease control and prevention guideline changes issued in march 2016. the difference that belbuca ® offers over the schedule ii opioids , such as oxycodone , hydrocodone , morphine , etc. , include less addiction and abuse potential along with a ceiling effect on respiratory depression . these differences we believe make it the opioid of choice . bunavail ® was approved by the fda in june 2014 for the maintenance treatment of opioid dependence . bunavail ® uses our bema ® technology combined with the schedule iii narcotic buprenorphine in tandem with naloxone , an opioid antagonist . we are commercializing bunavail ® ourselves and launched the product during the fourth quarter of 2014. we have been actively engaged in efforts to optimize our commercialization of bunavail ® and with particular emphasis in 2016 , to better align costs with revenue and reduce spending . to this end , effective as of may 2016 , we reduced the size and altered the structure of our sales force to better focus on the most profitable territories in the country where bunavail ® has or is in the best position to obtain marketplace growth . this resulted in a reduction in sales territories and sales and marketing expenditures . we will seek to continue to grow bunavail ® market share by focusing sales efforts in the highest growth territories over time , by using recently published data evidencing diversion ( i.e. , the illicit use of a legally prescribed controlled substance ) associated with the market leader 's product and , by highlighting the other attributes of bunavail ® as we seek to win exclusive or preferred status in additional managed care contracts . we also believe there will be an opportunity to introduce more patients to bunavail ® following the official lifting of a long-standing limit from 100 to 275 ( as outlined in the final ruling by the department of health and human services and effective on august 8 , 2016 ) , the number of patients per physician that can be treated at any given time with buprenorphine . we will continue to closely monitor commercial efforts and seek to increase revenue and 53 profitability , as well as evaluate all options available to preserve the long term prospects for and maximize the value of bunavail ® . separately , as with all other buprenorphine containing products for opioid dependence , the approval of bunavail ® carries a standard post-approval requirement by the fda to conduct a study to determine the effect of bunavail ® on qt prolongation ( i.e . an abnormal lengthening of the heartbeat ) . onsolis ® is approved in the u.s. , the eu ( where it is marketed as breakyl ) and taiwan ( where it is marketed as painkyl ) , for the management of breakthrough pain in opioid tolerant adult patients with cancer . onsolis ® utilizes our bema ® thin film drug delivery technology in combination with the narcotic fentanyl . the commercial rights to onsolis ® were originally licensed to meda in 2006 and 2007 for all territories worldwide except for taiwan ( where it is licensed to tty ) . the marketing authorization for onsolis ® was returned to us in early 2015 as part of an assignment and revenue sharing agreement with meda for the united states , canada and mexico . story_separator_special_tag such agreement also facilitated the approval of a new formulation of onsolis ® in the u.s. on may 11 , 2016 , our company and collegium executed a license agreement under which we granted to collegium the exclusive rights to develop and commercialize onsolis ® in the u.s. buprenorphine depot injection is in development as an injectable , extended release , microparticle formulation of buprenorphine for the treatment of opioid dependence and chronic pain , the rights to which we secured when we entered into a definitive development and exclusive license option agreement from evonik in october 2014. in 2015 , we completed initial development work and preclinical studies which have resulted in the identification of a formulation we believe is capable of providing 30 days of continuous buprenorphine treatment . during a pre-ind meeting with fda in november 2015 , fda requested an additional study to assess the fate of the polymers used in the formulation . in 2016 , we completed this study as well as additional preclinical work and other activities to support a planned phase 1 clinical study . we submitted an investigational new drug application ( or ind ) for this product candidate to fda in december 2016. clonidine topical gel was a non-bema ® product which was in phase 3 development for the treatment of painful diabetic neuropathy ( pdn ) . we licensed this product from arcion in march 2013. on march 30 , 2015 , we announced that the primary efficacy endpoint in our initial phase 3 clinical study of clonidine topical gel compared to placebo for the treatment of pdn did not meet statistical significance , although certain secondary endpoints showed statistically significant improvement over placebo . following thorough analysis of the data and identification of the reasons behind the study results , we initiated a second study . on december 13 , 2016 , we announced that our phase 2b clinical study assessing the efficacy and safety of clonidine topical gel failed to show a statistically significant difference in pain relief between clonidine topical gel and placebo . as a result , we are discontinuing further development of the product . given the perceived lack of efficacy , at least in this dosage form and at this strength , and given the resources to support the product by us , the rights to clonidine topical gel were returned to arcion in february 2017. we expect to continue our research and development of pharmaceutical products and related drug delivery technologies , some of which will be funded by our commercialization agreements . we will continue to seek additional license agreements , which may include upfront payments . we anticipate that funding for the next several years will come primarily from earnings from sales of belbuca ® and bunavail ® , milestone payments and royalties from meda and tty , potential sales of securities and collaborative research agreements , including those with pharmaceutical companies . we have limited history of commercial operations , having focused the vast majority of our corporate effort on research and development activities . we have , since our founding , received revenue in the form of : ( i ) contract revenue from endo related to an upfront , non-refundable payment for a license of our belbuca ® product in 2012 ( a portion of which was recorded as deferred revenue that is being recognized as revenue under prevailing revenue recognition rules ) , ( ii ) payment from endo for certain patent-related milestones ( a portion of which might be refundable based on the entry of generic competition into the marketplace and hence , such portion was recorded as deferred revenue that was being recognized under prevailing revenue recognition rules ) , ( iii ) royalty revenue from meda for sales of breakyl and onsolis ® , ( iv ) upfront non-refundable license and milestone payments from meda in 2007 , 2008 , 2009 and 2012 ( which were initially classified as deferred revenue and subsequently , a substantial amount was reclassified as recognized revenue under prevailing revenue recognition rules ) , ( v ) product sales revenue related to bunavail ® sales ( vi ) contract revenue from endo related to two full database locks in 2014 , ( vii ) contract revenue from endo upon fda acceptance of the filed nda of our belbuca ® product in 2015 and subsequent regulatory approval , ( viii ) and sponsored research revenue from both endo and meda . only the belbuca ® and bunavail ® product sales and breakyl royalty revenues have the potential to be repeating or predictable . until recurring revenue from product sales ( belbuca ® and bunavail ® are the foremost opportunity ) becomes a larger portion of our total revenue , we anticipate that our quarterly results of operations will fluctuate for the foreseeable future . readers are cautioned that period-to-period comparisons of our operating results should not be relied upon as predictive of future performance . our prospects must be considered in light of the risks , expenses and difficulties normally encountered by 54 companies that are involved in the development and commercialization of their products and related technologies , particularly companies in new and rapidly changing markets such as pharmaceuticals , drug delivery and biotechnology . for the foreseeable future , we must , among other things , invest in non-clinical and clinical trials of , and seek regulatory approval for and commercialization of , our product candidates , the outcomes of which are subject to numerous risks , many of which are beyond our control . we must also maintain our relationships with our key commercial partners and address regulatory , legal and or commercial issues and risks that relate to our business from time to time , many of which could impact , perhaps negatively , our planned operations . we may not be able to appropriately address these risks and difficulties .
| contract revenue in 2015 primarily consisted of recognizing as revenue $ 40.4 million in two milestone payments from endo associated with submission and subsequent approval by the fda of the nda for belbuca ® . also included in 2015 was $ 1.1 million in contract revenue under our license agreement with meda . additionally , we received $ 0.3 million under our license agreement with kunwha . cost of sales . we incurred $ 11.3 million and $ 8.1 million in cost of sales during the years ended 2016 and 2015 , respectively . in 2016 , we had $ 1.9 million contractual royalty due to meda related to our onsolis ® licensing arrangement with collegium and a standard , minimum $ 1.5 million contractual royalty due to cdc related to our onsolis ® and breakyl product . also in 2016 , 61 we incurred $ 6.3 million in cost of sales for bunavail ® plus $ 0.6 million bunavail ® related depreciation of manufacturing equipment and $ 0.2 million in immediate expensing of certain production that did not meet specifications during product validation and batch size scale up . also included in 2016 was $ 0.7 million in cost of sales for breakyl in europe and $ 0.1 million cost of sales related to belbuca ® . in 2015 , we recorded a standard , minimum $ 1.5 million contractual royalty to cdc related to our onsolis ® and breakyl product . also in 2015 , we incurred $ 5.9 million in cost of sales for bunavail ® . the remaining $ 0.7 million in 2015 represents cost of sales for breakyl in europe . expenditures for research and development programs ( 2016 vs. 2015 ) bunavail ® we incurred research and development expenses for bunavail ® of approximately $ 5.2 million for the year ended december 31 , 2016 and approximately $ 6.2 million for
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franchisees either pay in advance or provide evidence of a committed financing arrangement for such equipment . recent transactions on december 16 , 2019 , we purchased from one of our franchisees certain assets associated with 12 franchisee-owned stores in new jersey for a cash payment of $ 37.8 million . we financed the purchase through cash on hand . the acquired stores are included in the corporate-owned stores segment . on december 4 , 2019 , we entered into a $ 300 million accelerated share repurchase agreement ( the “ 2019 asr agreement ” ) with jpmorgan chase bank , n.a . ( “ jpmc ” ) . we will acquire shares under the 2019 asr agreement as part of our 2019 $ 500 million share repurchase authorization ( the “ 2019 share repurchase authorization ” ) . on december 5 , 2019 , we paid jpmc $ 300 million in cash and received approximately 3.3 million shares of our class a common stock . at final settlement , jpmc may be required to deliver additional shares to us , or , under certain circumstances , we may be required to deliver shares of our class a common stock or may elect to make a cash payment to jpmc , based generally on the average of the daily volume-weighted average prices of our class a common stock during the term of the 2019 asr agreement . the 2019 asr agreement contains provisions customary for agreements of this type , including provisions for adjustments to the transaction terms , the circumstances generally under which the 2019 asr agreement may be accelerated , extended or terminated early by jpmc and various acknowledgments , representations and warranties made by the parties to one another . final settlement of the 2019 asr agreement is expected to be completed during the second quarter of 2020 , although the settlement may be accelerated at jpmc 's option . following this asr there is approximately $ 200 million remaining on the 2019 share repurchase authorization . on december 3 , 2019 , planet fitness master issuer llc , our limited-purpose , bankruptcy remote , indirect subsidiary ( the “ master issuer ” ) , completed a refinancing transaction , pursuant to which it issued $ 550 million in aggregate principal amount of series 2019-1 3.858 % fixed rate senior secured notes , class a-2-i ( the “ 2019 notes ” ) in an offering exempt from registration under the securities act of 1933 , as amended . on may 30 , 2019 , we purchased from one of our franchisees certain assets associated with four franchisee-owned stores in maine for a cash payment of $ 14.8 million . we financed the purchase through cash on hand . the acquired stores are included in the corporate-owned stores segment . on november 13 , 2018 , we entered into a $ 300 million accelerated share repurchase agreement ( the “ 2018 asr agreement ” ) with citibank , n.a . ( the “ citibank ” ) . we acquired shares under the 2018 asr agreement as part of our 2018 $ 500 million share repurchase authorization ( the “ 2018 share repurchase authorization ” ) . on november 14 , 2018 , we paid citibank $ 300 million in cash and received approximately 4.6 million shares of our class a common stock . final settlement of the 2018 asr agreement occurred on april 30 , 2019. at final settlement , citibank delivered approximately 524,000 additional shares of the company 's class a common stock , based on a weighted average cost per share of $ 58.46 over the term of the 2018 asr agreement , which were retired . on august 10 , 2018 , we purchased from one of our franchisees certain assets associated with four franchisee-owned stores in colorado for a cash payment of $ 17.2 million . we financed the purchase through cash on hand . the acquired stores are included in the corporate-owned stores segment . 43 on august 1 , 2018 , master issuer , completed a refinancing transaction , pursuant to which it issued $ 575 million in aggregate principal amount of series 2018-1 4.262 % fixed rate senior secured notes , class a-2-i ( the “ 2018 class a-2-i notes ” ) and $ 625 million in aggregate principal amount of series 2018-1 4.666 % fixed rate senior secured notes , class a-2-ii ( the “ 2018 class a-2-ii notes ” and together with the 2018 class a-2-i notes , the “ 2018 notes ” ) in an offering exempt from registration under the securities act of 1933 , as amended . in connection with the issuance of the 2018 notes , the master issuer also entered into the previously announced revolving financing facility that allows for the issuance of up to $ 75 million in series 2018-1 variable funding senior notes , class a-1 ( the “ variable funding notes ” ) , and certain letters of credit , all of which is currently undrawn . the class 2018 notes were issued in a securitization transaction pursuant to which substantially all of our revenue-generating assets in the united states are held by the master issuer and certain other limited-purpose , bankruptcy remote , wholly-owned direct and indirect subsidiaries of the master issuer that act as guarantors of the 2018 notes and variable funding notes and that have pledged substantially all of their assets to secure the 2018 notes and variable funding notes . on january 1 , 2018 , we purchased from one of our franchisees certain assets associated with six franchisee-owned stores in new york for a cash payment of $ 28.5 million . we financed the purchase through cash on hand . the acquired stores are included in the corporate-owned stores segment . story_separator_special_tag on may 26 , 2017 , we executed the third amendment to our previous senior secured credit agreement to reduce the applicable interest rate margin for term loan borrowings by 50 basis points , with an additional 25 basis point reduction in applicable interest rate possible in the future so long as the total net leverage ratio ( as defined in the credit agreement ) is less than 3.50 to 1.00. the amendment to the credit agreement also reduced the interest rate margin for revolving loan borrowings by 25 basis points . on may 8 , 2017 , we completed a secondary offering ( the “ may secondary offering ” ) pursuant to which the direct tsg investors and the participating continuing llc owners sold an aggregate of 16,085,510 shares of class a common stock at a price of $ 20.28 per share . we did not receive any proceeds from the sale of shares of our class a common stock offered in the september secondary offering . on march 14 , 2017 , we completed a secondary offering ( the “ march secondary offering ” ) pursuant to which the direct tsg investors and the participating continuing llc owners sold an aggregate of 15,000,000 shares of class a common stock at a price of $ 20.44 per share . we did not receive any proceeds from the sale of shares of our class a common stock offered in the september secondary offering . seasonality our results are subject to seasonality fluctuations in that member joins are typically higher in january as compared to other months of the year . in addition , our quarterly results may fluctuate significantly because of several factors , including the timing of store openings , timing of price increases for enrollment fees and monthly membership dues and general economic conditions . see note 21 to our consolidated financial statements included elsewhere in this form 10-k for our total revenues , income from operations and net income for each of the quarters during the years ended december 31 , 2019 and 2018 . our segments we operate and manage our business in three business segments : franchise , corporate-owned stores and equipment . our franchise segment includes operations related to our franchising business in the united states , puerto rico , canada , the dominican republic , panama , mexico and australia . our corporate-owned stores segment includes operations with respect to all corporate-owned stores throughout the united states and canada . the equipment segment includes the sale of equipment to franchisee-owned stores in the u.s. we evaluate the performance of our segments and allocate resources to them based on revenue and earnings before interest , taxes , depreciation and amortization , referred to as segment ebitda . revenue and segment ebitda for all operating segments include only transactions with unaffiliated customers and do not include intersegment transactions . the tables below summarize the financial information for our segments for the years ended december 31 , 2019 , 2018 and 2017 . “ corporate and other , ” as it relates to segment ebitda , primarily includes corporate overhead costs , such as payroll and related benefit costs and professional services that are not directly attributable to any individual segment . 44 replace_table_token_4_th ( 1 ) total segment ebitda is equal to ebitda , which is a metric that is not presented in accordance with gaap . refer to “ —non-gaap financial measures ” for a definition of ebitda and a reconciliation to net income , the most directly comparable gaap measure . ( 2 ) the year ended december 31 , 2017 includes a gain of $ 316,813 related to the remeasurement of the company 's tax benefit arrangement liabilities pursuant to the 2017 tax act . a reconciliation of income from operations to segment ebitda is set forth below : replace_table_token_5_th ( 1 ) total segment ebitda is equal to ebitda , which is a metric that is not presented in accordance with gaap . refer to “ —non-gaap financial measures ” for a definition of ebitda and a reconciliation to net income , the most directly comparable gaap measure . ( 2 ) includes a gain of $ 316,813 in the corporate and other segment related to the remeasurement of the company 's tax benefit arrangement liabilities pursuant to the 2017 tax act . 45 how we assess the performance of our business in assessing the performance of our business , we consider a variety of performance and financial measures . the key measures for determining how our business is performing include total monthly dues and annual fees from members ( which we refer to as system-wide sales ) , the number of new store openings , same store sales for both corporate-owned and franchisee-owned stores , average royalty fee percentages for franchisee-owned stores , monthly pf black card membership penetration percentage , ebitda , adjusted ebitda , segment ebitda , four-wall ebitda , royalty adjusted four-wall ebitda , adjusted net income , and adjusted net income per share , diluted . see “ —non-gaap financial measures ” below for our definition of ebitda , adjusted ebitda , four-wall ebitda , royalty adjusted four-wall ebitda , adjusted net income , and adjusted net income per share , diluted and why we present ebitda , adjusted ebitda , four-wall ebitda , royalty-adjusted four-wall ebitda , adjusted net income , and adjusted net income per share , diluted , and for a reconciliation of our ebitda , adjusted ebitda , and adjusted net income to net income , the most directly comparable financial measure calculated and presented in accordance with gaap , and a reconciliation of adjusted net income per share , diluted to net income per share , diluted , the most directly comparable financial measure calculated in accordance with gaap .
| corporate-owned stores corporate-owned stores segment ebitda was $ 65.6 million in the year ended december 31 , 2019 compared to $ 56.7 million in the year ended december 31 , 2018 , an increase of $ 8.9 million , or 15.7 % . of the increase , $ 6.6 million was related to stores included in our same store sales base in the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 . an additional $ 3.0 million was attributable to the stores acquired and opened since january 1 , 2018. additionally we had $ 1.2 million increase in ebitda related to foreign currency which was a gain of $ 0.5 million in the year ended december 31 , 2019 compared to a loss of $ 0.7 million in the year ended december 31 , 2018 . offsetting these increases was $ 1.8 million of loss on reacquired franchise rights associated with the acquisition of 12 stores in new jersey on december 16 , 2019. depreciation and amortization was $ 25.5 million for the year ended december 31 , 2019 , compared to $ 20.4 million for the year ended december 31 , 2018 . the increase in depreciation and amortization was primarily attributable to capital expenditures on existing stores and the acquisition and opening of new corporate-owned stores since january 1 , 2018 . 57 equipment equipment segment ebitda was $ 59.6 million in the year ended december 31 , 2019 compared to $ 47.6 million in the year ended december 31 , 2018 , an increase of $ 12.0 million , or 25.2 % . the increase was the result of higher replacement equipment sales to existing franchisee-owned stores , and higher equipment sales to new franchisee-owned stores related to 31 additional new equipment sales in the year ended december 31 , 2019 compared to the year ended december 31 , 2018 . depreciation and amortization was $ 5.0 million for the year ended december 31 , 2019 and
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there could be a lag between the time various environmental and economic factors occur and the time when these factors are reflected in the annual audited financial statements of the borrower and , therefore , the internal risk rating we determine for the borrower . our corporate credit committee makes a quarterly determination of the percentage to apply to loans in the general portfolio as an additional reserve . this reserve component may be set at up to 10 percent of the amount of the calculated general loan loss allowance for each type of loan exposure . the corporate credit committee takes into consideration the effect on our borrowers from ( i ) the economic downturn , ( ii ) the increase in the unemployment rate , ( iii ) the decline in the housing market that led to a significant increase in foreclosures and ( iv ) specifically for telecommunications borrowers , reduced discretionary spending for telecommunications services , increased competition from wireless providers and continued loss of access lines among rural local exchange carriers . impaired loans a loan is considered to be impaired when we do not expect to collect all principal and interest payments as scheduled by the original loan terms , other than an insignificant delay or an insignificant shortfall in amount . factors considered in determining impairment may include , but are not limited to : · the review of the borrower 's audited financial statements and interim financial statements if available , · the borrower 's payment history , · communication with the borrower , · economic conditions in the borrower 's service territory , · pending legal action involving the borrower , · restructure agreements between us and the borrower and · estimates of the value of the borrower 's assets that have been pledged as collateral to secure our loans . an impairment loss on a loan receivable is recognized as the difference between the recorded investment in the loan and the present value of the estimated future cash flows associated with the loan discounted at the effective interest rate on the loan at the time of impairment . if the current balance in the receivable is greater than the net present value of the future payments discounted at the effective interest rate at the time the loan became impaired , the impairment is equal to that difference and a portion of the loan loss allowance is specifically reserved based on the calculated impairment . if future cash flows can not be estimated , the loan is collateral dependent or foreclosure is probable , the impairment is calculated based on the estimated fair value of the collateral securing the loan . in calculating the impairment on a loan , the estimates of the expected future cash flows or collateral value are the key estimates made by management . changes in the estimated future cash flows or collateral value affect the amount of the calculated impairment . the change in cash flows required to make the change in the calculated impairment material will be different for each borrower and depend on the period covered , the effective interest rate at the time the loan became impaired and the amount of the loan outstanding . estimates are not used to determine our investment in the receivables or the discount 34 rate since , in all cases , the investment is equal to the loan balance outstanding at the reporting date , and the discount rate is equal to the interest rate on the loan at the time the loan became impaired . our policy for recognizing interest income on impaired loans is determined on a case-by-case basis . an impaired loan to a borrower that is non-performing will typically be placed on non-accrual status and we will reverse all accrued and unpaid interest . we generally apply all cash received during the non-accrual period to the reduction of principal , thereby foregoing interest income recognition . interest income may be recognized on an accrual basis for restructured impaired loans where the borrower is performing and is expected to continue to perform based on agreed-upon terms . all loans are written off in the period that it becomes evident that collectability is highly unlikely ; however , our efforts to recover all charged-off amounts may continue . the determination to write off all or a portion of a loan balance is made based on various factors on a case-by-case basis including , but not limited to , cash flow analysis and the fair value of collateral securing the borrower 's loans . the loan loss reserve is an estimate of probable losses inherent in the loan portfolio . at may 31 , 2012 , our general reserve of $ 97 million represented 0.53 percent of the outstanding balance of loans covered by the general reserve . based on this coverage level , an increase or decrease of $ 500 million in loans covered by the general reserve would result in a corresponding increase or decrease of $ 2.7 million to the loan loss allowance . fair value we determined the accounting for certain items on our balance sheet at fair value to be a critical accounting policy because of the subjective nature and the requirement for management to make significant estimations in determining the amounts to be recorded . different assumptions and estimates could also be reasonable , and changes in the assumptions used and estimates made could have a material effect on our financial statements . the primary instruments recorded on our balance sheet at fair value are derivative financial instruments . derivative instruments must be recorded on the balance sheet as either an asset or liability measured at fair value . since these instruments generally do not qualify for hedge accounting , the accounting standards require that we record all changes in fair value through earnings . story_separator_special_tag we record the change in the fair value of derivatives instruments , along with realized gains and losses from cash settlements , in the derivative losses line item of the consolidated statement of operations each reporting period . since there is not an active secondary market for the types of derivative instruments we use , we obtain market quotes from our dealer counterparties . the market quotes are based on the expected future cash flow and estimated yield curves . we perform our own analysis to confirm the values obtained from the counterparties . the counterparties estimate future interest rates as part of the quotes they provide to us . we adjust all derivatives to fair value on a quarterly basis . the fair value we record will change as estimates of future interest rates change . to estimate the impact of changes to interest rates on the forward value of derivatives , we would need to estimate all changes to interest rates through the maturity of our outstanding derivatives . the maturities of our derivatives in the current portfolio run through 2045. since many of the derivative instruments we use for risk management have such long-dated maturities , the valuation of these derivatives may require extrapolation of market data that is subject to significant judgment . accounting standards on fair value require that credit risk be considered in determining the market value of any asset or liability carried at fair value . we adjust the market values of our derivatives received from the counterparties based on our counterparties ' and our credit spreads observed in the credit default swap market . in addition to the valuation associated with derivative financial instruments , we also present foreclosed assets at fair value when initially recorded on the balance sheet . foreclosed assets that do not qualify as assets held for sale are periodically reviewed for impairment . if an impairment loss is recognized on our foreclosed assets , the adjusted carrying amount of the foreclosed assets becomes the new cost basis . restoration of any recognized impairment loss is prohibited under gaap , even when the fair value of the foreclosed assets increases subsequent to our recognition of impairment . subsequent i ncreases in fair value on certain foreclosed assets including those that qualify as held for sale are recorded as gains , and are limited to the cumulative amount of loss in fair value recognized in prior periods . in many instances the valuation of these assets is judgmental and dependent upon comparisons to similar assets or estimations of future cash flows that are expected to be generated by the underlying foreclosed properties . in both of these instances , management uses its best estimates , based upon available market data and or projections of future cash flows . however , because of the subjective nature of these estimates , other estimates could be reasonable , and changes in the assumptions used and our estimates could have a material effect on our financial statements . 35 story_separator_special_tag id= '' pgbrk '' style= '' text-indent : 0pt ; width : 100 % ; margin-left : 0pt ; margin-right : 0pt '' > 37 accordance with the restructure agreement , all of which had previously been used to reduce the outstanding principal balance . the loan balance of $ 420 million was below the amount of the prepayment option in the restructure agreement , thus there would no longer be a loss recorded if the borrower were to exercise the prepayment option . the accrual rate for the loan of 4.85 percent is based on the effective interest rate returned by the remaining scheduled cash flows through december 2037. placing this loan on accrual status resulted in an increase of $ 14 million to interest income and , therefore , a higher average rate on restructured loans for the year ended may 31 , 2012 , as compared with the prior year . our non-performing and restructured loans on non-accrual status affect interest income for both the current and prior year . the effect of non-accrual loans on interest income is included in the rate variance in the table above . interest income was reduced as follows as a result of holding loans on non-accrual status : replace_table_token_16_th the decrease in interest foregone for electric loans in fiscal year 2012 was due to placing a $ 420 million restructured loan on accrual status on october 1 , 2011 and the reduction to telecommunications loans was due to the significant lower balance of telecommunications loans on non-accrual status during fiscal year 2012. the reduction to interest forgone on telecommunications loans in fiscal year 2011 was due to the settlement of the icc non-performing loan in fiscal year 2011. the larger amount of interest foregone for electric loans on non-accrual status for fiscal years 2011 and 2010 was mainly due to one large restructured loan that was on non-accrual status . in both years the amount of the interest forgone for that borrower was fully offset by the reduction to the calculated impairment due to applying all payments received against the principal balance . the reduction to the calculated impairment resulted in the recognition of income from the recovery of the loan loss allowance . interest expense the following tables break out the average cost of debt and the change to interest expense due to changes in average debt volume versus changes to interest rates summarized by debt type . we do not fund each individual loan with specific debt . rather , we attempt to minimize costs and maximize efficiency by funding large aggregated amounts of loans . the following tables also break out the change to derivative cash settlements due to changes in the average notional amount of our derivative portfolio versus changes to the net difference between the average rate paid and the average rate received . additionally , the tables present adjusted interest expense , which includes all derivative cash settlements in interest expense .
| during the year ended may 31 , 2012 , interest income decreased by 5 percent compared with the prior year primarily due to a 6 basis-point decrease in the average rate on loans . during the year ended may 31 , 2011 , interest income decreased 3 percent compared with the prior year primarily due to a 7 basis-point decrease in the average yield on loans . as a cost-based lender , our fixed interest rates reflect the rates being charged in the capital markets marked up to cover our cost of operations . during fiscal years 2012 and 2011 , there was a lower trend in the rates we had to pay for funding in the capital markets as compared with the respective prior years . during the year ended may 31 , 2012 , $ 1,683 million of long-term fixed-rate loans were scheduled to reprice and the borrowers of $ 1,338 million of these loans selected a new long-term fixed rate , which was on average lower than the rate from which they repriced . in addition , the loans advanced to repay the loans of other lenders were done so at rates lower than the average rate for long-term fixed-rate loans at the prior year-end . the decrease to the yields earned on long-term variable-rate loans and line of credit loans was due to the reduction of 175 basis points and 105 basis points , respectively , to the standard rates we charged for such loans on september 1 , 2011. the reduction to interest income due to rates was offset slightly by placing a $ 420 million restructured loan on accrual status on october 1 , 2011. the decrease in average loan balances for the year ended may 31 , 2012 is primarily due to the decrease in power supply loans , which resulted from the repayment of bridge loans with proceeds of rus long-term loans and the maturity of a $ 200 million rtfc loan during the year ended may 31 , 2012. while the total average loan balance for the year ended may 31 , 2012 decreased , long-term fixed-rate loan advances to cfc and ncsc borrowers
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with the passage of time , however , we concluded that we have sufficient data and visibility into our distribution channel to develop a reasonable estimate of the level of expected returns . as such , commencing in december 2013 , we recognized previously deferred revenue and its related cost of goods sold , and began to recognize revenue for this product upon shipment to the retailers or distributors . for the year ended december 31 , 2013 , we recorded net revenues of $ 9.1 million related to our oraquick ® in-home hiv test . included in these net revenues was a $ 2.7 million gross revenue adjustment made in december 2013 to recognize previously deferred revenue , reduced by an estimated allowance for expected returns of $ 206,000. drugs-of-abuse assay collaboration agreements on november 21 , 2013 , we terminated our assay collaboration agreement with roche diagnostics . under the termination agreement , roche paid us $ 8.3 million which was recorded as a reduction of operating expense on our consolidated statement of operations . roche agreed to provide certain transitional product support services and will continue to supply certain of the assays developed under the collaboration on a transitional basis for up to five years following the termination . we have the right to stop the supply of assays prior to the end of this five-year period and could receive an additional payment from roche of up to $ 5.5 million depending on how early in that five-year period the supply authorization is ended . concurrently with the termination of our agreement with roche , we entered into a new agreement with thermo fisher for the development and supply of up to 12 homogeneous fully-automated oral fluid drugs-of-abuse assays . these assays will be used with a new version of our intercept ® collection device . under this new agreement , a nida-5 panel of assays is expected to be initially sold with our new intercept ® device in the domestic criminal justice and forensics markets beginning in the second half of 2014. eventually , the parties expect to complete development of several more assays and obtain fda 510 ( k ) clearance and approvals in certain foreign countries . the assays will be optimized as needed to comply with new oral fluid guidelines expected to be issued by the samhsa for the federally-regulated market and certain other markets that follow federal drug testing guidelines , none of which are currently served by orasure . hcv screening grade change in june 2013 , the u.s. preventive services task force ( uspstf ) issued new recommendations giving hcv screening for both at-risk individuals and individuals born between 1945 and 1965 a b ' grade . under the 52 affordable care act , preventive services that have received an a or b grade from the uspstf must be covered by insurance policies without cost-sharing and will be part of essential health benefits for those individuals eligible for medicare . these recommendations became effective in january 2014 and are expected to have a positive impact on testing for hcv over time , including with our oraquick ® hcv rapid antibody test . economic outlook many of our customers rely on public funding provided by federal , state and local governments , and this funding has been and may continue to be reduced or deferred as a result of current economic conditions . these circumstances may adversely impact our customers and suppliers , which , in turn , could adversely affect their ability to purchase our products or supply us with necessary equipment , raw materials or components . in addition , these circumstances could adversely affect our access to liquidity that may be needed to conduct or expand our business , conduct future acquisitions or make other discretionary investments . on august 2 , 2011 , president obama signed into law the budget control act of 2011 , which was designed to reduce federal spending over the next 10 years by $ 2.5 trillion . under that law , a select committee of congress was tasked with identifying and recommending $ 1.2 trillion in spending cuts by late november 2011. because the committee did not agree on spending cuts within that time frame , certain automatic cuts to discretionary , national defense and medicare spending ( often referred to as federal sequestration ) became effective on march 1 , 2013. we can not predict whether congress will attempt to suspend or restructure the automatic budget cuts or what other deficit reduction initiatives may be proposed by congress . although their full impact is difficult to ascertain , the spending cuts implemented under this law have adversely affected , and are expected to continue to adversely affect our customers ' ability to purchase our products . in addition , other legislative or regulatory changes may be adopted which could adversely affect our ability to sell our current products or successfully develop and commercialize new products . business segments we operate our business within two reportable segments : our osur business , which consists of the development , manufacture and sale of oral fluid diagnostic products , specimen collection devices , and medical devices used for the removal of benign skin lesions by cryosurgery ; and our dnag or molecular collection systems business , which consists primarily of the development , manufacture and sale of oral fluid collection devices that are used to collect , stabilize , and store samples of genetic material for molecular testing . osur revenues are derived primarily from products sold into the united states and internationally to various clinical laboratories , hospitals , clinics , community-based organizations , public health organizations , distributors , government agencies , physicians ' offices , and commercial and industrial entities . revenues from osur 's otc products primarily result from sales to retail pharmacies and mass merchandisers and to consumers over the internet . osur also derives revenues from licensing and product development activities . story_separator_special_tag dnag revenues result primarily from products sold into the commercial market , which consists of companies and other entities engaged in consumer genetics , clinical genetic testing , pharmacogenomics , personalized medicine , and animal genetic testing , as well as products sold into the academic research market , which consists of research laboratories , universities and hospitals . 53 story_separator_special_tag december 31 , 2013 compared to $ 1.4 million for the year ended december 31 , 2012. intercept ® sales in 2013 were also negatively impacted by the continued consolidation of drug testing laboratories . international intercept ® sales decreased 29 % to $ 500,000 in 2013 from $ 706,000 in 2012 , as a result of lower purchases by our uk laboratory distributor , which totaled $ 316,000 in 2013 compared to $ 610,000 in 2012. in 2012 , this uk distributor began selling its own competing oral specimen collection device and we expect this distributor to discontinue its purchases of our product in future periods . 56 cryosurgical systems market sales of our products in the cryosurgical systems market ( which includes both the physicians ' office and otc markets ) decreased to $ 14.5 million for the year ended december 31 , 2013 from $ 14.9 million for the year ended december 31 , 2012. the table below shows a breakdown of our total net cryosurgical systems revenues ( dollars in thousands ) generated in each market during 2013 and 2012. replace_table_token_9_th sales of our histofreezer ® product to physicians ' offices in the united states decreased 16 % to $ 6.0 million in 2013 , compared to $ 7.2 million in 2012. this decrease was the result of higher distributor purchases made in the fourth quarter of 2012 in anticipation of price increases implemented in early january 2013 , a decline in sales to the military during 2013 as a result of the u.s. withdrawal of troops overseas and lower sales to our canadian distributor . international sales of histofreezer ® remained relatively flat at $ 1.4 million in 2013 and $ 1.5 million in 2012. sales of our otc cryosurgical products during 2013 increased 12 % to $ 7.0 million from $ 6.3 million in 2012. this increase was largely the result of higher sales to both our latin american distributor , genomma , and our european distributor , reckitt benckiser . in 2013 , genomma purchased $ 3.3 million compared to $ 2.7 million during 2012 , largely due to increased sales into brazil . sales to reckitt benckiser increased to $ 3.6 million in 2013 from $ 3.3 million in 2012 as a result of higher sales in new geographic territories , partially offset by lower sales to existing markets resulting from a reallocation of advertising resources by the distributor . insurance risk assessment market sales to the insurance risk assessment market decreased 12 % to $ 3.9 million in 2013 from $ 4.5 million in 2012 , as a result of reduced demand in the domestic life insurance market , as well as the adoption by some underwriters of a simplified issues policy , pursuant to which lab-based testing is replaced by having applicants respond to a questionnaire about their behaviors . licensing and product development licensing and product development revenues for 2013 decreased 70 % primarily as a result of the absence of a $ 1.0 million milestone payment received in the first quarter of 2012 related to the achievement of certain regulatory and commercial objectives pursuant to the terms of our hcv collaboration agreement with merck . no similar payment was received during 2013 because the collaboration agreement with merck was terminated in november 2012. also contributing to the decline in product development revenues in 2013 was a decrease in royalties received on domestic outsales of merck 's otc cryosurgical wart removal product . pursuant to a license and settlement agreement executed in january 2008 , the receipt of royalties stopped in august 2013 when certain of our cryosurgical patents expired . 57 dnag segment molecular collection systems net molecular collection systems revenues , which primarily represent sales of our oragene ® product line , increased 43 % to $ 20.4 million in 2013 from $ 14.3 million in 2012. sales of oragene ® in the commercial market increased in 2013 primarily due to a substantial increase in orders received from an existing customer partially offset by lower sales in the academic research market in 2013 when compared to 2012 due to continued constrained research funding , particularly in north america . consolidated operating loss consolidated gross margin was 59 % in 2013 compared to 63 % in 2012. this decrease was largely due to higher royalty expenses , an unfavorable change in product mix , and the absence of the $ 1.0 million hcv milestone payment which was received in 2012. these negative effects on gross margin were partially offset by an improvement in overhead absorption during 2013 when compared to the prior year period . consolidated operating loss decreased $ 4.1 million to $ 12.2 million in 2013 , compared to $ 16.3 million in 2012. our 2013 operating loss reflects the $ 8.3 million settlement payment received for the termination of our assay collaboration agreement with roche diagnostics partially offset by higher sales and marketing expenses associated with the promotion of our oraquick ® in-home hiv test . operating loss by segment osur segment osur 's gross margin was 57 % in 2013 compared to 62 % in 2012. osur 's 2013 margin was negatively impacted by higher lateral flow patent royalties on sales of our oraquick ® hiv products , an unfavorable change in product mix , and the absence of the $ 1.0 million hcv milestone payment received from merck in the first quarter of 2012. the negative impact of these items was partially offset by an improvement in overhead absorption .
| 54 net revenues by segment osur segment the table below shows the amount of total net revenues generated by our osur segment in each of our principal markets and by licensing and product development activities ( dollars in thousands ) . replace_table_token_6_th infectious disease testing market sales to the infectious disease testing market increased 19 % to $ 51.0 million in 2013 from $ 42.7 million in 2012 , primarily due to sales of our oraquick ® in-home hiv test and higher sales of our oraquick ® hcv and hiv products in international markets . the table below shows a breakdown of our total net oraquick ® revenues ( dollars in thousands ) during 2013 and 2012. replace_table_token_7_th domestic oraquick ® hiv sales decreased 6 % to $ 32.3 million in 2013 from $ 34.3 million in 2012. this decrease was primarily caused by competition from other rapid and automated laboratory-based hiv tests and reductions in government funding . we expect that sales of our professional hiv product will continue to be challenged by these factors in future periods . international sales of our oraquick ® hiv test increased 10 % to $ 3.4 million in 2013 from $ 3.1 million in 2012 primarily as a result of higher sales in mexico , africa , and europe . in 2013 , we recorded $ 9.9 million in gross revenues from sales of our oraquick ® in-home hiv test , including $ 2.7 million ( $ 2.5 million , net of estimated returns ) of previously deferred gross revenue recognized in december 2013 when we changed our revenue recognition policy for this product . these gross revenues were 55 partially offset by $ 764,000 in customer allowances , including cooperative advertising , cash discounts , and other allowances , which were netted against gross revenues in accordance with u.s. generally accepted accounting principles . sales during 2013 also included approximately $ 701,000 of direct sales to certain public health customers compared to $ 19,000 in 2012. we anticipate that some public health entities may continue to use a portion of their funding to purchase our otc product in lieu of our or a
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sources of competition for us will continue to include , among others , bond trading conducted directly between broker-dealers and their institutional investor clients over the telephone or electronically and other multi-dealer trading companies . competitors , including companies in which some of our broker-dealer clients have invested , have developed electronic trading platforms or have announced their intention to explore the development of electronic platforms that may compete with us . in general , we compete on the basis of a number of key factors , including , among others , the liquidity provided on our platform , the magnitude and frequency of price improvement enabled by our platform and the quality and speed of execution . we believe that our ability to grow volumes and revenues will largely depend on our performance with respect to these factors . our competitive position is also enhanced by the familiarity and integration of our broker-dealer and institutional investor clients with our electronic trading platform and other systems . we have focused on the unique aspects of the credit markets we serve in the development of our platform , working closely with our clients to provide a system that is suited to their needs . regulatory environment our industry has been and is subject to continuous regulatory changes and may become subject to new regulations or changes in the interpretation or enforcement of existing regulations , which could require us to incur significant costs . our u.s. subsidiary , marketaxess corporation , is a registered broker-dealer with the securities and exchange commission ( sec ) and is a member of financial industries regulatory authority ( finra ) . our u.k. subsidiary , marketaxess europe limited , is registered as a multilateral trading facility dealer with the financial conduct authority ( fca ) in the u.k. marketaxess canada company , a canadian subsidiary , is registered as an alternative trading system dealer under the securities act of ontario and is a member of the investment industry regulatory organization of canada . relevant regulations prohibit repayment of borrowings from these subsidiaries or their affiliates , paying cash dividends , making loans to us or our affiliates or otherwise entering into transactions that result in a significant reduction in regulatory net capital or financial resources , without prior notification to or approval from such regulated entity 's principal regulator . in july 2010 , the dodd-frank wall street reform and consumer protection act ( the dodd-frank act ) was signed into law . among the most significant aspects of the derivatives section of the dodd-frank act are mandatory clearing of certain derivatives transactions ( swaps ) through regulated central clearing organizations and mandatory trading of those swaps through either regulated exchanges or swap execution facilities ( sefs ) , in each case subject to certain key exceptions . in september 2013 , the u.s. commodity futures trading commission ( cftc ) granted temporary registration to marketaxess sef corporation , our wholly-owned u.s. subsidiary , to operate a sef for the trading of swaps subject to the cftc 's jurisdiction . the cftc 's rules relating to the trading of swaps on sefs were implemented on october 2 , 2013. effective february 26 , 2014 , counterparties must execute swaps that are subject to the made available for trade determinations on a sef or designated contract market . the sec has not yet finalized its rules for security-based sefs , nor has it published a timetable for the finalization and implementation of such rules . no assurance can be given regarding when , whether or in what form the remaining rules regarding the new regulatory regime for the swaps marketplace will be finalized or implemented . 45 the volcker rule promulgated under the dodd-frank act bans proprietary trading by banks and their affiliates . the volcker rule could adversely affect our bank-affiliated broker-dealer clients ' ability to make markets in a variety of fixed-income securities , thereby negatively impacting the level of liquidity and pricing available on our trading platform . we can not predict the extent to which any future regulatory changes may adversely affect our business and operations . similar to the u.s. , regulatory bodies in europe and elsewhere are developing new rules for derivatives trading . for example , the european parliament and the eu council of ministers endorsed an agreement in 2012 that will , among other things , require central clearing of standardized otc derivatives and the reporting of all derivatives ( otc or otherwise ) to trade repositories . however , it is not yet clear whether there will be any requirement in the eu to trade standardized derivative contracts on regulated exchanges or trading platforms . rapid technological changes we must continue to enhance and improve our electronic trading platform . the electronic financial services industry is characterized by increasingly complex systems and infrastructures and new business models . our future success will depend on our ability to enhance our existing products and services , develop and or license new products and technologies that address the increasingly sophisticated and varied needs of our broker-dealer and institutional investor clients and prospective clients and respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis . we have been issued 12 patents covering our most significant trading protocols and other aspects of our trading system technology and additional patents are pending . trends in our business the majority of our revenues are derived from commissions for transactions executed on our platform between our institutional investor and broker-dealer clients and monthly distribution fees . story_separator_special_tag we believe that there are five key variables that impact the notional value of such transactions on our platform and the amount of commissions and distribution fees earned by us : the number of institutional investor firms that participate on the platform and their willingness to originate transactions through the platform ; the number of broker-dealer clients on the platform and the frequency and competitiveness of the price responses they provide to the institutional investor clients ; the number of markets for which we make trading available to our clients ; the overall level of activity in these markets ; and the level of commissions that we collect for trades executed through the platform . we believe that overall corporate bond market trading volume is affected by various factors including the absolute levels of interest rates , the direction of interest rate movements , the level of new issues of corporate bonds and the volatility of corporate bond spreads versus u.s. treasury securities . because a significant percentage of our revenue is tied directly to the volume of securities traded on our platform , it is likely that a general decline in trading volumes , regardless of the cause of such decline , would reduce our revenues and have a significant negative impact on profitability . 46 commission revenue commissions are generally calculated as a percentage of the notional dollar volume of bonds traded on our platform and vary based on the type , size , yield and maturity of the bond traded . the commission rates are based on a number of factors , including fees charged by inter-dealer brokers in the respective markets , average bid-offer spreads in the products we offer and transaction costs through alternative channels including the telephone . under our transaction fee plans , bonds that are more actively traded or that have shorter maturities are generally charged lower commissions , while bonds that are less actively traded or that have longer maturities generally command higher commissions . u.s. high-grade corporate bond commissions . our u.s. high-grade corporate bond fee plans for fully electronic trades generally incorporate variable transaction fees and distribution fees billed to our broker-dealer clients on a monthly basis . certain dealers participate in fee programs that do not contain monthly distribution fees and instead incorporate additional per transaction execution fees and minimum monthly fee commitments . under the fee plans , we electronically add the transaction fee to the spread quoted by the broker-dealer client . the u.s. high-grade transaction fee is generally designated in basis points in yield and , as a result , is subject to fluctuation depending on the duration of the bond traded . the average u.s. high-grade fees per million may vary in the future due to changes in yield and years-to-maturity of bonds traded on our platform . other credit commissions . other credit includes emerging markets and high-yield bonds and eurobonds . commissions for other credit products generally vary based on the type of the instrument traded using standard fee schedules . similar to the u.s. high-grade plans , our european fee plans generally incorporate monthly distribution fees as well as variable transaction fees . liquid products commissions . liquid products includes u.s. agency and european government bonds . commissions for liquid products generally vary based on the type of the instrument traded using standard fee schedules . for trades that we execute between and among institutional investor and broker-dealer clients on a riskless principal basis by serving as counterparty to both the buyer and the seller , we earn our commission through the difference in price between the two riskless principal trades . we anticipate that average fees per million may change in the future . consequently , past trends in commissions are not necessarily indicative of future commissions . other revenue in addition to the commissions discussed above , we earn revenue from information and post-trade services , technology products and services , income on investments and other income . information and post-trade services . we generate revenue from information services provided to our broker-dealer clients , institutional investor clients and data-only subscribers . information services are invoiced monthly , quarterly or annually . when billed in advance , revenues are recognized monthly on a straight-line basis . we also generate revenue from trade matching and regulatory transaction reporting services . revenue is recognized in the period the services are provided . technology products and services . we provide technology solutions and professional consulting services to fixed-income industry participants . technology products and services include software licenses , maintenance and support services and professional consulting services . investment income . investment income consists of income earned on our investments . other . other revenues include fees from telecommunications line charges to broker-dealer clients , initial set-up fees and other miscellaneous revenues . expenses in the normal course of business , we incur the following expenses : employee compensation and benefits . employee compensation and benefits is our most significant expense and includes employee salaries , stock-based compensation costs , other incentive compensation , employee benefits and payroll taxes . depreciation and amortization . we depreciate our computer hardware and related software , office hardware and furniture and fixtures and amortize our capitalized software development costs on a straight-line basis over three to seven years . we amortize leasehold improvements on a straight-line basis over the lesser of the life of the improvement or the remaining term of the lease . intangible assets with definite lives , including purchased technologies , customer relationships and other intangible assets , are amortized over their estimated useful lives , ranging from three to 15 years . intangible assets are assessed for impairment when events or circumstances indicate a possible impairment . 47 technology and communications . technology and communications expense consists primarily of costs relating to maintenance on software and hardware , our internal network connections , data center hosting costs and data feeds provided by outside vendors or service providers .
| income before taxes from continuing operations increased by $ 17.9 million or 20 % to $ 107.3 million for the year ended december 31 , 2013 from $ 89.4 million for the year ended december 31 , 2012. net income from continuing operations increased by $ 6.8 million or 11.0 % to $ 68.6 million for the year ended december 31 , 2013 from $ 61.8 million for the year ended december 31 , 2012. in october 2013 , we sold greenline financial technologies , inc. ( greenline ) for $ 11.0 million and recognized a gain on the sale , net of a tax benefit , of $ 7.6 million . greenline 's operating results have been classified as discontinued operations in our consolidated statement of operations . the net loss from discontinued operations for the years ended december 31 , 2013 and 2012 was $ 0.2 million and $ 1.7 million , respectively . revenues our revenues for the years ended december 31 , 2013 and 2012 , and the resulting dollar and percentage changes , were as follows : replace_table_token_5_th 51 commissions . our commission revenues for the years ended december 31 , 2013 and 2012 , and the resulting dollar and percentage changes , were as follows : replace_table_token_6_th variable transaction fees . the following table shows the extent to which the increase in variable commissions for the year ended december 31 , 2013 was attributable to changes in transaction volumes and variable transaction fees per million : replace_table_token_7_th our trading volume for each of the years presented was as follows : replace_table_token_8_th for volume reporting purposes , transactions in foreign currencies are converted to u.s. dollars at average monthly rates . the 19.7 % increase in u.s. high-grade volume was principally due to an increase in our estimated market share of total u.s. high-grade corporate bond volume as reported by finra trade reporting and compliance engine ( trace ) from 12.4 % for the year ended december 31 , 2012 to 13.8 % for the year ended december 31 , 2013 coupled with an increase in estimated u.s. high-grade trace volume . estimated u.s. high-grade trace volume for the
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replace_table_token_3_th 25 comparison of results for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 replace_table_token_4_th revenue from services revenue from services increased $ 149.6 million , or 24.2 % , to $ 767.4 million for the year ended december 31 , 2015 , as compared to $ 617.8 million for the year ended december 31 , 2014 . the increase was entirely from nurse and allied staffing and partially offset by lower revenue from physician staffing and other human capital management services . see further discussion in segment results . direct operating expenses direct operating expenses are comprised primarily of field employee compensation and independent contractor expenses , as well as housing , travel and field insurance expenses . direct operating expenses increased $ 110.0 million , or 23.9 % , to $ 570.1 million for the year ended december 31 , 2015 , as compared to $ 460.0 million for year ended december 31 , 2014 , primarily due to the growth in nurse and allied staffing and the impact of the acquisitions . as a percentage of total revenue , direct operating expenses represented 74.3 % of revenue for the year ended december 31 , 2015 , and 74.5 % for the year ended december 31 , 2014 . selling , general and administrative expenses selling , general and administrative expenses increased $ 20.3 million , or 14.4 % , to $ 161.3 million for the year ended december 31 , 2015 , as compared to $ 141.0 million for the year ended december 31 , 2014 . this increase is primarily due to the msn acquisition . as a percentage of total revenue , selling , general and administrative expenses were 21.0 % and 22.8 % for the years ended december 31 , 2015 and 2014 , respectively , reflecting improved operating leverage . 26 depreciation and amortization expense depreciation and amortization expense in the year ended december 31 , 2015 increased to $ 8.1 million as compared to $ 7.4 million for the year ended december 31 , 2014 , due to the impact of the recent acquisitions . as a percentage of revenue , depreciation and amortization expense was 1.0 % for the year ended december 31 , 2015 and 1.2 % for the year ended december 31 , 2014 . loss on sale of business during the year ended december 31 , 2015 , we sold our education seminars business and recognized a pre-tax loss of $ 2.2 million related to the divestiture of the business . in addition , we recorded a tax benefit of $ 3.5 million for the reversal of valuation allowances associated with this business , resulting in an after-tax gain of $ 1.3 million . acquisition and integration costs during the year ended december 31 , 2015 , we incurred acquisition and integration costs of $ 0.9 million which predominantly were costs related to the mediscan acquisition , which closed october 30 , 2015. during the year ended december 31 , 2014 , we incurred acquisition and integration costs of $ 8.0 million , primarily related to the msn acquisition , and partly related to our december 2013 allied staffing business acquisition . restructuring costs we recorded restructuring costs of $ 1.3 million for the year ended december 31 , 2015 , related to severance and lease consolidations . we recorded restructuring costs of $ 0.8 million for the year ended december 31 , 2014 , primarily related to senior management severance pay . impairment charges in the fourth quarter of 2015 and 2014 , we conducted an assessment of our indefinite-lived intangible assets . for the years ended december 31 , 2015 and 2014 , we recorded impairment charges of $ 2.1 million and $ 10.0 million , respectively , relating to the physician staffing trade names . we determined that based on our projected revenue stream , our estimated fair value was less than the carrying amount of the trade names . see critical accounting principles and estimates and note 5 – goodwill , trade names , and other identifiable intangible assets to our consolidated financial statements . interest expense interest expense totaled $ 6.8 million for the year ended december 31 , 2015 and $ 4.2 million for the year ended december 31 , 2014 . the increase was primarily due to the additional interest associated with our subordinated debt used to fund the june 2014 msn acquisition . the effective interest rate on our borrowings was 10.1 % for the year ended december 31 , 2015 compared to 7.0 % in the year ended december 31 , 2014 . loss on derivative liability loss on derivative liability from convertible notes of $ 9.9 million and $ 16.7 million for the years ended december 31 , 2015 and december 31 , 2014 relate to the change in the fair value of embedded features of our convertible notes from the end of the prior period . this losses were primarily a result of an increase in our share price in the respective periods . the convertible notes include terms that are considered to be embedded derivatives , including conversion and redemption features that primarily protect the investors ' investment with us . each reporting period we are required to fair value the embedded derivative with the changes being recorded as a component of other expense ( income ) on our consolidated statements of operations . see note 9 - convertible notes derivative liability to our consolidated financial statements . i ncome tax ( benefit ) expense income tax benefit from continuing operations totaled $ 0.8 million for the year ended december 31 , 2015 , compared to income tax expense of $ 0.2 million for the year ended december 31 , 2014 . the effective tax rate was negative 19.1 % and negative 0.7 % , including the impact of discrete items , for the years ended december 31 , 2015 and 2014 , respectively . story_separator_special_tag excluding discrete items , our effective tax rate for these years was 41.1 % and negative 8.7 % , respectively . the effective tax rates are different than the statutory rates primarily due to the impact from amortization of indefinite-lived intangible assets for 27 tax purposes and the partial non-deductibility of certain per diem expenses and international and state minimum taxes , which are partly offset by the reduction in unrecognized tax benefits due to the settlement of certain state examinations . in addition , the effective tax rate for 2015 was impacted by the reversal of a portion of the valuation allowance as a result of the sale of cce . comparison of results for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 replace_table_token_5_th revenue from services revenue from services increased $ 179.5 million , or 41.0 % , to $ 617.8 million for the year ended december 31 , 2014 , as compared to $ 438.3 million for the year ended december 31 , 2013. the increase was entirely from nurse and allied staffing and partially offset by lower revenue from physician staffing and other human capital management services . see further discussion in segment results . direct operating expenses direct operating expenses are comprised primarily of field employee compensation and independent contractor expenses , as well as housing , travel , and field insurance expenses . direct operating expenses increased $ 135.2 million , or 41.6 % , to $ 460.0 million for the year ended december 31 , 2014 , as compared to $ 324.9 million for year ended december 31 , 2013 . 28 as a percentage of total revenue , direct operating expenses represented 74.5 % of revenue for the year ended december 31 , 2014 , and 74.1 % for the year ended december 31 , 2013 . the increase was primarily due to higher professional liability expenses in physician staffing , partially offset by expansion of our bill/pay spread in nurse and allied staffing . selling , general and administrative expenses selling , general and administrative expenses increased $ 34.9 million , or 32.9 % , to $ 141.0 million for the year ended december 31 , 2014 , as compared to $ 106.1 million for the year ended december 31 , 2013 . as a percentage of total revenue , selling , general and administrative expenses were 22.8 % and 24.2 % for the years ended december 31 , 2014 and 2013 , respectively . depreciation and amortization expense depreciation and amortization expense in the year ended december 31 , 2014 totaled $ 7.4 million as compared to $ 6.2 million for the year ended december 31 , 2013 . as a percentage of revenue , depreciation and amortization expense was 1.2 % for the year ended december 31 , 2014 and 1.4 % for the year ended december 31 , 2013 . acquisition and integration costs during the year ended december 31 , 2014 and 2013 , we incurred acquisition and integration costs of $ 8.0 million and $ 0.5 million , respectively . acquisition and integration costs for the year ended december 31 , 2014 were primarily related to the msn acquisition and included costs such as professional and transaction advisory fees , as well as $ 1.6 million for employee termination benefits and $ 1.1 million for exit costs associated with redundant facilities . acquisition and integration costs for the year ended december 31 , 2013 were related to the integration of the acquired allied healthcare staffing business and included transaction costs , transitional services as well as travel and training costs . restructuring costs we recorded restructuring costs of $ 0.8 million and $ 0.5 million in the years ended december 31 , 2014 and 2013 , respectively , primarily related to senior management severance pay . legal settlement charge during the year ended december 31 , 2013 , we accrued $ 0.8 million to settle a wage and hour class action lawsuit in california , for which the court granted final approval of the settlement in september 2014 , and during the fourth quarter of 2014 we paid $ 0.8 million to the plaintiff . see note 12 - commitments and contingencies to our consolidated financial statements . impairment charges in the fourth quarter of 2014 , we conducted an assessment of our indefinite-lived intangible assets . for year ended december 31 , 2014 , we recorded an impairment charge of $ 10.0 million relating to the physician staffing trade name . for year ended december 31 , 2013 , we recorded impairment charges of $ 6.4 million , representing impairment of trade names of $ 6.2 million related to physician staffing and $ 0.2 million related to nurse and allied staffing . we determined that based on our projected revenue stream , our estimated fair value was less than the carrying amount of the trade names . see critical accounting principles and estimates and note 5 – goodwill , trade names , and other identifiable intangible assets to our consolidated financial statements . interest expense interest expense totaled $ 4.2 million for the year ended december 31 , 2014 and $ 0.8 million for the year ended december 31 , 2013 . the increase in interest expense was due to a combination of higher average borrowings and higher interest rates on our borrowings . the effective interest rate on our borrowings was 7.0 % for the year ended december 31 , 2014 compared to 2.4 % in the year ended december 31 , 2013 . 29 loss on derivative liability loss on derivative liability of $ 16.7 million in the year ended december 31 , 2014 relates to the fair value of embedded features of our convertible notes . the convertible notes include terms that are considered to be embedded derivatives , including conversion and redemption features that primarily protect the investors ' investment with us .
| physician staffing revenue from physician staffing decreased $ 5.8 million , or 4.8 % to $ 115.3 million for the year ended december 31 , 2015 , compared to $ 121.1 million for the year ended december 31 , 2014 . the decrease in revenue was due to lower volume of days filled across most specialties partially offset by higher revenue per day filled . physician staffing days filled decreased 5.9 % to 77,601 in the year ended december 31 , 2015 , compared to 82,473 in the year ended december 31 , 2014 . revenue per day filled for the year ended december 31 , 2015 was $ 1,463 , a 0.4 % increase from the year ended december 31 , 2014 , reflecting higher average prices . contribution income from physician staffing for the year ended december 31 , 2015 , increased $ 3.7 million or 56.2 % to $ 10.2 million compared to $ 6.5 million in the year ended december 31 , 2014 . as a percentage of segment revenue , contribution income was 8.9 % for the year ended december 31 , 2015 and 5.4 % for the year ended december 31 , 2014 . the margin improvement was primarily due to improved pricing and lower operating costs . other human capital management services revenue from other human capital management services for the year ended december 31 , 2015 , decreased $ 6.7 million , or 17.8 % , to $ 30.8 million from $ 37.5 million in the year ended december 31 , 2014 , primarily the result of the divestiture of our education seminars business in the third quarter of 2015 , but offset by growth in our retained executive search business of 22.1 % . contribution income from other human capital management services for the year ended december 31 , 2015 , increased by $ 1.3 million , or 262.5 % , to $ 1.9 million , from $ 0.5 million in the year ended december 31 , 2014 . the increase in contribution income was primarily due to improved operating leverage in our retained executive search business .
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selling , distribution , and marketing , and general and administrative replace_table_token_9_th the increase in general and administrative expenses in 2016 was primarily due to an increase in personnel cost and legal fees , which was partially offset by the effect of a one-time $ 3.3 million settlement charge in 2015 relating to our california employment litigation . we expect that general and administrative expenses will increase on an annual basis due to increased costs associated with ongoing compliance with public company reporting obligations as well as legal fees associated with our enoxaparin patent litigation . research and development replace_table_token_10_th the increase of pre-launch inventory expense compared to 2015 was due to a $ 1.1 million expense related to primatene ® mist in 2016. clinical trial expense decreased due to higher spending in 2015 on primatene ® mist and intranasal naloxone . fda fees increased in 2016 due to the nda filing fee for intranasal naloxone . testing , operating and lab supplies increased due to expenditures on materials for our anda pipeline . research and development costs consist primarily of costs associated with the research and development of our product candidates , such as salaries and other personnel‑related expenses for employees involved with research and development activities , manufacturing pre‑launch inventory , clinical trials , fda fees , testing , operating and lab supplies , depreciation and other related expenses . we expense research and development costs as incurred . we have made , and expect to continue to make , substantial investments in research and development to expand our product portfolio and grow our business . these costs will fluctuate significantly from quarter to quarter based on the timing of various clinical trials , the pre-launch costs associated with new products , and fda filing fees . as we undertake new and challenging research and development projects , we anticipate that the associated annual costs will increase significantly over the next several quarters and years . 77 provision for income tax expense ( benefit ) replace_table_token_11_th the difference in income tax expense ( benefit ) in 2016 compared to 2015 was due to a pre-tax income in 2016 compared to a pre-tax loss in 2015. year ended december 31 , 2015 compared to year ended december 31 , 2014 net revenues replace_table_token_12_th net revenues were $ 251.5 million and $ 210.5 million for the years ended december 31 , 2015 and 2014 , respectively , representing an increase of $ 41.1 million , or 20 % . the increase was primarily due to an increase in sales of other finished pharmaceutical products largely due to an increase in sales of naloxone to $ 38.6 million from $ 19.2 million , as a result of increased unit volumes at higher average prices . additionally , we increased sales of phytonadione , epinephrine , lidocaine , and atropine , as a result of higher average prices . our insulin api business , which we acquired from merck in april 2014 , had increased sales of recombinant human insulin , or rhi api and porcine insulin api by $ 14.6 million due to sales of rhi to mannkind . the increase in net revenues was partially offset by a decrease in sales of enoxaparin , which decreased $ 23.0 million to $ 84.5 million on higher unit volumes at lower average selling prices . cost of revenues cost of revenues was $ 174.2 million and $ 159.2 million for the years ended december 31 , 2015 and 2014 , respectively , representing an increase of $ 15.0 million , or 9 % . the increase was primarily due to an increase in the overall cost of revenue for the api business , which we acquired in april 2014 , as a result of a full year of sales . this was partially offset by a decrease in average cost per unit of enoxaparin . additionally , lower average heparin material costs contributed to the improvement in gross margins . overall , the cost of revenues as a percentage of revenues decreased to 69 % from 76 % due to higher average prices of several finished pharmaceutical products . selling , distribution , and marketing , general and administrative , and impairment of long-lived assets replace_table_token_13_th 78 selling , distribution , and marketing expenses were $ 5.5 million and $ 5.6 million for the years ended december 31 , 2015 and 2014 , respectively . general and administrative expenses were $ 41.5 million and $ 34.8 million for the years ended december 31 , 2015 and 2014 , respectively , representing an increase of $ 6.7 million , or 19 % . the increase was primarily due to a $ 3.3 million settlement of our california employment litigation as well as an increase of $ 1.3 million , primarily related to costs associated with our compliance with public company reporting obligations . additionally , the inclusion of a full year of expenses generated at our french subsidiary , afp , which we acquired in april 2014 contributed to the increase . research and development year ended december 31 , change 2015 2014 dollars % ( in thousands ) research and development $ 37,271 $ 28,866 $ 8,405 29 % research and development expenses were $ 37.3 million and $ 28.9 million for the years ended december 31 , 2015 and 2014 , respectively , representing an increase of $ 8.4 million , or 29 % . this increase was primarily due to an increase of $ 3.5 million in clinical trial expense , related to our intranasal naloxone product candidate and to our generic pipeline , as well as an increase of $ 2.9 million for pre-launch inventory and purchases of materials and other research and development supplies , relating to the approval of amphadase ® , which we re-launched in october 2015 , as well as other costs relating to the development of our intranasal naloxone product candidate . story_separator_special_tag the following table sets forth our research and development expenses for the years ended december 31 , 2015 and 2014 : replace_table_token_14_th provision for income tax benefit replace_table_token_15_th provision for income tax benefit was $ 7.6 million and $ 7.4 million for the years ended december 31 , 2015 and 2014 , respectively , representing an increase in income tax benefit of $ 0.2 million , or 2 % . liquidity and capital resources cash requirements and sources we need capital resources to maintain and expand our business . we expect our cash requirements to increase significantly in the foreseeable future as we sponsor clinical trials for , seek regulatory approvals of , and develop , manufacture and market our current development‑stage product candidates and pursue strategic acquisitions of businesses or assets . our future capital expenditures include projects to upgrade , expand and improve our manufacturing 79 facilities in the united states , china , and france . our cash obligations include the principal and interest payments due on our existing loans and lease payments , as described below and throughout this annual report on form 10-k. as of december 31 , 2016 , our foreign subsidiaries collectively held $ 18.3 million in cash and cash equivalents . we do not plan to repatriate foreign earnings to the u.s. cash or cash equivalents held at foreign subsidiaries are not available to fund the parent company 's operations in the u.s. we believe that our cash reserves , operating cash flows , and borrowing availability under our credit facilities will be sufficient to fund our operations for the next 12 months . we expect additional cash flows to be generated in the longer term from future product introductions , although there can be no assurance as to the receipt of regulatory approval for any product candidates that we are developing or the timing of any product introductions , which could be lengthy or ultimately unsuccessful . we maintain a shelf registration statement on form s-3 pursuant to which we may , from time to time , sell up to an aggregate of $ 250 million of our common stock , preferred stock , depositary shares , warrants , units , or debt securities . if we require or elect to seek additional capital through debt or equity financing in the future , we may not be able to raise capital on terms acceptable to us or at all . to the extent we raise additional capital through the sale of equity or convertible debt securities , the issuance of such securities will result in dilution to our stockholders . if we are required and unable to raise additional capital when desired , our business , operating results and financial condition may be adversely affected . working capital increased $ 7.5 million to $ 123.5 million at december 31 , 2016 , compared to $ 116.0 million at december 31 , 2015. cash flows from operations the following table summarizes our cash flows used in operating , investing , and financing activities for the years ended december 31 , 2016 , 2015 and 2014 . replace_table_token_16_th sources and use of cash operating activities net cash provided by operating activities was $ 38.6 million for the year ended december 31 , 2016 , which included net income of $ 10.5 million . non-cash items were comprised of $ 14.6 million of depreciation and amortization , and $ 15.1 million of share-based compensation expense . this was partially offset by a change of $ 3.0 million in operating assets and liabilities , which was primarily due to the decrease of accounts receivable and an increase in inventory . accounts receivable declined by approximately $ 6.4 million as of december 31 , 2016 , as compared to december 31 , 2015 , primarily due to a decrease of sales of $ 13.4 million to $ 63.5 million in the fourth quarter of 2016 as compared to $ 76.9 million in the fourth quarter of 2015. inventories increased by approximately $ 9.7 million as of december 31 , 2016 , as compared to december 31 , 2015. enoxaparin related inventory increased by $ 8.5 million as a result of the timing of component and raw material purchases . inventory relating to other finished pharmaceutical products increased by $ 1.5 million due to higher forecasted future demands . 80 investing activities net cash used in investing activities was $ 39.5 million for the year ended december 31 , 2016 , primarily as a result of $ 7.7 million for the purchase of ims uk , $ 4.0 million for the purchase of the 14 andas from hikma pharmaceuticals plc , $ 0.8 million relating to the acquisition of nanjing letop medical technology co. ltd. , or letop , and $ 21.4 million in purchases of property , machinery , and equipment , including the associated capitalized labor and interest on self-constructed assets . additionally , $ 5.0 million in deposits were paid for machinery and equipment in 2016. financing activities net cash provided by financing activities was $ 7.1 million for the year ended december 31 , 2016. this cash inflow was primarily a result of $ 20.6 million of proceeds received from our equity plans . these inflows were offset by payments of $ 9.9 million relating to the repurchase of our common stock . additionally , we refinanced two existing mortgages , which led to the receipts of $ 10.2 million , and these inflows were offset by $ 14.7 million of principal repayments , primarily related to these mortgage loans . debt and borrowing capacity our outstanding debt obligations are summarized as follows : replace_table_token_17_th as of december 31 , 2016 , we had $ 37.1 million in unused borrowing capacity under revolving lines of credit with cathay bank and east west bank .
| the fda recently requested us to discontinue the manufacturing and distribution of our epinephrine injection , usp vial product , which has been marketed under the “ grandfather ” exception to the fda 's “ prescription drug wrap-up ” program . we are currently in discussions with the fda regarding the timing of the discontinuation of this product . for the year ended december 31 , 2016 , we recognized $ 18.6 million in net revenues for the sale of this product . our insulin api business had an overall decrease in sales of rhi api and porcine insulin api to $ 14.9 million in 2016 from $ 26.6 million in 2015 , as mannkind purchased the remaining unfulfilled 2015 commitments , but did not purchase any of its 2016 commitments under the supply agreement entered into in 2014. we anticipate that sales of insulin api will continue to fluctuate and will likely decrease due to the inherent uncertainties related to sales of rhi api to mannkind . in november 2016 , we amended the supply agreement , or supply agreement amendment , with mannkind , whereby mannkind 's aggregate total commitment of rhi api under the supply agreement has not been reduced ; however , the annual minimum purchase commitments of rhi api under the supply agreement have been modified and extended through 2023 , which timeframe had previously lapsed after calendar year 2019. specifically , the minimum annual purchase commitment in calendar year 2016 has been cancelled , and the minimum annual purchase commitments in calendar years 2017 through 2023 have been modified to be 2.7 million of insulin in the fourth quarter of 2017 , 8.9 million in 2018 , 11.6 million in 2019 , 15.5 million in 2020 and in 2021 , and 19.4 million in 2022 and in 2023. mannkind may request to purchase additional quantities of rhi api in excess of its annual minimum purchase commitments . the supply agreement amendment also ( i ) modified , and shortened , the required expiry dates for rhi api delivered to mannkind pursuant to
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net interest income increased by $ 196,000 to $ 250,000 for fiscal 2019 from $ 54,000 for fiscal 2018. the increase in interest income was mainly a result of higher interest rates in fiscal 2019 compared to fiscal 2018. other income . other income is primarily composed of royalties earned and increased by $ 6,000 , to $ 74,000 in fiscal 2019 from $ 68,000 in fiscal 2018. income taxes . income tax expense for the fiscal 2019 was $ 2,000 as compared to income tax expense of $ 64,000 for fiscal 2018. the effective tax rate for fiscal 2019 was 0.10 % and differs from the statutory rate mostly due to a decrease in the deferred tax valuation allowance of approximately $ 375,000. the majority of this change in valuation allowance was a result of nol usage . the tax act permits an indefinite carryforward period for nols . net income . as a result of the factors described above , the company 's net income for fiscal 2019 was $ 1.9 million compared to net loss of $ 3.7 million for fiscal 2018. on a fully diluted basis , net income per share was $ 0.11 for fiscal 2019 , compared to a net loss of $ 0.22 per share for fiscal 2018 . 29 liquidity and capital resources the following table highlights key financial measurements of the company : replace_table_token_6_th replace_table_token_7_th replace_table_token_8_th the company 's principal source of liquidity has been cash flows from current year operations and cash accumulated from prior years ' operations . cash is used principally to finance inventory , accounts receivable , contract assets , and payroll . apart from what has been disclosed above , management is not aware of any trends , events or uncertainties that have had or are likely to have a material impact on our liquidity , financial condition and capital resources . on september 4 , 2020 , the company 's board of directors declared a special cash dividend in the amount of $ 0.65 per share , payable on october 1 , 2020 to shareholders of record as of the close of business on september 15 , 2020. the total dividend payment was approximately $ 11.2 million and is included in restricted cash on the accompanying consolidated balance sheets . the estimated tax characteristic of the dividend per share as of the date hereof is 35 % ordinary income and 65 % return of capital . this estimate may not be representative of the actual tax characteristic of dividends for the full year . the company 's board of directors has declared an additional special cash dividend subsequent to september 30 , 2020 , as further described in note 19 , “ subsequent events , ” to the consolidated financial statements , which once paid will affect this estimate . please refer to note 19 , “ subsequent events , ” for additional information . the company did not pay dividends in fiscal 2019 or fiscal 2018. the declaration and payment of any dividend in the future will be at the discretion of the company 's board of directors . the ongoing covid-19 pandemic is a significant event , driver of market trends , and source of uncertainty that may have a material impact on the company 's liquidity , financial condition , capital resources , cash flows or operating results . in direct response to the covid-19 pandemic , the company has taken specific actions to seek to ensure the safety of its employees , including increased safety measures and the transitioning of many employees to remote work . operating activities the company generated $ 2.2 million of cash in operating activities during fiscal 2020 as compared to cash generated of $ 2.1million during fiscal 2019. the cash generated by operating activities for the year ended september 30 , 2020 was primarily generated by net income of $ 3.3 million , depreciation and amortization of $ 0.4 million and an increase in both contract liability of $ 0.3 million and accrued expenses of $ 0.2 million , partially offset by an increase in accounts receivable of $ 2.0 million . 30 the company generated $ 2.1 million of cash in operating activities during fiscal 2019 as compared to cash used of $ 1.7 million during fiscal 2018. the cash generated by operating activities for the year ended september 30 , 2019 was primarily generated by net income of $ 1.9 million and a decrease in accounts receivable of $ 1.1 million , partially offset by a decrease in accounts payable of $ 0.5 million and accrued expenses of $ 0.4 million . investing activities cash used in investing activities was $ 0.1 million for fiscal year 2020 and consisted of spending for production equipment and laboratory test equipment . the company plans to continue investing in capital equipment to support engineering development efforts and operations . cash used in investing activities was $ 0.1 million for fiscal year 2019 and consisted of spending for production equipment and laboratory test equipment . the company plans to continue investing in capital equipment to support engineering development efforts and operations . financing activities cash used by financing activities was $ 0.7 million for fiscal year 2020 and consisted of tax withholding payments related to an employee 's cashless exercise of stock options of $ 0.9 million , partially offset by proceeds from exercise of stock options of $ 0.2 million . cash used by financing activities was $ 0 for fiscal year 2019. summary future capital requirements depend upon numerous factors , including market acceptance of the company 's products , the timing and rate of expansion of business , acquisitions , joint ventures , and other factors . is & s has experienced increases in expenditures since its inception and anticipates that expenditures , excluding the purchase of the hawker beechcraft b200gt , will remain relatively constant with the levels experienced in fiscal 2019 and fiscal 2018. the company believes that its cash and cash equivalents will provide sufficient capital to fund operations for at least the next twelve months . story_separator_special_tag further , is & s may need to develop and introduce new or enhanced products , to respond to competitive pressures , to invest in or acquire businesses or technologies , or to respond to unanticipated requirements or developments . if insufficient funds are available , the company may not be able to introduce new products or to compete effectively . contractual obligations the company 's contractual obligations as of september 30 , 2020 mature as follows : replace_table_token_9_th ( 1 ) a “ purchase obligation ” is defined as an agreement to purchase goods or services that is enforceable and legally binding on the company and that specifies all significant terms , including fixed or minimum quantities to be purchased ; fixed , minimum or variable price provisions ; and the approximate timing of the transaction . these amounts are primarily composed of open purchase order commitments entered in the ordinary course of business with vendors and subcontractors pertaining to fulfillment of the company 's current order backlog . off-balance sheet arrangements the company has no off-balance sheet arrangements . 31 inflation is & s does not believe inflation had a material effect on its financial position or results of operations during the past three years ; however , it can not predict future effects of inflation . critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( “ gaap ” ) requires management to make estimates and assumptions that affect reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period . the company 's most critical accounting policies are revenue recognition , income taxes , inventory valuation , share based compensation and warranty reserves . revenue recognition the company enters into sales arrangements with customers that , in general , provide for the company to design , develop , manufacture and deliver large flat-panel display systems , flight information computers , autothrottles and advanced monitoring systems that measure and display critical flight information , including data relative to aircraft separation , airspeed , altitude , and engine and fuel data measurements . revenue from contracts with customers the company adopted asc 606 on october 1 , 2018 using the modified retrospective method for all contracts not completed as of the date of adoption . the reported results for fiscal year ended september 30 , 2020 and september 30 , 2019 reflect the application of asc 606 guidance while the reported results for the fiscal year ended september 30 , 2018 were prepared under the guidance of asc 605 , “ revenue recognition ” ( “ asc 605 ” ) , which is also referred to herein as “ legacy gaap ” or the “ previous guidance. ” the adoption of asc 606 represents a change in accounting principles . in accordance with asc 606 , revenue is recognized when a customer obtains control of promised goods or services . the amount of revenue recognized reflects the consideration to which the company expects to be entitled to receive in exchange for these goods or services . to achieve this core principle , the company applies the following five steps : 1 ) identify the contract with a customer the company 's contract with its customers typically is the form of a purchase order issued to the company by its customers and , to a lesser degree , in the form of a purchase order issued in connection with a formal contract executed with a customer . for the purpose of accounting for revenue under asc 606 , a contract with a customer exists when ( i ) the company enters into an enforceable contract with a customer that defines each party 's rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services , ( ii ) the contract has commercial substance and , ( iii ) the company determines that collection of substantially all consideration for goods or services that are transferred is probable based on the customer 's intent and ability to pay the promised consideration . the company applies judgment in determining the customer 's ability and intention to pay , which is based on a variety of factors including the customer 's historical payment experience or , in the case of a new customer , published credit and financial information pertaining to the customer . 2 ) identify the performance obligations in the contract performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct , whereby the customer can benefit from the good or service either on its own or together with other resources that are readily available from third parties or from the company , and are distinct in the context of the contract , whereby the transfer of the goods or services is separately identifiable from other promises in the contract . most of our revenue is derived from purchases under which we provide a specific product or service and , as a result , there is only one performance obligation . in the event that a contract includes multiple promised goods or services , such as an edc contract which includes both engineering services and a resulting product shipment , the company must apply judgment to determine whether promised goods or services are capable of being distinct in the context of the contract . in these cases , the company considers whether the customer could , on its own , or together with other resources that are readily available from third parties , produce the physical product using only the output resulting from the company 's completion of engineering services . if the customer can not produce the physical product , then the promised goods or services are accounted for as a combined performance obligation .
| r & d expense was $ 3.0 million for fiscal 2020 and $ 2.5 million for fiscal 2019. r & d expense decreased to 13.7 % of net sales in fiscal 2020 compared to 14.2 % of net sales in fiscal 2019. r & d expense in fiscal 2020 was $ 0.5 million greater than fiscal 2019. this decrease in r & d expense resulted primarily from increased personnel , related benefits and the reduction of edc contract activity whose costs are reflected in cost of sales rather than r & d expense . selling , general , and administrative ( “ sg & a ” ) . sg & a expense increased $ 0.2 million or 3.8 % to $ 6.1 million or 28.2 % of net sales , for fiscal 2020 from $ 5.9 million , or 33.4 % , for fiscal 2019. the increase in sg & a expense was primarily the result of increased personnel costs and related benefits . interest income , net . net interest income of $ 155,000 in fiscal 2020 decreased by $ 95,000 as compared to fiscal 2019 interest income of $ 250,000. the decrease in interest income was primarily the result of lower interest rates in fiscal 2020 as compared to fiscal 2019. other income . other income is primarily composed of royalties earned and decreased by $ 14,000 , to $ 60,000 in fiscal 2020 from $ 74,000 in fiscal 2019. income taxes . income tax benefit for the fiscal 2020 was $ 309,000 as compared to income tax expense of $ 2,000 for fiscal 2019. the effective tax rate benefit for fiscal 2020 was 10.43 % and differs from the statutory rate due to the passing of the cares act on march 27 , 2020 which allowed for the carryback of the 2018 net operating loss ( “ nol ” ) to fiscal 2017 and fiscal 2016. net income . as a result of the factors described above , the company 's net income for fiscal 2020 was $ 3.3 million compared to net income of
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o in november 2012 , we acquired mcclure-johnston , a distributor of residential and non-residential roofing products and related accessories , which was headquartered in the pittsburgh area and had 14 branches at the time of acquisition , including eight in pennsylvania , three in west virginia , one in western maryland and two in georgia . this acquisition complemented an existing market in which we previously had operations , allowing us to capture more of the localized market share . general we sell all materials necessary to install , replace and repair residential and non-residential roofs , including : · shingles ; · single-ply roofing ; · metal roofing and accessories ; · modified bitumen ; · built up roofing ; · insulation ; · slate and tile ; · fasteners , coatings and cements ; and · other roofing accessories . we also sell complementary building products such as : · vinyl and fiber cement siding ; · doors , windows and millwork ; · wood and fiber cement siding ; · residential insulation ; and · waterproofing systems . 20 the following is a summary of our net sales by product group for the last three full fiscal years ( “ 2015 ” , “ 2014 ” and “ 2013 ” ) . percentages may not total due to rounding . replace_table_token_5_th we have nearly 53,000 customers , none of which individually represent more than 2 % of our total net sales . many of our customers are small to mid-size contractors with relatively limited capital resources . we maintain strict credit review and approval policies , which has helped to keep losses from uncollectible customer receivables within our expectations . bad debt expense in 2015 , 2014 , and 2013 was less than 0.1 % of net sales . our expenses consist primarily of the cost of products purchased for resale , labor , fleet , occupancy , and selling and administrative expenses . we compete for business and may respond to competitive pressures at times by lowering prices in order to maintain our market share . we opened six new branches in 2015 , 26 new branches in 2014 , and 10 new branches in 2013. while we slowed the pace of new branch openings following the economic downturn that began in 2007 , we began increasing our greenfield activity in 2014 which we expect to continue through 2016 as part of our continued growth strategy . typically , when we open a new branch , we transfer a certain level of existing business from an existing branch to the new branch . this allows the new branch to commence with a base business and also allows the existing branch to target other growth opportunities . in managing our business , we consider all growth , including the opening of new greenfield branches , to be internal ( organic ) growth unless it results from an acquisition . when we refer to growth in existing markets or internal growth , we include growth from existing and newly opened greenfield branches but exclude growth from acquired branches until they have been under our ownership for at least four full fiscal quarters at the start of the fiscal reporting period . when we refer to regions , we are referring to our geographic regions . at september 30 , 2015 , we had a total of 274 branches in operation . our existing market calculations for 2015 include 264 branches and exclude acquired branches until they have been under our ownership for at least four full fiscal quarters at the start of the fiscal reporting period . acquired markets for 2015 include all weather products , applicator sales & service , wholesale roofing supply , and procoat ( see note 4 to the consolidated financial statements ) . when we refer to our net product costs , we are referring to our invoice cost less the impact of short-term buying programs ( also referred to as “ special buys ” given the manner in which they are offered ) . 21 story_separator_special_tag : 0.5in '' > existing market net sales by geographical region increased ( decreased ) as follows : northeast 7.2 % ; mid-atlantic 3.7 % ; southeast 5.1 % ; southwest ( 3.3 % ) ; midwest 7.1 % ; west 14.1 % ; and canada ( .2 % ) . these variations were primarily caused by short-term factors such as local market conditions , weather conditions and storm activity . product group sales for our existing markets were as follows : replace_table_token_9_th for 2015 , our acquired markets recognized sales of $ 44.5 , $ 3.2 and $ 38.0 million in residential roofing products , non-residential roofing products and complementary building products , respectively . the 2015 existing market sales of $ 2,429.5 million plus the total sales from acquired markets of $ 85.7 million agrees ( rounded ) to our reported total 2015 sales of $ 2,515.2 million . for 2014 , our acquired markets recognized sales of $ 0.5 million in residential roofing products , and less than $ 0.1 million for both non-residential roofing products and complementary building products . the 2014 existing market sales of $ 2,326.3 million plus the total sales from acquired markets of $ 0.6 million agrees ( rounded ) to our reported total 2014 sales of $ 2,326.9 million . prior year sales by product group are presented in a manner consistent with the current year 's product classifications . we believe the existing market information is useful to investors because it helps explain organic growth or decline . 23 gross profit gross profit for consolidated and existing markets were as follows : replace_table_token_10_th our existing market gross profit increased $ 42.8 million , or 8.1 % , in 2015 , while our acquired market gross profit increased by $ 24.7 million , to $ 24.9 million . story_separator_special_tag in 2015 , our overall and existing market gross margins increased to 23.7 % , from 22.7 % , respectively , in 2014. the increased overall gross margins in ytd 2015 were due primarily to pricing increases across our complementary products as a result of increased demand and the impact of our acquisitions in fiscal 2015 , combined with a favorable shift in our sales mix during ytd 2015 towards residential and complementary products , which generally have higher gross margins than our non-residential products . direct sales ( products shipped by our vendors directly to our customers ) , which typically have substantially lower gross margins ( and operating expenses ) compared to our warehouse sales , represented 16.4 % and 18.2 % of our net sales in 2015 and 2014 , respectively . this decrease in the percentage of direct sales was primarily attributable to the lower mix of non-residential roofing product sales , as well as lower roofing sales to lumber yards and other building material suppliers which are more commonly facilitated by direct shipment . there were no material regional impacts from changes in the direct sales mix of our geographical regions . operating expenses operating expenses for consolidated and existing markets were as follows : replace_table_token_11_th operating expenses in our existing markets increased $ 18.2 million , or 4.3 % in 2015 , to $ 447.0 million , compared to $ 428.7 million in 2014 , while our acquired markets expenses increased by $ 31.1 million to $ 31.3 million , which includes a non-recurring charge of $ 7.3 million ( $ 7.0 million , net of taxes ) in 2015 for the recognition of certain transactional costs related to the rsg acquisition . the following factors were the leading causes of the higher operating expenses in our existing markets : · as part of our strategic growth strategy , we opened 26 greenfield locations during fiscal 2014 and have added an additional six greenfield branches in 2015 , which has driven incremental operating expense of $ 19.3 million over the prior year ; partially offset by : · a decrease in bad debt expense of $ 1.5 million . in 2015 , we expensed a total of $ 16.2 million for the amortization of intangible assets previously recorded under purchase accounting , compared to $ 14.1 million in 2014. our existing market operating expenses as a percentage of the related net sales for both 2015 and 2014 was 18.4 % . 24 interest expense , financing costs and other interest expense , financing costs and other was $ 11.0 million in 2015 , compared to $ 10.1 million in 2014. the company uses derivative financial instruments to manage its exposure related to fluctuating cash flows from changes in interest rates . the impact of our interest rate derivative was to increase our interest expense , financing costs and other by $ 2.4 million and $ 2.3 million in 2015 and 2014 , respectively . income taxes income tax expense was $ 43.8 million in 2015 , compared to $ 34.9 million in 2014. the increase was primarily due to an increase in pre-tax income as well as an increase in our effective rate to 41.27 % in 2015 , compared to 39.3 % in ytd 2014 , which was primarily driven by expense from non-deductible professional fees related to the rsg acquisition that closed on october 1 , 2015. we expect our future effective annual income tax rate to average approximately 39.0 % to 40.0 % , excluding any discrete items . 2014 compared to 2013 the following table presents a summary of our results of operations for 2014 and 2013 , broken down by existing markets and acquired markets . replace_table_token_12_th ( 1 ) in 2014 and 2013 , we recorded amortization expense for our acquired markets related to intangible assets recorded under purchase accounting of $ 3.2 million and $ 2.9 million , respectively . net sales consolidated net sales increased $ 86.2 million , or 3.8 % , to $ 2.33 billion in 2014 from $ 2.24 billion in 2013. existing market sales increased $ 62.2 million or 2.9 % . acquired market sales increased $ 23.9 million due primarily to the full year 's sales impact from the 2013 acquisitions , as well as the partial year impact from our 2014 acquisitions . there were 253 business days in both 2014 and 2013. we attribute the existing market sales increase primarily to the following factors : · increased demand in our non-residential and complementary products groups ; and · 26 new greenfield branches opened in 2014 and 10 in 2013 ; partially offset by : · softer demand in our residential products group during the first half of 2014 due to the extended wetter weather , increased winter storm activity and colder temperatures that most of our markets experienced ; and · lower residential and non-residential roofing average selling prices during 2014 , compared to 2013. in 2014 , we acquired three branches , opened 26 new branches , and closed two branches . we estimate the impact of inflation or deflation on our sales and gross profit by looking at changes in our average selling prices and gross margins ( discussed below ) . average overall selling prices declined across our residential and non-residential roofing products lines during 2014 , compared to 2013 , with residential roofing products down approximately 2.7 % and non-residential roofing products down approximately 1.1 % . selling prices for our complementary building products were relatively flat year over year . during the same period , net product costs of residential roofing products declined approximately 2.6 % , non-residential roofing products declined approximately 0.4 % , and complementary building product prices declined approximately 0.5 % . the lower gross margins in 2014 ( below ) are an indicator that the deflation in our net product costs was less than the impact from the decrease in our average selling prices .
| replace_table_token_8_th ( 1 ) in 2015 , we recorded amortization expense for our acquired markets related to intangible assets recorded under purchase accounting of $ 4.5 million ; there was none in 2014. in addition , operating expenses for acquired markets in 2015 included a non-recurring charge of $ 7.3 million ( $ 7.0 million , net of taxes ) for the recognition of certain transactional costs related to the rsg acquisition . net sales consolidated net sales increased $ 188.3 million , or 8.1 % , to $ 2.52 billion in 2015 , from $ 2.33 billion in 2014. existing market sales increased $ 103.2 million or 4.4 % . acquired market sales increased $ 85.1 million due primarily to the full year 's sales impact from the 2014 acquisitions , as well as the partial year impact from our 2015 acquisitions . there were 253 business days in both 2015 and 2014. we attribute the existing market sales increase primarily to the following factors : · increased demand in our residential and complementary products groups ; · increased selling prices in our complementary products group ; 22 · six new greenfield branches opened in 2015 , combined with 26 additional greenfield branches opened in fiscal 2014 ; partially offset by : · lower direct sales activity ; and · lower residential roofing average selling prices . in 2015 , we acquired eight branches , opened six new branches , and closed four branches . we estimate the impact of inflation or deflation on our sales and gross profit by looking at changes in our average selling prices and gross margins ( discussed below ) . average overall selling prices declined 1 % in 2015 , compared to 2014 , driven primarily by declines in residential selling prices which were down by approximately 2-3 % , year over year . these declines were partially offset by continued increases in the average selling prices of complementary products which increased approximately 2 % to 3 % , year over year . non-residential selling prices remained relatively flat ( less than 1 % movement ) . during the same period , net product costs of our residential roofing products decreased approximately 2 % to 3 % , non-residential product costs remained relatively flat ( less than 1 % movement ) , and complementary net product costs increased approximately 2 % . overall gross margins increased in ytd
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we record a provision for estimated future warranty costs based on the historical relationship of warranty claims to sales at the time of shipment of products to customers . we periodically review the adequacy of our product warranties and adjust , if necessary , the warranty percentage and accrued warranty reserve for actual experience . 24 changes in accounting principles no significant changes in accounting principles were adopted during 2009 and 2010 , except for the following : fair value measurements . in january 2010 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update ( “ asu ” ) 2010-06 , “ fair value measurements and disclosures ( topic 820 ) ” ( “ asu 2010-06 ” ) . asu 2010-06 requires reporting entities to make more robust disclosures about ( 1 ) the different classes of assets and liabilities measured at fair value , ( 2 ) the valuation techniques and inputs used , ( 3 ) the activity in level 3 fair value measurements , including information on purchases , sales , issuances , and settlements on a gross basis , and ( 4 ) the transfers between levels 1 , 2 , and 3. asu 2010-06 is effective for fiscal years beginning on or after december 15 , 2009 , except for the disclosure regarding level 3 activity , which is effective for fiscal years beginning after december 15 , 2010. the adoption of asu 2010-06 for levels 1 and 2 did not have a material impact on our consolidated financial statements , and we do not expect the adoption of the standard for level 3 to have a material impact on our consolidated financial statements . story_separator_special_tag font-family : times new roman '' > provision for income taxes . our provision for income taxes reflects an effective tax rate on earnings before income taxes of 10.0 % in 2010 compared to 32.7 % in 2009. the decrease in the effective tax rate resulted primarily from a settlement we reached with the canadian tax authority resulting in a $ 0.9 million refund of taxes previously paid by us , to be received during 2011. net earnings . we generated net earnings of $ 2.9 million for the year ended december 31 , 2010 , down 42.4 % from approximately $ 5.1 million during the year ended december 31 , 2009. our net earnings benefited from the acquisition of jefferson electric , inc. during 2010 , but were negatively impacted by weaker sales and earnings from our pioneer transformers ltd. subsidiary and significantly higher selling , general and administrative expenses during the year ended december 31 , 2010 , as compared to the year ended december 31 , 2009. earnings per basic and diluted share was $ 0.10 for the year ended december 31 , 2010 , as compared to $ 0.22 per basic and diluted share for the year ended december 31 , 2009. there were 6.4 million additional weighted average diluted shares outstanding during the year ended december 31 , 2010 , as compared to the year ended december 31 , 2009 , an amount which reflects the completion of our share exchange and private placement transactions during the fourth quarter of 2009 , as well as the issuance of our common shares in conjunction with the acquisition of jefferson electric , inc. backlog . our order backlog at december 31 , 2010 was $ 18.7 million , up 13.3 % from $ 16.5 million at december 31 , 2009. the $ 2.2 million increase in our backlog is evenly split between new orders received by pioneer transformers ltd. and the inclusion of backlog from jefferson electric , inc. in the 2010 period . our backlog is based on orders expected to be delivered in the future , most of which is expected to occur during 2011. new orders placed during the year ended december 31 , 2010 totaled $ 47.7 million , an increase of 25.7 % compared to new orders of $ 38.0 million that were placed during the year ended december 31 , 2009. the large percentage increase in orders on a year-over-year basis is primarily due to the inclusion of jefferson electric , inc. in our 2010 results . 26 liquidity and capital resources general . at december 31 , 2010 , we had cash and cash equivalents of approximately $ 0.5 million and total debt , including capital lease obligations , of $ 6.1 million . we have historically met our cash needs through a combination of cash flows from operating activities and bank borrowings . our cash requirements are generally for operating activities , debt repayment and capital improvements . we believe that working capital , borrowing capacity available under our credit facilities and funds generated from operations should be sufficient to finance our cash requirements for anticipated operating activities , capital improvements and principal repayments of debt through at least the next 12 months . our operating activities generated cash flow of approximately $ 3.3 million during the year ended december 31 , 2010 , compared to cash flow from operating activities of $ 4.3 million during the year ended december 31 , 2009. the principal elements of cash flow from operating activities during 2010 were net earnings of $ 2.9 million , offset by $ 0.7 million of non-cash income related to the gain on bargain purchase associated with the aaer inc. transaction . cash flow from operating activities during 2010 also increased by approximately $ 0.2 million from changes in our operating working capital and $ 0.9 million from the effect of non-cash expenses included in our net earnings . cash used in investing activities during the year ended december 31 , 2010 was approximately $ 2.3 million , as compared to $ 0.3 million during the year ended december 31 , 2009. during the year ended december 31 , 2010 , we used approximately $ 1.7 million for capital expenditures , principally for the expansion of our manufacturing facility located in quebec , canada . story_separator_special_tag in 2010 , we used another $ 0.8 million for acquisitions . offsetting our cash used in investing activities was $ 0.2 million of net proceeds we received from the sale of certain capital assets we had previously purchased from aaer inc. during the year ended december 31 , 2009 , our cash used in investing activities consisted entirely of additions to property and equipment at pioneer transformers ltd. cash used by our financing activities was approximately $ 2.0 million during the year ended december 31 , 2010 , compared to $ 2.5 million during the year ended december 31 , 2009. our primary use of cash for financing activities during the year ended december 31 , 2010 was for debt repayment of $ 1.9 million , together with approximately $ 0.1 million for equity financing transaction costs . during the year ended december 31 , 2009 , we raised gross proceeds of $ 5.0 million from an issuance of common stock to investors . our primary uses of cash for financing activities in 2009 consisted of $ 4.5 million in debt repayments , $ 2.7 million to make dividend payments to provident pioneer partners , l.p. , previously the sole stockholder of pioneer transformers ltd. , and $ 0.2 million for equity financing transaction costs . as of december 31 , 2010 , our current assets were 1.1 times our current liabilities . current assets increased by $ 2.1 million and current liabilities increased by $ 9.0 million during the year ended december 31 , 2010. these increases were primarily due to the acquisition of jefferson electric , inc. during the year and the inclusion of its current maturities of debt and accounts payable and accrued liabilities . as a result , our net working capital balance decreased by $ 6.9 million to $ 2.0 million during the year ended december 31 , 2010 , as compared to $ 9.0 million of net working capital as of december 31 , 2009. credit facilities . in october 2009 , our pioneer transformers ltd. subsidiary entered into a financing arrangement with a canadian bank that replaced its previous credit facility . expressed in approximate u.s. dollars , the $ 10.0 million credit agreement consists of a $ 7.7 million demand revolving credit facility , a $ 1.8 million term loan facility and a $ 0.5 million foreign exchange settlement risk facility . the credit facilities are secured by a first-ranking lien in the amount of approximately $ 10.0 million on all of our assets , as well as a collateral mortgage of $ 10.0 million on our land and buildings . the credit facilities require pioneer transformers ltd. to comply with various financial covenants , including maintaining a minimum debt service coverage ratio of 1.25 , a minimum current ratio of 1.20 and a maximum total debt to tangible net worth ratio of 2.50. the credit facilities also restrict the ability of pioneer transformers ltd. to make investments or advancements to affiliated or related companies without the lender 's prior written consent . the demand revolving credit facility is subject to margin criteria and borrowings bear interest at the bank 's prime rate plus 0.75 % per annum on amounts borrowed in canadian dollars , or the u.s. base rate plus 0.75 % per annum on amounts borrowed in u.s. dollars . borrowings under the term loan facility bear interest at the bank 's prime rate plus 1.0 % per annum . as of december 31 , 2010 , we had no borrowings outstanding under the credit facility and we were in compliance with its financial covenant requirements . 27 our jefferson electric , inc. subsidiary has a bank loan agreement with a u.s. bank that includes a revolving credit facility with a borrowing base of $ 5.0 million and a term credit facility . monthly payments of accrued interest must be made under the revolving credit facility and monthly payments of principal and accrued interest must be made under the term credit facility , with a final payment of all outstanding amounts due on october 31 , 2011. borrowings under the bank loan agreement are collateralized by substantially all the assets of jefferson electric , inc. and are guaranteed by its mexican subsidiary . in addition , an officer of jefferson electric , inc. is a guarantor under the bank loan agreement and has provided additional collateral to the bank in the form of our common stock and a warrant to purchase our shares of common stock held by him . the bank loan agreement requires jefferson electric , inc. to comply with certain financial covenants , including a requirement to exceed minimum quarterly targets for tangible net worth , as defined , and maintain a minimum debt service coverage ratio . the bank loan agreement also restricts jefferson electric , inc. 's ability to pay dividends or make distributions , advances or other transfers of assets . the interest rate under the revolving credit facility is equal to the greater of the bank 's reference rate ( currently 3.25 % annually ) or 6.5 % annually . the interest rate under the term credit facility is 7.27 % annually . as of december 31 , 2010 , our jefferson electric , inc. subsidiary had approximately $ 2.8 million outstanding under the revolving credit facility and approximately $ 3.0 million outstanding under the term credit facility and was in compliance with its financial covenant requirements . equipment loans and capital lease obligations . as of december 31 , 2010 , we had equipment loans and capital lease obligations with an aggregate principal amount outstanding of approximately $ 31,000 , as compared to approximately $ 134,000 outstanding as of december 31 , 2009. these equipment loans and capital lease obligations bear interest at rates varying from 0.0 % to 18.8 % and are repayable in monthly installments . we anticipate that these equipment loans will be paid off by the end of december 2013. loans from stockholders .
| for the year ended december 31 , 2010 , selling , general and administrative expense increased by approximately $ 3.8 million , or 90.7 % , to approximately $ 8.0 million , as compared to $ 4.2 million during the year ended december 31 , 2009. approximately $ 1.5 million of the increase was due to higher corporate expenses mostly incurred in connection with being a public company , including $ 0.4 million for non-cash costs associated with the issuance of employee and director stock options and the issuance of stock and warrants to our investor relations firm . the remaining $ 2.4 million net increase is attributable to the inclusion of jefferson electric , inc. ( $ 2.4 million ) and pioneer wind energy systems inc. ( $ 0.4 million ) in our consolidated results during the year ended december 31 , 2010 , offset by reduced selling , general and administrative expense at pioneer transformers ltd. ( $ 0.5 million ) . foreign exchange ( gain ) loss . most of our consolidated operating revenues are denominated in canadian dollars , principally via our pioneer transformers ltd. operating subsidiary , and a material percentage of our expenses are denominated and disbursed in u.s. dollars . we have not historically engaged in currency hedging activities . fluctuations in foreign currency exchange rates between the time we initiate and then settle transactions with our customers and suppliers can have an impact on our operating results . for the year ended december 31 , 2010 , we recorded a gain of $ 0.1 million due to currency fluctuations , compared to a gain of approximately $ 0.3 million during the year ended december 31 , 2009 . 25 interest and bank charges . for the year ended december 31 , 2010 , interest and bank charges were approximately $ 0.2 million , as compared to $ 0.3 million for the year ended december 31 , 2009. the decrease in interest expense was due to the reversal of approximately $ 0.1 million of interest accrued that was related to a tax liability previously recorded by pioneer transformers ltd. in the fourth quarter of 2010 , we agreed to a settlement with the canadian tax authorities whereby no interest charges will be imposed and we are instead expecting to receive
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the application is based on the positive results of the phase 3 clinical trial of abaloparatide-sc in japan in women and men with osteoporosis , which achieved its primary efficacy endpoint . in march 2018 , we initiated a clinical trial in men with osteoporosis which , if successful , will form the basis of a supplemental nda seeking to expand the use of tymlos to increase bone mass in men with osteoporosis at high risk for fracture . we completed patient enrollment in september 2020 and expect to report top-line data from the study in the second half of 2021. the study is a randomized , double-blind , placebo-controlled trial that has enrolled 228 men with osteoporosis . the primary endpoint is change in lumbar spine bmd at 12 months compared with placebo . in previous clinical trials , tymlos has demonstrated increases in bmd in postmenopausal women . the study includes specialized high-resolution imaging to examine the effect of abaloparatide on bone structure , such as the hip , in a subset of the study participants . in may 2020 , we announced that our bone histomorphometry study , which evaluated the early effects of tymlos on tissue-based indices of formation in postmenopausal women , met its primary endpoint of change from baseline to 3 months in mineralizing surface in the cancellous bone envelope ( one of the dynamic indicators of bone formation ) . we presented data from this study in september 2020. on july 30 , 2020 the united states patent office extended the term of us patent 7,803,770 ( method of treating osteoporosis comprising administration of pthrp analog ) 1,303 days to april 28 , 2031. us patent 7,803,770 is listed in the fda orange book and covers tymlos . abaloparatide-td we are also developing abaloparatide-td , based on kindeva 's patented microstructured transdermal system technology , for potential use as a short wear-time transdermal patch . we hold worldwide commercialization rights to the abaloparatide-td technology , except in canada , where we have entered into an exclusive license agreement with respect to abaloparatide-td , and are developing abaloparatide-td toward future global regulatory submissions to build upon the potential success of tymlos . our development strategy for abaloparatide-td is to bridge to the established efficacy and safety of our approved abaloparatide-sc formulation . in may 2019 , we received a special protocol assessment ( “ spa ” ) agreement from the fda for our phase 3 study of abaloparatide-td , which means the fda considers the study design to be adequate and well-controlled to support marketing approval provided the study endpoints are achieved . we initiated our phase 3 wearable study of abaloparatide-td in august 2019 and completed enrollment in september 2020. we expect to report top-line data from the study in the second half of 2021. the wearable study is a single , pivotal , randomized , open label , active-controlled , bmd non-inferiority bridging study with an enrollment of approximately 500 patients with postmenopausal osteoporosis at high risk of fracture , which if successful , will support an nda submission . the primary endpoint of the study is percentage change in lumbar spine bmd at 12 months . non-inferiority of abaloparatide-td to abaloparatide-sc will be concluded if the lower bound of the 2-sided 95 % confidence interval for the estimated treatment difference ( abaloparatide-td minus abaloparatide-sc ) in the percentage change from baseline in lumbar spine bmd at 12 months is above -2.0 % . in july 2019 , we obtained preliminary results from a patient assessment study which evaluated self-administration of abaloparatide-td over 29 days in 22 post-menopausal women with low bone density . study patients were observed at a study site on the first , 15th and 29th day of the study . top-line results showed that study patients were able to follow the instructions for use ( “ ifu ” ) and applied the patches accurately on 99.7 % of all applications . the safety data from this study showed that most of the study patients had mild , transient redness at the application site . the mean subject acceptability score on a 5-point scale was 4.5 , 4.6 and 4.5 on day 1 , 15 and 29 , respectively . the laboratory data from this study included an exploratory assessment of pinp , a biomarker that indicates bone formation . at baseline the median pinp level in this study was 50.5 ng/ml , increasing to a median value of 100.1 ng/ml at day 29 , while , by comparison , the median pinp values observed with abaloparatide-sc in the active study were 50.6 ng/ml at baseline and 100.5 ng/ml at one month . in december 2019 , we aligned with the fda on requirements for nda filing . rad011 as part of our ongoing initiatives to expand our product portfolio , on december 30 , 2020 , our wholly-owned subsidiary , radius pharmaceuticals , inc. , entered into an asset purchase agreement with fresh cut development , llc and benuvia 50 therapeutics inc. for the acquisition of certain assets related to formulations of cannabidiol ( “ cbd ” ) related to the oral administration of a solution of cbd for therapeutic use in humans or animals ( “ rad011 ” ) . rad011 was granted fast track designation by the u.s. food and drug administration ( “ fda ” ) in 2017 and orphan drug designation in august 2020 for the treatment of hyerphagia behavior and weight loss in patients with prader-willi syndrome ( “ pws ” ) . we plan to request a meeting with the fda to discuss initiation of a pivotal phase 2/3 study for treatment of pws . financial overview product revenue product revenue is derived from sales of our product , tymlos ® , in the united states . license revenue license revenue is derived from payments received from contracts with customers , which include upfront payments for licenses . story_separator_special_tag cost of product revenue cost of product revenue consists primarily of costs associated with the manufacturing of tymlos , royalties owed to our licensor for such sales , and certain period costs . research and development expenses research and development expenses consist primarily of clinical testing costs , including payments made to contract research organizations , or cros , salaries and related personnel costs , fees paid to consultants and outside service providers for regulatory and quality assurance support , licensing of drug compounds and other expenses relating to the manufacture , development , testing , and enhancement of our investigational product candidates . we expense our research and development costs as they are incurred . none of the research and development expenses , in relation to our investigational product candidates , are currently borne by third parties . abaloparatide represents the largest portion of our research and development expenses for our investigational product candidates since our inception . we began tracking program expenses for abaloparatide-sc in 2005 , and program expenses from inception to december 31 , 2020 were approximately $ 239.7 million . we began tracking program expenses for abaloparatide-td in 2007 , and program expenses from inception to december 31 , 2020 were approximately $ 144.5 million . we began tracking program expenses for elacestrant in 2006 , and program expenses from inception to december 31 , 2020 were approximately $ 128.1 million . we began tracking program expenses for rad140 in 2008 , and program expenses from inception to december 31 , 2020 were approximately $ 18.3 million . we began tracking program expenses for rad011 in 2020 , and program expenses from inception to december 31 , 2020 were approximately $ 16.0 million . these expenses relate primarily to external costs associated with manufacturing , preclinical studies , and clinical trial costs . costs related to facilities , depreciation , stock-based compensation and research and development support services are not directly charged to programs as they benefit multiple research programs that share resources . the following table sets forth our research and development expenses related to abaloparatide-sc , abaloparatide-td , elacestrant , rad140 , and rad011 for the years ended december 31 , 2020 , 2019 and 2018 ( in thousands ) : 51 replace_table_token_1_th selling , general and administrative expenses selling , general and administrative expenses consist primarily of salaries and related expenses for pre-launch and post-launch commercial operations , executive , finance and other administrative personnel , professional fees , business insurance , rent , general legal activities , including the cost of maintaining our intellectual property portfolio , and other corporate expenses . our results also include stock-based compensation expense as a result of the issuance of stock option , restricted stock unit , and performance unit grants to our employees , directors and consultants . the stock-based compensation expense is included in the respective categories of expense in our consolidated statements of operations and comprehensive loss ( i.e. , research and development or general and administrative expenses ) . we expect to record additional non-cash compensation expense in the future , which may be significant . other operating expenses other operating expenses reflect a payment we made to ipsen in november 2018 , pursuant to a final decision in arbitration proceedings with ipsen . interest income and other income interest income reflects interest earned on our cash , cash equivalents and marketable securities . interest expense interest expense consists of interest expense related to the aggregate $ 305.0 million principal amount of convertible notes the company issued in a registered underwritten public offering on august 14 , 2017 ( “ convertible notes ” ) . a portion of the interest expense on the convertible notes is non-cash expense relating to accretion of the debt discount and amortization of issuance costs . critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which we have prepared in accordance with the rules and regulations of the securities and 52 exchange commission ( `` sec '' ) and generally accepted accounting principles in the united states ( `` u.s. gaap '' ) . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported revenues and expenses during the reporting periods . we evaluate our estimates and judgments on an ongoing basis . estimates include useful lives with respect to long-lived assets and intangible assets , revenue recognition , inventory obsolescence , accounting for stock-based compensation , contingencies , tax valuation reserves , fair value measures , and accrued expenses . 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 . our actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 2 to our consolidated financial statements appearing at the end of this annual report on form 10-k , we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations . accrued clinical expenses when preparing our consolidated financial statements , we are required to estimate our accrued clinical expenses . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost .
| these increases were partially offset by a $ 0.9 million decrease in program spending for rad-140 program , a $ 1.0 million decrease in occupancy and depreciation , a $ 1.3 million decrease in compensation related costs , and a $ 11.9 million decrease in program spending for elacestrant research which is a result of $ 39.3 million of reimbursable expenses offsetting year to date expenses . we are being reimbursed for the costs incurred in connection with the elacestrant project pursuant to the terms of the tsa with berlin-chemie , under which the company will perform certain services for berlin-chemie related to the emerald phase 3 monotherapy study until the earlier of the completion of the contemplated services or the filing with the fda of a nda for elacestrant . selling , general and administrative expenses —for the year ended december 31 , 2020 , selling , general , and administrative expense was $ 144.2 million , as compared to $ 152.7 million for the year ended december 31 , 2019 , a decrease of $ 8.6 million , or 6 % . this decrease was primarily due to a $ 6.3 million decrease in professional fees related to commercial operations and general and administrative activities , a $ 4.0 million decrease in compensation and travel entertainment costs . these decrease were partially offset by an increase of $ 1.7 million in other costs . other income , net — for the year ended december 31 , 2020 , other expense , net of other income , was $ 0.2 million , as compared to $ 0.2 million during the year ended december 31 , 2019. other expense , net of other income , of $ 0.2 million for the year ended december 31 , 2020 consisted primarily of other foreign currency revaluation losses . the $ 0.2 million of other expense , net of income , for the year ended december 31 , 2019 consisted primarily of other foreign currency revaluation gains . interest income ( expense ) , net —for the year ended december 31 , 2020 ,
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recurring revenue increased from 42 % of total revenues in 2010 to 63 % in 2011 and 58 % in 2012 due to an increase in our installed base and a softer market for capital sales . we have alliances with each of siemens ag medical solutions , philips medical systems and biosense webster , inc. , through which we integrate our niobe system with market leading digital imaging and 3d catheter location sensing technology , as well as disposable interventional devices , in order to continue to develop new solutions in the interventional lab . each of these alliances provides for coordination of our sales and marketing activities with those of our partners . in addition , siemens is our product distributor in certain countries and has agreed to provide worldwide service for our integrated systems . since our inception , we have generated significant losses . as of december 31 , 2012 , we had incurred cumulative net losses of approximately $ 385 million . in may 2011 , the company introduced the niobe es robotic system . although the niobe es robotic system was not available to customers until december 2011 , it created a rapid shift away from sales of the niobe ii system , resulting in lower system revenue in 2011 compared to 2010. as of december 31 , 2012 , the company had an installed base of 74 niobe es systems and has received positive feedback from the physicians at these sites . during the quarter ended september 30 , 2011 , the company implemented a wide ranging plan to rebalance and reduce operating expenses by 15 % to 20 % on an annual run rate basis . as of december 31 , 2012 , the company has completed the operating expense declines through headcount reductions and discretionary spending cuts . we expect to incur additional losses into 2013 as we continue the development and commercialization of our products , conduct our research and development activities and advance new products into clinical development from our existing research programs and fund additional sales and marketing initiatives . the company 's independent registered public accounting firm 's report issued in this annual report on form 10-k included an explanatory paragraph describing the existence of conditions that raise substantial doubt about the company 's ability to continue as a going concern , including recent losses and working capital deficiency . the financial statements do not include any adjustments relating to the recoverability and classification of assets carrying amounts or the amount of and classification of liabilities that may result should the company be unable to continue as a going concern . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses and related disclosures . we review our estimates and judgments on an on-going basis . 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 may differ from these estimates . we believe the following accounting policies are critical to the judgments and estimates we use in preparing our financial statements . 47 revenue recognition the company adopted accounting standards update 2009-13 , multiple-deliverable revenue arrangements ( asu 2009-13 ) in the fourth quarter of 2009 , effective as of january 1 , 2009. prior to the adoption of this guidance , the company followed previously issued guidance for general accounting principles for revenue arrangements with multiple deliverables . under this previously issued guidance , we were required to continually evaluate whether we had proper evidence to identify separate units of accounting for deliverables within certain contractual arrangements with customers . if we were unable to support the determination of vendor-specific objective evidence ( vsoe ) or third party evidence ( tpe ) of fair value on the undelivered element , we could not recognize revenue for the delivered elements . asu 2009-13 permits management to estimate the selling price of undelivered components of a bundled sale for which it is unable to establish vsoe or tpe . this requires management to record revenue for certain elements of a transaction even though it might not have delivered other elements of the transaction , for which it was unable to meet the requirements for establishing vsoe or tpe . the adoption of the new guidance did not materially impact revenue reported in prior periods . the company believes that the new guidance significantly improves the reporting of these types of transactions to more closely reflect the underlying economic circumstances . this guidance also prohibits the use of the residual method for allocating revenue to the various elements of a transaction and requires that the revenue be allocated proportionally based on the relative estimated selling prices . under our revenue recognition policy before and after the adoption of asu 2009-13 , a portion of revenue for most system sales is recognized upon delivery , provided that title has passed , there are no uncertainties regarding acceptance , persuasive evidence of an arrangement exists , the sales price is fixed and determinable , and collection of the related receivable is reasonably assured . beginning in the quarter ended march 31 , 2010 , revenue for odyssey vision standard hd systems was recognized upon delivery due to the fact that third parties became qualified to perform installations . however , this change did not have a material impact on revenue recognition for the year ended december 31 , 2010. beginning in the quarter ended june 30 , 2010 , revenue for odyssey vision quad systems was recognized upon delivery due to the fact that third parties became qualified to perform installations . story_separator_special_tag this change resulted in additional revenue of $ 2.6 million and additional gross margin of $ 1.3 million during the year ended december 31 , 2010. beginning in the quarter ended december 31 , 2010 , revenue for odyssey enterprise cinema systems was recognized upon delivery due to the fact that third parties became qualified to perform installations . this change resulted in additional revenue of $ 0.7 million and additional $ 0.4 million in gross margin . revenue is recognized for other types of odyssey systems upon completion of installation , since there are no qualified third party installers . when installation is the responsibility of the customer , revenue from system sales is recognized upon shipment since these arrangements do not include an installation element or right of return privileges . we do not recognize revenue in situations in which inventory remains at a stereotaxis warehouse or in situations in which title and risk of loss have not transferred to the customer . however , we may deliver systems to a non-hospital site at the customer 's request as outlined in the terms and conditions of the sales agreement , in which case we evaluate whether the substance of the transaction meets the delivery and performance requirements for revenue recognition under bill and hold guidance . amounts collected prior to satisfying the above revenue recognition criteria are reflected as deferred revenue . revenue from services and license fees , whether sold individually or as a separate unit of accounting in a multi-element arrangement , is deferred and amortized over the service or license fee period , which is typically one year . revenue from services is derived primarily from the sale of annual product maintenance plans . we recognize revenue from disposable device sales or accessories upon shipment and establish an appropriate reserve for returns . the return reserve , which is applicable only to disposable devices , is estimated based on historical experience which is periodically reviewed and updated as necessary . in the past , changes in estimate have had only a de minimus effect on revenue recognized in the period . we believe that the estimate is not likely to change significantly in the future . 48 stock-based compensation stock compensation expense , which is a non-cash charge , results from stock option and stock appreciation rights grants made to employees , and directors at the fair value of the option granted , and from grants of restricted shares and units to employees and directors . the fair value of options and stock appreciation rights granted was determined using the black-scholes valuation method which gives consideration to the estimated value of the underlying stock at the date of grant , the exercise price of the option , the expected dividend yield and volatility of the underlying stock , the expected life of the option and the corresponding risk-free interest rate . the fair value of the grants of restricted shares and units was determined based on the closing price of our stock on the date of grant . stock compensation expense for options , stock appreciation rights and for time-based restricted share grants is amortized on a straight-line basis over the vesting period of the underlying issue , generally over three years except for grants to directors which generally vest over one to two years and restricted stock units which generally vest over a period of 18 months to four years . stock compensation expense for performance-based restricted shares is amortized on a straight-line basis over the anticipated vesting period and is subject to adjustment based on the actual achievement of objectives . compensation expenses related to option grants to non-employees are remeasured quarterly through the vesting date . compensation expense is recognized only for those options expected to vest , net of estimated forfeitures . estimates of the expected life of options have been based on the average of the vesting and expiration periods , which is the simplified method under general accounting principles for share-based payments . estimates of volatility and forfeiture rates utilized in calculating stock-based compensation have been prepared based on historical data and future expectations . actual experience to date has been consistent with these estimates . the amount of compensation expense to be recorded in future periods may increase if we make additional grants of options , stock appreciation rights or restricted shares or if we determine that actual forfeiture rates are less than anticipated . the amount of expense to be recorded in future periods may decrease if we do not achieve the performance objectives by which certain restricted shares are contingent , if the requisite service periods are not completed or if the actual forfeiture rates are greater than anticipated . valuation of inventory we value our inventory at the lower of the actual cost of our inventory , as determined using the first-in , first-out ( fifo ) method , or its current estimated market value . we periodically review our physical inventory for excess , obsolete , and potentially impaired items and reserve accordingly . our reserve estimate for excess and obsolete is based on expected future use . our reserve estimates have historically been consistent with our actual experience as evidenced by actual sale or disposal of the goods . deferred income taxes deferred assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using the enacted tax rates in effect for the year in which the differences are expected to affect taxable income . valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized . we have established a valuation allowance against the entire amount of our deferred tax assets because we are not able to conclude , due to our history of operating losses , that it is more likely than not that we will be able to realize any portion of the deferred tax assets .
| as a percentage of our total revenue , overall gross margin decreased from 70 % for the year ended december 31 , 2011 , to 68 % for the year ended december 31 , 2012 , due to a shift in mix from disposable , service , and accessories revenue to systems revenue . cost of revenue for systems sold increased to $ 9.9 million for the year ended december 31 , 2012 from $ 8.6 million for the year ended december 31 , 2011 , an increase of approximately 15 % . this increase was primarily due to an increase in the number of niobe units sold in 2012 compared to 2011. gross margin for systems was 50 % for the year ended december 31 , 2012 , compared to 45 % for year ended december 31 , 2011. the improvement is primarily attributable to higher production volumes and related cost absorption . cost of revenue for disposable interventional devices , service and accessories increased to $ 4.9 million for the year ended december 31 , 2012 from $ 3.9 million for the year ended december 31 , 2011 , resulting in a decrease in gross margin to 82 % from 85 % between these periods . the decrease in gross margin is due to a higher mix of lower margin disposables revenue , lower royalties and providing niobe es upgrades in exchange for new or extended premium service contracts research and development expense . research and development expense decreased to $ 8.4 million for the year ended december 31 , 2012 from $ 12.9 million for the year ended december 31 , 2011 , a decrease of approximately 35 % . the decrease is primarily due to the completion of major development efforts of the epoch solution and odyssey system upgrades in 2011 , as well as reduced headcount expenses . sales and marketing expense . sales and marketing expense decreased to $ 20.6 million for the year ended december 31 , 2012 , from $ 31.6 million for the year ended december 31 , 2011 , a decrease of approximately 35 % . the decrease was due to primarily due to reduced headcount and related travel and
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we will continue to search , select and hire people to serve our current clients and find new clients as our business grows and add to our skills and capabilities in order to provide innovative hr solutions for our clients . we expect our employee-related expenses will continue to grow in absolute dollar amounts in the foreseeable future as we continue to drive our growth through vertical product delivery and platform integrations , while also working to improve our systems and processes and gain efficiencies . 32 management 's discussion and analysis story_separator_special_tag style= '' font-family : arial ; font-size:8pt ; font-weight : bold ; '' > $ 729 $ 699 historically , year over year total wses comparison has served as an indicator of our success in growing our business , both organically and through the integration of acquired businesses , and retaining clients . average wse growth is another volume measure we use to monitor the performance of our business . however , anticipated revenues for future periods can diverge from total wses paid due to pricing differences across our hr solutions and services . in addition to driving the growth in wse count , we also focus on pricing strategies and product differentiation to maximize our revenue opportunities . average monthly total revenues per wse , as a measure to monitor the success of such pricing strategies , has increased 7 % in 2016 versus 4 % in 2015 . professional service revenues ( psr ) revenue growth 2016 2015 11 % 17 % monthly psr per average wse 2016 2015 2014 $ 114 $ 110 $ 109 payroll and payroll taxes processed 2016 2015 2014 $ 34 billion $ 31 billion $ 26 billion in 2016 , our professional service revenues represented 15 % of total revenues unchanged from 2015 and 69 % of net service revenues which is a reduction of 4 % over 2015 reflecting our improved performance of net insurance service revenues from our repricing efforts . our clients are billed either based on a fee per wse per month , per transaction or a percentage of the wses ' payroll . our investment in a vertical approach provides us the flexibility to offer clients in different industries with different services at different prices . this vertical approach will allow us to address specific needs for different vertical clients , improve our revenue retention rate but potentially reduce the value of wses as a leading indicator of future revenue performance . 35 management 's discussion and analysis insurance service revenues ( isr ) insurance service revenues growth 2016 2015 16 % 22 % monthly isr per average wse 2016 2015 2014 $ 666 $ 619 $ 590 insurance service revenues represented 85 % of total revenues with growth of 16 % in 2016 versus 22 % in 2015 . the slower growth in insurance service revenues was mainly attributable to an 8 % growth in average wses for 2016 compared with 16 % growth in average wses for 2015 . in 2016 , we strengthened our insurance offering with new leadership and a new actuarial team to improve our pricing and operating effectiveness . we completed the repricing of medical insurance for our existing clients in 2016 which now fully reflects our insurance experience in 2015 . average insurance service revenues per wse increased by 8 % in 2016 and 5 % in 2015 . insurance costs replace_table_token_8_th 2016 - 2015 commentary insurance costs increased 14 % in 2016 as a result of an 8 % increase in average wses , increased workers ' compensation costs per wse , including $ 28.2 million of workers ' compensation costs from loss development relating to prior accident years . 2015 - 2014 commentary insurance costs increased 25 % in 2015 as a result of a 16 % increase in average wses , increases in the volume and severity of medical claims and $ 26.4 million in workers ' compensation costs from loss development relating to prior accident years . 36 management 's discussion and analysis other operating expenses ( ooe ) other operating expenses includes cost of providing services ( cops ) , sales and marketing ( s & m ) , general and administrative ( g & a ) , systems development and programming ( sd & p ) expenses . operating expense growth 2016 2015 18 % 17 % % of total revenues 2016 2015 2014 16 % 16 % 16 % % of net service revenue 2016 2015 2014 75 % 76 % 70 % we have approximately 2,600 corporate employees as of december 31 , 2016 in 53 offices across the u.s. our corporate employees ' compensation related expenses represent 70 % of our operating expenses in 2016 and 2015 and 72 % in 2014 . we manage our expenses and allocate resources across different business functions based on percentage of net service revenues which has increased from 70 % in 2014 to 76 % in 2015 and 75 % in 2016 . the increase was primarily due to lower revenue in 2015 , and increased expenses in the following : 37 management 's discussion and analysis 2016 - 2015 commentary operating costs increased $ 72.6 million or 18 % as part of our continued investment in supporting our infrastructure and our capabilities to our clients . specific costs increased as follows : compensation costs for our corporate employees includes payroll , payroll taxes , stock-based compensation , bonuses , commissions and other payroll and benefits related costs . total compensation costs increased $ 51.0 million or 15 % primarily due to increases in our ◦ client services functions to support the growth and migration of clients from legacy platforms to trinet platform , ◦ risk services functions to strengthen our insurance business management by hiring new leaders and actuarial teams , ◦ technology function to support product delivery and platform integration , and ◦ other supporting functions as a result of increased operational and compliance requirement for a growing public company . accounting and other professional fees increased $ 8.1 story_separator_special_tag million in 2016 in connection with significant time and resources required for our internal control remediation efforts and audit of our internal controls as required by section 404 of the sarbanes-oxley act . consulting expenses included costs associated with reviewing and administering our insurance programs , as well as consulting firms engaged in enhancing our product offerings . costs capitalized as internally developed software increased $ 10.1 million in 2016 primarily associated with product delivery and platform integration . other expenses increased $ 13.8 million in 2016 and included office leases and it infrastructure costs to support the increased operational requirements . we expect our operating expenses to continue to increase in the foreseeable future due to expected growth , our strategy to develop new vertical products and platform integrations . we will continue to improve our systems , processes and internal controls to gain efficiencies . these expenses may fluctuate as a percentage of our total revenues from period to period depending on the timing of those expenses . 38 management 's discussion and analysis 2015 - 2014 commentary operating costs increased $ 60.4 million or 17 % in 2015 . significant increases include : total compensation costs for our corporate employees increased $ 37.0 million primarily in ◦ sales and marketing function as a result of our growth in direct sales channels , primarily the addition of new sales representatives , ◦ client services professionals to support the growth of our clients and wses , and ◦ stock-based compensation costs to attract and retain our people . accounting and other professional fees increased $ 7.2 million in 2015 including in connection with implementation of section 404 of the sarbanes-oxley act . consulting expenses included costs associated with consulting firms engaged in enhancing our product offerings . costs capitalized as internally developed software increased $ 4.8 million in 2015 primarily associated with product delivery and platform integration initiatives . other expenses increased $ 14.9 million in 2015 and included ◦ it infrastructure costs to support the increased operational requirements , ◦ marketing events to focus on market verticals and penetration , ◦ travel expenses , meetings , recruiting expenses to support growth in sales force , and ◦ broker commission costs resulted from increased revenues . amortization of intangible assets amortization of intangible assets represents costs associated with acquired companies ' developed technologies , client lists , trade names and contractual agreements . amortization expenses decreased 59 % in 2016 and 25 % in 2015 , as a result of the 2016 revision to the expected useful life of certain client lists and trademarks related to our previous acquisitions and expiration of other acquisition related intangible assets . depreciation depreciation expense increased 32 % in 2016 and 6 % in 2015 which was a result of our continuous investment in technology products and platforms . other income ( expense ) other income ( expense ) consists primarily of interest expense under our credit facility and capital leases , and non-cash debt issuance cost amortization . it increased 4 % in 2016 due primarily to the write-off of debt issuance costs resulting from the refinance of our term loan in july 2016 ; and decreased 64 % in 2015 which was primarily due to lower outstanding debts . interest expense for 2014 was significantly higher due to the acceleration of loan fee amortization resulting from our refinancing activities , and a prepayment premium related to our partial repayment of the credit facilities . we may seek to amend our credit facility , including if available terms become more favorable . we may also seek additional borrowings to fund acquisitions or accelerate the payment of principal on outstanding debt . as such , our interest expense may fluctuate as a percentage of our total revenues from period to period depending on the timing of those borrowing and or repayment activities . provision for income taxes our effective tax rates ( etr ) were 41.2 % for 2016 , 47.2 % for 2015 and 53.2 % for 2014 . 39 management 's discussion and analysis 2016 - 2015 commentary our etr decreased 6.0 % in 2016 from 47.2 % in 2015 primarily due to the following : 5.7 % decrease attributable to revaluation of deferred taxes resulting from state legislative changes enacted in 2015 , 2.4 % decrease in state income taxes from an increase in excludable income for state income tax purposes , 1.2 % decrease from discrete benefits recorded in 2016 associated with prior year state income tax expense resulting from a state tax return to provision ( rtp ) adjustment relating to audit premiums paid for worker 's compensation insurance , partially offset by a 1.5 % increase from net operating loss adjustment recorded in 2015 . we anticipate our etr to be consistent going forward provided there are no significant tax reforms enacted or excess tax benefits from our equity incentive plans when we adopt asu 2016-09 . 2015 - 2014 commentary the etr decrease from 53.2 % for 2014 to 47.2 % for 2015 includes : 3.2 % decrease attributable to disqualifying dispositions on previously non-deductible stock-based compensation , 2.6 % decrease due to a revaluation of deferred taxes resulting from state legislative changes enacted in 2014 , 1.5 % decrease from net operating loss adjustments due to apportionment changes , partially offset by a 2.8 % increase in state income taxes resulting from state legislative changes . 40 management 's discussion and analysis liquidity and capital resources liquidity we manage our liquidity separately between assets and liabilities that are wse related from our corporate assets and liabilities . wse related assets and liabilities primarily consist of current assets and liabilities resulting from transactions directly or indirectly associated with wses , including payroll and related taxes and withholdings , our sponsored workers ' compensation and health insurance programs , and other benefit programs . our cash flows related to wse payroll and benefits is generally matched by advance collection from our clients which is reported as payroll funds collected within wse related assets .
| 2015 - 2014 commentary total revenues in 2015 were $ 2.7 billion , a 21 % increase from 2014 : professional service revenues was $ 401.3 million an increase of 17 % over 2014 . the increase was mainly attributable to our 16 % growth in average wses and an increase in wses from verticals with higher average revenue per wse . insurance revenues grew 22 % over 2014 to $ 2.3 billion . the increase was primarily due to our wses growth and an increase of 5 % in average insurance service revenues per wse . net service revenues was $ 546.9 million , an 8 % increase from 2014 . this was the result of a 17 % growth in professional service revenues , partially offset by a 12 % decrease in net insurance service revenues which represented 27 % of the total . in 2015 , we recorded an increase of 25 % in insurance costs primarily related to medical claims which exceeded our 16 % growth in average wses and 22 % increase in insurance service revenues overall . operating income was $ 78.3 million , 10 % decrease from 2014 , primarily due to 23 % increase in total cost and operating expenses compared to growth of only 21 % in total revenues as described above . net income increased 105 % to $ 31.7 million , or $ 0.44 per diluted share , primarily due to reduction of $ 34.7 million in interest expense and bank fees , partially offset by decrease in operating income as described above . 34 management 's discussion and analysis adjusted net income decreased 5 % from 2014 , primarily due to decrease in the income before provision for income taxes after adjusting the non-gaap reconciling items , and increase of non-gaap tax rate from 39.5 % for 2014 to 41.5 % for 2015 as a result of an increase in new york city tax rates and blended state rates in 2015 . average wse total
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the increased purchase costs are the result of a combination of consumer demand for the types of vehicles the company purchases for resale , which remains high relative to supply , and a strategic management decision to purchase higher quality vehicles for our customers . the high demand and tight supply of the vehicles we purchase for resale are largely related to excess funding to the used vehicle financing market and the depressed levels of new car sales during and after the recession , although more robust new car sales in recent years have begun to bolster the supply of used vehicles . finally , a decrease in losses on wholesales during fiscal 2017 compared to fiscal 2016 , also helped to reduce our cost of sales and positively affected our gross margin percentages . we will continue to focus efforts on minimizing the average retail sales price of our vehicles in order to help keep contract terms shorter , which helps customers to maintain appropriate equity in their vehicles and reduces credit losses and resulting wholesale volumes . 23 selling , general and administrative expenses , as a percentage of sales , decreased 0.5 % to 17.7 % in fiscal 2017 from 18.2 % in fiscal 2016. selling , general and administrative expenses are , for the most part , more fixed in nature . in dollar terms , overall selling , general and administrative expenses decreased $ 302,000 from fiscal 2016. provision for credit losses as a percentage of sales increased to 28.7 % for fiscal 2017 compared to 28.5 % for fiscal 2016. net charge-offs as a percentage of average finance receivables decreased to 30.5 % for fiscal 2017 compared to 31.3 % for the prior year . the decrease in net charge-offs for fiscal 2017 resulted from a lower frequency of losses partially offset by an increase in severity due largely to higher principal balances at charge-off and lower wholesale values at time of repossession . the fiscal 2016 provision included a $ 4.8 million increase in the provision as a result of the increase in the provision percentage applied to the grown in finance receivables during the second quarter of fiscal 2016. continuing macro-economic challenges and competitive conditions continue to put pressure on our customers and the resulting collections of our finance receivables . the company uses several operational initiatives ( including credit reporting and the use of gps units on vehicles ) to improve collections and continually pushes for improvements and better execution of its collection practices . the company believes that the proper execution of its business practices is the single most important determinant of credit loss experience and that the negative impact on credit losses in both the current and prior year periods resulting from negative macro-economic and competitive pressures has been somewhat mitigated by the improvements in oversight and accountability provided by the company 's investments in our corporate infrastructure within the collections area . interest expense for fiscal 2017 as a percentage of sales increased slightly to 0.8 % compared to 0.7 % for fiscal 2016 , due to higher average borrowings during the fiscal year 2017 ( $ 118.2 million compared to $ 109.0 million in the prior year ) . 2016 compared to 2015 total revenues increased $ 37.6 million , or 7.1 % , in fiscal 2016 , as compared to revenue growth of 8.4 % in fiscal 2015 , principally as a result of ( i ) revenue growth from dealerships that operated a full twelve months in both fiscal years ( $ 14.0 million ) , ( ii ) revenue growth from dealerships opened during the fiscal year ended april 30 , 2015 ( $ 14.6 million ) , and ( iii ) revenue from dealerships opened after april 30 , 2015 ( $ 9.0 million ) . the increase in revenue for fiscal 2016 is attributable to ( i ) a 7.0 % increase in average retail sales price , and ( ii ) a 6.3 % increase in interest and other income . cost of sales , as a percentage of sales , increased to 60.2 % in fiscal 2016 from 57.7 % in fiscal 2015 , primarily due to an increase in the average purchase cost of vehicles sold relative to the increase in average retail sales price , along with higher repair costs . the average retail sales price for fiscal 2016 was $ 10,361 , a $ 681 increase over the prior fiscal year . additionally , increases in the volume of wholesales sales during fiscal 2016 , resulting from higher credit losses , also increase our cost of sales and thus negatively affect our gross margin percentage in fiscal 2016 compared to fiscal 2015. selling , general and administrative expenses , as a percentage of sales , increased 0.5 % to 18.2 % in fiscal 2016 from 17.7 % in fiscal 2015. selling , general and administrative expenses are , for the most part , more fixed in nature . in dollar terms , overall selling , general and administrative expenses increased $ 8.4 million from fiscal 2015 , which consisted primarily of increased payroll costs , incremental costs related to new dealerships and higher infrastructure costs to support our growth , primarily in technology and compliance . 24 provision for credit losses as a percentage of sales increased to 28.5 % ( 27.6 % excluding the effect of the increase in the allowance for credit losses made in the second quarter ) for fiscal 2016 compared to 25.5 % for fiscal 2015. net charge-offs as a percentage of average finance receivables increased to 31.3 % for fiscal 2016 compared to 27.8 % for the prior year . macro-economic challenges and competitive conditions continued to put pressure on our customers and the resulting collections of our finance receivables , although the lower gas prices provided some relief to our customers . story_separator_special_tag interest expense for fiscal 2016 as a percentage of sales increased slightly to 0.7 % compared to 0.6 % for fiscal 2015 , due to higher average borrowings during the fiscal year 2016 ( $ 109.0 million compared to $ 102.2 million in the prior year ) . financial condition the following table sets forth the major balance sheet accounts of the company at april 30 , 2017 , 2016 and 2015 ( in thousands ) : replace_table_token_7_th the following table shows receivables growth compared to revenue growth during each of the past three fiscal years . for fiscal year 2017 , growth in finance receivables of 7.0 % exceeded growth in revenue of 3.5 % . the company currently anticipates going forward that the growth in finance receivables will generally be slightly higher than overall revenue growth on an annual basis due to overall term length increases in our installment sales contracts , partially offset by improvements in underwriting and collection procedures in an effort to reduce credit losses . the average term for installment sales contracts at april 30 , 2017 was 32.5 months compared to 31.6 months at april 30 , 2016. replace_table_token_8_th at fiscal year-end 2017 , inventory increased slightly , 0.8 % ( $ 250,000 ) , compared to fiscal year-end 2016. the company strives to improve the quality of the inventory and improve turns while maintaining inventory levels to ensure adequate supply of vehicles , in volume and mix , and to meet sales demand . 25 property and equipment , net , decreased by approximately $ 4.6 million as of april 30 , 2017 as compared to fiscal 2016. the decrease is attributable to $ 4.3 million in depreciation expense and the company 's disposition of approximately $ 2 million in assets , partially offset by expenditures to refurbish and expand a number of existing locations . accounts payable and accrued liabilities increased approximately $ 1.5 million at april 30 , 2017 as compared to april 30 , 2016 due primarily to increased payables related to increased inventory levels as well as the amount and timing of cash overdrafts . income taxes payable ( receivable ) , net , increased approximately $ 1.8 million at april 30 , 2017 compared to april 30 , 2016 primarily due to the timing of income tax payments and refunds . deferred revenue increased $ 744,000 at april 30 , 2017 over april 30 , 2016 , primarily resulting from the longer term on the payment protection product due to increased contract terms . deferred income tax liabilities , net , increased approximately $ 638,000 at april 30 , 2017 as compared to april 30 , 2016 due primarily to the change in finance receivables and the book/tax difference on stock based compensation . borrowings on the company 's revolving credit facilities fluctuate primarily based upon a number of factors including ( i ) net income , ( ii ) finance receivables changes , ( iii ) income taxes , ( iv ) capital expenditures and ( v ) common stock repurchases . historically , income from continuing operations , as well as borrowings on the revolving credit facilities , have funded the company 's finance receivables growth , capital asset purchases and common stock repurchases . in fiscal 2017 the company had a $ 10.0 million net increase in total debt used to contribute to the funding of finance receivables growth of $ 29.6 million , net capital expenditures of $ 1.6 million and common stock repurchases of $ 20.5 million . 26 liquidity and capital resources the following table sets forth certain historical information with respect to the company 's statements of cash flows ( in thousands ) : replace_table_token_9_th the primary drivers of operating profits and cash flows include ( i ) top line sales ( ii ) interest rates on finance receivables , ( iii ) gross margin percentages on vehicle sales , and ( iv ) credit losses , a significant portion of which relates to the collection of principal on finance receivables . the company generates cash flow from income from operations . historically , most or all of this cash is used to fund finance receivables growth , capital expenditures and common stock repurchases . to the extent finance receivables growth , capital expenditures and common stock repurchases exceed income from operations the company generally increases its borrowings under its revolving credit facilities . the majority of the company 's growth has been self-funded . cash flows from operations in fiscal 2017 compared to fiscal 2016 decreased primarily as a result of ( i ) an increase in finance receivables originations and ( ii ) an increase in inventory , offset by ( iii ) a higher non-cash charge for credit losses and ( iv ) an increase in income tax payable and ( v ) higher payment protection plan claims . finance receivables , net , increased by $ 22.4 million during fiscal 2017 . 27 cash flows from operations in fiscal 2016 compared to fiscal 2015 increased primarily as a result of ( i ) a higher non-cash charge for credit losses and ( ii ) higher finance receivable collections , partially offset by ( iii ) lower net income and ( iv ) an increase in finance receivables originations . finance receivables , net , increased by $ 10.6 million during fiscal 2016. the purchase price the company pays for a vehicle has a significant effect on liquidity and capital resources . because the company bases its selling price on the purchase cost for the vehicle , increases in purchase costs result in increased selling prices . as the selling price increases , it becomes more difficult to keep the gross margin percentage and contract term in line with historical results because the company 's customers have limited incomes and their car payments must remain affordable within their individual budgets . several external factors can negatively affect the purchase cost of vehicles .
| the company 's cost structure is more fixed in nature and is sensitive to volume changes . revenues can be affected by our level of competition , which is influenced to a large extent by the availability of funding to the sub-prime automobile industry , together with the availability and resulting purchase cost of the types of vehicles the company purchases for resale . revenues can also be affected by the macro-economic environment . down payments , contract term lengths and proprietary credit scoring are critical to helping customers succeed and are monitored closely by corporate management at the point of sale . after the sale , collections , delinquencies and charge-offs are crucial elements of the company 's evaluation of its financial condition and results of operations and are monitored and reviewed on a continuous basis . management believes that developing and maintaining a relationship with its customers and earning their repeat business is critical to the success and growth of the company and can serve to offset the effects of increased competition and negative macro-economic factors . a challenging competitive environment puts pressure on sales volumes especially at older dealerships which tend to have higher overall sales volumes and more repeat customers . additionally , as the company attempts to attract and retain target customers , increased competition can contribute to lower down payments and longer contract terms which can have a negative effect on collection percentages , liquidity and credit losses . management believes that the ultra-low interest rate environment combined with a lack of other investment alternatives has been attracting excess capital into the sub-prime automobile market and increasing competition . in an effort to combat the increased competition the company will continue to focus on the benefits of excellent customer service and its “ local ” face to face offering in an effort to help customers succeed . the company has also focused additional attention on selling lower priced vehicles to increase affordability for customers , to address sales volume challenges and to improve credit performance in the future by improving the equity position of customers who may be tempted
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net sales by geographic area replace_table_token_8_th 2017 compared with 2016 total net sales to customers located outside the u.s. increased primarily reflecting higher international sales by ccm , largely reflecting improving european and canadian sales compared with prior year . higher international sales also reflected increased sales to europe and asia from cbf . partially offsetting this increase in international sales was decrease in european sales by cit . 2016 compared with 2015 total net sales to customers located outside the u.s. decreased primarily due to reduction of international sales by ccm , largely reflecting declining canadian sales as a result of reduced construction activity compared with prior year . partially offsetting this decline in international sales was the contribution of international sales from the acquisition of the finishing brands business reported in the cft segment . the increase of net sales into asia in 2016 was primarily attributable to cft . approximately 33 % of cft 's net sales were to customers in asia in 2016 . 17 gross margin replace_table_token_9_th 2017 compared with 2016 the decrease in gross margin percentage ( gross margin expressed as a percentage of net sales ) in 2017 was primarily driven by unfavorable raw material dynamics at ccm and unfavorable changes in mix , primarily at cit as a result of the aforementioned challenges in the commercial aerospace market . also included in gross margin in 2017 were exit and disposal costs totaling $ 10.9 million primarily at cit and cbf attributable to our exit and disposal initiatives ( refer to note 4 for further discussion ) , and acquired inventory costs of $ 11.5 million . these decreases were partially offset by lower per unit costs resulting from higher capacity utilization driven by higher net sales volume in the ccm and cbf segments and savings from cos. 2016 compared with 2015 in 2016 , the increase in gross margin percentage was primarily driven by lower raw material costs at ccm , savings from cos and lower per unit costs related to higher capacity utilization driven by higher sales volume . these positive impacts were partially offset by lower selling prices at ccm and cit . included in gross margin in 2016 was $ 2.0 million in additional cost of goods sold associated with the fair valuation of acquired inventory in the cit segment . selling and administrative expenses replace_table_token_10_th 2017 compared with 2016 the increase in selling and administrative expense in 2017 primarily reflected charges for the facility rationalization and plant restructuring projects at cft and cit ( refer to note 4 for further discussion ) , and acquired selling and administrative expenses , primarily in the cfs and ccm segments . the selling and administrative costs from acquired businesses also included non-cash amortization of acquired intangible assets . 2016 compared with 2015 selling and administrative expense increased primarily due to a full year of expenses from the acquired finishing brands business , higher selling costs primarily at ccm on higher net sales volume , higher staffing and performance-based incentive compensation costs at ccm and cit and expenses related to our exit and disposal plans during 2016 ( refer to note 4 for further discussion ) . during 2016 , cit incurred employee termination costs of $ 7.6 million related to planned growth opportunities and enhancements in its long-term cost competitiveness within certain international operations . expenses to close certain facilities and relocate administrative functions at cft and corporate were $ 4.1 million and $ 3.8 million , respectively . these increases were partially offset by reduced expenses at the cbf segment . 18 research and development expenses replace_table_token_11_th 2017 compared with 2016 the increase in research and development expenses reflected increased activities related to new product development , primarily at the cit and ccm segments . these increases were partially offset by reduced expenses at the cbf segment . 2016 compared with 2015 the increase in research and development expenses reflected increased activities related to new product development , primarily at the cit segment . the increase also reflected contribution from the acquired finishing brands business , as well as increased new product development activities at the cft segment . these increases were partially offset by reduced expenses at the cbf segment . impairment of goodwill and intangible assets replace_table_token_12_th in 2016 , cbf 's net sales continued to decline due to continued weakness in off-highway equipment markets tied to lower demand for commodities and indicators of a longer period before cbf 's markets were expected to recover . therefore , we recognized impairment charges of $ 141.5 million in the third quarter of 2016. refer to critical accounting estimates in this md & a for further discussion . other operating ( income ) expense , net replace_table_token_13_th 2017 compared with 2016 the decrease in other operating income primarily reflected gains on sales of property , plant and equipment in 2016 , that did not recur in 2017 . 2016 compared with 2015 the increase in other operating income primarily reflected gains on sales of property , plant and equipment in 2016 , compared with 2015. operating income replace_table_token_14_th 2017 compared with 2016 the increase in operating income and operating margin primarily reflected the non-recurrence of $ 141.5 million of goodwill and other intangible assets impairment charges taken at our cbf segment in 2016 , higher net sales volumes in the ccm and cbf segments , savings from cos and acquired earnings from san jamar in the cfs segment . this increase was partially offset by rising raw material costs in the ccm segment , lower sales and operating margin at 19 cit , approximately $ 36.5 million of facility rationalization and exit and disposal costs and $ 11.5 million of acquired inventory costs . 2016 compared with 2015 the decrease in operating income and operating income margin primarily reflected the goodwill and other intangible asset impairment charges of $ 141.5 million recognized at our cbf segment as well as exit and disposal costs of $ 15.5 million recognized at our cit and cft segments and corporate . story_separator_special_tag partially offsetting these reductions were higher sales volume at ccm and cit , lower raw material costs , lower labor and material usage costs resulting from cos and the non-recurrence of certain costs that occurred in 2015 , including acquisition related costs in the cft segment of $ 9.3 million . interest expense , net replace_table_token_15_th 2017 compared with 2016 the increase in interest expense , net primarily reflected interest on the combined $ 1.0 billion of notes , $ 600 million and $ 400 million with stated interest rates of 3.75 % and 3.5 % , respectively , issued in november 2017 and interest on borrowings under our revolving credit facility ( the “ facility ” ) during the year , partially offset by the august 2016 retirement of our $ 150.0 million senior unsecured note that had a stated interest rate of 6.125 % ( refer to note 12 for further discussion ) . 2016 compared with 2015 the decrease in interest expense , net primarily reflected the august 2016 retirement of our $ 150.0 million senior unsecured note that had a stated interest rate of 6.125 % ( refer to note 12 for further discussion ) . other non-operating ( income ) expense , net replace_table_token_16_th ( 1 ) items affecting comparability include income tax related indemnification losses and ( gains ) losses on divestitures , refer to items affecting comparability . 2017 compared with 2016 the increase in other non-operating expense primarily reflected the net impact of the expiration of income tax related indemnification assets , totaling $ 4.6 million ( refer to note 3 for further discussion ) , and a divestiture of a business in the cit segment . 2016 compared with 2015 the increase in other non-operating income primarily reflected strengthening of the u.s. dollar and related changes in foreign exchange gains as compared with 2015 , and the gain on sale of cft scotland in 2016 . 20 income taxes replace_table_token_17_th 2017 compared with 2016 on december 22 , 2017 , the u.s. enacted comprehensive tax legislation commonly referred to as the tax act . the tax act included significant changes to existing tax law including , among other things , a reduction to the u.s. federal corporate income tax rate from 35 % to 21 % and a one-time tax on deferred foreign income ( `` transition tax '' ) . for 2017 , our results include the estimated impact of the tax act resulting in a provisional tax benefit of $ 57.7 million . this benefit is comprised of a charge of $ 32.5 million related to the transition tax and a benefit of $ 90.2 million from the rate reduction impacting the company 's u.s. deferred tax balances . additionally , the effective income tax rate was impacted by a charge of $ 5.1 million related to a change in assertion associated with the reinvestment of foreign earnings which resulted in an effective income tax rate of 22 % . we expect a positive impact from tax reform in 2018 , with an effective tax rate of approximately 25-27 % , principally due to the reduction in the u.s. federal corporate tax rate . refer to note 6 in additional information related to income taxes . 2016 compared with 2015 the 2016 effective income tax rate of 38.9 % differs from the u.s. federal tax rate of 35 % primarily due to the impairment of goodwill , reduced by foreign earnings taxed at lower rates , the deduction for u.s. manufacturing activities , us federal foreign tax credits , and the recognition of certain state tax attributes . the us federal foreign tax credits arose in the fourth quarter of 2016 resulting from a non-cash distribution of capital from a foreign subsidiary generating a net tax benefit of approximately $ 9 million . at the end of 2016 , there were approximately $ 6.6 million of federal foreign tax credit carryovers , which have an expiration date of 2026. segment results of operations carlisle construction materials ( “ ccm ” ) on november 1 , 2017 , we acquired accella , a specialty polyurethane platform , for estimated consideration of $ 670.7 million . accella offers a wide range of polyurethane products and solutions across a broad diversity of markets and applications . accella provides an excellent adjacent opportunity into the attractive polyurethane market , which includes spray polyurethane foam and liquid applied roofing . on july 3 , 2017 , we acquired drexel metals for estimated consideration of $ 55.8 million . drexel metals is a leading provider of architectural standing seam metal roofing systems for commercial , institutional and residential applications . on january 31 , 2017 , we acquired arbo for consideration of $ 11.5 million . arbo is a leading provider of sealants , coatings and membrane systems used for waterproofing and sealing buildings and other structures . refer to note 3 for further information regarding acquisitions . 2017 compared with 2016 replace_table_token_18_th ( 1 ) items affecting comparability include acquisition related costs ( $ 9.5 million in 2017 ) , refer to items affecting comparability . ccm 's net sales growth primarily reflected higher net sales volume associated with strong demand in the favorable u.s. non-residential roofing markets , partially offset by lower selling price . ccm 's net sales growth also reflected the contribution of $ 104.8 million from the acquisitions of accella , drexel metals and arbo in 2017 . 21 ccm 's operating income and operating margin decrease was primarily driven by rising raw material costs , lower selling prices and $ 7.7 million of acquired inventory costs , partially offset by higher net sales volume and savings from operating efficiencies through cos. outlook ccm 's net sales and operating income are generally higher in the second and third quarters of the year due to increased construction activity during these periods .
| we utilized cash on hand , cash provided by operations and funds from our $ 1.0 billion notes issued in november 2017 to fund acquisitions , fund capital projects and return capital to shareholders . outlook for 2018 , on a continuing operations basis , we expect total net sales growth in the mid-teens , led by the performance of our ccm , cit and cbf segments . net sales growth is expected to be primarily driven by growth related to strength in the domestic commercial roofing market and contributions from acquisitions in the ccm segment , higher demand for aerospace , medical and test and measurement markets in the cit segment and growth in the core markets of agriculture , mining and construction in the cbf segment . 2016 compared with 2015 net sales increased primarily due to higher net sales volume at ccm , reflecting favorable commercial roofing market conditions , full year sales from the acquired finishing brands business and higher sales from cit , reflecting higher sales volume and contribution from acquisitions . these increases were partially offset by lower net sales at cbf . cbf 's results are consistent with reported significant sales declines in the construction , mining and aircraft off-highway equipment sectors . 15 the decrease in operating income primarily reflected the impairment of goodwill and other intangible assets at our cbf segment of $ 141.5 million . refer to critical accounting estimates in this md & a for further discussion . this reduction was partially offset by $ 79.2 million increase in operating income from the ccm segment due to favorable raw material and pricing dynamics and higher sales volume and the contribution of a full year of the acquired finishing brands business within the cft segment . acquisitions 2017 acquisitions on november 1 , 2017 , we acquired accella , a specialty polyurethane platform , for estimated consideration of $ 670.7 million . accella offers a wide range of polyurethane products and solutions across a broad diversity of markets and applications . accella provides an excellent adjacent opportunity into the attractive polyurethane market , which includes spray polyurethane foam and liquid
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the government also enacted a new law effective february 19 , 2014 that authorizes additional methods of exchanging venezuelan bolivars at rates other than the controlled base rate of 6.3 to the dollar or the existing sicad auction rate , but the regulations necessary to implement the law are still pending and it is not clear at this point whether or how the new methods may impact the pending balances of venezuelan bolivars held by airlines . we are working with venezuelan authorities regarding the timing and exchange rate applicable to the repatriation of funds held in local 55 currency . further , the current , devalued rates may have an ongoing adverse effect on our reported results if we are unable to fully adjust prices on flights to and from venezuela , of which there can be no assurance . more generally , fluctuations in foreign currencies , including devaluations , can not be predicted by the company and can significantly affect the value of our assets located outside the united states . these conditions , as well as any further delays , devaluations or imposition of more stringent repatriation restrictions , may materially adversely affect our business , results of operations and financial condition . see part i - item 1a . risk factors `` we operate a global business with international operations that are subject to economic and political instability and have been , and in the future may continue to be , adversely affected by numerous events , circumstances or government actions beyond our control '' for additional discussion on currency risks . 2014 outlook we have taken significant actions in the last year , including the completion of our restructuring and merger with us airways group , to restore our competitiveness . although it is difficult to predict the price of oil or the strength of the economy , we believe that our 2013 financial results are evidence of the strong foundation we have in place and can build on . 56 aag 's results of operations in 2013 , we realized operating income of $ 1.4 billion and a net loss of $ 1.8 billion . we completed our merger with us airways group on december 9 , 2013 , and accordingly the results of us airways group are included for the 23 day post-merger period from december 9 , 2013 to december 31 , 2013. excluding the results of us airways group , we recognized operating income of $ 1.6 billion and a net loss of $ 1.6 billion . excluding the effects of net special items we recognized standalone net income of $ 1.2 billion . in 2013 we experienced growth in revenues due to the strong demand for air travel and a reduction in operating costs as a result of steps taken in our chapter 11 restructuring . in 2012 , we realized operating income of $ 148 million and a net loss of $ 1.9 billion . excluding the effects of net special items we recognized a net loss of $ 130 million . in 2011 , we realized an operating loss of $ 1.0 billion and a net loss of $ 2.0 billion . excluding the effects of net special items we recognized a net loss of $ 1.1 billion . we filed for chapter 11 on november 29 , 2011. the following table presents our 2013 standalone operating income ( loss ) , net loss , net special charges and net income excluding special charges : replace_table_token_14_th ( 1 ) to conform to current year presentation , certain operating revenue and expenses in prior years have been reclassified . as a result , prior year amounts may not agree to the amounts previously reported . see note 5 to aag 's consolidated financial statements in part ii , item 8a for additional information . ( 2 ) we are providing disclosure of the reconciliation of reported non-gaap financial measures to their comparable financial measures on a gaap basis . we believe that the non-gaap financial measures provide investors the ability to measure financial performance excluding special items , which is more indicative of our ongoing performance and is more comparable to measures reported by other major airlines . the components of our net special charges , excluding the results of us airways group for the 23 day post-merger period , are as follows ( in millions ) : replace_table_token_15_th ( 1 ) in 2013 , special charges consisted primarily of a $ 107 million charge related to the american 's pilot long-term disability obligation , $ 58 million in severance and professional fees , $ 56 million related to employee awards granted in connection with the merger , a $ 43 million charge for workers ' compensation claims , and a $ 33 million impairment charge associated with certain boeing 757 aircraft held for sale . these charges were offset in part by a $ 67 million gain on the sale of slots at laguardia airport as a result of the settlement reached with the doj and a $ 31 million credit resulting from the modification of american 's aadvantage miles agreement with citibank . in 2012 , special charges consisted of $ 387 million of severance and related charges and write-off of leasehold improvements on aircraft and airport facilities that were rejected during the chapter 11 process . in 2011 , special charges consisted primarily of $ 725 million related to the impairment of certain aircraft and gates , $ 31 million of non-cash charges related to certain sale/leaseback transactions , and a $ 43 million revenue reduction as a result of a decrease in the breakage assumption related to the aadvantage frequent flyer liability . story_separator_special_tag 57 ( 2 ) in 2013 , special charges consisted of interest charges of $ 157 million to recognize post-petition interest expense on unsecured obligations pursuant to the plan , a $ 54 million charge related to the premium on tender for existing secured notes and eetc financings and the write-off of debt issuance costs and $ 19 million in charges related to the repayment of existing secured notes and eetc financings . in 2012 , special charges consisted of a $ 280 million benefit resulting from a settlement of a commercial dispute . ( 3 ) in 2013 and 2012 , special charges included , respectively , a $ 538 million and a $ 569 million non-cash income tax benefit from continuing operations . the company is required to consider all items ( including items recorded in other comprehensive income ) in determining the amount of tax benefit that results from a loss from continuing operations and that should be allocated to continuing operations . as a result , the company recorded a tax benefit on the loss from continuing operations for the year , which was exactly offset by income tax expense on other comprehensive income . however , while the income tax benefit from continuing operations is reported on the income statement , the income tax expense on other comprehensive income is recorded directly to accumulated other comprehensive income ( loss ) , which is a component of stockholders ' equity . because the income tax expense on other comprehensive income is equal to the income tax benefit from continuing operations , the company 's year-end net deferred tax position is not impacted by this tax allocation . the 2013 tax benefit was offset in part by a $ 214 million tax charge attributable to additional valuation allowance required to reduce deferred tax assets to the amount the company believes is more likely than not to be realized . 58 operating statistics the table below sets forth selected mainline and regional operating data for the years ended december 31 , 2013 , 2012 and 2011 . the 2013 operating data does not include the results of us airways group for the 23 day post-merger period from december 9 , 2013 to december 31 , 2013. replace_table_token_16_th ( a ) revenue passenger mile ( rpm ) — a basic measure of sales volume . one rpm represents one passenger flown one mile . ( b ) available seat mile ( asm ) — a basic measure of production . one asm represents one seat flown one mile . ( c ) passenger load factor — the percentage of available seats that are filled with revenue passengers . 59 ( d ) yield — a measure of airline revenue derived by dividing passenger revenue by rpms . ( e ) passenger revenue per available seat mile ( prasm ) — passenger revenues divided by asms . ( f ) operating cost per available seat mile ( casm ) — operating expenses divided by asms . ( g ) passenger enplanements — the number of passengers on board an aircraft , including local , connecting and through passengers . ( h ) block hours — the hours measured from the moment an aircraft first moves under its own power , including taxi time , for the purposes of flight until the aircraft is docked at the next point of landing and its power is shut down . ( i ) average stage length — the average of the distances flown on each segment of every route . ( j ) regional statistics include amr eagle , as well as operating and financial results from american 's capacity purchase agreements with chautauqua , expressjet , republic and skywest . ( k ) cargo ton miles — a basic measure of cargo transportation . one cargo ton mile represents one ton of cargo transported one mile . ( l ) total revenue per available seat mile ( rasm ) — total revenues divided by total mainline and regional asms . ( m ) cargo yield per ton mile — cargo revenues divided by total mainline and regional cargo ton miles . 2013 compared to 2012 operating revenues replace_table_token_17_th the following discussion of operating revenues is for aag on a standalone basis and excludes the results of us airways group for the post-merger period from december 9 , 2013 to december 31 , 2013 in order to make the year-over-year comparison more meaningful . total operating revenues in 2013 were $ 25.8 billion as compared to $ 24.9 billion in 2012 , an in crease of $ 957 million or 3.8 % , which was driven by strong demand for air travel . significant changes in the components of operating revenues are as follows : mainline passenger revenues in creased 4.5 % to $ 19.6 billion in 2013 as compared to $ 18.7 billion in 2012 . mainline rpms in creased 1.6 % , as mainline capacity , as measured by asms , in creased 1.2 % resulting in a 0.3 point in crease in load factor to 83.1 % . mainline passenger yield in creased 2.9 % to 15.26 cents in 2013 from 14.83 cents in 2012 . mainline prasm in creased 3.3 % to 12.68 cents in 2013 from 12.28 cents in 2012 . regional passenger revenues were $ 2.9 billion which was relatively flat as compared to 2012 . regional rpms in creased 2.5 % , as regional capacity , as measured by asms , in creased 1.8 % resulting in a 0.5 point in crease in load factor . regional passenger yield de creased 1.9 % to 27.97 cents in 2013 from 28.53 cents in 2012 . regional prasm de creased 1.3 % to 21.15 cents in 2013 from 21.43 cents in 2012 . other revenues were $ 2.6 billion in 2013 , an in crease of $ 92 million , or 3.6 % , primarily due to increased
| in 2011 , american incurred a $ 725 million charge related to the impairment of certain aircraft and gates . see note 5 to american 's consolidated financial statements in part ii , item 8b for more information relating to special items . see detailed explanations below relating to other changes in operating expenses . regional operating expenses : total regional expenses de creased $ 50 million , or 1.6 % , in 2012 to $ 3.0 billion from $ 3.1 billion in 2011 . the year-over-year de crease was primarily driven by a $ 135 million , or 6.3 % decrease in other regional expenses , partially offset by a 6.3 % in crease in the average price per gallon of fuel to $ 3.23 in 2012 from $ 3.04 in 2011 . nonoperating income ( expense ) replace_table_token_38_th interest expense , net of capitalized interest de creased $ 39 million , or 5.8 % to $ 633 million in 2012 from $ 672 million in 2011 primarily as a result of the company 's chapter 11 cases as described in note 2 to american 's consolidated financial statements in part ii , item 8b . other nonoperating expense , net of $ 223 million in 2012 consisted of a $ 280 million special credit related to the settlement of a commercial dispute , which was offset in part by foreign currency losses of $ 41 million . 73 reorganization items , net reorganization items refer to revenues , expenses ( including professional fees ) , realized gains and losses and provisions for losses that are realized or incurred as a direct result of the chapter 11 cases , which were filed in november of 2011. the following table summarizes the components included in reorganization items , net on american 's consolidated statements of operations for the years ended december 31 , 2012 and 2011 ( in millions ) : replace_table_token_39_th ( 1 ) amounts include allowed claims ( claims approved by the
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we have incurred $ 170.4 million of such costs through december 31 , 2019 , including $ 53.5 million in capital expenditures . 19 environmental matters our current and former business operations are subject to , and affected by , federal , state , and local environmental laws and regulations relating to the discharge , treatment , storage , disposal , investigation , and remediation of certain materials , substances , and wastes . see notes 9 ( b ) and 9 ( c ) in the consolidated financial statements in item 8 of this report and `` environmental matters '' below for summary of our environmental reserve activity . capital structure we have a substantial amount of debt for which we are required to make interest and principal payments . interest on long-term financing is not a recoverable cost under our u.s. government contracts . as of december 31 , 2019 , we had $ 637.0 million of debt outstanding . retirement benefits as of the last measurement date at december 31 , 2019 , the pension assets , projected benefit obligations , and unfunded pension obligation were $ 932.5 million , $ 1,349.8 million , and $ 417.3 million , respectively . we estimate that 83 % of our unfunded pension obligation as of december 31 , 2019 , is related to our u.s. government contracting business , aerojet rocketdyne . we expect to make contributions of approximately $ 46.0 million to our tax-qualified defined benefit pension plan in 2020 , including $ 13.9 million of cash and $ 32.1 million of prepayment credits . we generally are able to recover contributions related to our tax-qualified defined benefit pension plan as allowable costs on our u.s. government contracts , but there are differences between when we contribute to our tax-qualified defined benefit pension plan under pension funding rules and when it is recoverable under cas . information technology and cyber security we routinely defend against various cyber and other security threats against our defenses to protect the confidentiality , integrity and availability of our information technology infrastructure , supply chain , business or customer information and other threats . we are also subject to similar security threats at customer sites that we operate and manage as a contractual requirement . the threats we face range from attacks common to most industries to more advanced and persistent , highly organized adversaries , insider threats and other threat vectors targeting us and other defense and aerospace companies ; because we protect national security information . in addition , cyber threats are evolving , growing in their frequency and include , but are not limited to , malicious software , destructive malware , attempts to gain unauthorized access to data , disruption or denial of service attacks , and other electronic security breaches that could lead to disruptions in mission critical systems , unauthorized release of confidential , personal or otherwise protected information ( ours or that of our employees , customers or partners ) , and corruption of data , networks or systems . we also could be impacted by cyber threats or other disruptions or vulnerabilities found in products we use or in our partners ' or customers ' systems that are used in connection with our business . we continue to assess our information technology systems and are engaged in cooperative efforts with our customers , suppliers , and subcontractors to seek to minimize the impact of cyber threats , other security threats or business disruptions . story_separator_special_tag style= '' font-family : arial ; font-size:9pt ; '' > in 2018 as a result of reaching a determination with the u.s. government that certain environmental expenditures are reimbursable under the global settlement , segment margin increased 1.9 percentage points to 13.6 % primarily due to improved performance on the commercial crew development program in 2019 and lower retirement benefits expense . despite a $ 4.6 million headwind in the fourth quarter of 2019 primarily from overhead rate adjustments , we realized $ 38.4 million of net favorable changes in contract estimates on income before income taxes for the full year 2019 compared with favorable changes of $ 59.1 million during 2018. the overhead rate adjustments were driven by a combination of minor downward revisions to base from small program cancellations and schedule shifts , and more cost associated with facility investments in support of future work . the 2019 net favorable changes in contract estimates on income before income taxes were primarily driven by improved performance and risk retirements on the thaad and pac-3 programs and are net of the impact of overhead rate adjustments made in the fourth quarter of 2019. the 2018 net favorable changes in contract estimates on income before income taxes were primarily driven by risk retirements on the thaad , rs-68 , and rl10 programs and favorable overhead rate performance , partially offset by cost growth and performance issues on the commercial crew development program . real estate segment replace_table_token_17_th during 2019 , net sales and segment performance consisted primarily of rental property operations . in 2018 , we recognized net sales of $ 1.4 million from a land sale of 57 acres of the sacramento land . backlog : as of december 31 , 2019 , our total remaining performance obligations , also referred to as backlog , totaled $ 5.4 billion , compared with $ 4.1 billion as of december 31 , 2018. the increase in backlog was primarily due to large multi-year awards on the standard missile and thaad programs . we expect to recognize approximately 36 % , or $ 2.0 billion , of the remaining performance obligations as sales over the next twelve months , an additional 23 % the following twelve months , and 41 % thereafter . the following table summarizes backlog : replace_table_token_18_th total backlog includes both funded backlog ( unfilled orders for which funding is authorized , appropriated and contractually obligated by the customer ) and unfunded backlog ( firm orders for which funding has not been appropriated ) . story_separator_special_tag indefinite delivery and quantity contracts and unexercised options are not reported in total backlog . backlog is subject to funding delays or program restructurings/cancellations which are beyond our control . use of non-gaap financial measures : adjusted ebitdap , adjusted net income , and adjusted eps we provide the non-gaap financial measures of our performance called adjusted ebitdap , adjusted net income , and adjusted eps . we use these metrics to measure our operating and total company performance . we believe that for management and investors to effectively compare core performance from period to period , the metrics should exclude items that are not indicative of , or are unrelated to , results from our ongoing business operations such as retirement benefits ( pension and postretirement benefits ) , significant non-cash expenses , the impacts of financing decisions on earnings , and items incurred outside the ordinary , ongoing and customary course of our business . accordingly , we define adjusted ebitdap as gaap net income adjusted to exclude interest expense , interest income , income taxes , depreciation and amortization , retirement benefits net of amounts that are recoverable under our u.s. government contracts , and unusual items which we do not believe are reflective of such ordinary , ongoing and customary activities . adjusted net income and adjusted eps exclude retirement benefits net of amounts that are recoverable under our u.s. government contracts and unusual items which we do not believe are reflective of such ordinary , ongoing and customary activities . adjusted net income and adjusted eps do not represent , and should not be considered an alternative to , net income or diluted eps as determined in accordance with gaap . 23 replace_table_token_19_th _ ( 1 ) the income tax impact is calculated using the federal and state statutory rates in the corresponding year . free cash flow we also provide the non-gaap financial measure of free cash flow . free cash flow is defined as cash flow from operating activities less capital expenditures . free cash flow should not be considered in isolation as a measure of residual cash flow available for discretionary purposes or as an alternative to cash flows from operations presented in accordance with gaap . we use free cash flow , both in presenting our results to stakeholders and the investment community , and in our internal evaluation and management of the business . management believes that this financial measure is useful because it provides supplemental information to assist investors in viewing the business using the same tools that management uses to evaluate progress in achieving our goals . the following table summarizes free cash flow : replace_table_token_20_th because our method for calculating these non-gaap measures may differ from other companies ' methods , the non-gaap measures presented above may not be comparable to similarly titled measures reported by other companies . these measures are not recognized in accordance with gaap , and we do not intend for this information to be considered in isolation or as a substitute for gaap measures . environmental matters : our policy is to conduct our businesses with due regard for the preservation and protection of the environment . we devote a significant amount of resources and management attention to environmental matters and actively manage our ongoing processes to comply with environmental laws and regulations . we are involved in the remediation of environmental conditions 24 that resulted from generally accepted manufacturing and disposal practices at certain plants in the 1950s and 1960s . in addition , we have been designated a prp with other companies at third party sites undergoing investigation and remediation . estimating environmental remediation costs is difficult due to the significant uncertainties inherent in these activities , including the extent of remediation required , changing governmental regulations and legal standards regarding liability , evolving technologies and the long period of time over which most remediation efforts take place . we : accrue for costs associated with the remediation of environmental pollution when it becomes probable that a liability has been incurred and when our proportionate share of the costs can be reasonably estimated ; and record related estimated recoveries when such recoveries are deemed probable . in addition to the costs associated with environmental remediation discussed above , we incur expenditures for recurring costs associated with managing hazardous substances or pollutants in ongoing operations which totaled $ 5.3 million and $ 5.9 million in 2019 and 2018 , respectively . the following table summarizes our recoverable amounts , environmental reserves , and range of liability , as of december 31 , 2019 : replace_table_token_21_th _ ( 1 ) excludes the receivable from northrop of $ 52.5 million as of december 31 , 2019 , related to environmental costs already paid ( and therefore not reserved ) by us in prior years and reimbursable under our agreement with northrop . environmental reserves we review on a quarterly basis estimated future remediation costs and have an established practice of estimating environmental remediation costs over a fifteen year period , except for those environmental remediation costs with a specific contractual term . environmental liabilities at the bpou site are currently estimated through the term of the project agreement , which expires in may 2027. as the period for which estimated environmental remediation costs lengthens , the reliability of such estimates decreases . these estimates consider the investigative work and analysis of engineers , outside environmental consultants , and the advice of legal staff regarding the status and anticipated results of various administrative and legal proceedings . in most cases , only a range of reasonably possible costs can be estimated . in establishing our reserves , the most probable estimate is used when determinable ; otherwise , the minimum amount is used when no single amount in the range is more probable . accordingly , such estimates can change as we periodically evaluate and revise these estimates as new information becomes available . we can not predict whether new information gained as projects progress will affect the estimated liability accrued .
| the change in other expense ( income ) , net was primarily due to a one-time benefit of $ 43.0 million during 2018 in environmental remediation provision adjustments as a result of reaching a determination with the u.s. government that certain environmental expenditures are reimbursable under the global settlement ( see discussion of `` environmental matters '' below ) . interest income : replace_table_token_12_th primary reason for change . the increase in interest income was due to higher average cash balances and interest rates . interest expense : replace_table_token_13_th 21 primary reason for change . the increase in interest expense was primarily due to higher finance lease obligations associated with the huntsville , alabama facilities in the current period partially offset by lower average obligations and variable interest rates on our senior credit facility . income tax provision : replace_table_token_14_th in 2019 , our effective tax rate was 26.5 % . our effective tax rate is higher than the 21 % statutory federal income tax rate primarily due to state income taxes and uncertain tax positions , offset by r & d credits and excess tax benefits related to our stock-based compensation . in 2018 , our effective tax rate was 27.2 % . our effective tax rate differed from the 21 % statutory federal income tax rate primarily due to an increase from state income taxes and unfavorable adjustments to uncertain tax positions partially offset by r & d credits . as of december 31 , 2019 , the liability for uncertain income tax positions was $ 49.1 million . due to the uncertainty regarding the timing of potential future cash flows associated with these liabilities , we are unable to make a reasonably reliable estimate of the amount and period in which these liabilities might be paid . retirement benefits expense : replace_table_token_15_th primary reason for change . the decrease in retirement benefits expense was primarily due to a decrease in the amortization of net actuarial losses in 2019 primarily as a result of an increase in the discount rate used to determine our pension obligation at december 31 , 2018. we estimate that our retirement benefits expense will be approximately $ 37 million in 2020. additionally , we estimate the cas recoverable amounts related to the company 's retirement benefits plans to be approximately $
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further , pursuant to the merger : each option granted by pandora under its stock incentive plans to purchase shares of pandora common stock , whether vested or unvested will be assumed and converted into an option to purchase shares of holdings common stock , with appropriate adjustments ( based on the exchange ratio ) to the exercise price and number of shares of holdings common stock subject to such option , and will have the same vesting schedule and exercise conditions as in effect as of immediately prior to the closing of the merger ; each unvested restricted stock unit granted by pandora under its stock incentive plans will be assumed and converted into an unvested restricted stock unit of holdings , with appropriate adjustments ( based on the exchange ratio ) to the number of shares of holdings common stock to be received , and will have the same vesting schedule and settlement date as in effect as of immediately prior to the closing of the merger ; and each unvested performance award granted by pandora under its stock incentive plans shall be canceled and forfeited if the per share value of merger consideration at the closing of the transactions as determined pursuant to the merger agreement is less than $ 20.00 , and otherwise each such award will be assumed and converted into a time vesting award to receive a number of shares of holdings common stock based on the exchange ratio , and will have the same vesting schedule as in effect as of immediately prior to the closing of the merger . the merger agreement contains customary representations and warranties from both holdings and pandora , and each party has agreed to customary covenants , including covenants relating to the conduct of holdings ' and pandora 's businesses during the period between the execution of the merger agreement and the closing of the merger . in the case of pandora , such obligations include its agreement to call a meeting of its stockholders to adopt the merger agreement , and , subject to certain exceptions , to recommend that its stockholders adopt the merger agreement . the pandora stockholders voted to adopt the merger agreement at a special stockholder meeting on january 29 , 2019. the completion of the merger is subject to customary conditions , including , among others , the absence of any law or order that prohibits or makes illegal the merger and subject to certain exceptions , the accuracy of the representations and warranties of each party and compliance by the parties with their respective covenants . it is intended that the merger qualifies as a `` reorganization '' within the meaning of section 368 ( a ) of the internal revenue code of 1986 for federal income tax purposes . however , if either pandora or holdings are unable to receive an opinion of counsel to that effect , the parties have agreed to restructure the merger so that the merger will be treated as a taxable stock sale . 27 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > of 17 % , or $ 97,484 . the increase was primarily driven by higher revenue from sirius xm canada due to the new services agreement and advisory services agreement entered into in the second quarter of 2017 , additional revenues from the u.s. music royalty fee due to an increase in the number of subscribers and subscribers paying at a higher rate and higher revenue generated from our connected vehicle services . we expect music royalty fee and other revenue to increase due to an increase in u.s. music royalty fees as current subscribers migrate to the new increased rate and as our subscriber base grows . operating expenses revenue share and royalties include distribution and content provider revenue share , royalties for transmitting content and web streaming , and advertising revenue share . 2018 vs. 2017 : for the years ended december 31 , 2018 and 2017 , revenue share and royalties were $ 1,393,842 and $ 1,210,323 , respectively , an increase of 15 % , or $ 183,519 , and increased as a percentage of total revenue . the increase was driven by an increase in the statutory royalty rate applicable to our use of post-1972 recordings , which increased from 11 % in 2017 to 15.5 % in 2018 , and overall greater revenues subject to revenue share with the automakers . included in the increase was a $ 69,144 charge related to the legal settlement that resolved outstanding claims , including ongoing audits , under our statutory license for sound recordings for the period january 1 , 2007 through december 31 , 2017. in 2017 , we recorded $ 45,100 of expense related to music royalty legal settlements and related reserves . the increase was 29 partially offset by approximately $ 88,122 , for the year ended december 31 , 2018 , related to the adoption of the new revenue standard effective as of january 1 , 2018 . 2017 vs. 2016 : for the years ended december 31 , 2017 and 2016 , revenue share and royalties were $ 1,210,323 and $ 1,108,515 , respectively , an increase of 9 % , or $ 101,808 , and increased as a percentage of total revenue . the increase was due to overall greater revenues subject to music royalties and revenue share to automakers and an increase in the statutory royalty rate applicable to our use of post-1972 recordings , which increased from 10.5 % in 2016 to 11 % in 2017. we recorded $ 45,100 and $ 45,900 of expense related to music royalty legal settlements and related reserves in 2017 and 2016 , respectively . we expect our revenue share and royalty costs to increase as our revenues grow . programming and content includes costs to acquire , create , promote and produce content . we have entered into various agreements with third parties for music and non-music programming that require us to pay license fees and other amounts . story_separator_special_tag 2018 vs. 2017 : for the years ended december 31 , 2018 and 2017 , programming and content expenses were $ 405,686 and $ 388,033 , respectively , an increase of 5 % , or $ 17,653 , and decreased as a percentage of total revenue . the increase was driven primarily by personnel-related costs , and higher music licensing costs . 2017 vs. 2016 : for the years ended december 31 , 2017 and 2016 , programming and content expenses were $ 388,033 and $ 353,779 , respectively , an increase of 10 % , or $ 34,254 , and increased as a percentage of total revenue . the increase was primarily due to the addition of video content rights , payment for which started during the third quarter of 2016 , as well as talent and personnel-related costs . we expect our programming and content expenses to increase as we offer additional programming , and renew or replace expiring agreements . customer service and billing includes costs associated with the operation and management of internal and third party customer service centers , and our subscriber management systems as well as billing and collection costs , transaction fees and bad debt expense . 2018 vs. 2017 : for the years ended december 31 , 2018 and 2017 , customer service and billing expenses were $ 382,537 and $ 385,431 , respectively , a decrease of less than 1 % , or $ 2,894 , and decreased as a percentage of total revenue . the decrease was primarily driven by lower call center costs due to lower agent rates , increased customer self-service resulting in lower contact rates and improved non-pay processes driving lower bad debt expense , partially offset by increased transaction fees from a larger subscriber base and personnel-related costs . 2017 vs. 2016 : for the years ended december 31 , 2017 and 2016 , customer service and billing expenses were $ 385,431 and $ 387,131 , respectively , a decrease of less than 1 % , or $ 1,700 , and decreased as a percentage of total revenue . the decrease was primarily due to a decline in call center agent rates and contact rates , partially offset by increased transaction fees based on a higher subscriber base . we expect our customer service and billing expenses to increase as our subscriber base grows . satellite and transmission consists of costs associated with the operation and maintenance of our terrestrial repeater networks ; satellites ; satellite telemetry , tracking and control systems ; satellite uplink facilities ; studios ; and delivery of our streaming service and connected vehicle services . 2018 vs. 2017 : for the years ended december 31 , 2018 and 2017 , satellite and transmission expenses were $ 95,773 and $ 82,747 , respectively , an increase of 16 % , or $ 13,026 , and increased as a percentage of total revenue . the increase was primarily driven by higher wireless costs associated with our connected vehicle services and higher streaming costs . 2017 vs. 2016 : for the years ended december 31 , 2017 and 2016 , satellite and transmission expenses were $ 82,747 and $ 103,020 , respectively , a decrease of 20 % , or $ 20,273 , and decreased as a percentage of total revenue . the decrease was driven by lower wireless costs associated with our connected vehicle services , and a reduction in terrestrial repeater costs as a result of the elimination of duplicative repeater sites ; partially offset by increased streaming costs . satellite and transmission costs in 2016 included a loss on disposal of certain obsolete satellite parts of $ 12,912 . 30 we expect satellite and transmission expenses to grow as costs associated with our investment in streaming services increase . cost of equipment includes costs from the sale of satellite radios , components and accessories and provisions for inventory allowance attributable to products purchased for resale in our direct to consumer distribution channels . 2018 vs. 2017 : for the years ended december 31 , 2018 and 2017 , cost of equipment was $ 30,768 and $ 35,448 , respectively , a decrease of 13 % , or $ 4,680 , and decreased as a percentage of equipment revenue . the decrease was primarily due to lower direct satellite radio sales to consumers . 2017 vs. 2016 : for the years ended december 31 , 2017 and 2016 , cost of equipment was $ 35,448 and $ 40,882 , respectively , a decrease of 13 % , or $ 5,434 , and decreased as a percentage of equipment revenue . the decrease was primarily due to lower direct satellite radio sales to distributors and consumers , partially offset by the incremental costs associated with the sale of connected vehicle devices since the acquisition of automatic . we expect cost of equipment to increase as device sales from our connected vehicle services increase . subscriber acquisition costs include hardware subsidies paid to radio manufacturers , distributors and automakers ; subsidies paid for chipsets and certain other components used in manufacturing radios ; device royalties for certain radios and chipsets ; product warranty obligations ; and freight . the majority of subscriber acquisition costs are incurred and expensed in advance of , or concurrent with , acquiring a subscriber . subscriber acquisition costs do not include advertising costs , marketing , loyalty payments to distributors and dealers of satellite radios or revenue share payments to automakers and retailers of satellite radios . 2018 vs. 2017 : for the years ended december 31 , 2018 and 2017 , subscriber acquisition costs were $ 470,336 and $ 499,492 , respectively , a decrease of 6 % , or $ 29,156 , and decreased as a percentage of total revenue . the decrease was driven by reductions to oem hardware subsidy rates , lower subsidized costs related to the transition of chipsets , and a decrease in satellite radio installations .
| 2018 vs. 2017 : for the years ended december 31 , 2018 and 2017 , advertising revenue was $ 187,569 and $ 160,347 , respectively , an increase of 17 % , or $ 27,222 . the increase was primarily due to a greater number of advertising spots sold and transmitted as well as increases in rates charged per spot . 2017 vs. 2016 : for the years ended december 31 , 2017 and 2016 , advertising revenue was $ 160,347 and $ 138,231 , respectively , an increase of 16 % , or $ 22,116 . the increase was primarily due to a greater number of advertising spots sold and transmitted as well as increases in rates charged per spot . we expect our advertising revenue to continue to grow as more advertisers are attracted to our national platform and our growing subscriber base , and as we expand our inventory by launching additional non-music channels . equipment revenue includes revenue and royalties from the sale of satellite radios , components and accessories . 2018 vs. 2017 : for the years ended december 31 , 2018 and 2017 , equipment revenue was $ 154,878 and $ 131,586 , respectively , an increase of 18 % , or $ 23,292 . the increase was driven by an increase in royalty revenue due to our transition to a new generation of chipsets . 2017 vs. 2016 : for the years ended december 31 , 2017 and 2016 , equipment revenue was $ 131,586 and $ 118,947 , respectively , an increase of 11 % , or $ 12,639 . the increase was driven by royalty revenue on certain satellite radio components starting in the second quarter of 2016 due to our transition to a new generation of chipsets and revenue from the sales of connected vehicle devices since the acquisition of automatic , partially offset by lower revenue generated through satellite radio sales to distributors and consumers and lower oem production . we expect equipment revenue to increase as royalty revenues associated with certain new chipsets increases . music royalty fee and other revenue includes amounts earned from subscribers for
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of the three , the fastest growing area is predictive testing , which is utilized by clinicians to predict a patient 's response to the various treatment options in order to deliver personalized medicine that is optimized to that patient 's particular circumstances . we estimate that the united states market for genetic and molecular testing is divided among approximately 360 laboratories . approximately two thirds of these laboratories are attached to academic institutions and primarily provide clinical services to their affiliated university hospitals and associated physicians . we believe that the remaining one third of the market is quite fragmented and that less than 20 laboratories market their services nationally . we estimate that the top 20 laboratories account for approximately 50 % of market revenues for genetic and molecular testing . we believe that the key factors influencing the rapid market growth for cancer testing include : ( i ) cancer is primarily a disease of the elderly - one in four senior citizens is likely to develop some form of cancer during the rest of their lifetime once they turn sixty , and now that the baby boomer generation has started to reach this age range , the incidence rates of cancer are rising ; ( ii ) every year more and more genes and genomic pathways are implicated in the development and or clinical course of cancer ; and ( iii ) increasingly , new drugs are being targeted to certain cancer subtypes and pathways which require companion diagnostic testing . laboratory tests are needed to identify the type and subtype of cancer and the proper treatment regimen for each individual patient in order to deliver personalized medicine to the patient . these factors have driven explosive growth in the development of new genetic and molecular tests . we estimate a $ 10-12 billion total market opportunity for cancer testing in the united states , about $ 3-5 billion of which is derived from genetic and molecular testing with the remaining portion derived from more traditional anatomic pathology testing services that are complementary to and often ordered with the genetic and molecular testing services we offer . 32 index to financial statements our focus our primary focus is to provide high complexity , cancer-related laboratory testing services to hospitals , community-based pathology practices , and clinicians throughout the united states . we currently perform analyses for hematopoietic cancers such as leukemia and lymphoma ( blood and lymphoid tumors ) and solid tumor cancers such as breast , lung , colon , and bladder cancer . for hematopoietic cancers , we typically analyze bone marrow aspirate and peripheral blood specimens . for solid tumor cancers , we typically analyze formalin fixed , paraffin embedded tissue samples or urine . the cancer testing services we offer to community-based pathologists are designed to be a natural extension of , and complementary to , the services that they perform within their own practices . we believe our relationship as a non-competitive partner to community-based pathology practices empowers them to expand their breadth of testing and provide a menu of services that matches or exceeds the level of service found in academic centers of excellence around the country . community-based pathology practices typically order our services on a tech-only basis , which allows them to participate in the diagnostic process by performing the professional interpretation services without having to make the investment in laboratory personnel or equipment needed to perform the technical component of the tests . in areas where we do not provide services to community-based pathology practices , we may directly serve oncology , dermatology , urology and other clinician practices that prefer to have a direct relationship with a laboratory for cancer-related genetic and molecular testing services . we typically service these types of clients with a global service offering where we perform both the technical and professional components of the tests ordered . increasingly , however , larger clinician practices have begun to internalize pathology testing , and our tech-only service offering allows these larger clinician practices to also participate in the diagnostic process by performing the professional interpretation services . competitive strengths turnaround times we strive to provide industry leading turnaround times for test results to our clients nationwide . by providing information to physicians in a rapid manner , they can begin treating their patients as soon as possible . we believe our average 4-5 day turn-around time for our cytogenetics testing services , our average 3-4 day turn-around time for fish testing services , and our average 1 day turn-around time for flow cytometry testing services are industry-leading benchmarks for national laboratories . our consistent timeliness of results is a competitive strength and a driver of additional testing requests by our referring physicians . quick turn-around times allow for the performance of other adjunctive tests within an acceptable diagnosis window in order to augment or confirm results and more fully inform treatment options . we believe that our rapid turnaround times are a key differentiator of neogenomics versus other national laboratories , and our clients often cite them as a key factor in their relationship with us . medical team our team of medical professionals and ph.ds . are specialists in the field of genetics and oncology . our medical team is led by our chief medical officer , dr. maher albitar , a renowned hematopathologist with extensive experience in molecular and genetic testing . prior to joining neogenomics , dr. albitar was medical director for hematopathology and oncology at the quest nichols institute and chief r & d director for hematopathology and oncology for quest diagnostics . he also served as section chief for leukemia at the university of texas m. d. anderson cancer center . in addition to dr. albitar , we currently employ five full-time m.d.s as our medical directors and pathologists , two ph.ds . as our scientific directors and cytogeneticists , and four part-time m.d.s acting as consultants and backup pathologists for case sign out purposes . story_separator_special_tag extensive tech-only service offerings we launched the first tech-only fish testing services in the united states in 2006 , and we currently have the most extensive menu of tech-only fish services in the country . indeed , we believe we are the only national laboratory offering tech-only fish services for hematopoietic cancers in the u.s. we also offer tech-only flow cytometry and immunohistochemistry testing services . these types of testing services generally allow the professional interpretation component of a test to be 33 index to financial statements billed separately from the technical component . our neofish tm , neoflow tm and other tech-only service offerings allow properly trained and credentialed community-based pathologists to extend their own practices by performing professional interpretations services , which allows them to better service the needs of their local clientele without the need to invest in the lab equipment and personnel required to perform the technical component of genetic and molecular testing . our tech-only services are designed to give pathologists the option to choose , on a case by case basis , whether they want to order just the technical information and images relating to a specific test so they can perform the professional interpretation , or order global services and receive a comprehensive test report which includes a neogenomics pathologist 's interpretation of the test results . our clients appreciate the flexibility to access neogenomics ' medical staff for difficult or complex cases or when they are otherwise unavailable to perform professional interpretations . we believe this innovative approach to serving the needs of pathology client 's results in longer term , more committed client relationships that are more akin to strategic partnerships . our extensive tech-only service offerings have differentiated neogenomics and allowed us to compete more effectively against larger , more entrenched competitors in our niche of the industry . global service offerings we also offer a full set of global services to meet the needs of those clients who are not credentialed and trained in interpreting genetic tests and who are looking for specialists to interpret the testing results for them . in our global service offerings , our lab performs the technical component of the tests and our m.d.s and ph.ds . provide the interpretation services . our professional staff is also available for post testing consultative services . these clients rely on the expertise of our medical team to give them the answers they need in a timely manner to help inform their diagnoses and treatment decisions . many of our tech-only clients also rely on our medical team for difficult or challenging cases by ordering our global testing services on a case by case basis . our genetic pathology solutions ( gps ) report summarizes all relevant case data from our global services on one summary report . when providing global services , neogenomics performs both the technical and professional component of the test , which results in a higher reimbursement level . client education programs we believe we have one of the most extensive client education programs in the genetic and molecular testing industry . we train pathologists how to use and interpret genetic testing services so that they can then participate in our tech-only service offerings . our educational programs include an extensive library of on-demand training modules , online courses , and custom tailored on-site training programs that are designed to prepare clients to utilize our tech-only services . each year , we also regularly sponsor seminars and webinars on emerging topics of interest in our field . our medical staff is involved in many aspects of our training programs . laboratory information system ( lis ) we believe we have a state-of-the-art laboratory information system ( lis ) that interconnects our locations and provides flexible reporting solutions to clients . this system allows us to standardize testing and deliver uniform test results and images throughout our network , regardless of the location that any specific portion of a test is performed within our network . this allows us to move specimens and image analysis work between locations to better balance our workload . our lis also allows us to offer highly specialized and customizable reporting solutions to our tech-only clients . for instance , our tech-only neofish tm and neoflow tm applications allow our community-based pathologist clients to tailor individual reports to their specifications and incorporate only the images they select and then issue and sign-out such reports from our system with their own logos at the top . our customized reporting solution even allows our clients to incorporate test results performed on ancillary tests not performed at neogenomics into summary report templates . this feature has been well-received by clients . in may 2011 , we obtained the source code to our lis . this has given us greater control and flexibility over the customized functionality we develop and offer to clients and allows us to make improvements in a more timely manner . 34 index to financial statements national direct sales force our direct sales force has been trained extensively in cancer genetic testing and consultative selling skills to service the needs of clients . our sales representatives ( territory business managers ) are organized into three regions ( northeast , southeast and west ) . these sales representatives all utilize salesforce.com to manage their territories , and we have integrated all of the important customer care functionality within our lis into salesforce.com so that our territory business managers can stay on top of emerging issues and opportunities within their regions . as of january 31 , 2012 , we had twenty territory business managers , one product specialist , and three regional managers . client care our customer care specialists ( ccs ) are organized by region into territories that service not only our external clients , but also work very closely with and support our sales team . a client receives personalized assistance when dealing with their dedicated ccs because each ccs understands their clients ' specific needs .
| we also anticipate a substantial investment in research and development as we develop new genetic tests . however , we expect general and administrative expenses to continue to decline as a percentage of our revenue as our case volumes increase and as we continue to develop more operating leverage in our business . other ( income ) expense other income and expense primarily represents income from research and development grants with the federal government , the interest expense we incur on our borrowing arrangements ( primarily comprised of interest payable on advances under our revolving credit facility with capital source and interest paid on capital lease obligations ) offset by the interest income we earn on cash deposits . income from research and development tax grants was $ 0.0 and $ 0.4 million in the years ended december 31 , 2011 and december 31 , 2010 , respectively . interest expense increased from approximately $ 0.7 million in 2010 to $ 0.8 million in 2011 , reflecting higher borrowings , particularly related to our revolving credit facility and capital lease obligations as we acquired additional equipment to support our increasing volume of business . net loss as a result of the foregoing , our net loss declined by $ 2.2 million , or 64.4 % to approximately $ 1.2 million for the year ended december 31 , 2011 as compared to a net loss of $ 3.3 million for the year ended december 31 , 2010. non-gaap measures adjusted ebitda is defined by neogenomics as net income ( loss ) from continuing operations before ( i ) interest expense , ( ii ) tax expense and therapeutic discovery tax grants , ( iii ) depreciation and amortization expense , ( iv ) non-cash stock-based compensation and warrant amortization expense and ( v ) other extraordinary or non-recurring charges . neogenomics believes that adjusted ebitda provides a more consistent measurement of operating performance and trends across reporting periods by excluding these cash and non-cash items of expense not directly related to ongoing operations
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this practice may prevent us from receiving the full advantage of any increases in oil and gas prices above the maximum fixed amount specified in the derivative agreements and subjects us to the credit risk of the counterparties to such agreements . since all of our derivative contracts are accounted for under mark-to-market accounting , we expect continued volatility in gains and losses on mark-to-market derivative contracts in our consolidated statement of operations as changes occur in the nymex price indices . critical accounting estimates : proved oil and gas reserves proved oil and gas reserves directly impact financial accounting estimates , including depreciation , depletion and amortization . proved reserves represent estimated quantities of natural gas , crude oil , condensate , and natural gas liquids that geological and engineering data demonstrate , with reasonable certainty , to be recoverable in future years from known reservoirs under economic and operating conditions existing at the time the estimates were made . the process of estimating quantities of proved oil and gas reserves is very complex , requiring significant subjective decisions in the evaluation of all available geological , engineering and economic data for each reservoir . the data for a given reservoir may also change substantially over time as a result of numerous factors including , but not limited to , additional development activity , evolving production history and continual reassessment of the viability of production under varying economic conditions . consequently , material revisions ( upward or downward ) to existing reserve estimates may occur from time to time . 29 depreciation , depletion and amortization for oil and gas properties the quantities of estimated proved oil and gas reserves are a significant component of our calculation of depletion expense and revisions in such estimates may alter the rate of future expense . holding all other factors constant , if reserves were revised upward or downward , earnings would increase or decrease respectively . depreciation , depletion and amortization of the cost of proved oil and gas properties are calculated using the unit-of-production method . the reserve base used to calculate depletion , depreciation or amortization is the sum of proved developed reserves and proved undeveloped reserves for leasehold acquisition costs and the cost to acquire proved properties . the reserve base includes only proved developed reserves for lease and well equipment costs , which include development costs and successful exploration drilling costs . estimated future dismantlement , restoration and abandonment costs , net of salvage values , are taken into account . liquidity and capital resources : net cash provided by operating activities for the year ended december 31 , 2012 was $ 40 million , compared to $ 41 million in the prior year . excluding the effects of significant unforeseen expenses or other income , our cash flow from operations fluctuates primarily because of variations in oil and gas production and prices or changes in working capital accounts . our oil and gas production will vary based on actual well performance but may be curtailed due to factors beyond our control . our realized oil and gas prices vary due to world political events , supply and demand of products , product storage levels , and weather patterns . we sell the vast majority of our production at spot market prices . accordingly , product price volatility will affect our cash flow from operations . to mitigate price volatility we sometimes lock in prices for some portion of our production through the use of derivatives . if our exploratory drilling results in significant new discoveries , we will have to expend additional capital in order to finance the completion , development , and potential additional opportunities generated by our success . we believe that , because of the additional reserves resulting from the successful wells and our record of reserve growth in recent years , we will be able to access sufficient additional capital through additional bank financing . the company has in place both a stock repurchase program and a limited partnership interest repurchase program . spending under these programs in 2012 was $ 5.1 million . the company expects continued spending under these programs in 2013. as of march 1 , 2013 , the company maintains a credit facility totaling $ 250 million , with a borrowing base of $ 145 million . the bank reviews the borrowing base semi-annually and , at their discretion , may decrease or propose an increase to the borrowing base relative to a redetermined estimate of proved oil and gas reserves . our oil and gas properties are pledged as collateral for the line of credit and we are subject to certain financial and operational covenants defined in the agreement . we are currently in compliance with these covenants . if we do not comply with these covenants on a continuing basis , the lenders have the right to refuse to advance additional funds under the facility and or declare all principal and interest immediately due and payable . it is our goal to increase our oil and gas reserves and production through the acquisition and development of oil and gas properties . we continued our drilling program in our west texas and mid-continent regions . during 2013 , we intend to drill a total of approximately 30 gross ( 20 net ) wells , primarily in the west texas area , at a net cost of $ 36 million . we also continue to explore and consider opportunities to further expand our oilfield servicing revenues through additional investment in field service equipment . however , the majority of our capital spending is discretionary , and the ultimate level of expenditures will be dependent on our assessment of the oil and gas business environment , the number and quality of oil and gas prospects available , the market for oilfield services , and oil and gas business opportunities in general . 30 story_separator_special_tag of $ 1.10 million related story_separator_special_tag this practice may prevent us from receiving the full advantage of any increases in oil and gas prices above the maximum fixed amount specified in the derivative agreements and subjects us to the credit risk of the counterparties to such agreements . since all of our derivative contracts are accounted for under mark-to-market accounting , we expect continued volatility in gains and losses on mark-to-market derivative contracts in our consolidated statement of operations as changes occur in the nymex price indices . critical accounting estimates : proved oil and gas reserves proved oil and gas reserves directly impact financial accounting estimates , including depreciation , depletion and amortization . proved reserves represent estimated quantities of natural gas , crude oil , condensate , and natural gas liquids that geological and engineering data demonstrate , with reasonable certainty , to be recoverable in future years from known reservoirs under economic and operating conditions existing at the time the estimates were made . the process of estimating quantities of proved oil and gas reserves is very complex , requiring significant subjective decisions in the evaluation of all available geological , engineering and economic data for each reservoir . the data for a given reservoir may also change substantially over time as a result of numerous factors including , but not limited to , additional development activity , evolving production history and continual reassessment of the viability of production under varying economic conditions . consequently , material revisions ( upward or downward ) to existing reserve estimates may occur from time to time . 29 depreciation , depletion and amortization for oil and gas properties the quantities of estimated proved oil and gas reserves are a significant component of our calculation of depletion expense and revisions in such estimates may alter the rate of future expense . holding all other factors constant , if reserves were revised upward or downward , earnings would increase or decrease respectively . depreciation , depletion and amortization of the cost of proved oil and gas properties are calculated using the unit-of-production method . the reserve base used to calculate depletion , depreciation or amortization is the sum of proved developed reserves and proved undeveloped reserves for leasehold acquisition costs and the cost to acquire proved properties . the reserve base includes only proved developed reserves for lease and well equipment costs , which include development costs and successful exploration drilling costs . estimated future dismantlement , restoration and abandonment costs , net of salvage values , are taken into account . liquidity and capital resources : net cash provided by operating activities for the year ended december 31 , 2012 was $ 40 million , compared to $ 41 million in the prior year . excluding the effects of significant unforeseen expenses or other income , our cash flow from operations fluctuates primarily because of variations in oil and gas production and prices or changes in working capital accounts . our oil and gas production will vary based on actual well performance but may be curtailed due to factors beyond our control . our realized oil and gas prices vary due to world political events , supply and demand of products , product storage levels , and weather patterns . we sell the vast majority of our production at spot market prices . accordingly , product price volatility will affect our cash flow from operations . to mitigate price volatility we sometimes lock in prices for some portion of our production through the use of derivatives . if our exploratory drilling results in significant new discoveries , we will have to expend additional capital in order to finance the completion , development , and potential additional opportunities generated by our success . we believe that , because of the additional reserves resulting from the successful wells and our record of reserve growth in recent years , we will be able to access sufficient additional capital through additional bank financing . the company has in place both a stock repurchase program and a limited partnership interest repurchase program . spending under these programs in 2012 was $ 5.1 million . the company expects continued spending under these programs in 2013. as of march 1 , 2013 , the company maintains a credit facility totaling $ 250 million , with a borrowing base of $ 145 million . the bank reviews the borrowing base semi-annually and , at their discretion , may decrease or propose an increase to the borrowing base relative to a redetermined estimate of proved oil and gas reserves . our oil and gas properties are pledged as collateral for the line of credit and we are subject to certain financial and operational covenants defined in the agreement . we are currently in compliance with these covenants . if we do not comply with these covenants on a continuing basis , the lenders have the right to refuse to advance additional funds under the facility and or declare all principal and interest immediately due and payable . it is our goal to increase our oil and gas reserves and production through the acquisition and development of oil and gas properties . we continued our drilling program in our west texas and mid-continent regions . during 2013 , we intend to drill a total of approximately 30 gross ( 20 net ) wells , primarily in the west texas area , at a net cost of $ 36 million . we also continue to explore and consider opportunities to further expand our oilfield servicing revenues through additional investment in field service equipment . however , the majority of our capital spending is discretionary , and the ultimate level of expenditures will be dependent on our assessment of the oil and gas business environment , the number and quality of oil and gas prospects available , the market for oilfield services , and oil and gas business opportunities in general . 30 story_separator_special_tag of $ 1.10 million related
| our realized prices at the well head decreased an average of $ 0.37 per barrel , or less than 1 % on crude oil and $ 1.93 per mcf , or 30 % on natural gas during 2012 as compared to 2011. our crude oil production increased by 117,000 barrels , or 19 % from 628,000 barrels for the year ended december 31 , 2011 to 745,000 barrels for the year ended december 31 , 2012. our natural gas production decreased by 285 mmcf , or 6 % from 5,000 mmcf for the year ended december 31 , 2011 to 4,715 mmcf for the year ended december 31 , 2012. the net increase in crude oil production volumes are a result of continued drilling success in west texas and the gulf coast regions as we place new wells into production partially offset by the natural decline of existing properties . the natural gas volume decreases are primarily due to the decline of the primary natural gas producing offshore properties , slightly offset by natural gas production from wells in the west texas region recently placed into production . the following table summarizes the primary components of production volumes and average sales prices realized for the years ended december 31 , 2012 and 2011 ( excluding realized gains and losses from derivatives ) . replace_table_token_12_th realized net gains on derivative instruments include net gains of $ 0.5 million on the settlements of crude oil and natural gas derivatives for the year ended december 31 , 2012. during 2012 , we unwound and monetized crude oil swaps with original settlement dates from january 2012 through december 2013 for net proceeds of $ 1.0 million . the $ 1.0 million gain associated with these early settlement transactions is included in realized gain on derivative instruments for the year ended december 31 , 2012. during 2011 , we unwound and monetized 31 crude oil swaps and collars with original settlement dates from september 2011 through december 2014 for net proceeds of $ 3.4 million and natural gas swaps with original settlement dates from october 2011 through december 2012 for net proceeds of $ 2.9 million . the $ 6.3 million gain associated with these early settlement transactions is included in realized gain on derivative instruments for the year ended december 31 , 2011. oil and gas prices received including the impact of derivatives but excluding the early settlement transactions were : replace_table_token_13_th we do not apply hedge accounting
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these factors include , among others , credit market conditions , the current interest rate environment , including the volatility of interest rates and investors ' forecasts of future interest rates , economic and political conditions in the united states , europe and elsewhere , and the consolidation or contraction of our broker-dealer and institutional investor clients . in 2018 , our business faced a mix of trading environments that impacted our market share and trading volumes . in the first quarter , the trading environment was generally supportive of our business due to a number of factors , including increased volatility resulting from the end of quantitative easing in the u.s. and europe , higher interest rates and a reduced trading emphasis on new bond issues in favor of the secondary markets in which we operate . in the second and third quarters , however , overall trading conditions were less favorable as credit spreads narrowed , volatility declined and there was an increase in the issuance of new high-grade corporate bond issues . trading conditions improved considerably in september and the fourth quarter as credit spreads widened and credit spread volatility increased . new issue activity was lighter than normal , and investment managers experienced significant outflows , resulting in increased secondary trading volumes . in addition , the increase in yields and flattening of the yield curve in 2018 resulted in lower duration of bonds traded on the platform , which negatively impacted our fee capture rate . our results of operations are also impacted by the overall level of activity in our core products . in 2018 , market volumes in the u.s. high-grade market increased 5 % compared to 2017 driven by the increased market volatility , trade war tensions and the year-over-year decline of u.s. high-grade new issuance of 10 % . international demand for u.s. high-grade bonds also declined in 2018 as a result of an increase in foreign exchange hedging costs . estimated secondary markets trading volumes for u.s. high-yield bonds , emerging market bonds and eurobonds , however , declined compared to 2017 as a slowing global economy lead to wider credit spreads and a greater emphasis on risk reduction . as a result , secondary market liquidity was tighter , which contributed to the year-over-year market volume decline for these products . competitive landscape the global fixed-income securities industry generally , and the electronic financial services markets in which we engage in particular , are highly competitive , and we expect competition to intensify in the future . sources of competition for us will continue to include , among others , bond trading conducted directly between broker-dealers and their institutional investor clients over the telephone or electronically and other multi-dealer or all-to-all trading platforms . competitors , including companies in which some of our broker-dealer clients have invested , have developed or acquired electronic trading platforms or have announced their intention to explore the development of electronic platforms or information networks that may compete with us . in general , we compete on the basis of a number of key factors , including , among others , the liquidity provided on our platform , the magnitude and frequency of price improvement enabled by our platform , total transaction costs and the quality and speed of execution . we believe that our ability to grow volumes and revenues will largely depend on our performance with respect to these factors . our competitive position is also enhanced by the familiarity and integration of our broker-dealer and institutional investor clients with our electronic trading platform and other systems . we have focused on the unique aspects of the credit markets we serve in the development of our platform , working closely with our clients to provide a system that is suited to their needs . regulatory environment our industry has been and is subject to continuous regulatory changes and may become subject to new regulations or changes in the interpretation or enforcement of existing regulations , which could require us to incur significant costs . following the global financial crisis and other recent events in the financial industry , governments and regulators in both the united states and europe called for increased regulation and transparency in the over-the-counter markets . as a result , the dodd-frank act was enacted in 2010 and , among other things , mandated the clearing of swaps through regulated central clearing organizations and mandatory trading of those instruments through either regulated exchanges or sefs , in each case , subject to certain key exceptions . 45 various rules promulgated since the financial crisis have adversely affected our bank-affiliated broker-dealer clients ' ability to make markets in a variety of fixed-income securities , which could negatively impact the level of liquidity and pricing avail able on our trading platform . for example , while the volcker rule does not apply directly to us , the volcker rule bans proprietary trading by banks and their affiliates . in addition , enhanced leverage ratios applicable to large banking organizations in the u.s. and europe require such organizations to strengthen their balance sheets and may limit their ability or willingness to make markets on our trading platform . since the presidential election in november 2016 , however , the u.s. has pursued a path of financial deregulation and has rolled back certain provisions of the dodd-frank act . there has also been a growing focus on u.s. capital markets regulations as the u.s. department of the treasury issued a report with recommendations to improve corporate bond liquidity and the regulations that implement the volcker rule . in 2017 , the sec established a fixed income market structure advisory committee in order to provide the sec with diverse perspectives on the structure and operations of the u.s. fixed-income markets , as well as advice and recommendations on matters related to fixed-income market structure . story_separator_special_tag in europe , mifid ii and mifir were implemented in january 2018 and introduced significant changes in market structure designed to : ( i ) enhance pre- and post-trade transparency for fixed-income instruments with the scope of requirements calibrated for liquidity , ( ii ) increase and enhance post-trade reporting obligations with a requirement to submit post-trade data to an arm , ( iii ) ensure trading of certain derivatives occurs on regulated trading venues and ( iv ) establish a consolidated tape for trade data . mifid ii has caused us to expend significantly more compliance , business and technology resources , incur additional operational costs and create additional regulatory exposure for our trading and post-trade services businesses . while we generally believe the net impact of the rules and regulations may be positive for our businesses , unintended consequences of the rules and regulations may adversely affect us in ways yet to be determined . in march 2017 , the u.k. notified the european council of its intention to leave the e.u . ( commonly referred to as “ brexit ” ) . by invoking article 50 of the lisbon treaty , the u.k. is currently set to leave the e.u . in march 2019. following brexit , our u.k. subsidiaries will not be able to rely on the existence of a “ passporting ” regime that allows immediate access to the single e.u . market . although current discussions between the u.k. and the e.u . regarding a transitional period following march 2019 envisage a temporary continuation of the existing passporting rights during such period , we have established new subsidiaries in the e.u . in order to provide our trading platform and certain post-trade services to clients in the e.u . following brexit . rapid technological changes we must continue to enhance and improve our electronic trading platform . the electronic financial services industry is characterized by increasingly complex systems and infrastructures and new business models . our future success will depend on our ability to enhance our existing products and services , develop and or license new products and technologies that address the increasingly sophisticated and varied needs of our existing and prospective broker-dealer and institutional investor clients and respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis . we have been issued 13 patents covering our most significant trading protocols and other aspects of our trading system technology . trends in our business the majority of our revenues are derived from commissions for transactions executed on our platform between and among our institutional investor and broker-dealer clients and monthly distribution fees . we believe that there are five key variables that impact the notional value of such transactions on our platform and the amount of commissions and distribution fees earned by us : the number of participants on our platform and their willingness to originate transactions through the platform ; the number of institutional investor and broker-dealer clients on the platform and the frequency and competitiveness of the price responses they provide on our platform ; the number of markets for which we make trading available to our clients ; the overall level of activity in these markets ; and the level of commissions that we collect for trades executed through the platform . we believe that overall corporate bond market trading volume is affected by various factors including the absolute levels of interest rates , the direction of interest rate movements , the level of new issues of corporate bonds and the volatility of corporate bond spreads versus u.s. treasury securities . because a significant percentage of our revenue is tied directly to the volume of securities traded on our platform , it is likely that a general decline in trading volumes , regardless of the cause of such decline , would reduce our revenues and have a significant negative impact on profitability . 46 commission revenue commissions are generally calculated as a percentage of the notional dollar volume of bonds traded on our platform and vary based on the type , size , yield and maturity of the bond traded . under our disclosed trading transaction fee plans , bonds that are more actively traded or that have shorter maturities are generally charged lower commissions , while bonds that are less actively traded or that have longer maturities generally command higher commissions . for trades that we execute between and among institutional investor and broker-dealer clients on a matched principal basis by serving as counterparty to both the buyer and the seller , we earn our commission through the difference in price between the two trades . u.s. high-grade corporate bond commissions . our u.s. high-grade corporate bond fee plans generally incorporate variable transaction fees and fixed distribution fees billed to our broker-dealer clients on a monthly basis . certain dealers participate in fee programs that do not contain monthly distribution fees and instead incorporate additional per transaction execution fees and minimum monthly fee commitments . under these fee plans , we electronically add the transaction fee to the spread quoted by the broker-dealer client . the u.s. high-grade transaction fee is generally designated in basis points in yield and , as a result , is subject to fluctuation depending on the duration of the bond traded . the average u.s. high-grade fees per million may vary in the future due to changes in yield , years-to-maturity and nominal size of bonds traded on our platform . distribution fees include any unused monthly fee commitments under our variable fee plans . other credit commissions . other credit includes eurobonds , emerging markets bonds , high-yield bonds and municipal bonds . commissions for other credit products generally vary based on the type of the instrument traded using standard fee schedules . during the third quarter of 2017 , we changed our high-yield fee plan structure .
| 50 revenues our revenues for the years ended december 31 , 2018 and 2017 , and the resulting dollar and percentage changes , were as follows : replace_table_token_2_th commissions our commission revenues for the years ended december 31 , 2018 and 2017 , and the resulting dollar and percentage changes , were as follows : replace_table_token_3_th variable transaction fees the following table shows the extent to which the increase in variable commissions for the year ended december 31 , 2018 was attributable to changes in transaction volumes and variable transaction fees per million : replace_table_token_4_th 51 our trading volume for each of the years presented was as follows : replace_table_token_5_th for volume reporting purposes , transactions in foreign currencies are converted to u.s. dollars at average monthly rates . the 12.5 % increase in our u.s. high-grade volume was principally due to an increase in our estimated market share coupled with growth in estimated overall market volume . our estimated market share of total u.s. high-grade corporate bond volume increased to 18.1 % for the year ended december 31 , 2018 from 16.9 % for the year ended december 31 , 2017. estimated u.s. high-grade trace volume increased by 5.2 % to $ 5.1 trillion for the year ended december 31 , 2018 from $ 4.9 trillion for the year ended december 31 , 2017. other credit volumes increased by 26.2 % for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , primarily due to increases of 30.7 % in eurobond volume , 26.7 % in high-yield bond volume and 23.3 % in emerging markets bond volume . our estimated market share of u.s. high-yield trace volume increased to 8.9 % for the year ended december 31 , 2018 from 6.8 % for the year ended december 31 , 2017. our average variable transaction fee per million for the years ended december 31 , 2018 and 2017 was as follows : replace_table_token_6_th total u.s. high-grade average variable transaction fee per million decreased to $ 156 per million for the year ended december 31 , 2018 from $ 166 per
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the following table shows revenues from each of these types of contracts as a percentage of total revenues for the periods presented . replace_table_token_3_th under cost-reimbursable contracts , there is limited financial risk , because we are reimbursed for all allowable direct and indirect costs . however , profit margins on this type of contract tend to be lower than on time-and-materials and fixed-price contracts . cost of services cost of services primarily includes direct costs incurred to provide services and solutions to our customers . the most significant portion of these costs are direct labor costs , including salaries and wages , plus associated fringe benefits of our employees directly serving customers , in addition to the related management , facilities and infrastructure costs . cost of services also includes other direct costs , such as the costs of subcontractors and outside consultants and third-party materials , including hardware or software that we purchase and provide to the customer as part of an integrated solution . changes in the mix of services and equipment provided under our contracts can result in variability in our contract margins . as we earn higher profits on our own labor services , we expect the ratio of cost of services as a percent of revenues to decline when our labor services mix increases relative to subcontracted labor or third-party materials . conversely , as subcontracted labor or third-party material purchases for customers increases relative to our own labor services , we expect the ratio of cost of services as a percent of revenues to increase . the proportion that cost of services bears to revenues varies in part based on our mix of revenues by contract type . in general , cost-reimbursable contracts are the least profitable of our government contracts but offer the lowest risk of loss . under time-and-materials contracts , to the extent that our actual labor costs are higher or lower than the billing rates under the contract , our profit under the contract may either be greater or less than we anticipated or we may suffer a loss under the contract . in general , we realize a higher profit margin on work performed under time-and-materials contracts than cost-reimbursable contracts . fixed-price contracts generally offer higher profit margin opportunities but can involve greater financial risk because we bear the impact of cost overruns in return for the full benefit of any cost savings . general and administrative expenses general and administrative expenses include the salaries and wages , plus associated fringe benefits of our employees not performing work directly for customers , and associated facilities costs . among the functions covered by these costs are corporate business development , bid and proposal , contracts administration , finance and accounting , legal , corporate governance and executive and senior management . in addition , we included stock-based compensation , as well as depreciation and amortization expenses related to the general and administrative function . depreciation and amortization expenses include the depreciation of computers , furniture and other equipment , the amortization of third party software we use internally , leasehold improvements and intangible assets . intangible assets include customer relationships and contract backlogs acquired in business combinations , and are amortized over their estimated useful lives . interest expense interest expense is primarily related to interest expense incurred or accrued under our outstanding borrowings on our debt and deferred financing charges . 25 interest income interest income is primarily from cash on hand and late invoice payments by the government . story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; font-size:10pt ; '' > the decrease in interest expense was primarily due to the redemption of the 7.25 % senior unsecured notes on april 15 , 2014 . other income ( expense ) , net the increase in other income was due to the gain on the sale of mcsi in 2015. provision for income taxes our effective tax rate is affected by recurring items , such the relative amount of income we earn in various taxing jurisdictions and their tax rates . it is also affected by discrete items that may occur in any given year , but are not consistent from year-to-year . our effective income tax rates were 40.2 % and 40.0 % for the years ended december 31 , 2015 and 2014 , respectively . equity in gains ( losses ) of unconsolidated subsidiaries the increase in equity in gains ( losses ) of unconsolidated subsidiaries is primarily due to earnings from the gentech partners joint venture and the northstar technology systems , llc , offset by additional losses from the fluor-mantech logistics , llc . backlog for the years ended december 31 , 2016 , 2015 and 2014 our backlog was $ 4.9 billion , $ 4.1 billion and $ 3.3 billion , respectively , of which $ 1.0 billion , $ 1.0 billion and $ 0.8 billion , respectively , was funded backlog . the increase in our backlog is due to our receipt of new awards . the current trend is that contracts are awarded for a longer term , which increases the time over which backlog will be recognized as revenue . backlog represents estimates that we calculate on a consistent basis . for additional information on how we compute backlog , see “ backlog ” in item 1 “ business. ” liquidity and capital resources historically , our primary liquidity needs have been the financing of acquisitions , working capital , payment under our cash dividend program and capital expenditures . our primary sources of liquidity are cash provided by operations and our revolving credit facility . on december 31 , 2016 , our cash and cash equivalents balance was $ 64.9 million . there were no outstanding borrowings under our revolving credit facility at december 31 , 2016 . at december 31 , 2016 , we were contingently liable under letters of credit totaling $ 23.1 million , which reduced our ability to borrow under our revolving credit facility by that amount . story_separator_special_tag the maximum available borrowings under our revolving credit facility at december 31 , 2016 were $ 476.9 million . on april 15 , 2014 , we paid the redemption price plus accrued and unpaid interest on our 7.25 % senior unsecured notes . the 7.25 % senior unsecured notes were redeemed at a redemption price of 103.625 % of the principal amount of the outstanding 7.25 % senior unsecured notes , or 28 $ 207.3 million . generally , cash provided by operating activities is adequate to fund our operations , including payments under our regular cash dividend program . due to short-term fluctuations in our cash flows and level of operations , it may become necessary from time-to-time to increase borrowings under our revolving credit facility to meet cash demands . cash flows from operating activities our operating cash flow is primarily affected by our ability to invoice and collect from our clients in a timely manner , our ability to manage our vendor payments and the overall profitability of our contracts . we bill most of our customers monthly after services are rendered . our accounts receivable days sales outstanding ( dso ) were 73 and 68 for the years ended december 31 , 2016 and 2015 , respectively . the increase in dso is primarily related to invoicing on two large classified contracts as well as the acquisition of edaptive adding accounts receivable with only two weeks of revenue . in 2017 , we expect dso levels to return to levels consistent with 2015. for the years ended december 31 , 2016 , 2015 and 2014 , our net cash flows from operating activities were $ 95.8 million , $ 153.9 million and $ 126.9 million , respectively . the decrease in net cash flows from operating activities during the year ended december 31 , 2016 when compared to the same period in 2015 was primarily due to timing on the collection of our receivables . the increase in net cash flows from operating activities during the year ended december 31 , 2015 compared to the same period in 2014 was primarily due to significant improvements in our dso , our ability to manage vendor payments and higher net income . cash flows from investing activities our cash flow from investing activities consists primarily of business combinations , purchases of property and equipment and investments in capitalized software for internal use . for the years ended december 31 , 2016 , 2015 and 2014 , our net cash outflows from investing activities were $ 72.1 million , $ 112.7 million and $ 135.9 million , respectively . for the year ended december 31 , 2016 , our net cash outflows from investing activities were primarily due to the acquisition of oec and edaptive as well as capital expenditures . for the year ended december 31 , 2015 , our net cash outflows from investing activities were primarily due to the acquisitions of knowledge consulting group , inc. ( kcg ) and welkin associates , ltd. ( welkin ) , our investment in countertack inc. and capital expenditures . for the year ended december 31 , 2014 , our net cash outflows from investing activities were primarily due to the acquisitions of 7delta inc. ( 7delta ) and allied technology group , inc. ( atg ) and capital expenditures . cash flows from financing activities for the years ended december 31 , 2016 , 2015 and 2014 , our net cash outflows from financing activities were $ 10 thousand , $ 23.6 million and $ 236.3 million , respectively . for the year ended december 31 , 2016 , our net cash outflows from financing activities were primarily due to dividends paid offset by the proceeds from the exercise of stock options and the excess tax benefits from the exercise of stock options . for the year ended december 31 , 2015 , our net cash outflows from financing activities were primarily due to our dividend payments . for the year ended december 31 , 2014 , our net cash outflows from financing activities were due to the repayment of our senior unsecured notes and dividends paid . revolving credit facility we maintain a credit agreement with a syndicate of lenders led by bank of america , n.a. , as sole administrative agent . the credit agreement provides for a $ 500 million revolving credit facility , with a $ 50 million letter of credit sublimit and a $ 30 million swing line loan sublimit . the credit agreement also includes an accordion feature that permits us to arrange with the lenders for the provision of additional commitments . the maturity date is june 13 , 2019 . on may 17 , 2016 , we amended the credit agreement , which among other things increased the letter of credit sublimit from $ 25 million to $ 50 million . we deferred $ 1.8 million in debt issuance costs , cumulatively over the agreement , which are amortized over the term of the credit agreement . borrowings under our credit agreement are collateralized by substantially all the assets of us and our material subsidiaries ( as defined in the credit agreement ) and bear interest at one of the following variable rates as selected by us at the time of borrowing : a london interbank offer rate ( libor ) based rate plus market spreads ( 1.25 % to 2.25 % based on our consolidated total leverage ratio ) or bank of america 's base rate plus market spreads ( 0.25 % to 1.25 % based on our consolidated total leverage ratio ) . the terms of the credit agreement permit prepayment and termination of the loan commitments at any time , subject to certain conditions . the credit agreement requires us to comply with specified financial covenants , including the maintenance of certain consolidated leverage ratios and a certain consolidated coverage ratio .
| in 2017 , we expect general and administrative expenses as a percentage of revenues to remain relatively stable as compared to 2016 . other income ( expense ) , net the decrease in other income ( expense ) , net was due to the gain on the sale of mcsi during 2015. in 2017 , we expect other income ( expense ) , net will remain consistent with 2016 levels . provision for income taxes our effective tax rate is impacted by recurring items , such as tax rates and the relative amount of income we earn in various taxing jurisdictions and their tax rates . it is also affected by discrete items that may occur in any given year , but are not consistent from year-to-year . our effective income tax rate was 37.5 % and 40.2 % for each of the years ended december 31 , 2016 and 2015 , respectively . the decrease in our effective tax rate is primarily due to favorable performance in our executive deferred compensation plan and changes in our state tax apportionments , as well as one-time items . in 2017 , assuming no changes in federal tax legislation , we expect our effective tax rate to increase slightly from 2016 . year ended december 31 , 2015 compared to year ended december 31 , 2014 consolidated statements of income the following table sets forth certain items from our consolidated statements of income and the relative percentages that certain items of expense and earnings bear to revenues as well as the year-over-year change from december 31 , 2014 to december 31 , 2015 . replace_table_token_5_th revenues the primary driver of our decrease in revenues relates to reduced requirements supporting command , control , communications , computers , intelligence , surveillance and reconnaissance ( c4isr ) systems and mine-resistance ambush-protected vehicles to the u.s. army , including reductions in overseas contingency operations ( oco ) as a result of the withdrawal of u.s. forces and reduction
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our inventory consists of raw materials as well as finished goods and work-in-process that include material , labor and manufacturing overhead costs . given the nature of our substrate products , and the materials used in the manufacturing process , the wafers and ingots comprising work-in-process may be held in inventory for up to two years and three years , respectively , as the risk of obsolescence for these materials is low . we routinely evaluate the levels of our inventory in light of current market conditions in order to identify excess and obsolete inventory and provide a valuation allowance for certain inventories based upon the age and quality of the product and the projections for sale of the completed products . as of december 31 , 2011 and 2010 , we had an inventory reserve of $ 12.3 million and $ 11.5 million , respectively , for excess and obsolete inventory . if actual demand for our products were to be substantially lower than estimated , additional inventory adjustments for excess or obsolete inventory might be required , which could have a material impact on our business , financial condition and results of operations . impairment of investments we classify our investments in debt and equity securities as available-for-sale securities in accordance with asc topic 320 , investments—debt and equity securities ( “ asc 320 ” ) . all available-for-sale securities with a quoted market value below cost ( or adjusted cost ) are reviewed in order to determine whether the decline is other-than-temporary . factors considered in determining whether a loss is temporary include the magnitude of the decline in market value , the length of time the market value has been below cost ( or adjusted cost ) , credit quality , and our ability and intent to hold the securities for a period of time sufficient to allow for any anticipated recovery in market value . 30 we invest in equity instruments of privately-held companies for business and strategic purposes . these investments are classified as other assets and are accounted for under the cost method as we do not have the ability to exercise significant influence over their operations . we monitor our investments for impairment and record reductions in carrying value when events or changes in circumstances indicate that the carrying value may not be recoverable . determination of impairment is highly subjective and is based on a number of factors , including an assessment of the strength of investee 's management , the length of time and extent to which the fair value has been less than our cost basis , the financial condition and near-term prospects of the investee , fundamental changes to the business prospects of the investee , share prices of subsequent offerings , and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in our carrying value . we had no write-downs in 2011 , 2010 or 2009. fair value of investments in the current market environment , the assessment of the fair value of investment instruments can be difficult and subjective . although the volume of trading activity of certain investment instruments has increased in 2011 , the rapid changes occurring in today 's financial markets may lead to changes in the fair value of financial instruments in relatively short periods of time . asc 820 establishes three levels of inputs that may be used to measure fair value . level 1 instruments represent quoted prices in active markets . therefore , determining fair value for level 1 instruments does not require significant management judgment , and the estimation is not difficult . level 2 instruments include observable inputs other than level 1 prices , such as quoted prices for identical instruments in markets with insufficient volume or infrequent transactions ( less active markets ) , issuer credit ratings , non-binding market consensus prices that can be corroborated with observable market data , model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities , or quoted prices for similar assets or liabilities . these level 2 instruments require more management judgment and subjectivity compared to level 1 instruments , including : ● determining which instruments are most similar to the instrument being priced requires management to identify a sample of similar securities based on the coupon rates , maturity , issuer , credit rating , and instrument type , and subjectively select an individual security or multiple securities that are deemed most similar to the security being priced . ● determining whether a market is considered active requires management judgment . our assessment of an active market for our marketable debt instruments generally takes into consideration activity during each week of the one-month period prior to the valuation date of each individual instrument , including the number of days each individual instrument trades and the average weekly trading volume in relation to the total outstanding amount of the issued instrument . ● determining which model-derived valuations to use in determining fair value requires management judgment . when observable market prices for identical securities or similar securities are not available , we price our marketable debt instruments using non-binding market consensus prices that are corroborated with observable market data or pricing models , such as discounted cash flow models , with all significant inputs derived from or corroborated with observable market data . level 3 instruments include unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities . the determination of fair value for level 3 instruments requires the most management judgment and subjectivity . as of december 31 , 2011 , we did not have any assets or liabilities without observable market values that would require a high level of judgment to determine fair value ( level 3 assets ) . story_separator_special_tag impairment of long-lived assets we evaluate the recoverability of property , equipment and intangible assets in accordance with asc topic 360 , property , plant and equipment ( “ asc 360 ” ) . when events and circumstances indicate that long-lived assets may be impaired , we compare the carrying value of the long-lived assets to the projection of future undiscounted cash flows attributable to such assets . in the event that the carrying value exceeds the future undiscounted cash flows , we record an impairment charge against income equal to the excess of the carrying value over the asset 's fair value . fair values are determined based on quoted market values , discounted cash flows or internal and external appraisals , as applicable . assets held for sale are carried at the lower of carrying value or estimated net realizable value . we had no “ assets held for sale ” on the consolidated balance sheet as of december 31 , 2011 and 2010 . 31 stock based compensation we grant options to substantially all management employees and believe that this program helps us to attract , motivate and retain high quality employees , to the ultimate benefit of our stockholders . we account for stock-based compensation in accordance with the provisions of fasb accounting standards codification ( “ asc ” ) topic 718 , stock-based compensation ( “ asc 718 ” ) , using the modified prospective method . we utilize the black-scholes option pricing model to estimate the grant date fair value of employee stock compensation awards , which requires the input of highly subjective assumptions , including expected volatility and expected term . historical volatility was used in estimating the fair value of our stock options awards , while the expected term for our options was estimated based on historical option exercise behavior and post-vesting forfeitures of options by our employees . further , we estimate forfeitures for stock compensation awards that are not expected to vest . changes in these inputs and assumptions can materially affect the measure of estimated fair value of our stock compensation . we recognize the compensation costs net of an estimated forfeiture rate over the requisite service period of the options award , which is generally the vesting term of four years . the cost of restricted stock awards is determined using the fair value of our common stock on the date of grant . compensation expense for restricted stock awards is recognized over the vesting period , which is generally three years or four years . stock-based compensation expense is recorded in cost of revenue , research and development , and selling , general and administrative expenses . ( see note 1—summary of significant accounting policies—stock-based compensation ) . all of our stock compensation is accounted for as an equity instrument . income taxes we account for income taxes in accordance with asc topic 740 , income taxes ( “ asc 740 ” ) which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities . asc 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that a portion of the deferred tax asset will not be realized . we provide for income taxes based upon the geographic composition of worldwide earnings and tax regulations governing each region , particularly china . the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws , particularly in foreign countries such as china . see note 13— ” income taxes ” in the consolidated financial statements for additional information . story_separator_special_tag substrate revenue increased as demand from our customers increased for satellite applications and for concentrated photovoltaic solar applications . we continued to make progress in our penetration of the solar cell market , particularly in satellite applications . ge substrate revenue increased by $ 3.5 million , or 64.6 % , to $ 9.0 million in 2010 from $ 5.4 million in 2009. our ge substrate revenue increased primarily due to demand increased for concentrated photovoltaic solar applications from our german and chinese customers . 33 raw materials revenue increased by $ 8.7 million , or 58.6 % , to $ 23.6 million in 2011 from $ 14.9 million in 2010 primarily as a result of increased demand from our new and existing customers for 4n raw gallium , as well as from increased selling prices . however , the selling price of gallium has begun to stabilize and we expect that this will affect our raw material revenue in future years . raw materials revenue increased by $ 8.4 million , or 131.1 % , to $ 14.9 million in 2010 from $ 6.4 million in 2009 as a result of increased demand of 4n raw gallium . our raw materials business has increasingly become an important part of our business , as it provides us protection against raw materials pricing increases and supply constraints . since we are able to supply raw materials necessary for the production of our substrates at favorable prices , our ability to sell such materials in the open market , at market prices , also provides us with pricing protection . we expect to continue to expand our raw materials sales efforts . however , the selling price of gallium has begun to stabilize and we expect that this will affect our raw material revenue in future years . revenue by geographic region replace_table_token_7_th * primarily the united states . sales to customers located outside of north america represented approximately 80 % , 78 % , and 81 % of our revenue during 2011 , 2010 and 2009 , respectively .
| during 2011 , the united states and other key international economies continued to recover from the recent economic downturn and our business has grown as a whole . although we experienced some fluctuation in the customer demand for the gaas substrates that are used for end-products in the wireless market , our revenues have grown in all other substrates including semi-conducting gaas substrate , inp substrate and ge substrate . these results reflect both strong growth in our markets as well as continued share gains and improved operational execution across our entire organization . should the worldwide economic conditions continue to recover and customer demand becomes stable , we believe that we are well positioned to leverage our prc-based manufacturing capabilities and access to favorably priced raw materials to increase our market share . 32 revenue replace_table_token_6_th revenue increased by $ 8.6 million or 9.0 % , to $ 104.1 million in 2011 from $ 95.5 million in 2010. total gaas substrate revenue decreased $ 3.9 million , or 5.8 % , to $ 63.7 million in 2011 from $ 67.6 million in 2010. the decrease in revenue was primarily due to reduced orders from a few big customers as demand fell in the wireless market . sales of 5 inch and 6 inch diameter gaas substrates , which are mainly used in wireless devices , decreased by $ 7.1 million to $ 20.7 million in 2011 compared to $ 27.8 million in 2010 primarily due to reduced orders from a few big customers as demand fell in the wireless market . sales of 2 inch , 3 inch and 4 inch diameter gaas substrates , which are mainly used in led applications , increased by $ 3.2 million to $ 43.0 million in 2011 compared to $ 39.8 million in 2010 primarily due to increased worldwide adoption and investment in led technology in many applications in 2011 compared to the prior year . revenue increased by $ 40.1 million or 72.5 % , to $ 95.5 million in 2010 from $ 55.4 million in 2009. total gaas substrate
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the rule , as proposed , would establish a marine life mortality standard for certain existing cooling water intake structures . we are unable to predict the outcome of this proposed rulemaking , the final form that the proposed regulations may take or the effect , if any , that they may have on our future capital requirements , financial condition or results of operations . in july 2011 , the epa issued the cross-state air pollution rule ( csapr ) that limits power plant emissions in 28 states that contribute to the ability of downwind states to attain and or maintain current particulate matter and ozone emission standards . emission reductions would have been governed by this rule beginning on january 1 , 2012 for sulfur dioxide ( so 2 ) and annual nitrogen oxide ( no x ) and may 1 , 2012 for ozone season no x . certain states would have been required to make additional so 2 reductions in 2014. the epa issued draft technical adjustments to the final csapr in october 2011. csapr is generally expected to have an upward impact on electricity prices , resulting from the 54 retirement of some units , as well as from the potential cost increase from either the purchase of allowances or the cost of operation of emissions control equipment . technical revisions to the csapr were finalized on february 7 , 2012. the epa increased new jersey 's allocation of annual no x and ozone season no x allowances beyond what was proposed . the epa also finalized the increase in new jersey 's allocation of so 2 allowances from the october proposal . the additional increases in nox allocations are favorable to pseg , since both pseg and new jersey as a whole are projected to be very tight on nox allowances ( both ozone season and annual ) . on december 30 , 2011 , the united states court of appeals for the d.c. circuit issued a ruling to stay csapr pending judicial review . until a final decision is reached , the court has ordered that the clean air interstate rule ( cair ) requirements continue temporarily . we have intervened in this litigation , along with other generating companies , in support of the epa . the continuation of cair affects our generating stations in connecticut , new jersey and new york . if 2012 operations are similar to those in the past three years , the impact to our operations from the temporary implementation of cair in 2012 is not expected to be significant . the epa proposed a maximum achievable control technology ( mact ) regulation in march 2011 which was finalized on december 21 , 2011. this regulation prescribes reduced levels of mercury and other hazardous air pollutants pursuant to the clean air act . as a result of events at the fukushima daiichi nuclear facility in japan following the earthquake and tsunami in march 2011 , the nuclear regulatory commission ( nrc ) has been performing additional operational and safety reviews of nuclear facilities in the united states . these reviews and the lessons learned from the events in japan will result in additional regulation for the nuclear industry and could impact future operations and capital requirements for our facilities . we believe that our nuclear plants meet the stringent applicable design and safety specifications of the nrc . we received our requested 20-year license extensions for the salem and hope creek facilities in june and july 2011 , respectively . salem units 1 and 2 are now licensed through 2036 and 2040 , respectively , and hope creek is now licensed through 2046. peach bottom units 2 and 3 are currently licensed through 2033 and 2034 , respectively . during 2011 , the sec and the commodity futures trading commission ( cftc ) continued efforts enact stricter regulation over swaps and derivatives . the cftc has issued notices of proposed rulemakings ( noprs ) on many of the key issues . we can not assess the exact scope of the new rules until they are issued by the sec and cftc . we will carefully monitor these new rules as they are developed to analyze the potential impact on our swap and derivatives transactions , including any potential increase in our collateral requirements . in december 2011 , new jersey released its revised energy master plan ( emp ) which contains a number of policy recommendations that the state can be expected to pursue through legislative and regulatory responses . the policy recommendations supporting nuclear power , solar and wind energy , energy efficiency and natural gas infrastructure are generally favorable to our business . on july 21 , 2011 , ferc issued a final rule which , among other things directs regional planners such as pjm to ( i ) consider public policy requirements in planning new transmission , ( ii ) remove the right of first refusal ( rofr ) which permits incumbent transmission owners , like us , the first opportunity to construct transmission within their respective service territoriesfrom its tariffs and agreements , subject to certain exceptions , and ( iii ) allocate costs for transmission projects in a way that roughly matches costs with benefits , while leaving flexibility to the regions to determine precise cost allocation methodologies . we can not predict the final outcome or impact on us ; however , specific implementation of the final rule in the various regions , including within our utility service territory , may expose us to competition for construction of transmission , additional regulatory considerations and potential delay with respect to future transmission projects . 55 operational excellence our nuclear and fossil facilities continued their strong operating performance through the fourth quarter . our nuclear units have achieved a capacity factor of 93 % for the year and our combined cycle units have continued to improve their forced outage rates . our generation fleet performed well during the july and august heat waves . story_separator_special_tag during hurricane irene , the salem and hope creek nuclear stations remained online . overall , generation volumes for the year 2011 were 54.0 twh , approximately 5 % lower than in 2010 due primarily to reduced demands . in addition , we continued to demonstrate system reliability by limiting customer outages . in february 2011 , our service territory experienced winter storms that affected the electric transmission and distribution systems due to heavy icing and salt spray and in march 2011 , our northern gas service territory was impacted by two heavy rainstorms that resulted in widespread flooding . our personnel were prepared in each case for widespread outages and , as a result , were able to minimize the length of time our customers were without electric or gas service . in august 2011 , hurricane irene caused severe damage that resulted in flooding throughout our service territory , disrupting service to over 800,000 customers . with the assistance of mutual aid crews from other utilities , our associates worked to fully restore service to the majority of our customers within five days . in october 2011 , a wet heavy snow storm caused extensive tree and power line damage , disrupting service to over 570,000 customers . by seeking the assistance of other utilities , as well as hiring a significant number of contractor power line and tree crews , we restored power to most of our customers within seven days . we filed a petition with the bpu asking permission to defer the incremental storm related costs and the opportunity to seek recovery in our next base rate proceeding . we have deferred approximately $ 60 million of incremental operation and maintenance ( o & m ) storm costs associated with hurricane irene and the october snow storm . in december 2011 , the long island power authority ( lipa ) selected pseg long island llc ( pseg li ) , a newly formed wholly owned subsidiary of energy holdings , to manage its electric transmission and distribution system in long island , new york . lipa issued a press release that it had selected us for a variety of reasons , including our proven track record of first quartile customer service and reliability , commitment to cost control , corporate culture of transparency and local decision making , technical expertise and proven environmental track record . the ten year contract commences january 1 , 2014 , after lipa 's current contract with another party for utility services management expires . as part of the management contract , pseg li will be expected to develop and implement a number of operational improvements to provide safe and reliable service for lipa 's customers , increase customer satisfaction , and manage the operational and maintenance costs of lipa . on january 31 , 2012 , we entered into a specific matter closing agreement settling our dispute with the irs over certain challenged lease transactions . this agreement settles the leasing dispute with finality for all tax periods in which we realized tax deductions from these transactions . in addition , we signed a settlement agreement covering all audit issues for tax years 1997 through 2003. we believe that there will be no material impact on earnings as a result of these settlement agreements . for additional information , see note 13. commitments and contingent liabilities . financial strength for 2011 , our cash from operations was over $ 3.5 billion . cash from operations for the year has benefited from two federal tax provisions enacted in 2010 which generated a total of approximately $ 900 million of cash benefits for us through accelerated depreciation . see note 20. income taxes for additional information . these funds , combined with proceeds from asset sales , were used to support our capital expenditures , dividend payments and pension funding for the year . during 2011 , we made approximately $ 2.1 billion in capital expenditures and paid dividends of $ 693 million . on february 21 , 2012 , our board of directors approved a $ 0.3550 per share common stock dividend for the first quarter of 2012. this reflects an indicated annual dividend rate of $ 1.42 per share . the board 's approval represents a change in our dividend policy moving from a strict earnings payout based approach to one that takes into consideration the growing contribution to earnings and cash from our regulated operations and continued cash flow from our generation business . 56 we made our entire planned pension and opeb contributions for the year 2011 of $ 426 million and , as of december 31 , 2011 , we had funded approximately 84 % of our projected benefit obligation . for 2012 , we expect to fund up to $ 124 million and $ 11 million for pension and opeb , respectively . in december , we were also able to early redeem $ 600 million of 6.95 % senior notes due in june 2012 at power . in april 2011 , pseg , power and pse & g entered into new 5-year credit agreements resulting in an increase of $ 650 million in power 's credit capacity . as of december 31 , 2011 , our total credit capacity was $ 4.2 billion and we had over $ 800 million of cash on hand . disciplined investment we seek to invest in areas that complement our existing businesses and provide attractive risk-adjusted returns . these areas include upgrading critical energy infrastructure , responding to trends in environmental protection and providing new energy supplies in domestic markets with growing demand . we also have several projects where we are investing to continue to improve our operational performance . over the past few years , we have shifted our focus to investing at the utility . our capital expenditure forecast includes over $ 6.8 billion in spending over the next three years , over 75 % of which is at pse & g .
| we also include certain financing costs , charitable contributions and general and administrative costs at the parent company . for additional information on intercompany transactions , see item 8. financial statements and supplementary datanote 23. related-party transactions . replace_table_token_23_th the 2011 year-over-year decrease in our income from continuing operations was driven by the following : $ 170 million after-tax charge taken in 2011 on leveraged leases related to dynegy ( see item 8. financial statements and supplementary datanote 8. financing receivables ) , the absence of an after-tax charge of $ 72 million related to an agreement to refund previous market transition charge ( mtc ) collections in the succeeding two years , lower average pricing and volumes for electricity sold under our bgs contracts , lower realized prices and or lower sales volumes in the various power pools , higher interest costs and depreciation expense related to the completion of installation of back-end technology at two of our fossil plants , and the absence of realized gains recognized in 2010 due to restructuring of the investments in our rabbi trust . the decreases were partially offset by : favorable amounts related to the mtm activity reported above , an increase in revenues from new wholesale contracts entered into in the first half of 2011 , and lower operation and maintenance costs primarily due to lower pension and opeb costs . the 2010 year-over-year decrease in our income from continuing operations was driven by the following : higher priced sales under our bgs contracts being replaced with comparatively lower priced sales into the various power pools and under new wholesale contracts entered into during 2010 as a result of customer migration , losses on certain wholesale electric energy supply contracts , the aforementioned $ 72 million after-tax charge recorded in june related to mtc , lower gas sales volumes and pricing due to milder winter weather and economic conditions , and lower gains on lease sales . 60 the decreases were partially offset by : higher electric sales volumes and market pricing due primarily to warmer summer weather , higher electric delivery
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industry and market conditions in 2012 , demand for pulpwood was strong in the gulf states and atlantic regions as pulp mills continued to operate at full capacity and demand for bioenergy continued . the market was impacted by a decreased supply of pulpwood in the gulf states with poor logging conditions due to wet weather . domestic demand for sawtimber gained strength due to slight improvements in the housing market . export sawtimber markets in the pacific northwest region showed continued weakness during the first half of the year primarily due to reduced chinese demand for logs with some price recovery exhibited in the fourth quarter . we anticipate chinese demand for logs will continue to strengthen during 2013. overall , we expect 2013 timber demand and pricing to exceed 2012 levels as general economic conditions improve in the u.s. and chinese demand returns . in real estate , we expect the demand for development property to slowly return with the modestly improving housing market and overall economic climate . however , there are indications of increasing development interest in some local markets . in performance fibers , demand remains strong for our cellulose specialties fibers . sales are typically made under multi-year contracts , which establish target volumes at the beginning of each year and buffer some of the changes in supply and demand typically seen in worldwide commodity pulp and paper markets . we have long-term contracts with the world 's largest manufacturers of acetate-based products and other key customers that extend through 2013 to 2017 and represent a significant majority of our high value cellulose specialties production . our recognized technical and market leadership has allowed us to maintain strong pricing across our cellulose specialties product lines . absorbent materials prices declined during 2012 as market conditions weakened . we expect average 2013 prices to be below 2012. sales of absorbent materials are typically made with an annual volume agreement that allows price to move with the market during the year . during 2013 , we will exit this market when we complete the cse project . critical accounting policies and use of estimates the preparation of financial statements requires us to make estimates , assumptions and judgments that affect our assets , liabilities , revenues and expenses , and to disclose contingent assets and liabilities in our annual report on form 10-k. we base these estimates and assumptions on historical data and trends , current fact patterns , expectations and other sources of information we believe are reasonable . actual results may differ from these estimates . merchantable inventory and depletion costs as determined by forestry timber harvest models significant assumptions and estimates are used in the recording of timberland inventory cost and depletion . merchantable standing timber inventory is estimated by our land information services group annually , using industry-standard computer software . the inventory calculation takes into account growth , in-growth ( annual transfer of oldest pre-merchantable age class into merchantable inventory ) , timberland sales and the annual harvest specific to each business unit . the age at which timber is considered merchantable is reviewed periodically and updated for changing harvest practices , future harvest age profiles and biological growth factors . an annual depletion rate is established for each particular region by dividing merchantable inventory book cost by standing merchantable inventory . pre-merchantable records are maintained for each planted year age class , recording acres planted , stems per acre and costs of planting and tending . changes in the assumptions and or estimations used in these calculations may affect our timber inventory and depletion costs . factors that can impact timber volume include weather changes , losses due to natural causes , differences in actual versus estimated growth rates and changes in the age when timber is considered merchantable . a 22 index to financial statements three percent company-wide change in estimated standing merchantable inventory would cause 2012 depletion expense to change by approximately $ 2 million . acquisitions of timberland can also affect the depletion rate . upon the acquisition of timberland , we make a determination on whether to combine the newly acquired merchantable timber with an existing depletion pool or to create a new separate pool . the determination is based on the geographic location of the new timber , the customers/markets that will be served and species mix . in the fourth quarter of 2012 , we acquired an additional 62,600 acres in the gulf states region . although 2012 depletion expense was not significantly impacted , we anticipate 2013 depletion to change by approximately $ 0.5 million . in 2011 , we acquired approximately 308,000 acr es of timberland mainly located in the gulf states region resulting in a higher depletion rate . the acquisition did not significant ly impact 2011 depletion expense but increased 2012 depletion expense by $ 2.2 million . depreciation and impairment of long-lived assets depreciation expense is computed using the units-of-production method for the performance fibers plant and equipment and the straight-line method on all other property , plant and equipment over the useful economic lives of the assets involved . we believe that these depreciation methods are the most appropriate under the circumstances as they most closely match revenues with expenses versus other generally accepted accounting methods . long-lived assets are periodically reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable . cash flows used in such impairment analyses are based on long-range plan projections , which take into account recent sales and cost data as well as macroeconomic drivers such as customer demand and industry capacity . story_separator_special_tag the physical life of equipment , however , may be shortened by economic obsolescence caused by environmental regulation , competition or other causes . environmental costs associated with dispositions and discontinued operations at december 31 , 2012 , we had $ 82 million of accrued liabilities for environmental costs relating to past dispositions and discontinued operations . numerous cost assumptions are used in estimating these obligations . factors affecting these estimates include changes in the nature or extent of contamination , changes in the content or volume of the material discharged or treated in connection with one or more impacted sites , requirements to perform additional or different assessment or remediation , changes in technology that may lead to additional or different environmental remediation strategies , approaches and workplans , discovery of additional or unanticipated contaminated soil , groundwater or sediment on or off-site , changes in remedy selection , changes in law or interpretation of existing law and the outcome of negotiations with governmental agencies or non-governmental parties . we periodically review our environmental liabilities and also engage third-party consultants to assess our ongoing remediation of contaminated sites . a significant change in any of the estimates could have a material effect on the results of our operations . typically , these cost estimates do not vary significantly on a quarter to quarter basis , although there can be no assurance that such a variance will not occur in the future . in 2012 and 2011 , we increased the liability by $ 1 million and $ 7 million , respectively . see note 15 — liabilities for dispositions and discontinued operations for additional information . determining the adequacy of pension and other postretirement benefit assets and liabilities we have four qualified benefit plans which cover most of our u.s. workforce and an unfunded plan to provide benefits in excess of amounts allowable under current tax law to certain participants in the qualified plans . all plans are currently closed to new participants . pension expense for all plans was $ 19 million in 2012 . numerous estimates and assumptions are required to determine the proper amount of pension and postretirement liabilities and annual expense to record in our financial statements . the key assumptions include discount rate , return on assets , salary increases , health care cost trends , mortality rates , longevity and service lives of employees . although there is authoritative guidance on how to select most of these assumptions , we exercise some degree of judgment when selecting these assumptions based on input from our actuary . different assumptions , as well as actual versus expected results , would change the periodic benefit cost and funded status of the benefit plans recognized in the financial statements . in determining pension expense in 2012 , a $ 25 million return was assumed based on an expected long-term rate of return of 8.5 percent . the actual return for 2012 was a gain of $ 42 million , or 14 percent . our long-term return assumption was established based on historical long-term rates of return on broad equity and bond indices , discussions with our actuary and investment advisors and consideration of the actual annualized rate of return from 1994 ( the date of our spin-off from itt corporation ) through 2012 . at the end of 2012 , we reviewed this assumption for reasonableness and determined that the 2012 long-term rate of return assumption should remain at 8.5 percent . at december 31 , 2012 , our asset mix consisted of 66 percent equities , 31 percent bonds and three percent real estate equity funds . we do not expect this mix to change materially in the near future . in determining future pension obligations , we select a discount rate based on information supplied by our actuary . the actuarial rates are developed by models which incorporate high quality ( aa rated ) , long-term corporate bond rates into their calculations . the discount rate decreased from 4.20 percent at december 31 , 2011 to 3.70 percent at december 31 , 2012 . 23 index to financial statements the company 's pension plans were underfunded by $ 134 million at december 31 , 2012 , a $ 16 million decrease in funding status from december 31 , 2011 due primarily to the decreased discount rate . we had no mandatory pension contributions and did not make discretionary contributions to our qualified pension plans in 2012 or 2011 . we made discretionary contributions of $ 50 million in 2010 . future requirements will vary depending on actual investment performance , changes in valuation assumptions , interest rates and requirements under the pension protection act . see note 20 — employee benefit plans for additional information . in 2013 , we expect pension expense to be slightly above 2012 due to an increase in the amortization of actuarial losses resulting from a decrease in the discount rate . future pension expense will be impacted by many factors including actual investment performance , changes in discount rates , timing of contributions and other employee related matters . the sensitivity of pension expense and projected benefit obligation to changes in economic assumptions is highlighted below : replace_table_token_8_th realizability of both recorded and unrecorded tax assets and tax liabilities as a reit , our forest resources operations are generally not subject to income taxation . as such , our income taxes can vary significantly based on the mix of income between our reit and trs businesses , thereby impacting our effective tax rate and the amount of taxes paid during fiscal periods .
| this strategy , which requires a disciplined approach and rigorous adherence to strategic and financial metrics , can result in significant year-to-year variation in timberland acquisitions and divestitures . for example , we acquired 88,000 acres of timberland in 2012 , 308,000 acres in 2011 , 3,000 acres in 2010 , none in 2009 , and 110,000 acres in 2008. we sold approximately 14,000 , 12,000 and 45,000 acres of non-strategic timberland in 2012 , 2011 and 2010 , respectively . extract maximum value from our hbu properties . in prior years our focus on development properties was to obtain entitlements . our entitlement efforts are largely complete as we have approximately 39,000 acres entitled in florida and georgia . we now will continue to work on monetizing these properties . for our prime industrial and commercial properties , we have focused on mega-site certification . in 2012 we achieved certification of 1,400 acres in bryan county , ga as development-ready for large industrial or commercial uses . we have also made significant progress on certification of an 1,800 acre industrial site in nassau county , fl . we will continue our rural hbu program of sales for conservation , recreation and industrial uses . our primary markets are in our southern u.s. holdings . maintain our global leadership in high purity cellulose specialties through investments to increase capacity , and improve product quality and technical expertise . in may 2011 , our board of directors approved the cse to convert a fiber line at our jesup , georgia mill from production of absorbent materials to cellulose specialties . the cse will add approximately 190,000 metric tons of cellulose specialties capacity , bringing total cellulose specialties capacity to about 675,000 metric tons . production of cellulose specialties is expected to gradually increase to capacity by 2015. customer commitments for the additional volume exceed 85 percent . upon completion of this $ 375 million to $ 390 million project , we will be exiting the more commodity-like absorbent materials business ( estimated 260,000 metric tons of capacity ) . this expansion
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the total purchase price for the transaction was $ 14.1 million , which was funded with funds available under our revolving facility . in addition to the 1234 m and qnc transactions , in 2019 , we acquired fee simple interests in 17 convenience store and gasoline station , and other automotive related properties in various transactions for an aggregate purchase price of $ 48.3 million . during the year ended december 31 , 2018 , we acquired fee simple interests in 41 convenience store and gasoline station , and other automotive related properties for an aggregate purchase price of $ 78.0 million . included in these acquisitions was our april 17 , 2018 , acquisition of fee simple interests in 30 convenience store and gasoline station properties from gpm investments , llc ( “ gpm ” ) . these properties were simultaneously leased to gpm , a leading regional convenience store and gasoline station operator , under a long-term triple-net unitary lease . the properties are located across arkansas , louisiana , oklahoma and texas . the total purchase price for the transaction was $ 52.6 million , which was funded with funds available under our revolving facility . also included was our august 1 , 2018 , acquisition of fee simple interests in six convenience store and gasoline station properties from a u.s. subsidiary of applegreen plc ( “ applegreen ” ) , the largest convenience store and gasoline station operator in the republic of ireland . these properties were simultaneously leased to a u.s. subsidiary of applegreen under a long-term triple-net unitary lease . the properties are located within the metropolitan market of columbia , sc . the total purchase price for the transaction was $ 17.4 million , which was funded with funds available under our revolving facility . in addition to the gpm and applegreen transactions , in 2018 , we acquired fee simple interests in five convenience store and gasoline station , and other automotive related properties in various transactions for an aggregate purchase price of $ 8.0 million . redevelopment strategy and activity we believe that certain of our properties are located in geographic areas which , together with other factors , may make them well-suited for a new convenience and gasoline use or for alternative single-tenant net lease retail uses , such as quick service restaurants , automotive parts and service stores , specialty retail stores and bank branch locations . we believe that the redeveloped properties can be leased or sold at higher values than their current use . for the year ended december 31 , 2019 and 2018 , rent commenced on four and six completed redevelopment projects , respectively , that were placed back into service in our net lease portfolio . since the inception of our redevelopment program in 2015 , we have completed 13 redevelopment projects . for the year ended december 31 , 2019 , we spent $ 0.4 million ( net of write-offs ) of construction-in-progress costs related to our redevelopment activities . during the year ended december 31 , 2019 , we transferred $ 0.5 million of construction-in-progress to buildings and improvements on our consolidated balance sheet . for the year ended december 31 , 2018 , we spent $ 2.7 million ( net of write-offs ) of construction-in-progress costs related to our redevelopment activities . during the year ended december 31 , 2018 , we transferred $ 2.2 million of construction-in-progress to buildings and improvements on our consolidated balance sheet . in addition , during the year ended december 31 , 2018 , we spent $ 4.4 million to reimburse tenants for capital expenditures related to our redevelopment activities . as of december 31 , 2019 , we were actively redeveloping five of our properties either as a new convenience and gasoline use or for alternative single-tenant net lease retail uses . in addition to the five properties currently classified as redevelopment , we are in various stages of feasibility and planning for the recapture of select properties from our net lease portfolio that are suitable for redevelopment to either a new convenience and gasoline use or for alternative single-tenant net lease retail uses . as of december 31 , 2019 , we have signed leases on seven properties , that are currently part of our net lease portfolio , which will be recaptured and transferred to redevelopment when the appropriate entitlements , permits and approvals have been secured . asset impairment we perform an impairment analysis for the carrying amounts of our properties in accordance with gaap when indicators of impairment exist . we reduced the carrying amounts to fair value , and recorded impairment charges aggregating $ 4.0 million and $ 6.2 million for the years ended december 31 , 2019 and 2018 , respectively , where the carrying amounts of the properties exceed the estimated undiscounted cash flows expected to be received during the assumed holding period which includes the estimated sales value expected to be received at disposition . the impairment charges were attributable to the effect of adding asset retirement costs 30 due to changes in estimates associated with our environmental liabilities , which increased the carrying values of certain properties in excess of their fair values , reductions in estimated undiscounted cash flows expected to be received during the assumed holding period for certain of our properties , and reductions in estimated sales prices from third-party offers based on signed contracts , letters of intent or indicative bids for certain of our properties . the evaluation and estimates of anticipated cash flows used to conduct our impairment analysis are highly subjective and actual results could vary significantly from our estimates . for a discussion of the risks associated with asset impairments , see “ item 1a . risk factors – our assets may be subject to impairment charges. story_separator_special_tag ” supplemental non-gaap measures we manage our business to enhance the value of our real estate portfolio and , as a reit , place particular emphasis on minimizing risk , to the extent feasible , and generating cash sufficient to make required distributions to stockholders of at least 90 % of our ordinary taxable income each year . in addition to measurements defined by gaap , we also focus on funds from operations ( “ ffo ” ) and adjusted funds from operations ( “ affo ” ) to measure our performance . ffo and affo are generally considered by analysts and investors to be appropriate supplemental non-gaap measures of the performance of reits . ffo and affo are not in accordance with , or a substitute for , measures prepared in accordance with gaap . in addition , ffo and affo are not based on any comprehensive set of accounting rules or principles . neither ffo nor affo represent cash generated from operating activities calculated in accordance with gaap and therefore these measures should not be considered an alternative for gaap net earnings or as a measure of liquidity . these measures should only be used to evaluate our performance in conjunction with corresponding gaap measures . ffo is defined by the national association of real estate investment trusts as gaap net earnings before depreciation and amortization of real estate assets , gains or losses on dispositions of real estate , impairment charges and cumulative effect of accounting changes . our definition of affo is defined as ffo less ( i ) revenue recognition adjustments ( net of allowances ) , ( ii ) changes in environmental estimates , ( iii ) accretion expense , ( iv ) environmental litigation accruals , ( v ) insurance reimbursements , ( vi ) legal settlements and judgments , ( vii ) acquisition costs expensed and ( viii ) other unusual items that are not reflective of our core operating performance . other reits may use definitions of ffo and or affo that are different from ours and , accordingly , may not be comparable . beginning in the fourth quarter of 2017 , we revised our definition of affo to exclude three additional items – environmental litigation accruals , insurance reimbursements , and legal settlements and judgments – because we believe that these items are not indicative of our core operating performance . while we do not label excluded items as non-recurring , management believes that excluding items from our definition of affo that are either non-cash or not reflective of our core operating performance provides analysts and investors the ability to compare our core operating performance between periods . we believe that ffo and affo are helpful to analysts and investors in measuring our performance because both ffo and affo exclude various items included in gaap net earnings that do not relate to , or are not indicative of , our core operating performance . ffo excludes various items such as depreciation and amortization of real estate assets , gains or losses on dispositions of real estate , and impairment charges . in our case , however , gaap net earnings and ffo typically include the impact of revenue recognition adjustments comprised of deferred rental revenue ( straight-line rental revenue ) , the net amortization of above-market and below-market leases , adjustments recorded for recognition of rental income recognized from direct financing leases on revenues from rental properties and the amortization of deferred lease incentives , as offset by the impact of related collection reserves . deferred rental revenue results primarily from fixed rental increases scheduled under certain leases with our tenants . in accordance with gaap , the aggregate minimum rent due over the current term of these leases is recognized on a straight-line basis rather than when payment is contractually due . the present value of the difference between the fair market rent and the contractual rent for in-place leases at the time properties are acquired is amortized into revenues from rental properties over the remaining lives of the in-place leases . income from direct financing leases is recognized over the lease terms using the effective interest method , which produces a constant periodic rate of return on the net investments in the leased properties . the amortization of deferred lease incentives represents our funding commitment in certain leases , which deferred expense is recognized on a straight-line basis as a reduction of rental revenue . gaap net earnings and ffo include non-cash changes in environmental estimates and environmental accretion expense , which do not impact our recurring cash flow . gaap net earnings and ffo also include environmental litigation accruals , insurance reimbursements , and legal settlements and judgments , which items are not indicative of our core operating performance . gaap net earnings and ffo from time to time may also include property acquisition costs expensed and other unusual items that are not reflective of our core operating performance . acquisition costs are expensed , generally in the period when properties are acquired and are not reflective of our core operating performance . we pay particular attention to affo , as we believe it best represents our core operating performance . in our view , affo provides a more accurate depiction than ffo of our core operating performance . by providing affo , we believe that we are presenting useful information that assists analysts and investors to better assess our core operating performance . further , we believe that affo is useful in comparing the sustainability of our core operating performance with the sustainability of the core operating performance of other real estate companies . for a reconciliation of ffo and affo to gaap net earnings , see “ item 6. selected financial data ” . 31 story_separator_special_tag ended december 31 , 2018 . the increase was due to higher average borrowings outstanding for the year ended december 31 , 2019 , as compared to the year ended december 31 , 2018 .
| as a result , revenues from rental properties include revenue recognition adjustments comprised of non-cash adjustments recorded for deferred rental revenue due to the recognition of rental income on a straight-line basis over the current lease term , the net amortization of above-market and below-market leases , recognition of rental income under direct financing leases using the effective interest rate method which produces a constant periodic rate of return on the net investments in the leased properties and the amortization of deferred lease incentives . revenues from rental properties includes revenue recognition adjustments which increased rental revenue by $ 1.0 million and $ 2.2 million for the years ended december 31 , 2019 and 2018 , respectively . property costs , which are primarily comprised of rent expense , real estate and other state and local taxes , municipal charges , professional fees , maintenance expense and reimbursable tenant expenses , were $ 25.0 million for the year ended december 31 , 2019 , as compared to $ 23.6 million for the year ended december 31 , 2018. the increase in property costs for the year ended december 31 , 2019 , was principally due to an increase in reimbursable real estate taxes and an increase in professional fees related to property redevelopments . impairment charges were $ 4.0 million for the year ended december 31 , 2019 , as compared to $ 6.2 million for the year ended december 31 , 2018. impairment charges are recorded when the carrying value of a property is reduced to fair value . impairment charges for the years ended december 31 , 2019 and 2018 , were attributable to the effect of adding asset retirement costs due to changes in estimates associated with our environmental liabilities , which increased the carrying values of certain properties in excess of their fair values , reductions in estimated undiscounted cash flows expected to be received during the assumed holding period for certain of our properties , and reductions in estimated sales prices from third-party offers based on signed contracts , letters of intent or indicative bids for certain of our properties . environmental expenses were $ 5.4 million for the year ended december 31 , 2019 , as compared to $ 4.2 million for the year ended december 31 , 2018. the increase in environmental expenses for the year ended december 31 , 2019 , was principally due to a $ 5.8 million increase in environmental
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more important to us , these companies have continued the strong focus of performing mission-critical research in key intellectual centers where we own laboratory/office facilities , and we benefited greatly by that trend . our same property noi growth for the year ended december 31 , 2013 , was solid , up $ 17.3 million , or 5.4 % , on a cash basis , and up $ 6.0 million , or 1.8 % , on a gaap basis compared to the year ended december 31 , 2012 . our cash basis performance for 2013 was driven primarily by our favorable lease structure . as of december 31 , 2013 , 95 % of our existing leases contained annual contractual steps in rent , and 94 % of our leases were triple net , wherein tenants reimburse us for all or a majority of the operating expenses of the property . our same property performance also benefited from strong leasing performance in 2013 , with increases on average in rental rates upon renewal or re-leasing of space and an increase in overall occupancy percentage . our non-same property noi growth for the year ended december 31 , 2013 , was also very strong , up $ 34.4 million , or 55.8 % , compared to the year ended december 31 , 2012 . our non-same property performance for 2013 was driven primarily by our key value-creation project deliveries and lease-up of temporary vacant space . we delivered a significant portion of our value - creation pipeline during the year with a major milestone in december , including , among others , the initial delivery of 45 % of our second class a laboratory/office building in new york city to roche and new york university , among others , and the delivery in september 2013 of our 305,212 rsf development project at 225 binney street in the cambridge submarket of greater boston that was 100 % leased to biogen idec . our leasing activity reached a new record level with a total of 212 leases aggregating 3.6 million rsf executed in 2013 . our rental rates increased 4.0 % and 16.2 % on a cash and gaap basis , respectively , on renewed/re-leased space during 2013 . the occupancy percentage for our operating and redevelopment properties in north america increased by 390 basis points to 95.5 % at december 31 , 2013 , compared to 91.6 % at december 31 , 2012 . in december 2013 , we completed the sale of our final land parcel in the mission bay submarket of the san francisco bay area at 1600 owens street , along with certain parking spaces , for an aggregate sales price of $ 55.2 million . the delivery of completed development and redevelopment projects , combined with the sale of land parcels in 2013 , allowed us to decrease our non-income-producing assets ( cip and land ) as a percentage of gross investments in real estate by 600 basis points during the year ended december 31 , 2013. we achieved many of the long-term components of our capital strategy in 2013 , including a net debt to adjusted ebitda ratio of 6.6 times and a fixed charge coverage ratio of 3.2 times for the fourth quarter of 2013 on an annualized basis ; completed the successful offering of $ 500 million of 10-year unsecured senior notes at 3.90 % ( “ 3.90 % unsecured senior notes ” ) ; reduced our non-income-producing assets as a percentage of gross investments in real estate to 17 % as of december 31 , 2013 , compared to 23 % as of december 31 , 2012 , due to the deliveries of value-creation development and redevelopment projects and land sales . for additional information , see “ execution of capital strategy in 2013 ” below . results core operations total revenues were $ 631.2 million for the year ended december 31 , 2013 , up 9.9 % , compared to $ 574.5 million for the year ended december 31 , 2012 ; 51 % of total abr from investment-grade client tenants ; noi was $ 442.1 million for the year ended december 31 , 2013 , up 10.0 % , compared to $ 401.7 million for the year ended december 31 , 2012 , driven by our value-creation project deliveries , same property noi growth , and leasing activity described below ; operating margins were 70 % for the year ended december 31 , 2013 ; cash and gaap same property noi increased 5.4 % and 1.8 % , respectively , for the year ended december 31 , 2013 , compared to the year ended december 31 , 2012 ; and our same property performance and operating margins remained solid , primarily due to the strong occupancy percentage of our asset base , record leasing activity , and our favorable lease structure , as detailed below . 51 the following table presents information regarding our asset base and value-creation projects as of december 31 , 2013 , 2012 , and 2011 : replace_table_token_19_th leasing activity leasing activity for the year ended december 31 , 2013 , represented the highest level in the company 's history : executed a total of 212 leases , with a weighted average lease term of 7.6 years , for 3,645,056 rsf , including 1,174,306 rsf related to our development or redevelopment programs ; achieved rental rate increases for renewed/re-leased space of 4.0 % on a cash basis and 16.2 % on a gaap basis ; and increased the occupancy rate for operating and redevelopment properties in north america by 390 basis points to 95.5 % during the year ended december 31 , 2013 . approximately 57 % of the 212 leases executed during the year ended december 31 , 2013 , did not include concessions for free rent ; tenant concessions/free rent averaged approximately 2.5 months , with respect to the 3,645,056 rsf leased during the year ended december 31 , 2013 . story_separator_special_tag the following chart presents renewed/re-leased space and development/redevelopment/previously vacant space leased for the years ended december 31 , 2011 , 2012 , and 2013 : 52 lease structure our cash same property noi increase for the year ended december 31 , 2013 , of 5.4 % and operating margin of 70 % benefited significantly from our favorable lease structure . as of december 31 , 2013 , approximately 94 % of our leases ( on an rsf basis ) were triple net leases , requiring client tenants to pay substantially all real estate taxes , insurance , utilities , common area expenses , and other operating expenses ( including increases thereto ) in addition to base rent . additionally , approximately 95 % of our leases ( on an rsf basis ) contained effective annual rent escalations that were either fixed or indexed based on a consumer price index or another index , and approximately 92 % of our leases ( on an rsf basis ) provided for the recapture of certain capital expenditures . value-creation projects and external growth value-creation projects – deliveries of development and redevelopment projects in north america the following table summarizes the deliveries of key development and redevelopment projects in north america during the year ended december 31 , 2013 ( dollars in thousands , except per rsf amounts ) : rsf project occupancy at december 31 , 2013 total project delivered in 2013 delivered prior to 2013 cip as of december 31 , 2013 total project initial stabilized average cash yield property/market – submarket date delivered investment at completion per rsf cash yield gaap yield development projects in north america 225 binney street/greater boston – cambridge end of september 2013 305,212 — — 305,212 100 % $ 174,160 $ 571 7.7 % 8.2 % 8.2 % 430 east 29th street/greater new york city – manhattan end of december 2013 189,011 — 229,627 418,638 45 463,245 1,107 6.6 % 6.5 % 7.1 % development projects in north america 494,223 — 229,627 723,850 68 637,405 881 redevelopment projects in north america 400 technology square/greater boston – cambridge/inner suburbs january 2013 71,592 140,531 — 212,123 86 145,625 687 8.4 % 8.9 % 9.0 % 343 oyster point/san francisco bay area – south san francisco various 2013 53,980 — — 53,980 100 16,632 308 9.9 % 10.0 % 10.4 % 1616 eastlake avenue/seattle – lake union ( 1 ) july 2013 66,776 — — 66,776 61 37,906 568 8.4 % 8.8 % 9.4 % 9800 medical center drive/maryland – rockville ( 1 ) various 2013 75,056 — — 75,056 100 79,165 1,055 5.5 % 5.5 % 5.5 % 285 bear hill road/greater boston – route 128 end of september 2013 26,270 — — 26,270 100 9,267 353 8.4 % 8.8 % 9.2 % 4757 nexus center drive/san diego – university town center end of october 2013 69,673 — — 69,673 82 33,473 480 8.1 % 8.0 % 8.7 % redevelopment projects in north america 363,347 140,531 — 503,878 86 322,068 639 total/weighted average 857,570 140,531 229,627 1,227,728 76 % $ 959,473 $ 782 ( 1 ) project represents a partial-building redevelopment project . the rsf , occupancy , total investment , yield , and noi information is related to the redevelopment portion of the property and does not represent information for the entire property . 53 value-creation projects – commencement of development and redevelopment projects in north america the following table summarizes the commencement of key development and redevelopment projects in north america for the year ended december 31 , 2013 ( dollars in thousands ) : replace_table_token_20_th ( 1 ) on november 12 , 2013 , we acquired three adjacent buildings for a total purchase price of $ 8.3 million . subsequent to the purchase , we pre-leased 75 % of the space to tandem diabetes care , inc. external growth – acquisitions the following table presents acquisitions for the year ended december 31 , 2013 ( dollars in thousands ) : date acquired number of properties purchase price rsf leased % initial stabilized yield ( unlevered ) average cash yield key client tenants property/market – submarket cash gaap 10121/10151 barnes canyon road/san diego – sorrento mesa ( 1 ) july 2013 2 $ 13,100 115,895 100 % n/a n/a n/a n/a 407 davis drive/ research triangle park – research triangle park september 2013 1 19,445 81,956 100 % 7.8 % 8.7 % 8.7 % bayer ag 11055 , 11065 , and 11075 roselle street/san diego – sorrento valley ( 2 ) november 2013 3 8,250 55,213 75 % 7.8 % 7.9 % 8.0 % tandem diabetes care , inc. 150 second street/greater boston – cambridge november 2013 1 94,500 123,210 85 % 7.3 % 7.5 % 8.2 % two publicly traded life science companies 7 $ 135,295 376,274 ( 1 ) the property was 100 % occupied as of december 31 , 2013 , with leases that expire in 2014 and 2015. we intend to convert the existing space through redevelopment when the spaces become available . initial stabilized yields and average cash yield will be provided upon commencement of the redevelopment . ( 2 ) the buildings are currently undergoing redevelopment , see development and redevelopment table above . on january 30 , 2014 , we acquired 3545 cray court , a 116,556 rsf laboratory/office property located in the torrey pines submarket of san diego , for a total purchase price of $ 64.0 million . the property is currently 100 % occupied by the scripps research institute . the estimated initial stabilized yields for this property are 7.0 % and 7.2 % , on a cash and gaap basis , respectively .
| ( 4 ) near-term value-creation redevelopment projects include , among others , 3033 science park road and 10121 barnes canyon road . these projects were acquired in the second quarter of 2012 and the third quarter of 2013 , respectively . ( 5 ) includes traditional preconstruction costs plus predevelopment costs related to : ( i ) approximately $ 17 million of site and infrastructure costs for the 1.2 million rsf related to 50 binney street , 60 binney street , and 100 binney street at the alexandria center at kendall square , including utility access and roads , installation of storm drain systems , infiltration systems , traffic lighting/signals , streets , and sidewalks , and ( ii ) approximately $ 4 million related to the design , permitting , and construction drawings related to 50 binney street and 60 binney street . site and infrastructure costs related to 75/125 binney street are included in our estimate of cost at completion and initial stabilized yields . there can be no assurance that our projected capital expenditures will not be materially lower or higher than these expectations . replace_table_token_39_th ( 1 ) includes revenue-enhancing projects and amounts shown in the table below related to non-revenue-enhancing capital expenditures . 74 the tables below show the average per square foot property-related non-revenue-enhancing capital expenditures , tenant improvements , and leasing costs ( excluding capital expenditures and tenant improvements that are recoverable from client tenants , revenue-enhancing , or related to properties that have undergone redevelopment ) during the years ended december 31 , 2013 and 2012 ( dollars in thousands , except per square foot amounts ) : replace_table_token_40_th we expect our capital expenditures , tenant improvements , and leasing costs ( excluding capital expenditures and tenant improvements that are recoverable from client tenants , revenue-enhancing , or related to properties that have undergone redevelopment ) on a per square foot basis in 2014 to be approximately similar to the amounts shown in the preceding table . we capitalize interest cost as a cost of the project only during the period for which activities necessary to prepare an asset for its intended use are ongoing , provided that
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offsetting these items , the company incurs noninterest expenses which include salaries and employee benefits , occupancy and equipment expense , professional and data processing fees , fdic and other insurance expense , loan/lease expense , and other administrative expenses . the company 's operating results are also affected by economic and competitive conditions , particularly changes in interest rates , income tax rates , government policies , and actions of regulatory authorities . 31 critical accounting policies the company 's financial statements are prepared in accordance with accounting principles generally accepted in the united states of america . the financial information contained within these statements is , to a significant extent , financial information that is based on approximate measures of the financial effects of transactions and events that have already occurred . based on its consideration of accounting policies that involve the most complex and subjective decisions and assessments , management has identified its most critical accounting policy to be that related to the allowance for loan/lease losses ( also referred to as “ allowance for estimated losses on loans/leases ” or “ allowance ” ) . the company 's allowance methodology incorporates a variety of risk considerations , both quantitative and qualitative , in establishing an allowance that management believes is appropriate at each reporting date . quantitative factors include the company 's historical loss experience , delinquency and charge-off trends , collateral values , governmental guarantees , payment status , changes in nonperforming loans/leases , and other factors . quantitative factors also incorporate known information about individual loans/leases , including borrowers ' sensitivity to interest rate movements . qualitative factors include the general economic environment in the company 's markets , including economic conditions throughout the midwest , and in particular , the economic health of certain industries . size and complexity of individual credits in relation to loan/lease structure , existing loan/lease policies and pace of portfolio growth are other qualitative factors that are considered in the methodology . as the company adds new products and increases the complexity of its loan/lease portfolio , it enhances its methodology accordingly . management may report a materially different amount for the provision in the statement of operations to change the allowance if its assessment of the above factors were different . the discussion regarding the company 's allowance should be read in conjunction with the company 's financial statements and the accompanying notes presented elsewhere in this form 10-k , as well as the portion of this management 's discussion and analysis section entitled “ financial condition – allowance for estimated losses on loans/leases. ” although management believes the level of the allowance as of december 31 , 2013 was adequate to absorb losses inherent in the loan/lease portfolio , a decline in local economic conditions , or other factors , could result in increasing losses that can not be reasonably predicted at this time . the company 's assessment of other-than-temporary impairment of its available-for-sale securities portfolio is another critical accounting policy as a result of the level of judgment required by management . available-for-sale securities are evaluated to determine whether declines in fair value below their cost are other-than-temporary . in estimating other-than-temporary impairment losses management considers a number of factors including , but not limited to : ( 1 ) the length of time and extent to which the fair value has been less than amortized cost ; ( 2 ) the financial condition and near-term prospects of the issuer ; ( 3 ) the current market conditions ; and ( 4 ) the intent of the company to not sell the security prior to recovery and whether it is not more-likely-than-not that the company will be required to sell the security prior to recovery . the discussion regarding the company 's assessment of other-than-temporary impairment should be read in conjunction with the company 's financial statements and the accompanying notes presented elsewhere in this form 10-k. 32 results of operations for the years ended december 31 , 2013 , 2012 , and 2011 overview . net income attribute to qcr holdings , inc. for 2013 was $ 14.9 million , or eps of $ 2.08 after preferred stock dividends of $ 3.2 million . comparing 2013 to 2012 , annual earnings grew 18 % , and eps increased 12 % . net interest income grew $ 6.5 million , or 11 % , in 2013 with the acquisition of cnb and organic growth in the company 's legacy markets . provision increased $ 1.6 million , or 36 % , as the company added specific allowances to several existing nonperforming loans as workouts of those loans continued to progress . noninterest income jumped $ 9.2 million , or 55 % , propelled by acquisition-related gains of $ 4.1 million ( bargain purchase gain of $ 1.8 million and the gains on branch sales of $ 2.3 million ) , growth in wealth management fee income of $ 1.5 million , increased gains on sales of government guaranteed portions of loans of $ 1.1 million , as well as increases across many of the core recurring noninterest income sources as a result of the acquisition of cnb . noninterest expenses grew $ 12.2 million , or 23 % , in 2013. acquisition and data conversion costs totaled $ 2.4 million for the year . the addition of cnb 's cost structure contributed to increased costs for more than half of the year . net income attributable to qcr holdings , inc. for 2012 was $ 12.6 million , or eps of $ 1.85 after preferred stock dividends of $ 3.5 million . comparing 2012 to 2011 , annual earnings grew 30 % , and eps more than doubled . net interest income grew $ 3.5 million , or 6 % , as growth and shift in mix of earning assets and funding outpaced the impact of declining yields on loans and securities . provision declined $ 2.2 million as loan quality continued to improve . story_separator_special_tag noninterest income fell $ 841 thousand which was primarily the result of increased losses on other real estate owned ( “ oreo ” ) as most of the other recurring sources realized modest gains year-over-year . noninterest expenses grew $ 1.3 million , or 2 % , during 2012. the large majority of this increase was salaries and employee benefits as health insurance costs continued to increase , incentive compensation grew due to improved financial performance , and the continuation of customary annual salary and benefits increases across the employee base . interest income . for 2013 , interest income grew $ 4.5 million , or 6 % , with the addition of the cnb 's earning assets ( approximately $ 255.9 million at acquisition which was later reduced by the branch sales in october 2013 ) . in total , the company 's average interest-earning assets increased $ 304.1 million , or 16 % , year-over-year . this growth more than offset the continued impact of declining yields on loans and securities . average loans/leases grew 17 % and average securities jumped 16 % . of the latter , the company continued to grow and diversify its securities portfolio , included increasing its portfolio of tax exempt municipal securities . the large majority of these are privately placed debt issuances located in the midwest and require a thorough underwriting process before investment . execution of this strategy has led to increased interest income on a tax equivalent basis over the past several years . management understands that this strategy has extended the duration of its securities portfolio and continually evaluates the combined benefit of increased interest income and reduced effective income tax rate and the impact on interest rate risk . for 2012 , interest income declined modestly ( $ 347 thousand , or less than 1 % ) as growth in earning assets and diversification of the securities portfolio fell short of the impact of declining yields on loans and securities . the company 's average interest-earning assets increased $ 122.2 million , or 7 % , year-over-year . the company grew securities ( $ 102.1 million , or 20 % ) and loans ( $ 41.9 million , or 4 % ) , while its federal funds sold position declined $ 46.5 million as the company invested some of its excess liquidity . as growth in deposits continued to outpace loan growth during 2012 , the company continued to grow and diversify its securities portfolio , including increasing the portfolio of government guaranteed residential mortgage-backed securities as well as more than tripling the portfolio of tax exempt municipal securities . notably , the significant increase in tax exempt municipal debt securities expanded interest income on a tax equivalent basis to reflect net growth year-over-year . the company intends to continue to grow quality loans and leases as well as diversify the securities portfolio to maximize yield while minimizing credit and interest rate risk . 33 interest expense . comparing 2013 to 2012 , interest expense declined $ 2.0 million , or 10 % , year-over-year . average interest-bearing liabilities grew 13 % in 2013 with most of this in deposits as borrowings were flat . the acquisition of cnb was the primary contributor to the deposit growth . more than offsetting the growth , the company was successful in continuing to manage down its cost of funds as follows : ● continued reduction of interest rates paid across all deposits without runoff ( the average cost of interest-bearing deposits fell from 0.61 % for 2012 to 0.44 % for 2013 ) ; ● the impact of the aforementioned balance sheet restructuring strategies executed in 2012 and 2013 ; and ● continued shift of funding from borrowings ( higher cost of funds ) to deposits . comparing 2012 to 2011 , interest expense declined $ 3.9 million , or 16 % , year-over-year . with average interest-bearing liabilities increasing slightly , the following were major contributors to the decline in interest expense : ● continued reduction of interest rates paid across all deposits without runoff ( the average cost of interest-bearing deposits fell from 1.00 % for 2011 to 0.61 % for 2012 ) ; ● the impact of the aforementioned balance sheet restructuring strategies executed in 2011 and 2012 ; and ● continued shift of funding from wholesale borrowings and brokered and other time deposits to core deposits , including non-interest bearing deposits . the company 's management intends to continue to shift the mix of funding from wholesale funds to core deposits including noninterest-bearing deposits . continuing this trend will strengthen the company 's franchise value , reduce funding costs , and increase fee income opportunities through deposit service charges . provision for loan/lease losses . the provision is established based on a number of factors , including the company 's historical loss experience , delinquencies and charge-off trends , the local and national economy and the risk associated with the loans/leases in the portfolio as described in more detail in the “ critical accounting policies ” section . the company 's provision totaled $ 5.9 million for 2013 which was an increase of $ 1.6 million , or 36 % , from 2012. despite another drop in nonperforming loans ( decline of $ 4.9 million , or 19 % ) in 2013 , the company had an increased need for specific reserves for certain existing nonperforming loans as the workouts of these loans progressed . comparing 2012 to 2011 , the company 's provision declined $ 2.2 million , or 34 % , from $ 6.6 million for 2011 to $ 4.4 million for 2012. the decline was the result of continued improvement in loan quality as evidenced by a declining trend in the level of classified and criticized loans ( see table and further discussion in the allowance for estimated losses on loans/leases section ) .
| excluding the impact of the accelerated accretion , the company 's eps for 2011 would have been $ 1.18. following is a table that represents the various net income measurements for the years ended december 31 , 2013 , 2012 , and 2011. replace_table_token_9_th * includes $ 1.2 million of accelerated accretion of discount on the cpp preferred shares repurchased during the third quarter of 2011. see note 11 to the consolidated financial statements for detailed discussion of preferred stock . 27 following is a table that represents the major income and expense categories . replace_table_token_10_th with the acquisition of community national and cnb on may 13 , 2013 , the company 's 2013 results were significantly impacted . in comparison to 2012 , following are some noteworthy changes : ● net interest income grew $ 6.5 million , or 11 % , propelled by the addition of cnb for more than half of the year as well as some modest organic growth in earning assets . ● excluding the acquisition-related gains ( bargain purchase gain of $ 1.8 million upon acquisition and gains on cnb branch sales of $ 2.3 million ) , noninterest income increased $ 5.0 million , or 30 % , led by wealth management fees , deposit service fees , and gains on sales of government guaranteed portions of loans . ● excluding acquisition and data conversion costs totaling $ 2.4 million , noninterest expense increased $ 9.8 million , or 19 % , with most of this increase attributable to the addition of cnb 's cost structure for more than half of the year . net interest income and margin net interest income , on a tax equivalent basis , grew $ 7.2 million , or 12 % , in 2013 compared to 2012. the increase in net interest income was primarily driven by the addition of cnb for more than half of the year . secondarily , the company 's legacy charters experienced modest organic growth in earning assets during 2013. a comparison of yields , spreads and margins
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net interest margin , defined as net interest income divided by average interest-earning assets , was 3.44 % for 2012 , 3.45 % for 2011 and 3.51 % for 2010. the decrease during 2012 was the result of a greater decline in asset yields for loans and and investments than deposit rates due to the continued historically low level of interest rates . the decrease during 2011 was primarily the result of the impact of the increase in liquidity resulting from the acquisition of the branches as the difference between loans ( $ 135 million ) and deposits ( $ 337 million ) was initially held as federal funds sold and interest bearing balances until deployed . net interest income increased to $ 49.6 million in 2012 from $ 48.3 million in 2011 and $ 40.1 million in 2010. the ability of the company to continue to grow net interest income is largely dependent on management 's ability to succeed in its overall business development efforts . management expects these efforts to continue but does not intend to compromise credit quality and prudent management of the maturities of interest-earning assets and interest-paying liabilities in order to achieve growth . 19 non-interest income increased to $ 18.3 million in 2012 compared to $ 15.8 million in 2011 and $ 13.8 million in 2010. the primary reason for the increase of $ 2.5 million or 16 % from 2011 to 2012 was increases in trust revenue and mortgage banking revenue and no other-than-temporary impairment charges on investment securities . the primary reason for the increase of $ 2 million or 14.2 % from 2010 to 2011 was increases in atm and debit fees , an increase in trust revenues and less other-than-temporary impairment charges on investment securities . non-interest expenses decreased $ 215,000 , to $ 42.8 million in 2012 compared to $ 43.1 million in 2011 , and $ 36.9 million in 2010. the decrease during 2012 was primarily due to a decline in expenses from other real estate owned offset by an increase in salaries and benefits expenses . the increase during 2011 was primarily due to additional expenses incurred as a result of operating the acquisition of the branches for a full year , as well as increases in other real estate owned expenses . following is a summary of the factors that contributed to the changes in net income ( in thousands ) : replace_table_token_4_th credit quality is an area of importance to the company . year-end total nonperforming loans were $ 7.6 million at december 31 , 2012 compared to $ 7.4 million at december 31 , 2011 and $ 10.4 million at december 31 , 2010. the increase in 2012 was primarily the result of additional loans becoming past-due and put on non-accrual . the decrease in 2011 was primarily a result of loans that paid-off or became current during the year and loans transferred to other real estate owned during the year as a result of continued deterioration in economic conditions including increased unemployment , reduction in cash flow from increased vacancies in commercial properties , and declines in property values . other real estate owned balances totaled $ 1.2 million at december 31 , 2012 compared to $ 4.6 million at december 31 , 2011 and $ 6.1 million at december 31 , 2010. the company 's provision for loan losses was $ 2.6 million for 2012 compared to $ 3.1 million for 2011 and $ 3.7 million for 2010. at december 31 , 2012 , the composition of the loan portfolio remained similar to year-end 2011. loans secured by both commercial and residential real estate comprised of 72 % of the loan portfolio for both december 31 , 2012 and 2011. the company also held investments in three trust preferred securities with a fair value of $ 585,000 and unrealized losses of $ 4.4 million at december 31 , 2012 compared to four trust preferred securities with a fair value of $ 719,000 and unrealized losses of $ 4.9 million at december 31 , 2011. on july 3 , 2012 , the company 's holding in pretsl vi was redeemed in full . the payment received was sufficient to pay-off the book value of the security of $ 123,000 , reverse the recorded otti impairment of $ 127,000 and recover previously unrecorded interest of $ 11,500. during 2012 , the company recorded no other-than-temporary impairment charges for the credit portion of the unrealized losses of these securities compared to $ 886,000 during 2011 and $ 1.4 million during 2010. the charges during 2011 and 2010 established a new , lower amortized cost basis for these securities and reduced non-interest income . see note 4 – “ investment securities ” for additional details regarding these investments . the company 's capital position remains strong and the company has consistently maintained regulatory capital ratios above the “ well-capitalized ” standards . the company 's tier 1 capital ratio to risk weighted assets ratio at december 31 , 2012 , 2011 , and 2010 was 14.51 % , 13.37 % , and 11.71 % , respectively . the company 's total capital to risk weighted assets ratio at december 31 , 2012 , 2011 , and 2010 was 15.65 % ,14.48 % , and 12.84 % , respectively . the increase in 2012 was primarily the result of an increase in retained earnings due to the company 's net income and the issuance of $ 8,250,000 of series c preferred stock . ( see “ preferred stock ” in note 1 to consolidated financial statements for more detailed information . ) the increase in 2011 was primarily the result of an increase in retained earnings due to the company 's net income and the issuance of $ 19,150,000 of series c preferred stock . ( see “ preferred stock ” in note 1 to consolidated financial statements for more detailed information . ) the company 's liquidity position remains sufficient to fund operations and meet the requirements of borrowers , depositors , and creditors . story_separator_special_tag the company maintains various sources of liquidity to fund its cash needs . see “ liquidity ” herein for a full listing of its sources and anticipated significant contractual obligations . the company enters into financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers . these financial instruments include lines of credit , letters of credit and other commitments to extend credit . the total outstanding commitments at december 31 , 2012 , 2011 and 2010 were $ 234.9 million , $ 228.6 million , and $ 169.3 million , respectively . see note 17 – “ commitments and contingent liabilities ” herein for further information . 20 critical accounting policies and use of significant estimates the company has established various accounting policies that govern the application of u.s. generally accepted accounting principles in the preparation of the company 's financial statements . the significant accounting policies of the company are described in the footnotes to the consolidated financial statements . certain accounting policies involve significant judgments and assumptions by management that have a material impact on the carrying value of certain assets and liabilities ; management considers such accounting policies to be critical accounting policies . the judgments and assumptions used by management are based on historical experience and other factors , which are believed to be reasonable under the circumstances . because of the nature of the judgments and assumptions made by management , actual results could differ from these judgments and assumptions , which could have a material impact on the carrying values of assets and liabilities and the results of operations of the company . allowance for loan losses . the company believes the allowance for loan losses is the critical accounting policy that requires the most significant judgments and assumptions used in the preparation of its consolidated financial statements . an estimate of potential losses inherent in the loan portfolio are determined and an allowance for those losses is established by considering factors including historical loss rates , expected cash flows and estimated collateral values . in assessing these factors , the company use organizational history and experience with credit decisions and related outcomes . the allowance for loan losses represents the best estimate of losses inherent in the existing loan portfolio . the allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off , net of recoveries . the company evaluates the allowance for loan losses quarterly . if the underlying assumptions later prove to be inaccurate based on subsequent loss evaluations , the allowance for loan losses is adjusted . the company estimates the appropriate level of allowance for loan losses by separately evaluating impaired and nonimpaired loans . a specific allowance is assigned to an impaired loan when expected cash flows or collateral do not justify the carrying amount of the loan . the methodology used to assign an allowance to a nonimpaired loan is more subjective . generally , the allowance assigned to nonimpaired loans is determined by applying historical loss rates to existing loans with similar risk characteristics , adjusted for qualitative factors including the volume and severity of identified classified loans , changes in economic conditions , changes in credit policies or underwriting standards , and changes in the level of credit risk associated with specific industries and markets . because the economic and business climate in any given industry or market , and its impact on any given borrower , can change rapidly , the risk profile of the loan portfolio is continually assessed and adjusted when appropriate . notwithstanding these procedures , there still exists the possibility that the assessment could prove to be significantly incorrect and that an immediate adjustment to the allowance for loan losses would be required . other real estate owned . other real estate owned acquired through loan foreclosure is initially recorded at fair value less costs to sell when acquired , establishing a new cost basis . the adjustment at the time of foreclosure is recorded through the allowance for loan losses . due to the subjective nature of establishing the fair value when the asset is acquired , the actual fair value of the other real estate owned or foreclosed asset could differ from the original estimate . if it is determined that fair value temporarily declines subsequent to foreclosure , a valuation allowance is recorded through noninterest expense . operating costs associated with the assets after acquisition are also recorded as noninterest expense . gains and losses on the disposition of other real estate owned and foreclosed assets are netted and posted to other noninterest expense . investment in debt and equity securities . the company classifies its investments in debt and equity securities as either held-to-maturity or available-for-sale in accordance with statement of financial accounting standards ( sfas ) no . 115 , “ accounting for certain investments in debt and equity securities , ” which was codified into asc 320. securities classified as held-to-maturity are recorded at cost or amortized cost . available-for-sale securities are carried at fair value . fair value calculations are based on quoted market prices when such prices are available . if quoted market prices are not available , estimates of fair value are computed using a variety of techniques , including extrapolation from the quoted prices of similar instruments or recent trades for thinly traded securities , fundamental analysis , or through obtaining purchase quotes . due to the subjective nature of the valuation process , it is possible that the actual fair values of these investments could differ from the estimated amounts , thereby affecting the financial position , results of operations and cash flows of the company . if the estimated value of investments is less than the cost or amortized cost , the company evaluates whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of the investment .
| results of operations net interest income the largest source of operating revenue for the company is net interest income . net interest income represents the difference between total interest income earned on earning assets and total interest expense paid on interest-bearing liabilities . the amount of interest income is dependent upon many factors , including the volume and mix of earning assets , the general level of interest rates and the dynamics of changes in interest rates . the cost of funds necessary to support earning assets varies with the volume and mix of interest-bearing liabilities and the rates paid to attract and retain such funds . 22 the company 's average balances , interest income and expense and rates earned or paid for major balance sheet categories are set forth in the following table ( dollars in thousands ) : year ended december 31 , 2012 year ended december 31 , 2011 year ended december 31 , 2010 average balance interest average rate average balance interest average rate average balance interest average rate assets interest-bearing deposits $ 16,559 $ 40 0.24 % $ 83,877 $ 213 0.25 % $ 75,558 $ 186 0.25 % federal funds sold 41,484 37 0.09 % 78,227 69 0.09 % 65,644 85 0.13 % certificates of deposit investments 10,714 57 0.53 % 11,651 78 0.67 % 9,473 110 1.16 % investment securities taxable 458,158 9,970 2.18 % 388,108 9,819 < div
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the company 's leverage ratio was 9.09 % and 9.87 % at december 31 , 2014 and 2013 , respectively . the u.s. basel iii final rule revises the minimum capital ratio thresholds for the company and bank and the well-capitalized thresholds for the bank . the federal reserve board has not yet adopted the well-capitalized standards for bank holding companies under the u.s. basel iii capital framework . these aspects of the u.s. basel iii final rule became effective on january 1 , 2015. for more information see “ capital ” in this management 's discussion and analysis of financial condition and results of operations , item 1. business - supervision , regulation and other factors - capital , and note 16 , regulatory capital requirements and dividends from subsidiaries , in the notes to the consolidated financial statements in this annual report on form 10-k. liquidity the company 's sources of liquidity include customers ' interest-bearing and noninterest-bearing deposit accounts , loan principal and interest payments , investment securities , and borrowings . as a bank holding company , the parent 's primary source of liquidity is the bank . due to the net earnings restrictions on dividend distributions , the bank was not permitted to pay any dividends at december 31 , 2014 and 2013 without regulatory approval . the parent paid common dividends totaling $ 102 million to its sole shareholder , bbva , during 2014. 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 september 2014 , the bank issued $ 400 million aggregate principal amount of its 1.85 % unsecured senior notes due 2017 and $ 600 million aggregate principal amount of its 2.75 % unsecured senior notes due 2019. 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 , capital securities and preferred stock , and note 15 , commitments , contingencies and guarantees , in the notes to the consolidated financial statements . financial performance consolidated net income attributable to shareholder for 2014 was $ 466.6 million compared to $ 417.8 million earned during 2013 . the increase in net income attributable to shareholder was primarily due to an increase in noninterest income and decreases in noninterest expense and income tax expense offset in part by a decrease in net interest income . net interest income decreased $ 57.2 million to $ 2.0 billion in 2014 compared to 2013 . the net interest margin for 2014 was 3.14 % , a decline of 48 basis points compared to 3.62 % for 2013 . the decrease in net interest margin for 2014 was driven by lower yields on earning assets , particularly yields on loans . the provision for loan losses was $ 106.3 million for 2014 compared to $ 107.5 million for 2013 . net charge-offs for 2014 totaled $ 122.0 million compared to $ 209.7 million for 2013 . excluding covered loans , the provision for loan 46 losses for 2014 was $ 107.5 million compared to $ 124.2 million for 2013 . provision for loan losses for 2014 was impacted by loan growth during 2014 in the commercial , financial and agricultural , residential real estate , and consumer portfolios . offsetting the increase attributable to loan growth was improving credit quality in the commercial , financial and agricultural , real estate-construction and commercial real estate-mortgage portfolios . net charge-offs excluding covered loans for 2014 were $ 124.7 million , which represented an $ 86.7 million decrease from 2013 . noninterest income was $ 917.4 million for 2014 , an increase of $ 62.6 million compared to 2013 . the increase in noninterest income was largely attributable to a $ 39.9 million increase in investment banking and advisory fees , an increase of $ 21.7 million in investment securities gains and a $ 19.2 million increase in other noninterest income due to the change in net gain ( loss ) associated with the sale of fixed assets and an increase in syndication and interchange fees . these increases were offset by a $ 10.8 million decrease in mortgage banking income and a $ 22.1 million decrease in gains on prepayment of fhlb and other borrowings . noninterest expense decreased $ 18.4 million to $ 2.2 billion for 2014 compared to 2013 . the lower level of noninterest expense was primarily attributable to a $ 152.1 million decrease in fdic indemnification expense offset by a $ 67.0 million increase in salaries , benefits and commissions , a $ 22.8 million increase in fdic insurance expense , a $ 15.9 million increase in equipment expense , a $ 16.3 million increase in professional services and a $ 12.5 million goodwill impairment charge related to the simple reporting unit . income tax expense was $ 147.3 million for 2014 compared to $ 170.8 million for 2013 . this resulted in an effective tax rate of 23.9 % for 2014 and a 28.9 % effective tax rate for 2013 . the decrease in the effective tax rate for 2014 was primarily driven by an increase in tax exempt income and the release of the valuation allowance on net operating losses of bsi . certain key credit quality metrics continued to show improvement during 2014 . specifically , nonperforming assets excluding covered assets were $ 368.4 million at december 31 , 2014 , a decrease of $ 117.9 story_separator_special_tag million compared to december 31 , 2013 . at the same time , past due loans declined slightly during 2014. the company 's total assets at december 31 , 2014 were $ 83.2 billion , an increase of $ 11.2 billion from december 31 , 2013 levels . total loans excluding loans held for sale were $ 57.4 billion at december 31 , 2014 , an increase of $ 6.7 billion or 13.2 % from december 31 , 2013 levels . the growth in loans was primarily due to increases in commercial loans and residential mortgages . deposits increased $ 6.8 billion or 12.4 % compared to december 31 , 2013 , driven by transaction accounts which increased 14.2 % fueled by savings and money market growth . noninterest bearing demand deposits increased 11.7 % . certificates and other time deposits increased 5.8 % at december 31 , 2014 compared to december 31 , 2013 primarily related to growth in cds due to certain product promotions . total shareholders ' equity at december 31 , 2014 was $ 12.0 billion , an increase of $ 515.8 million compared to december 31 , 2013 . 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 . 47 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 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 20 , 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 .
| the 16 basis point decrease was primarily due to a higher volume of new loans originated at lower yields . the yield on covered loans for 2014 was 22.67 % compared to 34.01 % for 2013 . the decrease was primarily due to the impact of the quarterly reassessment of expected future cash flows . 49 the fully taxable equivalent yield on the total investment securities portfolio was 2.28 % for the year ended december 31 , 2014 , compared to 2.29 % for the prior year . the average rate paid on interest bearing deposits was 0.60 % for 2014 compared to 0.56 % for 2013 . the average rate on fhlb and other borrowings during 2014 was 1.62 % compared to 1.55 % for the prior year . this increase was primarily due to higher rates paid on new fhlb advances that have replaced fhlb advances as they matured or were terminated . 2013 compared to 2012 net interest income totaled $ 2.0 billion in 2013 compared to $ 2.2 billion in 2012 . the decrease in net interest income was driven by lower yields on earning assets , particularly loans and investment securities available for sale , as well as higher funding costs primarily associated with interest bearing deposits and fhlb and other borrowings . net interest income on a fully taxable equivalent basis totaled $ 2.1 billion in 2013 , compared with $ 2.3 billion in 2012 . net interest income on a fully taxable equivalent basis decreased 8 % in 2013 compared to 2012 . the decrease in net interest income was primarily the result of an increase in total interest bearing liabilities driven by an increase in the balance of interest bearing deposits . net interest margin was 3.62 % in 2013 compared to 4.23 % in 2012 . the decline in net interest margin primarily reflects the runoff of higher yielding covered loans and lower yields on new loans . the
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further , our ability to sell properties is limited by safe harbor rules applying to reits under the code which relate to the number of properties that may be disposed of in a year , their tax bases 27 and the cost of improvements made to the properties , along with other tests which enable a reit to avoid punitive taxation on the sale of assets . if we are unable to sell properties on favorable terms , our income growth would be limited and our financial condition , results of operations , cash flow and ability to make distributions to our stockholders and unitholders , the market price of the company 's common stock and the market value of the units could be adversely affected . we utilize a portion of the net sales proceeds from property sales , borrowings under our unsecured credit facility and proceeds from the issuance , when and as warranted , of additional debt and equity securities to refinance debt and finance future acquisitions and developments . access to external capital on favorable terms plays a key role in our financial condition and results of operations , as it impacts our cost of capital and our ability and cost to refinance existing indebtedness as it matures and to fund acquisitions and developments . our ability to access external capital on favorable terms is dependent on various factors , including general market conditions , interest rates , credit ratings on our debt , the market 's perception of our growth potential , our current and potential future earnings and cash distributions and the market price of the company 's common stock . if we were unable to access external capital on favorable terms , our financial condition , results of operations , cash flow and ability to make distributions to our stockholders and unitholders , the market price of the company 's common stock and the market value of the units could be adversely affected . summary of significant transactions during 2015 during 2015 , we completed the following significant transactions and financing activities : we acquired eight industrial properties comprising approximately 1.9 million square feet of gla and several land parcels for an aggregate purchase price of approximately $ 169.2 million , excluding costs incurred in conjunction with the acquisitions . we placed in-service six developments totaling approximately 1.8 million square feet of gla at a total cost of approximately $ 109.2 million . we sold 66 industrial properties comprising approximately 3.8 million square feet of gla and several land parcels for total gross sales proceeds of approximately $ 158.4 million . we amended our existing $ 625.0 million revolving credit agreement , extending the maturity to march , 2019 ( with an option to extend an additional one year at our election ) . the interest rate on our unsecured credit facility is currently libor plus 115 basis points subject to a pricing grid for changes in our leverage ratio or credit ratings . the weighted average interest rate at december 31 , 2015 , is 1.57 % . we entered into a seven-year , $ 260.0 million unsecured loan ( the `` 2015 unsecured term loan '' ) with a syndicate of financial institutions . the interest rate is currently libor plus 160 basis points subject to a pricing grid for changes in our leverage ratio or credit ratings . we also entered into interest rate protection agreements to effectively convert the variable rate to a fixed rate , providing a weighted average effective rate of 3.39 % as of december 31 , 2015. we paid an annual cash dividend of $ 0.51 per common share or unit , an increase of 24 % from 2014 . 28 story_separator_special_tag 66 industrial properties comprising approximately 3.8 million square feet of gla and several land parcels . for the year ended december 31 , 2014 , we recognized $ 0.1 million of loss on sale of real estate related to the sale of land parcels that did not meet the criteria for inclusion in discontinued operations . interest income decreased $ 2.0 million , or 97.1 % , primarily due to the receipt of prepayment fees of $ 0.7 million related to notes receivable that were paid off early during the year ended december 31 , 2014 and a decrease in the weighted average note receivable balance outstanding for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014. interest expense decreased $ 4.8 million , or 6.6 % , primarily due to a decrease in the weighted average interest rate for the year ended december 31 , 2015 ( 4.99 % ) as compared to the year ended december 31 , 2014 ( 5.33 % ) and an increase in capitalized interest of $ 1.0 million for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014 due to an increase in development activities , offset by an increase in the weighted average debt balance outstanding for the year ended december 31 , 2015 ( $ 1,399.9 million ) as compared to the year ended december 31 , 2014 ( $ 1,380.6 million ) . amortization of deferred financing costs remained relatively unchanged . in august 2014 , we entered into three interest rate protection agreements in order to maintain our flexibility to pursue an offering of unsecured debt . during the year ended december 31 , 2015 , we settled the interest rate protection agreements and reclassified the fair market value loss recorded in other comprehensive income relating to the three interest rate protection agreements to earnings as a result of determining the forecasted offering of unsecured debt was no longer probable to occur within the time period stated in the respective hedge designation memos . for the year ended december 31 , 2015 , we recorded $ 11.5 million in mark-to-market and settlement loss on the three interest rate protection agreements . story_separator_special_tag for the year ended december 31 , 2014 , we recognized a loss from retirement of debt of $ 0.7 million due to the early payoff of certain mortgage loans . equity in income of joint ventures decreased $ 3.4 million during the year ended december 31 , 2015 as compared to the year ended december 31 , 2014 primarily due to a decrease in our pro rata share of gain and earn outs from the sales of industrial properties from the 2003 net lease joint venture . the income tax provision is not significant . 31 as discussed in note 2 to the consolidated financial statements , we adopted the new accounting standard relating to discontinued operations on january 1 , 2015. there were no sales of industrial properties during the year ended december 31 , 2015 that met the criteria to be classified as discontinued operations . the industrial properties sold prior to january 1 , 2015 that met the criteria to be classified as discontinued operations continue to be presented as discontinued operations in the consolidated statements of operations . the following table summarizes certain information regarding the industrial properties included in discontinued operations for the year ended december 31 , 2014 . 2014 ( $ in 000 's ) total revenues $ 7,007 property expenses ( 2,784 ) depreciation and amortization ( 2,388 ) gain on sale of real estate 25,988 income from discontinued operations $ 27,823 income from discontinued operations for the year ended december 31 , 2014 reflects the results of operations and gain on sale of real estate relating to 29 industrial properties that were sold during the year ended december 31 , 2014. comparison of year ended december 31 , 2014 to year ended december 31 , 2013 the company 's net income was $ 51.0 million and $ 41.4 million for the years ended december 31 , 2014 and 2013 , respectively . the operating partnership 's net income was $ 51.3 million and $ 41.5 million for the years ended december 31 , 2014 and 2013 , respectively . the tables below summarize our revenues , property expenses and depreciation and other amortization by various categories for the years ended december 31 , 2014 and 2013. same store properties are properties owned prior to january 1 , 2013 and held as an in-service property through december 31 , 2014 and developments and redevelopments that were placed in service prior to january 1 , 2013 or were substantially completed for the 12 months prior to january 1 , 2013. properties which are at least 75 % occupied at acquisition are placed in service . acquisitions that are less than 75 % occupied at the date of acquisition , developments and redevelopments are placed in service as they reach the earlier of a ) stabilized occupancy ( generally defined as 90 % occupied ) , or b ) one year subsequent to acquisition or development/redevelopment construction completion . properties are moved from the same store classification to the redevelopment classification when capital expenditures for a project are estimated to exceed 25 % of the undepreciated gross book value of the property . acquired properties are properties that were acquired subsequent to december 31 , 2012 and held as an operating property through december 31 , 2014. sold properties are properties that were sold subsequent to december 31 , 2012 . ( re ) developments include developments and redevelopments that were not : a ) substantially complete 12 months prior to january 1 , 2013 ; or b ) stabilized prior to january 1 , 2013. other revenues are derived from operations of properties not placed in service under one of the categories discussed above , the operations of our maintenance company , fees earned from our joint ventures and other miscellaneous revenues . other expenses are derived from the operations of properties not placed in service under one of the categories discussed above , operations of our maintenance company , vacant land expenses and other miscellaneous regional expenses . our future financial condition and results of operations , including rental revenues , may be impacted by the future acquisition and sale of properties . our future revenues and expenses may vary materially from historical rates . for the years ended december 31 , 2014 and 2013 , the average occupancy rates of our same store properties were 92.5 % and 90.9 % , respectively . 32 replace_table_token_14_th revenues from same store properties increased $ 16.5 million primarily due to an increase in occupancy , an increase in tenant recoveries and a one-time restoration fee recognized in 2014 , partially offset by an increase in the straight-line rent reserve for doubtful accounts . revenues from acquired properties increased $ 6.4 million due to the 10 industrial properties acquired subsequent to december 31 , 2012 totaling approximately 2.2 million square feet of gla . revenues from sold properties decreased $ 13.7 million due to the 96 industrial properties sold subsequent to december 31 , 2012 totaling approximately 5.0 million square feet of gla . revenues from ( re ) developments increased $ 2.8 million due to an increase in occupancy . other revenues increased $ 0.4 million primarily due to an increase in maintenance company revenues . replace_table_token_15_th property expenses include real estate taxes , repairs and maintenance , property management , utilities , insurance and other property related expenses . property expenses from same store properties increased $ 6.9 million primarily due to higher snow removal costs incurred during the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 due to the harsh 2014 winter , an increase in real estate tax expense and an increase in bad debt expense .
| ( re ) developments include developments and redevelopments that were not : a ) substantially complete 12 months prior to january 1 , 2014 ; or b ) stabilized prior to january 1 , 2014. other revenues are derived from operations of properties not placed in service under one of the categories discussed above , the operations of our maintenance company , fees earned from our joint ventures and other miscellaneous revenues . other expenses are derived from the operations of properties not placed in service under one of the categories discussed above , operations of our maintenance company , vacant land expenses and other miscellaneous regional expenses . during the period between january 1 , 2014 and december 31 , 2015 , one industrial property previously classified within same store , comprising approximately 0.2 million square feet , was reclassified and is included in the other classification as of december 31 , 2015. this property was taken out of service during the fourth quarter of 2015. we intend to demolish the existing industrial property and construct a new industrial property , at which time the property will be reclassified from other to the ( re ) developments classification . the newly constructed property will return to the same store classification following a complete calendar year of in service classification . our future financial condition and results of operations , including rental revenues , may be impacted by the future acquisition , development and sale of properties . our future revenues and expenses may vary materially from historical rates . for the years ended december 31 , 2015 and 2014 , the average occupancy rates of our same store properties were 94.2 % and 93.2 % , respectively . 29 replace_table_token_11_th revenues from same store properties increased $ 5.7 million primarily due to an increase in occupancy as well as as an increase in rental rates during the year ended december 31 , 2015 as compared to december 31 , 2014 , partially offset by a decrease in restoration fees . revenues from acquired properties increased $ 5.9 million due to the 16 industrial properties acquired subsequent to december 31 , 2013 totaling approximately 3.0 million square feet of gla . revenues from sold properties decreased $ 10.5 million due to the 95 industrial properties sold
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we anticipate taking additional actions in the near-term as we continue to position the company for future success . our focus for 2016 includes restructuring and reducing our internal costs , continued execution on the a350 program , and concentrating on cash generation and disciplined cash deployment . new and maturing programs we are currently performing work on several new and maturing programs , which are in various stages of development . these programs carry risks associated with design responsibility , development of production tooling , production inefficiencies during the initial phases of production , hiring and training of qualified personnel , increased capital and funding commitments , supplier performance , delivery schedules and unique contractual requirements . our success depends on our ability to achieve performance obligations on new and maturing programs to our customers ' satisfaction and manufacture products at our estimated cost . in order to continue to reduce risk on our new and maturing programs , it will be critical that we successfully perform under revised design and manufacturing plans , achieve planned cost reductions as we enter increasing levels of production , meet customer delivery schedules , successfully resolve claims and assertions and negotiate pricing with our customers and suppliers . a350 xwb we continue to support the development of the a350 xwb program through two contracts we have with airbus , a fuselage contract and a wing contract , both of which are segmented into a non-recurring design engineering phase and a recurring production phase . we continue to record sales at zero margins to reflect the identified risk profile on these programs . we also continue to support the development of the work scope for the design and tooling related to the -1000 derivative of the a350 xwb fuselage and wing contracts . estimates for the non-recurring design engineering phase of the -1000 fuselage derivative have resulted in previously recorded forward losses on this program . there is a risk of additional forward loss if we do not successfully execute the design and engineering change process as projected . our a350 xwb fuselage recurring program experienced various production inefficiencies in its earlier stages of production which resulted in previously recorded forward losses , mostly driven by early development discovery and engineering change to the aircraft design , as well as higher test and transportation costs . estimated revenue for the a350 xwb program includes estimates of probable recoveries asserted against our customer for changes in specifications . although we continue to project margins on the a350 xwb fuselage and wing contracts to be near or at break-even , there is still a substantial amount of risk similar to what we have experienced on other development programs . specifically , our ability to successfully negotiate favorable pricing and other terms with airbus and our suppliers , to manage supplier performance , execute cost reduction strategies , hire and retain skilled production and management personnel , execute quality and manufacturing processes , manage program schedule delays and adjust to higher rate schedules , among other risks , will determine the ultimate performance of this program and these contracts . there continues to be risk of additional forward loss associated with the fuselage recurring contract as we work through production , supply chain and customer issues . b787 program as we move into a higher production rate on this program , our performance at the current contracted price depends on our continued ability to achieve cost reductions in manufacturing and support labor as well as supply chain . improvement efforts to reduce our cost structure have been ongoing since the beginning of the program and continued as design engineering for the b787-8 , b787-9 and b787-10 derivatives were finalized and manufacturing plans were solidified . near-term cost improvement 41 efforts will focus on efficiency gains within our manufacturing process and execution of sourcing strategies . our supply agreement for the b787 program ( the `` b787 supply agreement '' ) provides that initial prices for the b787-9 and b787-10 are to be determined by a procedure set out in the b787 supply agreement , and to be documented by amendment once that amendment has been agreed to by the parties . as part of the november 2014 moa , boeing and spirit established interim prices for certain b787 shipsets , and the parties agreed to negotiate future rate increases , recurring prices , and other issues across multiple programs during 2015. since we were unable to reach agreement with boeing on these issues by the end of 2015 , once the parties agree upon appropriate pricing for the b787-9 , boeing will be entitled to a retroactive adjustment on certain b787 payments which were based on the interim pricing . the amount we received that is subject to a retroactive adjustment was recorded as deferred revenue , and was never recognized by us as revenue . we are engaged in discussions with boeing concerning how to determine the subsequent b787-9 and initial b787-10 prices , and have not yet reached agreement . our ability to successfully negotiate fair and equitable prices for these models as well as overall b787 delivery volumes and rate investments and our ability to achieve forecasted cost improvements on all b787 models are key factors in achieving the projected financial performance for this program . for b787-9 deliveries in our first b787 contract block , we have applied the appropriate accounting guidance for unpriced change orders in estimating revenues which will be updated in the quarter in which final pricing is negotiated . pending final price negotiations , we have estimated revenue for b787-9 deliveries to include assumptions around design changes from the contract configuration baseline for each b787 model . boeing legacy programs on april 8 , 2014 , we entered into a memorandum of agreement with boeing that established pricing terms for the b737 , b747 , b767 and b777 programs for the period commencing on april 1 , 2014 and ending on december 31 , 2015 , under the company 's long-term supply contract with boeing covering products for such programs . story_separator_special_tag the new pricing terms were not applied to the period prior to april 1 , 2014. the new prices do not apply to the 737 max , for which recurring pricing has not yet been agreed . since the parties have been unable to agree upon pricing on the b737 , b747 , b767 and b777 platforms for the periods beyond 2015 , an interim payment mechanism has been triggered for deliveries under the supply agreement commencing january 1 , 2016. this interim payment mechanism is based upon existing prices , adjusted using a quantity-based price adjustment formula and specified annual escalation . the interim payment mechanism is subject to adjustment when follow-on pricing is agreed upon . prices for commercial derivative models are to be negotiated in good faith by the parties based on then-prevailing market conditions . if the parties can not agree on price , then they must engage in dispute resolution pursuant to agreed-upon procedures . program inventory program inventory as a percentage of total assets was 31 % , 34 % and 36 % at december 31 , 2015 , 2014 and 2013 , respectively . the change in inventory in 2015 was primarily due to a decline in inventory for the boeing b787 program driven by the amortization of capitalized pre-production , partially offset by an increase in inventory for the a350xwb program , primarily driven by an increase in deferred production . under percentage-of-completion method of contract accounting , investments in new and maturing contracts , including contractual pre-production costs and recurring production costs in excess of the projected average cost to manufacture all units in the contract block , initially accumulate in inventory for the related contract . typically once production has reached a point where the cost to produce a shipset falls below such projected average cost , the inventory balance for such program begins to decrease . deferred inventory costs are evaluated for recoverability through their inclusion in the total costs used in the calculation of each contract block 's estimated profit margin . when the estimated total contract block costs exceed total estimated contract block revenues , a forward loss is recorded and an inventory reserve is established . divestiture of gulfstream g280 and g650 work packages in december 2014 , we entered into an agreement to transfer the gulfstream g280 and g650 wing work packages at our oklahoma facilities to triumph . spirit paid triumph $ 160.0 million in cash at closing of the transaction , which occurred on december 30 , 2014. we continue to supply certain parts and services to triumph under a supply agreement entered into in connection with the transaction . basis of presentation the financial statements include spirit 's financial statements and the financial statements of its majority-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the united states of america . investments in business entities in which we do not have control , but have the ability to exercise influence over operating and financial policies , are accounted for by the equity method . our joint venture , taikoo spirit aerosystems composite co. ltd. ( `` tsaccl '' ) is accounted for by this method . kansas industrial energy supply company ( `` kiesc '' ) , a tenancy-in-common with other wichita companies established to purchase natural gas , is fully consolidated as spirit owns 77.8 % of the entity 's equity . all intercompany balances and transactions have been eliminated in consolidation . the company 's u.k. subsidiary uses local currency , the british pound , 42 as its functional currency ; the malaysian subsidiary uses the british pound and our singapore subsidiary uses the singapore dollar . all other foreign subsidiaries and branches use the u.s. dollar as their functional currency . as part of the monthly consolidation process , the functional currency is translated to u.s. dollars using the end-of-month currency translation rate for balance sheet accounts and average period currency translation rates for revenue and income accounts as defined by fasb authoritative guidance on foreign currency translation . critical accounting policies the following discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles ( `` gaap '' ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , including those related to inventory , income taxes , financing obligations , warranties , pensions and other post-retirement benefits and contingencies and litigation . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . management believes that the quality and reasonableness of our most critical policies enable the fair presentation of our financial position and results of operations . however , the sensitivity of financial statements to these methods , assumptions and estimates could create materially different results under different conditions or using different assumptions . the following are our most critical accounting policies , which are those that require management 's most subjective and complex judgments , requiring the use of estimates about the effect of matters that are inherently uncertain and may change in subsequent periods . use of estimates the preparation of the company 's financial statements in conformity with gaap requires management to use estimates and assumptions . the results of these estimates form the basis for making judgments which may affect the reported amounts of assets and liabilities , including the impacts of contingent assets and liabilities , and the reported amounts of revenue and expenses during the reporting period .
| net revenues by prime customer are as follows : replace_table_token_7_th _ ( 1 ) in december 2014 , spirit divested the gulfstream g280 and g650 wing work packages to triumph . changes in estimates during the twelve months ended december 31 , 2015 , we recognized total changes in estimates of $ 52.4 million which includes favorable cumulative catch-up adjustments related to periods prior to 2015 of $ 41.6 million and favorable changes in estimates on loss programs of $ 10.8 million , net of forward loss charges of $ 6.9 million . favorable cumulative catch-up adjustments for the periods prior to 2015 and changes in estimates on loss programs were primarily driven by productivity and efficiency improvements , favorable cost performance , mitigation of risk , benefits from increased production rates related to the absorption of fixed costs and favorable pricing negotiations on a maturing program . forward loss charges were due to a production rate decrease on a mature program . during the twelve months ended december 31 , 2014 , we recognized total changes in estimates of $ 86.5 million which includes favorable cumulative catch-up adjustments related to periods prior to 2014 of $ 60.4 million and favorable changes in estimates on loss programs of $ 26.1 million , net of forward loss charges of $ 1.2 million . favorable cumulative catch-up adjustments for the periods prior to 2014 and changes in estimates on loss programs were primarily driven by productivity and efficiency improvements , favorable cost performance , mitigation of risk , benefits from increased production rates related to the absorption of fixed costs , increased statement of work on mature programs and favorable pricing negotiations on a maturing program . during the twelve months ended december 31 , 2013 , we recognized total changes in estimates of ( $ 1,037.8 ) million which includes $ 95.5 million of favorable cumulative catch-up adjustments related to periods prior to 2013 primarily driven by productivity and efficiency improvements and favorable cost performance on mature programs , offset by $ 1,133.3 million of forward loss charges on several programs . we recorded a forward loss charge of $ 422.0 million
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in addition , we recorded a $ 3.1 million impairment charge on an indefinite-lived intangible asset at efco . fiscal 2018 compared to fiscal 2017 . net sales improved 75.4 percent , or $ 291.2 million , over fiscal 2017 . efco contributed net sales of $ 203.7 million in fiscal 2018 , or approximately 70 percent of total segment growth , and sotawall contributed 19 percent of the growth . net sales increased 8.7 percent over fiscal 2017 within existing businesses , due to increased pricing in order to offset raw material cost inflation , volume growth due to gains in share of demand and geographic growth in north america . operating margin declined 290 basis points over fiscal 2017 , with improved margins in legacy businesses offset by the inclusion of efco at lower operating margins . architectural glass replace_table_token_8_th fiscal 2019 compared to fiscal 2018 . fiscal 2019 net sales decreased 4.4 percent , or $ 16.9 million , over the prior year due to changes in timing of customer orders , as well as volume declines stemming from operational challenges in the second and third fiscal quarters . operating margin declined 400 basis points , largely due to increased labor costs , lower productivity and higher cost of quality due to challenges in ramping-up production in a tight labor market to meet higher than expected order intake and customer demand . in the second half of our fiscal year , we made progress on improving productivity and controlling costs . fiscal 2018 compared to fiscal 2017 . fiscal 2018 net sales decreased 6.7 percent , or $ 27.7 million , over fiscal 2017 primarily due to volume declines on larger projects in our u.s.-based business , as a result of international competition , as well as lower pricing on a higher mix of less complex glass products for mid-size projects . operating margin declined 230 basis points compared to fiscal 2017 , driven by reduced operating leverage on lower volume , lower pricing due to project mix and restructuring-related charges associated with the closure of our utah facility , somewhat offset by improved productivity . architectural services replace_table_token_9_th fiscal 2019 compared to fiscal 2018 . net sales increased 33.9 percent , or $ 72.6 million , over the prior year , due to strong project execution on maturing projects . operating margin improved 580 basis points over the prior year , due to volume leverage and strong project performance . fiscal 2018 compared to fiscal 2017 . net sales decreased 21.1 percent , or $ 57.2 million , over fiscal 2017 , due to year-on-year timing of project activity . operating margin declined 190 basis points over fiscal 2017 , as a result of lower volume leverage on fixed project management , engineering and manufacturing costs , partially offset by favorable project performance . large-scale optical technologies ( lso ) replace_table_token_10_th fiscal 2019 compared to fiscal 2018 . net sales were consistent with the prior year and operating margin improved 110 basis points over the prior year , driven by a $ 1.0 million gain from an insurance recovery and good operational performance . fiscal 2018 compared to fiscal 2017 . net sales decreased 1.6 percent and operating margin declined 10 basis points , compared to fiscal 2017 , as productivity gains were offset by unfavorable pricing , mix and volume . 18 liquidity and capital resources replace_table_token_11_th operating activities . cash provided by operating activities was $ 96.4 million in fiscal 2019 , a decrease of $ 31.0 million from fiscal 2018 , due to lower net earnings in fiscal 2019 and increased working capital needed to support the acquired project experiencing construction delays . investing activities . net cash used in investing activities was $ 53.7 million in fiscal 2019 , compared to $ 233.6 million in fiscal 2018 , with the year-over-year decline largely due to the acquisition of efco in the prior year . in fiscal 2019 and 2018 , we made capital expenditures focused primarily on adding product capabilities and improving manufacturing productivity . in fiscal 2019 , we also benefited from the sale of an architectural glass manufacturing facility in utah that was closed at the end of fiscal 2018. in fiscal 2017 , we acquired sotawall and made capital expenditures focused on increasing our product capabilities , in particular related to our oversized glass fabrication project , and manufacturing productivity . we estimate fiscal 2020 capital expenditures to be $ 60 to $ 65 million , as we continue to make investments to drive growth and productivity improvements . we continually review our portfolio of businesses and their assets and how they support our business strategy and performance objectives . as part of this review , we may continue to acquire other businesses , pursue geographic expansion , take actions to manage capacity and further invest in , fully divest and or sell parts of our current businesses . financing activities . we paid dividends totaling $ 17.9 million in fiscal 2019 . we also repurchased 1,257,983 shares under our authorized share repurchase program , at a total cost of $ 43.3 million . we repurchased 702,299 shares under the program in fiscal 2018 and 250,001 shares under the program in fiscal 2017 . we have repurchased a total of 5,267,915 shares , at a total cost of $ 149.3 million , since the 2004 inception of this program . we have remaining authority to repurchase 1,982,085 shares under this program , which has no expiration date , and we will continue to evaluate making future share repurchases , depending on our cash flow and debt levels , market conditions and other potential uses of cash . we maintain a $ 335.0 million committed revolving credit facility that expires in november 2021 , as further described in note 8 of the notes to consolidated financial statements . story_separator_special_tag $ 225.0 million was outstanding under this credit facility as of march 2 , 2019 , as we used this facility to finance the efco acquisition . as defined within the credit facility , we have two financial covenants which require us to stay below a maximum leverage ratio and to maintain a minimum interest expense-to-ebitda ratio . at march 2 , 2019 , we were in compliance with both financial covenants . other financing activities . the following summarizes our significant contractual obligations that impact our liquidity as of march 2 , 2019 : replace_table_token_12_th 19 in addition to the committed revolving credit facility discussed above , we also have industrial revenue bond obligations of $ 20.4 million that mature in fiscal years 2021 through 2043 and $ 0.4 million of other debt that matures in august 2022. we acquire the use of certain assets through operating leases , such as warehouses , vehicles , forklifts , office equipment , hardware , software and some manufacturing equipment . while many of these operating leases have termination penalties , we consider the risk related to termination penalties to be minimal . purchase obligations in the table above relate to raw material commitments and capital expenditures . we expect to make contributions of approximately $ 0.7 million to our defined-benefit pension plans in fiscal 2020 , which will equal or exceed our minimum funding requirements . as of march 2 , 2019 , we had reserves of $ 4.6 million and $ 1.2 million for long-term unrecognized tax benefits and environmental liabilities , respectively . we expect approximately $ 0.5 million of the unrecognized tax benefits to lapse during the next 12 months . we are unable to reasonably estimate in which future periods the remaining unrecognized tax benefits and environmental liabilities will ultimately be settled . at march 2 , 2019 , we had ongoing letters of credit of $ 25.1 million related to industrial revenue bonds and construction contracts that expire in fiscal 2020 and that reduce availability of funds under our committed credit facility . in addition to the above standby letters of credit , we are required , in the ordinary course of business , to provide surety or performance bonds that commit payments to our customers for any non-performance . at march 2 , 2019 , $ 313.2 million of our backlog was bonded by performance bonds with a face value of $ 570.6 million . these bonds do not have stated expiration dates , as we are released from the bonds upon completion of the contract . we have not been required to make any payments under these bonds with respect to our existing businesses . we had total cash and short-term marketable securities of $ 17.1 million , and $ 84.9 million available under our committed revolving credit facility , at march 2 , 2019 . due to our ability to generate cash from operations and our borrowing capacity under our committed revolving credit facility , we believe that our sources of liquidity will continue to be adequate to fund our working capital requirements , planned capital expenditures and dividend payments for at least the next 12 months . off-balance sheet arrangements . with the exception of operating leases , we had no off-balance sheet arrangements at march 2 , 2019 or march 3 , 2018 . outlook the following statements are based on our current expectations for fiscal 2020 results . these statements are forward-looking , and actual results may differ materially . revenue growth of 1.0 to 3.0 percent over fiscal 2019 . operating margin of 8.2 to 8.6 percent . earnings per diluted share of $ 3.00 to $ 3.20. capital expenditures of approximately $ 60 to $ 65 million . effective annual tax rate of approximately 24.5 percent . recently issued accounting pronouncements see note 1 of the notes to consolidated financial statements within item 8 of this form 10-k for information pertaining to recently issued accounting pronouncements , incorporated herein by reference . critical accounting policies our analysis of operations and financial condition is based on our consolidated financial statements prepared in accordance with u.s. gaap . preparation of these consolidated financial statements requires us to make estimates and assumptions affecting the reported amounts of assets and liabilities at the date of the consolidated financial statements , reported amounts of revenues and expenses during the reporting period and related disclosures of contingent assets and liabilities . in developing these estimates and assumptions , a collaborative effort is undertaken involving management across the organization , including finance , sales , project management , quality , risk , legal and tax , as well as outside advisors , such as consultants , engineers , lawyers and actuaries . our estimates are evaluated on an ongoing basis and are drawn from historical experience and other assumptions that we believe to be reasonable under the circumstances . actual results could differ under other assumptions or circumstances . 20 we consider the following items in our consolidated financial statements to require significant estimation or judgment . revenue recognition we generate revenue from the design , engineering and fabrication of architectural glass , curtainwall , window , storefront and entrance systems , and from installing those products on commercial buildings . we also manufacture value-added glass and acrylic products . due to the diverse nature of our operations and various types of contracts with customers , we have businesses that recognize revenue over time and businesses that recognize revenue at a point in time . we believe the most significant areas of estimation and judgment relate to over-time revenue recognition on longer-term contracts . we have three businesses which operate under long-term , fixed-price contracts , representing approximately 34 percent of our total revenue in fiscal 2019 .
| replace_table_token_4_th results of operations net sales replace_table_token_5_th fiscal 2019 compared to fiscal 2018 net sales in fiscal 2019 increased by 5.8 percent compared to fiscal 2018 , driven by strong project execution in the architectural services segment , as well as growth from our architectural framing segment , primarily due to the addition of efco ( acquired in june 2017 ) for the full period , partially offset by a sales decline in the architectural glass segment . fiscal 2018 compared to fiscal 2017 net sales in fiscal 2018 increased by 19.0 percent compared to fiscal 2017 , due to the acquisition of efco in the second quarter of 2018. this acquisition , as well as a full year of results from sotawall ( acquired in the fourth quarter of fiscal 2017 ) and pricing and volume gains from our existing segment businesses , resulted in overall growth in our architectural framing systems segment , which was partially offset by volume declines in our architectural services and architectural glass segments . 16 performance the relationship between various components of operations , as a percentage of net sales , is provided below . replace_table_token_6_th fiscal 2019 compared to fiscal 2018 gross profit was 20.9 percent in fiscal 2019 , a decline of 420 basis points from fiscal 2018 , driven by $ 40.9 million of project-related charges on certain contracts acquired with the purchase of efco , higher operating costs in the architectural glass segment and negative leverage on reduced volumes and mix in the architectural framing segment , somewhat offset by volume leverage and good project performance in the architectural services segment . selling , general and administrative ( sg & a ) expense for fiscal 2019 was 16.1 percent , a decrease of 40 basis points but an increase of $ 7.0 million from fiscal 2018 . this was due to the inclusion of a full year of expense for efco ( acquired in the second quarter of fiscal 2018 ) , partially offset by lower amortization on acquired intangible assets . interest and other expenses increased by 30 basis points over the prior year due to an increase in the variable interest rate on our debt and a higher average outstanding debt balance throughout fiscal 2019 compared to fiscal 2018. the effective
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short-term mortgage securities , which the bank generally defines as those having an estimated average life of 2.5 years or less at the date of purchase , represented 38.8 % of the average balance of the total taxable securities portfolio in 2010 as compared to 18.2 % in 2009. management grew this segment of the taxable securities portfolio as a hedge against potential future increases in interest rates , to balance the duration of the overall securities portfolio in light of the increased size of the longer-term municipal securities portfolio , and because the incremental yield that could be earned on longer average life mortgage securities was relatively small . in addition , management temporarily invested a significant portion of the proceeds of the 2010 common stock offering in short-term mortgage securities with the intention of reinvesting the monthly pay downs on such securities in better yielding loans . earnings for the fourth quarter of 2010 were $ .46 per share , representing an increase of $ .16 per share , or 53.3 % over $ .30 per share earned in the same quarter of 2009. the improvement was primarily due to the fact that the provision for loan losses was $ 2.1 million higher in the fourth quarter of 2009 , which impacted earnings by approximately $ .17 per share . when comparing fourth quarter to third quarter 2010 results , earnings are down $ .09 per share , or 16.4 % , primarily as a result of an increase in the provision for loan losses of $ 725,000 , the establishment of a $ 300,000 valuation allowance on one loan held for sale and the full quarter dilutive impact of the common stock offering . the increase in the provision for loan losses was driven by the establishment of an impairment reserve of $ 870,000 on one nonaccrual loan . the credit quality of the bank 's loan portfolio remained excellent at december 31 , 2010 , as evidenced by , among other things , low levels of past due , nonaccrual and impaired loans . in an attempt to maintain credit quality , management continued to focus its loan portfolio growth efforts on what it considers lower risk loan categories ( i.e. , owner occupied commercial mortgages , multifamily loans , and first lien residential mortgages having terms generally between ten and twenty years ) and continued to avoid growing what it considers higher risk loan categories ( i.e. , construction loans and unsecured loans to individuals ) . the credit quality of the bank 's securities portfolio also remained excellent at december 31 , 2010. all of the bank 's mortgage securities were backed by mortgages underwritten on conventional terms , and almost all of these securities were full faith and credit obligations of the u.s. government . the remainder of the bank 's securities portfolio consisted principally of municipal securities rated aa or better by major rating agencies . application of critical accounting policies in preparing the consolidated financial statements , management is required to make estimates and assumptions that affect the reported asset and liability balances and revenue and expense amounts . our determination of the allowance for loan losses is a critical accounting estimate because it is based on our subjective evaluation of a variety of factors at a specific point in time and involves difficult and complex judgments about matters that are inherently uncertain . in the event that management 's estimate needs to be adjusted based on , among other things , additional information that comes to light after the estimate is made or changes in circumstances , such adjustment could result in the need for a significantly different allowance for loan losses and thereby materially impact , either positively or negatively , the bank 's results of operations . 15 the bank 's reserve committee , which is chaired by the senior lending officer , meets on a quarterly basis and is responsible for determining the allowance for loan losses after considering , among other things , the results of credit reviews performed under the bank 's independent loan review function . in addition , and in consultation with the bank 's chief financial officer and chief risk officer , the reserve committee is responsible for implementing and maintaining policies and procedures surrounding the calculation of the required allowance . the bank 's allowance for loan losses is reviewed and ratified by the board loan committee on a quarterly basis and is subject to periodic examination by the occ , the bank 's primary federal banking regulator , whose safety and soundness examination includes a determination as to its adequacy to absorb probable incurred losses . the first step in determining the allowance for loan losses is to identify loans in the bank 's portfolio that are individually deemed to be impaired and measure impairment losses based on either the fair value of collateral or the discounted value of expected future cash flows . a loan is considered to be impaired when , based on current information and events , it is probable that the bank will be unable to collect the scheduled principal and interest payments when due according to the contractual terms of the loan agreement . loans that experience insignificant payment delays and payment shortfalls are not generally considered to be 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 financial condition , and the amount of the shortfall in relation to the principal and interest owed . in estimating the fair value of real estate collateral , management utilizes appraisals and also makes qualitative judgments based on , among other things , its knowledge of the local real estate market and analyses of current economic conditions and trends . story_separator_special_tag estimating the fair value of collateral other than real estate is also subjective in nature and sometimes requires difficult and complex judgments . determining expected future cash flows can be more subjective than determining fair values . expected future cash flows could differ significantly , both in timing and amount , from the cash flows actually received over the loan 's remaining life . in addition to estimating losses for loans individually deemed to be impaired , management also estimates collective impairment losses for pools of loans that are not specifically reviewed . statistical information regarding the bank 's historical loss experience over a period of time is the starting point in making such estimates . however , future losses could vary significantly from those experienced in the past and on a quarterly basis management adjusts its historical loss experience to reflect current conditions . in doing so , management considers a variety of general qualitative factors and then subjectively determines the weight to assign to each in estimating losses . the factors include , among others , delinquencies , economic conditions , trends in nature and volume of loans , concentrations of credit , changes in lending policies and procedures , experience , ability and depth of lending staff , changes in quality of the loan review function , environmental risks and loan risk ratings . because of the nature of the factors and the difficulty in assessing their impact , management 's resulting estimate of losses may not accurately reflect actual losses in the portfolio . the allowance for loan losses is comprised of impairment losses on the loans specifically reviewed and estimated losses on the pools of loans that are collectively reviewed . although the allowance for loan losses has two separate components , one for impairment losses on individual loans and one for collective impairment losses on pools of loans , the entire allowance for loan losses is available to absorb realized losses as they occur whether they relate to individual loans or pools of loans . 16 net interest income average balance sheet ; interest rates and interest differential . the following table sets forth the average daily balances for each major category of assets , liabilities and stockholders ' equity as well as the amounts and average rates earned or paid on each major category of interest-earning assets and interest-bearing liabilities . replace_table_token_3_th ( 1 ) tax-equivalent basis . interest income on a tax-equivalent basis includes the additional amount of interest income that would have been earned if the corporation 's investment in tax-exempt loans and investment securities had been made in loans and investment securities subject to federal income taxes yielding the same after-tax income . the tax-equivalent amount of $ 1.00 of nontaxable income was $ 1.52 in each period presented , based on a federal income tax rate of 34 % . ( 2 ) for the purpose of these computations , nonaccruing loans are included in the daily average loan amounts outstanding . 17 rate/volume analysis . the following table sets forth the effect of changes in volumes , rates and rate/volume on tax-equivalent interest income , interest expense and net interest income . replace_table_token_4_th ( 1 ) represents the change not solely attributable to change in rate or change in volume but a combination of these two factors . the rate/volume variance could be allocated between the volume and rate variances shown in the table based on the absolute value of each to the total for both . net interest income – 2011 versus 2010 net interest income on a tax-equivalent basis was $ 64.9 million in 2011 , an increase of $ 4.2 million from $ 60.7 million in 2010. the increase resulted from growth in the average balances of loans and taxable and nontaxable securities , which in the aggregate grew $ 190.8 million , or 12.1 % . the growth in average balances was partially offset by market driven declines in yield on both the bank 's securities and loan portfolios . funding the interest-earning asset growth was a combination of increases in total deposits , capital and long-term debt . total deposit growth was the most significant contributor increasing on average $ 129.1 million , or 9.9 % , during 2011. net interest margin decreased by 18 basis points when comparing 2011 to 2010. this decrease occurred primarily because the negative impact of market driven declines in yield on the bank 's securities and loan portfolios and the bank 's liability extension strategy more than offset the positive impact of growth in noninterest-bearing funding sources and management 's lowering of savings , now and money market deposit rates throughout 2010 and 2011. net interest spread , or the difference between the overall yield on interest-earning assets and the overall cost of interest-bearing liabilities , also declined by 18 basis points for largely the same reasons as the decline in net interest margin . net interest income – 2010 versus 2009 net interest income on a tax-equivalent basis increased by $ 8.8 million , or from $ 51.9 million in 2009 to $ 60.7 million in 2010. the most significant reasons for the increase in net interest income were growth in the bank 's loan and nontaxable securities portfolios and decreases in the rates paid on various categories of deposits . on an average balance basis , loans grew by $ 147.6 million , or 20.6 % , and tax-exempt securities grew by $ 61.7 million , or 34.1 % . growth in these asset categories was funded by an increase in interest-bearing deposits , which on an average balance basis grew by $ 169.4 million , or 22.1 % , and an increase in checking deposits , which on an average balance basis grew by $ 39.3 million , or 11.7 % . the positive impact of loan and securities growth and decreases in deposit rates was partially offset by decreases in the overall yield on the bank 's loan and taxable securities portfolios .
| on an overall basis , total average interest-earning assets grew by $ 195.6 million , or 12.3 % . loans and municipal securities , the bank 's two highest yielding asset categories , grew by $ 83.1 million or 9.6 % , and $ 61.8 million , or 25.5 % , respectively , while taxable securities and interest-bearing bank balances , the bank 's two lowest yielding asset categories , grew by $ 45.8 million , or 9.7 % , and $ 4.9 million , or 33.4 % , respectively . funding this growth were increases in noninterest-bearing checking deposits of $ 47.5 million , or 12.7 % , capital of $ 32.3 million , or 22.7 % , savings , now and money market deposits of $ 94.4 million , or 14.5 % , and long-term debt of $ 34.6 million , or 21.0 % . from the standpoint of net interest income , checking deposits and capital are the most desirable funding sources because neither has an associated interest cost . the 2011 decrease in net interest margin occurred primarily because the negative impact of market driven declines in yield on the bank 's securities and loan portfolios far outweighed the positive impact of management 's successful efforts to lower the bank 's overall funding cost . the funding cost reduction would have been greater had management not engaged in a liability extension strategy involving additional long-term borrowings and extending the duration of the bank 's time deposits . this strategy results in paying more for funding today in exchange for possibly reducing the negative impact that future increases in interest rates could have on the corporation 's earnings . 13 occupancy and equipment expense increased when comparing the current to the prior year largely because of the cost of opening six new branches since the beginning of 2010. despite the cost of personnel needed to staff the new branches and the impact of normal annual salary increases , salaries expense for 2011 was only 2.1 % higher than 2010 and employee
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systems failures , faulty or incomplete data and an inadequate risk management framework ; the impact of failures of third parties upon which the corporation relies to perform in accordance with contractual arrangements ; the failure or circumvention of the corporation 's system of internal controls ; the loss of , or failure to safeguard , confidential or proprietary information ; the corporation 's failure to identify and to address cyber-security risks , including data breaches and cyber-attacks ; the corporation 's ability to keep pace with technological changes ; the corporation 's ability to attract and retain talented personnel ; capital and liquidity strategies , including the corporation 's ability to comply with applicable capital and liquidity requirements , and the corporation 's ability to generate capital internally or raise capital on favorable terms ; the corporation 's reliance on its subsidiaries for substantially all of its revenues and its ability to pay dividends or other distributions ; and the effects of any downgrade in the corporation 's or fulton bank 's credit ratings on their borrowing costs or access to capital markets . 42 overview the corporation is a financial holding company , which , through its wholly owned banking subsidiary , provides a full range of retail and commercial financial services in pennsylvania , delaware , maryland , new jersey and virginia . in 2018 , the corporation had three banking subsidiaries . during 2019 , the corporation consolidated two of its wholly owned banking subsidiaries into fulton bank ( `` charter consolidation '' ) . the corporation generates the majority of its revenue through net interest income , or the difference between interest earned on loans and investments and interest paid on deposits and borrowings . growth in net interest income is dependent upon balance sheet growth and maintaining or increasing the net interest margin , which is fte net interest income as a percentage of average interest-earning assets . the corporation also generates revenue through fees earned on the various services and products offered to its customers and through gains on sales of assets , such as loans , investments and properties . offsetting these revenue sources are provisions for credit losses on loans and obs credit risks , non-interest expenses and income taxes . the following table presents a summary of the corporation 's earnings and selected performance ratios : replace_table_token_5_th ( 1 ) ratio represents a financial measure derived by methods other than gaap . see reconciliation of this non-gaap financial measure to the most directly comparable gaap measure under the heading , `` supplemental reporting of non-gaap based financial measures , '' in item 6. selected financial data . ( 2 ) presented on an fte basis , using a 21 % federal tax rate and statutory interest expense disallowances . see also the `` net interest income '' section of management 's discussion . covid-19 pandemic the covid-19 pandemic has caused substantial disruptions in economic and social activity , both globally and in the united states . the spread of covid-19 , and related governmental actions to mandate or encourage temporary closures of businesses , quarantines , social distancing , `` stay at home '' orders and other restrictions on in-person operations and activities , have caused severe disruptions in the u.s. economy , which has , in turn , disrupted , and will likely continue to disrupt , the business , activities , and operations of the corporation 's customers , as well as the corporation 's own business and operations . the resulting impacts of the pandemic on consumers , including high levels of unemployment , have continued to cause changes in consumer and business spending , borrowing needs and saving habits , which have and will likely continue to affect the demand for loans and other products and services the corporation offers , as well as the creditworthiness of its borrowers . the significant decrease in commercial activity and disruptions in supply chains associated with the pandemic , both nationally and in the corporation 's markets , may cause customers , vendors and counterparties to be unable to meet existing payment or other obligations to the corporation . while portions of the national economy have reopened , there is still significant uncertainty concerning the breadth and duration of business disruptions related to the covid-19 pandemic , as well as their impact on the u.s. economy . the extent to which the pandemic impacts the corporation 's results will depend on future developments , which are highly uncertain and can not be predicted , including new information which may emerge concerning the continuing severity of the covid-19 pandemic , whether there are additional outbreaks of covid-19 , and the actions taken to contain it or treat its impact . moreover , although multiple covid-19 vaccines have received regulatory approval and are currently being distributed to certain high-risk population groups , it is too early to know how quickly these vaccines can be distributed to the general population and how effective they will be in mitigating the adverse social and economic effects of the covid-19 pandemic . the corporation 's business is dependent upon the willingness and ability of its customers to conduct banking and other financial transactions . in an effort to mitigate the spread of covid-19 , the corporation has adjusted service models at certain of its financial center locations , including limiting some locations to drive-up and atm services only , offering lobby access by 43 appointment only , and encouraging the corporation 's customers to use electronic banking platforms . approximately 25 % of the corporation 's locations are expected to provide lobby access by appointment only on a long-term basis . a significant portion of the corporation 's employees have transitioned to working remotely as a result of the covid-19 pandemic , which , in addition to requiring added support from the corporation 's information technology infrastructure , increases cybersecurity risks . story_separator_special_tag the continued spread of covid-19 ( or an outbreak of a similar highly contagious disease ) could also negatively impact the business and operations of third-party service providers who perform critical services for the corporation 's business . covid-19 has significantly affected the financial markets and has resulted in a number of responses by the u.s. government , including reductions in interest rates by the fomc . these reductions in interest rates , especially if prolonged , could adversely affect the corporation 's net interest income and margins and the corporation 's profitability . the cares act was enacted in march 2020 and , among other provisions , authorized the sba to guarantee loans under the ppp for small businesses who meet the necessary eligibility requirements in order to keep their workers on the payroll . during 2020 , the corporation funded approximately $ 2.0 billion loans under the ppp . stimulus payments to eligible consumers , enhanced unemployment benefits provided by the federal government and traditional , state-provided unemployment compensation , as well as other forms of relief provided to consumers and businesses , have helped to limit some of the adverse impacts of covid-19 . the reduction , expiration or discontinuation of these measures may adversely impact the recovery of economic activity and the ability of borrowers to meet their payment and other obligations to the corporation , either of which could require the corporation to increase the acl through provisions for credit losses . the impact of covid-19 on the corporation 's financial results is evolving and uncertain . the corporation has limited exposure to some of the industries that were initially most significantly impacted by covid-19 , such as hospitality and food services , energy and entertainment , and most of these loans are secured by real estate and other forms of collateral . while many areas of the economy began to exhibit signs of recovery during the second half of 2020 , the lingering effects of the pandemic , particularly in certain sectors of the economy , or a resurgence in covid-19 infections that prompts the continuation or imposition of governmental restrictions on activities , may result in decreased demand for the corporation 's loan products . in addition , the decline in economic activity occurring due to covid-19 and the actions by the fomc with respect to interest rates are likely to affect the corporation 's net interest income , non-interest income and credit-related losses for an uncertain period of time . as a result , the corporation took steps to maintain liquidity and conserve capital during this period of uncertainty . the corporation has been holding excess cash reserves since the end of the first quarter of 2020 , has additional liquidity available through borrowing arrangements and other sources , and plans to maintain its excess cash and these arrangements until there is more clarity surrounding economic conditions . see additional discussion in `` results of operations '' and `` financial condition '' of management 's discussion . adoption of cecl on january 1 , 2020 , the corporation adopted asu 2016-13 , financial instruments - credit losses ( asc topic 326 ) : measurement of credit losses on financial instruments , which replaced the incurred loss methodology , and is referred to as cecl . the measurement of expected credit losses under cecl is applicable to financial assets measured at amortized cost , including loans and htm debt securities . it also applies to obs credit exposures , such as loan commitments , standby letters of credit , financial guarantees , and other similar instruments , and net investments in leases recognized by a lessor in accordance with asc topic 842. refer to `` note 1 - summary of significant accounting policies '' in the notes to consolidated financial statements in item 8 . `` financial statements and supplementary data '' for additional information on the adoption of cecl . the corporation adopted cecl using the modified retrospective method for all financial assets measured at amortized cost , and obs credit exposures . results for 2020 are presented under cecl , while prior years ' results are reported in accordance with the previously applicable incurred loss methodology . the corporation recorded an increase of $ 58.3 million to the acl on january 1 , 2020 , primarily as a result of the adoption of cecl . retained earnings decreased $ 43.8 million and deferred tax assets increased by $ 12.4 million on january 1 , 2020 , representing the cumulative effect of adoption . story_separator_special_tag for the future performance of loans that received deferrals or forbearances as a result of covid-19 and the impact covid-19 had on certain industries where the quantitative models was not fully capturing the appropriate level of risk . for further discussion of the methodology used in the determination of the acl , refer to note 1 , `` summary of significant accounting policies '' in the notes to the consolidated financial statements in item 8 . `` financial statements and supplementary data . '' goodwill - goodwill recorded in connection with acquisitions is not amortized to expense , but is tested at least annually for impairment . a quantitative annual impairment test is not required if , based on a qualitative analysis , the corporation determines that the existence of events and circumstances indicate that it is more likely than not that goodwill is not impaired . the corporation completes its annual goodwill impairment test in october of each year . goodwill valuation is inherently subjective , with a number of factors based on assumptions and management judgments . among these are selection of comparable market transactions , discount rates and earnings capitalization rates . changes in assumptions and results due to economic conditions , industry factors and reporting unit performance could result in different assessments of the fair values of reporting units and could result in impairment charges . for additional details related to the annual goodwill impairment test , see `` note 1 - summary of significant accounting policies , '' in the notes to consolidated financial statements in item 8 .
| at december 31 , 2020 , the loan-to-deposit ratio was 94.2 % , as compared to 98.0 % at december 31 , 2019. asset quality - non-performing assets increased $ 3.3 million , or 2.2 % , as of december 31 , 2020 compared to december 31 , 2019. net charge-offs to average loans outstanding were 0.05 % for the year ended december 31 , 2020 compared to 0.22 % for the year ended december 31 , 2019. the provisions for credit losses increased $ 44.1 million , to $ 76.9 million , for the year ended december 31 , 2020 compared to $ 32.8 million for the same period in 2019. the higher provision in 2020 was largely driven by the adoption of cecl , which , as a result of an overall downturn in economic forecasts due to covid-19 , resulted in increases in the acl due to higher expected future credit losses under cecl . non-interest income - non-interest income , excluding investment securities gains , increased $ 14.9 million , or 7.1 % , in comparison to 2019. increases were experienced in mortgage banking and wealth management , partially offset by decreases in commercial and consumer banking . investment securities gains/balance sheet restructurings - during both 2020 and 2019 , the corporation completed limited balance sheet restructurings which included sales of investment securities and corresponding prepayment of fhlb advances . as a result , investment securities gains totaled $ 3.1 million in 2020 , as compared to $ 4.7 million in 2019 , a $ 1.7 million , or 35.5 % , decrease . in addition , included in non-interest expense were prepayment penalties on fhlb advances of $ 2.9 million and $ 4.3 million incurred during 2020 and 2019 , respectively . non-interest expense - non-interest expense increased $ 11.7 million , or 2.1 % , in comparison to 2019 , driven largely by higher salaries and employee benefits expense , state taxes and data processing and software expenses . partially offsetting these increases were reductions in other outside services and marketing . in 2020 , the corporation completed a strategic operating expense review , which resulted in a number of cost-saving initiatives that are expected to result in annual expense savings of $ 25 million , which is not expected to be fully realized until mid-2021 . the corporation expects to reinvest a portion of the cost savings to accelerate digital transformation initiatives . in 2020 , $ 16.2 million
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we are focused on optimizing our portfolio of products and services to better serve our global customers while providing a more attractive investment option for our investors . as we continue on this path , we are also reviewing options for our u.s. compression fabrication business to be a positive contributor to our strategy . this business has performed well over the past year despite difficult market conditions as we worked to maximize margins and returns . we will fully explore our options and we are committed to supporting our customers , employees and other stakeholders throughout the process . historically , oil , natural gas and natural gas liquids and the level of drilling and exploration activity in north america have been volatile . the henry hub spot price for natural gas was $ 2.09 per mmbtu at december 31 , 2019 , which was 36 % and 43 % lower than prices at december 31 , 2018 and 2017 , respectively , and the u.s. natural gas liquid composite price was $ 5.63 per mmbtu for the month of november 2019 , which was 12 % and 28 % lower than prices for the month of december 2018 and for the month of december 31 , 2017 , respectively . in addition , the west texas intermediate crude oil spot price as of december 31 , 2019 was 35 % and 1 % higher than prices at december 31 , 2018 and 2017 , respectively . volatility in commodity prices and an industry trend towards disciplined capital spending and improving returns have caused timing uncertainties in demand recently . these uncertainties have caused delays in the timing of new equipment orders and lower bookings in our product sales segment . booking activity levels for our product sales segment in north america during the year ended december 31 , 2019 were $ 228.6 million , which represents decreases of 75 % and 72 % compared to the years ended december 31 , 2018 and 2017 , respectively , and our north america product sales backlog as of december 31 , 2019 was $ 146.1 million , which represents decreases of 73 % and 65 % compared to december 31 , 2018 and 2017 , respectively . longer-term fundamentals in our international markets partially depend on international oil and gas infrastructure projects , many of which are based on the longer-term plans of our customers that can be driven by their local market demand and local pricing for natural gas . as a result , we believe our international customers make decisions based on longer-term fundamentals that may be less tied to near term commodity prices than our north american customers . over the long term , we believe the demand for our products and services in international markets will continue , and we expect to have opportunities to grow our international businesses . booking activity levels for our manufactured products in international markets during the year ended december 31 , 2019 were $ 163.7 million , which represents a decrease of 25 % and an increase of 182 % compared to the years ended december 31 , 2018 and 2017 , respectively , and our international product sales backlog as of december 31 , 2019 was $ 131.9 million , which represents a decrease of 19 % and an increase of 232 % compared to december 31 , 2018 and 2017 , respectively . aggregate booking activity levels for our product sales segment in north america and international markets during the year ended december 31 , 2019 was approximately $ 392.3 million , which represents decreases of 65 % and 56 % compared to the years ended december 31 , 2018 and 2017 , respectively . fluctuations in the size and timing of customers ' requests for bid proposals and awards of new contracts tend to create variability in booking activity levels from period to period . the timing of any change in activity levels by our customers is difficult to predict . as a result , our ability to project the anticipated activity level for our business , and particularly our product sales segment , is limited . given the volatility of the global energy markets and industry capital spending activity levels , we plan to monitor and continue to control our expense levels necessary to protect our profitability . additionally , volatility in commodity prices could delay investments by our customers in significant projects , which could result in a material adverse effect on our business , financial condition , results of operations and cash flows . our level of capital spending largely depends on the demand for our contract operations services and the equipment required to provide such services to our customers . based on our current backlog of contracts , we currently expect to invest less capital in our contract operations business in 2020 than we did in 2019 . 29 a decline in demand for oil and natural gas or prices for those commodities , or instability and rationalization of capital funding in the global energy markets could cause a reduction in demand for our products and services . we review long-lived assets , including property , plant and equipment and identifiable intangibles that are being amortized , for impairment whenever events or changes in circumstances , including the removal of compressor units from our active fleet , indicate that the carrying amount of an asset may not be recoverable . certain key challenges and uncertainties market conditions and competition in the oil and natural gas industry and the risks inherent in international markets continue to represent key challenges and uncertainties . in addition to these challenges , we believe the following represent some of the key challenges and uncertainties we will face in the future : global energy markets and oil and natural gas pricing . our results of operations depend upon the level of activity in the global energy markets , including oil and natural gas development , production , processing and transportation . story_separator_special_tag oil and natural gas prices and the level of drilling and exploration activity can be volatile . if oil and natural gas exploration and development activity and the number of well completions decline due to the reduction in oil and natural gas prices or significant instability in energy markets , we would anticipate a decrease in demand and pricing for our natural gas compression and oil and natural gas production and processing equipment and services . for example , unfavorable market conditions or financial difficulties experienced by our customers may result in cancellation of contracts or the delay or abandonment of projects , which could cause our cash flows generated by our product sales and services to decline and have a material adverse effect on our results of operations and financial condition . execution on larger contract operations and product sales projects . some of our projects are significant in size and scope , which can translate into more technically challenging conditions or performance specifications for our products and services . contracts with our customers generally specify delivery dates , performance criteria and penalties for our failure to perform . any failure to execute such larger projects in a timely and cost effective manner could have a material adverse effect on our business , financial condition , results of operations and cash flows . personnel , hiring , training and retention . we believe our ability to grow may be challenged by our ability to hire , train and retain qualified personnel . although we have been able to satisfy our personnel needs thus far , retaining employees in our industry continues to be a challenge . our ability to continue our growth will depend in part on our success in hiring , training and retaining these employees . summary of results revenue . revenue during the years ended december 31 , 2019 , 2018 and 2017 was $ 1,317.4 million , $ 1,360.9 million and $ 1,215.3 million , respectively . the decrease in revenue during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 was due to a revenue decrease in our product sales segment , partially offset by increases in revenue in our aftermarket services and contract operations segments . the increase in revenue during the year ended december 31 , 2018 compared to the year ended december 31 , 2017 was due to revenue increases in our product sales and aftermarket services segments , partially offset by a decrease in revenue in our contract operations segment . net income ( loss ) . we generated net loss of $ 102.4 million during the year ended december 31 , 2019 and net income of $ 24.9 million and $ 33.9 million during the years ended december 31 , 2018 and 2017 , respectively . the decrease in net income during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 was primarily due to an increase in impairment charges , an increase in depreciation and amortization expense and a decrease in gross margin for our product sales segments , partially offset by decreases in income taxes and selling , general and administrative ( “ sg & a ” ) expense . net loss during the year ended december 31 , 2019 included income from discontinued operations , net of tax , of $ 6.5 million and net income during the year ended december 31 , 2018 included income from discontinued operations , net of tax , of $ 24.5 million . the decrease in net income during the year ended december 31 , 2018 compared to the year ended december 31 , 2017 was primarily due to an increase in income taxes , an increase in depreciation and amortization expense , a decrease in income from discontinued operations , net of tax , and an increase in foreign currency losses of $ 7.8 million . these activities were partially offset by an increase in gross margin for our product sales segment and a decrease in interest expense . net income during the years ended december 31 , 2018 and 2017 included income from discontinued operations , net of tax , of $ 24.5 million and $ 39.7 million , respectively . income for discontinued operations , net of tax , was positively impacted by installment payments received of $ 19.8 million and $ 19.7 million associated with our venezuelan subsidiary 's sale of its previously nationalized assets during the years ended december 31 , 2018 and 2017 , respectively , and recoveries from liquidated damages releases and customer approved change orders related to belleli epc during the year ended december 31 , 2017 . 30 ebitda , as adjusted . our ebitda , as adjusted , was $ 200.7 million , $ 205.5 million and $ 173.2 million during the years ended december 31 , 2019 , 2018 and 2017 , respectively . ebitda , as adjusted , during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 decreased primarily due to a decrease in gross margin for our product sales segment , partially offset by a decrease in sg & a and increases in gross margin for our aftermarket services and contract operations segments . ebitda , as adjusted , during the year ended december 31 , 2018 compared to the year ended december 31 , 2017 increased primarily due to an increase in gross margin for our product sales segment . ebitda , as adjusted , is a non-gaap financial measure . for a reconciliation of ebitda , as adjusted , to net income ( loss ) , its most directly comparable financial measure calculated and presented in accordance with gaap , please read part ii , item 6 ( “ selected financial data — non-gaap financial measures ” ) of this report . as discussed in note 5 to the financial statements , the results from continuing operations for all periods presented exclude the results of our venezuelan contract operations and belleli epc business .
| the revenue increase in the middle east and africa region was primarily due to the start-up of a project that commenced in june 2019 and the start-up of another project that commenced august 2018. the increase of revenue in the north america region was primarily due to a renegotiation of a contract in the fourth quarter of 2018 that resulted in higher revenue in the current year period . the revenue decrease in the latin america region was primarily driven by a decrease of $ 14.0 million in argentina largely resulting from projects that terminated operations in 2018 and the current year impact of the devaluation of the argentine peso , an $ 11.6 million decrease in brazil primarily driven by projects that terminated in 2018 and 2019 and the impact of foreign currency exchange rates in brazil . these revenue decreases in the latin america region were partially offset by an increase of $ 8.4 million due to the start-up of a project that was not operating in the prior year period . the revenue decrease in the asia pacific region was primarily driven by a $ 2.8 million recovery of an early termination fee in the first quarter of 2018 for a contract that terminated in january 2016 and projects that terminated in the fourth quarter of 2018. gross margin and gross margin percentage remained relatively flat during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 . aftermarket services ( dollars in thousands ) replace_table_token_8_th the increase in revenue during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 was primarily due to increases in installation services and part sales , partially offset by a decrease in operation and maintenance services . gross margin increased during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 primarily due to the revenue increase explained above . gross margin percentage during the year ended december 31 , 2019
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for each category of interest-earning assets and interest-bearing liabilities information is provided with respect to changes attributable to : ( i ) changes in balance ( change in balance multiplied by the old rate ) , ( ii ) changes in interest rates ( change in rate multiplied by the old balance ) ; and ( iii ) the combined effect of changes in balance and interest rates ( change in balance multiplied by change in rate ) . dollar amounts are expressed in thousands . replace_table_token_26_th results of operations - comparison of year ended december 31 , 201 6 and december 31 , 201 5 interest rates replace_table_token_27_th the bank charges borrowers and pays depositors interest rates that are largely a function of the general level of interest rates . the above table sets forth the weekly average interest rates for the 52 weeks ending december 31 , 2016 and december 31 , 2015 as reported by the federal reserve . the bank typically indexes its adjustable rate commercial loans to prime and its adjustable rate mortgage loans to the one-year treasury rate . the ten-year treasury rate is a proxy for 30-year fixed rate home mortgage loans . rates trended upward by the end of 2016 as the federal reserve open market committee ( “ fomc ” ) increased the discount rate by 25 basis points in december 2016. as of december 31 , 2016 , the prime rate was 3.75 % which is a 25 basis point increase from december 31 , 2015 . 47 interest income . total interest income increased $ 199,692 ( 1 % ) . the average balance of interest-earning assets increased $ 17,987,000 ( 3 % ) , while the yield on average interest earning assets decreased 9 basis points to 4.01 % . interest income on investment securities increased $ 411,623 ( 28 % ) . the average balance of investment securities increased $ 10,833,000 ( 12 % ) while the average yield improved 23 basis points to 1.87 % . offsetting the increase in interest income on investments was the decline in interest income on loans which decreased $ 249,990 ( 1 % ) . the average loan receivable balance increased $ 12,801,000 ( 3 % ) while the average yield decreased 16 basis points to 4.54 % . the company experienced strong loan activity during 2016. however , pricing on loans is challenging due to significant competition on new and renewing credits . the pricing pressure has impacted the ability to maintain loan yield compared to 2015. interest expense . total interest expense decreased $ 102,870 ( 2 % ) as the average balance of interest-bearing liabilities increased $ 23,866,000 ( 5 % ) , while the average cost of interest-bearing liabilities decreased 6 basis points to 0.76 % . interest expense on deposits decreased $ 139,889 ( 6 % ) during 2016 as the average balance of interest bearing deposits increased $ 8,578,000 ( 2 % ) , however , the average interest rate paid to depositors decreased 4 basis points to 0.50 % . the expansion of lower-cost , core deposit relationships and reductions in higher priced retail products and utilization of cost effective wholesale funding continue to improve the company 's overall cost of funds . also improving cost of funds over the prior year was the prepayment of the company 's $ 10 million repurchase agreement during the second quarter of 2015 , which had a rate of 2.61 % . net interest income . the company 's net interest income increased $ 302,562 ( 1 % ) primarily due to the increase in overall average balances of interest-earning assets and interest-bearing liabilities . refer to the tables in the “ average balances , interest and average yields ” section ( pages 47 and 48 ) for additional information on components of net interest income . provision for loan losses . provisions for loan losses are charged or credited to earnings to bring the total allowance for loan losses to a level considered adequate by the company to provide for potential loan losses in the existing loan portfolio . when making its assessment , the company considers prior loss experience , volume and type of lending , local banking trends and impaired and past due loans in the company 's loan portfolio . in addition , the company considers general economic conditions and other factors related to collectability of the company 's loan portfolio . based on its internal analysis and methodology , management recorded a provision for loan losses of $ 1,375,000 and $ 600,000 for the years ended december 31 , 2016 and 2015 , respectively . the company 's increase in the provision was primarily due to the increased loan balances and maintaining general portfolio reserves at a level deemed appropriate in accordance with its methodology . the bank will continue to monitor its allowance for loan losses and make future additions based on economic and regulatory conditions . management may need to increase the allowance for loan losses through charges to the provision for loan losses if anticipated growth in the bank 's loan portfolio increases or other circumstances warrant . see further discussions of the allowance for loan losses under “ financial condition ” above . although the bank maintains its allowance for loan losses at a level which it considers to be sufficient to provide for potential loan losses in its existing loan portfolio , there can be no assurance that future loan losses will not exceed internal estimates . in addition , the amount of the allowance for loan losses is subject to review by regulatory agencies which can order the establishment of additional loan loss provisions . 48 non-interest income . non-interest income increased $ 392,135 ( 9 % ) . this was primarily due to increased gains on sale of mortgage loans held for sale of $ 312,120 ( 22 % ) . story_separator_special_tag a stronger real estate market and the company 's increased activity in federal housing administration lending increased mortgage volume compared to 2015. originations of mortgage loans held for sale were $ 63,974,589 during 2016 compared to $ 56,515,986 in 2015. non-interest expense . non-interest expense increased $ 491,018 ( 3 % ) . salaries and employee benefits increased $ 881,227 ( 7 % ) which was partially offset by the prepayment penalty of $ 463,992 ( 100 % ) paid during 2015 as part of a structured transaction to prepay a $ 10,000,000 repurchase agreement . the increase in salaries and employee benefits is due to the addition of commercial and mortgage staff for the new loan production office in joplin and the addition of other key positions in technology , commercial and retail production . the company is continuing to position itself for future growth and expansion . also impacting compensation were mortgage commissions which increased due to the mortgage volume noted above under “ non-interest income ” above . income taxes . the provision for income taxes decreased $ 448,565 ( 18 % ) over 2015 as a direct result of the company 's decrease in taxable income primarily through the increased utilization of tax-exempt revenue sources . cash dividends paid . the company paid dividends of $ 0.08 per share on april 14 , 2016 to stockholders of record as of april 4 , 2016 , and $ 0.08 per share on july 15 , 2016 , to stockholders of record as of july 5 , 2016 , and $ .08 per share on october 20 , 2016 , to stockholders of record as of october 10 , 2016 and also declared a cash dividend of $ 0.10 per share on december 22 , 2016 , which was paid on january 13 , 2017 , to stockholders of record on january 3 , 2017. during 2015 , the company paid $ 1,008,332 in dividends on common stock . during 2014 , the company also paid $ 648,280 in dividends on common stock and $ 413,000 dividends on its preferred stock . results of operations - comparison of year ended december 31 , 201 5 and december 31 , 201 4 interest rates replace_table_token_28_th the bank charges borrowers and pays depositors interest rates that are largely a function of the general level of interest rates . the above table sets forth the weekly average interest rates for the 52 weeks ending december 31 , 2015 and december 31 , 2014 as reported by the federal reserve . the bank typically indexes its adjustable rate commercial loans to prime and its adjustable rate mortgage loans to the one-year treasury rate . the ten-year treasury rate is a proxy for 30-year fixed rate home mortgage loans . rates trended upward by the end of 2015 as the federal reserve open market committee ( “ fomc ” ) increased the discount rate by 25 basis points in december 2015. as of december 31 , 2015 , the prime rate was 3.50 % which is a 25 basis point increase from december 31 , 2014. interest income . total interest income increased $ 175,320 ( 1 % ) . the average balance of interest-earning assets increased $ 25,746,000 ( 4 % ) , while the yield on average interest earning assets decreased 15 basis points to 4.10 % . 49 interest on loans increased $ 309,903 ( 1 % ) and the average loan receivable balance increased $ 35,320,000 ( 8 % ) while the average yield decreased 29 basis points to 4.70 % . strong competition is causing a reduction in rates for new credits and to maintain existing credit relationships . interest expense . total interest expense decreased $ 49,423 ( 1 % ) as the average balance of interest-bearing liabilities increased $ 10,278,000 ( 2 % ) , while the average cost of interest-bearing liabilities decreased 2 basis points to 0.82 % . interest expense on deposits increased $ 94,781 ( 4 % ) during 2015 as the average balance of interest bearing deposits increased $ 15,598,000 ( 3 % ) and the average interest rate paid to depositors remained the same at 0.54 % . the company has made significant efforts over the last several years to grow lower cost core deposit relationships . the company has been successful in these efforts , which allowed for reductions in wholesale funding , thereby reducing the company 's cost of funds . net interest income . the company 's net interest income increased $ 224,743 ( 1 % ) . during the year ended december 31 , 2015 , the average balance of interest-earning assets exceeded the average balance of interest-bearing liabilities by $ 90,501,000 , resulting in an increase in the average net interest earning balance of $ 15,468,000 ( 21 % ) . in addition , the company 's spread between the average yield on interest-earning assets and the average cost of interest-bearing liabilities decreased by 12 basis points from 3.40 % to 3.28 % . provision for loan losses . provisions for loan losses are charged or credited to earnings to bring the total allowance for loan losses to a level considered adequate by the company to provide for potential loan losses in the existing loan portfolio . when making its assessment , the company considers prior loss experience , volume and type of lending , local banking trends and impaired and past due loans in the company 's loan portfolio . in addition , the company considers general economic conditions and other factors related to collectability of the company 's loan portfolio . based on its internal analysis and methodology , management recorded a provision for loan losses of $ 600,000 and $ 1,275,000 for the years ended december 31 , 2015 and 2014 , respectively . generally , the overall decrease in the provision for loan losses for the year presented has resulted primarily from declining historic loss rates , which are used to calculate the reserve for the homogenous pool of loans .
| these trusts were formed in december 2005 for the exclusive purpose of issuing trust preferred securities to acquire junior subordinated debentures issued by the company . the company 's banking operation conducted through the bank is the company 's only reportable segment . see also the discussion contained in the section captioned “ segment information ” in note 1 of the notes to consolidated financial statements in this report . the third subsidiary is a service corporation which has been inactive since february 1 , 2003. forward-looking statements the company may from time to time make written or oral `` forward-looking statements '' , including statements contained in the company 's filings with the securities and exchange commission ( including this annual report on form 10-k and the exhibits thereto ) , in its reports to stockholders and in other communications by the company , which are made in good faith by the company pursuant to the `` safe harbor '' provisions of the private securities litigation reform act of 1995. when used in this annual report on form 10-k , words such as “ anticipates , ” “ estimates , ” “ believes , ” “ expects , ” and similar expressions are intended to identify such forward-looking statements but are not the exclusive means of identifying such statements . these forward-looking statements involve risks and uncertainties , such as statements of the company 's plans , objectives , expectations , estimates and intentions that are subject to change based on various important factors ( some of which are beyond the company 's control ) . the following factors , among others , could cause the company 's financial performance to differ materially from the plans , objectives , expectations , estimates and intentions expressed in such forward-looking statements : the strength of the united states economy in general and the strength of the real estate values and the local economies in which the company conducts operations ; the effects of , and changes in , trade , monetary and fiscal policies and laws , changes in interest rates ; the timely development of and acceptance of new products and services of the
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proposed regulations as part of the tax cuts and jobs act , enacted in the u.s. in december 2017 , may place limitations on the deductibility of certain interest expense for u.s. tax purposes . these proposed regulations could materially adversely affect our financial condition , results of operations , cash flows or our effective tax rate in future reporting periods when enacted . in 2019 , our operating objectives include the following : accelerating pims , with specific focus on the area of commercial excellence and acquisition integrations ; delivering our growth priorities through new products and global and market expansion , specifically in the areas of pool and residential and commercial water treatment especially through acquisitions and focus on china and southeast asia ; optimizing our technological capabilities to increasingly generate innovative new products and advance digital transformation ; and building a growth culture and delivering on our commitments while living our win right values . in january 2019 , as part of filtration solutions , we entered into definitive agreements to acquire aquion and pelican for $ 160.0 million and $ 120.0 million in cash , respectively , and subject to certain customary adjustments . we completed the aquion acquisition on february 13 , 2019 and the pelican acquisition on february 12 , 2019. aquion offers a diverse line of water conditioners , water filters , drinking-water purifiers , ozone and ultraviolet disinfection systems , reverse osmosis systems and acid neutralizers for the residential and commercial water treatment industry . pelican provides residential whole home water treatment systems . 21 story_separator_special_tag interest rates in effect on our outstanding variable rate debt during 2018 compared to 2017 . the 37.7 percent decrease in net interest expense in 2017 from 2016 was primarily the result of : the impact of lower debt levels during 2017 compared to 2016 . in may 2017 , a portion of the proceeds from the sale of the valves & controls business was utilized to repay all commercial paper and revolving long term debt and for the early extinguishment of $ 1,659.3 million aggregate principal amount of certain series of fixed rate outstanding notes . this decrease was partially offset by : increased overall interest rates in effect on our variable rate outstanding debt during 2017 compared to 2016 . loss on early extinguishment of debt in june 2018 , we redeemed the remaining $ 255.3 million aggregate principal amount of our 2.9 % fixed rate senior notes due 2018 and completed a cash tender offer in the amount of 363.4 million aggregate principal amount of our 2.45 % senior notes due 2019. all costs associated with the repurchases of debt were recorded as a loss on the early extinguishment of debt , including $ 16.0 million premium paid on early extinguishment and $ 1.1 million of unamortized deferred financing costs . in may 2017 , we repurchased aggregate principal of certain series of outstanding fixed rate debt totaling $ 1,659.3 million . total costs of $ 101.4 million associated with the repurchases were recorded as loss on early extinguishment of debt . provision for income taxes the 18.7 percentage point decrease in the effective tax rate in 2018 from 2017 was primarily due to : the mix of global earnings , including the impact of u.s. tax reform ; and the impact of lower nondeductible interest expense allocated to continuing operations in 2018 compared to 2017. the 14.7 percentage point increase in the effective tax rate in 2017 from 2016 was primarily due to : the mix of global earnings , including the impact of u.s. tax reform ; and the unfavorable tax impact of restructuring costs in 2016 in jurisdictions with low tax benefits . segment results of operations this summary that follows provides a discussion of the results of operations of each of our three reportable segments ( aquatic systems , filtration solutions and flow technologies ) . each of these segments is comprised of various product offerings that serve multiple end markets . we evaluate performance based on sales and segment income and use a variety of ratios to measure performance of our reporting segments . segment income represents equity income of unconsolidated subsidiaries and operating income exclusive of intangible amortization , certain acquisition related expenses , costs of restructuring activities , impairments and other unusual non-operating items . 24 aquatic systems the net sales and segment income for aquatic systems were as follows : replace_table_token_8_th net sales the components of the change in aquatic systems net sales were as follows : replace_table_token_9_th the 9.2 percent increase in net sales for aquatic systems in 2018 from 2017 was primarily the result of : core sales growth related to higher sales of certain pool products primarily serving north american residential housing ; and selective increases in selling prices to mitigate inflationary cost increases . this increase was partially offset by : sales declines due to the divestiture of certain businesses in 2018. the 7.0 percent increase in net sales for aquatic systems in 2017 from 2016 was primarily the result of : core sales increases in the residential & commercial business primarily in the u.s. ; selective increases in selling prices to mitigate inflationary cost increases ; and favorable foreign currency effects . segment income the components of the change in aquatic systems segment income from the prior period were as follows : replace_table_token_10_th the 0.1 point increase in segment income for aquatic systems as a percentage of net sales in 2018 from 2017 was primarily the result of : core sales growth contributions to income ; selective increases in selling prices to mitigate inflationary cost increases ; and cost savings generated from pims initiatives including lean and supply management practices . 25 this increase was partially offset by : inflationary increases related to raw material and labor costs . story_separator_special_tag the 2.2 point increase in segment income for aquatic systems as a percentage of net sales in 2017 from 2016 was primarily the result of : price increases to mitigate inflationary cost increases ; and cost savings generated from pims initiatives including lean and supply management practices . this increase was partially offset by : inflationary increases related to raw materials and labor costs . filtration solutions the net sales and segment income for filtration solutions were as follows : replace_table_token_11_th net sales the components of the change in filtration solutions net sales were as follows : replace_table_token_12_th the 1.0 percent increase in net sales for filtration solutions in 2018 from 2017 was primarily the result of : increased sales volume in our commercial and industrial businesses ; selective increases in selling prices to mitigate inflationary cost increases ; and favorable foreign currency effects . this increase was partially offset by : sales volume declines in our residential vertical ; and sales declines due to the divestiture of certain businesses in 2018. the 1.5 percent increase in net sales for filtration solutions in 2017 from 2016 was primarily the result of : increased sales related to a business acquisition that occurred in the first quarter of 2017 ; selective increases in selling prices to mitigate inflationary cost increases ; sales increases in the u.s. , china and southeast asia ; and favorable foreign currency effects . 26 this increase was partially offset by : sales volume declines . segment income the components of the change in filtration solutions segment income from the prior period were as follows : replace_table_token_13_th the 1.2 point increase in segment income for filtration solutions as a percentage of net sales in 2018 from 2017 was primarily the result of : core growth contributions to income resulting in favorable mix ; selective increases in selling prices to mitigate inflationary cost increases ; and cost savings generated from pims initiatives including lean and supply management practices . this increase was partially offset by : inflationary increases related to raw material and labor costs . the 1.4 point increase in segment income for filtration solutions as a percentage of net sales in 2017 from 2016 was primarily the result of : selective increases in selling prices to mitigate inflation cost increases ; and cost savings generated from back-office consolidation , reduction in personnel and other lean initiatives . this increase was partially offset by : inflationary increases related to raw material and labor costs ; and unfavorable mix due to volume declines year over year . flow technologies the net sales and segment income for flow technologies were as follows : replace_table_token_14_th 27 net sales the components of the change in flow technologies net sales were as follows : replace_table_token_15_th the 2.5 percent increase in flow technologies sales in 2018 from 2017 was primarily the result of : core growth in our commercial and specialty businesses ; selective increases in selling prices to mitigate inflationary cost increases ; and favorable foreign currency effects during 2018 ; this increase was partially offset by : sales declines due to the divestiture of certain businesses . the 1.0 percent decrease in flow technologies sales in 2017 from 2016 was primarily the result of : volume declines in our commercial business ; and large job adjustments to net sales of $ 9.7 million in 2017. this decrease was partially offset by : selective increases in selling prices to mitigate inflationary cost increases ; and favorable foreign currency effects . segment income the components of the change in flow technologies segment income from the prior period were as follows : replace_table_token_16_th the 0.1 point increase in segment income for flow technologies as a percentage of net sales in 2018 from 2017 was primarily the result of : higher core sales in our commercial and specialty businesses , which resulted in increased leverage on fixed operating expenses ; selective increases in selling prices to mitigate inflationary cost increases ; and cost control and savings generated from lean initiatives . this increase was partially offset by : inflationary increases related to raw material and labor costs . 28 the 0.1 point increase in segment income for flow technologies as a percentage of sales in 2017 from 2016 was primarily the result of : selective increases in selling prices to mitigate inflationary cost increases ; and cost control and savings generated from back-office consolidation , reduction in personnel and other lean initiatives . this increase was partially offset by : sales volume declines from our commercial business ; and inflationary increases related to raw materials and labor costs . liquidity and capital resources we generally fund cash requirements for working capital , capital expenditures , equity investments , acquisitions , debt repayments , dividend payments and share repurchases from cash generated from operations , availability under existing committed revolving credit facilities and in certain instances , public and private debt and equity offerings . our primary revolving credit facilities have generally been adequate for these purposes , although we have negotiated additional credit facilities or completed debt and equity offerings as needed to allow us to complete acquisitions . we generally issue commercial paper to fund our financing needs on a short-term basis and use our revolving credit facility as back-up liquidity to support commercial paper . we are focusing on increasing our cash flow and repaying existing debt , while continuing to fund our research and development , marketing and capital investment initiatives . our intent is to maintain investment grade credit ratings and a solid liquidity position . we experience seasonal cash flows primarily due to seasonal demand in a number of markets . we generally borrow in the first quarter of our fiscal year for operational purposes , which usage reverses in the second quarter as the seasonality of our businesses peaks . end-user demand for pool and certain pumping equipment follows warm weather trends and is at seasonal highs from april to august .
| the 0.2 percentage point increase in gross profit as a percentage of sales in 2017 from 2016 was primarily the result of : favorable material savings for certain raw materials and product mix offsetting inflation ; selective increases in selling prices to mitigate inflationary cost increases ; and higher contribution margin as a result of savings generated from our pims initiatives including lean and supply management practices . this increase was partially offset by : inflationary increases related to raw materials and labor costs . selling , general and administrative ( “ sg & a ” ) the 0.8 percentage point decrease in sg & a expense as a percentage of sales in 2018 from 2017 and was driven by : savings generated from restructuring and other lean initiatives ; and higher sales resulting in increased leverage . this decrease was partially offset by : restructuring costs of $ 40.6 million in 2018 , compared to $ 28.2 million in 2017 ; the reversal of a $ 13.3 million indemnification liability in 2017 that did not recur in 2018 ; and investments in sales and marketing to drive growth . the 0.3 percentage point decrease in sg & a expense as a percentage of sales in 2017 from 2016 and was driven by the following : a benefit from the reversal of a $ 13.3 million indemnification liability in 2017 ; and savings generated from back-office consolidation , reduction in personnel and other lean initiatives . 23 this decrease was partially offset by : restructuring costs of $ 28.2 million in 2017 , compared to $ 12.2 million in 2016 ; non-cash charges of $ 15.6 million in 2017 related to trade names and other impairments ; and increased investments in sales and marketing to drive growth . net interest expense the 62.7 percent decrease in net interest expense in 2018 from 2017 was primarily the result of : the impact of lower debt levels during 2018 compared to 2017 . in june
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also , the institutional review board of the university of texas health science center san antonio has approved further study to include all solid tumors , which include breast , colon , lung , liver , pancreatic , and other types of cancers . vg1177 in october 2013 , we contracted itr canada , inc. to conduct ind-enabling animal safety studies with our patented peptide vg1177 . due to the inability of our multiple pharmacokinetic and pharmacodynamic methods to produce a proper dose response curve , that is , using direct and indirect methods for measuring peptide exposure in vivo , we intend to modify vg1177 to increase stability , improve tolerability , and improve solubility . stability refers to a compound 's ability to resist degradation and decomposition . tolerability refers to how well a biological system responds to a compound or a compound 's formulation , the latter includes the chemicals that allow the compound to be introduced into the biological system . solubility refers to the propensity for a compound to go into solution for a given solvent or chemical ; in this case , we desire vg1177 to possess greater affinity for aqueous or water-like chemicals . these common peptide modifications are not expected to alter vg1177 's biological activity . once we have completed these modifications and conducted validating studies , we intend to resume our animal safety studies . concurrently , we intend for lab research to continue using the original sequence of vg1177 in vivo and in vitro . we now expect these studies to conclude in early 2016. these animal safety studies are the next important step to move toward clinical trials . 57 plans with the completion of the p-ind phase i study with the combination treatment for solid carcinomas , we anticipate an expanded phase i trial or a phase ii trial , though we presently do not have the funds to pursue this further development . we have authorized and funded an animal study to develop our proprietary peptide vg1177 , a series of studies that we believe will be complete in early 2016 , and assuming adequate funding , we intend to initiate a phase i study using an injectable form of vg1177 thereafter . results of operations critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make judgments and estimates . the critical accounting policies affecting our more significant judgments and estimates used in preparation of our financial statements are discussed in note 2 to our consolidated financial statements in “ item 8. financial statements and supplementary data ” of this annual report on form 10-k. we believe that the following accounting policies are the most critical in the preparation of our consolidated financial statements because they involve the most difficult , subjective or complex judgments about the effect of matters that are inherently uncertain . cash and cash equivalents for purposes of the statement of cash flows , we consider all highly liquid investments with original maturities of three months or less to be cash equivalents . development stage enterprise we are a development stage company and will continue to be considered as such until we have our own significant operations and revenues . we do not currently have any revenue and expect to continue to incur substantial additional research , development and operating costs related to the continuation of the development of therapeutic and diagnostic pharmaceutical and medical products . impaired asset policy we follow generally accepted accounting policies related to accounting for the impairment or disposal of long-lived assets . this provides for a single accounting model for long-lived assets to be disposed of by sale , including discontinued operations . long-lived assets are measured at the lower of carrying amount or fair value less cost to sell , whether reported in continuing operations or discontinued operation . reclassifications and restatements certain amounts from prior periods have been reclassified with respect to the years ended december 31 , 2014 and 2013 to conform to the current period presentation . these reclassifications have not resulted in any material changes to our accumulated deficit of the net losses presented . 58 research and development we charge research and development expenses to operations as incurred . use of estimates the process of preparing financial statements in conformity with accounting principles generally accepted in the united states of america requires the use of estimates and assumptions regarding certain types of assets , liabilities , revenues and expenses . such estimates primarily relate to unsettled transactions and events as of the date of the financial statements . accordingly , upon settlement , actual results may differ from estimated amounts . basic and diluted net loss per share we compute loss per share in accordance with generally accepted accounting principles , which requires presentation of both basic and diluted earnings per share on the face of the statement of operations . basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of outstanding common shares during the period . the treasury stock method is used to determine the dilutive effects of stock options and warrants . dilutive loss per share is equal to the basic loss per share for the years ended december 31 , 2014 and 2013 because common stock equivalents would have been anti-dilutive . fair value of financial instruments fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability . we calculate fair value based on assumptions that market participants use in pricing the asset or liability , not on assumptions specific to our company . in addition , the fair value of liabilities should include consideration of non-performance risk including the entity 's own credit risk . story_separator_special_tag a fair value hierarchy for valuation inputs is established . the hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market . each fair value measurement is reported in one of the three levels and which is determined by the lowest level input that is significant to the fair value measurement in its entirety . these levels are : level 1 – inputs are based upon unadjusted quoted prices for identical instruments traded in active markets . level 2 – inputs are based upon quoted prices for similar instruments in active markets , quoted prices for identical or similar instruments in markets that are not active , and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities . level 3 – inputs are generally unobservable and typically reflect management 's estimates of assumptions that market participants would use in pricing the asset or liability . the fair values are therefore determined using model-based techniques that include option pricing models , discounted cash flow models , and similar techniques . our financial instruments consist of : cash , notes payable , accounts payable , accrued expenses , and accrued interest , convertible notes payable and various forms of convertible indebtedness . the carrying value of these financial instruments approximates their fair value based on their liquidity , their short-term nature or application of appropriate risk based discount rates to determine fair value . these financial assets and liabilities are valued using level 2 inputs , except for cash , which is at level 1. we are not exposed to significant interest , exchange or credit risk arising from these financial instruments , except that certain convertible instruments may be satisfied in shares of common stock at the option of the holder and in some instances by us , which per share price can fluctuate . 59 stock-based compensation we record stock-based compensation by using the fair value method . all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued , whichever is more reliably measurable . equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued . income taxes we account for income taxes using the asset and liability method in accordance with asc 740 , income taxes . the asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and for operating loss and tax credit carry forwards . deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse . we have recorded a full valuation allowance to reduce the deferred tax asset associated with our accumulated losses $ 16.1 million to zero , which is the amount that is more likely than not to be realized . concentration of credit risk we have financial instruments that are exposed to concentrations of credit risk and consist primarily of cash . we routinely maintain cash and temporary cash investments at certain financial institutions and , from time to time , these amounts are substantially in excess of federal deposit insurance corporation , or fdic , insurance limits . we believe that these financial institutions are of high quality and the risk of loss is minimal . at december 31 , 2014 , we had no cash balances in excess of fdic limits . compensated absences we have not accrued a liability in accordance with asc 710 , as the amount of the liability can not be reasonably estimated at december 31 , 2014 and 2013. contingencies certain conditions may exist as of the date the financial statements are issued , which may result in a loss to us but which will only be resolved when one or more future events occur or fail to occur . our management and legal counsel assess such contingent liabilities , and such assessment inherently involves an exercise of judgment . in assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings , our legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein . if the assessment of a contingency indicates that it is possible that a material loss has been incurred and the amount of the liability can be estimated , the estimated liability would be accrued in our consolidated financial statements . if the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible , or is probable but can not be estimated , then the nature of the contingent liability , together with an estimate of range of possible loss if determinable and material , would be disclosed . 60 story_separator_special_tag increased by 6 % or $ 235,991 to $ 4,143,621 in 2014 as compared to $ 3,907,630 for the comparable period of 2013. aggregate non-cash expenses incurred in 2014 approximated $ 2,078,723 as compared to $ 3,571,568 in 2013 , a decrease of $ 1,492,845. the principal reasons for the decrease were a reduction in derivative expense of $ 3,175,322 in 2014 as compared to 2013 ; offset by an increase in interest expense , including accretion of discount , of $ 1,684,045 in 2014 as compared to 2013 .
| general and administrative expenses general and administrative expenses decreased 33 % or $ 442,772 to $ 911,355 in 2014 as compared to $ 1,354,127 in 2013. cash expenditures increased by $ 126,808 to $ 292,120 in 2014 as compared to $ 165,312 in 2013. the increase is primarily related to increased computer costs , insurance costs , including directors and officers insurance , and a reduction of miscellaneous liabilities recorded in 2013 , increased general and administrative expenses in 2014 , partially offset by decreases in travel , rent and other miscellaneous administrative costs . in 2014 we incurred a non-cash charge of $ 618,975 in stock based compensation for the fair value of common stock options granted in 2014 pursuant to the 2013 equity incentive plan as compared to $ 1,197,468 in 2013. the decrease was primarily attributable to a lower price and volatility of our common stock in 2014 as compared to 2013 . 61 certain employee salaries and consulting fees are not paid in cash as incurred under the respective agreements , but are evidenced by unsecured , convertible , non-interest bearing notes due december 31 , 2015. the holder may convert any amount of these notes prior to maturity at a 20 % discount from the 20 day volume weighted average price , or vwap , on the conversion date . all notes that remain outstanding on maturity will automatically convert into common shares at a 20 % discount from the 20 day vwap upon maturity . interest expense and interest income interest expense , substantially all noncash charges , increased by 157 % or $ 1,684,045 to $ 2,759,950 in 2014 from $ 1,075,905 in 2013. interest includes accretion of debt discount of $ 2,477,199 in 2014 and $ 1,017,795 in 2013 , or an increase of $ 1,459,404 associated with the fair value of warrants granted in connection with financing transactions principally in the form of convertible debenture and warrants in 2014 and 2013. derivative benefit ( expense ) derivative benefit ( expense ) was a benefit of $ 679,659 in 2014 as compared to an expense of $ 2,495,663 in 2013. derivative benefit ( expense ) , a non-cash charge , consists principally of the fair valuation
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the effect of exchange rates can vary by business and region depending upon the mix of sales by country as well as the relative percentage of local sales priced in u.s. dollars versus local currencies . lc sales growth of 4 % ( or 5 % on a like-for-like basis , excluding the effects of the exit of low margin sales activities in flavors ) in 2012 was consistent with our long-term strategic target of 4 % -6 % lc growth . we saw sequential improvement in lc sales growth during each quarter of 2012 , despite an increasing impact of the exit of low margin sales activities in flavors during the year . we expect that the negative impact on lc sales growth from the current initiative to exit low margin sales activities will effectively end at the end of the first half of 2013. for 2013 , we believe that lc growth ( including the negative impact from the exit of low margin sales activities ) will be at the lower end of our long-term financial targets reflecting continued volatility in macro-economic and uncertain fiscal conditions in key markets along with continued pressure in the commodity components of our fragrance ingredients business . 28 on a long-term basis we expect that sales growth for the industry will generally be in line with the underlying assumptions that support our long-term strategic goals , albeit with some risk in the near term given the continuing global economic uncertainty . we believe changing social habits resulting from increased disposable income , improved focus on personal health and wellness awareness should help drive growth of our consumer product customers ' business , especially in the emerging markets we have targeted , such as india , china , indonesia and brazil . gross margins increased 210 basis points ( bps ) year-over-year as a result of price realization , moderating increases in input costs , improved manufacturing leverage , mix improvements ( including the impact of the exit of low margin sales activities in flavors ) and ongoing cost reduction efforts . while we have begun to realize slight declines in year-over-year raw material costs late in 2012 , raw material costs remain at elevated levels . we intend to continue to pursue options to enable us to recover the cost increases that we have experienced during 2011-2012 and to improve our margins through operational performance and mix enhancement . we expect to continue to see year-over-year gross margin expansion in 2013 as we fully benefit from the actions taken in 2012 combined with a benign raw material cost environment . operating profit increased $ 58.9 million to $ 486.6 million ( 17.2 % of sales ) in 2012 compared to $ 427.7 million ( 15.3 % of sales ) in 2011. we were able to help compensate for the significant input cost pressure and higher incentive compensation through price increases , maintaining a strict cost discipline , exiting certain low margin sales activities within flavors and executing against our strategy to improve our portfolio through innovation . in december 2011 , we recorded a charge to cover a restructuring which involved a reduction in workforce across fragrances , flavors and corporate functions as well as a realignment of responsibilities in our fragrances business unit . the savings generated will principally benefit the functional fragrance activities within the company . this category was one of the improvement opportunities identified during our 2010 strategic assessment process . despite the near-term challenges we faced during 2012 , we continued to execute against the strategic priorities identified during our 2010 assessment . in particular , ensuring that we have adequate resources and capabilities in place to support planned growth in emerging markets through investments and key technologies was the primary driver within the $ 126 million ( 4.5 % of sales ) of capital spending during 2012. in 2013 , we again expect capital spending to approach 5 % as we continue to prioritize investments in emerging markets and flavors . cash flows from operations were $ 323.8 million or 11.5 % of sales in 2012 , including an outflow of cash of $ 105.5 million associated with the spanish tax settlement , as compared to cash flows from operations of $ 189.2 million ( including a $ 40 million cash outflow related to a patent litigation settlement ) or 6.8 % of sales during 2011. excluding the spanish tax and patent litigation settlements from each period , our adjusted cash flow from operations nearly doubled to $ 429.3 million in 2012 from $ 229.2 million in 2011 . 29 story_separator_special_tag la lc sales growth of 12 % was driven by double-digit gains in fragrance compounds , reflecting double-digit lc sales growth in fine and beauty care and double-digit and high single-digit growth in functional fragrance categories , which were only partially offset by high single-digit volume declines in fragrance ingredients . flavors lc sales growth was 4 % , driven by mid single-digit gains in beverages and savory and double-digit gains in dairy , which were only partially offset by low single-digit declines in sweet . ga delivered solid lc sales growth of 5 % , led by high single-digit gains in savory , sweet and dairy , along with mid single-digit growth in beverages . functional fragrances experienced mid single-digit growth led by mid single-digit growth in fabric care and high single-digit growth in personal wash. within fine and beauty care , fine fragrance experienced mid single-digit lc sales growth followed by low single-digit growth in hair care . fragrance compounds were partially offset by double-digit declines in fragrance ingredients . cost of goods sold cost of goods sold , as a percentage of sales , decreased 210 bps to 58.3 % in 2012 compared to 60.4 % in 2011. the improvement versus last year was mainly driven by price realization , manufacturing efficiencies and favorable sales mix that more than offset higher raw material costs . overall , raw material costs have increased approximately 4 % on a year-over-year basis . story_separator_special_tag late in the fourth quarter , we began to see slight year-over-year declines in raw material costs . we expect to see further declines in 2013 , albeit minor in value . research and development ( r & d ) r & d expenses increased approximately $ 13.9 million versus the prior year as a result of additional investments in technology and innovation , consistent with our strategy to accelerate levels of innovation into the marketplace . our product portfolio is actively managed to support gross margin expansion and growth initiatives in advantaged categories , while improving margins in less advantaged categories , which included exiting lower margin sales activities . overall r & d expenses increased 40 bps as a percentage of sales from 7.9 % in 2011 to 8.3 % in 2012. selling and administrative ( s & a ) s & a , as a percentage of sales , increased 20 bps to 16.1 % versus 15.9 % . the 2011 amount includes $ 33.5 million related to the mane patent litigation settlement . excluding this amount , our adjusted s & a in 2011 would have been 14.7 % of sales . the increase in s & a expenses was driven by planned spend in sales activities ( mainly in emerging markets ) , higher incentive compensation and pension expenses , and provision adjustments for allowance for doubtful accounts . 32 restructuring and other charges restructuring and other charges primarily consist of separation costs for employees , including severance , outplacement and other benefit costs . replace_table_token_11_th strategic initiative in december 2011 , we recorded a charge to cover a restructuring which involved a reduction in workforce as well as a realignment of responsibilities in our fragrances business unit . this alignment partly addresses issues identified in our 2010 strategic review process towards improving the underperforming areas of our portfolio . it resulted in the redeployment of creative resources in emerging markets and the reorganization from a regional to a global category structure . we implemented a plan to streamline business operations globally which resulted in the elimination of 72 positions , across fragrances , flavors and corporate functions . as a result , we recorded a provision for severance costs of $ 9.8 million to restructuring and other charges . we recorded an additional net charge of $ 1.7 million during the twelve months ended december 31 , 2012 , principally attributable to adjustments based on the final separation terms with affected employees . we realized pre-tax savings of approximately $ 8 million in 2012. european rationalization plan during the second quarter 2011 , we executed a partial settlement of our pension obligations with the former employees of the drogheda , ireland facility . as a result , we recorded a charge of $ 3.9 million related to the european rationalization plan to cover settlements and special termination benefits . this settlement was funded primarily through pension plan investment trust assets . we also reversed $ 1.2 million of employee-related liabilities in 2011 due to certain employees accepting other roles within the company , offset by $ 0.6 million of additional costs incurred . based upon the period-end estimates regarding the separation agreements , we increased our provision for severance costs in by $ 4.4 million in 2010. the remaining $ 5.7 million of the restructuring charges in 2010 was mainly due to accelerated depreciation and other restructuring related costs pertaining to the rationalization of our fragrances and ingredients operations in europe . in the aggregate as of december 31 , 2012 , we have recorded expenses of $ 34.1 million relating to the european rationalization plan and $ 11.5 million for the strategic initiative , of which $ 39.3 million was recorded to restructuring and other charges , net and $ 6.3 million was recorded to cost of goods sold , r & d and selling and administrative expenses . we do not anticipate any further expenses related to the european rationalization plan . 33 operating results by business unit we evaluate the performance of business units based on segment profit which is operating profit before restructuring and other charges , net , interest expense , other expense , net and taxes on income . see note 12 to our consolidated financial statements for the reconciliation to income before taxes . replace_table_token_12_th flavors business unit flavors segment profit totaled $ 298.3 million in 2012 ( 21.6 % of sales ) compared to $ 284.2 million ( 21.1 % of sales ) in the comparable 2011 period . the improvement in profitability was mainly driven by strong sales performance , favorable category mix and the realization of price increases that more than offset higher raw material costs and ongoing investments in r & d . fragrances business unit fragrances segment profit totaled $ 238.4 million in 2012 ( 16.5 % of sales ) , compared to $ 226.6 million ( 15.7 % of sales ) reported in 2011. the increase in profitability was driven by the improved category mix and pricing , combined with ongoing cost discipline and other margin improvement initiatives , including the strategic initiative that was announced in early 2012 , that more than offset higher raw material costs . global expenses global expenses represent corporate and headquarters-related expenses which include legal , finance , human resources and r & d and other administrative expenses that are not allocated to an individual business unit . in 2012 , global expenses were $ 48.4 million compared to $ 36.4 million during 2011. the increase principally includes higher incentive compensation and pension costs . interest expense in 2012 , interest expense decreased $ 2.9 million to $ 41.8 million . the decrease in interest expense reflects lower levels of outstanding debt .
| lc growth in ga reflects growth in all categories led by high single-digit gains in savory , sweet and dairy . overall , like-for-like sales growth was stable , with mid to high single-digit growth in each quarter of 2012. sales in noam were led by double-digit gains in beverages . the improvement in eame reflects high single-digit gains in savory and mid single-digit gains in beverages . eame performance continues to be led by our performance in the emerging market countries within the region . la lc growth of 4 % was driven by mid single-digit gains in beverages and savory and double-digit gains in dairy . globally , flavors growth was led by high single-digit growth in emerging markets . overall , emerging markets represented approximately 49 % of total flavors sales . fragrances business unit the fragrances business remained flat in reported sales and was up 3 % in lc terms compared to a 1 % lc sales decrease in 2011 over 2010. new wins and the realization of price increases across fragrance compounds were partially offset by volume declines in existing business , most notably in fragrance ingredients principally related to commodity products . however , we saw an improvement in fragrance ingredients growth during the fourth quarter driven by short-term customer order patterns . year-over-year 2012 lc sales performance was led by high single-digit growth in fabric care and beauty care categories along with mid single-digit gains in personal wash and fine fragrance . fragrance compounds sales improved in each quarter of 2012. offsetting these gains was a 10 % decline in fragrance ingredients . lc growth within the regions was led by la at 15 % reflecting double-digit gains in all fine and beauty care categories and double-digit and high single-digit gains in the functional fragrance categories , which was partially offset by declines in fragrance ingredients of approximately 8 % . noam and ga experienced sales growth of 2 % and 1 % , respectively , reflecting mid-to-high single-digit gains in fine fragrance , fabric care and personal wash categories and double-digit growth in noam hair
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focus on core businesses - we believe that there is significant opportunity in the eye health and branded prescription pharmaceutical businesses . our existing portfolio , commercial footprint and pipeline of product development projects should position us to compete and be successful in these markets . as a result , we believe these businesses provide us with the greatest opportunity to build value for our stakeholders . in order to focus our efforts , in 2016 , we performed a review of our portfolio of assets to identify those areas where we believe we have , and can maintain , a competitive advantage . we identify these areas as “ core ” , meaning that we believe these assets generally have greater value to our company than to other owners , as we believe we are best positioned to grow and develop them . by narrowing our focus , we have the opportunity to reduce complexity in our business and maximize the value of our core businesses . we describe our core areas by business and by geography . within our branded rx segment , our core businesses include gi and dermatology . we also view our global eye health business , within our bausch + lomb/international segment , as core . although the business units that fall outside our definition of “ core ” assets may be solid , the focus of their product pipelines and geographic footprint are not fully aligned with the focus of our core business , and they are , therefore , at a disadvantage when competing against our core activities for resources and capital within the company . internal capital allocation and operating efficiencies - in support of the key initiatives outlined above , in 2016 , a new leadership team was recruited and many of the executive roles were realigned or expanded to drive value in our product portfolio and generate operational efficiencies . beginning in the latter part of 2016 , the leadership team began to address a number of issues affecting performance and other operational matters . these operational matters included : sales force stabilization - we believe that new leadership and the enhanced focus on core assets have enabled the company to recruit and retain stronger talent for its sales initiatives . we continue to focus on stabilizing our sales forces , which , in turn , will allow us to deliver a more consistent and concise messages in the marketplace . patient access and pricing committee and new pricing actions - in may 2016 , we formed the patient access and pricing committee responsible for setting , changing and monitoring the pricing of our branded rx and other pharmaceutical products . following this committee 's recommendation , we implemented an enhanced rebate program to all hospitals in the u.s. to reduce the price of our nitropress® and isuprel® products . in october 2016 , the patient access and pricing committee approved 2 % to 9 % increases to our gross selling price ( wholesale acquisition cost or “ wac ” ) for products in our neurology , gi and urology portfolios . the changes are aligned with the patient access and pricing committee 's commitment that the average annual price increase for our prescription pharmaceutical products will be set at no greater than single digits and below the 5-year weighted average of the increases within the branded biopharmaceutical industry . in addition , in 2016 , no pricing increases were taken on our dermatology and ophthalmology products and , in 2016 , net pricing of our dermatology and ophthalmology products , after taking into account the impact of rebates and other adjustments , decreased by greater than 10 % on average . in the future , we expect that the patient access and pricing committee will implement or recommend additional price changes and or new programs to enhance patient access to our drugs and that these pricing changes and programs could affect the average realized prices for our products and may have a significant impact on our revenue trends . walgreens fulfillment - at the beginning of 2016 , we launched a new fulfillment arrangement with walgreens . our partnership with walgreens initially presented some operational challenges , which were substantially addressed in 2016. as a result , we began seeing improved average realized prices through the walgreens fulfillment arrangements in the latter part of 2016. sales of our prescription dermatology and ophthalmology products through walgreens under our fulfillment arrangements were $ 375 million in 2016 , of which $ 238 million were attributable to the second half of 2016. the ranking of our business units during 2016 changed our view of how capital should be allocated across our activities . our first step was to review each business unit , come to points of view about the appropriate levels of operating expense and to 43 eliminate non-productive costs . as a result of that review , we identified several hundred million dollars of cost savings opportunities . we also identified areas of under-investment , specifically in our gi business , global eye care business , quality organization , supply chain and in r & d . to position the company to drive the value of our core assets , in the latter part of 2016 , we made a number of leadership changes and took steps to increase our promotional efforts , particularly in gi , and , earlier in the year , to increase our commitment to r & d . the gi unit initiated a significant sales force expansion program in november 2016 to reach potential primary care physician ( `` pcp '' ) prescribers of xifaxan® for irritable bowel syndrome with diarrhea and oral relistor® for opioid induced constipation . the investment in these additional sales resources , including an increase in associated promotional costs , is expected to be in the range of $ 50 million to $ 60 million , but we believe this spend is needed to allow us to capitalize on the full potential of xifaxan® and oral relistor® . story_separator_special_tag the costs of this investment in our gi unit reduced our profitability in the fourth quarter of 2016 and are expected to begin driving incremental revenue for xifaxan® beginning in the second half of 2017. we increased our r & d expenditures by 26 % in 2016 , as we began the transition away from growth by acquisition and toward organic growth supported by investment in r & d . our r & d organization focuses on the development of products through clinical trials and consists of over 1,000 dedicated r & d and quality assurance employees in 21 r & d facilities . our r & d expenses excluding impairment charges for 2016 , 2015 and 2014 were $ 421 million , $ 334 million , and $ 246 million , respectively , and represent a substantial increase in our r & d expenditures and in 2017 , we expect to maintain this level of r & d investment . currently , we have over 100 r & d projects in the pipeline , 45 of which are actively funded , and we have launched or expect to launch over 15 products associated with those in-process r & d projects during 2017. core assets that have received a significant portion of our recent r & d investment are : dermatology - brodalumab ( to be marketed as siliq in the u.s. ) is an il-17 receptor monoclonal antibody biologic for treatment of moderate-to-severe plaque psoriasis , which we estimate to be over a $ 5,000 million market in the u.s. on february 16 , 2017 , we announced that the fda had approved the biologics license application ( `` bla '' ) for siliq ( brodalumab ) injection , for subcutaneous use for the treatment of moderate-to-severe plaque psoriasis in adult patients who are candidates for systemic therapy or phototherapy and have failed to respond or have lost response to other systemic therapies . the company expects to commence sales and marketing of siliq in the u.s. in the second half of 2017. siliq has a black box warning for the risks in patients with a history of suicidal thoughts or behavior and was approved with a risk evaluation and mitigation strategy ( `` rems '' ) involving a one-time enrollment for physicians and one-time informed consent for patients . dermatology - idp-118 is a fixed combination product with two different mechanisms of action for treatment of moderate-to-severe plaque psoriasis in adults which has completed two positive phase 3 trials . we expect to file the nda for this product in the second half of 2017. dermatology - idp-122 is a psoriasis medication . we expect to file the nda for this product in the second half of 2017. gastrointestinal - a new formulation of rifaximin , which we acquired as part of the salix acquisition , is scheduled to begin phase 2b/3 testing in the second half of 2017. eye health - luminesse ( brimonidine ) is being developed as an ocular redness reliever . we expect to file the nda for this product in the first half of 2017. eye health - latanoprostene bunod is an intraocular pressure lowering single-agent eye drop dosed once daily for patients with open angle glaucoma or ocular hypertension . in september 2015 , we announced that the fda had accepted for review the nda for this product and set a prescription drug user fee act ( `` pdufa '' ) action date of july 21 , 2016. on july 22 , 2016 , we announced that we had received a complete response letter from the fda regarding the nda for this product . the concerns raised by the fda in this letter pertain to a cgmp inspection at b & l 's manufacturing facility in tampa , florida where certain deficiencies were identified by the fda . however , the letter did not identify any efficacy or safety concerns with respect to this product or additional clinical trials needed for the approval of the nda . we refiled the nda for this product on february 24 , 2017. we expect to launch this product in the second half of 2017 , subject to fda approval . eye health - vitesse is a novel technology using ultrasonic energy for vitreous removal with reduced surgical trauma . we expect to launch this product in first half of 2017 . 44 dermatology - traser is an energy-based platform device with significant versatility and power capabilities to address various dermatological conditions , including vascular and pigmented legions . product launch is currently planned for the second half of 2018. eye health - we expect to file a premarket approval application with the fda in the first half of 2017 for 7-day extended wear for our bausch + lomb ultra® monthly planned replacement contact lenses . eye health - stellaris elite is an ophthalmic surgical products which we expect to launch in first half of 2017. eye health - biotrue® oneday for astigmatism is a daily disposable contact lens for astigmatic patients . the biotrue® oneday lenses incorporates surface active technology tm to provide a unique dehydration barrier . the biotrue® oneday for astigmatism also includes an evolved peri-ballast geometry to deliver stability and comfort for the astigmatic patient . we launched this product in 2017. eye health - bausch + lomb ultra® for astigmatism is a monthly planned replacement contact lens for astigmatic patients . the bausch + lomb ultra® for astigmatism lens was developed using the proprietary moistureseal® technology . in addition , the bausch + lomb ultra® for astigmatism lens integrates a unique opticalign design engineered for lens stability and to promote a successful wearing experience for the astigmatic patient . we expect that this product will launch in 2017. eye health - bausch + lomb ultra® for presbyopia is a monthly planned replacement contact lens for presbyopic patients . the bausch + lomb ultra® for presbyopia lens was developed using the proprietary moistureseal® technology . in addition , the bausch + lomb ultra® for presbyopia lens integrates a unique 3 zone progressive design for near , intermediate and distance vision .
| the decrease was primarily driven by : a decrease in contribution margin as a result of the decline in product sales from the existing business discussed above ; the unfavorable impact of foreign currency on existing business ; and net incremental goodwill impairment charges of $ 28 million as we completed step 2 of the goodwill testing for the third quarter of 2016 , as discussed in note 9 , `` intangible assets and goodwill `` to our audited consolidated financial statements . these decreases were partially offset by : lower asset impairments of $ 125 million ; a decrease in in-process r & d costs of $ 106 million primarily due to the $ 100 million upfront payment expensed in connection with the license of brodalumab ( to be marketed as siliq in the u.s. ) in 2015 ; a decrease in sg & a expenses of $ 78 million primarily driven by a decrease in advertising and selling expenses ; and a decrease in restructuring and integration costs of $ 34 million as there were no significant acquisitions in 2016. net loss attributable to valeant pharmaceuticals international , inc. for the fourth quarter was $ 515 million and $ 385 million for 2016 and 2015 , respectively , an increase of $ 130 million . in addition to the increase in our operating loss of $ 17 million , the increase in net loss attributable to valeant pharmaceuticals international , inc. was primarily driven by increases in ( i ) interest expense of $ 35 million , ( ii ) foreign exchange loss and other of $ 43 million and ( iii ) provision for income taxes of $ 33 million . cash flows from operations net cash provided by operating activities was $ 513 million and $ 598 million for the fourth quarter of 2016 and 2015 , respectively , a decrease of $ 85 million , or 14 % . the decrease was primarily driven by the decrease in contribution margin as a result of the decline in product sales from our existing business partially offset by lower cash operating expenses , as discussed above . 66 liquidity and capital resources cash flows our primary sources of cash include : cash
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the gains on sales of real estate , depreciation expense and impairment losses may differ between bxp and bplp as a result of previously applied acquisition accounting by bxp for the issuance of common stock in connection with non-sponsor op unit redemptions by bplp . this accounting resulted in a step-up of the real estate assets at bxp that was allocated to certain properties . the difference between the real estate assets of bxp as compared to bplp for certain properties having an allocation of the real estate step-up will result in a corresponding difference in the gains on sales of real estate and depreciation expense when those properties are sold . for additional information see the explanatory note that follows the cover page of this annual report on form 10-k. comparison of the year ended december 31 , 2019 to the year ended december 31 , 2018 the table below shows selected operating information for the same property portfolio and the total property portfolio . the same property portfolio consists of 141 properties totaling approximately 38.2 million net rentable square feet of space , excluding unconsolidated joint ventures . the same property portfolio includes properties acquired or placed in-service on or prior to january 1 , 2018 and owned and in service through december 31 , 2019 . the total property portfolio includes the effects of the other properties either acquired , placed in-service , or in development or redevelopment after january 1 , 2018 or disposed of on or prior to december 31 , 2019 . this table includes a reconciliation from the same property portfolio to the total property portfolio by also providing information for the year s ended december 31 , 2019 and 2018 with respect to the properties that were placed in-service , acquired , in development or redevelopment or sold . 71 replace_table_token_18_th _ ( 1 ) rental revenue is equal to revenue less development and management services revenue and direct reimbursements of payroll and related costs from management services revenue per the consolidated statements of operations , excluding the residential and hotel revenue that is noted below . upon the adoption of asu-2016-02 “ leases ” on january 1 , 2019 , service income from tenants is included in lease revenue . prior to adoption , these amounts were included in the line item for development and management services revenue . we use rental revenue internally as a performance measure and in calculating other non-gaap financial measures ( e.g. , noi ) , which provides investors with information regarding our performance that is not immediately apparent from the comparable non-gaap measures and allows investors to compare operating performance between periods . ( 2 ) for a detailed discussion of noi , including the reasons management believes noi is useful to investors , see page 71 . residential net operating income for the year ended december 31 , 2019 and 2018 are comprised of residential revenue of $ 36,914 and $ 22,551 less residential expenses of $ 15,985 and $ 12,604 , respectively . hotel net operating income for the year ended december 31 , 2019 and 2018 are comprised of hotel revenue of $ 48,589 and $ 49,118 less hotel expenses of $ 34,004 and $ 33,863 , respectively , per the consolidated statements of operations . 72 same property portfolio lease revenue ( excluding termination income ) lease revenue from the same property portfolio increased by approximately $ 146.6 million for the year ended december 31 , 2019 compared to 2018 . the increase was primarily the result of an increase in revenue from our leases and the reclassification of service income from tenants and other income of approximately $ 127.1 million and $ 19.5 million , respectively . lease revenue from our leases increased by approximately $ 127.1 million as a result of our average revenue per square foot increasing by approximately $ 2.85 , contributing approximately $ 94.3 million , and an approximately $ 32.8 million increase due to our average occupancy increasing from 92.6 % to 93.9 % . on january 1 , 2019 , we adopted asu 2016-02. as a result of the adoption , there were certain nonlease components ( service income from tenants , overtime hvac , late fees and other items ) that were reclassified on a prospective basis from the development and management services revenue and parking and other income line items of our consolidated statements of operations . as a result , lease revenue increased by approximately $ 19.5 million and development and management services revenue and parking and other income decreased by approximately $ 12.3 million and $ 7.2 million , respectively , for the year ended december 31 , 2019 ( see note 2 to the consolidated financial statements ) . termination income termination income increased by approximately $ 9.2 million for the year ended december 31 , 2019 compared to 2018 . termination income for the year ended december 31 , 2019 related to 42 tenants across the same property portfolio and totaled approximately $ 15.4 million , of which approximately $ 8.2 million is from two tenants that terminated leases early at 399 park avenue in new york city . termination income for the year ended december 31 , 2018 resulted from the termination of 32 tenants across the same property portfolio and totaled approximately $ 6.2 million , of which approximately $ 4.8 million was attributable to the new york region . in addition , we received the sixth interim distribution from our unsecured creditor 's claim against lehman brothers , inc. of approximately $ 0.3 million ( see note 9 to the consolidated financial statements ) . parking and other parking and other decreased by approximately $ 3.0 million for the year ended december 31 , 2019 compared to 2018 , which was primarily due to the reclassification of approximately $ 7.2 million of certain nonlease components resulting from the adoption of asu 2016-02 , described above ( see note 2 to the consolidated financial statements ) . story_separator_special_tag excluding this reclassification , parking and other increased by approximately $ 4.2 million . real estate operating expenses real estate operating expenses from the same property portfolio increased by approximately $ 40.7 million , or 4.4 % , for the year ended december 31 , 2019 compared to 2018 , due primarily to increases in real estate taxes and other real estate operating expenses of approximately $ 31.2 million , or 6.8 % , and $ 9.5 million , or 2.0 % , respectively . the increase in real estate taxes was primarily experienced in the new york cbd properties . properties acquired portfolio the table below lists the properties acquired between january 1 , 2018 and december 31 , 2019 . rental revenue and real estate operating expenses increased by approximately $ 4.9 million and $ 2.0 million , respectively , for the year ended december 31 , 2019 compared to 2018 , as detailed below . replace_table_token_19_th 73 properties placed in-service portfolio the table below lists the properties that were placed in-service or partially placed in-service between january 1 , 2018 and december 31 , 2019 . rental revenue and real estate operating expenses from our properties placed in-service portfolio increased by approximately $ 123.2 million and $ 39.9 million , respectively , for the year ended december 31 , 2019 compared to 2018 , as detailed below . replace_table_token_20_th properties in development or redevelopment portfolio the table below lists the properties that were in development or redevelopment between january 1 , 2018 and december 31 , 2019 . rental revenue from our properties in development or redevelopment portfolio decreased by approximately $ 8.4 million and real estate operating expenses increased approximately $ 0.2 million for the year ended december 31 , 2019 compared to 2018 . replace_table_token_21_th _ ( 1 ) rental revenue for the year ended december 31 , 2019 includes the acceleration and write-off of straight-line rent associated with the early termination of a lease at this property . real estate operating expenses for the year ended december 31 , 2019 includes approximately $ 1.5 million of demolition costs . ( 2 ) rental revenue and real estate operating expenses for the year ended december 31 , 2019 are related to the entire building . the redevelopment is a conversion of a 126,000 square foot portion of the property to laboratory space . 74 properties sold portfolio the table below lists the properties we sold between january 1 , 2018 and december 31 , 2019 . rental revenue and real estate operating expenses from our properties sold portfolio decreased by approximately $ 23.9 million and $ 12.1 million , respectively , for the year ended december 31 , 2019 compared to 2018 , as detailed below . replace_table_token_22_th _ ( 1 ) rental revenue includes termination income of approximately $ 2.0 million for the year ended december 31 , 2018. for additional information on the sale of the above properties and land parcels refer to “ results of operations—other income and expense items - gains on sales of real estate ” within “ item 7—management 's discussion and analysis of financial condition and results of operations. ” residential net operating income net operating income for our residential same properties decreased by approximately $ 0.3 million for the year ended december 31 , 2019 compared to 2018 . the following reflects our occupancy and rate information for the lofts at atlantic wharf and the avant at reston town center for the years ended december 31 , 2019 and 2018 . replace_table_token_23_th _ ( 1 ) average monthly rental rate is calculated as the average of the quotients obtained by dividing ( a ) rental revenue as determined in accordance with gaap , by ( b ) the number of occupied units for each month within the applicable fiscal period . ( 2 ) average physical occupancy is defined as ( 1 ) the average number of occupied units divided by ( 2 ) the total number of units , expressed as a percentage . ( 3 ) average economic occupancy is defined as ( 1 ) total possible revenue less vacancy loss divided by ( 2 ) total possible revenue , expressed as a percentage . total possible revenue is determined by valuing average occupied units at contract rates and average vacant units at market rents . vacancy loss is determined by valuing vacant units at current market rents . by measuring vacant units at their market rents , average economic occupancy takes into account the fact that units of different sizes and locations within a residential property have different economic impacts on a residential property 's total possible gross revenue . market rents used by us in calculating economic occupancy are based on the current market rates set by the managers of our residential properties based on their experience in renting their residential property 's units and publicly available market data . trends in market rents for a region as reported by 75 others could vary . market rents for a period are based on the average market rents during that period and do not reflect any impact for cash concessions . hotel net operating income net operating income for the boston marriott cambridge hotel property decreased by approximately $ 0.7 million for the year ended december 31 , 2019 compared to 2018 . the following reflects our occupancy and rate information for the boston marriott cambridge hotel for the years ended december 31 , 2019 and 2018 . replace_table_token_24_th other operating income and expense items development and management services revenue development and management services revenue decreased by approximately $ 5.1 million for the year ended december 31 , 2019 compared to 2018 . development services revenue increased by approximately $ 7.8 million while management services revenue decreased by approximately $ 12.9 million . the increase in development services revenue was primarily related to an increase in development fees and fees associated with tenant improvement projects earned from a third-party owned project in the washington , dc region .
| cash used in investing activities for the year ended december 31 , 2018 consisted primarily of development projects , building and tenant improvements , capital contributions to unconsolidated joint ventures and issuances of notes receivable , partially offset by the proceeds from the sales of real estate , as detailed below : 86 replace_table_token_32_th cash used in investing activities changed primarily due to the following : ( 1 ) on january 10 , 2019 , we acquired land parcels at our carnegie center property located in princeton , new jersey for a gross purchase price of approximately $ 51.5 million , which includes an aggregate of approximately $ 8.6 million of additional amounts that are payable in the future to the seller upon the development or sale of each of the parcels . the land parcels will support approximately 1.7 million square feet of development . on august 27 , 2019 , we acquired 880 and 890 winter street located in waltham , massachusetts for a gross purchase price of approximately $ 106.0 million in cash , including transaction costs . 880 and 890 winter street consists of two class a office properties aggregating approximately 392,000 net rentable square feet . ( 2 ) construction in progress for the year ended december 31 , 2019 includes ongoing expenditures associated with salesforce tower , which was placed in-service during the year ended december 31 , 2018 and 20 citypoint and 145 broadway , which were placed in-service during the year ended december 31 , 2019. in addition , we incurred costs associated with our continued development/redevelopment of one five nine east 53rd street , 17fifty presidents street , reston gateway , 2100 pennsylvania avenue , 200 west street , the skylyne ( macarthur station residences ) and 325 main street . construction in progress for the year ended december 31 , 2018 includes ongoing expenditures associated with 191 spring street , salesforce tower , signature at reston and proto kendall square , which were fully placed in-service during the year ended december 31 , 2018. in addition , we incurred costs associated with our continued development/redevelopment
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we believe this mechanism likely contributes to the favorable safety profile of lumateperone , with reduced risk for hyperprolactinemia , akathisia , extrapyramidal symptoms , and other motoric side effects . the top-line results from our first phase 3 clinical trial of lumateperone confirm the earlier phase 2 results that we announced in december 2013 , in which lumateperone exhibited antipsychotic efficacy in a randomized , double-blind , placebo and active controlled clinical trial in patients with schizophrenia . in this phase 2 trial ( iti-007-005 ) , 335 patients were randomized to receive one of four treatments : 60 mg of iti-007 , 120 mg of iti-007 , 4 mg of risperidone ( active control ) or placebo in a 1:1:1:1 ratio , orally once daily for 28 days . the primary endpoint for this clinical trial was change from baseline to day 28 on the panss total score . in this study , lumateperone met the trial 's pre-specified primary endpoint , improving symptoms associated with schizophrenia as measured by a statistically significant and clinically meaningful decrease in the panss total score . the trial also met key secondary outcome measures related to efficacy on panss subscales and safety . in september 2016 , we announced top-line results from the second phase 3 clinical trial ( iti-007-302 ) of lumateperone for the treatment of patients with schizophrenia . in this trial , neither dose of lumateperone separated from placebo on the primary endpoint , change from baseline on the panss total score , in the pre-defined patient population . the active control , risperidone , did separate from placebo . in this trial , lumateperone was statistically significantly better than risperidone on key safety and tolerability parameters and exhibited a safety profile similar to placebo . this replicates the safety and tolerability findings of our phase 2 study ( iti-007-005 ) in which the efficacy of iti-007 60 mg and risperidone , the active control , were similar . we believe lumateperone did not separate from placebo on the pre-specified primary endpoint in the iti-007-302 study in part due to an unusually high placebo response at certain sites which disproportionately affected the trial results and contributed to the efficacy outcome of this study compared to our two previous positive efficacy studies . in addition , we believe other confounding factors may have played a role in the efficacy outcome of iti-007-302 , including an expectation bias and the potential for functional unblinding . we believe the lumateperone late-stage clinical development program , including two large , well-controlled positive studies and supportive evidence from this second phase 3 study , collectively provide evidence of the efficacy and safety of lumateperone for the treatment of schizophrenia . across all three of our efficacy trials , iti-007 60 mg improved symptoms of schizophrenia with the same trajectory and magnitude of change from baseline in the primary endpoint , the panss total score . 60 we have a meeting scheduled with the fda in late march of 2017 to discuss the submission of an nda for lumateperone in schizophrenia . we expect to provide an update on the status of our discussions with the fda following this meeting . we will also need to complete other development , manufacturing and pre-commercialization activities necessary to support the submission of a planned nda for lumateperone in schizophrenia . lumateperone for the treatment of depressive episodes associated with bipolar disorder ( bipolar depression ) our bipolar depression program consists of two phase 3 multi-center , randomized , double-blind , placebo-controlled clinical trials : one to evaluate lumateperone as a monotherapy and the other to evaluate lumateperone as an adjunctive therapy with lithium or valproate . in each trial , patients with a clinical diagnosis of bipolar i or bipolar ii disorder and who are experiencing a current major depressive episode are randomized to receive one of three treatments : 60 mg iti-007 , 40 mg iti-007 , or placebo in a 1:1:1 ratio orally once daily for 6 weeks . in the iti-007-401 trial , patients receive lumateperone or placebo as a monotherapy . in the iti-007-402 trial , patients receive lumateperone or placebo adjunctive to their existing mood stabilizer lithium or valproate . in both trials , we are employing a number of strategies designed to ensure we recruit appropriately diagnosed patients in an effort to reduce the risk of a high placebo response . patient enrollment in the iti-007-401 trial , is expected to complete in the first half of 2018. patient enrollment in the iti-007-402 trial , is expected to complete in the second half of 2018. one of our strategies to optimize potential success in this program is to initiate a third trial in bipolar depression conducted globally . we anticipate completing patient enrollment in our global study by the end of 2018. the primary endpoint for both clinical trials is change from baseline at day 42 on the montgomery-åsberg depression rating scale , or madrs , total score versus placebo . the madrs is a well-validated 10-item checklist that measures the ability of a drug to reduce overall severity of depressive symptoms . individual items are rated by an expert clinician on a scale of 0 to 6 in which a score of 6 represents the most depressed evaluation for each item assessed . the total score ranges from 0 to 60. secondary endpoints include measures of social function and quality of life that may illustrate the differentiated clinical profile of lumateperone . safety and tolerability are also assessed in both clinical trials . lumateperone for the treatment of behavioral disturbances associated with dementia , including alzheimer 's disease in the fourth quarter of 2014 , we announced the top-line data from iti-007-200 , a phase 1/2 clinical trial designed to evaluate the safety , tolerability and pharmacokinetics of low doses of lumateperone in healthy geriatric subjects and in patients with dementia , including ad . story_separator_special_tag the completion of this study marks an important milestone in our strategy to develop low doses of lumateperone for the treatment of behavioral disturbances associated with dementia and related disorders . the iti-007-200 trial results indicate that lumateperone is safe and well-tolerated across a range of low doses , has linear- and dose-related pharmacokinetics and improves cognition in the elderly . the most frequent adverse event was mild sedation at the higher doses . we believe these results further position lumateperone as a development candidate for the treatment of behavioral disturbances in patients with dementia and other neuropsychiatric and neurological conditions . in the second quarter of 2016 , we initiated phase 3 development of lumateperone for the treatment of agitation in patients with dementia , including ad . our iti-007-201 trial is a phase 3 multi-center , randomized , double-blind , placebo-controlled clinical trial in patients with a clinical diagnosis of probable ad and clinically significant symptoms of agitation . in this trial , approximately 360 patients are planned to be randomized to receive 9 mg iti-007 or placebo in a 1:1 ratio orally once daily for four weeks . this study includes a single interim analysis reviewed by an independent data monitoring committee , which will be used to assess the assumptions of variability and effect size . the primary efficacy measure is the cohen-mansfield agitation inventorycommunity version , or cmai-c. the cmai-c is a well-validated 37-item scale that measures the ability of a drug to reduce overall frequency of agitation symptoms , including aggressive behaviors . individual 61 items are rated by an expert clinician on a scale of 1 to 7 in which a score of 7 represents the most frequent for each item assessed . the key secondary efficacy measure is a clinical global impression scale for severity , or cgi-s , of illness . other exploratory secondary endpoints include measures of other behavioral disturbances associated with dementia . safety and tolerability are also assessed in the trial . other indications for lumateperone we are also pursuing clinical development of lumateperone for the treatment of additional cns diseases and disorders . at the lowest doses , lumateperone has been demonstrated to act primarily as a potent 5-ht2a serotonin receptor antagonist . as the dose is increased , additional benefits are derived from the engagement of additional drug targets , including modest dopamine receptor modulation and modest inhibition of serotonin transporters . we believe that combined interactions at these receptors may provide additional benefits above and beyond selective 5-ht2a antagonism for treating agitation , aggression and sleep disturbances in diseases that include dementia , ad , huntington 's disease and autism spectrum disorders , while avoiding many of the side effects associated with more robust dopamine receptor antagonism . as the dose of lumateperone is further increased , leading to moderate dopamine receptor modulation , inhibition of serotonin transporters , and indirect glutamate modulation , these actions complement the complete blockade of 5-ht2a serotonin receptors . at a dose of 60 mg , iti-007 has been shown effective in treating the symptoms associated with schizophrenia , and we believe this higher dose range will be useful for the treatment of bipolar disorder , depressive disorders and other neuropsychiatric diseases . within the iti-007 portfolio , we are also developing a long-acting injectable formulation to provide more treatment options to patients suffering from mental illness . given the encouraging tolerability data to date with oral lumateperone , we believe that a long-acting injectable option , in particular , may lend itself to being an important formulation choice for patients . given the potential utility for lumateperone and follow-on compounds to treat these additional indications , we may investigate , either on our own or with a partner , agitation , aggression and sleep disturbances in additional diseases that include autism spectrum disorders , depressive disorder , intermittent explosive disorder , non-motor symptoms and motor complications associated with parkinson 's disease , and post-traumatic stress disorder . we hold exclusive , worldwide commercialization rights to lumateperone and a family of compounds from bristol-myers squibb company pursuant to an exclusive license . other product candidates we have a second major program called iti-002 that has yielded a portfolio of compounds that selectively inhibits the enzyme phosphodiesterase type 1 , or pde1 . we believe pde1 helps regulate brain activity related to cognition , memory processes and movement/coordination . on february 25 , 2011 , we ( through our wholly owned operating subsidiary , iti ) and takeda pharmaceutical company limited , or takeda , entered into a license and collaboration agreement , or the takeda license agreement , under which we agreed to collaborate to research , develop and commercialize our proprietary compound iti-214 and other selected compounds that selectively inhibit pde1 for use in the prevention and treatment of human diseases . on october 31 , 2014 , we entered into an agreement with takeda terminating the takeda license agreement , or the termination agreement , pursuant to which all rights granted under the takeda license agreement were returned to us . on september 15 , 2015 , takeda completed the transfer of the ind for iti-214 to us . iti-214 is the first compound in its class to successfully advance into phase 1 clinical trials . we intend to pursue the development of our pde program , including iti-214 for the treatment of several cns and non-cns conditions , including cardiovascular disease . we expect to advance iti-214 into additional clinical development trials in both cns and non-cns indications . following the positive safety and tolerability results in our phase 1 program , in the first half of 2017 we expect to initiate a phase 1/2 clinical trial with iti-214 in patients with parkinson 's disease to evaluate safety and tolerability in this patient population , as well as motor and non-motor exploratory endpoints . other compounds in the pde portfolio are also being advanced for the treatment of various indications .
| we intend to pursue the development of our pde program , including iti-214 for the treatment of several cns and non-cns conditions , which may include cognition in parkinson 's disease , cognition in ad , cognition in schizophrenia and in other non-cns indications . our other projects are still in the pre-clinical stages , and will require extensive funding not only to complete pre-clinical testing , but to enter into and complete clinical trials . expenditures that we incur on these projects will be subject to availability of funding in addition to the funding required for the advancement of lumateperone . any failure or delay in the advancement of lumateperone could require us to re-allocate resources from our other projects to the advancement of lumateperone , which could have a significant material adverse impact on the advancement of these other projects and on our results of operations . our operating expenses are 63 comprised of ( i ) research and development expenses and ( ii ) general and administrative expenses . our research and development costs are comprised of : internal recurring costs , such as labor and fringe benefits , materials and supplies , facilities and maintenance costs ; and fees paid to external parties who provide us with contract services , such as pre-clinical testing , manufacturing and related testing , clinical trial activities and license milestone payments . general and administrative expenses are incurred in three major categories : salaries and related benefit costs ; patent , legal , professional , and pre-commercialization costs ; and office and facilities overhead . we expect that research and development expenses will increase substantially as we proceed with our phase 3 clinical trials for lumateperone in patients with bipolar disorder and for the treatment of agitation in patients with dementia , including ad . we also expect that our general and administrative costs will increase substantially from prior periods primarily due to costs to perform pre-product commercialization activities and the increased costs associated with being a public reporting entity , which could include adding additional personnel . we granted options to purchase 487,121 shares of our common stock in 2016 and have granted options to purchase an
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we filed a cta for a phase 1 clinical trial of xcur17 in patients with psoriasis in germany in the third quarter of 2017. our cta was approved in february 2018 and we began dosing patients in our phase 1 clinical trial in april 2018. the phase 1 clinical trial , which had final patient visits in the fourth quarter of 2018 , was a randomized , double-blinded , placebo-controlled trial in twenty-one patients with mild to moderate chronic plaque psoriasis designed to assess the safety of xcur17 formulated as a topical gel , and to evaluate early signs of efficacy . all patients received three strengths of xcur17 gel , a vehicle gel , and a positive comparator ( daivonex® cream ) , which were all applied on different areas of psoriatic skin within each individual patient . in the fourth quarter of 2018 we reported results from the phase 1 trial of xcur17 . in the case of xcur17 , of the twenty-one treated patients , eleven treated with the highest strength xcur17 gel were observed to have a reduction in redness and improvement in healing as determined by blinded physician assessments . further , the highest strength xcur17 gel showed a statistically significant improvement in psoriasis symptoms versus the vehicle gel . by comparison , seventeen of the twenty-one patients treated with the positive comparator showed a clinical response , while four patients treated with the placebo vehicle had a clinical response . there were no adverse safety events related to treatment with xcur17 observed . in addition to the safety , tolerability and clinical assessments , the trial measured psoriatic infiltrate thickness over the 26-day treatment period . no relevant changes in mean psoriatic infiltrate thickness were observed for the three xcur17 gels or the active ingredient-free vehicle gel . at this time , assessments of il-17ra mrna levels from skin biopsies collected from the treated areas in patients have not yet been correlated with the clinical or infiltrate thickness assessments . dermelix license agreement on february 17 , 2019 exicure entered into a license and development agreement , or the dermelix license agreement , with dermelix , llc , d/b/a dermelix biotherapeutics . under the terms of agreement , dermelix licensed worldwide rights to research , develop , and commercialize exicure 's technology for the treatment of netherton syndrome and , at dermelix 's option , up to five additional rare skin indications . dermelix will initially develop a targeted therapy for the treatment of netherton syndrome ( ns ) . ns is a rare and severe autosomal recessive disorder caused by loss-of-function mutations in the spink5 gene , which encodes the serine protease inhibitor lekt1 involved in skin barrier function . ns affects approximately 1 in 200,000 children born each year , and is characterized by severely inflamed , red , scaled , itchy skin , and patients are at increased risk of mortality in the first year of life due to recurrent infections and dehydration as a result of the impaired skin barrier . currently , there are no approved treatments for ns patients and off-label use of standard of care treatments are of limited utility . under the terms of the dermerlix license agreement , exicure received an upfront payment of $ 1 million at closing of the transaction and will receive an additional $ 1 million upon the exercise of each of the five options granted to dermelix . exicure will be responsible for conducting the early stage development for each indication up to ind enabling toxicology studies . dermelix will undertake subsequent development , commercial activities and financial responsibility . for each of ns as well as any additional licensed product for which dermelix exercises one of its options , exicure is eligible to receive potential payments totaling up to $ 13.5 million upon achievement of 82 certain development and regulatory milestones and up to $ 152.5 million upon achievement of certain sales milestones per indication in each of six indications . in addition , exicure will receive low double-digit royalties on annual net sales for sna therapeutics developed . other inflammatory diseases we believe that one of the key strengths of our proprietary snas is that they have the potential to enter a number of different cells and organs . as a consequence , we are also conducting early stage research activities in ophthalmology , pulmonology , and gastroenterology . we believe promising therapeutic targets for snas include antibody targets with confirmed therapeutic benefit . we envision inhibiting these targets with local application of snas in a variety of therapeutic areas . we believe that this approach combines the benefits of specifically inhibiting validated targets without the potential safety issues associated with systemic therapy . genetic disorders we are investigating the utility of our sna technology for the treatment of neurological conditions . in june 2018 , the company and researchers from the ohio state university wexner medical center presented a poster at the cure sma annual conference titled : “ nusinersen in spherical nucleic acid ( sna ) format improves efficacy both in vitro in sma patient fibroblasts and in δ7 sma mice and reduces toxicity in mice. ” it was observed in a preclinical study that nusinersen in sna format prolonged survival by four-fold ( maximal survival of 115 days compared to 28 days for nusinersen-treated mice ) as well as doubled the levels of healthy full-length smn2 mrna and protein in sma patient fibroblasts when compared to nusinersen . subsequently , in the fall of 2018 , we completed a biodistribution study in rats comparing nusinersen to nusinersen in sna format . we found that more nusinersen in sna format was retained in the rats ' brain and spinal cord compared to nusinersen retained in the rats ' brain and spinal cord at 24 , 72 and 168 hours . we are now formulating our strategy for developing a pipeline of sna therapeutics targeting neurological diseases . story_separator_special_tag preclinical research is underway in a number of indications including , spinal muscular atrophy , huntington 's disease , spinocerebellar ataxia type 3 ( sca3 ) , sca2 , sca1 , friedreich 's ataxia , and batten disease . we believe this preclinical research may lead to a therapeutic candidate for one of the above neurological indications . ast-005 ast-005 is an sna targeting tnf for the treatment of mild to moderate psoriasis . ast-005 is intended to be administered locally in a gel to psoriatic lesions . in a completed phase 1 clinical trial , ast-005 , when topically administered to the skin of patients with mild to moderate psoriasis , resulted in no drug associated adverse events , and demonstrated a reduction of tnf mrna . the tnf mrna reduction elicited by the highest strength of ast-005 gel was statistically significant when compared to the effects of the vehicle . on december 2 , 2016 , we entered into a research collaboration , option and license agreement with purdue pharma l.p. , referred to as the purdue collaboration . as part of our collaboration with purdue , a phase 1b clinical trial was conducted in germany to evaluate the effect of ast-005 gel in patients with chronic plaque psoriasis . the trial demonstrated that ast-005 is safe and tolerable in patients at higher doses than were previously studied , however , the study did not result in a statistically significant decrease in echo lucent band thickness , one of the key indicators of efficacy in patients with psoriasis . in april 2018 , purdue notified the company it had declined to exercise its option to develop ast-005 at that time , but that it also intended to retain rights relating to the tnf target , and purdue reserved its right to continue joint development , with exicure , of new anti-tnf drug candidates and to retain its exclusivity and other rights to ast-005 . purdue has not indicated that it has any plans to pursue ast-005 at this time and there no active therapeutic candidates in development . other operating , financing , and cash flow considerations 83 since our inception in 2011 , we have devoted substantial resources to the research and development of snas and the protection and enhancement of our intellectual property . we have no products approved for sale and all of our $ 15.6 million in revenue since inception through december 31 , 2018 has been earned through our research collaboration , license , and option agreement with purdue or as a primary contractor or as a subcontractor on government grants . in addition to our revenue , from inception through december 31 , 2018 , we have funded our operations through private placements of preferred stock with gross proceeds totaling $ 42.8 million , sales of common stock in the 2017 private placement with gross proceeds totaling $ 31.5 million , sales of common stock in the august 2018 private placement with gross proceeds totaling $ 22.0 million and debt financing totaling $ 6.0 million . as of december 31 , 2018 , our cash and cash equivalents were $ 26.3 million . since our inception , we have incurred significant operating losses . our net loss was $ 22.4 million and $ 11.0 million for the years ended december 31 , 2018 and 2017 , respectively . as of december 31 , 2018 , our accumulated deficit was $ 73.8 million . substantially all of our operating losses resulted from expenses incurred in connection with our research programs and from general and administrative costs associated with our operations . we expect to continue to incur significant and increasing losses in the foreseeable future . our net losses may fluctuate significantly from quarter to quarter and year to year . we anticipate that our expenses will increase substantially as we : advance ast-008 through clinical development for immuno-oncology applications ; continue research and development in neurological applications ; advance sna platform in dermatological indications ; increase research and development for the discovery and development of additional therapeutic candidates ; advance other therapeutic candidates through preclinical and clinical development ; increase our research and development to enhance our technology ; procure clinical trial materials ; seek regulatory approval for our therapeutic candidates that successfully complete clinical trials ; maintain , expand and protect our intellectual property portfolio ; add operational , financial and management information systems and personnel , including personnel to support our product development and planned future commercialization efforts ; and operate as a public company . we have not generated any commercial product revenue nor do we expect to generate substantial revenue from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our therapeutic candidates . successful therapeutic development and regulatory approval are subject to significant uncertainties and we expect such activities will take at least five years . if we obtain regulatory approval for any of our therapeutic candidates , we expect to incur significant commercialization expenses related to product sales , marketing , manufacturing and distribution . other sources of revenue could include a combination of research and development payments , license fees and other upfront payments , milestone payments , and royalties in connection with our current and any future collaborations and licenses . until such time , if ever , that we generate revenue from whatever source , we expect to finance our cash needs through a combination of public or private equity offerings , debt financings and research collaboration and license agreements . we may be unable to raise capital or enter into such other arrangements when needed or on favorable terms . our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our therapeutic candidates .
| we recognized $ 9.7 million of collaboration revenue in the year ended december 31 , 2017 , which consisted of twelve months of amortization of deferred revenue mentioned above and $ 1.4 million related to research and development activities that was reimbursed by purdue and is presented on a gross basis in the accompanying consolidated statement of operations . 92 we do not expect to generate any product revenue for the foreseeable future . however , future revenue may include amounts attributable to partnership activities including , a combination of research and development payments , license fees and other upfront payments , milestone payments , product sales and royalties , and reimbursement of certain research and development expenses , in connection with the dermelix license agreement or the purdue collaboration or any future collaboration and licenses . research and development expense the following table summarizes our research and development expenses incurred during the periods indicated : replace_table_token_6_th research and development expense was $ 14.1 million for the year ended december 31 , 2018 and $ 13.1 million for the year ended december 31 2017 , an increase of $ 1.0 million , or 8 % . the increase in research and development expense of $ 1.0 million was primarily due to higher employee-related expenses of $ 1.2 million and higher platform and discovery-related expense of $ 0.6 million , partially offset by a net decrease in costs related to our clinical development programs of $ 0.9 million . higher employee-related expense of $ 1.2 million was due to higher compensation and related costs , non-cash stock-based compensation , and relocation costs all mostly in connection with the hire of our chief operating officer as well as in connection with salary increases for existing employees . the increase in platform and discovery-related expense of $ 0.6 million is mostly due to higher costs to maintain our intellectual property portfolio . the net decrease in clinical development programs expense of $ 0.9 million was mostly due to lower costs associated with ast-005 ( for which the phase 1b clinical trial , subject of the purdue collaboration , ended during the first quarter of 2018 ) and
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perhaps most significantly , prior to 2008 , the massachusetts commissioner of insurance fixed and established the premium rates and the rating plan to be used by all insurance 39 companies doing business in the private passenger automobile insurance market and the massachusetts private passenger automobile insurance residual market mechanism featured a reinsurance program run by car in which companies were assigned producers . in 2008 , the commissioner issued a series of decisions to introduce what she termed `` managed competition '' to massachusetts automobile insurance premium rates and in doing so replaced the fixed and established regime with a prior approval rate review process , governed by regulations that set certain terms and conditions that insurers must comply with in establishing their rates . the commissioner also replaced the former reinsurance program with an assigned risk plan . these decisions removed many of the factors that had historically distinguished the massachusetts private passenger automobile insurance market from the market in other states . however , certain of the historically unique factors have not been eliminated , including compulsory insurance , affinity group marketing , and the prominence of independent agents . car runs a reinsurance pool for commercial automobile policies and , beginning january 1 , 2006 , car implemented a limited servicing carrier program ( `` lsc '' ) for ceded commercial automobile policies . car approved safety insurance and five other servicing carriers through a request for proposal to process ceded commercial automobile business , which was spread equitably among the six servicing carriers . in 2010 car reduced the number of servicing carriers to four , and car has approved safety insurance and three other servicing carriers effective july 1 , 2011 to continue the program . subject to the commissioner 's review , car sets the premium rates for commercial automobile policies reinsured through car and this reinsurance pool can generate an underwriting result that is a profit or deficit based upon car 's rate level . this underwriting result is allocated among every massachusetts commercial automobile insurance company , including us , based on a company 's commercial automobile voluntary market share . car also runs a reinsurance pool for taxi , limousine and car service risks ( the `` taxi/limo program '' ) . on april 25 , 2007 , safety insurance submitted through a request for proposal a bid to process a portion of the taxi/limo program . car approved safety insurance as one of the two servicing carriers for this program beginning january 1 , 2008 , and car has again approved safety insurance beginning january 1 , 2011 as one of the two servicing carriers . during 2012 , we increased our rates approximately 4.7 % . our rates include a 13.0 % commission rate for agents . our direct automobile written premiums increased by 5.5 % in 2011 with increased exposures and average written premium per exposure in our private passenger and commercial automobile lines of business . statutory accounting principles our results are reported in accordance with gaap , which differ from amounts reported in accordance with statutory accounting principles ( `` sap '' ) as prescribed by insurance regulatory authorities , which in general reflect a liquidating , rather than going concern concept of accounting . specifically , under gaap : policy acquisition costs such as commissions , premium taxes and other variable costs incurred which are directly related to the successful acquisition of a new or renewal insurance contract are capitalized and amortized on a pro rata basis over the period in which the related premiums are earned , rather than expensed as incurred , as required by sap . certain assets are included in the consolidated balance sheets whereas , under sap , such assets are designated as `` nonadmitted assets , '' and charged directly against statutory surplus . these assets consist primarily of premium receivables that are outstanding over ninety days , federal deferred tax assets in excess of statutory limitations , furniture , equipment , leasehold improvements and prepaid expenses . 40 amounts related to ceded reinsurance are shown gross of ceded unearned premiums and reinsurance recoverables , rather than netted against unearned premium reserves and loss and loss adjustment expense reserves , respectively , as required by sap . fixed maturities securities , which are classified as available-for-sale , are reported at current fair values , rather than at amortized cost , or the lower of amortized cost or market , depending on the specific type of security , as required by sap . the differing treatment of income and expense items results in a corresponding difference in federal income tax expense . changes in deferred income taxes are reflected as an item of income tax benefit or expense , rather than recorded directly to surplus as regards policyholders , as required by sap . admittance testing may result in a charge to unassigned surplus for non-admitted portions of deferred tax assets . under gaap reporting , a valuation allowance may be recorded against the deferred tax asset and reflected as an expense . insurance ratios the property and casualty insurance industry uses the combined ratio as a measure of underwriting profitability . the combined ratio is the sum of the loss ratio ( losses and loss adjustment expenses incurred as a percent of net earned premiums ) plus the expense ratio ( underwriting and other expenses as a percent of net earned premiums , calculated on a gaap basis ) . the combined ratio reflects only underwriting results and does not include income from investments or finance and other service income . underwriting profitability is subject to significant fluctuations due to competition , catastrophic events , weather , economic and social conditions , and other factors . our gaap insurance ratios are presented in the following table for the periods indicated . replace_table_token_17_th share-based compensation on june 25 , 2002 , the board of directors of the company ( the `` board '' ) adopted the 2002 management omnibus incentive plan ( the `` incentive plan '' ) . story_separator_special_tag the incentive plan provides for a variety of awards , including nonqualified stock options ( `` nqsos '' ) , stock appreciation rights and restricted stock ( `` rs '' ) awards . on march 10 , 2006 , the board approved amendments to the incentive plan , subject to shareholder approval , to ( i ) increase the number of shares of common stock available for issuance by 1,250,000 shares , ( ii ) remove obsolete provisions , and ( iii ) make other non-material changes . a total of 1,250,000 shares of common stock had previously been authorized for issuance under the incentive plan . the incentive plan , as amended , was approved by the shareholders at the 2006 annual meeting of shareholders which was held on may 19 , 2006. under the incentive plan , as amended , the maximum number of shares of common stock with respect to which awards may be granted is 2,500,000. as of december 31 , 2012 , there were 620,457 shares available for future grant . the board and the compensation committee intend to issue more awards under the incentive plan in the future . grants outstanding under the incentive plan as of december 31 , 2012 , were comprised of 231,883 restricted shares and 87,500 nonqualified stock options . 41 grants made under the incentive plan during the years 2008 through 2013 were as follows . replace_table_token_18_th ( 1 ) the fair value per share of the restricted stock grant is equal to the closing price of our common stock on the grant date . ( 2 ) the shares can not be sold , assigned , pledged , or otherwise transferred , encumbered or disposed of until the recipient is no longer a member of our board of directors . reinsurance we reinsure with other insurance companies a portion of our potential liability under the policies we have underwritten , thereby protecting us against an unexpectedly large loss or a catastrophic occurrence that could produce large losses , primarily in our homeowners line of business . we use various software products to measure our exposure to catastrophe losses and the probable maximum loss to us for catastrophe losses such as hurricanes . the models include estimates for our share of the catastrophe losses generated in the residual market for property insurance by the massachusetts property insurance underwriting association ( `` fair plan '' ) . the reinsurance market has seen from the various software modelers , increases in the estimate of damage from hurricanes in the southern and northeast portions of the united states due to revised estimations of increased hurricane activity and increases in the estimation of demand surge in the periods following a significant event . we continue to manage and model our exposure and adjust our reinsurance programs as a result of the changes to the models . as of january 1 , 2013 , we have purchased four layers of excess catastrophe reinsurance providing $ 515,000 of coverage for property losses in excess of $ 50,000 up to a maximum of $ 565,000. our reinsurers co-participation is 50.0 % of $ 50,000 for the 1st layer , 80.0 % of $ 80,000 for the 2nd layer , 80.0 % of $ 250,000 for the 3rd layer , and 80.0 % of $ 135,000 for the 4th layer . as a result of the changes to the models , and our revised reinsurance program , our catastrophe reinsurance in 2013 protects us in the event of a `` 127-year storm '' ( that is , a storm of a severity expected to occur once in a 127-year period ) . swiss re , our primary reinsurer , maintains an a.m. best rating of `` a '' ( excellent ) . most of our other reinsurers have an a.m. best rating of `` a '' ( excellent ) however in no case is a reinsurer rated below `` a- '' ( excellent ) . we are a participant in car , a state-established body that runs the residual market reinsurance programs for both private passenger and commercial automobile insurance in massachusetts under which premiums , expenses , losses and loss adjustment expenses on ceded business are shared by all 42 insurers writing automobile insurance in massachusetts . we also participate in the fair plan in which premiums , expenses , losses and loss adjustment expenses on homeowners business that can not be placed in the voluntary market are shared by all insurers writing homeowners insurance in massachusetts . the fair plan has grown dramatically over the past few years as insurance carriers have reduced their exposure to coastal property . the fair plan 's exposure to catastrophe losses increased and as a result , the fair plan decided to buy reinsurance to reduce their exposure to catastrophe losses . on july 1 , 2012 , the fair plan purchased $ 1,000,000 of catastrophe reinsurance for property losses in excess of $ 200,000. at december 31 , 2012 , we had no material amounts recoverable from any reinsurer , excluding $ 51,140 recoverable from car . on march 10 , 2005 , our board of directors adopted a resolution that prohibits safety from purchasing finite reinsurance ( reinsurance that transfers only a finite or limited amount of risk to the reinsurer ) without approval by the board . to date , the company has never purchased a finite reinsurance contract . effects of inflation we do not believe that inflation has had a material effect on our consolidated results of operations , except insofar as inflation may affect interest rates . story_separator_special_tag backed by financial guarantors including pre-refunded securities as of december 31 , 2012. we do not have any direct investment holdings in a financial guarantee insurance company . replace_table_token_24_th 46 the moody 's ratings of our insured investments held at december 31 , 2012 are essentially the same with or without the investment guarantees . we reviewed the unrealized losses in our fixed income and equity portfolio as of december 31 , 2012 for potential other-than-temporary asset impairments .
| our duration was 3.6 years at december 31 , 2012 , down from 3.7 years at december 31 , 2011. net realized gains on investments . net realized gains on investments were $ 1,975 for the year ended december 31 , 2012 compared to $ 4,360 for the comparable 2011 period . 44 the gross unrealized gains and losses on investments in fixed maturity securities , equity securities , including interests in mutual funds , and other invested assets were as follows : replace_table_token_21_th ( 1 ) residential mortgage-backed securities consists of obligations of u.s. government agencies including collateralized mortgage obligations issued , guaranteed and or insured by the following issuers : government national mortgage association ( gnma ) , federal home loan mortgage corporation ( fhlmc ) , federal national mortgage association ( fnma ) and the federal home loan bank ( fhlb ) . ( 2 ) equity securities includes interests in mutual funds held to fund the company 's executive deferred compensation plan . ( 3 ) our investment portfolio included 75 securities in an unrealized loss position at december 31 , 2012 . ( 4 ) amounts in this column represent other-than-temporary impairment ( `` otti '' ) recognized in accumulated other comprehensive income . the composition of our fixed income security portfolio by moody 's rating was as follows : replace_table_token_22_th 45 as of december 31 , 2012 , our portfolio of fixed maturity investments was principally comprised of investment grade corporate fixed maturity securities , u.s. government and agency securities , and asset-backed securities . the portion of our non-investment grade portfolio of fixed maturity investments is primarily comprised of variable rate secured and senior bank loans and high yield bonds . we have no exposure to european sovereign debt . the following table illustrates the gross unrealized losses included in our investment portfolio and the fair value of those securities , aggregated by investment category . the table also illustrates the length of time that they have been in a continuous unrealized loss position as of december 31 , 2012. replace_table_token_23_th as of december 31 , 2012 , we held insured investment securities of
| 11,776 |
product design and consumer involvement have become more important drivers of dental services consumption , and administrative expense efficiency is becoming a more significant driver of margin sustainability . consequently , we continually evaluate our administrative expense structure and attempt to realize administrative expense savings principally through technology improvements . highlights ● we had net income of approximately $ 958,000 for the year ended december 31 , 2015 compared to net income of approximately $ 1,341,000 for the year ended december 31 , 2014. the decrease in net income is primarily the result of higher insurance expense of approximately $ 1,751,000 , in 2015 , offset by an increase in gross margin of approximately $ 1,337,000. our ratio of insurance expense to total premium revenue ( “ insurance expense ratio ” ) increased to 20.4 % in 2015 from 19.9 % in 2014 . 18 ● our ratio of healthcare services expense to premium revenue ( “ loss ratio ” ) remained constant at 78.0 % in 2015 and 2014. the fully-insured dental hmo/ind and fully-insured dental ppo segments together represent approximately 69.8 % of our total dental business . ● our dental and vision products grew by approximately 26,300 members , or 7.8 % , from 335,900 members at december 31 , 2014 to 362,200 members at december 31 , 2015. this membership increase from december 31 , 2014 is due to an increase in fully-insured dental hmo/ind membership of approximately 3,000 members , an increase in fully-insured dental ppo membership of approximately 9,700 members , an increase in self-insured dental membership of approximately 6,300 members and an increase in corporate , all other membership of approximately 7,300 members . ● in march 2015 , we paid a dividend of $ 39.86 per share to shareholders of record for all redeemable common shares . we also paid a dividend of $ 35.77 per share in march 2014 to holders of our redeemable common shares . comparison of results of operations for 2015 and 2014 the following table shows membership totals and revenues and expenses for our four business segments for the years ended december 31 , 2015 and 2014 ( dollars in thousands ) : replace_table_token_8_th summary net income was approximately $ 958,000 and $ 1,341,000 for 2015 and 2014 , respectively . this decrease in net income is primarily the result of an increase in insurance expense of approximately $ 1,751,000 in 2015. our ratio of insurance expense to total premium revenue ( “ insurance expense ratio ” ) increased to 20.4 % in 2015 from 19.9 % in 2014 . 19 membership our fully-insured dental hmo/ind membership increased by approximately 3,000 in 2015. this membership increase is primarily attributable to an increase in fully-insured dental hmo membership resulting from new sales of approximately 6,500 members in the cincinnati and northern kentucky markets during 2015. an increase of approximately 2,300 is due to an increase of new sales of our individual dental hmo product . these increases were offset by the loss of approximately 5,800 members due to employer groups that did not renew with the company or reduced employee counts of retained employer groups . some of our fully-insured dental hmo membership losses were the result of employer groups moving to medical carriers to take advantage of medical/dental package savings . our fully-insured dental ppo membership increased by approximately 9,700 members in 2015. this membership increase is due to new sales in the dayton and central ohio markets and the southern kentucky market of approximately 11,600 members during 2015 , offset by the loss of approximately 3,200 members with employer groups that did not renew with the company or reduced employee counts of retained employer groups in these markets . the remaining increase of approximately 1,300 members is due to the new sales on individual and on exchange dental ppo products in 2015. our self-insured dental membership increased by approximately 6,300 members in 2015. this increase is due to both the addition of new self-insured dental hmo and dental ppo employer groups in the southwest ohio and northern kentucky markets , and an increase in membership of existing employer groups in the last twelve months . our corporate , all other membership increased by approximately 7,300 members in 2015. the increase is due to increased membership in our vision plan . revenue ( amounts in thousands ) 2015 2014 total dollar change member volume change rate change total fully-insured dental hmo/ind premium $ 49,458 $ 47,948 $ 1,510 $ 1,011 $ 499 fully-insured dental hmo/ind premium increased approximately $ 1,510,000 in 2015 compared to 2014. fully-insured dental hmo/ind premium rates negotiated with employer groups at their renewals resulted in an increase of approximately $ 499,000 in fully-insured dental hmo/ind premium revenue . an increase in fully-insured dental hmo/ind membership in 2015 resulted in an increase in fully-insured dental hmo/ind premiums of approximately $ 1,011,000. the membership increase is the result of new fully-insured employer group business as well as an increase in the fully-insured individual product membership . t he fully-insured dental hmo/ind segment represented approximately 50.3 % of our total dental business in 2015 . ( amounts in thousands ) 2015 2014 total dollar change member volume change rate change total fully-insured dental ppo premium $ 19,198 $ 16,459 $ 2,739 $ 2,353 $ 386 fully-insured dental ppo premium increased approximately $ 2,739,000 in 2015 compared to 2014. fully-insured dental ppo premium rates negotiated with employer groups at their renewals resulted in an increase of approximately $ 386,000 in fully-insured dental ppo premium revenue . an increase in fully-insured ppo group membership in the 2015 period resulted in an increase in fully-insured dental ppo premiums of approximately $ 2,353,000. the increase in membership is the result of an increase in fully-insured dental ppo group membership as well as an increase in fully-insured on-exchange dental ppo membership . the fully-insured dental ppo segment represents approximately 19.5 % of our total dental business . story_separator_special_tag 20 replace_table_token_9_th total self-insured revenue increased approximately $ 2,017,000 in 2015 compared to 2014. self-insured dental revenue increased by approximately $ 1,956,000 due to new self-insured sales and an increase in membership for existing employer groups . self-insured revenue increased by approximately $ 587,000 due to an increase in the self-insured claims revenue on a per member per month basis . self-insured aso fees increased due to those membership increases , offset by a slight decrease in self-insured administrative fee rates on a per member per month basis . the self-insured dental segment represented approximately 29.5 % of our total dental business in 2015. the self-insured segment revenue has two components : self-insured claim revenue - self-insured claim revenue increased approximately $ 1,956,000 , or 7.6 % . self-insured claim revenue increased by approximately $ 1,358,000 due to new self-insured sales . also , self-insured claim revenue increased by approximately $ 598,000 primarily due to an increase in the self-insured claim revenue on a per member per month basis as a result of a 1.5 % dental fee schedule increase effective january 1 , 2015. self-insured aso fees - self-insured aso fees increased approximately $ 61,000 , or 4.5 % . approximately $ 72,000 of this increase is attributable to self-insured product sales and an increase in membership for existing employer groups , offset by approximately $ 11,000 due to a decrease in average self-insured aso fee rates for 2015 compared to 2014. corporate , all other premium revenue is primarily derived from the non-dcp dental indemnity product , dental ppo product and vision product underwritten by third party insurance carriers . in the aggregate , corporate , all other premium revenue increased by approximately $ 59,000 , or 9.5 % , to $ 683,000 in 2015 from $ 624,000 in 2014. investment income investment income increased approximately $ 30,000 , or 13.5 % , to $ 252,000 in 2015 from $ 222,000 in 2014. this increase is the result of the increased amount of funds that were invested in both medium duration investment and non-investment grade corporate bonds and short duration investment grade corporate bonds with higher yields during 2015. other income and realized ( losses ) gains on investments , net other income and realized ( losses ) gains on investments decreased approximately $ 89,000 or 96.7 % to $ 3,000 in 2015 from $ 92,000 in 2014. this decrease is primarily the result of realized losses due to the impairment of six corporate bonds in 2015. we concluded that the decrease in the market values of these assets had resulted in other-than temporary impairments . healthcare services expenses ( amounts in thousands ) 2015 2014 total dollar change member volume change utilization change total fully-insured dental hmo/ind healthcare service expense $ 37,346 $ 35,995 $ 1,351 $ 759 $ 592 fully-insured dental hmo/ind healthcare services expense increased by $ 1,351,000 , or 3.7 % . this increase is attributable to an increase in fully-insured dental hmo/ind healthcare services expense on a per member per month basis of approximately $ 592,000 , or 1.6 % , in 2015 for both existing and new fully-insured dental hmo/ind membership . fully-insured dental hmo/ind healthcare services expense increased by approximately $ 551,000 due to the fee schedule increases effective january 1 , 2015 and by approximately $ 41,000 due to an increase in dental service utilization level by our fully-insured dental hmo/ind members in 2015 compared to 2014. this increase in fully-insured dental hmo/ind healthcare services expense is also the result of an increase of approximately $ 759,000 , or 2.1 % , due to an increase in fully-insured dental hmo/ind member months of 2.0 % in 2015 compared to 2014 . 21 ( amounts in thousands ) 2015 2014 total dollar change member volume change utilization change total fully-insured dental ppo healthcare service expense $ 14,384 $ 12,661 $ 1,723 $ 1,810 $ ( 87 ) fully-insured dental ppo healthcare services expense increased by $ 1,723,000 , or 13.6 % . this increase was primarily the result of an increase of approximately $ 1,810,000 related to the increase in fully-insured group and individual dental ppo membership . this increase in fully-insured dental ppo healthcare member volume change was offset to an overall decrease of approximately $ 87,000 due to a decrease in claims expense on a pmpm basis . lower dental service utilization resulted in a decrease of approximately $ 303,000 offset by an increase in healthcare service expense of approximately $ 216,000 due to the fee schedule increases effective january 1 , 2015 . ( amounts in thousands ) 2015 2014 total dollar change member volume change utilization change self-insured healthcare services expense $ 24,954 $ 23,040 $ 1,914 $ 1,225 $ 689 self-insured healthcare services expense increased by approximately $ 1,914,000 , or 8.3 % , in 2015. an increase of 5.3 % in self-insured member month volume in 2015 compared to 2014 resulted in an increase in self-insured healthcare services expense of approximately $ 1,225,000 . self-insured dental healthcare services expense increased by approximately $ 364,000 due to the fee schedule increases effective january 1 , 2015. the remaining increase in self-insured claims expense of approximately $ 325,000 is due to an increase in dental service utilization level by our self-insured members in 2015 compared to 2014. corporate , all other healthcare services expense is not recognized by the company due to the fact that our other dental indemnity , dental ppo and vision ppo products are underwritten by third party insurance carriers . insurance expenses consolidated insurance expenses increased approximately $ 1,751,000 in 2015. total insurance expenses as a percentage of total premium revenue , or the insurance expense ratio , was 20.4 % for 2015 , increasing 0.5 % from the 2014 ratio of 19.9 % .
| our fully-insured dental ppo membership increased by approximately 9,500 members in 2014. this membership increase is due to new sales in the dayton and central ohio markets and the southern kentucky market of approximately 12,100 members during 2014 , offset by the loss of approximately 6,600 members with employer groups that did not renew with the company or reduced employee counts of retained employer groups in these markets . the remaining increase of approximately 4,000 members is due to the new sales on the ohio exchange in 2014 . 23 our self-insured dental membership increased by approximately 3,300 members in 2014. this increase is partially due to the addition of new self-insured dental hmo and dental ppo employer groups in the southwest ohio and northern kentucky markets , and primarily due to an increase in membership of existing employer groups in the last twelve months . our corporate , all other membership increased by approximately 1,700 members in 2014. the increase is primarily due to an increased membership in our vision plan . revenue ( amounts in thousands ) 2014 2013 total dollar change member volume change rate change total fully-insured dental hmo/ind premium $ 47,948 $ 46,656 $ 1,292 $ 494 $ 798 fully-insured dental hmo/ind premium increased approximately $ 1,292,000 in 2014 compared to 2013. fully-insured dental hmo/ind premium rates negotiated with employer groups at their renewals resulted in an increase of approximately $ 798,000 in fully-insured dental hmo/ind premium revenue . an increase in fully-insured dental hmo/ind membership in 2014 resulted in an increase in fully-insured dental hmo/ind premiums of approximately $ 494,000. the fully-insured dental hmo/ind segment represented approximately 52.2 % of our total dental business in 2014 . ( amounts in thousands ) 2014 2013 total dollar change member volume change rate change total fully-insured dental ppo premium $ 16,459 $ 13,494 $ 2,965 $ 2,865 $ 100 fully-insured dental ppo premium increased approximately $ 2,965,000 in 2014 compared to 2013. fully-insured dental ppo premium rates negotiated with employer groups at their renewals resulted in an increase of approximately $ 100,000 in fully-insured dental ppo premium revenue . an increase in fully-insured ppo group membership in the 2014 period resulted in an increase in fully-insured dental ppo premiums of approximately
| 11,777 |
during 2013 , our investment spending in our entertainment segment was $ 115.7 million compared to $ 121.4 million in the prior year . as box office performance was strong once again in 2013 , we continued to have build-to-suit opportunities available for megaplex theatres at attractive terms with both existing and new tenants . additionally , many megaplex theatre operators are expanding their food and beverage options and are now including in-theatre dining options , luxury seating and alcohol availability . this trend is expected to continue to provide build-to-suit opportunities for us in the future as well . during 2013 , our investment spending in our education segment was $ 155.5 million compared to $ 81.4 million in the prior year , and included build-to-suit public charter schools and , to a lesser extent , build-to-suit early childhood education centers and private schools . we continued to establish our position as a leading owner of public charter school real estate and expect this momentum to continue into 2014. we continued to diversify our tenant base , and as of year-end we have 26 different public charter school operators and we expect to continue to expand this number in 2014. we also expect to increase our investments in early childhood education centers and private schools as we move forward . during 2013 , our investment spending in our recreation segment was $ 127.3 million compared to $ 83.6 million in the prior year , and related to metro ski areas and golf entertainment complexes as well as the purchase of the camelback mountain ski resort ( ” camelback ” ) . as a part of the acquisition of camelback , we have agreed to finance an additional 38 $ 110.7 million to construct a water-park hotel on the property , which we expect to begin in 2014. we plan to continue to seek attractive investments in this segment in 2014. during 2013 , our investment spending in our other segment was $ 5.2 million and related to our land held for development in sullivan county , new york . this project is further discussed below under “ recent developments '' . capitalization strategies our property acquisitions and financing commitments are financed by cash from operations , borrowings under our unsecured revolving credit facility and unsecured term loan facility , long-term mortgage debt , and the sale of debt and equity securities . during the past several years , we have taken significant steps to implement our strategy of migrating to an unsecured debt structure and maintaining significant liquidity by issuing $ 875.0 million of unsecured notes and paying off secured debt . in 2013 , we also reduced our cost of debt by amending and restating our unsecured revolving credit facility , allowing for reductions in interest rate spread and facility fee pricing while at the same time increasing its capacity to $ 475.0 million . additionally , we amended and restated our unsecured term loan facility increasing the initial amount to $ 265.0 million and lowering the interest rate . we also increased the accordion feature under both of our unsecured revolving credit facility and unsecured term loan facility increasing the maximum amount available under the facilities to $ 600.0 million and $ 400.0 million , respectively . having enhanced our liquidity position , strengthened our balance sheet and continued our access to the unsecured debt markets , we believe we are better positioned to aggressively pursue investments , acquisitions and financing opportunities that may become available to us from time to time . throughout the remainder of 2014 , we expect to maintain our debt to total gross assets ratio between 35 % and 45 % . depending on our capital needs , we will seek both debt and equity capital and will consider issuing additional shares under the direct share purchase component of our dsp plan . while equity issuances and maintaining lower leverage mitigate the growth in per share results , we believe lower leverage and an emphasis on liquidity are prudent during the current economic environment . critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states ( “ gaap ” ) requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related notes . in preparing these financial statements , management has made its best estimates and assumptions that affect the reported assets and liabilities . the most significant assumptions and estimates relate to consolidation , revenue recognition , depreciable lives of the real estate , the valuation of real estate , accounting for real estate acquisitions , estimating reserves for uncollectible receivables and the accounting for mortgage and other notes receivable . application of these assumptions requires the exercise of judgment as to future uncertainties and , as a result , actual results could differ from these estimates . consolidation we consolidate certain entities if we are deemed to be the primary beneficiary in a variable interest entity ( `` vie '' ) , as defined in financial accounting standards board ( `` fasb '' ) accounting standards codification ( `` asc '' ) topic on consolidation . the topic on consolidation requires the consolidation of vies in which an enterprise has a controlling financial interest . a controlling financial interest will have both of the following characteristics : the power to direct the activities of a vie that most significantly impact the vie 's economic performance and the obligation to absorb losses of the vie that could potentially be significant to the vie or the right to receive benefits from the vie that could potentially be significant to the vie . this topic requires an ongoing reassessment . the equity method of accounting is applied to entities in which we are not the primary beneficiary as defined in the consolidation topic of the fasb asc , or do not have effective control , but can exercise influence over the entity with respect to its operations and major decisions . story_separator_special_tag revenue recognition rents that are fixed and determinable are recognized on a straight-line basis over the minimum terms of the leases . base rent escalation in other leases is dependent upon increases in the consumer price index ( “ cpi ” ) and accordingly , 39 management does not include any future base rent escalation amounts on these leases in current revenue . most of our leases provide for percentage rents based upon the level of sales achieved by the tenant . these percentage rents are recognized once the required sales level is achieved . lease termination fees are recognized when the related leases are canceled and we have no continuing obligation to provide services to such former tenants . direct financing lease income is recognized on the effective interest method to produce a level yield on funds not yet recovered . estimated unguaranteed residual values at the date of lease inception represent management 's initial estimates of fair value of the leased assets at the expiration of the lease , not to exceed original cost . significant assumptions used in estimating residual values include estimated net cash flows over the remaining lease term and expected future real estate values . the estimated unguaranteed residual value is reviewed on an annual basis or more frequently if necessary . we evaluate the collectibility of our direct financing lease receivable to determine whether it is impaired . a direct financing lease receivable is considered to be impaired when , based on current information and events , it is probable that we will be unable to collect all amounts due according to the existing contractual terms . when a direct financing lease receivable is considered to be impaired , the amount of loss is calculated by comparing the recorded investment to the value determined by discounting the expected future cash flows at the direct financing lease receivable 's effective interest rate or to the value of the underlying collateral , less costs to sell , if such receivable is collateralized . real estate useful lives we are required to make subjective assessments as to the useful lives of our properties for the purpose of determining the amount of depreciation to reflect on an annual basis with respect to those properties . these assessments have a direct impact on our net income . depreciation and amortization are provided on the straight-line method over the useful lives of the assets , as follows : buildings 40 years tenant improvements base term of lease or useful life , whichever is shorter furniture , fixtures and equipment 3 to 25 years impairment of real estate values we are required to make subjective assessments as to whether there are impairments in the value of our rental properties . these estimates of impairment may have a direct impact on our consolidated financial statements . we assess the carrying value of our rental properties whenever events or changes in circumstances indicate that the carrying amount of a property may not be recoverable . certain factors that may occur and indicate that impairments may exist include , but are not limited to : underperformance relative to projected future operating results , tenant difficulties and significant adverse industry or market economic trends . if an indicator of possible impairment exists , a property that is held and used by the company is evaluated for impairment by comparing the carrying amount of the property to the estimated undiscounted future cash flows expected to be generated by the property . if the carrying amount of a property exceeds its estimated future cash flows on an undiscounted basis , an impairment charge is recognized in the amount by which the carrying amount of the property exceeds the fair value of the property . for assets and asset groups that are held for sale , an impairment loss is measured by comparing the fair value of the property , less costs to sell , to the asset ( group ) carrying value . management estimates fair value of our rental properties utilizing independent appraisals and or based on projected discounted cash flows using a discount rate determined by management to be commensurate with the risk inherent in the company . real estate acquisitions upon acquisition of real estate properties , we determine if the acquisition meets the criteria to be accounted for as a business combination . accordingly , we account for ( 1 ) acquired vacant properties , ( 2 ) acquired single tenant properties when a new lease or leases are signed at the time of acquisition , and ( 3 ) acquired single tenant properties that have an existing long-term triple-net lease or leases ( greater than 7 years ) as asset acquisitions . acquisitions of properties with shorter-term leases or properties with multiple tenants that require business related activities to manage and maintain the properties ( i.e . those properties that involve a process ) are treated as business combinations . 40 costs incurred for asset acquisitions and development properties , including transaction costs , are capitalized . for asset acquisitions , we allocate the purchase price and other related costs incurred to the real estate assets acquired based on recent independent appraisals and management judgment . if the acquisition is determined to be a business combination , we record the fair value of acquired tangible assets ( consisting of land , building , tenant improvements , and furniture , fixtures and equipment ) and identified intangible assets and liabilities ( consisting of above and below market leases , in-place leases , tenant relationships and assumed financing that is determined to be above or below market terms ) as well as any noncontrolling interest . in addition , acquisition-related costs in connection with business combinations are expensed as incurred . allowance for doubtful accounts management makes quarterly estimates of the collectibility of its accounts receivable related to base rents , tenant escalations ( straight-line rents ) , reimbursements and other revenue or income .
| the $ 10.3 million increase is primarily due to increased real estate lending activities related to our mortgage loan agreements . we also recognized participating interest income of $ 0.9 million from svvi related to our water-park interests for both of the years ended december 31 , 2013 and 2012. our property operating expense totaled $ 26.0 million for the year ended december 31 , 2013 compared to $ 24.9 million for the year ended december 31 , 2012 . these property operating expenses arise from the operations of our retail centers and other specialty properties . the $ 1.1 million increase resulted primarily from increases in property tax and vacant space expenses at these properties . other expense was $ 0.7 million for the year ended december 31 , 2013 compared to $ 1.4 million for the year ended december 31 , 2012 . the decrease of $ 0.7 million is primarily due to more favorable net settlement of foreign currency forward and swap contracts . our general and administrative expense totaled $ 25.6 million for the year ended december 31 , 2013 compared to $ 23.2 million for the year ended december 31 , 2012 . the increase of $ 2.4 million is primarily due to an increase in payroll related expenses and professional fees . costs associated with loan refinancing or payoff , net for the year ended december 31 , 2013 were $ 6.2 million and were related to our repayment of secured fixed rate mortgage debt as well as the amendments to our unsecured revolving credit facility . costs associated with loan refinancing or payoff , net were $ 0.6 million for the year ended december 31 , 2012 and related to the prepayment of secured fixed rate mortgage debt . gain on early extinguishment of debt for the year ended december 31 , 2013 was $ 4.5 million and related to our discounted payoff of a mortgage loan secured by a theatre property located in omaha , nebraska . there was no gain on early extinguishment
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changes in credit spreads generally have the most significant effect on changes in fair value of credit derivatives and fg vie assets and liabilities . in addition to these non-economic factors , other factors such as : changes in expected losses , the timing of refunding transactions and terminations , realized gains and losses on the investment portfolio ( including other-than-temporary impairments ) , the effects of large settlements or transactions , and the effects of the company 's various loss mitigation strategies , among others , may also have a significant effect on reported net income or loss in a given reporting period . net income for 2014 increased to $ 1.1 billion from $ 808 million in 2013 . the increase in net income was due primarily to ( i ) higher net change in fair value gains on credit derivatives and ( ii ) lower loss expense , partially offset by ( i ) lower net earned premiums , ( ii ) net realized investment losses as compared to gains in the prior year and ( iii ) lower net change in fair value of fg vies . non-gaap operating income in 2014 was $ 491 million , compared with $ 609 million in 2013 . the decrease in operating income was driven primarily by the decrease in net earned premiums and credit derivative revenues due to lower accelerations and scheduled amortization on the insured portfolio . this was offset in part by lower loss expense and higher commutation gains reported in other income . 74 common share repurchases summary of share repurchases replace_table_token_8_th accretive effect of cumulative repurchases ( 1 ) year ended december 31 , 2014 as of december 31 , 2014 ( per share ) net income $ 0.71 operating income 0.32 shareholders ' equity $ 2.56 operating shareholders ' equity 2.78 adjusted book value 5.84 _ ( 1 ) cumulative repurchases since the beginning of 2013. key business strategies the company is currently pursuing three primary business strategies , each described in more detail below : new business production and commutations capital management loss mitigation the company will continue to evaluate its primary business strategies as circumstances warrant . new business production and commutations the company believes high-profile defaults by municipal obligors , such as detroit , michigan and stockton , california , both of which filed for protection under chapter 9 of the u.s. bankruptcy code , and the deteriorating financial condition of puerto rico , have led to increased awareness of the value of bond insurance and stimulated demand for the product . the company also believes the march 2014 upgrade by s & p of the financial strength ratings of agm , mac , age and agc to aa ( stable outlook ) was viewed positively by issuers and investors . s & p cited the company 's reduced exposure in its legacy rmbs portfolio and noted that the company 's full payment of claims in municipal bankruptcies demonstrates and reiterates to various constituents the value of bond insurance and the credit position and capacity of the company . further , the company believes that agm attaining a financial strength rating of aa+ ( stable outlook ) from kbra in november 2014 , in addition to the aa+ ( stable outlook ) financial strength rating that kbra already assigned to mac , will improve the company 's new business production . however , the level of the company 's new business production in the u.s. does face some challenges . after a number of years in which the company was essentially the only active financial guarantor , in 2013 and 2014 a second financial guarantor insured a number of small and medium sized issuances , and in 2014 , a third financial guarantor obtained upgraded financial strength ratings from rating agencies and insured several transactions in the primary market . additionally , the 75 company expects that a persistently low interest rate environment will suppress demand for bond insurance because the potential savings for issuers are less compelling and some investors prefer to forgo insurance in favor of greater yield . outside the u.s. , the company believes the u.k. currently presents the most new business opportunities in accordance with the company 's credit policy and risk guidelines . from july 2013 to june 2014 , the company guaranteed four u.k. public-private partnership transactions , the first such wrapped infrastructure bonds issued since 2008. the company believes that , following the closing of these u.k. transactions , there may be growing demand in a number of countries for financial guarantees of infrastructure financings , which have typically required such guarantees for capital market access . assured guaranty believes it is the only company in the private sector offering such financial guarantees outside the united states . the following tables present summarized information about the u.s. municipal market 's new debt issuance volume and the company 's share of that market based on the sale date . u.s. municipal market data based on sale date replace_table_token_9_th industry penetration rates u.s. municipal market replace_table_token_10_th in general , the company expects that structured finance opportunities will increase in the future as the global economy recovers , interest rates rise , more issuers return to the capital markets for financings and institutional investors again utilize financial guaranties . the company considers its involvement in both structured finance and international infrastructure transactions to be a competitive advantage because such transactions diversify both the company 's business opportunities and its risk profile . 76 new business production replace_table_token_11_th ( 1 ) pvp represents the present value of estimated future earnings primarily on new financial guaranty contracts written in the period , before consideration of cessions to reinsurers . pvp and gross par written in the table above are based on close date . see “ -non-gaap measures-pvp or present value of new business production. story_separator_special_tag ” pvp increased by 19 % for fy 2014 , compared with fy 2013 due mainly to structured finance pvp attributable to a $ 400 million insurance reserve financing transaction for a u.s. based life insurance group and a $ 200 million diversified payment rights transaction for one of turkey 's largest banks , türkiye garanti bankasıi a.ş . u.s. public finance pvp was 10 % higher in 2014 than in 2013. in the u.s. public finance market , insurance penetration , based on par sold , was 5.9 % for fy 2014 , compared with 3.9 % for fy 2013 , with assured guaranty once again writing the majority of the insured par . in addition to normal new market issuances , pvp in both 2014 and 2013 includes business written related to debt restructurings . several factors affect the ability to generate new business in the u.s municipal market including : the low interest rate environment in the u.s. which results in lower demand for financial guaranty insurance from issuers ; the low volume of new issuance in the u.s. public finance market , which results in fewer insurable bonds ; increased competition from other financial guaranty insurers , including new entrants ; and uncertainty over the financial strength ratings of agm and agc . however , the company believes there will be continued demand for its insurance in this market because for those exposures that the company guarantees , it undertakes the tasks of credit selection , analysis , negotiation of terms , surveillance and , if necessary , loss mitigation . the company believes that its insurance encourages retail investors , who typically have fewer resources than the company for analyzing municipal bonds , to purchase such bonds ; enables institutional investors to operate more efficiently ; and allows smaller , less well-known issuers to gain market access on a more cost-effective basis . in 2014 , the company guaranteed a £77 million infrastructure bond issued to finance the new construction and refurbishment of homes in an area in the u.k. in addition to pvp , in 2014 , the company entered into commutation agreements to reassume ceded business consisting of approximately $ 1,167 million par of almost exclusively u.s. public finance and european ( predominantly u.k. ) utility and infrastructure exposures outstanding . for such reassumptions , the company received the statutory unearned premium outstanding as of the commutation dates plus , in one case , a commutation premium . 77 capital management in recent years , the company has developed strategies for improving the efficiency of its management of capital within the assured guaranty group . in november 2013 , agl became tax resident in the united kingdom , while remaining a bermuda-based company and continuing to carry on its administrative and head office functions in bermuda . as a u.k. tax resident company , agl is subject to the tax rules applicable to companies resident in the u.k. more information about agl becoming a u.k. tax resident is set out in the `` tax matters '' section of `` item 1 . business . '' on june 20 , 2014 , agus issued 5.0 % senior notes for net proceeds of $ 495 million . the net proceeds from the sale of the notes are being used for general corporate purposes , including the purchase of common shares of agl . on august 6 , 2014 , in continuation of the company 's capital management strategy of repurchasing the agl common shares , agl 's board of directors approved an incremental $ 400 million share repurchase authorization , of which $ 118 million of capacity remains , on a settlement basis , as of february 26 , 2015. in 2014 , the company repurchased a total of 24.4 million common shares for approximately $ 590 million at an average price of $ 24.17 per share . the company expects the repurchases , to be made from time to time in the open market or in privately negotiated transactions . the timing , form and amount of the share repurchases under the program are at the discretion of management and will depend on a variety of factors , including free funds available at the parent company , market conditions , the company 's capital position , legal requirements and other factors . the repurchase program may be modified , extended or terminated by the board of directors at any time . it does not have an expiration date . see note 19 , shareholders ' equity , of the financial statements and supplementary data , for additional information about the company 's repurchases of its common shares . in order to reduce leverage , and possibly rating agency capital charges , the company has mutually agreed with beneficiaries to terminate selected financial guaranty insurance and credit derivative contracts . in particular , the company has targeted investment grade securities for which claims are not expected but which carry a disproportionately large rating agency capital charge . as noted below under `` loss mitigation '' , in some instances , settlements with r & w providers took the form of terminations of below-investment-grade cds . the company terminated $ 4.0 billion in net par in 2014 , $ 7.1 billion in net par in 2013 and $ 4.1 billion in net par in 2012 of financial guaranty and cds contracts . loss mitigation in an effort to recover losses the company experienced in its insured u.s. rmbs portfolio , the company pursues r & w providers by enforcing r & w provisions in contracts , negotiating agreements with r & w providers relating to those provisions and , where appropriate , initiating litigation against r & w providers . see note 6 , expected loss to be paid , of the financial statements and supplementary data , for a discussion of the r & w settlements the company has entered into and the litigation proceedings the company has initiated against r & w providers and other parties .
| in 2014 , the company paid $ 590 million to repurchase 24.4 million common shares ; in 2013 , the company paid $ 264 million to repurchase 12.5 million common shares ; and in 2012 , the company paid $ 24 million to repurchase 2.1 million common shares . as of december 31 , 2014 , the company was authorized to repurchase $ 210 million in common shares . since the beginning of 2015 and through february 26 , 2015 , the company had repurchased an additional 3.6 million shares for $ 92 million . for more information about the company 's share repurchase authorization and the amounts it repurchased in 2014 , see note 19 , shareholders ' equity , of the financial statements and supplementary data . 119 commitments and contingencies leases agl and its subsidiaries are party to various lease agreements . the principal executive offices of agl and ag re consist of approximately 8,250 square feet of office space located in hamilton , bermuda ; the lease for this space expires in april 2021. the principal place of business of agm , agc , mac and the company 's other u.s. based subsidiaries is located in new york city , where the company leases approximately 110,000 square feet of office space under an agreement that expires in april 2026. in addition , the company occupies another approximately 21,000 square feet of office space in london and sydney , and two offices in san francisco and irvine , california . the company intends to close the sydney office on march 31 , 2015 and the irvine office on june 30 , 2015. see “ –contractual obligations ” for lease payments due by period . rent expense was $ 10.1 million in 2014 , $ 9.9 million in 2013 and $ 10.0 million in 2012 . long-term debt obligations the outstanding principal and interest paid on long-term debt were as follows : principal outstanding and interest paid on long-term debt replace_table_token_54_th ( 1 ) agl fully and unconditionally guarantees these obligations ( 2 ) on june 1 ,
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