document stringlengths 8.64k 13.4k | summary stringlengths 179 2.97k | __index_level_0__ int64 0 16.8k |
|---|---|---|
the chronic results demonstrated a statistically significant and clinically meaningful increase in 6mwd of 50.7m ( p=0.04 ) as well as a decrease of 19.9 % in systolic pulmonary arterial pressure ( p=0.02 ) , as compared to baseline . the therapy was well tolerated with no related safety concerns . in may 2018 , we announced that the fda concurred with the design of our planned phase 2b study of inopulse for treatment of ph-copd . the study will assess the effect of inopulse on various parameters including exercise capacity , right ventricular function and oxygen saturation , as well as other composite endpoints . we continue to evaluate alternatives for the funding and timing of this program . in 2018 , we also initiated development of inopulse for the treatment of ph associated with sarcoidosis ( ph-sarc ) . sarcoidosis is a multi-system disease which is characterized by the growth of granulomas ( inflammatory cells ) in one or more organs . the most frequent organs involved are the lungs and lymph nodes within the chest . pulmonary hypertension may be present in as many as 74 % of patients depending on how the pulmonary hypertension ( ph ) is defined . the presence of ph in sarcoidosis is associated with a poor prognosis . there are a number of different mechanisms linking ph with sarcoidosis . the primary treatment for sarcoidosis is corticosteroids ; however , the outcome of this treatment on the ph is unclear . there is no approved therapy for ph associated with sarcoidosis . various pah treatments have been tried including ino and iv prostacyclin with some clinical and functional improvement . the study is a phase 2a dose escalation design that will utilize right heart catheterization to assess the hemodynamic effect of inopulse from a dose of ino 30 to ino 125 in ph-sarc subjects . we have completed the process of initiating sites and enrolled our first subject in 2019 , with results expected in 2020. on march 19 , 2020 , the fda granted emergency expanded access to allow for our proprietary inhaled nitric oxide ( ino ) delivery system , inopulse® , to immediately be used as supportive treatment for a patient with covid-19 under the care and supervision of the patient 's physician . the clinical goal of this experimental treatment is to avert the hospitalized patient 's disease progression and avoid the need to perform intubation . this emergency expanded access from the fda was granted on a named patient basis and we are currently planning to file for additional covid-19 patients as necessary . we are also planning to apply with the fda for a larger expanded access ind . we initiated a phase 3 clinical trial of inopulse for pah in june 2016. as agreed upon with the fda , a pre-specified interim analysis was conducted by the data monitoring committee , or dmc , in august 2018 , after half of the planned subjects completed 16 weeks of blinded treatment . the data showed inopulse provided clinically meaningful improvements in pulmonary vascular resistance ( 18 % ) , cardiac output ( 0.7 l/min ) and nt pro-bnp . in addition , subjects on pah background mono-therapy showed a 23 meter improvement in 6mwd , while subjects that were not on prostanoid background therapy showed a 17 meter improvement in 6mwd . however , the dmc determined that the overall change in 6mwd , the primary endpoint of the trial , was insufficient to support the continuation of the study . accordingly , based on the dmc 's recommendation , we have discontinued the trial . the trial results showed 6mwd was improved when subjects were on less background therapies and more patients deteriorated in 6mwd on placebo as compared to ino . in addition , inopulse was well tolerated and there were no safety concerns . in addition , other potential indications for our inopulse platform include : chronic thromboembolic ph , or cteph and ph associated with pulmonary edema from high altitude sickness . we have devoted all of our resources to our therapeutic discovery and development efforts , including conducting clinical trials for our product candidates , protecting our intellectual property and the general and administrative support of these operations . we have devoted significant time and resources to developing and optimizing our drug delivery system , inopulse , which operates through the administration of nitric oxide as brief , controlled pulses that are timed to occur at the beginning of a breath . to date , we have generated no revenue from product sales . we expect that it will be several years before we commercialize a product candidate , if ever . financial operations overview prior to february 2014 , we were a wholly-owned subsidiary of ikaria , inc. ( a subsidiary of mallinckrodt plc ) , or ikaria . as part of an internal reorganization of ikaria in october 2013 , ikaria transferred to us exclusive worldwide rights , with no royalty obligations , to develop and commercialize pulsed nitric oxide in pah , ph-copd and ph-ipf . following the internal reorganization , in february 2014 , ikaria distributed all of our then outstanding units to its stockholders through the payment of a special dividend on a pro rata basis based on each stockholder 's ownership of ikaria capital stock , which we refer 76 to as the spin-out , and as a result we became a stand-alone company . in november 2015 , we entered into an amendment to our exclusive cross-license , technology transfer and regulatory matters agreement with ikaria that included a royalty equal to 3 % of net sales of any commercial products for pah . in april 2018 , we expanded the scope of our license from ph-ipf to ph in patients with pulmonary fibrosis ( ph-pf ) , which includes idiopathic interstitial pneumonias , chronic hypersensitivity pneumonitis , occupational and environmental lung disease , with a royalty equal to 1 % of net sales of any commercial products for ph-pf . story_separator_special_tag revenue to date , we have not generated any revenue from product sales and may not generate any revenue from product sales for the next several years , if ever . in the future , we may generate revenue from a combination of product sales , license fees and milestone payments in connection with strategic partnerships , and royalties from the sale of products developed under licenses of our intellectual property . our ability to generate revenue and become profitable depends primarily on our ability to successfully develop and commercialize or partner our product candidates as well as any product candidates we may advance in the future . we expect that any revenue we may generate will fluctuate from quarter to quarter as a result of the timing and amount of any payments we may receive under future partnerships , if any , and from sales of any products we successfully develop and commercialize , if any . if we fail to complete the development of any of our product candidates currently in clinical development or any future product candidates in a timely manner , or to obtain regulatory approval for such product candidates , our ability to generate future revenue , and our business , results of operations , financial condition and cash flows and future prospects would be materially adversely affected . research and development expenses research and development expenses consist of costs incurred in connection with the development of our product candidates , including upfront and development milestone payments , related to in-licensed product candidates and technologies . research and development expenses primarily consist of : employee-related expenses , including salary , benefits and stock-based compensation expense ; expenses incurred under agreements with contract research organizations , investigative sites that conduct our clinical trials and consultants that conduct a portion of our pre-clinical studies ; expenses relating to vendors in connection with research and development activities ; the cost of acquiring and manufacturing clinical trial materials ; facilities , depreciation and allocated expenses ; lab supplies , reagents , active pharmaceutical ingredients and other direct and indirect costs in support of our pre-clinical and clinical activities ; device development and drug manufacturing engineering ; license fees related to in-licensed products and technology ; and costs associated with non-clinical activities and regulatory approvals . we expense research and development costs as incurred . conducting a significant amount of research and development is central to our business model . product candidates in late stages of clinical development generally have higher development costs than those in earlier stages of clinical development primarily due to the increased size and duration of late-stage clinical trials . subject to the availability of requisite financing , we plan to increase our research and development expenses for ongoing clinical programs for the foreseeable future as we seek to continue multiple clinical trials for our product candidates , including to potentially advance inopulse for ph-copd , and seek to identify additional early-stage product candidates . we track external research and development expenses and personnel expenses on a program-by-program basis . we use our employee and infrastructure resources , including regulatory , quality , clinical development and clinical operations , across 77 our clinical development programs and have included these expenses in research and development infrastructure . research and development laboratory expenses are also not allocated to a specific program and are included in research and development infrastructure . engineering activities related to inopulse and the manufacture of cylinders related to inopulse are included in inopulse engineering . inopulse for ph-ild we initiated our clinical program in ph-ild in 2016. during may 2017 , we announced completion of our phase 2 study using inopulse therapy to treat ph-ipf . after reaching agreement with the fda , we initiated and are currently conducting our phase 2b trial in ph-ild . in january 2018 , we announced the first patient enrollment in our ino-pf phase 2b trial . in october 2018 , we announced the enrollment completion of the planned 40 subjects , or cohort 1 , in our ino-pf study . in addition , we announced the expansion of the trial with the addition of cohort 2 and cohort 3 , to evaluate higher doses of ino as well as a longer 16 week evaluation period . in january 2019 , we announced top-line results from cohort 1 of our ino-pf study . the results showed statistically significant improvements in multiple clinically meaningful activity parameters as measured by a wearable medical-grade activity monitor . in december 2019 , we announced top-line results from cohort 2 of the ino-pf trial . cohort 2 of ino-pf demonstrated statistically significant placebo corrected improvement in mvpa , in subjects treated with ino45 ( 45 mcg/kg ibw/hr ) versus placebo . the improvements in mvpa were underscored by benefits in other actigraphy parameters , as well as patient reported outcomes . in march 2020 , we announced that in consultation with the fda , we had finalized the key elements of our planned pivotal phase 3 study for ph-pf , including the use of mvpa as the primary endpoint for approval , the patient population of pulmonary fibrosis subjects at risk of ph , as well as the dose of ino45 . inopulse for ph-copd we completed and received results from a randomized , placebo-controlled , double-blind , dose-confirmation phase 2a clinical trial of inopulse for ph-copd in july 2014. during september 2017 , we shared results of our phase 2a ph-copd study designed to evaluate the acute effects of pulsed inhaled nitric oxide , or ino , on vasodilation as well as the chronic effect on hemodynamics and exercise tolerance . in may 2018 , we announced that we reached agreement with the fda on the design of our planned phase 2b study of inopulse for treatment of ph-copd . we continue to evaluate alternatives for the funding and timing of this program .
| the decrease was driven by the discontinuation of our pah phase 3 trial in august 2018. drug and delivery system costs for the year ended december 31 , 2019 were $ 1.4 million compared to $ 4.9 million for the year ended december 31 , 2018 , a decrease of $ 3.5 million , or 72 % . the decrease was primarily due to material purchases for our pah trial that was discontinued in august 2018 partially offset by an increase in material purchases for our ph-ild trial . research and development infrastructure expenses for the year ended december 31 , 2019 were $ 4.9 million compared to $ 5.0 million for the year ended december 31 , 2018 , a decrease of $ 0.1 million , or 1 % . the decrease represents no material change in cost . 80 inopulse engineering expenses for the year ended december 31 , 2019 were $ 1.2 million compared to $ 1.3 million for the year ended december 31 , 2018 , a decrease of $ 0.1 million , or 13 % . the decrease was primarily due to lower consulting expenses . general and administrative expenses . general and administrative expenses for the year ended december 31 , 2019 were $ 6.4 million compared to $ 7.6 million for the year ended december 31 , 2018 , a decrease of $ 1.2 million , or 15 % . the decrease was primarily due to intellectual property , consulting and stock based compensation expenses as well as a reversal of prior year consulting expenses . change in fair value of common stock warrant liability . change in fair value of common stock warrant liability for the year ended december 31 , 2019 was an income of $ 2.7 million compared to an income of $ 24.9 million for the year ended december 31 , 2018 , a decrease of $ 22.2 million , or 89 % . the warrants were issued in november 2016 and may 2017 and the change in the liability fair value was due to a change in our stock price as well as the warrant amendment as described below . warrant amendment charge . on
| 12,080 |
for analytical purposes , net interest income is also presented in the table that follows , adjusted to a taxable equivalent basis to reflect what our tax-exempt assets would need to yield in order to achieve the same after-tax yield as a taxable asset . we used the federal statutory tax rate in effect of 35 % for all periods adjusted for the tefra interest disallowance applicable to certain tax-exempt obligations . this analysis portrays the income tax benefits associated in tax-exempt assets and helps to facilitate a comparison between taxable and tax-exempt assets . management believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully taxable equivalent basis . therefore , management believes these measures provide useful information for both management and investors by allowing them to make peer comparisons . replace_table_token_6_th 33 net interest income was $ 366.1 million in 2015 , a $ 0.3 million decrease from $ 366.4 million in 2014. taxable equivalent net interest income was $ 385.7 million in 2015 , a 1 % increase from $ 383.4 million in 2014. the net interest margin on a fully taxable equivalent basis was 3.72 % in 2015 , a 50 basis point decrease compared to 4.22 % in 2014. both 2015 and 2014 included accretion income ( interest income in excess of contractual interest income ) associated with acquired loans . excluding this accretion income in both periods , net interest income on a fully taxable equivalent basis would have been $ 322.6 million in 2015 compared to $ 296.8 million in 2014 ; and the net interest margin on a fully taxable equivalent basis would have been 3.11 % in 2015 and 3.27 % in 2014. net interest income in 2015 remained relatively flat when compared to 2014. accretion income recorded in 2015 declined $ 23.5 million compared to 2014 reflecting the payoff of several large purchased credit impaired loans . we expect accretion income to gradually decrease over time . it should be noted that the accretion income associated with integra , our fdic-assisted acquisition , is partially offset by the amortization of our indemnification asset . see the discussion in the section noninterest income related to covered assets for additional details . offsetting the decrease in accretion income was an increase in average earning assets of $ 1.280 billion when compared to 2014 and a change in the mix of interest earning assets and interest bearing liabilities . commercial and commercial real estate loans including covered loans , which typically generate higher interest income than investment securities with similar maturities , became the largest classification within earning assets beginning in 2015. the yield on average earning assets decreased 44 basis points from 4.48 % in 2014 to 4.04 % in 2015 and the cost of interest-bearing liabilities increased 8 basis points from 0.35 % in 2014 to 0.43 % in 2015. average earning assets increased by $ 1.280 billion , or 14 % . the increase in average earning assets consisted of a $ 1.171 billion increase in loans , an $ 85.8 million increase in lower yielding investment securities , and a $ 23.2 million increase in money market and other interest-earning investments . average interest-bearing liabilities increased $ 977.7 million , or 14 % . the increase in average interest-bearing liabilities consisted of a $ 592.1 million increase in interest-bearing deposits , a $ 77.3 million increase in short-term borrowings , and a $ 308.3 million increase in other borrowings . average noninterest-bearing deposits increased by $ 333.9 million . the increase in average earning assets in 2015 compared to 2014 was primarily due to our acquisitions in 2014 and 2015. the loan portfolio including loans held for sale , which generally has an average yield higher than the investment portfolio , was approximately 66 % of average interest earning assets in 2015 compared to 63 % in 2014. average loans excluding loans held for sale increased $ 1.053 billion in 2015 compared to 2014 reflecting our acquisitions in 2014 and 2015. this increase was partially offset by a decrease in average covered loans of $ 44.3 million in 2015 and the reclassification of loans to loans held for sale , which decreased average loans by approximately $ 120.6 million in 2015. the increases in average investments and average deposits also reflected our acquisitions in 2014 and 2015. average borrowed funds increased $ 385.6 million in 2015 compared to 2014 reflecting higher federal home loan bank advances and the issuance of $ 175.0 million of senior unsecured notes in august 2014 . 34 the following table presents a three-year average balance sheet and for each major asset and liability category , its related interest income and yield , or its expense and rate for the years ended december 31. replace_table_token_7_th ( 1 ) the 2015 , 2014 , and 2013 average balances include $ 35.2 million , $ 12.3 million , and $ 16.7 million , respectively , of required and excess balances held at the federal reserve . ( 2 ) changes in fair value are reflected in the average balance ; however , yield information does not give effect to changes in fair value that are reflected as a component of shareholders ' equity . ( 3 ) includes u.s. government-sponsored entities and agency mortgage-backed securities at december 31 , 2015 . ( 4 ) interest on state and political subdivision investment securities and commercial loans includes the effect of taxable equivalent adjustments of $ 13.7 million and $ 5.9 million , respectively , in 2015 ; $ 11.8 million and $ 5.2 million , respectively , in 2014 ; and $ 12.3 million and $ 4.6 million , respectively , in 2013 ; using the federal statutory tax rate in effect of 35 % for all periods adjusted for the tefra interest disallowance applicable to certain tax-exempt obligations . ( 5 ) includes principal balances of nonaccrual loans . interest income relating to nonaccrual loans is included only if received . story_separator_special_tag ( 6 ) includes finance leases held for sale . ( 7 ) includes loans held for sale . 35 the following table shows fluctuations in taxable equivalent net interest income attributable to changes in the average balances of assets and liabilities and the yields earned or rates paid for the years ended december 31. replace_table_token_8_th the variance not solely due to rate or volume is allocated equally between the rate and volume variances . ( 1 ) interest on investment securities and loans includes the effect of taxable equivalent adjustments of $ 13.7 million and $ 5.9 million , respectively , in 2015 ; $ 11.8 million and $ 5.2 million , respectively , in 2014 ; and $ 12.3 million and $ 4.6 million , respectively , in 2013 ; using the federal statutory rate in effect of 35 % for all periods adjusted for the tefra interest disallowance applicable to certain tax-exempt obligations . provision for loan losses the provision for loan losses was an expense of $ 2.9 million in 2015 , compared to an expense of $ 3.1 million in 2014. net recoveries totaled $ 1.5 million in 2015 , compared to net charge-offs of $ 2.4 million in 2014. continued loan growth in future periods , decreases in net recoveries , or credit quality deterioration would result in additional provision expense . for additional information about non-performing loans , charge-offs , and additional items impacting the provision , refer to the risk management - credit risk section of item 7 , management 's discussion and analysis of financial condition and results of operations . noninterest income we generate revenues in the form of noninterest income through client fees and sales commissions from our core banking franchise and other related businesses , such as wealth management , investment consulting , investment products , and insurance . this source of revenue increased as a percentage of total revenue to 39 % in 2015 compared to 31 % in 2014. noninterest income was $ 230.6 million in 2015 , an increase of $ 65.5 million , or 40 % , compared to $ 165.1 million in 2014. the increase in noninterest income in 2015 was primarily due to a negative adjustment of $ 9.0 million for the fdic indemnification asset in 2015 compared to a negative adjustment of $ 43.2 million for the fdic indemnification asset in 2014. the increase was also due to our recent acquisitions , a $ 15.6 million gain on branch divestitures in 2015 , and pre-tax deferred gains of $ 10.8 million resulting from the acquisition of fourteen bank properties that old national had previously leased . 36 the following table details the components of noninterest income for the years ended december 31. replace_table_token_9_th ( 1 ) total revenue includes the effect of a taxable equivalent adjustment of $ 19.5 million in 2015 , $ 17.0 million in 2014 , and $ 16.9 million in 2013. n/m = not meaningful wealth management fees increased $ 5.7 million to $ 34.4 million in 2015 reflecting our recent acquisitions . in addition , wealth management fees fluctuate in tandem with the fixed income and equities markets . service charges and overdraft fees on deposit accounts , our largest source of noninterest income , continued to be challenged . service charges and overdraft fees were $ 43.4 million in 2015 , a $ 4.0 million decrease from $ 47.4 million in 2014. debit card and atm fees decreased $ 4.5 million in 2015 compared to 2014 as the durbin amendment , which limits interchange fees on debit card transactions for banks with $ 10 billion or more in assets , became effective for us on july 1 , 2015. the durbin amendment negatively impacted debit card and atm fees by approximately $ 5.4 million , pre-tax , in the second half of 2015. mortgage banking revenue increased $ 6.5 million to $ 12.5 million in 2015 compared to $ 6.0 million in 2014 primarily due to increased sales to the secondary market in 2015 and an increase in production attributable to our new associates at acquired banks . insurance premiums and commissions increased $ 1.2 million to $ 42.7 million in 2015 compared to $ 41.5 million in 2014 reflecting higher commissions on property and casualty . this increase was partially offset by lower contingency income in 2015 compared to 2014. net securities gains were $ 5.7 million in 2015 compared to $ 9.7 million in 2014. included in 2014 is a $ 100 thousand other-than-temporary impairment charge on one limited partnership investment . gain on sale leaseback transactions increased $ 10.4 million to $ 16.4 million in 2015 compared to 2014. during the fourth quarter of 2015 , old national acquired fourteen bank properties that it previously leased , resulting in the recognition of approximately $ 10.8 million of pre-tax deferred gains . old national had deferred gains remaining associated with prior sale leaseback transactions totaling $ 40.7 million as of december 31 , 2015 , which will be recognized over the remaining term of the leases . 37 in 2015 , we recorded a net gain of $ 15.6 million in connection with the august 2015 divestitures of our previously announced branch sales , which included a deposit premium of $ 19.3 million , goodwill allocation of $ 3.8 million , and $ 0.9 million of other transaction expenses . we divested our southern illinois region ( twelve branches ) along with four branches in eastern indiana and one in ohio . other income increased $ 2.1 million in 2015 compared to 2014 primarily due to favorable variances in net gains ( losses ) on sales of property and other assets and higher non-fee based revenue , partially offset by unfavorable variances in net gains ( losses ) on sales of foreclosed properties .
| 40 financial condition overview at december 31 , 2015 , our assets were $ 11.992 billion , a 3 % increase compared to $ 11.646 billion at december 31 , 2014. the increase was primarily due to the acquisition of founders in january 2015. earning assets , comprised of investment securities , portfolio loans , loans held for sale , money market investments , interest earning accounts with the federal reserve , and trading securities , were $ 10.471 billion at december 31 , 2015 , an increase of 4 % compared to $ 10.111 billion at december 31 , 2014. earning assets investment securities we classify the majority of our investment securities as available-for-sale to give management the flexibility to sell the securities prior to maturity if needed , based on fluctuating interest rates or changes in our funding requirements . however , we also have $ 16.0 million of 15- and 20-year fixed-rate mortgage-backed securities , $ 142.9 million of u.s. government-sponsored entity and agency securities , and $ 713.2 million of state and political subdivision securities in our held-to-maturity investment portfolio at december 31 , 2015. trading securities , which consist of mutual funds held in a trust associated with deferred compensation plans for former monroe bancorp directors and executives , are recorded at fair value and totaled $ 3.9 million at december 31 , 2015 and december 31 , 2014. at december 31 , 2015 , the investment securities portfolio was $ 3.380 billion compared to $ 3.547 billion at december 31 , 2014 , a decrease of 5 % . included in the investment securities portfolio at december 31 , 2015 are $ 61.4 million of investment securities associated with the acquisition of founders . investment securities represented 32 % of earning assets at december 31 , 2015 , compared to 35 % at december 31 , 2014. investment securities also decreased as a percentage of total earning assets due to a proportionately larger increase in loan balances . stronger commercial loan demand in the future and management 's decision to deleverage the balance sheet could result in a reduction in the securities portfolio . as of december 31 , 2015 , management does not intend to sell any securities in an unrealized loss position and does not believe we will be required to sell such securities . the investment securities available-for-sale portfolio had net unrealized losses of $ 5.8 million at december 31 , 2015 , compared to net unrealized losses of $ 1.3 million at december 31 , 2014. net unrealized losses increased from december 31 , 2014 to december 31 , 2015 due to an increase in interest rates and a change in the mix of investment securities .
| 12,081 |
these actions relate to , among other things , authorizing or paying dividends above a specified rate ; issuing or authorizing for issuance additional securities ; salary , benefits or other compensation and employment-related matters ; capital management , debt and liquidity matters ; engaging in mergers , acquisitions and dispositions ; entering into or materially modifying material agreements ; entering into material litigation-related settlements ; and making other corporate , tax and accounting changes . the parties ' respective shareholders approved the combination on august 26 , 2020. on october 30 , 2020 , aon and wtw amended the business combination agreement to provide that , at the effective date of the transaction , there will be 12 members of aon 's board of directors , including one director mutually agreed by the parties . the parties continue to work with regulators , including the antitrust division of the u.s. department of justice ( which , as previously disclosed , has delivered a “ second request ” pursuant to the hsr act ) and the european commission ( which , as previously disclosed , has initiated a phase ii review of the combination ) to obtain the required approvals to close the combination . aon expects to close the combination in the first half of 2021 , subject to regulatory approval and customary closing conditions . recent developments the outbreak of the coronavirus , covid-19 , was declared by the world health organization to be a pandemic and has continued to spread across the globe , impacting almost all countries , in varying degrees , creating significant public health concerns , and significant volatility , uncertainty and economic disruption in every region in which we operate . while countries are in various stages of business and travel restrictions to address the covid-19 pandemic , as well as related re-openings , these policies have impacted and will continue to impact worldwide economic activity and may continue to adversely affect our business . we continue to closely monitor the situation and our business , liquidity , and capital planning initiatives . we continue to be fully operational and continue to reoccupy certain offices in phases , where deemed appropriate and in compliance with governmental restrictions considering the impact on health and safety of our colleagues , their families , and our clients . for other areas where restrictions remain in place or where we have started to see a resurgence of covid-19 , we are closely monitoring the situation and continuously reevaluating our plan to return to the workplace . we continue to deploy business continuity protocols to facilitate remote working capabilities to ensure the health and safety of our colleagues and to comply with public health and travel guidelines and restrictions . as the situation continues to evolve , and the scale and duration of disruption can not be predicted , it is not possible to quantify or estimate the full impact that covid-19 will have on our business . we are focused on navigating these challenges and potential future impacts to our business presented by covid-19 through preserving our liquidity and managing our cash flow by taking proactive steps to enhance our ability to meet our short-term liquidity needs and support a commitment to no layoffs of our colleagues due to covid-19 . such actions include , but are not limited to , issuing $ 1 billion of our new 10-year senior unsecured notes on may 12 , 2020 and using the proceeds to repay short-term debt and for other corporate purposes , and reducing our discretionary spending , including limiting discretionary spending on mergers and acquisitions . we also temporarily suspended our share buyback program and temporarily reduced compensation for named executive officers , 31 directors , and colleagues during the second quarter , as a precautionary measure , focusing on implementing cash and expense discipline measures . after carefully monitoring the situation , we determined it was appropriate , based on macroeconomic conditions and business performance , to resume share buyback during the third quarter . in addition , temporarily reduced salaries for non-executives were restored at the end of the second quarter and withheld salaries , plus 5 % of the withheld salary amounts , were repaid in the third quarter . temporarily reduced salaries for named executive officers and cash compensation reductions for non-executive directors were fully reinstated and the withheld amounts were paid in full during the fourth quarter . while the ultimate public health and economic impact of the covid-19 pandemic is highly uncertain , we expect that our business operations and results of operations , including our net revenues , earnings , and cash flows , will be adversely impacted , depending on the duration and severity of the downturn , as well as governmental or other regulatory policies and actions that may impact our business or operations . our revenues can be generalized into two categories : core and more discretionary arrangements . core revenues tend to be highly-recurring and non-discretionary , where the services are typically regulated , required , or necessary costs of managing the risk of doing business . as expected , in the fourth quarter of 2020 our core revenues did not experience a significant decrease due to the impacts of covid-19 ; however , if the economic downturn becomes more severe , we expect that certain services within our core business may be negatively impacted as well . more discretionary revenues tend to include project-related services , where as expected , in the fourth quarter of 2020 we saw an impact from decreases in revenue due to the impacts of covid-19 . the impacts of the pandemic on our business operations and results of operations for the fourth quarter of 2020 are further described in the section entitled “ review of consolidated results ” and “ liquidity and financial condition ” contained in part ii , item 7 of this report . story_separator_special_tag 32 review of consolidated results story_separator_special_tag roman ' , sans-serif ; font-size:10pt ; font-style : italic ; font-weight:700 ; line-height:120 % '' > other general expenses other general expenses decreased $ 161 million , or 12 % , in 2020 compared to 2019. the decrease was primarily driven by a $ 160 million decrease in restructuring charges and a temporary reduction of certain expenses , primarily travel and entertainment , partially offset by $ 123 million of transaction costs related to the pending combination with wtw and a $ 13 million increase in expenses related to acquisitions , net of divestitures . interest income interest income represents income earned on operating cash balances and other income-producing investments . it does not include interest earned on funds held on behalf of clients . interest income was $ 6 million in 2020 , a decrease of $ 2 million , or 25 % , from 2019 , reflecting the currency composition of operating cash . interest expense interest expense , which represents the cost of our debt obligations , was $ 334 million in 2020 , an increase of $ 27 million , or 9 % , from 2019. the increase was driven primarily by higher outstanding debt balances . 34 other income ( expense ) total other income was $ 12 million in 2020 , compared to other income of $ 1 million in 2019. other income in 2020 primarily includes a $ 25 million gain on the sale of certain businesses , $ 13 million of pension and other postretirement income , and $ 4 million of equity earnings , partially offset by $ 12 million of losses due to the unfavorable impact of exchange rates on the remeasurement of assets and liabilities in non-functional currencies , $ 11 million of losses on financial instruments used to economically hedge gains and losses from changes in foreign exchange rates , and $ 7 million of expense related to the prepayment of $ 600 million senior notes due september 2020. other income in 2019 primarily includes a $ 13 million gain on the sale of certain businesses , $ 9 million of gains due to the favorable impact of exchange rates on the remeasurement of assets and liabilities in non-functional currencies , $ 9 million of pension and other postretirement income , and $ 4 million of equity earnings , partially offset by $ 34 million of losses on financial instruments used to economically hedge gains and losses from changes in foreign exchange rates . income from continuing operations before income taxes due to factors discussed above , income from continuing operations before income taxes was $ 2,465 million in 2020 , a 32 % increase from $ 1,871 million in 2019. income taxes from continuing operations the effective tax rate on net income from continuing operations was 18.2 % in 2020 and 15.9 % in 2019. the primary driver of the 2020 tax rate is the geographical distribution of income , as well as net favorable discrete items including the impact of share-based payments . the 2019 tax rate was primarily driven by the geographical distribution of income including restructuring charges , as well as net favorable discrete items including the impact of share-based payments . net income from discontinued operations net income from discontinued operations was $ 1 million in the twelve months ended december 31 , 2020 , compared to a net loss from discontinued operations of $ 1 million in 2019. net income attributable to aon shareholders net income attributable to aon shareholders increased to $ 1,969 million , or $ 8.45 per diluted share , in 2020 , compared to $ 1,532 million , or $ 6.37 per diluted share , in 2019. consolidated results for 2019 compared to 2018 we have elected not to include a discussion of our consolidated results for 2019 compared to 2018 in this report in reliance upon instruction 1 to item 303 ( a ) of regulation s-k. this discussion can be found in our annual report on form 10-k for the year ended december 31 , 2019 , which was filed with the sec on february 14 , 2020. non-gaap metrics in our discussion of consolidated results , we sometimes refer to certain non-gaap supplemental information derived from consolidated financial information specifically related to organic revenue growth ( decline ) , adjusted operating margin , adjusted diluted earnings per share , free cash flow , and the impact of foreign exchange rate fluctuations on operating results . this non-gaap supplemental information should be viewed in addition to , not instead of , our consolidated financial statements . 35 organic revenue growth ( decline ) we use supplemental information related to organic revenue growth ( decline ) to help us and our investors evaluate business growth from existing operations . organic revenue growth ( decline ) is a non-gaap measure that includes the impact of intercompany activity and excludes the impact of changes in foreign exchange rates , fiduciary investment income , acquisitions , divestitures , transfers between revenue lines , and gains or losses on derivatives accounted for as hedges . this supplemental information related to organic revenue growth ( decline ) represents a measure not in accordance with u.s. gaap and should be viewed in addition to , not instead of , our consolidated financial statements . industry peers provide similar supplemental information about their revenue performance , although they may not make identical adjustments . a reconciliation of this non-gaap measure to the reported total revenue is as follows ( in millions , except percentages ) : replace_table_token_3_th replace_table_token_4_th ( 1 ) currency impact is determined by translating prior period 's revenue at this period 's foreign exchange rates . ( 2 ) fiduciary investment income for the years ended december 31 , 2020 , 2019 , and 2018 was $ 27 million , $ 74 million , and $ 53 million , respectively .
| 33 retirement solutions revenue decreased $ 64 million , or 4 % , to $ 1,753 million in 2020 , compared to $ 1,817 million in 2019. organic revenue decline was 2 % in 2020 driven primarily by a decline in human capital for rewards and assessment services and a modest decline in the discretionary portions of retirement and investments , partially offset by growth in the core portions of retirement and investments . health solutions revenue decreased $ 12 million , or 1 % , to $ 1,655 million in 2020 , compared to $ 1,667 million in 2019. organic revenue decline was 1 % in 2020 driven by a decrease primarily related to covid-19 , including a reduction primarily reflecting the annualized impact of lower employment levels and lower renewals , and a decline in the more discretionary portions of the business . results were further negatively impacted by a one-time adjustment of $ 16 million related to revenue that was recorded across multiple years and was identified in connection with the implementation of a new system , partially offset by growth internationally . data & analytic services revenue decreased $ 13 million , or 1 % , to $ 1,171 million in 2020 , compared to $ 1,184 million in 2019. organic revenue decline was 5 % in 2020 driven by a decrease in the travel and events practice globally . compensation and benefits compensation and benefits decreased $ 149 million , or 2 % , in 2020 compared to 2019. the decrease was primarily driven by a $ 205 million decrease in restructuring charges and a $ 26 million favorable impact from foreign currency translation , partially offset by a $ 17 million increase in expenses related to acquisitions , net of divestitures , and an increase in expense associated with 1 % organic revenue growth . information technology information technology , which represents costs associated with supporting and maintaining our infrastructure , decreased $ 50 million , or 10 % , in 2020 compared to 2019. the decrease was primarily driven by a $ 39 million decrease in restructuring charges and expense discipline . premises premises , which represents the cost of occupying offices in various locations throughout the world , decreased $ 48 million , or 14 % , in 2020 compared to 2019. the decrease was primarily driven by a $ 33 million decrease in restructuring charges and
| 12,082 |
see the table above reconciling this non-gaap financial measure to homebuilding gross margin , the nearest gaap equivalent . fee building ( dollars in thousands ) replace_table_token_10_th in 2013 , we completed one fee building project located in carpinteria , california , whereby all homes were completed and delivered to the third-party property owner . in addition , we earned management fees for another project in moorpark , california . fee building revenue , which was all recorded in southern california , increased $ 9.8 million , or 912 % , to $ 10.9 million for the year ended december 31 , 2013 from $ 1.1 million for the prior year . fee building cost increased $ 8.9 million , or 959 % , to $ 9.8 million for the year ended december 31 , 2013 from $ 924,000 for the prior year . fee building revenue and cost increased primarily due to the two new fee building projects mentioned above . fee building gross margin represents the net fee income earned related to our fee building projects . as of december 31 , 2013 we have completed all construction activity related to these fee building projects and do not expect material fee building activity in the future . - 39 - selling , general and administrative expense ( dollars in thousands ) replace_table_token_11_th sales and marketing expense increased $ 3.9 million , or 83 % , to $ 8.5 million for the year ended december 31 , 2013 from $ 4.6 million for the prior year . the increase in sales and marketing expense was primarily attributable to over a 100 % increase in the number of net new homes ordered and homes delivered and a 37 % increase in the average number of selling communities during the year ended december 31 , 2013 compared to the prior year . sales and marketing expense was 3.4 % and 6.0 % of home sales revenue for the years ended december 31 , 2013 and 2012 , respectively . general and administrative expenses increased $ 10.3 million , or 152 % , to $ 17.1 million for the year ended december 31 , 2013 from $ 6.8 million for the prior year . the increase was primarily attributed to ( i ) an increase of $ 5.5 million in our compensation-related expenses resulting largely from an 106 % increase in our office headcount to 74 employees as of december 31 , 2013 compared to 36 as of december 31 , 2012 , ( ii ) an increase of $ 1.9 million in stock-based compensation primarily due to option and restricted share unit awards granted in 2013 , ( iii ) an increase of $ 1.6 million in legal , accounting and other professional fees to support our growth as a new public company in 2013 and ( iv ) an increase of $ 1.3 million in insurance , rent , office , business taxes and other related costs to support our growth during 2013. our general and administrative expense as a percentage of home sales revenue was 6.9 % and 8.7 % for the year ended december 31 , 2013 and 2012 , respectively . total sales and marketing and g & a expenses ( sg & a ) increased $ 14.1 million , or 124 % , to $ 25.5 million for the year ended december 31 , 2013 from $ 11.4 million in the prior year . we recognized significant operational efficiencies in 2013 represented by our sg & a expense , which improved to 10.3 % of home sales revenue for the year ended december 31 , 2013 as compared to 14.7 % in 2012. transaction expense as a result of the wreco transactions , the company has incurred due diligence and other related transaction expenses during the year of $ 4.1 million . during 2014 we expect to incur additional expense related to the wreco transactions . other income ( expense ) , net other income ( expense ) , net , increased to $ 302,000 of other income for the year ended december 31 , 2013 compared to ( $ 24,000 ) of expense for the prior year period . the change was primarily due to increased interest and dividend income as result of higher cash and cash equivalents balances during the year due to the net cash proceeds received from our ipo in january 2013. other items interest , which was incurred principally to finance land acquisitions , land development and home construction , totaled $ 3.1 million and $ 2.1 million for the year ended december 31 , 2013 and 2012 , respectively , all of which was capitalized to real estate inventory . the increase in interest incurred during the year ended december 31 , 2013 as compared to the prior year was primarily attributable to our increase in outstanding debt , which was the result of the increase in the number of active projects and the growth in our real estate inventory . income tax for the year ended december 31 , 2013 , we have recorded a tax provision of $ 10.4 million based on an effective tax rate of 40 % . the company reorganized from a delaware limited liability company into a delaware corporation during the first quarter or 2013 , therefore there was no tax provision recorded for the year ended december 31 , 2012 . - 40 - net income as a result of the foregoing factors , net income for the year ended december 31 , 2013 was $ 15.4 million compared to net income for the year ended december 31 , 2012 of $ 2.5 million . lots owned and controlled the table below summarizes our lots owned and controlled as of the dates presented : replace_table_token_12_th ( 1 ) as of december 31 , 2013 , lots controlled includes lots that are under land option contracts or purchase contracts . as of december 31 , 2012 , lots controlled included lots that were under a land option contract , purchase contract or a non-binding letter of intent . story_separator_special_tag - 41 - year ended december 31 , 2012 compared to year ended december 31 , 2011 net new home orders and backlog ( dollars in thousands ) replace_table_token_13_th net new home orders for the year ended december 31 , 2012 increased 386 % to 204 , compared to 42 during the prior year . our overall absorption rate ( the rate at which home orders are contracted , net of cancellations ) for the year ended december 31 , 2012 was 37.8 per average selling community ( 3.15 monthly ) , compared to 21.0 per average selling community ( 1.75 monthly ) during the prior year . our monthly absorption rates increased despite an increase in our cancellation rate . our cancellation rate of buyers for our owned projects who contracted to buy a home but did not close escrow ( as a percentage of overall orders ) was approximately 16 % for the year ended december 31 , 2012 as compared to 13 % during the prior year . we experienced substantial order growth primarily due to an increase in our average selling community count . our average number of selling communities increased by 3.4 communities to 5.4 for the year ended december 31 , 2012 from 2.0 for the year ended december 31 , 2011. the increase was due to our opening seven new selling communities for the year ended december 31 , 2012 , offset by final net new home orders at two selling communities . the increase in net new home orders positively impacted our number of homes in backlog , which is discussed below . we expect that our net new home orders and backlog increases will have a positive impact on revenues and cash flow in future periods . backlog reflects the number of homes , net of actual cancellations experienced during the period , for which we have entered into a sales contract with a customer but for which we have not yet delivered the home . homes in backlog are generally closed within three to six months , although we may experience cancellations of sales contracts prior to closing . the increase in backlog units of 60 homes was driven by the 386 % increase in net new home orders during the year ended december 31 , 2012 as compared to the previous year . the dollar value of backlog increased $ 29.9 million , or 890 % , as of december 31 , 2012 from $ 3.4 million as of december 31 , 2011. the increase in dollar amount of backlog reflects an increase in the number of homes in backlog of 60 , or 750 % , to 68 homes as of december 31 , 2012 from 8 homes as of december 31 , 2011 and an increase in the average sales price of homes in backlog . we experienced an increase in the average sales price of homes in backlog of $ 69,000 , or 16 % , to $ 490,000 as of december 31 , 2012 compared to $ 421,000 as of december 31 , 2011 due to the introduction of new product at seven new communities with a shift to larger square footage homes with corresponding higher average sales prices in the 2012 period , including one move-up product . the increase in the dollar amount of backlog of homes sold but not closed as described above generally results in an increase in operating revenues in subsequent periods . new homes delivered and home sales ( dollars in thousands ) replace_table_token_14_th new home deliveries increased 108 , or 300 % , to 144 during the year ended december 31 , 2012 from 36 during the prior year . the increase in new home deliveries was primarily attributable to the increase in net new home orders and units in backlog due to the increase in the average number of selling communities . - 42 - home sales revenue increased $ 64.0 million , or 473 % , to $ 77.5 million for the year ended december 31 , 2012 from $ 13.5 million for the prior year . the increase was primarily attributable to : ( 1 ) an increase in revenue of $ 40.6 million due to a 300 % increase in homes closed to 144 for the year ended december 31 , 2012 from 36 for the prior year , and ( 2 ) an increase in revenues of $ 23.4 million related to an increase in average sales price of $ 162,000 per unit to $ 538,000 for the year ended december 31 , 2012 from $ 376,000 for the prior year . the increase in the average sales price of homes delivered was attributable to a change in product mix from the deliveries at five new communities for the year ended december 31 , 2012. homebuilding ( dollars in thousands ) replace_table_token_15_th ( 1 ) non-gaap financial measure ( as discussed below ) . homebuilding gross margin represents home sales revenue less cost of home sales . cost of home sales increased $ 51.6 million , or 427 % , to $ 63.7 million for the year ended december 31 , 2012 from $ 12.1 million for the prior year . the increase was primarily due to a 300 % increase in the number of homes delivered and the product mix of homes delivered from new communities in 2012. our homebuilding gross margin percentage increased to 17.8 % for the year ended december 31 , 2012 as compared to 10.7 % for the prior year , primarily due to the delivery unit mix from new projects , which achieve higher gross margins , along with additional cost savings on existing projects . excluding interest in cost of home sales , adjusted homebuilding gross margin percentage was 18.9 % for the year ended december 31 , 2012 , compared to 12.7 % for the prior year . adjusted homebuilding gross margin is a non-gaap financial measure .
| as demand for new homes improves and we continue to expand our business , we expect that cash outlays for land purchases and land development to grow our lot inventory will exceed our cash generated by operations . the opportunity to purchase substantially finished lots in desired locations is becoming increasingly more limited and competitive . as a result , we are spending more dollars on land development , as we are purchasing more undeveloped land and partially finished lots than in recent years . we intend to employ both debt and equity as part of our ongoing financing strategy , coupled with redeployment of cash flows from continuing operations , to provide us with the financial flexibility to access capital on the best terms available . in that regard , we expect to employ prudent levels of leverage to finance the acquisition and development of our lots and construction of our homes . as of december 31 , 2013 , we had approximately $ 270.6 million of aggregate loan commitments , of which $ 138.1 million was outstanding . at that date , our aggregate loan commitments consisted of $ 205 million of secured revolving credit facilities , which provide financing for several real estate projects , project-specific revolving loans and several other loan agreements related to the acquisition and development of lots and the construction of model homes and homes for sale . our board of directors will consider a number of factors when evaluating our level of indebtedness and when making decisions regarding the incurrence of new indebtedness , including the purchase price of assets to be acquired with debt financing , the estimated market value of our assets and the ability of particular assets , and our company as a whole , to generate cash flow to cover the expected debt service . as a means of sustaining our long-term financial health and limiting our exposure to unforeseen dislocations in the debt and financing markets , we currently expect to remain conservatively capitalized . however , our charter does not contain a limitation
| 12,083 |
the revenue decrease in our payments and transactional documents segment occurred as a result of lower north american revenue from our payment and document automation products . our revenue for fiscal year 2016 was unfavorably impacted by $ 8.1 million due to the impact of foreign currency exchange rates primarily related to the british pound sterling which depreciated against the us dollar as compared to the prior year . we had a net loss of $ 19.6 million in the fiscal year ended june 30 , 2016 compared to a net loss of $ 34.7 million in the prior year . our fiscal year 2016 net loss reflects the impact of increased operating expenses of $ 7.5 million , partially offset by increased gross margins of $ 4.7 million . the increases in our operating expenses were due primarily to increased employee related costs , as we continued to grow our business , the operating impact of our recent acquisitions and global erp implementation costs of $ 4.3 million . the increase in our gross margin was driven primarily by increases in our subscription and transaction revenues . our fiscal year 2015 net loss included the impact of income tax expense of $ 16.0 million to establish a reserve against certain us-based deferred tax assets . in fiscal year 2016 , we derived approximately 42 % 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 these initiatives have positioned us effectively for accelerated revenue growth in future years . 31 revenue sources our revenues are derived from multiple sources and are reported under the following classifications : s ubscriptions and transactions fees . we derive subscription and transaction 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 . recently however , the number of percentage of completion arrangements we enter into has declined as we have continued to de-emphasize large , highly customized projects in lieu of standard product deployments and our cloud-based solutions . 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 . 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 . story_separator_special_tag delivery is deemed to have occurred upon transfer of the product to the customer or 32 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 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 . 33 for arrangements consisting of multiple elements , revenue is allocated to each element based on a selling price hierarchy . the selling price of each element is based on vsoe if available , third-party evidence ( tpe ) if vsoe is not available or estimated selling price ( esp ) if neither vsoe nor tpe are available . the residual method of allocation in a non-software arrangement is not permitted and , instead , arrangement consideration is allocated at the inception of the arrangement to all deliverables using the relative selling price method . the relative selling price method allocates any discount in the arrangement proportionately to each deliverable based on the proportion of each deliverable 's selling price to the total arrangement fee . we are typically unable to establish tpe , which is based on the selling price charged by unrelated third-party vendors for similar deliverables when they are sold separately , as we are generally unable to obtain sufficient information on actual vendor selling prices to substantiate tpe . the objective of esp is to estimate the price at which we would transact if the deliverable were sold separately rather than as part of a multiple element arrangement . our determination of esp considers several factors including actual selling prices for similar transactions , gross margin expectations and our ongoing pricing strategy .
| the decreased revenue , inclusive of the unfavorable effect of foreign exchange rates , was primarily attributable to decreases in services and maintenance revenues of $ 2.9 million , software license revenue of $ 2.8 million , and other revenue of $ 0.4 million , partially offset by an increase in subscription and transaction revenue of $ 4.6 million . the revenue decreases were primarily attributable to decreased north american software license and service and maintenance revenue . the segment profit decrease of $ 1.8 million for the fiscal year ended june 30 , 2016 compared to the prior fiscal year , including an unfavorable impact of foreign currency exchange rates of $ 1.5 million , was primarily due to the decrease in revenue as discussed above . we expect revenue and profit for the payments and transactional documents segment to increase in the fiscal year ending june 30 , 2017 as a result of increased sales of our payment and document automation solutions , continued improvement of gross margins and a slight decrease in operating expenses . 37 hosted solutions . the revenue increase in our hosted solutions segment for the fiscal year ended june 30 , 2016 compared to the prior fiscal year was due to increased paymode-x , financial messaging solutions and legal spend management revenue . the increased revenue includes the unfavorable effect of foreign exchange rates of approximately $ 2.9 million when compared to the prior fiscal year . the segment profit increase of $ 8.1 million for the fiscal year ended june 30 , 2016 compared to the prior fiscal year , inclusive of an unfavorable impact of foreign currency exchange rates of $ 0.7 million , arose from improved gross margins of $ 7.9 million as a result of the increased revenue and improved subscriptions and transactions gross margins from our paymode-x and financial messaging solutions . we expect revenue and profit for the hosted solutions segment to increase in fiscal year 2017 as a result of increased revenue from our legal spend management , financial messaging and paymode-x solutions . digital banking . the revenue decrease in our digital banking segment for the fiscal year ended june 30 , 2016 compared to the prior fiscal year was primarily due to a decrease
| 12,084 |
however , some of our facilities experienced reduced capacity due to social distancing requirements and or full closures ranging from a few days to 6-8 weeks , and if certain governmental orders are reimposed or if we are required to close a facility for employee safety reasons , we could experience new or extended closures which might adversely impact our ability to produce and distribute our products . operational activity that was previously slowed at certain of our facilities , as a result of the pandemic and governmental orders , largely resumed operations at normal capacities by the third quarter of 2020 enabling them to progress on the fulfillment of production backlogs that developed in the first half of the year as well as to meet current consumer demand . finally , we may experience supply chain disruptions , particularly disruptions related to our ability to source plumbing , lighting and builders ' hardware products . given our portfolio of lower ticket , repair and remodel-oriented product and the increased demand for repair and remodel spending , we experienced strong consumer demand in 2020. these levels of demand may or may not continue and we may experience an adverse impact in our 2021 results due to economic contraction as a result of continued high unemployment levels and remaining or potential renewed shelter-in-place and social distancing orders . the covid-19 pandemic and the mitigating measures taken by many countries have adversely impacted and could in the future materially adversely impact the company 's business , results of operations and financial condition . during 2020 , we implemented mitigating efforts to manage operating spend and preserve cash and liquidity including the temporary suspension of our share repurchase activity beginning in the second quarter of 2020 , which we resumed in the fourth quarter of 2020. currently , we have not identified , and will continue to monitor for , any substantive risk attributable to customer credit and have not experienced a significant impact from permanent store closures or retail bankruptcies . we continue to be committed to the safety and well-being of our employees during this time , and , led by our cross-functional infectious illness response team , we have employed best practices and followed guidance from the world health organization and the centers for disease control and prevention . we have implemented and are continuing to implement alternative work arrangements to support the health and safety of our employees , including working remotely and avoiding large gatherings . in addition , we have modified work areas and workstations to provide protective measures for employees , are staggering shifts , requiring the use of face coverings , practicing social distancing and increasing the cleaning of our facilities , and in the event that we learn of an employee testing positive for covid-19 , we are completing contact tracing and requiring impacted employees to self-quarantine . 18 critical accounting policies and estimates our 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 accounting principles generally accepted in the united states of america ( `` gaap '' ) . the preparation of these financial statements requires us to make certain estimates and assumptions that affect or could have affected the reported amounts of assets and liabilities , disclosure of any contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . we regularly review our estimates and assumptions , which are based upon historical experience , as well as current economic conditions and various other factors ( including the anticipated impact of the covid-19 pandemic ) that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of certain assets and liabilities and related disclosures , and future revenues and expenses , that are not readily apparent from other sources . actual results may differ from these estimates and assumptions . note a to the consolidated financial statements includes our accounting policies , estimates and methods used in the preparation of our consolidated financial statements . we believe that the following critical accounting policies are affected by significant judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition and receivables we recognize revenue as control of our products is transferred to our customers , which is generally at the time of shipment or upon delivery based on the contractual terms with our customers . we provide customer programs and incentive offerings , including special pricing and co-operative advertising arrangements , promotions and other volume-based incentives . these customer programs and incentives are considered variable consideration . we include in revenue variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the variable consideration is resolved . this determination is made based upon known customer program and incentive offerings at the time of sale , and expected sales volume for ecasts as it relates to our volume-based incentives . this determination is updated each reporting period . we monitor our exposure for credit losses on customer receivable balances and the credit worthiness of customers on an on-going basis and maintain allowances for doubtful accounts receivable for estimated losses resulting from the inability of our customers to make required payments . allowances are estimated based upon specific customer balances , where a risk of loss has been identified , and also include a provision for losses based upon historical collection and write-off activity as well as reasonable and supportable forecast information that considers macro-economic factors and industry-specific trends associated with our businesses , among others . a separate allowance is recorded for customer incentive rebates and is generally based upon sales activity . story_separator_special_tag goodwill and other intangible assets we record the excess of purchase cost over the fair value of net tangible assets of acquired companies as goodwill or other identifiable intangible assets . in the fourth quarter of each year , or as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount , we complete the impairment testing of goodwill utilizing a discounted cash flow method . we selected the discounted cash flow methodology because we believe that it is comparable to what would be used by market participants . we have defined our reporting units and completed the impairment testing of goodwill at the operating segment level . 19 determining market values using a discounted cash flow method requires us to make significant estimates and assumptions , including long-term projections of cash flows , market conditions and appropriate discount rates . our judgments are based upon historical experience , current market trends , consultations with external valuation specialists and other information . while we believe that the estimates and assumptions underlying the valuation methodology are reasonable , different estimates and assumptions could result in different outcomes . in estimating future cash flows , we rely on internally generated five-year forecasts for sales and operating profits , and , currently , a two percent to three percent long-term assumed annual growth rate of cash flows for periods after the five-year forecast . we generally develop these forecasts based upon , among other things , recent sales data for existing products , planned timing of new product launches , estimated repair and remodel activity and , to a lesser extent , estimated housing starts . our assumptions included u.s. gross domestic product growing at approximately 4.2 percent in 2021 and develop into a relatively stable 2.8 percent each year thereafter , and a eurozone gross domestic product growing at approximately 5.2 percent in 2021 and developing into a relatively stable 2.2 percent per annum over the five-year forecast . we utilize our weighted average cost of capital of approximately 8.0 percent as the basis to determine the discount rate to apply to the estimated future cash flows . our weighted average cost of capital in 2020 was consistent with 2019. in 2020 , based upon our assessment of the risks impacting each of our businesses , we applied a risk premium to increase the discount rate to a range of 10.0 percent to 12.0 percent for our reporting units . if the carrying amount of a reporting unit exceeds its fair value , an impairment loss is recognized to the extent that a reporting unit 's recorded carrying value exceeds its fair value , not to exceed the carrying amount of goodwill in that reporting unit . in the fourth quarter of 2020 , we estimated that future discounted cash flows projected for all of our reporting units were greater than the carrying values . accordingly , we did not recognize any impairment charges for goodwill . a 10 percent decrease in the estimated fair value of our reporting units would have resulted in a $ 6 million impairment to one of our reporting units . we review our other indefinite-lived intangible assets for impairment annually , in the fourth quarter , or as events occur or circumstances change that indicate the assets may be impaired without regard to the business unit . potential impairment is identified by comparing the fair value of an other indefinite-lived intangible asset to its carrying value . we utilize a relief-from-royalty model to estimate the fair value of other indefinite-lived intangible assets . we consider the implications of both external ( e.g. , market growth , competition and local economic conditions ) and internal ( e.g. , product sales and expected product growth ) factors and their potential impact on cash flows related to the intangible asset in both the near- and long-term . we also consider the profitability of the business , among other factors , to determine the royalty rate for use in the impairment assessment . we utilize our weighted average cost of capital of approximately 8.0 percent as the basis to determine the discount rate to apply to the estimated future cash flows . in 2020 , based upon our assessment of the risks impacting each of our businesses and the nature of the trade name , we applied a risk premium to increase the discount rate to a range of 11.0 percent to 12.5 percent for our other indefinite-lived intangible assets . in the fourth quarter of 2020 , we estimated that future discounted cash flows projected for our other indefinite-lived intangible assets were greater than the carrying values . accordingly , we did not recognize any impairment charges for other indefinite-lived intangible assets . a 10 percent decrease in the estimated fair value of our other indefinite-lived intangible assets would have resulted in a $ 3 million impairment for one of our trade names . employee retirement plans as of january 1 , 2010 , substantially all our domestic and foreign qualified and domestic non-qualified defined-benefit pension plans were frozen to future benefit accruals . accounting for defined-benefit pension plans involves estimating the cost of benefits to be provided in the future , based upon vested years of service , and attributing those costs over the time period each employee works . we develop our pension costs and obligations from actuarial valuations . inherent in these valuations are key assumptions regarding expected return on plan assets , mortality rates and discount rates for obligations and expenses . we consider current market conditions , including changes in interest rates , in selecting these assumptions . while we believe that the estimates and assumptions underlying the valuation methodology are reasonable , different estimates and assumptions could result in different reported pension costs and obligations within our consolidated financial statements . 20 in december 2019 , our board of directors approved the termination of our qualified domestic defined-benefit pension plans .
| 26 selling , general and administrative expenses as a percent of sales were 18.0 percent in 2020 compared with 19.0 percent in 2019 and 18.8 percent in 2018. the decrease in selling , general , and administrative expenses as a percentage of sales in 2020 was primarily driven by cost containment activities including those actions taken to mitigate the covid-19 pandemic impact and leverage of fixed expenses due primarily to increased sales volume . this improvement was partially offset by an increase in other expenses ( such as salaries , legal costs and advertising ) . the following table reconciles reported operating profit to operating profit , as adjusted to exclude certain items , dollars in millions : replace_table_token_7_th operating profit in 2020 was positively affected by increased sales volume and cost savings initiatives , including actions taken to mitigate the covid-19 pandemic impact . these positive impacts were partially offset by unfavorable net selling prices , increased commodity costs , partially attributed to tariffs , higher fixed expenses in our lighting business , and an increase in other expenses ( such as salaries , legal cost and advertising ) . other income ( expense ) , net interest expense was $ 144 million , $ 159 million and $ 156 million in 2020 , 2019 and 2018 , respectively . other , net , for 2020 included $ 35 million of net periodic pension and post-retirement benefit cost and $ 10 million of realized foreign currency transaction losses , partially offset by $ 10 million of dividend income related to preferred stock of acproducts holding , inc. and $ 9 million of income due from an escrow settlement . income taxes our effective tax rate on income from continuing operations was 24 percent , 25 percent and 24 percent in 2020 , 2019 and 2018 , respectively . as a result of irs guidance issued in the third quarter of 2020 that allows us to retroactively exclude certain high-taxed foreign income from the u.s. tax effects on global intangible low-taxed income ( `` gilti '' ) back to
| 12,085 |
in october of 2015 , the operator began steam rate trials to optimize production while lowering the steam injection rate , thereby lowering the steam to oil ratio ( “ sor ” ) . the sor is reflective of the amount of steam needed to produce one barrel of oil . the average sor over january and february of 2016 was 2.1. these production numbers along with the corresponding sors compare favorably to analogous reservoirs in thermal recovery projects that we are monitoring and using as a basis of comparison . the capital costs of the existing sagd project steam plant facility , with pipelines and one sagd well was approximately $ 26.5 million ( cdn $ 34.8 million ) on a 100 % working interest basis , of which our share is covered under the farmout agreement ( these capital costs do not include the start-up operating expenses to initiate oil production from the sagd well pair ) . a majority of our company 's joint venture partners voted to temporarily suspend operations of the sagd project at the end of february 2016. the current sagd project has : ● confirmed that the sagd process works in the bluesky formation at sawn lake , ● established characteristics of ramp up through stabilization of sagd performance , ● indicated the productive capability and sor of the reservoir and ● provided critical information required for well and facility design associated with future commercial development . 22 the first sagd well pair , for the sagd project , was drilled to a vertical depth of approximately 650 meters with a horizontal length of 780 meters each . steam injection commenced in may 2014 and production started in september of 2014. production from this one sagd well pair and increased significantly over the 18-month period it produced . over january and february of 2016 production from the sagd project reached a steady state averaging 615 bopd , on a 100 % basis ( 154 bopd net to us ) , with an average sor of 2.1 from one sagd well pair . it is anticipated that a reactivation of the existing sagd project facility and current sagd well pair will be part of the potential commercial expansion . in early may of 2016 , an amended application was submitted to the aer for an expansion of the existing sagd project facility site which would potentially increase the operation for up to a total of eight sagd well pairs . this expansion application sought approval to expand the current sagd project facility site to 3,200 bopd ( 100 % basis ) . it is anticipated that only five sagd well pairs will need to be operating to achieve this production level . the expanded facility will be designed to handle up to 3,200 bopd . the aer approval for this expansion of the existing sagd project was granted on december 15 , 2017. while the joint venture has not yet approved to expand the sagd project , currently , the sagd project continues to move forward with engineering and identification of long lead time items towards potential expansion to 3,200 bopd and future development at sawn lake . in august of 2017 , we jointly participated in drilling one well on our sawn lake properties . this well was drilled to a total depth of 681 meters . on february 15 , 2018 , we entered into a contribution agreement with a third-party to drill a well on one of our sawn lake oil sands leases in which we acquired cores and logs through the bluesky formation . we and our advisors are currently analyzing the cores and logs . in august 2013 , we received approval from the aer for our horizontal cyclic steam stimulation project ( “ hcss project ” ) application . it is anticipated that we will develop a thermal demonstration project on our properties followed by a commercial expansion project on one half section of land located on section 10-92-13w5 of our sawn lake oil sands properties where we currently have a 90 % working interest . we have since received the final performance results and revised reservoir modeling studies from our sagd project which will be used to fine-tune our hcss project facility design before we initiate start-up operations on the half of a section of land where we plan to drill two horizontal wells to test the use of hcss technology . we performed an environmental field study and surveyed the proposed location of our planned hcss project site and recently received aer approval for the surface wellsite and access road for this project . currently , we have a 90 % working interest in six oil sands leases and a 100 % working interest in one oil sands lease in the peace river oil sands area of alberta , where we are the operator . in addition , we have a 25 % working interest in another two oil sands leases in the peace river oil sands area of alberta . these nine oil sands leases are contiguous and cover 42,383 gross acres ( 17,152 gross hectares ) with our company having 33,938 net acres ( 13,734 net hectares ) . the development progress of our properties is governed by several factors such as federal and provincial governmental regulations . long lead times in getting regulatory approval for thermal recovery projects are commonplace in our industry . road bans , winter access only roads and environmental regulations can , and often , do delay development of similar projects . because of these and other factors , our oil sands project could take significantly longer to complete than regular conventional drilling programs for lighter oil . story_separator_special_tag liquidity and capital resources as of september 30 , 2017 , our total assets were $ 23,033,238 compared to $ 23,166,967 as of september 30 , 2016. this decrease of $ 133,729 was due to a decrease of $ 669,350 in our current assets , which was primarily due to cash used for general and administrative expenses and an increase of oil and gas properties . for the year ended september 30 , 2017 , we performed an assessment of our carrying costs of our unproven oil sands properties and determined that no write-down of our oil and gas properties as of september 30 , 2017 was necessary . no write-downs of our unproven oil sands properties were recorded in the year ended september 30 , 2016. however , our unproven oil sands properties may be at risk for future ceiling test write-downs . it is potentially possible that future declines in oil prices and possible changes to our company 's drilling plans in response to lower prices or increases in drilling or operating costs could result in other additional write-downs to our company 's unproven oil sands properties . as of september 30 , 2017 , our total liabilities were $ 659,563 compared to $ 502,508 as of september 30 , 2016. this increase of $ 157,055 in our total liabilities was primarily the result of outstanding accounts payable to the operator of the sagd project for operating expenses , which was subsequently reimbursed to us by the farmee , in accordance with the terms of the farmout agreement . our working capital is as follows . replace_table_token_6_th 23 as of september 30 , 2017 , our company had working capital of $ 1,048,867 compared to our working capital of $ 1,406,475 as of september 30 , 2016. this decrease is mainly due to cash used for general and administrative expenses offset by an increase in accounts payable accrued liability for audit and filing fees , and monthly operating expenses for the sagd project that were subsequently reimbursed to us in accordance with the farmout agreement . as of september 30 , 2017 , we had no long-term third-party debt other than our estimated asset retirement obligations on our oil and gas properties . on july 31 , 2013 , we entered into the farmout agreement to fund our share of the costs of our joint sagd project . as of september 30 , 2017 , we recorded $ 44,125 in accounts payable due to the operator for our working interest share of the outstanding monthly operating expenses of the sagd project , of which all is reimbursable by the farmee in accordance with the farmout agreement . therefore , this amount is also recorded in accounts receivable to be paid to us from the farmee to cover our share of the costs of the sagd project . as reported on our consolidated statement of cash flows under “ operating activities ” , for the year ending september 30 , 2017 , our net cash used in operating activities was $ 159,509 compared to $ 189,808 for the year ended september 30 , 2016. this decrease of $ 30,299 was primarily the result of a decrease in operating expenses . as reported on our consolidated statement of cash flows under “ investing activities ” , we had a decrease of $ 54,029 in the investment in our oil and gas properties for the year ended september 30 , 2017 , compared to the year ended september 30 , 2016. as reported on our consolidated statement of cash flows under “ financing activities ” , for the year ended september 30 , 2017 and september 30 , 2016 , there was no cash inflow or outflow in financing activities . our cash and cash equivalents for the year ending september 30 , 2017 were $ 1,097,651 compared to $ 1,400,922 in the year ending september 30 , 2016. this decrease of $ 303,271 in cash was primarily due to general and administrative expenses . as of september 30 , 2017 , we had no long-term debt other than our estimated asset retirement obligations on our oil and gas properties . our current sagd project operating costs are covered by the farmout agreement . for our long-term operations , we anticipate that , among other alternatives , we may raise funds during the next twenty-four months through sales of our equity securities , debt , or entering into another form of joint venture . we also note that if we issue more shares of our common stock , our stockholders will experience dilution in the percentage of their ownership of common stock . we may not be able to raise sufficient funding from stock sales for long-term operations and if so , we may be forced to delay our business plans until adequate funding is obtained . full cost method of accounting our company 's board adopted the full cost method of accounting for its oil sands activities effective july 1 , 2015. our company 's management determined that it is preferable to change its accounting policy for its oil sands properties and adopt the full cost method under u.s. gaap to better reflect our non-traditional oil sands resource assets in the peace river oil sands area in alberta , canada . the full cost method of accounting for oil and gas operations requires that all costs associated with the exploration for and development of oil and gas reserves be capitalized on a country by country basis . such costs include lease acquisition costs , geological and geophysical expenses , carrying charges on non-producing properties , costs of drilling both productive and non-productive wells , production equipment and overhead charges directly related to acquisition , exploration and development activities . under the full cost method , oil and gas properties are subject to a ceiling test performed quarterly .
| for the year ending september 30 , 2016 , the volume of oil delivered , for five months of production , was 19,156 barrels net to our company , before royalties , with an average oil sales price of $ 7.91 per barrel ( $ 10.48 per barrel cdn ) . we only produced oil for 5 months during the current fiscal year prior to the shutting in production at the end of february 2016. the realized sales price of our oil is discounted for diluent , blending , trucking , pipeline access and additional treating costs compared to the wti benchmark price , but paid in canadian dollars . our net operating margin after operating expenses is zero since at this time , under the farmout agreement we entered into on july 31 , 2013 , any negative operating cash flows are reimbursed to us to fund our share of the current sagd project . transportation costs are included in these operating costs . therefore , the total share of the capital costs and operating expenses of our company 's joint sagd project , has been funded in accordance with the farmout agreement , at a net cost to our company of $ nil . as required by the farmout agreement , the farmee has since reimbursed our company and or paid the operator in total approximately $ 21.5 million ( $ 26.7 million cdn ) for the farmee 's share and our share of the capital costs and operating expenses of the sagd project as of february 28 , 2018. these costs included the drilling and completion of one sagd well pair ; the purchase and transportation of equipment of which included the once through steam generator , production tanks , water treatment plant , and power generators ; installation and construction of the steam plant facility ; testing and commissioning ; the purchase of the water source and disposal wells ; construction of pipelines and expenditures to connect and tie-in the source and disposal water wells to the steam plant facility along with a fuel source tie-in pipeline ; equipment for processing and treating the bitumen production at the sagd facility site ; replacement of
| 12,086 |
along with undrawn amounts on facilities at our businesses and other liquid resources , drawings on the revolving credit facility are available to fund growth projects and acquisitions by our existing businesses . cp & e acquisitions and disposition 2014 wind power generation facilities acquisitions in 2014 , the company acquired controlling interests in wind power generation facilities , consisting of brahms wind , llc , exergy idaho holdings , llc and idaho wind partners 1 , llc ( collectively the 2014 wind power generation facilities ) . these wind farms have a total of 134 turbines located in new mexico and idaho and have a total wind power generation capacity of 203 mw of electricity . the company entered into llc agreements with the noncontrolling interest co-investors whose interests in these project are reflected in noncontrolling interest ' in our consolidated financial statements . bayonne energy center ( or bec ) acquisition on january 28 , 2015 , the company signed a purchase and sale agreement for the purchase of 100 % of bec for a purchase price of $ 720.0 million consisting of approximately $ 210.0 million in cash and the assumption of approximately $ 510.0 million of debt , excluding transaction costs . bec is a 512 mw natural gas-fired power generating facility located in bayonne , new jersey , adjacent to imtt 's bayonne facility . bec has tolling agreements with a creditworthy off-taker for 62.5 % of its energy generating capacity with a weighted average remaining life of approximately 13 years . power produced by bec is delivered into the new york city power market via a dedicated transmission cable beneath new york harbor . the company expects the transaction to close during the first half of 2015 , subject to receipt of regulatory approvals and satisfaction of customary closing conditions . district energy business sale on august 21 , 2014 , we completed the sale of the district energy business that had been a part of our cp & e segment for approximately $ 270.0 million . we previously held a 50.01 % controlling interest in the business . proceeds of the sale , after repayment of debt and closing costs , were divided between us and our co-investor in the business . we deployed our portion of the proceeds to fund a majority of the performance fee ( payable to our manager ) generated by the company over the third quarter of 2014. as a result of sale of the district energy business , we deconsolidated its assets and liabilities from our consolidated financial statements effective august 21 , 2014. we recorded a pre-tax gain of $ 78.9 million as a 51 gain from acquisition/divestiture of businesses , which has been reflected in our consolidated statement of operations for the year ended december 31 , 2014. costs and payments affecting reporting metrics we incurred performance fees paid in cash , pension contributions and transaction-related expenses , including legal and professional costs . these affected ebitda excluding non-cash items and free cash flow , as defined in results of operations consolidated : earnings before interest , taxes , depreciation and amortization ( ebitda ) excluding non-cash items and free cash flow , for the year ended december 31 , 2014. we incurred a performance fee of $ 116.6 million during the third quarter of 2014. our board requested , and our manager agreed , that $ 65.0 million of the performance fee be settled in cash using the proceeds from the sale of the district energy business in order to minimize dilution . the remainder of the fee of $ 51.6 million was reinvested in additional shares of mic . we made contributions to the imtt defined benefit pension plans and the hawaii gas defined benefit pension plan during the third quarter of 2014 of $ 20.0 million and $ 5.0 million , respectively . these contributions were voluntary and funded these plans to levels such that we do not believe any pension contributions will be required over the medium-term . the contributions were funded from cash on hand from financing activities and are fully tax deductible . we incurred acquisition-related expenses , including legal and professional costs , during the year ended december 31 , 2014. these expenses totaled $ 18.3 million . change in presentation the acquisition of the remaining 50 % interest of imtt we did not previously own has simplified our reporting as we now consolidate imtt 's results with those of our other businesses . we have further simplified our reporting by condensing certain revenue and cost of revenue line items that are not required . for imtt , we have combined terminal and environmental revenue , cost of revenue and the gross profit line items . for hawaii gas , we have combined utility revenue with non-utility revenue , cost of revenue including transmission , distribution and production costs , and have eliminated contribution margin . for atlantic aviation , we have concluded that items formerly reported as product revenue and cost of product sales are more appropriately reported as service revenue and cost of services , and have combined these items . prior period amounts have been reclassified to conform to current period presentation . income taxes for 2014 , we will file a consolidated federal income tax return that includes the financial results for imtt subsequent to july 16 , 2014 , hawaii gas , atlantic aviation and our allocable share of the taxable income ( loss ) from our solar and wind power generation facilities which are treated as partnerships for tax purposes . prior to july 16 , 2014 , imtt filed a separate federal income tax return and subsequent to that date will file as a part of our consolidated federal income tax return ( see imtt income taxes below ) . story_separator_special_tag pursuant to tax sharing agreements , the individual businesses included in our consolidated federal income tax return pay mic an amount equal to the federal income taxes each would have paid on a standalone basis if they were not part of the mic consolidated federal income tax return . prior to july 16 , 2014 , distributions we received from imtt were characterized as dividends , returns of capital or capital gains . 20 % of any distribution characterized as dividend was included in our taxable income and subject to tax at our statutory rate . distributions characterized as returns of capital were not subject to current tax . distributions characterized as capital gain were subject to tax at statutory rates . subsequent to july 16 , 2014 , distributions we receive from imtt generally will not be subject to tax . as a result of having federal nol carryforwards , together with other planned tax strategies , we do not expect to make regular federal tax payments until after 2017. for 2014 , we expect to report a current year taxable loss of $ 34.7 million and we do not expect to pay any federal alternative minimum tax . however , we expect the district energy business to pay federal income taxes of $ 463,000 for the period of january 1 , 2014 through august 21 , 2014 , the date of sale . 52 at december 31 , 2014 , our federal nol balance was $ 250.7 million , all of which is available to offset future taxable income , if any , through 2034. cash state and local taxes paid by our individual businesses are discussed in the sections entitled income taxes within the results of operations for each of these businesses . absent acquisitions and or divestitures , we expect that our effective tax rate would be higher than the u.s. federal statutory rate of 35 % primarily because of state and local income taxes . tax increase prevention act of 2014 in december of 2014 , the tax increase prevention act of 2014 ( the 2014 tax act ) was signed and became a law . the 2014 tax act retroactively extends several tax provisions applicable to corporations , including the extension of 50 % bonus depreciation for certain assets placed in service in 2014. other than the extension of the bonus depreciation provision , we do not expect the provisions of the 2014 tax act to have a material effect on our tax profile . 53 results of operations consolidated replace_table_token_13_th nm not meaningful ( 1 ) interest expense includes losses on derivative instruments of $ 21.3 million , $ 7.5 million and $ 21.6 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . key factors affecting operating results for 2014 compared to 2013 : contributions from acquisitions during the year , primarily from the imtt acquisition ; improved gross profit across all of the existing businesses ; partially offset by higher performance fees ; increased costs primarily related to the acquisitions during 2014 ; and increased interest expense . 54 results of operations : consolidated ( continued ) year ended december 31 , 2014 compared with year ended december 31 , 2013 gross profit consolidated gross profit increased from 2013 to 2014 primarily reflecting the consolidation of imtt 's results and improved results at atlantic aviation . this increase is offset by the decrease from the district energy business due to the sale of the business on august 21 , 2014. selling , general and administrative expenses selling , general and administrative expenses increased in 2014 compared with 2013 primarily as a result of the consolidation of imtt 's results , increases in legal and transaction costs primarily related to the imtt acquisition and the acquisition activities at both atlantic aviation and cp & e . fees to manager our manager is entitled to a monthly base management fee based primarily on our market capitalization , and potentially a quarterly performance fee , based on the performance of our stock relative to a u.s. utilities index . for the years ended december 31 , 2014 and 2013 , we incurred base management fees of $ 46.6 million and $ 32.0 million , respectively . for the years ended december 31 , 2014 and 2013 , we incurred performance fees of $ 121.5 million and $ 53.4 million , respectively . our manager elected to reinvest the base management and performance fees in additional shares of mic in all those periods except a portion of the third quarter of 2014 performance fee . for the third quarter of 2014 , the board requested , and the manager agreed , that $ 65.0 million of the performance fee be settled in cash using the proceeds from the sale of the district energy business in order to minimize dilution . the remainder of the fee of $ 51.6 million was reinvested in additional shares of mic . the unpaid portion of the base management fees and performance fees , if any , at the end of each reporting period is included in due to manager-related party in the consolidated balance sheets . the following table shows our manager 's election to reinvest its base management fees and performance fees , if any , in additional shares . replace_table_token_14_th ( 1 ) the manager elected to reinvest the fourth quarter of 2014 base management fees in shares . the company issued 208,122 shares , of which 69,771 shares were issued in january of 2015 for the december of 2014 base management fee . ( 2 ) includes $ 51.6 million of the third quarter of 2014 performance fee that was reinvested in shares .
| for the quarter ended december 31 , 2014 , costs increased 3.3 % compared with the quarter ended december 31 , 2013 , due to severance and transaction costs . cost growth in the quarter ended december 31 , 2014 decreased significantly compared to the nine months ended september 30 , 2014 as increased financial controls started to take effect . for the nine months ended september 30 , 2014 , costs excluding those related with the transaction increased by 13.1 % primarily due to costs associated with higher spill response activity . 62 imtt ( continued ) depreciation and amortization depreciation and amortization expense increased in 2014 compared with 2013 primarily due to remeasuring the fixed assets and intangibles to fair value in connection with the imtt acquisition . casualty losses , net during 2013 , casualty losses , net , were recorded as a result of fixed asset write-offs associated with hurricane sandy , net of insurance recoveries . casualty losses , net , includes $ 2.5 million related to the quarter ended december 31 , 2012 , which was recorded in cost of services in that period . this amount has been included in the year ended december 31 , 2013. interest expense , net interest expense includes losses on derivative instruments of $ 3.0 million and gains of $ 1.6 million for 2014 and 2013 , respectively . excluding the derivative adjustments , interest expense decreased during 2014 compared with 2013 due to lower average debt balances . cash interest paid totaled $ 39.7 million and $ 40.2 million for 2014 and 2013 , respectively . the decrease in cash interest paid in 2014 was primarily due to lower average debt balances as a result of a net reduction of imtt 's revolving credit facility drawn balance . income taxes imtt filed a consolidated federal income tax return for tax periods through and including july 16 , 2014 , the date of the imtt acquisition , and state income tax returns in the states in which it operates . subsequent to july 16 , 2014 , imtt became
| 12,087 |
certain provisions of u.s. gaap prescribe , among other things , the determination of acquisition-date fair value of consideration paid in a business combination ( including contingent consideration ) and the exclusion of transaction and acquisition-related restructuring costs from acquisition accounting . goodwill and indefinite-lived intangibles the company tests goodwill and indefinite-lived intangible assets for impairment annually , and when events or changes in circumstances indicate that goodwill or indefinite-lived intangible assets might be impaired . other intangible assets are amortized over their estimated useful lives . the determination of the estimated useful lives of other intangible assets and whether goodwill or indefinite-lived intangibles are impaired requires us to make judgments based on long-term projections of future performance . estimates of fair value are based on our projection of revenues , operating costs and cash flows of each reporting unit , considering historical and anticipated results and general economic and market conditions and their projections . the fair values of the reporting units are determined using a discounted cash flow analysis based on historical and projected financial information as well as market analysis . the annual goodwill impairment analysis considers the financial projections of the reporting unit based on our most recently completed long-term strategic planning processes and also considers the current financial performance compared to our prior projections of the reporting unit . changes in our internal structuring , financial performance , judgments and projections could result in an impairment of goodwill or indefinite-lived intangible assets . as of june 30 , 2018 , no reporting units are at risk for impairment , as the fair value of the reporting units substantially exceeds the carrying values . the company has the option to perform a qualitative assessment of goodwill prior to completing the quantitative assessment described above , to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount , including goodwill and other intangible assets . if the company concludes that this is the case , it must perform the quantitative assessment . otherwise , the company will forego the quantitative assessment process and does not need to perform any further testing . the company did not use the optional qualitative assessment during the years ended june 30 , 2018 and 2017. as a result of the purchase price allocations from our acquisitions , and due to our decentralized structure , our goodwill is included in multiple reporting units which are the same as the company 's operating segments . due to the cyclical nature of our business , and the other factors described in the section on risk factors set forth in item 1a of this annual report on form 10-k , the profitability of our individual reporting units may periodically be affected by downturns in customer demand , operational challenges and other factors . these factors may have a relatively more pronounced impact on the individual reporting units as compared to the company as a whole , and might adversely affect the fair value of the individual reporting units . if material adverse conditions occur that impact one or more of our reporting units , our determination of future fair value might not support the carrying amount of one or more of our reporting units , and the related goodwill would need to be impaired . based upon our annual quantitative goodwill and indefinite-lived intangible assets impairment tests , the company did not record any impairments of goodwill or indefinite-lived intangible assets for the fiscal year ended june 30 , 2018 . 32 0.25 % convertible senior notes our 0.25 % convertible senior notes are accounted for in accordance with asc 470 , accounting for convertible debt instruments that may be settled in cash upon conversion ( including partial cash settlement ) . asc subtopic 470-20 requires the issuer of convertible debt that may be settled in shares or cash upon conversion at the issuer 's option , such as these notes , to account for the liability ( debt ) and equity ( conversion option ) components separately . the value assigned to the debt component is the estimated fair value as of the issuance date of a similar debt instrument without the conversion option . the amount of the equity component is calculated by deducting the fair value of the liability component from the principal amount of the convertible debt instrument . the resulting debt discount is amortized as additional non-cash interest expense over the expected life of the notes utilizing the effective interest method . although asc 470 has no impact on our actual past or future cash flows , it requires us to record non-cash interest expense as the debt discount is amortized . income taxes the company prepares and files tax returns based on its interpretation of tax laws and regulations and records estimates based on these judgments and interpretations . in the normal course of business , the company 's tax returns are subject to examination by various taxing authorities , which may result in future tax , interest and penalty assessments by these authorities . inherent uncertainties exist in estimates of many tax positions due to changes in tax law resulting from legislation , regulation and or as concluded through the various jurisdictions ' tax court systems . the company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities , based on the technical merits of the position . the tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate resolution . the amount of unrecognized tax benefits is adjusted for changes in facts and circumstances . for example , adjustments could result from significant amendments to existing tax law and the issuance of regulations or interpretations by the taxing authorities , new information obtained during a tax examination , or resolution of an examination . story_separator_special_tag the company believes that its estimates for uncertain tax positions are appropriate and sufficient to pay assessments that may result from examinations of its tax returns . the company recognizes both accrued interest and penalties related to unrecognized tax benefits in income tax expense . management evaluates the realizability of deferred tax assets for each jurisdiction in which it operates . if the company experiences cumulative pretax income in a particular jurisdiction in a three-year period including the current and prior two years , management normally concludes that the income tax assets will more likely than not be realizable and no valuation allowance is recognized , unless known or planned operating developments , or changes in tax laws , would lead management to conclude otherwise . however , if the company experiences cumulative pretax losses in a particular jurisdiction in a three year period , management then considers a series of factors in the determination of whether the deferred tax assets can be realized . the company has recorded valuation allowances against certain of its deferred tax assets , primarily those that have been generated from net operating losses in certain foreign taxing jurisdictions and acquired u.s. carryforwards . in evaluating whether the company would more likely than not recover these deferred tax assets , it has not assumed any future taxable income or tax planning strategies in the jurisdictions associated with these carry-forwards where history does not support such an assumption . implementation of tax planning strategies to recover these deferred tax assets or future income generation in these jurisdictions could lead to the reversal of these valuation allowances and a reduction of income tax expense . share-based compensation the company recognizes share-based compensation expense over the requisite service period of the individual grantees , which generally equals the vesting period . the company utilizes the black-scholes valuation model for estimating the fair value of share-based equity expense , using assumptions such as the risk-free interest rate , expected stock price volatility , expected stock option life and expected dividend yield . the risk-free interest rate is derived from the average u.s. treasury note rate during the period , which approximates the rate in effect at the time of grant related to the expected life of the options . expected volatility is based on the historical volatility of the company 's common stock over the period commensurate with the expected life of the options . the expected life calculation is based on the observed time to post-vesting exercise and or forfeitures of options by our employees . the dividend yield is zero , based on the fact the company has never paid cash dividends and has no current intention to pay cash dividends in the future . fiscal year 2018 compared to fiscal year 2017 the company aligns its organizational structure into the following three reporting segments for the purpose of making operational decisions and assessing financial performance : ( i ) ii-vi laser solutions , ( ii ) ii-vi photonics , and ( iii ) ii-vi performance products . the company is reporting financial information ( revenue through operating income ) for these reporting segments in this annual report on form 10-k. 33 the following table sets forth select items from our consolidated statements of earnings for the years ended june 30 , 2018 and june 30 , 2017 ( $ in mi llions except per share information ) : replace_table_token_5_th story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > the company 's ii-vi laser solutions segment includes the combined operations of ii-vi infrared optics , ii-vi highyag , ii-vi laser enterprise , ii-vi laser systems group , ii-vi oed , ii-vi epiworks , and kaiam laser limited ( now operating under ii-vi compound semiconductors , ltd. ) . the company acquired ii-vi compound semiconductors , ltd. in august 2017. revenues for the fiscal year ended june 30 , 2018 for ii-vi laser solutions increased 26 % to $ 428.0 million , compared to revenues of $ 339.3 million last fiscal year . the increase in revenues during the current fiscal year was the result of increased demand from industrial based customers for the company 's co 2 , fiber and direct diode laser optics and components . in addition , the segment has also seen increased demand for its cvd diamond optics used in the euv lithography markets , as well as vcsels used in consumer electronics , datacom and other end markets . operating income for the fiscal year ended june 30 , 2018 for ii-vi laser solutions increased 19 % to $ 36.8 million , compared to $ 30.9 million last fiscal year . the increase in operating income during the current fiscal year was the result of incremental margins realized from increased capacity utilization , increase in mix of higher margin products , offset somewhat by greater investment in growth markets . ii-vi photonics ( $ in millions ) replace_table_token_7_th 35 the company 's ii-vi photonics segment includes the combined operations of ii-vi photop and ii-vi optical communications . the above operating results for the year ended june 30 , 2018 include the company 's recent acquisition of ipi which was acquired in june 2017. revenues for the year ended june 30 , 2018 for ii-vi photonics increased 11 % to $ 464.4 million , compared to $ 418.5 million for last fiscal year . included in the current year 's revenues were $ 19.3 million of revenues from the above acquisition . exclusive of ipi , the increase in revenues was primarily attributed to increased demand of optics and optic assemblies for applications for industrial laser products . in addition , the segments realized increase demand for transport and amplification component products , including its 980 nm pumps . operating income for the year ended june 30 , 2018 for ii-vi photonics increased 7 % to $ 67.7 million , compared to an operating income of $ 63.0 million last fiscal year .
| ii-vi performance products recorded a 24 % revenue increase during the current fiscal year , driven by strengthening demand for sic substrate products addressing rf electronics and high-power switching and power conversion systems for automotive , communication and military markets . gross margin . gross margin for the year ended june 30 , 2018 was $ 461.3 million , or 39.8 % , of total revenues , compared to $ 388.3 million , or 39.9 % , of total revenues for the same period last fiscal year . gross margin as a percentage of revenues was consistent with the prior fiscal year due to a balance of operating efficiencies and investments to expand capacity . the company 's ii-vi photonic 's gross margin was negatively impacted by both product mix and the effects of foreign currency . internal research and development . company-funded internal research and development ( “ ir & d ” ) expenses for the fiscal year ended june 30 , 2018 were $ 117.2 million , or 10.1 % of revenues , compared to $ 96.8 million , or 10.0 % of revenues , last fiscal year . the increase in ir & d expenses is primarily the result of the current year acquisition of kaiam laser limited , acquired in august 2017 , which contributed $ 14.6 million of expense . the company continues to ramp its investment in new material-based technologies addressing growing market trends in consumer electronics , communications and automotive markets . selling , general and administrative . selling , general and administrative ( “ sg & a ” ) expenses for the year ended june 30 , 2018 were $ 208.8 million , or 18.0 % of revenues , compared to $ 176.0 million , or 18.1 % of revenues , last fiscal year . sg & a expenses includes $ 3.7 million and $ 2.5 million , respectively , for the combined acquisitions of ii-vi integrated photonics inc. ( “ ipi ” ) , acquired in june 2017 , and kaiam laser limited , acquired in august 2017. exclusive of these acquisitions , the increase in sg & a is primarily due to increased operating costs to support
| 12,088 |
under the federal income tax rules governing reits , we are required to engage a hotel manager that is an eligible independent contractor to manage each of our hotels pursuant to a management agreement with one of our subsidiaries . our philosophy is to negotiate management agreements that give us the right to exert significant influence over the management of our properties , annual budgets and all capital expenditures ( all , to the extent permitted under the reit rules ) , and then to use those rights to continually monitor and improve the performance of our properties . we cooperatively partner with our hotel managers in an attempt to increase operating results and long-term asset values at our hotels . in addition to working directly with the personnel at our hotels , our senior management team also has long-standing professional relationships with our hotel managers ' senior executives , and we work directly with these senior executives to improve the performance of our portfolio . we continue to explore strategic options to maximize the growth of revenue and profitability . we persist in impressing upon our hotel managers the importance of limiting increases in property-level operating expenses . we maintain our practice of working closely with managers to optimize business at our hotels in order to maximize revenue and we remain committed to the objective of maintaining conservative corporate expenses . we believe we can create significant value in our portfolio through innovative asset management strategies such as rebranding , renovating and repositioning and we engage in a process of regular evaluations of our portfolio in order to determine if there are opportunities to employ these value-add strategies . conservative capital structure since our formation in 2004 , we have been committed to a conservative capital structure with prudent leverage . our outstanding debt as of december 31 , 2011 consists of fixed interest rate mortgage debt with no significant maturities until late 2014 and outstanding borrowings under our senior unsecured credit facility , which bears interest at an attractive floating rate . we also maintain low financial leverage by often funding a portion of our acquisitions with proceeds from the issuance of equity . we prefer that a significant portion of our portfolio remain unencumbered by debt in order to provide maximum balance sheet flexibility . in addition , to the extent that we incur additional debt , our preference is limited recourse secured mortgage debt . we expect that our strategy will enable us to maintain a balance sheet with an appropriate amount of debt throughout all phases of the lodging cycle . we believe that it is not prudent to increase the inherent risk of highly cyclical lodging fundamentals through use of a highly leveraged capital structure . we prefer a relatively simple but efficient capital structure . we have not invested in joint ventures and have not issued any operating partnership units or preferred stock . we endeavor to structure our hotel acquisitions so that they will not overly complicate our capital structure ; however , we will consider a more complex transaction if we believe that the projected returns to our stockholders will significantly exceed the returns that would otherwise be available . at all times , we actively review and manage the sources and uses of our funds in order to mitigate our exposure to economic risks and to maximize returns for our investors . in response to volatility in the financial markets during the last several years , we - 45 - have undertaken additional measures in order to navigate the challenges created thereby and we are perpetually evaluating and updating these measures in order to effectively address evolving economic , social and political climates . our ultimate goal in this regard is to create and maintain long-term stockholder value . key indicators of financial condition and operating performance we use a variety of operating and other information to evaluate the financial condition and operating performance of our business . these key indicators include financial information that is prepared in accordance with u.s. gaap , as well as other financial information that is not prepared in accordance with u.s. gaap . in addition , we use other information that may not be financial in nature , including statistical information and comparative data . we use this information to measure the performance of individual hotels , groups of hotels and or our business as a whole . we periodically compare historical information to our internal budgets as well as industry-wide information . these key indicators include : occupancy percentage ; average daily rate ( or adr ) ; revenue per available room ( or revpar ) ; earnings before interest , income taxes , depreciation and amortization ( or ebitda ) ; and funds from operations ( or ffo ) . occupancy , adr and revpar are commonly used measures within the hotel industry to evaluate operating performance . revpar , which is calculated as the product of adr and occupancy percentage , is an important statistic for monitoring operating performance at the individual hotel level and across our business as a whole . we evaluate individual hotel revpar performance on an absolute basis with comparisons to budget and prior periods , as well as on a company-wide and regional basis . adr and revpar include only room revenue . room revenue comprised approximately 69 % of total revenues for the year ended december 31 , 2011 and is dictated by demand , as measured by occupancy percentage , pricing , as measured by adr , and our available supply of hotel rooms . our adr , occupancy percentage and revpar performance may be impacted by macroeconomic factors such as u.s. economic conditions generally , regional and local employment growth , personal income and corporate earnings , office vacancy rates and business relocation decisions , airport and other business and leisure travel , new hotel construction and the pricing strategies of competitors . story_separator_special_tag in addition , our adr , occupancy percentage and revpar performance is dependent on the continued success of our hotels ' global brands . we also use ebitda and ffo as measures of the financial performance of our business . see “ non-gaap financial matters. ” 2011 highlights significant highlights for the year ended december 31 , 2011 are as follows : times square development . we entered into a purchase and sale agreement to acquire , upon completion , a hotel property under development on west 42nd street in times square , new york city . upon completion by the third-party developer , the hotel is expected to contain 282 guest rooms and the contractual purchase price is approximately $ 128 million , or approximately $ 450,000 per guest room . the purchase and sale agreement is for a fixed-price and we are not assuming any construction risk ( including not assuming the risk of construction cost overruns ) . we currently expect that the development of the hotel will take approximately 24 to 30 months with an anticipated opening date in 2014. follow-on public offering . we completed a follow-on public offering of our common stock during the first fiscal quarter of 2011. we sold 12,418,662 shares of our common stock , including the underwriter 's option to purchase 1,418,662 additional shares , at a public offering price of $ 12.15 per share . the net proceeds to us , after deduction of offering costs , were approximately $ 149.6 million . hilton minneapolis mortgage loan . on april 15 , 2011 , we closed on a $ 100 million loan secured by a mortgage on the hilton minneapolis . the loan has a 10 -year term , bears interest at an annual fixed interest rate of 5.464 % , amortizes on a 25 -year schedule and is non-recourse , subject only to standard recourse exceptions . we used the proceeds from the loan to fund a portion of our acquisition of the radisson lexington . - 46 - acquisition of the jw marriott denver at cherry creek . on may 19 , 2011 , we acquired the 196 -room jw marriott denver at cherry creek located in denver , colorado for approximately $ 74.2 million . we funded the acquisition with corporate cash and the assumption of a $ 42.4 million mortgage loan . acquisition of the radisson lexington hotel new york . on june 1 , 2011 , we acquired the 712 -room radisson lexington hotel located in new york city for approximately $ 336.8 million . the acquisition was funded with corporate cash and a $ 115.0 million draw on our senior unsecured credit facility . acquisition of the courtyard denver downtown . on july 22 , 2011 , we acquired the 177 -room courtyard denver downtown located in denver , colorado for a purchase price of $ 46.2 million . the acquisition was funded with corporate cash , a $ 15 million draw on our credit facility , and the assumption of a $ 27.2 million mortgage loan . we repaid the loan in full on february 7 , 2012. credit facility amendment . on june 2 , 2011 , we amended our $ 200.0 million unsecured credit facility to reduce the interest rate spread , lower certain fees and extend the term for an additional year to august 2014. conrad chicago performance guarantee . we negotiated an amendment to the conrad chicago management agreement with hilton to include a performance guarantee for the remaining term of the agreement , which ends in 2015. during 2011 , we earned $ 0.7 million in 2011 under the performance guarantee and expect to earn the same amount in 2012. recent developments sale of three-hotel portfolio . during 2011 , we entered into an agreement to sell a portfolio of three hotels for a sales price of $ 262.5 million . the 1,422-room portfolio consists of the 409-room griffin gate marriott resort and spa in lexington , kentucky , the 521-room renaissance waverly in atlanta , georgia , and the 492-room renaissance austin in austin , texas . we expect to receive net cash proceeds from the disposition of approximately $ 80 million , which will include $ 180 million of mortgage debt assumption by the buyer . the transaction is expected to close during the first quarter of 2012 , subject to the satisfaction of customary closing conditions , including the receipt of lender consents . rebranding of the radisson lexington . in connection with our acquisition of the radisson lexington hotel new york , we assumed the existing franchise agreement with radisson which provides for termination options that may be exercised during two 60-day windows , the first of which begins on march 1 , 2012 , upon payment of a $ 750,000 termination fee . it is our intention to exercise the termination right and to enter into a franchise agreement with marriott to license the hotel as a member of its autograph collection . we have entered into a non-binding term sheet with marriott to affiliate the hotel with the autograph collection ; however , there can be no assurance that marriott will enter into a franchise agreement and agree to license the hotel . specifically , the re-branding of the hotel as `` the lexington '' and the affiliation of the hotel with marriott 's autograph collection will involve the completion of a $ 30 million capital plan to renovate , reposition and significantly upgrade the hotel . radisson lexington financing . we have agreed to terms on a $ 170 million loan secured by a mortgage on the radisson lexington hotel new york . the loan will have a term of three years and bear interest at a floating rate of one-month libor plus 300 basis points . the loan may be extended for two additional one-year terms subject to the satisfaction of certain terms and conditions and the payment of an extension fee .
| ( 2 ) the radisson lexington hotel new york was acquired on june 1 , 2011. the table includes the operations of the hotel from june 1 , 2011 to december 31 , 2011 . ( 3 ) the jw marriott denver at cherry creek was acquired on may 19 , 2011. the table includes the operations of the hotel from may 19 , 2011 to december 31 , 2011 . ( 4 ) the courtyard denver downtown was acquired on july 22 , 2011. the table includes the operations of the hotel from july 22 , 2011 to december 31 , 2011. the following pro forma key hotel operating statistics for our hotels reported in continuing operations ( which exclude the three hotels we sold in february 2012 ) for the years ended december 31 , 2011 and 2010 include the prior year operating statistics for the comparable prior year period to our 2011 ownership period . replace_table_token_17_th - 49 - the increase in revpar is attributable to growth in both occupancy and adr . rooms revenue from contract and other business increased 17.7 % from 2010. rooms revenue from the business transient segment , traditionally the most profitable segment for hotels , increased 6.7 % from the prior year . group rooms revenue increased 3.3 % from the prior year due primarily to an increase in group adr as the group room nights were flat to the prior year . food and beverage revenues increased $ 11.4 million from the comparable period in 2010 due primarily to a $ 13.6 million increase in revenues from our 2010 and 2011 acquisitions , which was offset by a decrease of $ 2.2 million at our comparable hotels . the decrease at our comparable hotels was primarily driven by $ 5.8 million lower food and beverage revenues at frenchman 's reef due to the partial closure during 2011 for the renovation project . other revenues , which primarily represent spa , golf , and parking revenues , as well as tenant retail lease income and attrition and cancellation fees , increased $ 4.4 million primarily due to a $ 3.6 million increase in revenues
| 12,089 |
22 provision and allowance for loan losses the provision for loan losses was $ 1,070,000 for 2012 , compared with $ 1,440,000 for 2011. net loan charge-offs were $ 786,000 and $ 1,284,000 , for the respective years . the lower provision for loan losses resulted from lower net charge-offs of non-performing loans . the following table sets forth changes in the allowance for loan losses and other statistical data : replace_table_token_4_th reserve coverage at december 31 , 2012 , as measured by the ratio of allowance for loan losses to gross loans of 1.11 % , was substantially unchanged as compared with 1.09 % at december 31 , 2011. non-performing loans ( non-accrual loans and accruing loans past-due 90 days or more ) increased $ 1.8 million to $ 9.9 million , or 2.51 % of gross loans receivable , at december 31 , 2012 , up from 2.16 % at december 31 , 2011 , while accruing loans past due 30-89 days increased $ 3.2 million to $ 5.6 million , or 1.44 % of gross loans receivable at december 31 , 2012. see “ financial condition – loan credit quality ” below for further discussion and analysis . the credit quality segments of loans receivable and the allowance for loan losses are as follows : replace_table_token_5_th the following table sets forth the allocation of the allowance for loan losses among the broad categories of the loan portfolio and the percentage of loans in each category to total loans . although the allowance has been allocated among loan categories for purposes of the table , it is important to recognize that the allowance is applicable to the entire portfolio . furthermore , charge-offs in the future may not necessarily occur in these amounts or proportions . 23 replace_table_token_6_th ( a ) percent of loans in each category to total loans . the allowance for loan losses represents management 's estimate of the probable credit losses inherent in the loan portfolio as of the reporting date . the allowance is increased by provisions charged to earnings and by recoveries of amounts previously charged off , and is reduced by loan charge-offs . loan charge-offs are recognized when management determines a loan or portion of a loan to be uncollectible . the allowance for loan losses is computed by segregating the portfolio into three components : ( 1 ) loans collectively evaluated for impairment : general loss allocation factors for non-impaired loans are segmented into pools of loans based on similar risk characteristics such as loan product , collateral type and loan-to-value , loan risk rating , historical loss experience , delinquency factors and other similar economic indicators , ( 2 ) loans individually evaluated for impairment : individual loss allocations for loans deemed to be impaired based on discounted cash flows or collateral value , and ( 3 ) unallocated : general loss allocations for other environmental factors . impaired loans and certain potential problem loans , where warranted , are individually evaluated for impairment . impairment is measured for each individual loan , or for a borrower 's aggregate loan exposure , using either the fair value of the collateral if the loan is collateral dependent or the present value of expected future cash flows discounted at the loan 's effective interest rate . an allowance is established when the collateral value or discounted cash flows of the loan is lower than the carrying value of that loan . the component of the allowance for loan losses for loans collectively evaluated for impairment is estimated by stratifying loans into segments and credit risk ratings and applying management 's general loss allocation factors . the general loss allocation factors are based on expected loss experience adjusted for historical loss experience and other qualitative factors , including levels/trends in delinquencies ; trends in volume and terms of loans ; effects of changes in risk selection and underwriting standards and other changes in lending policies , procedures and practices ; experience/ability/depth of lending management and staff ; and national and local economic trends and conditions . the qualitative factors are determined based on the various risk characteristics of each loan segment . there were no significant changes in salisbury 's policies or methodology pertaining to the general component of the allowance for loan losses during 2012. the unallocated component of the allowance is maintained to cover uncertainties that could affect management 's estimate of probable losses . it reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio . determining the adequacy of the allowance at any given period is difficult , particularly during deteriorating or uncertain economic periods , and management must make estimates using assumptions and information that are often subjective and changing rapidly . the review of the loan portfolio is a continuing event in light of a changing economy and the dynamics of the banking and regulatory environment . should the economic climate deteriorate , borrowers could experience difficulty and the level of non-performing loans , charge-offs and delinquencies could rise and require increased provisions . in management 's judgment , salisbury remains adequately reserved both against total loans and non-performing loans at december 31 , 2012. management 's loan risk rating assignments , loss percentages and specific reserves are subjected annually to an independent credit review by an external firm . in addition , the bank is examined annually on a rotational process by one of its two primary regulatory agencies , the fdic and ctdob . as an integral part of their examination process , the fdic and ctdob review the bank 's credit risk ratings and allowance for loan losses . 24 non-interest income the following table details the principal categories of non-interest income . replace_table_token_7_th non-interest income increased $ 1.7 million , or 29.3 % , in 2012 versus 2011. trust and wealth advisory revenues increased $ 397,000 due to growth in managed assets , higher asset valuations and increased estate fee income . story_separator_special_tag service charges and fees increased $ 99,000. gains on sales of mortgage loans increased $ 909,000 due to significantly higher loan volume and higher pricing . mortgage loans sales totaled $ 60.2 million in 2012 versus $ 30.9 million in 2011. income from mortgage loan servicing of mortgage loans decreased $ 86,000 due primarily to increased mortgage servicing rights amortization expense and lower credit enhancement fees , both attributable to increased loan refinancing activity , offset in part by higher servicing fees . loans serviced under the fhlbb mpf program totaled $ 145.9 million and $ 114.8 million at december 31 , 2012 and 2011 , respectively . gains on securities in 2012 resulted from the sale of a treasury bond . boli cash surrender value increased $ 75,000. non-interest expense the following table details the principal categories of non-interest expense . replace_table_token_8_th non-interest expense increased $ 1.9 million , or 10.9 % , in 2012 versus 2011. salaries increased $ 179,000 due to changes in staffing levels and mix , and merit increases . employee benefits increased $ 419,000 due to increased pension plan expense , up $ 406,000 , that included a curtailment charge of $ 342,000 for lump sum benefit payments , and higher payroll taxes , while benefit costs remained relatively unchanged . premises and equipment increased $ 78,000 due primarily to higher equipment and software maintenance and depreciation , offset in part by lower facilities maintenance and utilities , and the inclusion in 2011 of an expense related to the disposal of assets related to the reorganization of several bank departments to gain efficiencies . data processing increased $ 159,000 mostly due to increased atm/debit card network processing fees , of $ 123,000 due to increased transactions volume and to vendor rebates in 2011. professional fees increased $ 113,000 primarily due to increased audit and compliance and trust client related investment management services . collections and oreo expenses increased $ 119,000 due to increased borrower real estate tax delinquencies , collection related legal fees and oreo carrying costs , offset in part by lower oreo write-downs , which were $ 123,000 and $ 231,000 , respectively , for 2012 and 2011. the 2012 litigation settlement of $ 400,000 has enabled salisbury to proceed with a foreclosure action against a non-performing loan . fdic insurance decreased $ 110,000 as a result of the change in the assessment method in mid-2011 . the 2012 fhlbb advance prepayment fee of $ 450,000 resulted from the early prepayment of a $ 10 million advance due 12/16/2013 with a 4.88 % coupon . all other operating expenses increased $ 108,000. income taxes the effective income tax rates for 2012 and 2011 were 19.49 % and 18.80 % , respectively . fluctuations in the effective tax rate result from changes in the mix of taxable and tax exempt income . salisbury 's effective tax rate was less than the 34 % federal statutory rate due to tax-exempt income , primarily from municipal bonds and bank-owned life insurance . for further information on income taxes , see note 11 of notes to consolidated financial statements . salisbury did not incur connecticut income tax in 2012 or 2011 , other than minimum state income tax , as a result of its utilization of connecticut tax legislation that permits banks to shelter certain mortgage income from the connecticut corporation business tax through the use of a special purpose entity called a pic . in 2004 salisbury availed of this legislation by forming a pic , sbt mortgage service corporation . salisbury 's income tax provision reflects the full impact of the connecticut legislation . salisbury does not expect to pay other than minimum state income tax in the foreseeable future unless there is a change in connecticut tax law . 25 comparison of the years ended december 31 , 2011 and 2010 net interest and dividend income net interest and dividend income ( presented on a tax-equivalent basis ) increased $ 1.3 million in 2011 over 2010. the net interest margin increased 14 basis points to 3.51 % from 3.37 % , due to a 46 basis points decline in the average cost of interest-bearing liabilities , offset in part by a 26 basis point decline in the average yield on interest-earning assets . the net interest margin is affected by changes in the mix of interest-earning assets and funding liabilities , asset and liability growth , and the effects of changes in market interest rates on the pricing and re-pricing of assets and liabilities . the table above under “ net interest and dividend income ” sets forth the components of salisbury 's net interest income and yields on average interest-earning assets and interest-bearing funds . income and yields on tax-exempt securities are presented on a fully taxable equivalent basis . interest and dividend income tax equivalent interest and dividend income decreased $ 615,000 , or 2.4 % , to $ 25.1 million in 2011. loan income increased $ 183,000 , or 1.0 % , primarily due to a $ 24.8 million , or 7.2 % , increase in average loans , the benefit from which was substantially offset by a 32 basis point decline in average yield , due to lower market interest rates and their effect on new loan rates , loan re-pricing and loan re-financing activity in 2011. tax equivalent interest and dividend income from securities decreased $ 753,000 , or 10.7 % , in 2011 , as a result of a $ 11.6 million decrease in average securities , and a 16 basis points decline in average yield , due to lower market interest rates and their effect on new bond yields , bond re-pricing and bond calls in 2011. interest from short term funds decreased $ 45,000 in 2011 as a result of a 17 basis points decline in average yield , offset in part by a $ 4.3 million increase in average short term funds .
| net interest income can be affected by changes in interest rate levels , changes in the volume of assets and liabilities that are subject to re-pricing within different future time periods , and in the level of non-performing assets . interest and dividend income tax equivalent interest and dividend income decreased $ 1.3 million , or 5.2 % , to $ 23.8 million in 2012. loan income decreased $ 513,000 , or 2.7 % , primarily due to a 33 basis point decline in average yield , due to lower market interest rates and their effect on new loan rates , loan re-pricing and loan re-financing activity in 2012. this decline in rate was partially offset by a $ 14.5 million , or 3.9 % , increase in average loans . tax equivalent interest and dividend income from securities decreased $ 752,000 , or 12.0 % , in 2012 , as a result of a $ 9.2 million decrease in average securities , and a 27 basis points decline in average yield , due to lower market interest rates and their effect on new bond yields , bond re-pricing and bond calls in 2012. interest from short term funds decreased $ 37,000 in 2012 as a result of an 11 basis points decline in average yield , offset in part by a $ 2.7 million increase in average short term funds . interest expense interest expense decreased $ 1.3 million , or 23.0 % , to $ 4.3 million in 2012 as a result of decreases in deposit rates and maturities of fhlbb advances , offset in part by higher average interest bearing deposits . interest on interest bearing deposit accounts decreased $ 751,000 , or 23.7 % , in 2012 , as a result a 22 basis point decline in average rate , to 0.61 % , offset in part by a $ 12.1 million , or 3.2 % , increase in average interest bearing deposits . the decline in average rate was due to the decline in interest rates and changes in product mix , as the proportion represented by time deposits decreased to
| 12,090 |
in evaluating the tax benefits associated with various tax filing positions , we record a tax benefit for an uncertain tax position if it is more-likely-than-not to be realized upon ultimate settlement of the issue . we record a liability for an uncertain tax position that does not meet this criterion . the liabilities for unrecognized tax benefits are adjusted in the period in which it is determined the issue is settled with the taxing authorities , the statute of limitations expires for the relevant taxing authority to examine the tax position or when new facts or information become available . see note 18 — income taxes of our consolidated financial statements for more information . business combinations we allocate the total purchase price of assets acquired and liabilities assumed based on their estimated fair value as of the business combination date . in developing estimates of fair values for long-lived assets , including identifiable intangible assets , we utilize a variety of inputs including forecasted cash flows , anticipated growth rates , discount rates , estimated replacement costs and depreciation and obsolescence factors . determining the fair value for specifically identified intangible assets such as customer lists and trade-names involves judgment . we may refine our estimates and make adjustments to the assets acquired and liabilities assumed over a measurement period , not to exceed one year . upon the conclusion of the measurement period or the final determination of the values of assets acquired and liabilities assumed , whichever comes first , any subsequent adjustments are charged to the consolidated statements of income . subsequent actual results of the underlying business activity supporting the specifically identified intangible assets could change , requiring us to record impairment charges or adjust their economic lives in future periods . new accounting standards see note 1 — nature of operations and basis of presentation of our consolidated financial statements for a discussion of recently issued accounting pronouncements that may affect our financial results and disclosures in future periods . 26 summary of our results of operations for the three years ended december 31 : replace_table_token_5_th 27 results of operations , year ended december 31 , 2017 versus december 31 , 2016 replace_table_token_6_th for the year ended december 31 , 2017 , sales were $ 961 million compared to $ 869 million in the prior year , an increase of $ 92 million , or 11 percent . excluding the impact of tembec sales of $ 139 million since closing november 17 , 2017 , sales decreased $ 47 million or 5 percent compared to the prior year . the $ 47 million decrease in net sales was driven by a decline in cellulose specialties sales prices of 4 percent , as expected , and a 4 percent decline in cellulose specialties sales volumes primarily due to the impacts of hurricane irma and an operational disruption at a major customer . additionally , commodity sales volumes decreased 3 percent due to discrete production issues and the impact of hurricane irma . these declines were partially offset by improved commodity sales prices due to stronger commodity markets resulting in higher sales prices for both commodity viscose and absorbent materials . replace_table_token_7_th ( a ) computed based on contribution margin . for the year ended december 31 , 2017 , operating income was $ 57 million compared to $ 138 million in the prior year , a decrease of $ 81 million . the decrease reflects lower cellulose specialties sales prices , lower cellulose specialties and commodity sales volumes , and higher commodity product sales prices , as previously discussed . costs increased $ 17 million as savings from cost transformation were more than offset by costs incurred to achieve additional future savings , higher production expenses due to sales mix , chemical prices and production issues , as well as , investments in customer product development . the operating income from tembec was break-even since closing november 17 , 2017 , due to the inventory write-up to fair value of $ 23 million and acquisition related costs of $ 3 million . selling , general and administrative expenses and other increased as a result of approximately $ 31 million of acquisition related costs . interest expense and other , net was $ 37 million for 2017 , compared to $ 35 million in the prior year . interest expense increased in 2017 due to lower average debt balances , more than offset by higher libor interest rates on floating rate debt and the increased amortization of deferred financing costs as a result of the refinancing of the company 's term loans . see note 8 — debt and capital leases of our consolidated financial statements for more information . in connection with the acquisition of tembec , we recognized a gain on bargain purchase primarily as a result of the elimination of tembec 's valuation allowance associated with certain deferred tax assets . as a result of the refinancing of tembec 's debt , we expect future taxable income would be adequate to realize the benefit of the tax assets . see note 3 — recent acquisition of our consolidated financial statements for more information . in connection with the acquisition of tembec , we entered into a foreign currency collar , a derivative , as an economic hedge of the anticipated cash flows denominated in canadian dollars . the derivative was not deemed a hedge for accounting purposes and , as a result , we recorded a realized gain on derivative instrument of $ 8 million in 2017 . see note 3 — recent acquisition of our consolidated financial statements for more information . our effective tax rate for 2017 was 5.7 percent compared to 34.9 percent in 2016 . the decrease is primarily due to the non-taxable gain on bargain purchase partially offset by the impact of the u.s. tax reform legislation and certain non-deductible acquisition related costs . see note 18 — income taxes of our consolidated financial statements for more information . story_separator_special_tag 28 results of operations , year ended december 31 , 2016 versus december 31 , 2015 replace_table_token_8_th total net sales were $ 72 million lower , or approximately 8 percent , in 2016 , primarily due to a 7 percent decline in cellulose specialties prices which reflects the anticipated declines from the prior year . additionally , cellulose specialties sales volumes decreased approximately 11 thousand tons , or 2 percent as a result of weak market conditions . this decrease was slightly less than expected due to the timing of revenue recognition in the fourth quarter of 2016. replace_table_token_9_th ( a ) computed based on contribution margin . in 2016 , operating income and margin percentage increased $ 18 million and 3.1 percentage points versus prior year . lower cellulose specialties prices and sales volumes were partially offset by lower costs driven by the company 's cost improvements . selling , general and administrative and other expenses decreased $ 40 million primarily as a result of the jesup asset impairment recognized in the second quarter of 2015. additionally , lower professional fees , stock compensation expense and pension expense in 2016 compared to 2015 contributed to the decrease in sg & a and other . we incurred $ 35 million of interest expense in 2016 compared with $ 37 million of interest expense in 2015. the decrease in interest expense reflects the repurchase of senior notes in the first quarter of 2016 , partially offset by higher libor rates on floating rate debt . see note 8 — debt and capital leases of our consolidated financial statements for more information . our effective tax rate for 2016 was 34.9 percent , compared with 33.3 percent for 2015. the increase from the prior year period reflects the impact of the domestic manufacturing tax deduction being limited in the current year . the company had no taxable income for 2016 as a result of higher tax depreciation and a tax accounting method change related to the deductibility of certain repair expenditures . as the manufacturing deduction is limited by taxable income , there is no benefit recognized in the current year . see note 18 — income taxes of our consolidated financial statements for more information . liquidity and capital resources cash flows from operations have historically been our primary source of liquidity and capital resources . we believe our cash flows and availability under our revolving credit facility , as well as our ability to access the capital markets , if necessary or desirable , will be adequate to fund our operations and anticipated long-term funding requirements , including capital expenditures , dividend payments , defined benefit plan contributions and repayment of debt maturities . during 2017 , our board of directors has declared , and we have paid , cash dividends on our preferred stock of approximately $ 13.8 million . additionally , our board of directors has declared , and we have paid , cash dividends of $ 0.07 per share on our common stock for the first , second , third and fourth quarters . the declaration and payment of future preferred and common stock dividends will be at the discretion of the board of directors and will be dependent upon our financial condition , results of operations , capital requirements and other factors the board of directors deems relevant . in addition , certain of our debt facilities may restrict the declaration and payment of dividends , depending upon our then current compliance with certain covenants . on january 29 , 2018 , the board of directors authorized a $ 100 million share buyback . while we do not expect to immediately use this authorization , we believe this provides another option to maximize long-term shareholder value as we execute on a disciplined and balanced capital allocation strategy . 29 in connection with the acquisition , we entered into an amended and restated credit agreement that refinanced , restated and replaced the credit facilities under our previous credit agreements . the amended and restated credit facility consists of a $ 230 million senior secured five-year term loan , a $ 450 million senior secured seven-year term loan , a $ 100 million revolving credit facility and a multi-currency revolving credit facility in a u.s. dollar equivalent amount of $ 150 million ( collectively , the `` credit facilities '' ) . the lenders under the credit facilities have a first priority security interest in substantially all present and future material u.s. assets , excluding the fernandina beach plant 's real property and the assets of certain non-guarantors subsidiaries . the non-guarantors of the credit facilities had assets of $ 1,410 million , revenue of $ 138 million , covenant ebitda of $ 227 and liabilities of $ 1,086 million as of and for the year ended december 31 , 2017 . the credit facilities agreements contain various customary covenants . at december 31 , 2017 , we were in compliance with all covenants . see note 8 — debt and capital leases of our consolidated financial statements for more information . a summary of liquidity and capital resources is shown below ( in millions of dollars ) : replace_table_token_10_th ( a ) cash and cash equivalents consisted of cash , money market deposits and time deposits with original maturities of 90 days or less . ( b ) availability under the revolving credit facility is reduced by standby letters of credit of approximately $ 34 million , $ 21 million and $ 14 million at december 31 , 2017 , 2016 and 2015 , respectively . see note 20 — commitments and contingencies of our consolidated financial statements for more information . ( c ) see note 8 — debt and capital leases of our consolidated financial statements for more information .
| pricing for our cellulose specialties products is typically set annually in the fourth quarter for the following year based on discussions with customers and the terms of contractual arrangements . we also produce commodity products , primarily commodity viscose and absorbent materials . pricing for commodity products is typically referenced to published indexes or based on publicly available spot market prices . our four production facilities have a combined annual production capacity of approximately 775,000 metric tons of cellulose specialties or commodity products . additionally , we have dedicated approximately 245,000 metric tons of production to commodity products . wood fiber , chemicals , and energy represent approximately 35 percent , 15 percent and 5 percent , respectively , of the per metric ton cost of sales . labor , manufacturing and maintenance supplies , depreciation , manufacturing overhead and transportation costs represent the remaining cost of sales . forest products pricing for lumber is typically referenced to published indexes marketed through our internal sales team . our seven production facilities have a targeted capacity of approximately 770 million board feet of lumber . wood and energy represents approximately 47 percent and 5 percent , respectively , of the per million board feet cost of sales . labor , manufacturing and maintenance supplies , depreciation , manufacturing overhead and transportation costs represent the remaining cost of sales . pulp & paper 23 pricing for paperboard , high-yield pulp and newsprint is typically referenced to published indices marketed through our internal sales team . our four production facilities have the capacity to produce 180,000 metric tons of paperboard , 570,000 metric tons of high-yield pulp and 205,000 metric tons of newsprint . wood fiber , chemicals , and energy represent approximately 36 percent , 15 percent and 12 percent , respectively , of the per metric ton cost of sales . labor , manufacturing and maintenance supplies , depreciation , manufacturing overhead and transportation costs represent the remaining cost of sales . outlook high purity cellulose cellulose specialties prices are anticipated to decline 4 to 5 percent in 2018 primarily due to lower acetate prices , offset
| 12,091 |
we provide two service offerings to our customers : annual licenses that allow customers to access and utilize certain premium features of our cloud based software-as-a-service ( “ saas ” ) research intelligence platform ( “ platforms ” ) and the transactional sale of published scientific , technical , and medical ( “ stm ” ) content managed , sourced and delivered through the platform ( “ transactions ” ) . platforms and transactions are packaged as a single solution that enable life science and other research intensive organizations to speed up research and development activities with faster , single sourced access and management of content and data used throughout the intellectual property development lifecycle . platforms our cloud-based saas research intelligence platform consists of proprietary software and internet-based interfaces . legacy functionality allows customers to initiate orders , route orders for the lowest cost acquisition , manage transactions , obtain spend and usage reporting , automate authentication , and connect seamlessly to in-house and third-party software systems . customers can also enhance the information resources they already own or license and collaborate around bibliographic information . additional functionality has recently been added to our platform in the form of interactive app-like gadgets . an alternative to manual data filtering , identification and extraction , gadgets are designed to gather , augment , and extract data across a variety of formats , including bibliographic citations , tables of contents , rss feeds , pdf files , xml feeds , and web content . we are rapidly developing new gadgets in order to build an ecosystem of gadgets . together , these gadgets will provide researchers with an “ all in one ” toolkit , delivering efficiencies in core research workflows and knowledge creation processes . our platform is deployed as a single , multi-tenant system across our entire customer base . customers securely access the platform through online web interfaces and via web service apis that enable customers to leverage platform features and functionality from within in-house and third-party software systems . the platform can also be configured to satisfy a customer 's individual preferences . we leverage our platform 's efficiencies in scalability , stability and development costs to fuel rapid innovation and competitive advantage . transactions researchers and knowledge workers in life science and other research-intensive organizations generally require single copies of published stm journal articles for use in their research activities . these individuals are our primary users . our platform provides our customers with a single source to the universe of published stm content that includes over 70 million existing stm articles and over one million newly published stm articles each year . our platform allows customers to find and download digital versions of stm articles that are critical to their research . customers submit orders for the articles they need which we source and electronically deliver to them generally in under an hour . this service is generally known in the industry as single article delivery or document delivery . we also obtain the necessary permission licenses from the content publisher or other rights holder so that our customer 's use complies with applicable copyright laws . we have arrangements with hundreds of content publishers that allow us to distribute their content . the majority of these publishers provide us with electronic access to their content , which allows us to electronically deliver single articles to our customers often in a matter of minutes . 16 critical accounting policies and estimates the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the united states , or gaap , requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . when making these estimates and assumptions , we consider our historical experience , our knowledge of economic and market factors and various other factors that we believe to be reasonable under the circumstances . actual results may differ under different estimates and assumptions . the accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties . revenue recognition our policy is to recognize revenue when services have been performed , risk of loss and title to the product transfers to the customer , the selling price is fixed or determinable , and collectability is reasonably assured . we generate revenue by providing two service offerings to our customers : annual licenses that allow customers to access and utilize certain premium features of our cloud based saas research intelligence platform ( “ platforms ” ) and the transaction sale of stm content managed , sourced and delivered through the platform ( “ transactions ” ) . platforms we charge a subscription fee that allows customers to access and utilize certain premium features of our platform . revenue is recognized ratably over the term of the subscription agreement , which is typically one year , provided all other revenue recognition criteria have been met . billings or payments received in advance of revenue recognition are recorded as deferred revenue . transactions we charge a transactional service fee for the electronic delivery of single articles , and a corresponding copyright fee for the permitted use of the content . we recognize revenue from single article delivery services upon delivery to the customer only when the selling price is fixed or determinable , and collectability is reasonably assured . stock-based compensation we periodically issue stock options , warrants and restricted stock to employees and non-employees for services , in capital raising transactions , and for financing costs . story_separator_special_tag we account for share-based payments under the guidance as set forth in the share-based payment topic 718 of the fasb accounting standards codification , which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees , officers , directors , and consultants , including employee stock options , based on estimated fair values . we estimate the fair value of stock option and warrant awards to employees and directors on the date of grant using an option-pricing model , and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in our statements of operations . we estimate the fair value of restricted stock awards to employees and directors using the market price of our common stock on the date of grant , and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in our statements of operations . we account for share-based payments to non-employees in accordance with topic 505 of the fasb accounting standards codification , whereby the value of the stock compensation is based upon the measurement date as determined at either a ) the date at which a performance commitment is reached , or b ) the date at which the necessary performance to earn the equity instruments is complete . stock-based compensation is based on awards ultimately expected to vest and is reduced for estimated forfeitures . forfeitures are estimated at the time of grant and revised , as necessary , in subsequent periods if actual forfeitures differ from those estimates . allowance for doubtful accounts we evaluate the collectability of our trade accounts receivable based on a number of factors . in circumstances where we become aware of a specific customer 's inability to meet its financial obligations to us , we estimate and record a specific reserve for bad debts , which reduces the recognized receivable to the estimated amount we believe will ultimately be collected . in addition to specific customer identification of potential bad debts , bad debt charges are recorded based on our historical losses and an overall assessment of past due trade accounts receivable outstanding . we established an allowance for doubtful accounts of $ 119,536 and $ 52,084 as of june 30 , 2017 and 2016 , respectively . 17 foreign currency the accompanying consolidated financial statements are presented in united states dollars , the functional currency of our company . capital accounts of foreign subsidiaries are translated into us dollars from foreign currencies at their historical exchange rates when the capital transactions occurred . assets and liabilities are translated at the exchange rate as of the balance sheet date . income and expenditures are translated at the average exchange rate of the period . although the majority of our revenue and costs are in us dollars , the costs of reprints desk latin america are in mexican pesos . as a result , currency exchange fluctuations may impact our revenue and the costs of our operations . we currently do not engage in any currency hedging activities . the following table summarizes the exchange rates used : replace_table_token_3_th quarterly information ( unaudited ) the following table sets forth unaudited and quarterly financial data for the four quarters of fiscal years 2017 and 2016 : replace_table_token_4_th 18 replace_table_token_5_th comparison of the years ended june 30 , 2017 and 2016 story_separator_special_tag p style= '' font : 10pt times new roman , times , serif ; margin : 0pt 0 ; text-align : justify ; text-indent : 0.5in '' > net cash provided by financing activities was $ 4,746,083 for the year ended june 30 , 2016 and resulted from the issuance of common stock for cash of $ 4,783,830. we entered into a loan and security agreement with silicon valley bank ( “ svb ” ) on july 23 , 2010 , which , as amended , provides for a revolving line of credit for the lesser of $ 4,000,000 , or 80 % of eligible accounts receivable . the line of credit matures on october 31 , 2017 , and is subject to certain financial and performance covenants with which we were in compliance as of june 30 , 2017. financial covenants include maintaining a ratio of quick assets to current liabilities of at least 0.8 to 1.0 , and maintaining tangible net worth of $ 600,000 , plus 50 % of net income for the fiscal quarter ended from and after december 31 , 2015 , plus 50 % of the dollar value of equity issuances after october 1 , 2015 and the principal amount of subordinated debt . the line of credit bears interest at the prime rate plus 2.25 % for periods in which we maintain an account balance with svb ( less all indebtedness owed to svb ) of at least $ 800,000 at all times during the prior calendar month ( the “ streamline period ” ) , and at the prime rate plus 5.25 % when a streamline period is not in effect . the interest rate on the line of credit was 6.50 % as of june 30 , 2017. the line of credit is secured by our consolidated assets . 22 there were no outstanding borrowings under the line as of june 30 , 2017 and june 30 , 2016 , respectively . as of june 30 , 2017 and june 30 , 2016 , approximately $ 3,277,000 and $ 3,390,000 , respectively , of available credit was unused . non-gaap measure – adjusted ebitda in addition to our gaap results , we present adjusted ebitda as a supplemental measure of our performance . however , adjusted ebitda is not a recognized measurement under gaap and should not be considered as an alternative to net income , income from operations or any other performance measure derived in
| depreciation and amortization ↑ $ 42,848 increased due to greater amortization of customer list . interest expense for the year ended june 30 , 2017 , interest expense was $ 12,000 , compared to $ 17,382 for the prior year , a decrease of $ 5,382. provision for income taxes during the years ended june 30 , 2017 and 2016 , we recorded a provision for income taxes of $ 35,495 and $ 28,162 , respectively , an increase of $ 7,333. net income ( loss ) replace_table_token_13_th 21 loss from continuing operations increased $ 1,744,324 or 127.9 % , for the year ended june 30 , 2017 compared to the prior year , primarily due to increased operating expenses , partially offset by increased gross profit as described above . liquidity and capital resources replace_table_token_14_th liquidity since our inception , we have funded our operations primarily through private sales of equity securities and the exercise of warrants , which have provided aggregate net cash proceeds to date of approximately $ 15,972,000. as of june 30 , 2017 , we had working capital of $ 4,112,932 and stockholders ' equity of $ 4,344,623. for the year ended june 30 , 2017 , we recorded a net loss of $ 2,293,563 , cash used by operating activities was $ 436,842. we may incur losses for an indeterminate period and may never sustain profitability . we may be unable to achieve and maintain profitability on a quarterly or annual basis . an extended period of losses and negative cash flow may prevent us from successfully operating and expanding our business . as of june 30 , 2017 , we had cash and cash equivalents of $ 5,773,950 , compared to $ 6,076,875 as of june 30 , 2016 , decrease of $ 302,925. this decrease was primarily due to cash used by operating activities . operating activities net cash used by operating activities was $ 436,842 for the year ended june 30 , 2017 and resulted primarily from
| 12,092 |
unless we obtain astrazeneca 's prior written consent ( which consent may not be unreasonably withheld , conditioned or delayed ) and except ( i ) as required or expressly contemplated by the merger agreement , ( ii ) as required by applicable law or ( iii ) as set forth in the confidential disclosure schedule delivered by alexion to astrazeneca , we may not , among other things and subject to certain exceptions and aggregate limitations , incur additional indebtedness , issue additional shares of our common stock outside of our equity incentive plans , repurchase our common stock , pay dividends , acquire assets , securities or property , dispose of businesses or assets , enter into material contracts or make certain additional capital expenditures . the transaction is not subject to a financing condition . to support the financing of the offer consideration , astrazeneca has entered into a new committed $ 17,500.0 bridge-financing facility , provided by morgan stanley , j.p. morgan securities plc and goldman sachs . under the merger agreement , alexion will be required to make a payment to astrazeneca equal to $ 1,180.0 if the merger agreement is terminated in certain circumstances , including because the alexion board of directors has changed its recommendation in favor of the mergers or we terminated the merger agreement in order to enter into an agreement providing for a company superior proposal ( as defined in the merger agreement ) , and alexion will be required to make a payment to astrazeneca equal to $ 270.0 if the merger agreement is terminated because alexion 's stockholders fail to adopt the merger agreement . astrazeneca will be required to make a payment to alexion equal to $ 1,415.0 if the merger agreement is terminated in certain circumstances , including because the astrazeneca board of directors has changed its recommendation in favor of the mergers or because astrazeneca 's shareholders fail to approve the transactions contemplated by the merger agreement . the acquisition is expected to close during the third quarter 2021 , and upon completion , alexion stockholders will own approximately 15.0 % of the combined company . recent developments on november 20 , 2020 , we announced that the european commission ( ec ) approved the ultomiris ( ravulizumab ) 100 mg/ml intravenous ( iv ) formulation for the treatment of paroxysmal nocturnal hemoglobinuria ( pnh ) and for atypical hemolytic uremic syndrome ( ahus ) . ultomiris 100 mg/ml is an advancement in the treatment experience for patients with ahus and pnh , as it reduces average annual infusion times by approximately 60 percent compared to ultomiris 10 mg/ml while delivering safety and efficacy consistent with the ultomiris 10 mg/ml formulation . in january 2021 , alexion entered into a definitive asset purchase agreement with rhythm pharmaceuticals , inc. ( “ rhythm ” ) to acquire its rare pediatric disease priority review voucher ( prv ) for $ 100.0. alexion 's acquisition of rhythm 's prv is subject to the satisfaction of customary closing conditions and approval from relevant regulatory agencies , including the expiration or early termination of the applicable waiting period under the hart-scott rodino antitrust improvements act . upon closing , we will make a $ 100.0 cash payment and we expect to capitalize the prv as an acquired in-process research and development ( ipr & d ) intangible asset . covid-19 pandemic during the first quarter of 2020 , the world health organization ( who ) declared the covid-19 public health crisis a pandemic and recommended containment and mitigation measures worldwide . on march 13 , 2020 , former u.s. president trump announced a national emergency relating to the pandemic . government authorities worldwide have recommended or imposed various social distancing , quarantine and isolation measures on large portions of the population . while the impact of the covid-19 pandemic to date on our business has been less than we had initially forecast , it is evolving rapidly and its future effects are difficult to predict with meaningful precision as the impact will depend on many factors beyond the company 's control and knowledge . as the pandemic continues , we continue to take steps that are designed to respond proactively to evolving events and planning for covid-19 uncertainties . we remain focused on continuing to serve patients , protecting the health and safety of our employees and the communities in which we live and work , and supporting our patients in clinical trials . in early march 2020 , we activated a task force designed to assess , mitigate and manage the risks related to covid-19 to avoid or minimize business disruption , including safeguarding of our facilities , and 84 to ensure the safety and sense of security for our staff . in early march 2020 , alexion closed all sites to non-essential employees and the company has suspended all travel indefinitely . in early june 2020 , alexion gradually allowed re-entry to certain sites in some geographies through a pilot program , including switzerland , germany , australia , and japan in accordance with local government laws , regulations and restrictions and our own safety procedures and checklists . in september 2020 , we extended our global guidance to employees to strongly encourage working remotely until at least july 2021 , while offering limited access to physical sites through pilot programs . office sites are being reconfigured to maintain physical distancing and we expect to adopt and implement additional precautions commensurate with any expansion of employees returning to worksites . to date , our remote working arrangements have not significantly affected our ability to maintain critical business operations . we are focused on protecting patient and customer safety as well as providing an uninterrupted supply of medicines for patients around the world . story_separator_special_tag we have taken proactive measures that are designed to mitigate the risk of potential supply interruptions , and we strive to maintain sufficient inventory levels to continue serving current and new patients receiving our medicines for approved indications , as well as those participating in ongoing clinical trials . we and our third-party contract manufacturing partners continue to operate manufacturing facilities at near normal levels . we are monitoring the demand for our products as due to quarantines , travel restrictions , hospital policies and patient concerns regarding exposure to covid-19 , we have observed fewer patient/doctor interactions , we have also noted that the new patient productivity and initiation queue has decreased since the covid-19 outbreak ( particularly in our neurological indications ) and our representatives are having fewer in-person visits with health care providers , including for infusion of our products which has adversely impacted our revenue growth in the current year and may continue to affect our revenue growth in the future . we have been proactively engaging with healthcare professionals virtually and through enhanced digital channels in an effort to mitigate this risk . additionally , we continue to actively monitor potential further impacts on our business such as growth in unemployment and loss of commercial insurance coverage and or growth in medicaid with higher discounts . we have preclinical studies and clinical testing ongoing across the globe . we have a business continuity plan for our preclinical and clinical trials , including a pandemic response plan . a number of clinical trial sites are restricting site visits and imposing restrictions on the initiation of new trials and patient visits to protect both site staff and patients from possible covid-19 exposure . given the safety concerns around covid-19 and the associated risk to maintaining normal clinical trial operations , we are making decisions study-by-study and country-by-country to minimize the risk to the patients and facilities , and there has been and may continue to be an impact on the timing of trials that are under active enrollment . the majority of clinical trials that were paused at the onset of the pandemic have resumed , however we are continuing to experience impact to enrollment for some studies . we are actively implementing remote and local procedures per guidance of the fda . in may 2020 , alexion initiated a global phase iii study to investigate ultomiris® ( ravulizumab-cwvz ) in a subset of adult patients with covid-19 , who are hospitalized with severe covid-19 requiring mechanical ventilation . in january 2021 , we paused further enrollment in the trial due to lack of efficacy , pending further analysis of the data . this decision was made based on the recommendation of an independent data monitoring committee following their review of data from a pre-specified interim analysis . the extent to which the covid-19 pandemic impacts our business , including our commercial results and clinical trials , will depend on future developments , which are highly uncertain and can not be predicted with confidence , such as the ultimate geographic spread of the virus , the duration of the outbreak , governmental regulations and restrictions , travel restrictions and actions to contain the outbreak or treat its impact . we continue to be responsive to the ever-changing situation while remaining true to our core values . critical accounting policies and estimates the significant accounting policies and basis of preparation of our consolidated financial statements are described in note 1 , business overview and summary of significant accounting policies of the consolidated financial statements included in this annual report on form 10-k. the preparation of these financial statements in conformity with gaap requires that management make estimates , judgments and assumptions that affect the reported amounts of assets , liabilities , revenues , expenses and other related disclosures . some of those judgments can be subjective and complex , and therefore , actual results could differ materially from those estimates under different assumptions or conditions . we believe the judgments , estimates and assumptions associated with the following critical accounting policies have the greatest potential impact on our consolidated financial statements : revenue recognition ; contingent liabilities ; share-based compensation ; 85 valuation of acquired assets , including goodwill , intangible assets and inventory ; valuation of contingent consideration ; and income taxes . revenue recognition our principal source of revenue is product sales . our contracts with customers generally contain a single performance obligation and we recognize revenue from product sales when we have satisfied our performance obligation by transferring control of the product to our customers . control of the product generally transfers to the customer upon delivery . in certain countries , we sell to distributors on a consignment basis and record revenue when control of the product transfers to the customer upon sale to the end user . revenue is recognized at the amount to which we expect to be entitled in exchange for the sale of our products . this amount includes both fixed and variable consideration and excludes amounts that are collected from customers and remitted to governmental authorities , such as value-added taxes in foreign jurisdictions . variability in the transaction price for our products pursuant to our contracts with customers primarily arises from the following : discounts and rebates : we offer discounts and rebates to certain distributors and customers under our arrangements . in many cases , these amounts are fixed at the time of sale and the transaction price is reduced accordingly . we also provide for rebates under certain governmental programs , including medicaid in the u.s. and other programs outside the u.s. , which are payable based on actual claim data . we estimate these rebates based on an analysis of historical claim patterns and estimates of customer mix to determine which sales will be subject to rebates and the amount of such rebates . generally , the length of time between product sale and the processing and reporting of the rebates is three to six months .
| additional unit volume increases were due primarily to increased demand for strensiq during 2020 and contributions of $ 78.5 from andexxa as a result of the portola acquisition that closed on july 2 , 2020. as a result of patient conversion from soliris to ultomiris , we expect variability in our revenues in future quarters due to the extended ultomiris dosing interval and infusion timing which may result in either one or two infusions in a quarter . ultomiris loading doses fo r pnh patients will result in increased revenues during a patient 's first year on therapy . the ultomiris annual maintenance dose for pnh and ahus requires fewer vials as compared to the annual dose for soliris . due to the decision to price ultomiris lower than soliris on an annual basis , we anticipate u.s. revenues will be unfavorably impacted by the lower annual cost per patient in m aintenance years , with the impact more pronounced for ahus due to the greater decrease in vials for ahus ultomiris patients . the increase in net product sales for the year ended december 31 , 2019 , as compared to same period in 2018 , was primarily due to an increase in unit volumes . this increase in unit volumes was primarily due to increased global demand for soliris therapy , with sales to patients with gmg being the largest driver , as well as ultomiris volumes due to the loading doses required in a patient 's first year on therapy . partially offsetting the soliris increase was the conversion of pnh patients from soliris to ultomiris . while ultomiris contributed to 2019 , the ultomiris volumes were primarily attributable to pnh patient conversion from soliris in the u.s. additional unit volume increases were due to increased demand of strensiq and kanuma during 2019 as a result of our continued efforts to identify and reach more patients with hpp and lal-d globally . the increase in net product sales for the year
| 12,093 |
disclosure controls and procedures ( as defined in rules 13a-15 ( e ) and 15d-15 ( e ) ) of the securities exchange act of 1934 , as amended ( the “ exchange act ” ) are designed to ensure that ( 1 ) information required to be disclosed in reports filed or submitted under the exchange act is recorded , processed , summarized and reported within the time periods specified in sec rules and forms ; and ( 2 ) that such information is accumulated and communicated to management , including the principal executive officer and principal financial officer , to allow timely decisions regarding required disclosures . there are inherent limitations to the effectiveness of any system of disclosure controls and procedures , including the possibility of human error and the circumvention or overriding of controls and procedures . accordingly , even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives . the company 's management , including the company 's chief executive officer and chief financial officer , evaluated the effectiveness of the design and operation of the company 's disclosure controls and procedures as of june 30 , 2017 . the company 's management has concluded that the company 's disclosure controls and procedures as of june 30 , 2017 were effective . management 's annual report on internal controls over financial reporting . the company 's management , including its chief executive officer and chief financial officer , is responsible for establishing and maintaining adequate internal control over financial reporting ( as defined in exchange act rules 13a-15 ( f ) and 15d-15 ( f ) ) and designing such internal controls to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the united states of america . there are inherent limitations to the effectiveness of any system of internal control over financial reporting , including the possibility of human error or the circumvention or overriding of controls and procedures . accordingly , even effective internal control over financial reporting can only provide reasonable assurance of achieving its control objectives . management conducted its evaluation of the effectiveness of its internal control over financial reporting based on the framework in the “ 1992 internal control-integrated framework , ” the 2006 `` internal control over financial reporting - guidance for smaller public companies , '' and the `` 2013 coso framework & sox compliance , '' all issued by the committee of sponsoring organizations of the treadway commission ( “ coso ” ) . in connection with this evaluation , there were no changes in the company 's internal control over financial reporting ( as such term is defined in rule 13a-15 ( f ) and 15d-15 ( f ) of the exchange act ) during the quarter ended june 30 , 2017 that have materially affected , or are reasonably likely to materially affect , the company 's internal control over financial reporting . based on this evaluation , management has concluded that the company 's internal control over financial reporting as of june 30 , 2017 was effective . 16 part iii item 10. directors , executive officers and corporate governance . this information is incorporated by reference to the sections entitled `` information as to the nominees , '' `` board committees - audit committee , '' `` code of ethics , '' `` executive officers , '' and `` section 16 ( a ) beneficial ownership reporting compliance '' from koss corporation 's proxy statement for its 2017 annual meeting of stockholders filed with the commission under regulation 14a within 120 days of the end of the fiscal year covered by this form 10-k. the company adopted a code of ethics , which is a `` code of ethics '' as defined by applicable rules of the sec , which is applicable to its directors , officers and employees . the code of ethics is publicly available on the company 's website at investors.koss.com . if the company makes any substantive amendments to the code of ethics or grants any waiver , including any implicit waiver , from a provision of the code to its principal executive officer , principal financial officer , principal accounting officer or controller or persons performing similar functions , the company will disclose the nature of the amendment or waiver on that website or in a report on form 8-k. item 11. executive compensation . this information is incorporated by reference to the sections entitled `` board committees - compensation committee , '' `` summary compensation table , '' `` outstanding equity awards at fiscal year end , '' and `` director compensation table '' from koss corporation 's proxy statement for its 2017 annual meeting of stockholders filed with the commission under regulation 14a within 120 days of the end of the fiscal year covered by this form 10-k. item 12. security ownership of certain beneficial owners and management and related stockholder matters . this information is incorporated by reference to the sections entitled `` beneficial ownership of company securities '' and `` outstanding equity awards at fiscal year end '' from koss corporation 's proxy statement for its 2017 annual meeting of stockholders filed with the commission under regulation 14a within 120 days of the end of the fiscal year covered by this form 10-k. item 13. certain relationships and related transactions , and director independence . this information is incorporated by reference to the sections entitled `` board committees , '' `` independence of the board '' and `` related party transactions '' from koss corporation 's proxy statement for its 2017 annual meeting of stockholders filed with the commission under regulation 14a within 120 days of the end of the fiscal year covered by this form 10-k. item 14. principal accountant fees and services . this information is incorporated by story_separator_special_tag disclosure controls and procedures ( as defined in rules 13a-15 ( e ) and 15d-15 ( e ) ) of the securities exchange act of 1934 , as amended ( the “ exchange act ” ) are designed to ensure that ( 1 ) information required to be disclosed in reports filed or submitted under the exchange act is recorded , processed , summarized and reported within the time periods specified in sec rules and forms ; and ( 2 ) that such information is accumulated and communicated to management , including the principal executive officer and principal financial officer , to allow timely decisions regarding required disclosures . there are inherent limitations to the effectiveness of any system of disclosure controls and procedures , including the possibility of human error and the circumvention or overriding of controls and procedures . accordingly , even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives . the company 's management , including the company 's chief executive officer and chief financial officer , evaluated the effectiveness of the design and operation of the company 's disclosure controls and procedures as of june 30 , 2017 . the company 's management has concluded that the company 's disclosure controls and procedures as of june 30 , 2017 were effective . management 's annual report on internal controls over financial reporting . the company 's management , including its chief executive officer and chief financial officer , is responsible for establishing and maintaining adequate internal control over financial reporting ( as defined in exchange act rules 13a-15 ( f ) and 15d-15 ( f ) ) and designing such internal controls to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the united states of america . there are inherent limitations to the effectiveness of any system of internal control over financial reporting , including the possibility of human error or the circumvention or overriding of controls and procedures . accordingly , even effective internal control over financial reporting can only provide reasonable assurance of achieving its control objectives . management conducted its evaluation of the effectiveness of its internal control over financial reporting based on the framework in the “ 1992 internal control-integrated framework , ” the 2006 `` internal control over financial reporting - guidance for smaller public companies , '' and the `` 2013 coso framework & sox compliance , '' all issued by the committee of sponsoring organizations of the treadway commission ( “ coso ” ) . in connection with this evaluation , there were no changes in the company 's internal control over financial reporting ( as such term is defined in rule 13a-15 ( f ) and 15d-15 ( f ) of the exchange act ) during the quarter ended june 30 , 2017 that have materially affected , or are reasonably likely to materially affect , the company 's internal control over financial reporting . based on this evaluation , management has concluded that the company 's internal control over financial reporting as of june 30 , 2017 was effective . 16 part iii item 10. directors , executive officers and corporate governance . this information is incorporated by reference to the sections entitled `` information as to the nominees , '' `` board committees - audit committee , '' `` code of ethics , '' `` executive officers , '' and `` section 16 ( a ) beneficial ownership reporting compliance '' from koss corporation 's proxy statement for its 2017 annual meeting of stockholders filed with the commission under regulation 14a within 120 days of the end of the fiscal year covered by this form 10-k. the company adopted a code of ethics , which is a `` code of ethics '' as defined by applicable rules of the sec , which is applicable to its directors , officers and employees . the code of ethics is publicly available on the company 's website at investors.koss.com . if the company makes any substantive amendments to the code of ethics or grants any waiver , including any implicit waiver , from a provision of the code to its principal executive officer , principal financial officer , principal accounting officer or controller or persons performing similar functions , the company will disclose the nature of the amendment or waiver on that website or in a report on form 8-k. item 11. executive compensation . this information is incorporated by reference to the sections entitled `` board committees - compensation committee , '' `` summary compensation table , '' `` outstanding equity awards at fiscal year end , '' and `` director compensation table '' from koss corporation 's proxy statement for its 2017 annual meeting of stockholders filed with the commission under regulation 14a within 120 days of the end of the fiscal year covered by this form 10-k. item 12. security ownership of certain beneficial owners and management and related stockholder matters . this information is incorporated by reference to the sections entitled `` beneficial ownership of company securities '' and `` outstanding equity awards at fiscal year end '' from koss corporation 's proxy statement for its 2017 annual meeting of stockholders filed with the commission under regulation 14a within 120 days of the end of the fiscal year covered by this form 10-k. item 13. certain relationships and related transactions , and director independence . this information is incorporated by reference to the sections entitled `` board committees , '' `` independence of the board '' and `` related party transactions '' from koss corporation 's proxy statement for its 2017 annual meeting of stockholders filed with the commission under regulation 14a within 120 days of the end of the fiscal year covered by this form 10-k. item 14. principal accountant fees and services . this information is incorporated by
| after a very strong previous year , net sales to the distributor in the czech republic decreased by $ 124,176 to $ 1,107,555 in the year ended june 30 , 2017 . this annual sales volume is just slightly below historical volumes . the new distributor for central africa , which added net sales of $ 147,678 in the previous year , did not order again . offsetting these declines , an oem customer in asia increased net sales by $ 1,362,856 to $ 2,332,704 in fiscal 2017 . distributors in russia , belarus and ukraine started to see improvement in their economies and exchange rate fluctuations leading to increased sales . these countries combined for a net sales increase of $ 618,280. net sales in the domestic market increased by $ 468,396 to $ 15,965,159 . sales to a large mass retailer increased by $ 442,338 to $ 3,347,527 due to a new product being carried in their stores . increases to certain distributors ( $ 373,385 ) and e-commerce ( $ 269,552 ) were offset by decreased sales to a prison distributor ( $ 114,408 ) as well as the loss of a grocery chain ( $ 131,707 ) and two mass retailers ( $ 352,573 ) . gross profit as a percent of sales in 2017 was 28.7 % , which was 5.7 % lower than 2016 . the decrease in gross profit percentage was primarily due to the mix of sales across sales channels and products . there is a wide range of gross profit across the products as well as across the sales channels . a product closeout of inventory previously written down during the year also contributed to the decrease in gross profit percentage . selling , general and administrative expenses were lower than the prior fiscal year . the company had decreased costs for profit-based compensation ( approximately $ 200,000 ) , stock-based compensation ( approximately $ 94,000 ) , legal expense ( approximately $ 94,000 ) , and outside it services ( approximately $ 88,000 ) . these decreases were offset by increased 401 ( k ) match ( approximately $ 117,000 ) . profit-based compensation decreased due to a net
| 12,094 |
in 2015 , divestitures had a negative impact of 1.4 % on the worldwide consumer segment operational growth . 16 pharmaceutical segment pharmaceutical segment sales in 2016 were $ 33.5 billion , an increase of 6.5 % from 2015 , which included operational growth of 7.4 % partially offset by a negative currency impact of 0.9 % . u.s. sales were $ 20.1 billion , an increase of 9.8 % . international sales were $ 13.3 billion , an increase of 1.8 % , which included 4.0 % operational growth partially offset by a negative currency impact of 2.2 % . in 2016 , acquisitions , divestitures and competitive products to the company 's hepatitis c products , olysio ® /sovriad ® ( simeprevir ) and incivo ® ( telaprevir ) , had a negative impact of 2.5 % on the operational growth of the pharmaceutical segment . in 2016 , the pharmaceutical segment operational growth was negatively impacted by 1.5 % due to additional shipping days in 2015. the pharmaceutical segment operational growth for 2016 , as compared to the prior year , was not impacted by adjustments to previous reserve estimates as both periods included approximately $ 0.5 billion of adjustments . major pharmaceutical therapeutic area sales : * replace_table_token_5_th * prior year amounts have been reclassified to conform to current year presentation . * * percentage greater than 100 % immunology products achieved sales of $ 12.0 billion in 2016 , representing an increase of 15.1 % as compared to the prior year . immunology products growth of 15.1 % included operational growth of 15.9 % and a negative currency impact of 0.8 % . the strong growth of remicade ® ( infliximab ) , stelara ® ( ustekinumab ) and simponi ® /simponi aria ® ( golimumab ) was primarily driven by immunology market growth and increased penetration for both stelara ® ( ustekinumab ) and simponi ® /simponi aria ® ( golimumab ) . 17 the patents for remicade ® ( infliximab ) in certain countries in europe expired in february 2015. biosimilar versions of remicade ® have been introduced in certain markets outside the united states , resulting in a reduction in sales of remicade ® in those markets . additional biosimilar competition will likely result in a further reduction in remicade ® sales in markets outside the united states . the introduction of a biosimilar version of remicade ® in the united states is subject to enforcement of patent rights , approval by the u.s. food and drug administration ( fda ) and compliance with the 180-day notice provisions of the biologics price competition and innovation act ( the bpcia ) . in april 2016 , the fda approved for sale in the united states an infliximab biosimilar to be marketed by a subsidiary of pfizer inc. in october 2016 , the period for notice of launch under the bpcia passed and pfizer inc. , began shipment of an infliximab biosimilar to wholesalers in the united states in late november 2016. sales of an infliximab biosimilar in the u.s. market will result in a reduction in u.s. sales of remicade ® . the company continues to assert remicade ® related patent rights . see note 21 to the consolidated financial statements for a description of legal matters regarding the remicade ® patents . infectious disease products sales were $ 3.2 billion , a decline of 12.3 % from 2015 , which included an operational decrease of 11.2 % and a negative currency impact of 1.1 % . competitive products to the company 's hepatitis c products , olysio ® /sovriad ® ( simeprevir ) and incivo ® ( telaprevir ) , had a significant negative impact on sales . the decline of hepatitis c sales was partially offset by sales growth of edurant ® ( rilpivirine ) and prezcobix ® ( darunavir/cobicistat ) . neuroscience products sales were $ 6.1 billion , a decrease of 2.8 % from 2015 , which included an operational decrease of 2.3 % and a negative currency impact of 0.5 % . strong sales of invega sustenna ® /xeplion ® / trinza ® ( paliperidone palmitate ) were offset by lower sales of invega ® ( paliperidone ) due to generic competition , risperdal consta ® ( risperidone ) and the impact of divestitures . sales growth of concerta ® /methylphenidate was primarily due to a therapeutic equivalence reclassification of generic competitors . oncology products achieved sales of $ 5.8 billion in 2016 , representing an increase of 23.7 % as compared to the prior year . oncology products growth of 23.7 % included operational growth of 25.2 % and a negative currency impact of 1.5 % . contributors to the growth of oncology products were strong sales of imbruvica ® ( ibrutinib ) and darzalex ® ( daratumumab ) due to patient uptake , additional country launches and additional indications for imbruvica ® . generic competition negatively impacted the sales growth of velcade ® ( bortezomib ) . sales growth of zytiga ® ( abiraterone acetate ) in the asia pacific region , primarily due to the launch in china earlier this year , was partially offset by lower sales in europe due to competition . cardiovascular/metabolism/other products sales were $ 6.4 billion , a decline of 0.3 % from 2015 , which included an operational increase of 0.8 % and a negative currency impact of 1.1 % . contributors to the growth were strong sales of xarelto ® ( rivaroxaban ) due to market share growth and invokana ® /invokamet ® ( canagliflozin ) due to market growth and continued uptake in the european union and canada . story_separator_special_tag sales of hormonal contraceptives were negatively impacted by generic competition and a higher adjustment to previous reserve estimates in 2015 as compared to 2016 , which negatively impacted cardiovascular/metabolism/other by approximately 2.3 % . 18 during 2016 , the company advanced its pipeline with several regulatory submissions and approvals for new drugs and additional indications for existing drugs as follows : product name ( chemical name ) indication us approv eu approv us filing eu filing darzalex ® ( daratumumab ) in combination with lenalidomide and dexamethasone , or bortezomib and dexamethasone , for the treatment of patients with multiple myeloma who have received at least one prior therapy ü ü for the treatment of double refractory multiple myeloma ü darunavir str single tablet regimen for hiv in treatment naive patients and treatment experienced patients ü guselkumab treatment of adults living with moderate to severe plaque psoriasis ü ü imbruvica ® ( ibrutinib ) additional indication for first-line treatment of chronic lymphocytic leukemia ü ü expanded label to include overall survival and combination data in chronic lymphocytic leukemia/small lymphocytic lymphoma ( cll/sll ) ü expanded label to include treatment for patients with relapsed or refractory chronic lymphocytic leukemia ( cll ) or small lymphocytic lymphoma in combination with bendamustine and rituximab ü ü invokamet ® ( canagliflozin ) initial therapy fdc with metformin , immediate release ü invokamet ® xr ( canagliflozin ) a once-daily therapy combining fixed doses of canagliflozin and metformin hydrochloride extended release for the treatment of adults with type 2 diabetes ü simponi ® ( golimumab ) treatment of polyarticular juvenile idiopathic arthritis ü simponi aria ® ( golimumab ) treatment of adults living with active psoriatic arthritis and the treatment of adults living with active ankylosing spondylitis ü sirukumab treatment of rheumatoid arthritis ü ü stelara ® ( ustekinumab ) treatment of adults with moderately to severely active crohn 's disease ü ü treatment of adolescents ( 12 to 17 years of age ) with moderate to severe plaque psoriasis ü trevicta ® ( paliperidone palmitate a 3 monthly injection ) maintenance treatment of schizophrenia in adult patients ü pharmaceutical segment sales in 2015 were $ 31.4 billion , a decrease of 2.7 % from 2014 , which included operational growth of 4.2 % offset by a negative currency impact of 6.9 % . u.s. sales were $ 18.3 billion , an increase of 5.2 % . international sales were $ 13.1 billion , a decrease of 12.0 % , which included 3.0 % operational growth offset by a negative currency impact of 15.0 % . the pharmaceutical segment operational growth was negatively impacted by 6.5 % due to the introduction of competitive products to the company 's hepatitis c products , olysio ® /sovriad ® ( simeprevir ) and incivo ® ( telaprevir ) , and positively impacted by 1.4 % due to an adjustment to previous reserve estimates , including managed medicaid rebates primarily in the cardiovascular/metabolism/other therapeutic area . in 2015 , divestitures had a negative impact of 0.3 % on the worldwide pharmaceutical segment operational growth . 19 medical devices segment the medical devices segment sales in 2016 were $ 25.1 billion , a decrease of 0.1 % from 2015 , which included an operational increase of 0.9 % and a negative currency impact of 1.0 % . u.s. sales were $ 12.3 billion , an increase of 1.1 % as compared to the prior year . international sales were $ 12.9 billion , a decrease of 1.2 % as compared to the prior year , with an operational increase of 0.7 % and a negative currency impact of 1.9 % . in 2016 , acquisitions and divestitures had a negative impact of 1.8 % on the worldwide operational growth of the medical devices segment as compared to 2015. in 2016 , the medical devices segment operational growth was negatively impacted by 0.9 % due to additional shipping days in 2015. major medical devices franchise sales : replace_table_token_6_th * on june 30 , 2014 , the company divested the ortho-clinical diagnostics business ( the diagnostics franchise ) the orthopaedics franchise sales were $ 9.3 billion in 2016 , an increase of 0.8 % from 2015 , which included operational growth of 1.8 % and a negative currency impact of 1.0 % . sales growth was primarily driven by market growth , u.s. sales of the trauma tfna nailing system , worldwide sales of the hip primary stem platform and the attune ® knee system . growth was negatively impacted by continued pricing pressures . the surgery franchise sales were $ 9.3 billion in 2016 , an increase of 0.9 % from 2015 , which included operational growth of 2.3 % and a negative currency impact of 1.4 % . operational growth in advanced surgery was driven by endocutter , energy and biosurgery products , primarily attributable to market growth , increased penetration in certain markets and new product launches . the acquisition of neuwave medical , inc. also contributed to growth . the operational decline in general surgery was due to lower sales of women 's health and urology products and pricing pressures partially offset by growth of sutures . the operational decline in specialty surgery was primarily due to lower sales of acclarent products and advanced sterilization products outside the u.s. , divestitures and competitive pressures in sterilmed partially offset by growth of mentor products outside the u.s. the vision care franchise achieved sales of $ 2.8 billion in 2016 , an increase of 6.8 % from 2015 , which included operational growth of 6.4 % and a positive currency impact of 0.4 % . growth in all the major regions was primarily driven by new product launches .
| % , 2.4 % and 3.8 % , respectively . sales by companies in europe experienced a decline of 1.4 % as compared to the prior year , including operational growth of 1.4 % , offset by a negative currency impact of 2.8 % . sales by companies in the western hemisphere ( excluding the u.s. ) experienced a decline of 5.1 % as compared to the prior year , including operational growth of 4.0 % offset by a negative currency impact of 9.1 % . sales by companies in the asia-pacific , africa region achieved growth of 1.8 % as compared to the prior year , including operational growth of 1.4 % and a positive currency impact of 0.4 % . the 2016 sales growth percentage as compared to the prior year was negatively impacted by approximately 1.3 % from additional shipping days in 2015 . ( see note 1 to the consolidated financial statements for annual closing date details ) . while the additional week in 2015 added a few days to sales , it also added a full week 's worth of operating costs ; therefore , the net earnings impact was negligible . in 2016 , the company had two wholesalers distributing products for all three segments that represented approximately 13.5 % and 10.7 % of the total consolidated revenues . in 2015 and 2014 , the company had one wholesaler distributing products for all three segments that represented approximately 12.5 % and 11.0 % , respectively , of the total consolidated revenues . 15 analysis of sales by business segments consumer segment consumer segment sales in 2016 were $ 13.3 billion , a decrease of 1.5 % from 2015 , which included 1.5 % operational growth offset by a negative currency impact of 3.0 % . u.s. consumer segment sales were $ 5.4 billion , an increase of 3.8 % . international sales were $ 7.9 billion , a decrease of 4.8 % , which included 0.1 % operational growth offset by a negative currency impact of 4.9 % . in 2016 , the impact of acquisitions and divestitures on the consumer segment operational sales growth was negative
| 12,095 |
also contributing to the increase were incremental revenues from net new company-operated store openings over the past 12 months ( approximately $ 100 million ) . licensed store revenues also contributed to the increase in total net revenues with an increase of $ 149 million in fiscal 2012 over the prior year period , primarily due to higher product sales to and royalty revenues from our licensees , resulting from improved comparable store sales and the opening of 270 net new licensed stores over the past 12 months . operating expenses cost of sales including occupancy costs as a percentage of total net revenues increased 30 basis points , primarily driven by higher commodity costs ( approximately 110 basis points ) , mainly coffee , partially offset by increased sales leverage on occupancy costs ( approximately 70 basis points ) . store operating expenses as a percentage of total net revenues decreased 60 basis points . increased licensed store revenues contributed approximately 30 basis points of the decrease . store operating expenses as a percentage of company-operated store revenues decreased 30 basis points , primarily due to increased sales leverage ( approximately 70 basis points ) , partially offset by higher debit card transaction fees ( approximately 20 basis points ) . 30 other operating expenses as a percentage of total net revenues was flat over prior year . as a percentage of net revenues excluding company-operated store revenues , other operating expenses decreased 100 basis points , primarily driven by increased sales leverage . the combination of these changes , along with increased sales leverage on depreciation and amortization expense ( approximately 40 basis points ) , resulted in an increase in operating margin of 60 basis points over fiscal 2011. emea replace_table_token_14_th revenues emea total net revenues for fiscal 2012 increased 9 % , or $ 95 million , primarily driven by increased revenues from company-operated stores ( contributing $ 63 million ) , due to the acquisition of the remaining interest in our previous joint venture operations in switzerland and austria in the fourth quarter of fiscal 2011 ( approximately $ 80 million ) , partially offset by unfavorable foreign currency fluctuations ( approximately $ 33 million ) . an increase in licensed store revenues of $ 27 million also contributed to the increase in total net revenues , primarily due to higher product sales to and royalty revenues from our licensees , resulting from the opening of 101 net new licensed stores over the past 12 months . operating expenses cost of sales including occupancy costs as a percentage of total net revenues increased 160 basis points , primarily driven by higher costs related to the transition to a consolidated food and dairy distribution model in the uk that began in the first quarter of fiscal 2012 ( approximately 180 basis points ) . these costs are expected to decline over time as the full benefits of the transition are realized . also contributing to the decrease were costs related to store portfolio optimization initiatives occurring in the fourth quarter of fiscal 2012 ( approximately 60 basis points ) , partially offset by increased sales leverage on occupancy costs . store operating expenses as a percentage of total net revenues increased 120 basis points . store operating expenses as a percentage of company-operated store revenues increased 220 basis points , primarily driven by asset impairments related to underperforming stores ( approximately 140 basis points ) . also contributing to the decrease were costs related to store portfolio optimization initiatives occurring in the fourth quarter of fiscal 2012 ( approximately 40 basis points ) . 31 other operating expenses as a percentage of total net revenues decreased 60 basis points . excluding the impact of company-operated store revenues , other operating expenses decreased 640 basis points , primarily driven by operational efficiencies . income from equity investees declined to $ 0.3 million in fiscal 2012 , due to the acquisition of the remaining interest in our previous joint venture operations in switzerland and austria . the above changes contributed to a decrease in operating margin of 290 basis points over the prior year . china / asia pacific replace_table_token_15_th revenues china / asia pacific total net revenues for fiscal 2012 increased 31 % , or $ 169 million , primarily driven by increased revenues from company-operated stores ( contributing $ 128 million ) . the increase in company-operated store revenues was primarily due to the opening of 154 net new stores over the past 12 months ( approximately $ 71 million ) and an increase in comparable store sales ( approximately 15 % , or $ 53 million ) . also contributing to the increase in revenues was an increase in licensed store revenues of $ 41 million , due to increased royalty revenues from and product sales to licensees , primarily driven by 294 net new licensed store openings over the past 12 months . operating expenses cost of sales including occupancy costs as a percentage of total net revenues decreased 80 basis points primarily driven by the accelerated growth of company-operated stores , which contribute a higher gross margin , in china ( approximately 140 basis points ) , partially offset by increased commodity costs ( approximately 120 basis points ) , mainly higher coffee costs . store operating expenses as a percentage of total net revenues increased 140 basis points . store operating expenses as a percentage of company-operated store revenues increased 130 basis points , primarily driven by increased costs associated with the expansion efforts of company-operated stores in mainland china . 32 income from equity investees increased $ 30 million , primarily driven by an increase in income from our japan ( approximately $ 11 million ) and shanghai ( approximately $ 10 million ) joint venture operations . story_separator_special_tag the combination of these changes , along with increased sales leverage on depreciation and amortization ( approximately 10 basis points ) and general and administrative expenses ( approximately 70 basis points ) , resulted in an increase in operating margin of 10 basis points over fiscal 2011. channel development replace_table_token_16_th revenues channel development total net revenues for fiscal 2012 increased 50 % , or $ 432 million , primarily due to sales of starbucks and tazo branded k-cup ® portion packs ( approximately $ 232 million ) . the benefit of recognizing full revenue from packaged coffee and tea sales under the direct distribution model through the second quarter of fiscal 2012 ( approximately $ 70 million ) and increased foodservice revenues ( approximately $ 33 million ) also contributed . operating expenses cost of sales as a percentage of total net revenues increased 730 basis points , primarily due to increased commodity costs ( approximately 570 basis points ) , mainly coffee , and a shift in our product mix driven by the introduction of starbucks and tazo branded k-cup ® portion packs ( approximately 140 basis points ) . other operating expenses as a percentage of total net revenues decreased 280 basis points , primarily due to increased sales leverage . income from equity investees increased $ 10 million over the prior year period , driven by increased income from our north american coffee partnership joint venture . income from equity investees declined as a percentage of total net revenues ( approximately 220 basis points ) primarily due to the growth in segment revenues . the combination of these changes resulted in a decrease in operating margin of 640 basis points over fiscal 2011 . 33 other replace_table_token_17_th other includes operating results from seattle 's best coffee , evolution fresh , and digital ventures , as well as expenses pertaining to corporate administrative functions that support our operating segments but are not specifically attributable to , or managed by , any segment and are not included in the reported financial results of the operating segments . other total net revenues increased $ 33 million , primarily due to incremental revenues from evolution fresh , which was acquired during the first quarter of fiscal 2012. total operating expenses increased $ 60 million , primarily due to increased cost of sales resulting from higher commodity costs , primarily coffee , and higher general and administrative expenses to support the growth of the business . results of operations — fiscal 2011 compared to fiscal 2010 consolidated results of operations ( in millions ) : revenues replace_table_token_18_th consolidated net revenues were $ 11.7 billion for fiscal 2011 , an increase of 9 % , or $ 993 million over fiscal 2010. the increase was primarily due to an increase in company-operated store revenues driven by an 8 % increase in global comparable stores sales ( contributing approximately $ 672 million ) . the increase in comparable store sales was due to a 6 % increase in number of transactions ( contributing approximately $ 499 million ) and a 2 % increase in average value per transaction ( contributing approximately $ 173 million ) . also contributing to the increase in 34 total net revenues was favorable foreign currency translation ( approximately $ 126 million ) resulting from a weakening of the us dollar relative to foreign currencies and an increase in licensed store revenues ( approximately $ 106 million ) . this increase was partially offset by the impact of the extra week in fiscal 2010 ( approximately $ 207 million ) . operating expenses replace_table_token_19_th cost of sales including occupancy costs as a percentage of total net revenues increased 80 basis points . the increase was primarily due to higher commodity costs ( approximately 220 basis points ) , mainly driven by increased coffee costs . partially offsetting this increase was lower occupancy costs as a percentage of total net revenues ( approximately 70 basis points ) , driven by increased sales leverage . store operating expenses as a percentage of total net revenues decreased 170 basis points primarily due to increased sales leverage . other operating expenses as a percentage of total net revenues increased 80 basis points primarily due to higher expenses to support the direct distribution model for packaged coffee and tea ( approximately 40 basis points ) and the impairment of certain assets in our seattle 's best coffee business associated with the borders bankruptcy in april 2011 ( approximately 20 basis points ) . the above changes contributed to an overall increase in operating margin of 150 basis points for fiscal 2011. considering the impact from all line items , the primary drivers for the increase in operating margin for fiscal 2011 were increased sales leverage ( approximately 300 basis points ) , the absence of restructuring charges in the current year ( approximately 50 basis points ) and the gain on the sale of corporate real estate in fiscal 2011 ( approximately 30 basis points ) . these increases were partially offset by higher commodity costs ( approximately 220 basis points ) . 35 other income and expenses replace_table_token_20_th net interest income and other increased $ 66 million over the prior year . the increase primarily resulted from the gain recorded in the fourth quarter of fiscal 2011 related to our acquisition of the remaining ownership interest in our joint venture operations in switzerland and austria ( approximately $ 55 million ) . income taxes for the fiscal year ended 2011 resulted in an effective tax rate of 31.1 % compared to 34.0 % for fiscal 2010. the lower rate in fiscal 2011 was primarily due to a benefit from the switzerland and austria transaction and to an increase in income in foreign jurisdictions having lower tax rates . segment information the following tables summarize our results of operations by segment for fiscal 2011 and 2010 ( in millions ) . americas replace_table_token_21_th 36 revenues americas total net revenues for fiscal 2011 increased 7 % , or $ 577 million .
| overview starbucks results for fiscal 2012 reflect the strength of our global business model . we continue to execute on our new regional operating model which we implemented at the beginning of fiscal 2012. we now have four reportable operating segments : americas ; europe , middle east , and africa ( `` emea '' ) ; china / asia pacific ( `` cap '' ) and channel development . each segment is managed by an operating segment president . total net revenues increased 14 % to $ 13.3 billion driven by global comparable store sales growth of 7 % and a 50 % increase in channel development revenue . this growth drove increased sales leverage and resulted in higher operating margin and net earnings compared to fiscal 2011. this helped mitigate the impact of higher commodity costs , mostly coffee , which negatively impacted operating income by approximately $ 214 million for the year , equivalent to approximately 160 basis points of impact on operating margin . our americas business continued its strong momentum and contributed 75 % of total net revenues in fiscal 2012. the revenue growth for the year was driven by an 8 % increase in comparable store sales , comprised of a 6 % increase in traffic and a 2 % increase in average ticket . this sales growth , combined with a continued focus on operational efficiencies , drove increased sales leverage that offset the impact of higher commodity costs . looking forward , we expect to continue driving sales growth and profitability through continued store efficiency efforts , new store development , and expanding our pipeline of new product offerings to increase revenues throughout all dayparts . 25 emea segment results reflect both the investments we have begun making as part of our transformation plan for the region , as well as the macro-economic headwinds we , and others , face there . this resulted in flat comparable store sales and operating income of $ 10 million for fiscal 2012 , a decrease of $ 30 million
| 12,096 |
acquisition of arkansas expansion territories and memphis , tennessee and west memphis , arkansas expansion facilities in exchange for the company 's deep south and somerset distribution territories and mobile , alabama manufacturing facility ( the “ ccr exchange transaction ” ) on october 2 , 2017 , the company ( i ) acquired from ccr distribution rights and related assets in expansion territories previously served by ccr through ccr 's facilities and equipment located in central and southern arkansas and two expansion facilities located in memphis , tennessee and west memphis , arkansas and related manufacturing assets ( collectively , the “ ccr exchange business ” ) in exchange for which the company ( ii ) transferred to ccr distribution rights and related assets in territories previously served by the company through its facilities and equipment located in portions of southern alabama , southeastern mississippi , southwestern georgia and northwestern florida and in and around somerset , kentucky and a regional manufacturing facility located in mobile , alabama and related manufacturing assets ( collectively , the “ deep south and somerset exchange business ” ) , pursuant to an asset exchange agreement entered into by the company , certain of its wholly-owned subsidiaries and ccr on september 29 , 2017 ( the “ ccr aea ” ) . during 2017 , the company paid ccr $ 15.9 million toward the closing of the ccr exchange transaction , representing an estimate of the difference between the value of the ccr exchange business acquired by the company and the value of the deep south and somerset exchange business acquired by ccr . during the fourth quarter of 2017 , the company recorded certain adjustments to this settlement amount as a result of changes in estimated net working capital and other fair value adjustments , which are included in accounts payable to the coca‑cola company . the final closing price for the ccr exchange transaction remains subject to final resolution pursuant to the ccr aea . the payment for the ccr exchange transaction reflected the application of $ 4.8 million of the expansion facilities discount ( as described below ) . acquisition of memphis , tennessee expansion territories on october 2 , 2017 , the company acquired distribution rights and related assets in expansion territories previously served by ccr through ccr 's facilities and equipment located in and around memphis , tennessee , including portions of northwestern mississippi and eastern arkansas , pursuant to an asset purchase agreement entered by the company and ccr on september 29 , 2017 ( the “ september 2017 apa ” ) . the company completed this acquisition for a cash purchase price of $ 39.6 million , which remains subject to post-closing adjustment in accordance with the september 2017 apa . system transformation transactions completed with united in 2017 acquisition of spartanburg and bluffton , south carolina expansion territories in exchange for the company 's florence and laurel territories and piedmont 's northeastern georgia territories ( “ united exchange transaction ” ) on october 2 , 2017 , the company and piedmont completed exchange transactions in which ( i ) the company acquired from coca‑cola bottling company united , inc. ( “ united ” ) , an independent bottler that is unrelated to the company , distribution rights and related assets in expansion territories previously served by united through united 's facilities and equipment located in and around spartanburg , south carolina and a portion of united 's territory located in and around bluffton , south carolina and piedmont acquired from united similar rights , assets and liabilities , and working capital in the remainder of united 's bluffton , south carolina territory ( collectively , the “ united distribution business ” ) , in exchange for which ( ii ) the company transferred to united distribution rights and related assets in territories previously served by the company through its facilities and equipment located in parts of northwestern alabama , south-central tennessee and southeastern mississippi previously served by the company 's distribution centers located in florence , alabama and laurel , mississippi ( collectively , the “ florence and laurel distribution business ” ) and piedmont transferred to united similar rights , assets and liabilities , and working capital of piedmont 's in territory located in parts of northeastern georgia ( the “ northeastern georgia distribution business ” ) , pursuant to an asset exchange agreement between the company , certain of its wholly- 31 owned subsidiaries and united dated september 29 , 2017 ( the “ united aea ” ) and an asset exchange agreement between piedmont and united dated september 29 , 2017 ( the “ piedmont – united aea ” ) . at closing , the company and piedmont paid united $ 3.4 million toward the closing of the united exchange transaction , representing an estimate of ( i ) the difference between the value of the portion of the united distribution business acquired by the company and the value of the florence and laurel distribution business acquired by united , plus ( ii ) the difference between the value of the portion of the united distribution business acquired by piedmont and the value of the northeastern georgia distribution business acquired by united , which such amounts remain subject to final resolution pursuant to the united aea and the piedmont – united aea , respectively . story_separator_special_tag expansion facilities discount and legacy facilities credit letter agreement in connection with the company 's acquisitions of the expansion facilities and the impact on transaction value from certain adjustments made by the coca‑cola company under the rma ( as discussed above in item 1 ) to the authorized pricing on sales of certain beverages produced by the company under trademarks of the coca‑cola company at the expansion facilities and sold to the coca‑cola company and certain u.s. coca‑cola bottlers , the company and the coca‑cola company also entered into a letter agreement on march 31 , 2017 ( as amended , the “ manufacturing facilities letter agreement ” ) , pursuant to which the coca‑cola company agreed to provide the company with an aggregate valuation adjustment discount of $ 33.1 million ( the “ expansion facilities discount ” ) on the purchase prices for the expansion facilities . the parties agreed to apply $ 22.9 million of the total expansion facilities discount upon the company 's acquisition of expansion facilities in march 2017 and agreed to apply an additional $ 5.4 million of the total expansion facilities discount upon the company 's acquisition of an expansion facility in april 2017. the parties agreed to apply the remaining $ 4.8 million of the total expansion facilities discount upon the company 's acquisition of two additional expansion facilities as part of the ccr exchange transaction , after which time no amounts remain outstanding under the manufacturing facilities letter agreement . the manufacturing facilities letter agreement also establishes a mechanism to compensate the company with a payment or credit for the net economic impact to the manufacturing facilities the company served prior to the system transformation ( the “ legacy facilities ” ) of the changes made by the coca‑cola company to the authorized pricing under the rma on sales of certain coca‑cola products produced by the company at the legacy facilities and sold to the coca‑cola company and certain u.s. coca‑cola bottlers versus the company 's historical returns for products produced at the legacy facilities prior to the conversion on march 31 , 2017 of the company 's then-existing manufacturing agreements with the coca‑cola company to the rma ( the “ legacy facilities credit ” ) . the company and the coca‑cola company agreed that the amount of the legacy facilities credit to be paid to the company by the coca‑cola company was $ 43.0 million , pursuant to a letter agreement between the company and the coca‑cola company dated december 26 , 2017. the coca‑cola company paid the legacy facilities credit , in the amount of $ 43.0 million , to the company in december 2017. the company recognized $ 12.4 million of the legacy facilities credit during 2017 , representing the portion of the credit applicable to the mobile , alabama facility which the company transferred to ccr as part of the ccr exchange transaction . the $ 12.4 million portion of the legacy facilities credit related to the mobile , alabama facility was recorded to gain ( loss ) on exchange transactions in the company 's consolidated financial statements . the remaining $ 30.6 million of the legacy facilities credit was recorded as a deferred liability and will be amortized as a reduction to cost of sales over a period of 40 years . gain on exchange transactions upon closing the ccr exchange transaction and the united exchange transaction , the fair value of net assets acquired exceeded the carrying value of net assets exchanged , which resulted in a gain of $ 0.5 million recorded to gain ( loss ) on exchange transactions in the company 's consolidated financial statements . this amount remains subject to final resolution pursuant to the ccr aea , the united aea and the piedmont – united aea . the $ 0.5 million gain on the ccr exchange transaction and the united exchange transaction , combined with the $ 12.4 million portion of the legacy facilities credit related to the mobile , alabama facility , resulted in a total gain on exchange transactions of $ 12.9 million in 2017 . 32 as of december 31 , 2017 , the system transformation transactions completed and their respective net cash purchase prices were as follows : replace_table_token_8_th ( 1 ) cash purchase price amounts include final post-closing adjustments that were made beyond one year from the applicable transaction closing date and were therefore adjusted through the consolidated statement of operations and not reflected in the acquisitions ' opening balance sheets . ( 2 ) cash purchase price amounts are subject to a final post-closing adjustment and , as a result , may either increase or decrease . the financial results of the expansion territories and the expansion facilities have been included in the company 's consolidated financial statements from their respective acquisition or exchange dates . these expansion territories and expansion facilities contributed the following amounts to the company 's consolidated statement of operations : fiscal year ( in thousands ) 2017 ( 1 ) 2016 ( 2 ) net sales $ 1,751,897 $ 1,061,769 income from operations 29,684 24,280 ( 1 ) includes the results of the expansion territories and the expansion facilities acquired in the system transformation during 2017 and 2016 . ( 2 ) includes the results of the expansion territories and the expansion facilities acquired in the system transformation during 2016 and 2015 . 33 net sales by product category the company 's net sales in the last three fiscal years by product category were as follows : replace_table_token_9_th areas of emphasis key priorities for the company include integration of the expansion territories and the expansion facilities , revenue management , product innovation and beverage portfolio expansion , distribution cost management and productivity . revenue management : revenue management requires a strategy that reflects consideration for pricing of brands and packages within product categories and channels , highly effective working relationships with customers and disciplined fact-based decision-making . revenue management has been and continues to be a key driver which has a significant impact on the company 's results of operations .
| 36 the company 's products are sold and distributed through various channels , which include selling directly to retail stores and other outlets such as food markets , institutional accounts and vending machine outlets . during 2017 , approximately 65 % of the company 's bottle/can sales volume to retail customers was sold for future consumption , while the remaining bottle/can sales volume to retail customers was sold for immediate consumption . all the company 's beverage sales were to customers in the united states . the company recorded delivery fees to retail customers in net sales of $ 5.7 million in 2017 and $ 6.0 million in 2016. these fees are used to offset a portion of the company 's delivery and handling costs . the following table summarizes the percentage of the company 's total bottle/can sales volume to its largest customers , as well as the percentage of the company 's total net sales that such volume represents : replace_table_token_12_th cost of sales cost of sales includes the following : raw material costs , manufacturing labor , manufacturing overhead including depreciation expense , manufacturing warehousing costs , shipping and handling costs related to the movement of finished goods from manufacturing locations to sales distribution centers and the purchase of finished goods . inputs representing a substantial portion of the company 's total cost of sales include : ( i ) sweeteners , ( ii ) packaging materials , including plastic bottles and aluminum cans , and ( iii ) finished products purchased from other vendors . cost of sales increased $ 842.0 million , or 43.4 % , to $ 2.78 billion in 2017 , as compared to $ 1.94 billion in 2016. the increase in cost of sales was principally attributable to the following ( in millions ) : 2017 attributable to : $ 765.8 cost of sales increase related to the expansion territories and expansion facilities acquired in the system transformation during 2017 and 2016 46.4 increase in purchases of finished goods and an increase
| 12,097 |
the timing of the release of packaway inventory to our stores is principally driven by the product mix and seasonality of the merchandise , and its relation to our store merchandise assortment plans . as such , the aging of packaway varies by merchandise category and seasonality of purchase , but typically packaway remains in storage less than six months . we expect to continue to take advantage of packaway inventory opportunities to deliver bargains to our customers . changes in packaway inventory levels impact our operating cash flow . at the end of fiscal 2013 , packaway inventory was 49 % of total inventory compared to 47 % and 49 % at the end of fiscal 2012 and 2011 , respectively . investing activities net cash used in investing activities was $ 563.8 million , $ 425.7 million , and $ 471.8 million in fiscal 2013 , 2012 , and 2011 , respectively . the increase in cash used for investing activities in fiscal 2013 compared to fiscal 2012 was primarily due to an increase in our capital expenditures . the decrease in cash used for investing activities for fiscal 2012 compared to fiscal 2011 was primarily due to a transfer of funds in fiscal 2011 into restricted accounts to serve as collateral for our insurance obligations . in fiscal 2013 , 2012 , and 2011 , our capital expenditures were $ 550.5 million , $ 424.4 million , and $ 416.3 million , respectively . our capital expenditures include costs to build or expand distribution centers , develop our new data center , open new stores and improve existing stores , and for various other expenditures related to our information technology systems , buying , and corporate offices . we opened 88 , 82 , and 80 new stores in fiscal 2013 , 2012 , and 2011 , respectively . in 2013 we purchased the land and building of our previously leased 1.3 million square foot perris , california distribution center for $ 70 million ; we also spent approximately $ 60 million building out our new corporate headquarters . our buying offices , our former corporate headquarters , two truck and trailer parking facilities , three warehouse facilities , and all but three of our store locations are leased and , except for certain leasehold improvements and equipment , do not represent capital investments . 19 our capital expenditures over the last three years are set forth in the table below : replace_table_token_8_th in october 2013 , we entered into a sale-purchase agreement under which we have the right to purchase the office building where our new york buying office is located for $ 222 million . the building is subject to a 99 year ground lease through june 2111. the sale-purchase agreement contemplates completion of the sale and purchase of the building on or before september 20 , 2014 , subject to satisfaction of various closing conditions . under the sale-purchase agreement , we provided a deposit of 10 % of the purchase price . in the event we are unable or choose not to complete the purchase of the building , we would forfeit the deposit but have no further liability to the seller or obligation to complete the purchase . in september 2013 , we deposited $ 11.1 million and provided an $ 11.1 million standby letter of credit to meet the 10 % deposit obligation . in january 2014 , we deposited an additional $ 2.2 million in escrow for the building bringing our total deposit to $ 13.3 million . we plan to finance the purchase of the building in 2014. we are forecasting approximately $ 800 million in capital expenditures for fiscal year 2014 , up from $ 550.5 million in fiscal 2013 . in addition to funding costs for fixtures and leasehold improvements to open both new ross and dd 's discounts stores , the upgrade or relocation of existing stores , investments in information technology systems , and for various other expenditures related to our stores , distribution centers , buying and corporate offices , this higher capital spending is primarily driven by the expected purchase of our new york buying office and continued construction of our two new distribution centers . we expect to primarily fund capital expenditures with available cash and cash flows from operations and with proceeds from our planned financing of the purchase of our new york buying office . we purchased $ 12.0 million and $ 5.4 million of investments in fiscal 2013 and fiscal 2012 , respectively . we purchased no investments in fiscal 2011 . we had proceeds from investments of $ 1.6 million , $ 6.2 million , and $ 4.6 million in fiscal 2013 , 2012 , and 2011 , respectively . financing activities net cash used in financing activities was $ 681.8 million , $ 557.0 million , and $ 532.4 million in fiscal 2013 , 2012 , and 2011 , respectively . during fiscal 2013 , 2012 , and 2011 , our liquidity and capital requirements were provided by available cash and cash flows from operations . in january 2013 , our board of directors approved a two-year $ 1.1 billion stock repurchase program for fiscal 2013 and 2014. we repurchased 8.2 million , 7.5 million , and 11.3 million shares of common stock for aggregate purchase prices of approximately $ 550 million , $ 450 million , and $ 450 million in fiscal 2013 , 2012 , and 2011 , respectively . we also acquired 496,000 , 505,000 , and 442,000 shares of treasury stock from our employee stock equity compensation programs , for aggregate purchase prices of approximately $ 29.9 million , $ 29.4 million , and $ 15.9 million during fiscal 2013 , 2012 , and 2011 , respectively . in february 2014 , our board of directors declared a quarterly cash dividend of $ 0.20 per common share , payable on march 31 , 2014 . story_separator_special_tag our board of directors declared cash dividends of $ 0.17 per common share in january , may , august , and november 2013 , cash dividends of $ 0.14 per common share in january , may , august , and november 2012 , and cash dividends of $ 0.11 per common share in january , may , august , and november 2011 . during fiscal 2013 , 2012 , and 2011 , we paid dividends of $ 147.9 million , $ 125.7 million , and $ 102.0 million , respectively . short-term trade credit represents a significant source of financing for merchandise inventory . trade credit arises from customary payment terms and trade practices with our vendors . we regularly review the adequacy of credit available to us from all sources and expect to be able to maintain adequate trade , bank , and other credit lines to meet our capital and liquidity requirements , including lease payment obligations in 2014 . our existing $ 600 million unsecured revolving credit facility expires in june 2017 and contains a $ 300 million sublimit for issuance of standby letters of credit . interest on this facility is based on libor plus an applicable margin ( currently 20 100 basis points ) and is payable quarterly and upon maturity . as of february 1 , 2014 , we had no borrowings or standby letters of credit outstanding on this facility and our $ 600 million credit facility remains in place and available . we estimate that existing cash balances , cash flows from operations , bank credit lines , and trade credit are adequate to meet our operating cash needs and to fund our planned capital investments , common stock repurchases , and quarterly dividend payments for at least the next twelve months . contractual obligations the table below presents our significant contractual obligations as of february 1 , 2014 : replace_table_token_9_th 1 we have a $ 104.9 million liability for unrecognized tax benefits that is included in other long-term liabilities on our consolidated balance sheet . this liability is excluded from the schedule above as the timing of payments can not be reasonably estimated . senior notes . we have issued two series of unsecured senior notes in the aggregate principal amount of $ 150 million , held by various institutional investors . the series a notes totaling $ 85 million are due in december 2018 and bear interest at a rate of 6.38 % . the series b notes totaling $ 65 million are due in december 2021 and bear interest at a rate of 6.53 % . interest on these notes is included in interest payment obligations in the table above . these notes are subject to prepayment penalties for early payment of principal . borrowings under these notes are subject to certain operating and financial covenants , including interest coverage and other financial ratios . as of february 1 , 2014 , we were in compliance with these covenants . off-balance sheet arrangements operating leases . we currently lease our buying offices , our former corporate headquarters , three warehouse facilities , all but three of our store locations , and two truck and trailer parking facilities . except for certain leasehold improvements and equipment , these leased locations do not represent long-term capital investments . we lease three warehouses . two of the warehouses are in carlisle , pennsylvania with leases expiring in 2016 and 2017 . the third warehouse is in fort mill , south carolina , with a lease expiring in 2016 . the leases for all three warehouses contain renewal provisions . we lease a 10-acre parcel for trailer parking adjacent to our perris , california distribution center that expires in 2017 and a 20-acre facility located in moreno valley , california primarily for ancillary truck and trailer parking that expires in 2015. both of these leases contain renewal provisions . we lease approximately 192,000 square feet of office space for our former corporate headquarters in pleasanton , california , under several facility leases . the term for the majority of these leases expires in june 2014. the lease term for the remaining space of approximately 11,000 square feet expires in march 2015. we do not plan to renew any of these leases . we currently lease approximately 411,000 and 52,000 square feet of office space for our new york city and los angeles buying offices , respectively . the lease terms for these facilities expire in 2022 and 2017 , respectively , and contain renewal provisions . we plan to purchase our new york buying office in 2014 . 21 purchase obligations . as of february 1 , 2014 we had purchase obligations of approximately $ 1,812 million . these purchase obligations primarily consist of merchandise inventory purchase orders , commitments related to construction projects , store fixtures and supplies , and information technology service and maintenance contracts . commercial credit facilities the table below presents our significant available commercial credit facilities at february 1 , 2014 : amount of commitment expiration per period less than 1 year total amount committed ( $ 000 ) 1 - 3 years 3 - 5 years after 5 years revolving credit facility $ — $ — $ 600,000 $ — $ 600,000 total commercial commitments $ — $ — $ 600,000 $ — $ 600,000 for additional information relating to this credit facility , refer to note d of notes to consolidated financial statements . revolving credit facility . our existing $ 600 million unsecured revolving credit facility expires in june 2017 and contains a $ 300 million sublimit for issuance of standby letters of credit . interest on this facility is based on libor plus an applicable margin ( currently 100 basis points ) and is payable quarterly and upon maturity . as of february 1 , 2014 we had no borrowings outstanding or standby letters of credit issued under this facility . our revolving credit facility and senior notes have covenant restrictions requiring us to maintain certain interest coverage and other financial ratios .
| our sales mix is shown below for fiscal 2013 , 2012 , and 2011 : replace_table_token_5_th we intend to address the competitive climate for off-price apparel and home goods by pursuing and refining our existing strategies and by continuing to strengthen our organization , diversify our merchandise mix , and more fully develop our systems to improve regional and local merchandise offerings . although our strategies and store expansion program contributed to sales gains in fiscal 2013 , 2012 , and 2011 , we can not be sure that they will result in a continuation of sales growth or in an increase in net earnings . cost of goods sold . cost of goods sold in fiscal 2013 increased $ 349.5 million compared to the prior year mainly due to increased sales from the opening of 77 net new stores during the year and a 3 % increase in sales from comparable stores . cost of goods sold as a percentage of sales for fiscal 2013 decreased approximately 15 basis points from the prior year . this improvement was due primarily to a 45 basis point increase in merchandise gross margin , which was partially offset by increases in occupancy of about 20 basis points and increases in distribution and buying expenses of about 5 basis points each . cost of goods sold in fiscal 2012 increased $ 770.7 million compared to the prior year mainly due to increased sales from the opening of 74 net new stores during the year and a 6 % increase in sales from comparable stores . cost of goods sold as a percentage of sales for fiscal 2012 decreased approximately 40 basis points from the prior year . this improvement was due primarily to a 40 basis point increase in merchandise gross margin . in addition , occupancy leveraged 25 basis points and distribution expenses as a percent of sales also declined approximately 15 17 basis points . these favorable items were partially offset by increases in buying and freight costs of 25 and 10 basis points , respectively , and 5 basis points related to the year over year true-up in our shortage reserve . we can not be sure that the gross profit margins realized in fiscal 2013 , 2012 ,
| 12,098 |
macro trends impacting desktop these market factors present long-term growth opportunities ; however , in the near term the industry-wide shift from desktop to mobile advertising has had an adverse impact on our business . in recent years , we have seen an industry-wide slowdown in the growth rate for traditional desktop advertising , and the growth rate for this portion of the market is expected to flatten in future years . according to magna , programmatic desktop advertising is expected to grow at a 6 % compound annual growth rate over the 2017-2021 period . this results from the market shift to mobile channels . these trends are having a significant effect on our overall growth rate , because desktop advertising continues to be a significant part of our core business , representing 57 % of advertising spend for the year ended december 31 , 2017 . our advertising spend for desktop decreased 31 % for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 . the effect of this overall shift away from traditional desktop display advertising was compounded for our business beginning in 2016 by the industry migration to header bidding , which occurred faster than we anticipated and while we were focused on other growth priorities . header bidding increased competition for some inventory and resulted in adverse revenue effects for us due to loss to competitors of some inventory that we would otherwise have been able to sell through our platform . however , header bidding makes available to us significant amounts of inventory that previously we were unable to access and our header bidding solution began producing positive results for us in the second half of 2016 , and gained significant traction in 2017. header bidding is going through an additional technical evolution from the client side , which involves the browser running the auction , to a server-side solution , in which a server runs the auction and offers the potential for improved performance and speed . we believe that our investments in our client-side header bidding solution as well as server-side header bidding have the potential to improve our competitiveness in all markets in 2018 and beyond . however , we must continue to address certain technical and operational challenges , as described under `` item 1a . risk factors '' in this annual report on form 10-k , in order to realize our header bidding solution 's full potential . because of these rapid developments in the industry , advertising spend from our traditional desktop business has declined and no longer can be relied upon to drive the growth of our business . our strategic focus is on growth areas—including mobile , video , and pmps—that are expected to represent a majority of our advertising spend in 2018 . however , despite our solid progress in mobile , our traditional desktop business accounted for approximately 57 % and 67 % of our advertising spend for the years ending december 31 , 2017 and 2016 , respectively , and is expected to continue to represent a significant part of our business in the near term . therefore , the weight of our desktop business and its decreasing advertising spend trend will continue to have a significant adverse effect on our growth until our advertising spend mix has shifted more fully to growth areas . take rate decline ad tech exchange intermediaries like us have used different revenue models in omp transactions , including charging fees only to sellers or arbitraging the purchase and sale of ad impressions . our approach was historically to charge fees to both buyers and sellers in omp transactions conducted on our exchange , consistent with the fact that we provide services to each . traditionally , for omp waterfall transactions , we ran a modified second price auction in which the clearing price was the greater of the second highest bid in the auction plus one cent or the applicable price floor . our buyer fees were determined algorithmically and added to the clearing price to determine the price charged to the winning bidder . our take rate was made up of the total fees we charged buyers and sellers . in 2016 , our take rate was 25.0 % . in 2017 , we reduced and then eliminated our buyer fees as a result of three strategic moves we made in response to market conditions . first , in response to market demands for more efficiency and lower cost from intermediaries like us , and in an effort to be more competitive in attracting demand and capturing supply , we made a strategic decision to reduce the fees we charged buyers in omp waterfall transactions . second , the mix of omp transactions on our exchange shifted from approximately three quarters conducted through the traditional ad server waterfall at the end of december 2016 to approximately half through the ad server waterfall as of september 30 , 2017. in traditional omp waterfall transactions , available impressions are passed to different demand sources in a sequence determined by the seller 's ad server , and when an impression is passed to a particular demand source , that demand source is generally able to auction the impression with little or no competition . as the percentage of omp waterfall transactions has declined , the percentage of header bidding transactions has increased . header bidding increases competition for ad inventory by exposing impressions simultaneously to multiple sources of demand in a competitive auction that , if successful , replaces the ad server waterfall . each demand source in a header bidding auction conducts its own auction for the impression and then passes its winning bid to a “ downstream ” meta-auction in which the seller evaluates bids from all its demand sources , and generally the highest bid wins . this competition pushes auction clearing prices much closer to the winning first-price bid than omp waterfall transactions . story_separator_special_tag in order to be more competitive and give our buyers a better chance of winning the header bidding impressions on which they bid , we began charging lower buyer fees for header bidding transactions so that we could pass higher priced bids into the downstream 56 auction . based upon experience with this approach and client feedback , in october 2017 we began offering a modified first price auction dynamic in our header bidding solution without buyer fees . third , as the ad tech industry has matured and evolved , competition has increased and pricing has become more transparent . the primary buyers in our omp transactions are dsps buying on behalf of agency and brand clients that are demanding reduced costs and fee transparency throughout the value chain . dsps and their clients are consequently demanding that exchanges disclose and limit or eliminate buyer fees , and dsps and their clients may reduce or eliminate spending on exchanges that charge buyer fees . in addition , some sellers believe that buyer fees ultimately reduce seller revenue , and therefore are seeking to cap or eliminate buyer fees on sale of their inventory . in response to these market trends , and consistent with our strategy to be a high volume , low cost and transparent exchange , we stopped charging our additive buyer fees altogether effective november 1 , 2017. we still charge some buyers an access fee to connect to our system when their spending is too small to support the maintenance of their accounts , but these access fees in the aggregate are insignificant . as such , our future revenue will consist almost entirely of a unitary marketplace fee . most of our marketplace fees are negotiated with sellers as a percentage of the auction clearing price for sale of their inventory . in some cases , we reduce the buyer 's bid amount by the amount of our fee and pass the remainder as the bid to the seller . if the bid wins we retain the amount of the bid reduction as our fee . we do this at the discretion of sellers that allocate advertising inventory through a decisioning process that follows after our auction and incorporates other demand sources as well as our bids , and that prefer or require that we submit our bids to them net of our fees , so that our bid matches the amount we will owe them if we win . this is referred to as net bidding . net bidding amounts can vary across transactions depending upon various factors including inventory and auction characteristics and seller policies . in general , we believe the marketplace fees we earn in these transactions are consistent with or below market rates for comparable transactions . these strategic price reductions contributed to the decrease in our take rate from 25.0 % for 2016 to 12.8 % for the fourth quarter of 2017 ( which includes fees on omp waterfall transactions and some header bidding transactions in october but not november or december ) . our take rate as we exited 2017 , which did not include any buyer fees , was approximately 11.6 % . our strategic pricing reductions are intended to address the market 's demand for lower costs and to attract more inventory and spending to our platform . lower pricing has caused our revenue and margins to decline significantly . in order to adjust to our lower take rates and return to growth , we must increase advertising spend on our platform . increases in pmp and header bidding transactions as a percentage of the activity on our exchange could yield higher advertising spend despite lower take rates due to higher cpms typically associated with pmp transactions , and from modified first-price auctions in header bidding transactions . however , in an increasingly competitive market in which buyers and sellers have many choices , it is not clear whether pricing reductions will result in increases in spending on our platform , or whether any spending increases will compensate fully for the reduction in pricing . further , because the rate at which we win header bidding auctions is much lower , due to competition inherent in header bidding transactions , than the rate at which we win waterfall transactions , as our business continues to shift away from waterfall transactions to header bidding , we need to participate in far more header bidding auctions to compensate for the decline in the number of waterfall transactions . driving revenue growth in this situation is difficult to accomplish in a competitive market and requires accessing significantly greater inventory levels from our sellers and in turn processing more auctions . this growth in business volume requires adequate processing capacity as well as ongoing innovation to address evolving client needs and capture business . prior to the elimination of buyer fees , such fees represented approximately half of our revenue for the first ten months of 2017 , and we do not expect to be able to grow advertising spending or reduce costs quickly enough in the near term to make up for the elimination of these fees . this will result in significant cash consumption to support operations during 2018. unless and until we are able to compensate for elimination of our buyer fees by increasing advertising spending on our platform , through higher transaction volumes or higher transaction values or both , we will not be able to grow our business and our cash resources will diminish . therefore , while we work to increase the volume of transactions on our exchange and compete more effectively , we must operate more efficiently to relieve the pressure on our margins and cash resources that has resulted from our price reductions and to compensate for the ongoing investments in technology and data processing capabilities required to support the increased volume of transactions that our growth plans require . consequently , we are pursuing various cost-control and efficiency initiatives .
| in addition , average cpm increased during the period due to a shift in mix of transactions on our platform from lower-priced , higher-volume transactions mainly associated with static bidding to higher-priced , lower-volume transactions mainly associated with rtb . we ceased offering our static bidding offering after the third quarter of 2016. the increase in average cpm was partially offset by a decrease in paid impressions from 819 billion for the year ended december 31 , 2016 to 585 billion for the year ended december 31 , 2017 . the decrease in paid impressions resulted from a shift in mix of ad requests , which in 2017 included a higher proportion of those generated from sellers via header bidding compared to those generated via waterfall . as noted above , header bidding makes available to us significant amounts of inventory that previously we were unable to access ; however , due to the competitive nature of header bidding , the rate at which we win those auctions and convert that inventory to paid impressions is much lower than the rate at which we win waterfall auctions , resulting in fewer paid impressions . in addition , the mix shift noted above from static bidding to rtb after the third quarter of 2016 contributed to lower paid impressions in 2017. revenue increased $ 29.7 million , or 12 % , for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 . the increase in 2016 revenue was primarily due to an increase in the amount of advertising spend on our platform during the year ended december 31 , 2016 compared to the year ended december 31 , 2015 . the increase in revenue was also attributable to an increase in average cpm to $ 1.25 for the year ended december 31 , 2016 from $ 1.09 for the year ended december 31 , 2015 , an increase of $ 0.16 , or 15 % . this increase in
| 12,099 |
provision for income taxes our provision for income taxes increased from $ 0.3 million for the year ended september 30 , 2013 to $ 0.7 million for the year ended september 30 , 2014. the increase is mainly attributable to a $ 0.3 million increase related to federal income tax provision and a $ 0.1 million increase in state income tax provision . we provided a valuation allowance for the federal income tax benefit resulting from the loss from operations for the year ended september 30 , 2013. as a result , we did not recognize any net benefit for federal income taxes for the year ended september 30 , 2013. our provision for income taxes increased from $ 38 thousand for the year ended september 30 , 2012 to $ 0.3 million for the year ended september 30 , 2013. the increase is mainly attributable to a decrease in the reversal of unrecognized tax benefits , resulting in a $ 0.2 million increase in the income tax expense and a $ 0.1 million increase in state income tax provision . we provided a valuation allowance for the federal income tax benefit resulting from the loss from operations for the years ended september 30 , 2014 and 2013 , respectively . as a result , we did not recognize any net benefit for federal income taxes for the years ended september 30 , 2013 and 2012. working capital during the year ended september 30 , 2014 , working capital increased by $ 26.6 million from september 30 , 2013 , reflecting a $ 23.9 million increase in current assets and a $ 2.7 million decrease in current liabilities during the period . during the year ended september 30 , 2014 , our current assets increased by $ 23.9 million , or 16.6 % , to $ 168.0 million , as compared to $ 144.0 million as of september 30 , 2013. cash and cash equivalents increased by $ 26.6 million during the year ended september 30 , 2014 as compared to september 30 , 2013 , primarily due to proceeds we received from our common stock rights offering in august , 2014 , which raised net proceeds of approximately $ 19.6 million , as well as cash generated by our operating activities . the current trade accounts receivables , net , increased by $ 3.9 million at september 30 , 2014 , as compared to september 30 , 2013. days sales outstanding ( dsos ) decreased to 54 as of september 30 , 2014 from 59 as of september 30 , 2013. the improvement was driven predominantly by increased collection efforts . while the rate of collections may vary , our secured position , resulting from our ability to secure liens against our customers ' overdue receivables , reasonably assures that collection will occur eventually to the extent that our security retains value . inventory decreased $ 4.1 million during the year ended september 30 , 2014 compared to september 30 , 2013 , due primarily to the timing of materials usage on certain of our commercial & industrial jobs , as well as a decrease in solar inventory at our residential segment . we also experienced a $ 2.0 million decrease in retainage during the year ended september 30 , 2014 compared to september 30 , 2013. during the year ended september 30 , 2014 , our total current liabilities decreased by $ 2.7 million to $ 95.9 million , compared to $ 98.6 million as of september 30 , 2013. current maturities of long-term debt decreased by $ 3.6 million during the year ended september 30 , 2014 compared to september 30 , 2013 primarily due to the amendment of our 2012 credit facility in september , 2014. this amendment eliminated our term loan , and borrowings outstanding under that term loan are now outstanding under the revolving credit facility , which matures in august 2018. this decrease was partly offset by additional billings in excess of costs , which increased by $ 1.2 million during the year ended september 30 , 2014 compared to september 30 , 2013 . 32 surety many customers , particularly in connection with new construction , require us to post performance and payment bonds issued by a surety . these bonds provide a guarantee to the customer that we will perform under the terms of our contract and that we will pay our subcontractors and vendors . if we fail to perform under the terms of our contract or to pay subcontractors and vendors , the customer may demand that the surety make payments or provide services under the bond . we must reimburse the sureties for any expenses or outlays they incur on our behalf . to date , we have not been required to make any reimbursements to our sureties for bond-related costs . as is common in the surety industry , sureties issue bonds on a project-by-project basis and can decline to issue bonds at any time . we believe that our relationships with our sureties will allow us to provide surety bonds as they are required . however , current market conditions , as well as changes in our sureties ' assessment of our operating and financial risk , could cause our sureties to decline to issue bonds for our work . if our sureties decline to issue bonds for our work , our alternatives would include posting other forms of collateral for project performance , such as letters of credit or cash , seeking bonding capacity from other sureties , or engaging in more projects that do not require surety bonds . in addition , if we are awarded a project for which a surety bond is required but we are unable to obtain a surety bond , the result could be a claim for damages by the customer for the costs of replacing us with another contractor . as of september 30 , 2014 , the story_separator_special_tag provision for income taxes our provision for income taxes increased from $ 0.3 million for the year ended september 30 , 2013 to $ 0.7 million for the year ended september 30 , 2014. the increase is mainly attributable to a $ 0.3 million increase related to federal income tax provision and a $ 0.1 million increase in state income tax provision . we provided a valuation allowance for the federal income tax benefit resulting from the loss from operations for the year ended september 30 , 2013. as a result , we did not recognize any net benefit for federal income taxes for the year ended september 30 , 2013. our provision for income taxes increased from $ 38 thousand for the year ended september 30 , 2012 to $ 0.3 million for the year ended september 30 , 2013. the increase is mainly attributable to a decrease in the reversal of unrecognized tax benefits , resulting in a $ 0.2 million increase in the income tax expense and a $ 0.1 million increase in state income tax provision . we provided a valuation allowance for the federal income tax benefit resulting from the loss from operations for the years ended september 30 , 2014 and 2013 , respectively . as a result , we did not recognize any net benefit for federal income taxes for the years ended september 30 , 2013 and 2012. working capital during the year ended september 30 , 2014 , working capital increased by $ 26.6 million from september 30 , 2013 , reflecting a $ 23.9 million increase in current assets and a $ 2.7 million decrease in current liabilities during the period . during the year ended september 30 , 2014 , our current assets increased by $ 23.9 million , or 16.6 % , to $ 168.0 million , as compared to $ 144.0 million as of september 30 , 2013. cash and cash equivalents increased by $ 26.6 million during the year ended september 30 , 2014 as compared to september 30 , 2013 , primarily due to proceeds we received from our common stock rights offering in august , 2014 , which raised net proceeds of approximately $ 19.6 million , as well as cash generated by our operating activities . the current trade accounts receivables , net , increased by $ 3.9 million at september 30 , 2014 , as compared to september 30 , 2013. days sales outstanding ( dsos ) decreased to 54 as of september 30 , 2014 from 59 as of september 30 , 2013. the improvement was driven predominantly by increased collection efforts . while the rate of collections may vary , our secured position , resulting from our ability to secure liens against our customers ' overdue receivables , reasonably assures that collection will occur eventually to the extent that our security retains value . inventory decreased $ 4.1 million during the year ended september 30 , 2014 compared to september 30 , 2013 , due primarily to the timing of materials usage on certain of our commercial & industrial jobs , as well as a decrease in solar inventory at our residential segment . we also experienced a $ 2.0 million decrease in retainage during the year ended september 30 , 2014 compared to september 30 , 2013. during the year ended september 30 , 2014 , our total current liabilities decreased by $ 2.7 million to $ 95.9 million , compared to $ 98.6 million as of september 30 , 2013. current maturities of long-term debt decreased by $ 3.6 million during the year ended september 30 , 2014 compared to september 30 , 2013 primarily due to the amendment of our 2012 credit facility in september , 2014. this amendment eliminated our term loan , and borrowings outstanding under that term loan are now outstanding under the revolving credit facility , which matures in august 2018. this decrease was partly offset by additional billings in excess of costs , which increased by $ 1.2 million during the year ended september 30 , 2014 compared to september 30 , 2013 . 32 surety many customers , particularly in connection with new construction , require us to post performance and payment bonds issued by a surety . these bonds provide a guarantee to the customer that we will perform under the terms of our contract and that we will pay our subcontractors and vendors . if we fail to perform under the terms of our contract or to pay subcontractors and vendors , the customer may demand that the surety make payments or provide services under the bond . we must reimburse the sureties for any expenses or outlays they incur on our behalf . to date , we have not been required to make any reimbursements to our sureties for bond-related costs . as is common in the surety industry , sureties issue bonds on a project-by-project basis and can decline to issue bonds at any time . we believe that our relationships with our sureties will allow us to provide surety bonds as they are required . however , current market conditions , as well as changes in our sureties ' assessment of our operating and financial risk , could cause our sureties to decline to issue bonds for our work . if our sureties decline to issue bonds for our work , our alternatives would include posting other forms of collateral for project performance , such as letters of credit or cash , seeking bonding capacity from other sureties , or engaging in more projects that do not require surety bonds . in addition , if we are awarded a project for which a surety bond is required but we are unable to obtain a surety bond , the result could be a claim for damages by the customer for the costs of replacing us with another contractor . as of september 30 , 2014 , the
| these costs consist primarily of compensation and benefits related to corporate , segment and branch management ( including incentive-based compensation ) , occupancy and utilities , training , professional services , information technology costs , consulting fees , travel and certain types of depreciation and amortization . we allocate certain corporate selling , general and administrative costs across our segments as we believe this more accurately reflects the costs associated with operating each segment . during the year ended september 30 , 2014 , our selling , general and administrative expenses were $ 75.6 million , an increase of $ 9.0 million , or 13.5 % , as compared to the year ended september 30 , 2013. the addition of our infrastructure solutions business contributed $ 9.3 million of additional costs . further , we experienced higher personnel costs in connection with increased profitability in our residential segment and $ 0.3 million of additional costs due to leadership changes in our infrastructure solutions segment . these increases were slightly offset by a reduction in acquisition related costs , as our 2013 results included $ 3.0 million of such costs . communications 2014 compared to 2013 replace_table_token_8_th revenue . revenues decreased by $ 10.3 million during the year ended september 30 , 2014 , an 8.1 % decrease compared to the year ended september 30 , 2013 . the decrease is primarily the result of the completion of certain high-tech manufacturing projects performed in 2013 , which did not recur in 2014. revenues from high-tech manufacturing projects were $ 7.5 million during the year ended september 30 , 2014 , compared to $ 30.6 million during the year ended september 30 , 2013. however , revenues attributable to data centers increased to $ 43.8 million for the year ended september 30 , 2014 compared to $ 38.7 million for the year ended september 30 , 2013. data center revenue increased due to an expansion of our customer base in this market ; partly offset by the decision of a large customer to procure its own
| 12,100 |
page 15 of 26 united-guardian , inc. inventory valuation allowance in conjunction with the company 's ongoing analysis of inventory valuation , management constantly monitors projected demand on a product-by-product basis . based on these projections , management evaluates the levels of write-downs required for inventory on hand and inventory on order from contract manufacturers . although the company believes that it has been reasonably successful in identifying write-downs in a timely manner , sudden changes in buying patterns from customers , either due to a shift in product interest and or a complete pull back from their expected order levels , may result in the recognition of larger-than-anticipated write-downs . story_separator_special_tag style= '' display : inline ; font-family : times new roman ; font-size : 10pt '' > medical products : sales of the company 's medical products increased $ 124,332 ( 4.3 % ) in 2013 compared with 2012. sales of the primary products in this category all increased , but such increases were partially offset by lower sales of lubrajel rc and lc , which decreased by 14.4 % due to the ordering patterns of the customers for this product . ( d ) industrial and other products : sales of the company 's industrial products , as well as other miscellaneous products , increased by $ 10,517 ( 6.9 % ) in 2013 when compared with 2012. sales were positively impacted in 2013 by a decrease of $ 42,799 ( 21.9 % ) in sales discounts and allowance reserves as compared with 2012. the decrease in sales discounts and allowances was mainly due to decreases in the allowance for distribution fees , rebates , and sales discounts attributable to the lower sales of renacidin in 2013 as compared with 2012. page 17 of 26 united-guardian , inc. cost of sales cost of sales as a percentage of net sales in 2013 decreased to 36.4 % from 37.7 % in the prior year . the decrease was primarily the result of the change in the company 's product mix as a result of the lower sales of renacidin in 2013 ( as discussed above ) , and increased sales in 2013 of the company 's higher- margin lubrajel products , as well as decreases in amortization and insurance expense . operating expenses operating expenses decreased by $ 3,808 ( 0.2 % ) in 2013 compared with the prior year . portions of the company 's operating expenses are directly attributable to the research and development that the company performs . in 2013 and 2012 , the company incurred approximately $ 717,000 and $ 693,000 , respectively , in research and development expenses , which are included in operating expenses . the increase in r & d costs incurred in 2013 was primarily attributable to increases in payroll costs . no portion of the research and development expenses was directly paid by the company 's customers . other income ( expense ) other income ( net ) increased $ 502,102 ( 60.6 % ) for the year ended december 31 , 2013 when compared with 2012. the increase was mainly attributable to the $ 1,070,561 received from the company 's renacidin supplier pursuant to the aforementioned settlement agreement . this compares with $ 518,050 that the company had accrued in 2012 pursuant to that same settlement agreement . the company earns interest income from money market funds and bonds , and dividend income from both stock and bond mutual funds . other income was reduced in 2013 by a decrease in investment income of $ 65,270 ( 20.1 % ) , which primarily resulted from lower interest rates and dividend returns compared with 2012. the company also had a net loss on the sale of assets of $ 14,861 in 2012 , which did not recur in 2013. provision for income taxes the provision for income taxes increased by $ 632,656 ( 30.2 % ) in 2013 compared with 2012. this increase was mainly due to an increase in income from operations and from the renacidin damage settlement . the company 's effective income tax rate was approximately 32 % in 2013 and 30 % in 2012 , and is lower than the federal statutory rate of 34 % primarily due to the additional tax deduction for domestic production activities as well as the utilization of research and development tax credits . liquidity and capital resources working capital increased from $ 11,795,895 at december 31 , 2012 to $ 13,061,866 at december 31 , 2013 , an increase of $ 1,265,971 ( 10.7 % ) . the current ratio decreased from 15.3 to 1 at december 31 , 2012 to 11.5 to 1 at december 31 , 2013. the increase in working capital was mainly due to increases in marketable securities , accounts receivable , and inventory . the decrease in the current ratio was primarily the result of increases in accounts payable and income taxes payable . page 18 of 26 united-guardian , inc. accounts receivable ( net of allowance for doubtful accounts ) as of december 31 , 2013 increased by $ 773,120 as compared with 2012. the average period of time that an account receivable was outstanding was approximately 33 and 35 days in 2013 and in 2012 , respectively . the company has a bad debt reserve of $ 18,000 and $ 29,000 for 2013 and 2012 , respectively , and believes that the net balance of its accounts receivable is fully collectable as of december 31 , 2013. the company does not maintain a line of credit with a financial institution because the company has no foreseeable need for a line of credit , and therefore management believes that the cost of maintaining a line of credit is not justified , especially considering the strong financial condition of the company . the company generated cash from operations of $ 5,805,086 in 2013 compared with $ 5,380,747 in 2012. the increase in 2013 was story_separator_special_tag page 15 of 26 united-guardian , inc. inventory valuation allowance in conjunction with the company 's ongoing analysis of inventory valuation , management constantly monitors projected demand on a product-by-product basis . based on these projections , management evaluates the levels of write-downs required for inventory on hand and inventory on order from contract manufacturers . although the company believes that it has been reasonably successful in identifying write-downs in a timely manner , sudden changes in buying patterns from customers , either due to a shift in product interest and or a complete pull back from their expected order levels , may result in the recognition of larger-than-anticipated write-downs . story_separator_special_tag style= '' display : inline ; font-family : times new roman ; font-size : 10pt '' > medical products : sales of the company 's medical products increased $ 124,332 ( 4.3 % ) in 2013 compared with 2012. sales of the primary products in this category all increased , but such increases were partially offset by lower sales of lubrajel rc and lc , which decreased by 14.4 % due to the ordering patterns of the customers for this product . ( d ) industrial and other products : sales of the company 's industrial products , as well as other miscellaneous products , increased by $ 10,517 ( 6.9 % ) in 2013 when compared with 2012. sales were positively impacted in 2013 by a decrease of $ 42,799 ( 21.9 % ) in sales discounts and allowance reserves as compared with 2012. the decrease in sales discounts and allowances was mainly due to decreases in the allowance for distribution fees , rebates , and sales discounts attributable to the lower sales of renacidin in 2013 as compared with 2012. page 17 of 26 united-guardian , inc. cost of sales cost of sales as a percentage of net sales in 2013 decreased to 36.4 % from 37.7 % in the prior year . the decrease was primarily the result of the change in the company 's product mix as a result of the lower sales of renacidin in 2013 ( as discussed above ) , and increased sales in 2013 of the company 's higher- margin lubrajel products , as well as decreases in amortization and insurance expense . operating expenses operating expenses decreased by $ 3,808 ( 0.2 % ) in 2013 compared with the prior year . portions of the company 's operating expenses are directly attributable to the research and development that the company performs . in 2013 and 2012 , the company incurred approximately $ 717,000 and $ 693,000 , respectively , in research and development expenses , which are included in operating expenses . the increase in r & d costs incurred in 2013 was primarily attributable to increases in payroll costs . no portion of the research and development expenses was directly paid by the company 's customers . other income ( expense ) other income ( net ) increased $ 502,102 ( 60.6 % ) for the year ended december 31 , 2013 when compared with 2012. the increase was mainly attributable to the $ 1,070,561 received from the company 's renacidin supplier pursuant to the aforementioned settlement agreement . this compares with $ 518,050 that the company had accrued in 2012 pursuant to that same settlement agreement . the company earns interest income from money market funds and bonds , and dividend income from both stock and bond mutual funds . other income was reduced in 2013 by a decrease in investment income of $ 65,270 ( 20.1 % ) , which primarily resulted from lower interest rates and dividend returns compared with 2012. the company also had a net loss on the sale of assets of $ 14,861 in 2012 , which did not recur in 2013. provision for income taxes the provision for income taxes increased by $ 632,656 ( 30.2 % ) in 2013 compared with 2012. this increase was mainly due to an increase in income from operations and from the renacidin damage settlement . the company 's effective income tax rate was approximately 32 % in 2013 and 30 % in 2012 , and is lower than the federal statutory rate of 34 % primarily due to the additional tax deduction for domestic production activities as well as the utilization of research and development tax credits . liquidity and capital resources working capital increased from $ 11,795,895 at december 31 , 2012 to $ 13,061,866 at december 31 , 2013 , an increase of $ 1,265,971 ( 10.7 % ) . the current ratio decreased from 15.3 to 1 at december 31 , 2012 to 11.5 to 1 at december 31 , 2013. the increase in working capital was mainly due to increases in marketable securities , accounts receivable , and inventory . the decrease in the current ratio was primarily the result of increases in accounts payable and income taxes payable . page 18 of 26 united-guardian , inc. accounts receivable ( net of allowance for doubtful accounts ) as of december 31 , 2013 increased by $ 773,120 as compared with 2012. the average period of time that an account receivable was outstanding was approximately 33 and 35 days in 2013 and in 2012 , respectively . the company has a bad debt reserve of $ 18,000 and $ 29,000 for 2013 and 2012 , respectively , and believes that the net balance of its accounts receivable is fully collectable as of december 31 , 2013. the company does not maintain a line of credit with a financial institution because the company has no foreseeable need for a line of credit , and therefore management believes that the cost of maintaining a line of credit is not justified , especially considering the strong financial condition of the company . the company generated cash from operations of $ 5,805,086 in 2013 compared with $ 5,380,747 in 2012. the increase in 2013 was
| total sales of all of the company 's lubrajel products for both personal care and medical uses increased by $ 2,142,378 ( 17.9 % ) in 2013 compared with 2012. the unit volume of all lubrajel products sold , both for personal care and medical uses , increased by approximately 16.5 % in 2013 compared with 2012. page 16 of 26 united-guardian , inc. ( b ) pharmaceuticals : sales of the company 's two pharmaceutical products , renacidin and clorpactin , decreased by $ 607,654 ( 39.9 % ) for the year ended december 31 , 2013 compared with 2012 , with renacidin accounting for almost the entire decrease . renacidin accounted for approximately 3 % of the company 's sales in 2013 , and 8 % of sales in 2012. historically , renacidin sales have been approximately 16-20 % of company sales . the decreases in sales of renacidin in both 2012 and 2013 were due to the inability of the company to fill orders from august 1 , 2012 to october 31 , 2013 because it could not get product from its supplier . the product has been manufactured for the company under a long-term contract with a major u.s. drug manufacturer that first experienced regulatory and production problems in 2010 , which resulted in a curtailment of production . it then experienced a second production curtailment in may 2012 , which continued until production resumed in september 2013. as a result , the company began to allocate product to its customers beginning in may 2012 , and continued to do so until its inventory was depleted on august 1 , 2012. sales could not resume until october 31 , 2013 , shortly after the supplier was able to resume production . as a result of the second production curtailment , the company and its supplier entered into a settlement agreement ( “ settlement agreement ” ) , whereby the supplier agreed to pay the company $ 97,610 per month for each month that the product was not available for sale , with those
| 12,101 |
critical accounting policies revenue recognition we recognize revenue in accordance with accounting standards codification ( `` asc '' ) 605 , “ revenue recognition , ” when persuasive evidence of an arrangement exists , the price is fixed or determinable , collection is reasonably assured and delivery of products has occurred or services have been rendered . accordingly , we recognize revenues from product sales upon shipment of the products to the customers or when the products are received by the customers in accordance with shipping or delivery terms . we provide a warranty for one year from the shipment or delivery date , which is covered by our vendors pursuant to purchase agreements . any net warranty related expenditures made by us have historically not been material . under our sales return policy , customers may generally return products that are under warranty for repair or replacement . 8 capitalized product development costs asc topic 350 , “ intangibles - goodwill and other ” includes software that is part of a product or process to be sold to a customer and shall be accounted for under subtopic 985-20. our products contain embedded software internally developed by fti which is an integral part of these products because it allows the various components of the products to communicate with each other and the products are clearly unable to function without this coding . the costs of product development that are capitalized once technological feasibility is determined ( noted as technology in progress in the intangible assets table , in note 2 to notes to consolidated financial statements ) include certifications , licenses , payroll , employee benefits , and other headcount-related expenses associated with product development . we determine that technological feasibility for our products is reached after all high-risk development issues have been resolved . once the products are available for general release to our customers , we cease capitalizing the product development costs and any additional costs , if any , are expensed . the capitalized product development costs are amortized on a product-by-product basis using the greater of straight-line amortization or the ratio of the current gross revenues to the current and anticipated future gross revenues . the amortization begins when the products are available for general release to our customers . as of june 30 , 2018 and june 30 , 2017 , capitalized product development costs in progress were $ 100,000 and $ 360,248 , respectively , and these amounts are included in intangible assets in our consolidated balance sheets . during the year ended june 30 , 2018 , we incurred $ 291,386 in capitalized product development costs , and such amounts are primarily comprised of certifications and licenses . all costs incurred before technological feasibility is reached are expensed and included in our consolidated statements of comprehensive income . income taxes deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . as of june 30 , 2018 , we have federal net operating loss carryforwards of approximately $ 4.3 million , which expires through 2038. the utilization of net operating loss carryforwards may be subject to limitations under the provisions of internal revenue code section 382 and similar state provisions . under the provision of asc 740 “ application of the uncertain tax position provisions ” related to accounting for uncertain tax positions , which prescribes a recognition threshold and measurement process for recording in the financial statements , uncertain tax positions taken or expected to be taken in a tax return , the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority . tax benefits of an uncertain tax position will not be recognized if it has less than a 50 % likelihood of being sustained based on technical merits . recently issued accounting pronouncements refer to note 2 - summary of significant accounting policies in the consolidated financial statements . story_separator_special_tag decrease in inventory of $ 1,613,733. the $ 1,488,363 in net cash provided by operating activities for the year ended june 30 , 2017 was primarily due to the decrease in accounts receivable of $ 1,311,077 as well as our operating results ( net income adjusted for depreciation , amortization and other non-cash charges ) , which were partially offset by the increase in inventory of $ 1,146,304 and the decrease in accounts payable of $ 413,561. investing activities – net cash used in investing activities for the years ended june 30 , 2018 and 2017 was $ 399,185 and $ 499,258 , respectively . the $ 399,185 in net cash used in investing activities for the year ended june 30 , 2018 was primarily due to the payments for capitalized product development of $ 291,386 and purchases of intangible assets and property and equipment of $ 83,896 and $ 23,903 , respectively . the $ 499,258 in net cash used in investing activities for the year ended june 30 , 2017 was primarily due to the payments for capitalized product development of $ 368,226 and purchases of intangible assets and property and equipment of $ 85,597 and $ 45,435 , respectively . financing activities – net cash provided by financing activities for the years ended june 30 , 2018 and 2017 was $ 67,000 and $ 104,820 , respectively . the $ 67,000 and $ 104,820 in net cash provided by financing activities for the years ended june 30 , 2018 and 2017 was due to the cash received from the exercise of stock story_separator_special_tag critical accounting policies revenue recognition we recognize revenue in accordance with accounting standards codification ( `` asc '' ) 605 , “ revenue recognition , ” when persuasive evidence of an arrangement exists , the price is fixed or determinable , collection is reasonably assured and delivery of products has occurred or services have been rendered . accordingly , we recognize revenues from product sales upon shipment of the products to the customers or when the products are received by the customers in accordance with shipping or delivery terms . we provide a warranty for one year from the shipment or delivery date , which is covered by our vendors pursuant to purchase agreements . any net warranty related expenditures made by us have historically not been material . under our sales return policy , customers may generally return products that are under warranty for repair or replacement . 8 capitalized product development costs asc topic 350 , “ intangibles - goodwill and other ” includes software that is part of a product or process to be sold to a customer and shall be accounted for under subtopic 985-20. our products contain embedded software internally developed by fti which is an integral part of these products because it allows the various components of the products to communicate with each other and the products are clearly unable to function without this coding . the costs of product development that are capitalized once technological feasibility is determined ( noted as technology in progress in the intangible assets table , in note 2 to notes to consolidated financial statements ) include certifications , licenses , payroll , employee benefits , and other headcount-related expenses associated with product development . we determine that technological feasibility for our products is reached after all high-risk development issues have been resolved . once the products are available for general release to our customers , we cease capitalizing the product development costs and any additional costs , if any , are expensed . the capitalized product development costs are amortized on a product-by-product basis using the greater of straight-line amortization or the ratio of the current gross revenues to the current and anticipated future gross revenues . the amortization begins when the products are available for general release to our customers . as of june 30 , 2018 and june 30 , 2017 , capitalized product development costs in progress were $ 100,000 and $ 360,248 , respectively , and these amounts are included in intangible assets in our consolidated balance sheets . during the year ended june 30 , 2018 , we incurred $ 291,386 in capitalized product development costs , and such amounts are primarily comprised of certifications and licenses . all costs incurred before technological feasibility is reached are expensed and included in our consolidated statements of comprehensive income . income taxes deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . as of june 30 , 2018 , we have federal net operating loss carryforwards of approximately $ 4.3 million , which expires through 2038. the utilization of net operating loss carryforwards may be subject to limitations under the provisions of internal revenue code section 382 and similar state provisions . under the provision of asc 740 “ application of the uncertain tax position provisions ” related to accounting for uncertain tax positions , which prescribes a recognition threshold and measurement process for recording in the financial statements , uncertain tax positions taken or expected to be taken in a tax return , the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority . tax benefits of an uncertain tax position will not be recognized if it has less than a 50 % likelihood of being sustained based on technical merits . recently issued accounting pronouncements refer to note 2 - summary of significant accounting policies in the consolidated financial statements . story_separator_special_tag decrease in inventory of $ 1,613,733. the $ 1,488,363 in net cash provided by operating activities for the year ended june 30 , 2017 was primarily due to the decrease in accounts receivable of $ 1,311,077 as well as our operating results ( net income adjusted for depreciation , amortization and other non-cash charges ) , which were partially offset by the increase in inventory of $ 1,146,304 and the decrease in accounts payable of $ 413,561. investing activities – net cash used in investing activities for the years ended june 30 , 2018 and 2017 was $ 399,185 and $ 499,258 , respectively . the $ 399,185 in net cash used in investing activities for the year ended june 30 , 2018 was primarily due to the payments for capitalized product development of $ 291,386 and purchases of intangible assets and property and equipment of $ 83,896 and $ 23,903 , respectively . the $ 499,258 in net cash used in investing activities for the year ended june 30 , 2017 was primarily due to the payments for capitalized product development of $ 368,226 and purchases of intangible assets and property and equipment of $ 85,597 and $ 45,435 , respectively . financing activities – net cash provided by financing activities for the years ended june 30 , 2018 and 2017 was $ 67,000 and $ 104,820 , respectively . the $ 67,000 and $ 104,820 in net cash provided by financing activities for the years ended june 30 , 2018 and 2017 was due to the cash received from the exercise of stock
| net sales in emea decreased by $ 460,950 , or 57.9 % , to $ 335,845 for the year ended june 30 , 2018 , from $ 796,795 for the corresponding period of 2017. the decrease in net sales was due to timing of orders placed by a carrier customer in africa . net sales in asia increased by $ 112,741 , or 78.7 % , to $ 256,007 for the year ended june 30 , 2018 , from $ 143,266 for the corresponding period of 2017. the increase in net sales was primarily due to higher component sales generated by fti , which typically vary from period to period in connection with its customers ' production schedule . gross profit - gross profit decreased by $ 4,026,746 , or 43.7 % , to $ 5,191,713 for the year ended june 30 , 2018 , from $ 9,218,459 for the corresponding period of 2017. the gross profit in terms of net sales percentage was 17.8 % for the year ended june 30 , 2018 , compared to 19.0 % for the corresponding period of 2017. the decrease in gross profit was primarily due to the change in net sales as described above . the decrease in gross profit in terms of net sales percentage was primarily due to variations in customer and product mix , competitive selling prices and product costs which generally vary from period to period and region to region . operating expenses - operating expenses decreased by $ 460,496 , or 5.5 % , to $ 7,883,584 for the year ended june 30 , 2018 , from $ 8,344,080 for the corresponding period of 2017. the decrease in operating expenses was primarily due to the decrease in overall expenses from a cost reduction effort and the lower shipping and handling costs resulting from the decreased volume of product shipments . other income , net - other income , net increased by $ 60,947 , or 22.5 % , to $ 332,322 for the year ended june 30 , 2018 , from $ 271,375 for the corresponding period of 2017. the increase was primarily due to product development funding received by fti from a government entity . liquidity and capital resources our historical operating results , capital resources and financial
| 12,102 |
the value of our msrs and excess msrs is subject to a variety of factors , as described in “ quantitative and qualitative disclosures about market risk ” and in “ risk factors. ” in the fourth quarter of 2016 , the fair value of our direct investments in excess msrs and our share of the fair value of the excess msrs held through equity method investees increased by approximately $ 18.5 million in the aggregate , primarily as a result of an increase in market mortgage rates and a decrease in prepayment speeds , while the weighted average discount rate of the portfolio remained unchanged at 9.8 % . in addition , the fair value of our full msrs increased by approximately $ 88.3 million during the period from acquisition through december 31 , 2016 , primarily as a result of an increase in market mortgage rates and a decrease in prepayment speeds . changes in interest rates did not have a meaningful impact on the net interest spread of our agency and non-agency rmbs portfolios . our rmbs are primarily floating rate or hybrid ( i.e. , fixed to floating rate ) securities , which we generally finance with floating rate debt , or are economically hedged with respect to interest rates . therefore , while rising interest rates will generally result in a higher cost of financing , they will also result in a higher coupon payable on the securities . the net interest spread on our agency rmbs portfolio as of december 31 , 2016 was 1.94 % , compared to 2.15 % as of december 31 , 2015 . the spread changed primarily as a result of increased funding costs offset by higher yields from new securities purchased during 2016 . the net interest spread on our non-agency rmbs portfolio as of december 31 , 2016 was 3.46 % , compared to 3.31 % as of december 31 , 2015 . this spread changed primarily as a result of higher yields from new securities purchased during 2016 offset by increased funding costs . general economy and unemployment throughout 2016 , and particularly in the fourth quarter , the u.s. unemployment rate generally declined and equity market prices increased , signaling a general improvement in the u.s. economy . in our view , an improvement in the economy such as this generally improves the value of housing and the ability of borrowers to make payments on their loans , thereby decreasing delinquencies and defaults on residential mortgage loans , consumer loans and rmbs . this relationship held true in 2016 as the case shiller home price index increased from 184 as of the fourth quarter of 2015 to 190 as of the fourth quarter of 2016. in addition , according to corelogic , the total number of mortgaged residential properties with negative equity stood at 3.2 million , or 6.3 percent , as of the third quarter of 2016 , down from 4.3 million , or 8.5 percent , as of the fourth quarter of 2015. this trend helped to support the values of our residential mortgage loans , consumer loans and rmbs . credit spreads corporate credit spreads generally tightened during the fourth quarter of 2016 , which would generally have a favorable impact on the value of yield driven financial instruments , such as our rmbs and loan portfolios . corporate credit spreads , while a useful market proxy , are not necessarily indicative or directly correlated to mortgage credit spreads . collateral performance , market liquidity and other factors related specifically to certain investments within our mortgage securities and loan portfolio coupled with the corporate credit spread tightening during the fourth quarter of 2016 caused the value of the portion of this portfolio that was owned for the entire quarter to increase . for more information regarding these and other market factors which impact our portfolio , see “ quantitative and qualitative disclosures about market risk. ” 70 our portfolio our portfolio is currently composed of mortgage servicing related assets , residential securities and loans and other investments , as described in more detail below . the assets in our portfolio are described in more detail below ( dollars in thousands ) , as of december 31 , 2016 . replace_table_token_9_th ( a ) weighted average life is based on the timing of expected principal reduction on the asset . ( b ) the outstanding face amount of excess msrs , msrs , and servicer advances is based on 100 % of the face amount of the underlying residential mortgage loans and currently outstanding advances , as applicable . ( c ) represents msrs where our subsidiary , nrm , is the named servicer . ( d ) the value of our servicer advances also include the rights to a portion of the related msr . ( e ) amortized cost basis is net of impairment . servicing related assets msrs as of december 31 , 2016 , we had $ 659.5 million carrying value of msrs as a result of transactions that closed in the fourth quarter within our licensed servicer subsidiary , nrm . refer to note 5 in our consolidated financial statements for further details on these transactions . all of these msrs were agency msrs . nrm has contracted with certain subservicers to perform the related servicing duties on the residential mortgage loans underlying its msrs . as of december 31 , 2016 , these subservicers include ditech ( 84.5 % of the underlying upb of the related mortgages ) and firstkey ( 15.5 % of the underlying upb of the related mortgages ) . nrm has entered an agreement with ditech whereby it is entitled to the msr on any refinancing by ditech of a loan in the related original portfolio . nrm is obligated to fund all future servicer advances related to the underlying pools of mortgages on its msrs . generally , nrm will advance funds when the borrower fails to meet contractual payments ( e.g. , principal , interest , property taxes , insurance ) . story_separator_special_tag nrm will also advance funds to maintain and report foreclosed real estate properties on behalf of investors . advances are recovered through claims to the related investor and subservicers . per the servicing agreements , nrm is obligated to make certain advances on mortgages to be in compliance with applicable requirements . in certain instances , the subservicer is required to reimburse nrm for any advances that were deemed nonrecoverable or advances that were not made in accordance with the related servicing contract . 71 the table below summarizes the terms of our investments in full msrs completed as of december 31 , 2016 . replace_table_token_10_th the following table summarizes the collateral characteristics of the loans underlying our full msr investments as of december 31 , 2016 ( dollars in thousands ) : collateral characteristics current carrying amount original principal balance current principal balance number of loans wa fico score ( a ) wa coupon wa maturity ( months ) average loan age ( months ) adjustable rate mortgage % ( b ) three month average cpr ( c ) three month average crr ( d ) three month average cdr ( e ) three month average recapture rate agency ditech subserviced pools $ 546,011 $ 69,589,411 $ 67,560,362 474,397 723 4.7 % 272 82 4.9 % 18.1 % 17.6 % 0.6 % 25.3 % firstkey subserviced pools 113,472 12,538,673 12,374,940 50,853 758 3.9 % 292 37 0.2 % 14.1 % 14.0 % 0.1 % — % total $ 659,483 $ 82,128,084 $ 79,935,302 525,250 728 4.6 % 275 75 4.2 % 17.9 % 17.4 % 0.6 % 24.2 % replace_table_token_11_th ( a ) the wa fico score is based on the weighted average of information provided by the loan servicer on a monthly basis . the loan servicer generally updates the fico score on a monthly basis . ( b ) adjustable rate mortgage % represents the percentage of the total principal balance of the pool that corresponds to adjustable rate mortgages . ( c ) three month average cpr , or the constant prepayment rate , represents the annualized rate of the prepayments during the quarter as a percentage of the total principal balance of the pool . ( d ) three month average crr , or the voluntary prepayment rate , represents the annualized rate of the voluntary prepayments during the quarter as a percentage of the total principal balance of the pool . ( e ) three month average cdr , or the involuntary prepayment rate , represents the annualized rate of the involuntary prepayments ( defaults ) during the quarter as a percentage of the total principal balance of the pool . ( f ) delinquency 30 days , delinquency 60 days and delinquency 90+ days represent the percentage of the total principal balance of the pool that corresponds to loans that are delinquent by 30–59 days , 60–89 days or 90 or more days , respectively . on december 28 , 2016 , nrm entered into an agreement with phh mortgage corporation and its subsidiaries ( “ phh ” ) to purchase the msrs and related servicer advances with respect to approximately $ 72.0 billion in total upb of seasoned agency and private-label residential mortgage loans , which is expected to close beginning in the second quarter of 2017 , subject to gse and other regulatory approvals and other customary closing conditions . concurrently with the purchase agreement , nrm entered into a subservicing agreement with phh , pursuant to which phh mortgage , a wholly owned subsidiary of phh , will subservice the residential mortgage loans underlying the msrs acquired by nrm . on january 27 , 2017 , nrm entered into an agreement to purchase msrs and related servicer advances with respect to approximately $ 97.0 billion upb of seasoned fannie mae and freddie mac residential mortgage loans from citimortgage , inc. ( “ citi ” ) , subject to change during the period prior to gse and other regulatory approvals . nrm also entered into an agreement pursuant to which nationstar will subservice the portfolio on behalf of nrm , subject to gse and other regulatory approvals . citi has agreed to continue to subservice the portfolio on an interim basis . nrm will acquire the related servicer advances upon the 72 transfer of servicing . we expect to complete this acquisition in the first quarter of 2017 , subject to gse and other regulatory approvals and other customary closing conditions . excess msrs as of december 31 , 2016 , we had approximately $ 1,594.2 million estimated carrying value of excess msrs ( held directly and through joint ventures ) . as of december 31 , 2016 , our completed investments represent an effective 32.5 % to 100.0 % interest in the excess msrs ( held either directly or through joint ventures ) on pools of residential mortgage loans with an aggregate upb of approximately $ 338.7 billion . in our capacity as owner of the excess msrs , we do not have any servicing duties , liabilities or obligations associated with the servicing of the portfolios underlying any of our excess msrs . however , we , through co-investments made by our subsidiaries , may separately agree to do so and have separately purchased the servicer advances , including the right to receive the basic fee component of related msrs , on the non-agency portfolios underlying our excess msr investments . see “ —servicer advances ” below . nationstar is the servicer of $ 215.3 billion upb of the loans underlying our investments in excess msrs through december 31 , 2016 , and our servicers earn a basic fee in exchange for providing all servicing functions . in addition , when nationstar sells excess msrs to us , it generally retains a 20.0 % to 35.0 % interest in the excess msrs and all ancillary income associated with the portfolios .
| segment including the securitization notes assumed as a result of the springcastle transaction ( note 9 to our consolidated financial statements ) on march 31 , 2016 , ( iii ) $ 31.1 million of interest on repurchase agreements and financings on real estate securities in which we made additional levered investments subsequent to december 31 , 2015 , ( iv ) $ 4.2 million of interest expense on residential mortgage loans due to an increase in the underlying principal balance of the levered portfolio , and ( v ) $ 7.5 million of interest on corporate loans secured by excess msrs as a result of a higher average outstanding debt balance during the year ended december 31 , 2016 . the increase was partially offset by a $ 4.2 million decrease in interest on corporate loans assumed as part of hlss acquisition and subsequently repaid in full in 2015. other than temporary impairment ( otti ) on securities the other-than-temporary impairment on securities increased by $ 4.5 million primarily resulting from a decline in fair values on a greater portion of our non-agency rmbs , which we purchased with existing credit impairment , below their amortized cost basis as of december 31 , 2016 . valuation provision ( reversal ) on loans and real estate owned the $ 59.1 million increase in the valuation provision on residential mortgage loans , held-for-sale and real estate owned resulted from ( i ) consumer loan provision expense of $ 53.8 million on loans acquired as a result of the springcastle transaction ( note 9 to our consolidated financial statements ) on march 31 , 2016 and certain newly originated consumer loans acquired during the second half of 2016 and ( ii ) an reo impairment increase of $ 10.2 million due primarily to a decline in home prices . this increase was partially offset by ( iii ) a decrease of $ 4.9 million of reserve related to certain gnmo ebo servicer
| 12,103 |
the details of these charges are explained further in management 's discussion and analysis of 2001 compared to 2000. during 2001 , we wrote down approximately $ 56.0 million of impaired long-lived assets related to the goodwill associated with the iml acquisition and the goodwill and acquired technology associated with the viadsp acquisition . based on the declining historical and forecasted operating results of iml as they related to earlier estimates and the economic condition of the telecommunications industry as a 24 whole , the estimated value of iml 's and viadsp 's goodwill had decreased . furthermore , based on the uncertain future utilization of the acquired technology , the estimated value of viadsp 's acquired technology had decreased . as a result , these assets were written-down to their fair value . during 2001 , we paid $ 27.1 million to extinguish $ 46.6 million face value of convertible debt . as a result , we recorded a related extraordinary gain of $ 11.3 million , net of tax expense of $ 7.6 million . it is reasonably possible that we will record further extraordinary gains or losses related to early debt extinguishment in future reporting periods . in october 2001 , the board of directors approved a stock repurchase program authorizing us to repurchase up to 2,500,000 shares of our outstanding common stock for an aggregate purchase price not to exceed $ 5.0 million . as of december 31 , 2001 , we have repurchased 400,000 shares for an aggregate purchase price of $ 1.9 million . critical accounting policies our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make estimates and judgements that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an on-going basis , we evaluate our estimates , including those related to revenue recognition , accounts receivable , inventories , investments , intangible assets , income taxes , restructuring and other special charges , and accounting for acquisitions . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies affect our more significant judgements and estimates used in the preparation of our consolidated financial statements : revenue recognition . our revenue from product sales is generally recognized upon shipment providing that persuasive evidence of an arrangement exists , the sales price is fixed or determinable , collection is reasonably assured and title and risk of loss have passed to the customer . if we have a future obligation to install the system or to obtain customer acceptance , revenues are deferred until this obligation has been met . we do not offer rights of return on sales made through our direct sales force . however , we do offer quarterly return rights to a limited number of our indirect channel customers that allow the indirect channel customer to rotate a percentage of their inventory based on their prior quarter purchases . we provide for these return rights each quarter by deferring revenue equal to the estimated return amount . our products are generally a bundled hardware and software solution that are shipped together . we offer a warranty on all of our products that generally provides for us to repair or replace any defective product within eighteen to twenty-four months of the invoice date . based upon historical experience and expectation of future conditions , we reserve for the estimated costs to fulfill customer warranty and other contractual obligations upon the recognition of the related revenue . to the extent we may experience increased warranty claim activity or increased costs associated with servicing those claims , our warranty reserve may need to be increased , resulting in decreased gross profit . shipping and handling fees , if any , billed to customers are recognized as revenue . the related costs are recognized in cost of revenues . 25 our service revenue represents 8.4 % , 5.8 % and 6.5 % of our revenue for the years ended december 31 , 2001 , 2000 and 1999 , respectively . service revenue is primarily comprised of consulting services and technical support services . consulting services consist of hardware and or software customization projects provided to our customers through consulting contracts . we recognize revenue for consulting services based on the percentage-of-completion method for fixed fee contracts and as the services are performed for time and materials contracts . under the percentage-of-completion method , we rely on estimates of total expected contract costs as a factor in determining the timing of when revenue is recorded . in future periods , if revised cost estimates and actual costs incurred differ from our original estimates , we would be required to decrease or increase our profit margin in the appropriate future reporting period . if a current estimate of total contract cost indicates a loss on a contract , the projected loss is recognized in full in the current period . technical support services , which we sell separately from our products , consist of on-site support , telephone support , system hosting and training . we recognize revenue for technical support services ratably over the contractual period or as services are provided , based on the nature of the service . we do not provide maintenance service or rights to upgrades or enhancements on any of our products . story_separator_special_tag revenue results are difficult to predict , and any shortfall in revenue or delay in recognizing revenue could cause our operating results to vary significantly from quarter to quarter . accounts receivable . we perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer 's current credit worthiness , as determined by our review of their current credit information . we continuously monitor collections and payments from our customers and maintain an allowance for doubtful accounts based upon our historical experience and any specifically identified customer collection issues . while such charges taken against the allowance for doubtful accounts have historically been within our expectations and the allowance established , we can not guarantee that we will continue to be able to estimate our future experience with the same success . if the financial condition of our customers were to deteriorate , resulting in their inability to make payments , additional allowances may be required . inventory . we value our inventory at the lower of cost ( first-in , first-out method ) or market . we regularly review inventory quantities on hand and record a reserve for excess and obsolete inventory based primarily on our estimated forecast of product demand and production requirements for the next twelve months . any rapid technological changes and future product development could result in an increase in the amount of obsolete inventory quantities on hand . furthermore , if our estimates of future product demand prove to be inaccurate , a reserve adjustment may be required for excess and obsolete inventory . investments . we hold equity investments in which we do not have the ability to exercise significant influence and for which there is not a readily determinable market value . these investments are accounted for under the cost method of accounting . we periodically evaluate the carrying value of these investments for other than temporary impairment . if an impairment is indicated as a result of our analysis , we record a charge to adjust the carrying value of the investment down to fair value . future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments , thereby possibly requiring future charges to write these equity investments down to fair value . intangible assets and goodwill . we assess the impairment of long-lived assets , including identifiable intangible assets and goodwill , whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate . factors we consider important which could 26 trigger an impairment review include the following : significant underperformance relative to expected historical or projected future operating results ; significant changes in the manner of our use of the acquired assets or the strategy for our overall business ; significant negative industry or economic trends ; significant decline in our stock price for a sustained period ; and our market capitalization relative to net book value . if an impairment is indicated , the asset is written down to its estimated fair value based on a discounted cash flow model . income taxes . we recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases . deferred tax assets and liabilities are measured using enacted statutory tax rates in effect in the year in which the differences are expected to reverse . a deferred tax asset is established for the expected future benefit of net operating loss and credit carryforwards . because we currently believe that the realization of certain deferred tax assets is more unlikely than not , we have established a full valuation against our deferred tax assets . we will continue to assess the valuation allowance and if we were to determine that we would be able to realize our deferred tax assets , an adjustment to the valuation allowance would increase income in the period such determination was made . restructuring and other special charges . involuntary termination benefits and activity exit costs are recognized when management approves and commits to a sufficiently detailed plan of termination or activity exit plan . during compilation of a plan of termination or activity exit plan , management makes certain assumptions and estimates regarding certain costs contained in these plans based on information gathered from internal and external sources . if actual results of any of these assumptions or estimates were to exceed or not met our expectations in the future , we may need to adjust certain restructuring and other special charges in future reporting periods , resulting in increased or decreased operating expense . accounting for acquisitions . we account for acquisitions using the purchase method . in connection with the application of the purchase method , management makes certain estimates regarding the value of tangible and intangible assets acquired and liabilities assumed based on information gathered from internal and external sources . 27 story_separator_special_tag balance over the next five years . strategic repositioning charges during 2001 , we announced a major restructuring and repositioning of our business . as a result of this repositioning , we will have eliminated approximately 160 positions at our facilities in the united states , canada , europe and asia . these terminations consist primarily of engineering positions , but also include manufacturing , sales and administrative positions . severance costs related to these terminations of approximately $ 2.8 million have been recorded as restructuring and other special charges during 2001. at december 31 , 2001 , the remaining accrued balance for this charge was approximately $ 1.6 million and is included in the consolidated balance sheet classification , `` accrued expenses and other liabilities . ''
| gross profit decreased 49.7 % to 28 $ 39.6 million in 2001 from $ 78.8 million in 2000 , and represented 48.9 % and 58.5 % of revenues for 2001 and 2000 , respectively . the decrease in gross profit is primarily due to an increase in per unit allocated overhead costs that resulted from lower sales volume and increased spending intended to create efficiencies , such as out-sourced manufacturing and order fulfillment , in our supply chain operation . included in cost of revenues for 2001 are $ 2.1 million of completed technology amortization related to the ves , mobilee , iml and viadsp acquisitions , a $ 1.5 million inventory fair value adjustment related to the ves acquisition , $ 388,000 for the impairment of completed technology from the viadsp acquisition , and a $ 516,000 restructuring charge related to the write-down of ip services management inventory . excluding these costs from cost of revenues would yield a gross profit percentage of 54.5 % for the year ended december 31 , 2001. included in cost of revenues for 2000 are $ 1.1 million of completed technology amortization related to the iml and viadsp acquisitions , as well as a $ 5.1 million inventory fair value adjustment related to the iml acquisition . excluding these costs from cost of revenues would yield a gross profit percentage of 63.1 % for the year ended december 31 , 2000. selling , general and administrative selling , general and administrative expenses consist primarily of salaries , commissions and related personnel expenses for those engaged in our sales , marketing , promotional , public relations , executive , accounting and administrative activities and other general corporate expenses . selling , general and administrative expense increased to $ 87.4 million for 2001 from $ 79.8 million for 2000 , representing an increase of 9.5 % . included in selling , general and administrative expense for 2001 are $ 21.3 million of amortization of goodwill and other intangibles related to the ves , mobilee , iml , viadsp and teknique acquisitions , $ 14.8 million of non-cash compensation expense related to the mobilee and iml acquisitions , $ 1.1 million of amortization of debt issuance
| 12,104 |
replace_table_token_11_th t he income tax decrease of $ 128 million is primarily attributed to the $ 124 million provisional transition benefit recorded in fiscal 2018 as a result of the recent u.s. tax legislation ( see note 8 ) . after the exclusion of the tax reform benefit , our effective tax rate was 22 % and was positively impacted by 2 % from the share-based compensation excess tax benefit , 2 % from the release of foreign valuation allowances , 1 % from research and development credits , and a 1 % benefit from the domestic manufacturing deduction . these favorable items were partially offset by increases of 3 % from u.s. state taxes and other discrete items . replace_table_token_12_th the $ 12 million decrease in comprehensive income is primarily attributed to a $ 161 million decrease in currency translation and a $ 35 million decrease in unrealized gains on the company 's pension plans , partially offset by a $ 156 million increase in net income and a $ 21 million favorable change in the fair value of interest rate hedges . currency translation gains are primarily related to non-u.s. subsidiaries with a functional currency other than the u.s. dollar whereby assets and liabilities are translated from the respective functional currency into u.s. dollars using period-end exchange rates . the change in currency translation was primarily attributed to locations utilizing the euro , brazilian real , and canadian dollar as their functional currency . the change in unrealized gains on pension plans in the current period were primarily attributable to actuarial losses from an increase in the underlying discount rate . as part of the overall risk management , the company uses derivative instruments to reduce exposure to changes in interest rates attributed to the company 's floating-rate borrowings and records changes to the fair value of these instruments in accumulated other comprehensive income . the change in fair value of these instruments in fiscal 2018 versus fiscal 2017 is primarily attributed to a change in the forward interest curve between measurement dates . discussion of results of operations for fiscal 2017 compared to fiscal 2016 acquisition sales and operating income disclosed within this section represents the historical results from acquisitions for the comparable prior year period . the remaining change disclosed represents the changes from the prior period on a combined basis . business integration expenses consist of restructuring and impairment charges , acquisition related costs , and other business optimization costs . tables present dollars in millions . 13 replace_table_token_13_th the net sales increase of $ 606 million is primarily attributed to acquisition net sales of $ 788 million and selling price increases of $ 60 million due to the pass through of higher resin prices , partially offset by a negative $ 136 million impact from a 2 % base volume decline , $ 98 million from extra days in fiscal 2016 , and a slight negative impact from foreign currency changes . the operating income increase of $ 151 million is primarily attributed to acquisition operating income of $ 62 million , a $ 36 million decrease in integration and restructuring costs , a $ 35 million decrease in selling , general and administrative expense related to synergies and cost reductions , a $ 24 million improvement in our product mix and price/cost spread , a $ 16 million decrease in depreciation and amortization , and slight benefits from improved productivity in manufacturing and changes in foreign currency . these improvements were partially offset by a $ 20 million impact from the base volume decline and $ 10 million from extra days in fiscal 2016. replace_table_token_14_th net sales in the engineered materials segment increased by $ 748 million primarily attributed to acquisition net sales of $ 788 million , and selling price increases of $ 67 million due to the pass through of higher resin prices , partially offset by a $ 79 million negative impact from base volume declines , and $ 30 million from extra days in fiscal 2016 . the base volume decline is primarily attributed to our decisions to rationalize certain lower margin products that we acquired from aep in order to maximize earnings . the operating income increase of $ 134 million is primarily attributed to acquisition operating income of $ 62 million , a $ 71 million improvement in our product mix and price/cost spread , a $ 13 million decrease in selling , general and administrative expenses , and slight benefits from improved productivity in manufacturing and changes in foreign currency , partially offset by a negative $ 8 million impact from lower base volumes , a $ 6 million increase in depreciation and amortization expense , and $ 4 million from extra days in fiscal 2016 . replace_table_token_15_th net sales in the health , hygiene & specialties segment decreased by $ 31 million primarily attributed to extra days in fiscal 2016 of $ 25 million , selling price decreases of $ 23 million , and a slightly negative impact from foreign currency changes , partially offset by a $ 26 million positive impact from base volume improvements . the operating income increase of $ 20 million is primarily attributed to a $ 27 million decrease in business integration and restructuring costs associated with the avintiv acquisition , a $ 13 million improvement in productivity in manufacturing , a $ 12 million decrease in depreciation and amortization expense , a $ 5 million impact from base volumes , a $ 5 million decrease in selling , general and administrative expenses , and a slight benefit from changes in foreign currency . these improvements were partially offset by a $ 45 million decrease in our product mix and price/cost spread primarily related to inflation and market pressures within our south american business . story_separator_special_tag replace_table_token_16_th 14 net sales in the consumer packaging segment decreased by $ 111 million primarily attributed to an $ 83 million negative impact from base volumes and $ 43 million from extra days in fiscal 2016 , partially offset by selling price increases of $ 15 million due to the pass through of higher resin prices . the volume decline was primarily attributed to general market softness and our continued focus on volume , price , and mix in order to optimize earnings . the operating income decrease of $ 3 million is primarily attributed to a base volume decline of $ 17 million , an $ 11 million negative impact from productivity in manufacturing , $ 5 million from extra days in fiscal 2016 , and a slight decrease in our product mix and price/cost spread , partially offset by a $ 17 million decrease in selling , general and administrative expenses related to synergies from cost reductions , a $ 10 million decrease in depreciation and amortization expense , and a $ 5 million decrease in business integration and restructuring expense . replace_table_token_17_th the other expense ( income ) increase of $ 32 million is primarily attributed to a $ 10 million non-cash defined benefit pension plan settlement , a $ 6 million charge related to a valuation adjustment to the tax receivable agreement in fiscal 2017 , a year over year decline of $ 17 million in transactional foreign currency gains related to the remeasurement of non-operating intercompany balances , and a $ 6 million increase in debt extinguishment as a result of the 2017 term loan modifications . replace_table_token_18_th the interest expense decrease of $ 22 million is primarily attributed to reduced interest rates resulting from the term loan modifications . replace_table_token_19_th the income tax expense increase of $ 37 million is primarily attributed to improved income before income taxes . our effective tax rate was 24 % in fiscal 2017. our fiscal 2017 effective tax rate was lower than the u.s. federal statutory rate of 35 % primarily due to a 2 % benefit from lower tax rates in foreign jurisdictions , a 2 % benefit from the u.s. research and development credit , a 7 % benefit from share based compensation related to excess tax benefit deductions , and a 1 % benefit from the section 199 deduction . these favorable items were partially offset by an increase of 1 % from the foreign valuation allowance . replace_table_token_20_th the $ 213 million increase in comprehensive income is primarily attributed to a $ 104 million increase in net income , a $ 47 million increase due to unrealized gains on the company 's pension plans , net of tax , a $ 35 million increase in currency translation gains , and a $ 27 million favorable change in the fair value of interest rate hedges , net of tax . currency translation gains are primarily related to non-u.s. subsidiaries with a functional currency other than the u.s. dollar whereby assets and liabilities are translated from the respective functional currency into u.s. dollars using period-end exchange rates . the change in currency translation gains were primarily attributed to locations utilizing the euro , pound sterling , and brazilian real as their functional currency . unrealized gains on pension plans in the current period were primarily attributable to actuarial gains from an increase in the underlying discount rate . as part of the overall risk management , the company uses derivative instruments to reduce exposure to changes in interest rates attributed to the company 's floating-rate borrowings and records changes to the fair value of these instruments in accumulated other comprehensive income . the change in fair value of these instruments in fiscal 2017 versus fiscal 2016 is primarily attributed to a change in the forward interest curve between measurement dates . liquidity and capital resources senior secured credit facility we manage our global cash requirements considering ( i ) available funds among the many subsidiaries through which we conduct business , ( ii ) the geographic location of our liquidity needs , and ( iii ) the cost to access international cash balances . we have a $ 750 million asset-based revolving line of credit that matures in may 2020. at the end of fiscal 2018 , the company had no outstanding balance on the revolving credit facility . the company was in compliance with all covenants at the end of fiscal 2018 ( see note 3 ) . 15 contractual obligations and off balance sheet transactions our contractual cash obligations at the end of fiscal 2018 are summarized in the following table which does not give any effect to taxes as we can not reasonably estimate the timing of future cash outflows . replace_table_token_21_th ( a ) includes anticipated interest of $ 14 million over the life of the capital leases . ( b ) based on applicable interest rates in effect end of fiscal 2018. cash flows from operating activities net cash provided by operating activities increased $ 29 million from fiscal 2017 primarily attributed to the settlement of interest rate hedges , improved net income before depreciation , amortization and the net impact of the tax act . net cash provided by operating activities increased $ 118 million from fiscal 2016 primarily attributed to improved net income before depreciation , amortization and other non-cash charges .
| we believe there are long term growth opportunities within the health , pharmaceuticals , personal care and food packaging markets existing outside of north america , especially in asia , where expected per capita consumption increases should result in organic market growth . in addition , while we continue to believe that long term dynamics of the resin markets will be an advantage , we could have short-term headwinds in early fiscal 2019 as we continue to focus on pricing initiatives to fully recover the inflation we experienced in fiscal 2018. for fiscal 2019 , we project cash flow from operations and adjusted free cash flow of $ 1,036 million and $ 670 million , respectively . the $ 670 million of adjusted free cash flow includes $ 350 million of capital spending and $ 16 million of payments under our tax receivable agreement . within our adjusted free cash flow guidance , we are also assuming cash taxes of $ 149 million , cash interest costs of $ 270 million , and other cash uses of $ 45 million related to changes in working capital and items such as acquisition integration expenses and costs to achieve synergies . for the definition of adjusted free cash flow and further information related to adjusted free cash flow as a non-gaap financial measure , see `` liquidity and capital resources . '' recent acquisitions our acquisition strategy is focused on improving our long-term financial performance , enhancing our market positions , and expanding our existing and complementary product lines . we seek to obtain businesses for attractive post-synergy multiples , creating value for our stockholders from synergy realization , leveraging the acquired products across our customer base , creating new platforms for future growth , and assuming best practices from the businesses we acquire . the company has included the expected benefits of acquisition integrations and restructuring plans within our unrealized synergies , which are in turn recognized in earnings after an acquisition has been fully integrated or the restructuring plan is
| 12,105 |
a determination of the amount of the liability required to be accrued , if any , for these contingencies is made after analysis of each known issue and an analysis of historical experience . in cases where we have concluded that a loss is only reasonably possible or remote , or is not reasonably estimable , no liability is accrued . sensitivity of estimate to change . it is reasonably possible that future litigation and other related loss contingencies may vary from the amounts accrued . our estimate of the aggregate range of reasonably possible losses includes ( 1 ) matters where a liability has been accrued and there is a reasonably possible loss in excess of the amount accrued for that liability , and ( 2 ) matters where a liability has not been accrued but we believe a loss is reasonably possible . this aggregate range represents only those losses as to which we are currently able to estimate a reasonably possible loss or range of loss . it does not represent our maximum loss exposure . as of april 30 , 2020 , we believe the estimate of the aggregate range of reasonably possible losses in excess of amounts accrued , where the range of loss can be estimated , was not material . however , our judgments on whether a loss is probable , reasonably possible , or remote , and our estimates of probable loss amounts may differ from actual results due to difficulties in predicting changes in , or interpretations of , laws , predicting the outcome of jury trials , arbitration hearings , settlement discussions and related activity , predicting the outcome of class certification actions , and numerous other uncertainties . due to the number of claims which are periodically asserted against us , and the magnitude of damages sought in those claims , actual losses in the future may significantly differ from our current estimates . income taxes – uncertain tax positions – nature of estimates required . the income tax laws of jurisdictions in which we operate are complex and subject to different interpretations by the taxpayer and applicable government taxing authorities . income tax returns filed by us are based on our interpretation of these rules . the amount of income taxes we pay is subject to ongoing audits by federal , state and foreign tax authorities , which may result in proposed assessments , including interest or penalties . we accrue a liability for unrecognized tax benefits arising from uncertain tax positions reflecting our judgment as to the ultimate resolution of the applicable issues . assumptions and approach used . differences between a tax position taken or expected to be taken in our tax returns and the amount of benefit recorded in our financial statements result in unrecognized tax benefits . unrecognized tax benefits are recorded in the balance sheet as either a liability or reductions to recorded tax assets as applicable . our uncertain tax positions arise from items such as apportionment of income for state purposes , transfer pricing , and the deductibility of related party transactions . we evaluate each uncertain tax position based on its technical merits . for each position , we consider all applicable information including relevant tax laws , the taxing authorities ' potential position , our tax return position , and the possible settlement outcomes to determine the amount of liability to record . in making this determination , we assume the tax authority has all relevant information at its disposal . sensitivity of estimate to change . our assessment of the technical merits and measurement of tax benefits associated with uncertain tax positions is subject to a high degree of judgment and estimation . actual results may differ from our current judgments due to a variety of factors , including changes in law , interpretations of law by taxing authorities that differ from our assessments , changes in the jurisdictions in which we operate and results of routine tax examinations . we believe we have adequately provided for any reasonably foreseeable outcome related to these h & r block , inc. | 2020 form 10-k 29 matters . however , our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved , or when statutes of limitation on potential assessments expire . as a result , our effective tax rate may fluctuate on a quarterly basis . see the additional discussion in item 8 , note 9 to the consolidated financial statements . goodwill – nature of estimates required . we test goodwill for impairment annually in the fourth quarter or more frequently if events occur or circumstances change which would , more likely than not , reduce the fair value of a reporting unit below its carrying value . our goodwill impairment analysis utilizes both the income and market approaches , which includes revenue and expense forecasts , changes in working capital and selection of a discount rate , all of which are highly subjective . assumptions and approach used . our goodwill impairment analysis is performed at the reporting unit level . our valuation methods include a discounted cash flow model for the income approach and the guideline public company and market capitalization methods for the market approach . the income approach requires significant management judgment with respect to revenue and expense forecasts , anticipated changes in working capital and selection of an appropriate discount rate . changes in projections or assumptions could materially affect our estimate of reporting unit fair values . the use of different assumptions could increase or decrease estimated discounted future operating cash flows and could affect our conclusion regarding the existence or amount of potential impairment . sensitivity of estimate to change . estimates of fair value may be adversely impacted by declining economic conditions and changes in the industries and markets in which we operate . additionally , if future operating results of our reporting units are below our current modeled expectations , fair value estimates may decline . story_separator_special_tag any of these factors could result in future impairments , and those impairments could be significant . we recorded a goodwill impairment loss of $ 106.0 million related to our wave reporting unit in the fourth quarter of fiscal year 2020. the remaining balance of goodwill for the wave reporting unit , inclusive of unrealized foreign currency translation losses , was $ 169.8 million . as a result of the covid-19 pandemic and its impact on small businesses , wave has experienced lower than expected revenues since mid-march . to the extent the small business market does not rebound as expected there could be further impairment in future years . see the additional discussion in item 8 , note 6 to the consolidated financial statements . new accounting pronouncements see item 8 , note 1 to the consolidated financial statements for a discussion of recently issued accounting pronouncements . financial condition these comments should be read in conjunction with the consolidated balance sheets and consolidated statements of cash flows included in item 8 . capital resources and liquidity – overview – our primary sources of capital and liquidity include cash from operations ( including changes in working capital ) , draws on our cloc , and issuances of debt . we use our sources of liquidity primarily to fund working capital , service and repay debt , pay dividends , repurchase shares of our common stock , and acquire businesses . our operations are highly seasonal and substantially all of our revenues and cash flow are generated during the period from february through april in a typical year . therefore , we normally require the use of cash to fund losses and working capital needs , periodically resulting in a working capital deficit , from may through january . we typically have relied on available cash balances from the prior tax season and borrowings to meet liquidity needs in our first three quarters . as a result of the covid-19 pandemic , on march 21 , 2020 , the federal tax filing deadline for individual 2019 tax returns was extended from april 15 , 2020 to july 15 , 2020 , and substantially all u.s. states with an april 15 individual state income tax filing requirement similarly extended their respective deadlines . in canada , the deadline for individuals to file was extended to june 1 , 2020. these extensions have impacted the typical seasonality of our business and the comparability of our financial results . 30 2020 form 10-k | h & r block , inc. in our fiscal fourth quarter , we drew down the full $ 2.0 billion available under our cloc to increase our cash position and maximize flexibility in light of the uncertainty surrounding the impact of the covid-19 pandemic . in the absence of any unexpected developments , our existing sources of capital as of april 30 , 2020 are sufficient to meet our future operating and financing needs . discussion of consolidated statements of cash flows – the following table summarizes our statements of cash flows for fiscal years 2020 and 2019 . see item 8 for the complete consolidated statements of cash flows for these periods . replace_table_token_7_th operating activities . cash provided by operating activities decreased $ 497.6 million from fiscal year 2019 . the decrease from the prior year was primarily due to a net loss in the current year , compared to net income in the prior year . investing activities . cash used in investing activities totaled $ 470.2 million compared to $ 155.1 million in the prior year . this change resulted primarily from the acquisition of wave , partially offset by the receipt of cash on an available-for-sale debt security in the current year . financing activities . cash provided by financing activities totaled $ 1.5 billion compared to cash used of $ 403.7 million in the prior year , primarily due to a $ 2.0 billion draw on our cloc in the current year . cash requirements – dividends and share repurchase . returning capital to shareholders in the form of dividends and the repurchase of outstanding shares has historically been a significant component of our capital allocation plan . we have consistently paid quarterly dividends . dividends paid totaled $ 204.9 million and $ 205.5 million in fiscal years 2020 and 2019 , respectively . although we have historically paid dividends and plan to continue to do so , there can be no assurances that circumstances will not change in the future that could affect our ability or decisions to pay dividends . our current share repurchase program has remaining authorization of $ 751.8 million which is effective through june 2022. as a part of the repurchase program , in the current year , we purchased $ 246.8 million of our common stock at an average price of $ 24.36 per share . share repurchases may be effectuated through open market transactions , some of which may be effectuated under sec rule 10b5-1 . the company may cancel , suspend , or extend the time period for the purchase of shares at any time . any repurchases will be funded primarily through available cash and cash from operations . although we may continue to repurchase shares , there is no assurance that we will purchase up to the full board authorization . capital investment . capital expenditures totaled $ 81.7 million and $ 95.5 million in fiscal years 2020 and 2019 , respectively . our capital expenditures relate primarily to recurring improvements to retail offices , as well as investments in computers , software and related assets . in addition to our capital expenditures , we also made payments to acquire businesses . we acquired wave and franchisee and competitor businesses totaling $ 450.2 million in the current year compared to franchisee and competitor businesses totaling $ 43.6 million in the prior year . see item 8 , note 6 for additional information on our acquisitions .
| we provide net average charge as a key operating metric because we consider it an important supplemental measure useful to analysts , investors , and other interested parties as it provides insights into pricing and tax return mix relative to our customer base , which are significant drivers of revenue . our definition of net average charge may not be comparable to similarly titled measures of other companies . 26 2020 form 10-k | h & r block , inc. replace_table_token_5_th ( 1 ) see `` non-gaap financial information '' at the end of this item for a reconciliation of non-gaap measures . h & r block , inc. | 2020 form 10-k 27 fiscal 2020 compared to fiscal 2019 revenues decreased $ 455.2 million , or 14.7 % , compared to the prior year primarily due to the extension of the tax filing deadlines as a result of the covid-19 pandemic . u.s. assisted tax preparation fees decreased $ 325.7 million , or 17.5 % , and u.s. royalties decreased $ 50.1 million , or 20.6 % , due to decreases in tax returns prepared and net average charge . u.s. diy tax preparation fees decreased $ 52.5 million , or 20.1 % , due to lower online volumes and lower software sales , and international revenues declined $ 40.5 million , or 18.4 % , due to lower tax returns prepared in our canadian operations . revenues of $ 36.7 million were recognized by wave , which we acquired on june 28 , 2019 , and therefore were not included in our results of operations in the prior year period . total operating expenses increased $ 83.5 million or 3.4 % from the prior year . total compensation and benefits decreased $ 75.8 million , or 6.6 % , due to lower commission-based wages in our field related to the decline in tax return volumes , lower bonus accruals and payroll taxes , somewhat offset by additional wages related to the acquisition of wave in the current year . marketing expenses decreased $ 14.7 million , or 5.5 % , based on planned decreases in our marketing spend . also due to the economic impacts of the covid-19 pandemic , we recorded an impairment of
| 12,106 |
this is due to the numerous risks and uncertainties associated with developing drugs , including the uncertainty of : the scope , rate of progress and expense of our drug discovery efforts and other research and development activities ; the potential benefits of our product candidates over other therapies ; our ability to market , commercialize and achieve market acceptance for any of our product candidates that we receive regulatory approval for ; clinical trial results ; the terms and timing of regulatory approvals ; and 78 the expense of filing , prosecuting , defending and enforcing patent claims and other intellectual property rights . a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . for example , if the fda or other regulatory authority were to require us to conduct clinical trials beyond those which we currently anticipate will be required for the completion of clinical development of a product candidate or if we experience significant delays in enrollment in any clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . general and administrative expenses general and administrative expenses consist primarily of salaries and related costs for personnel , including stock-based compensation expense , in our executive , finance and business development functions . other general and administrative expenses include allocated facility costs and professional fees for legal , patent , investor and public relations , consulting , insurance premiums , and accounting services . interest income interest income includes interest earned on our cash equivalent and investment accounts . prior to september 30 , 2011 , our cash and cash equivalents were invested in non-interest-bearing accounts . as a result , we did not earn interest income until the last three months of 2011. accretion of preferred stock prior to the conversion of our preferred stock into 11,740,794 shares of common stock upon the closing of our initial public offering in february 2012 , our preferred stock was redeemable beginning in 2016 at its original issue price plus any declared but unpaid dividends upon a specified vote of the preferred stockholders . accretion of preferred stock reflects the periodic accretion of issuance costs on our preferred stock to its redemption value . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which we have prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements . on an ongoing basis , we evaluate our estimates and judgments , including those related to accrued expenses and stock-based compensation described in greater detail below . we base our estimates on our limited historical experience , known trends and events and various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this annual report on form 10-k. however , 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 . 79 accrued research and development expenses as part of the process of preparing our financial statements , we are required to estimate our accrued expenses . this process involves reviewing quotations and contracts , identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred when we have not yet been invoiced or otherwise notified of the actual cost . the majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met . we make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary . the significant estimates in our accrued research and development expenses include fees paid to contract research organizations , or cros , in connection with research and development activities for which we have not yet been invoiced . we base our expenses related to cros on our estimates of the services received and efforts expended pursuant to quotes and contracts with cros that conduct research and development on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows . there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrual or prepaid accordingly . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period . story_separator_special_tag stock-based compensation prior to becoming a public company , we utilized significant estimates and assumptions in determining the fair value of our common stock . we granted stock options at exercise prices not less than the fair market value of our common stock as determined by the board of directors , with input from management . the board of directors determined the estimated fair value of our common stock based on a number of objective and subjective factors , including external market conditions affecting the biotechnology industry sector and the prices at which we sold shares of redeemable convertible preferred stock , the superior rights and preferences of securities senior to our common stock at the time and the likelihood of achieving a liquidity event , such as an initial public offering or sale of our company . we utilized various valuation methodologies in accordance with the framework of the 2004 american institute of certified public accountants technical practice aid , valuation of privately-held company equity securities issued as compensation , to estimate the fair value of our common stock . the methodologies included an asset-based approach and the current value method for our initial common stock valuation as of november 30 , 2010 , the option pricing method utilizing the reverse backsolve method to estimate our underlying equity value as of july 31 , 2011 and a methodology that determined an estimated value under an initial public offering scenario and a sale scenario based upon an assessment of the probability of occurrence of each scenario as of september 30 , 2011 , november 17 , 2011 , and december 31 , 2011. each valuation methodology included estimates and assumptions that required our judgment . these estimates included assumptions regarding future performance , including the successful completion of preclinical studies and clinical trials and the time to completing an initial public offering or sale . significant changes to the key assumptions used in the valuations could have resulted in different fair values of common stock at each valuation date . 80 we recognize stock-based compensation expense for stock options issued to employees based on the grant date fair value of the awards on a straight-line basis over the requisite service period . we record stock-based compensation expense for stock options issued to non-employees based on the estimated fair value of the services received or of the equity instruments issued , whichever is more reliably measured , based on the vesting date fair value of the awards on a straight-line basis over the vesting period . we estimate the fair value of stock option awards using the black-scholes option-pricing model . determining the fair value of share-based awards requires the use of subjective assumptions , including the expected term of the award and expected stock price volatility . the assumptions used in determining the fair value of share-based awards represent management 's best estimates , which involve inherent uncertainties and the application of management judgment . as a result , if factors change , and we use different assumptions , our share-based compensation could be materially different in the future . the risk-free interest rate used for each grant is based on a u.s. treasury instrument whose term is consistent with the expected term of the stock option . because we do not have a sufficient history to estimate the expected term , we use the simplified method as described in sab topic 14.d.2 for estimating the expected term . the simplified method is based on the average of the vesting tranches and the contractual life of each grant . because there was no public market for our common stock prior to our initial public offering , we lacked company-specific historical and implied volatility information . therefore , we used the historical volatility of a representative group of public biotechnology and life sciences companies with similar characteristics to us . in 2012 , subsequent to our initial public offering , we began to consider including our own historical volatility , based on future expectations . we have not paid and do not anticipate paying cash dividends on our shares of common stock ; therefore , the expected dividend yield is assumed to be zero . we also recognize compensation expense for only the portion of options that are expected to vest . accordingly , we have estimated expected forfeitures of stock options based on our historical forfeiture rate , adjusted for known trends , and used these rates in developing a future forfeiture rate . we have also granted performance-based restricted stock units ( rsus ) with terms that allow the recipients to vest in a specific number of shares based upon the achievement of performance-based milestones as specified in the grants . share-based compensation expense associated with these performance-based rsus is recognized if the performance condition is considered probable of achievement using management 's best estimates of the time to vesting for the achievement of the performance-based milestones . if the actual achievement of the performance-based milestones varies from our estimates , share-based compensation expense could be materially different than what is recorded in the period . the cumulative effect on current and prior periods of a change in the estimated time to vesting for performance-based rsus will be recognized as compensation cost in the period of the revision , and recorded as a change in estimate . while the assumptions used to calculate and account for share-based compensation awards represents management 's best estimates , these estimates involve inherent uncertainties and the application of management 's judgment . as a result , if revisions are made to our underlying assumptions and estimates , our share-based compensation expense could vary significantly from period to period .
| the $ 5.0 million increase from the 2012 period to the 2013 period primarily resulted from an increase of $ 2.4 million in stock-based compensation expense associated with restricted stock units , an increase in professional fees and other costs of $ 1.5 million , an increase in consulting fees of approximately $ 514,000 , an approximate $ 274,000 increase in corporate franchise taxes and an approximate $ 339,000 increase in personnel costs primarily due to increase in salaries and headcount . interest income . interest income decreased to approximately $ 200,000 for the 2013 period from approximately $ 246,000 for the 2012 period . this decrease was primarily due to lower coupon rates on investments for the 2013 period compared to the 2012 period . comparison of the year ended december 31 , 2012 to the year ended december 31 , 2011 research and development expense . research and development expense for the year ended december 31 , 2012 was $ 21.7 million compared to $ 9.9 million for the year ended december 31 , 2011. the $ 11.8 million increase is primarily related to increased contract research organization expense of $ 4.1 million , an increase of $ 3.6 million in license fees due to our agreement with pfizer , inc. , including expense associated with the issuance of 192,012 shares of common stock , an increase of $ 3.3 million for personnel costs , including stock-based compensation of $ 2.0 million , primarily due to a higher fair value of our common stock , an increase of an approximate $ 404,000 for laboratory supplies , an increase of an approximate $ 118,000 for depreciation due to additional laboratory equipment and an approximate $ 86,000 in additional occupancy costs due to a full year of costs associated with our new facility that we occupied in may 2011. general and administrative expense . general and administrative expense for the year ended december 31 , 2012 was $ 10.5 million compared to $ 3.8 million for the year ended december 31 , 2011. the $ 6.7 million increase resulted from an increase of $ 4.6 million for personnel costs , including stock-based compensation of $ 3.8 million , primarily due to higher
| 12,107 |
we reflect any adjustments to the liabilities for losses and loss expenses of our insurance subsidiaries in our consolidated results of operations in the period in which our insurance subsidiaries make adjustments to their estimates . our insurance subsidiaries maintain liabilities for the payment of losses and loss expenses with respect to both reported and unreported claims . our insurance subsidiaries establish these liabilities for the purpose of covering the ultimate costs of settling all losses , including investigation and litigation costs . our insurance subsidiaries base the amount of their liability for reported losses primarily upon a case-by-case evaluation of the type of risk involved , knowledge of the circumstances surrounding each claim and the insurance policy provisions relating to the type of loss the policyholder incurred . our insurance subsidiaries determine the amount of their liability for unreported claims and loss expenses on the basis of historical information by line of insurance . our insurance subsidiaries account for inflation in the reserving function through analysis of costs and trends and reviews of historical reserving results . our insurance subsidiaries monitor their liabilities closely and recompute them periodically using new information on reported claims and a variety of statistical techniques . our insurance subsidiaries do not discount their liabilities for losses and loss expenses . reserve estimates can change over time because of unexpected changes in assumptions related to our insurance subsidiaries ' external environment and , to a lesser extent , assumptions related to our insurance subsidiaries ' internal operations . for example , our insurance subsidiaries have experienced a decrease in claims frequency on workers ' compensation claims during the past several years while the severity of these claims has gradually increased . these trend changes give rise to greater uncertainty as to the pattern of future loss settlements on workers ' compensation claims . related uncertainties regarding future trends include the cost of medical technologies and procedures and changes in the utilization of medical procedures . assumptions related to our insurance subsidiaries ' external environment include the absence of significant changes in tort law and the legal environment that increase liability exposure , consistency in judicial interpretations of insurance coverage and policy provisions and the rate of loss cost inflation . internal assumptions include consistency in the recording of premium and loss statistics , consistency in the recording of claims , payment and case reserving methodology , accurate measurement of the impact of rate changes and changes in policy provisions , consistency in the quality and characteristics of business written within a given line of business and consistency in reinsurance coverage and collectability of reinsured losses , among other items . to the extent our insurance subsidiaries determine that underlying factors impacting their assumptions have changed , our insurance subsidiaries make adjustments in their reserves that they consider appropriate for such changes . accordingly , our insurance subsidiaries ' ultimate liability for unpaid losses and loss expenses will likely differ from the amount recorded at december 31 , 2017. for every 1 % change in our insurance subsidiaries ' loss and loss expense reserves , net of reinsurance recoverable , the effect on our pre-tax results of operations would be approximately $ 3.8 million . the establishment of appropriate liabilities is an inherently uncertain process and we can provide no assurance that our insurance subsidiaries ' ultimate liability will not exceed our insurance subsidiaries ' loss and loss expense reserves and have an adverse effect on our results of operations and financial condition . furthermore , we can not predict the timing , frequency and extent of adjustments to our insurance subsidiaries ' estimated future liabilities , because the historical conditions and events that serve as a basis for our insurance subsidiaries ' estimates of ultimate claim costs may change . as is the case for substantially all property and casualty insurance companies , our insurance subsidiaries have found it necessary in the past to increase their estimated future liabilities for losses and loss expenses in certain periods and , in other periods , their estimated future liabilities for losses and loss expenses have exceeded their actual liabilities for losses and loss expenses . changes in our insurance subsidiaries ' estimates of their liability for losses and loss expenses generally reflect actual payments and their evaluation of information received subsequent to the prior reporting period . our insurance subsidiaries recognized an increase in their liability for losses and loss expenses of prior years of $ 6.6 million , $ 3.0 million and $ 7.2 million in 2017 , 2016 and 2015 , respectively . our insurance subsidiaries made no significant changes in their reserving philosophy , key reserving assumptions or claims management personnel , and they have made no significant offsetting changes in estimates that increased or decreased their loss and loss expense reserves in these years . the 2017 development represented 1.9 % of the december 31 , 2016 net carried reserves and resulted primarily from higher-than-expected severity in the commercial multiple peril , personal automobile and commercial automobile lines of business , offset by lower-than-expected severity in the workers ' compensation line of business , in accident years prior to 2017. the majority of the 2017 development related to increases in the liability for -41- losses and loss expenses of prior years for atlantic states and peninsula . the 2016 development represented 0.9 % of the december 31 , 2015 net carried reserves and resulted primarily from higher-than-expected severity in the commercial multiple peril and commercial automobile liability lines of business , offset by lower-than-expected severity in the workers ' compensation line of business , in accident years prior to 2016. the majority of the 2016 development related to increases in the liability for losses and loss expenses of prior years for atlantic states and southern . story_separator_special_tag the 2015 development represented 2.5 % of the december 31 , 2014 net carried reserves and resulted primarily from higher-than-expected severity in the private passenger automobile liability , commercial multiple peril and commercial automobile lines of business in accident years prior to 2015. the majority of the 2015 development related to increases in the liability for losses and loss expenses of prior years for atlantic states and southern . excluding the impact of severe weather events , our insurance subsidiaries have noted stable amounts in the number of claims incurred and a slight downward trend in the number of claims outstanding at period ends relative to their premium base in recent years across most of their lines of business . however , the amount of the average claim outstanding has increased gradually over the past several years due to various factors such as rising medical loss costs and increased litigation trends . we have also experienced a general slowing of settlement rates in litigated claims . our insurance subsidiaries could have to make further adjustments to their estimates in the future . however , on the basis of our insurance subsidiaries ' internal procedures , which analyze , among other things , their prior assumptions , their experience with similar cases and historical trends such as reserving patterns , loss payments , pending levels of unpaid claims and product mix , as well as court decisions , economic conditions and public attitudes , we believe that our insurance subsidiaries have made adequate provision for their liability for losses and loss expenses . atlantic states ' participation in the pool with donegal mutual exposes atlantic states to adverse loss development on the business of donegal mutual that the pool includes . however , pooled business represents the predominant percentage of the net underwriting activity of both companies , and donegal mutual and atlantic states share proportionately any adverse risk development relating to the pooled business . the business in the pool is homogeneous and each company has a pro-rata share of the entire pool . since the predominant percentage of the business of atlantic states and donegal mutual is pooled and the results shared by each company according to its participation level under the terms of the pooling agreement , the intent of the underwriting pool is to produce a more uniform and stable underwriting result from year to year for each company than either would experience individually and to spread the risk of loss between the companies . donegal mutual and our insurance subsidiaries operate together as the donegal insurance group and share a combined business plan designed to achieve market penetration and underwriting profitability objectives . the products our insurance subsidiaries and donegal mutual offer are generally complementary , thereby allowing donegal insurance group to offer a broader range of products to a given market and to expand donegal insurance group 's ability to service an entire personal lines or commercial lines account . distinctions within the products of donegal mutual and our insurance subsidiaries generally relate to specific risk profiles targeted within similar classes of business , such as preferred tier products compared to standard tier products , but we do not allocate all of the standard risk gradients to one company . therefore , the underwriting profitability of the business the individual companies write directly will vary . however , because the pool homogenizes the risk characteristics of the predominant percentage of the business donegal mutual and atlantic states write directly and each company shares the underwriting results according to each company 's participation percentage , each company realizes its percentage share of the underwriting results of the pool . -42- our insurance subsidiaries ' liability for losses and loss expenses by major line of business at december 31 , 2017 and 2016 consisted of the following : replace_table_token_13_th we have evaluated the effect on our insurance subsidiaries ' loss and loss expense reserves and our stockholders ' equity in the event of reasonably likely changes in the variables we consider in establishing loss and loss expense reserves . we established the range of reasonably likely changes based on a review of changes in accident year development by line of business and applied it to our insurance subsidiaries ' loss reserves as a whole . the selected range does not necessarily indicate what could be the potential best or worst case or the most-likely scenario . the following table sets forth the effect on our insurance subsidiaries ' loss and loss expense reserves and our stockholders ' equity in the event of reasonably likely changes in the variables considered in establishing loss and loss expense reserves : replace_table_token_14_th ( 1 ) net of income tax effect ( 21 % at december 31 , 2017 and 35 % at december 31 , 2016 ) . our insurance subsidiaries base their reserves for unpaid losses and loss expenses on current trends in loss and loss expense development and reflect their best estimates for future amounts needed to pay losses and loss expenses with respect to incurred events currently known to them plus incurred but not reported ( ibnr ) claims . our insurance subsidiaries develop -43- their reserve estimates based on an assessment of known facts and circumstances , review of historical loss settlement patterns , estimates of trends in claims severity , frequency , legal and regulatory changes and other assumptions . our insurance subsidiaries consistently apply actuarial loss reserving techniques and assumptions , which rely on historical information as adjusted to reflect current conditions , including consideration of recent case reserve activity . our insurance subsidiaries use the most-likely number their actuaries determine . for the year ended december 31 , 2017 , the actuaries developed a range from a low of $ 353.0 million to a high of $ 416.5 million and with a most-likely number of $ 383.4 million . the actuaries ' range of estimates for commercial lines in 2017 was $ 232.8 million to $ 274.5 million , and the actuaries selected the most-likely number of $ 252.7 million .
| installment payment fees our insurance subsidiaries ' installment fees decreased primarily as a result of their customers ' increased usage of payment plans that have lower installment payment fees during 2017. net realized investment gains our net realized investment gains in 2017 and 2016 were $ 5.7 million and $ 2.5 million , respectively . the net realized investment gains for 2017 resulted primarily from strategic sales of equity securities within our investment portfolio and unrealized gains within a limited partnership that invests in equity securities . the net realized investment gains in 2016 resulted from normal turnover within our investment portfolio . we did not recognize any impairment losses during 2017 or 2016. equity in earnings of dfsc our equity in the earnings of dfsc in 2017 and 2016 was $ 1.6 million and $ 1.1 million , respectively . we attribute the increase in dfsc 's earnings primarily to higher net interest income related to loan portfolio growth that dfsc achieved during 2017. losses and loss expenses our insurance subsidiaries ' loss ratio , which is the ratio of incurred losses and loss expenses to premiums earned , was 69.4 % in 2017 , compared to 64.5 % in 2016. our insurance subsidiaries ' commercial lines loss ratio increased to 62.0 % in 2017 , compared to 59.6 % in 2016. this increase resulted primarily from the commercial automobile loss ratio increasing to 80.3 % in 2017 , compared to 78.7 % in 2016 , and the commercial multi-peril loss ratio increasing to 64.6 % in 2017 , compared to 54.4 % in 2016. the personal lines loss ratio was 75.5 % in 2017 compared to 68.5 % in 2016. our insurance subsidiaries experienced unfavorable loss reserve development of approximately $ 6.6 million during 2017 in their reserves for prior accident years , compared to approximately $ 3.0 million during 2016. the unfavorable loss reserve development resulted primarily from higher-than-expected severity in the commercial multiple peril , personal automobile liability and commercial automobile lines of business , offset by lower-than-expected severity in the workers ' compensation line of business .
| 12,108 |
the bill contained no policy changes and extended current programs and funding levels through june 30 , 2012 , pending enactment of a multi-year law reauthorizing such programs . 15 on july 6 , 2012 , president obama signed a $ 118 billion transportation bill , moving ahead for progress in the 21st century act ( map-21 ) . map-21 includes a final three-month extension of safetea-lu at current spending levels combined with a new two-year , $ 105 billion authorization of the federal highway , transit , and safety programs effective october 1 , 2012. the new bill will provide states and communities with two years of steady funding needed to build roads , bridges , and transit systems . the company believes this will have a modest impact on the road construction industry and will allow its customers to plan and execute longer term projects . in addition , the canadian government enacted major infrastructure stimulus programs which have benefitted the company . in 2007 , the building canada plan provided $ 33 billion in infrastructure funding through 2014. as part of the building canada plan , the gas tax fund was approved in 2009 , providing $ 2 billion in annual infrastructure spending . the infrastructure canada plan provided $ 4 billion additional infrastructure funding from 2009 through 2011. the economic downturn over the past several years and the lack of a multi-year federal highway bill have resulted in reduced purchasing within the company 's served markets . this had an adverse impact on sales and pricing pressures on the company 's products , resulting in lower revenues and margins . in addition to government funding and the overall economic conditions , fluctuations in the price of oil , which is a major component of asphalt mix , may affect the company 's financial performance . an increase in the price of oil increases the cost of liquid asphalt and could , therefore , decrease demand for asphalt and certain of the company 's products . increases in oil prices also drive up the cost of gasoline , which results in increased freight costs . where possible , the company will pass increased freight costs on to its customers . however , the company may not be able to recapture all of the increased costs and thus could have a negative impact on the company 's financial performance . steel is a major component used in manufacturing the company 's equipment . fluctuations in the price of steel can have a significant impact on the company 's financial results . where possible , the company will pass on increased steel costs to its customers . however , the company may not be able to recapture all of the increased steel costs and thus its financial results could be negatively affected . for the long term , the company believes its strategy of continuing to invest in product engineering and development and its focus on delivering high-quality products and superior service will strengthen the company 's market position when demand for its products rebound . in response to the short-term outlook , the company has taken actions to conserve cash , right-size its operations and cost structure . these actions included adjustments to workforce , reduced purchases of raw materials and reductions in administrative expenses . the company continues to review its internal processes to identify inefficiencies and cost reductions and will continue reviewing its relationships with suppliers to ensure the company is achieving the highest quality products and services at the most competitive prices . story_separator_special_tag any , are recognized in the period in which they are determined . revenue recognized in excess of amounts billed is classified as current assets under costs and estimated earnings in excess of billings. the company anticipates that all incurred costs associated with these contracts at september 30 , 2012 , will be billed and collected within one year . revenues from all other contracts for the design and manufacture of custom equipment , for service and for parts sales , net of any discounts and return allowances , are recorded when the following four revenue recognition criteria are met : product is delivered or service is performed , persuasive evidence of an arrangement exists , the selling price is fixed or determinable , and collectability is reasonably assured . returns and allowances , which reduce product revenue , are estimated using historical experience . provisions for estimated returns and allowances and other adjustments are provided for in the same period the related sales are recorded . product warranty costs are estimated using historical experience and known issues and are charged to production costs as revenue is recognized . all product engineering and development costs , and selling , general and administrative expenses are charged to operations as incurred . provision is made for any anticipated contract losses in the period that the loss becomes evident . the allowance for doubtful accounts is determined by performing a specific review of all account balances greater than 90 days past due and other higher risk amounts to determine collectability and also adjusting for any known customer payment issues with account balances in the less than 90 day past due aging buckets . account balances are charged off against the allowance for doubtful accounts when they are determined to be uncollectable . any recoveries of account balances previously considered in the allowance for doubtful accounts reduce future additions to the allowance for doubtful accounts . 18 investments marketable debt and equity securities are categorized as trading securities and are thus marked to market and stated at fair value . fair value is determined using the quoted closing or latest bid prices for level 1 investments and market standard valuation methodologies for level 2 investments . realized gains and losses on investment transactions are determined by specific identification and are recognized as incurred in the consolidated statements of operations . net unrealized gains and losses story_separator_special_tag the bill contained no policy changes and extended current programs and funding levels through june 30 , 2012 , pending enactment of a multi-year law reauthorizing such programs . 15 on july 6 , 2012 , president obama signed a $ 118 billion transportation bill , moving ahead for progress in the 21st century act ( map-21 ) . map-21 includes a final three-month extension of safetea-lu at current spending levels combined with a new two-year , $ 105 billion authorization of the federal highway , transit , and safety programs effective october 1 , 2012. the new bill will provide states and communities with two years of steady funding needed to build roads , bridges , and transit systems . the company believes this will have a modest impact on the road construction industry and will allow its customers to plan and execute longer term projects . in addition , the canadian government enacted major infrastructure stimulus programs which have benefitted the company . in 2007 , the building canada plan provided $ 33 billion in infrastructure funding through 2014. as part of the building canada plan , the gas tax fund was approved in 2009 , providing $ 2 billion in annual infrastructure spending . the infrastructure canada plan provided $ 4 billion additional infrastructure funding from 2009 through 2011. the economic downturn over the past several years and the lack of a multi-year federal highway bill have resulted in reduced purchasing within the company 's served markets . this had an adverse impact on sales and pricing pressures on the company 's products , resulting in lower revenues and margins . in addition to government funding and the overall economic conditions , fluctuations in the price of oil , which is a major component of asphalt mix , may affect the company 's financial performance . an increase in the price of oil increases the cost of liquid asphalt and could , therefore , decrease demand for asphalt and certain of the company 's products . increases in oil prices also drive up the cost of gasoline , which results in increased freight costs . where possible , the company will pass increased freight costs on to its customers . however , the company may not be able to recapture all of the increased costs and thus could have a negative impact on the company 's financial performance . steel is a major component used in manufacturing the company 's equipment . fluctuations in the price of steel can have a significant impact on the company 's financial results . where possible , the company will pass on increased steel costs to its customers . however , the company may not be able to recapture all of the increased steel costs and thus its financial results could be negatively affected . for the long term , the company believes its strategy of continuing to invest in product engineering and development and its focus on delivering high-quality products and superior service will strengthen the company 's market position when demand for its products rebound . in response to the short-term outlook , the company has taken actions to conserve cash , right-size its operations and cost structure . these actions included adjustments to workforce , reduced purchases of raw materials and reductions in administrative expenses . the company continues to review its internal processes to identify inefficiencies and cost reductions and will continue reviewing its relationships with suppliers to ensure the company is achieving the highest quality products and services at the most competitive prices . story_separator_special_tag any , are recognized in the period in which they are determined . revenue recognized in excess of amounts billed is classified as current assets under costs and estimated earnings in excess of billings. the company anticipates that all incurred costs associated with these contracts at september 30 , 2012 , will be billed and collected within one year . revenues from all other contracts for the design and manufacture of custom equipment , for service and for parts sales , net of any discounts and return allowances , are recorded when the following four revenue recognition criteria are met : product is delivered or service is performed , persuasive evidence of an arrangement exists , the selling price is fixed or determinable , and collectability is reasonably assured . returns and allowances , which reduce product revenue , are estimated using historical experience . provisions for estimated returns and allowances and other adjustments are provided for in the same period the related sales are recorded . product warranty costs are estimated using historical experience and known issues and are charged to production costs as revenue is recognized . all product engineering and development costs , and selling , general and administrative expenses are charged to operations as incurred . provision is made for any anticipated contract losses in the period that the loss becomes evident . the allowance for doubtful accounts is determined by performing a specific review of all account balances greater than 90 days past due and other higher risk amounts to determine collectability and also adjusting for any known customer payment issues with account balances in the less than 90 day past due aging buckets . account balances are charged off against the allowance for doubtful accounts when they are determined to be uncollectable . any recoveries of account balances previously considered in the allowance for doubtful accounts reduce future additions to the allowance for doubtful accounts . 18 investments marketable debt and equity securities are categorized as trading securities and are thus marked to market and stated at fair value . fair value is determined using the quoted closing or latest bid prices for level 1 investments and market standard valuation methodologies for level 2 investments . realized gains and losses on investment transactions are determined by specific identification and are recognized as incurred in the consolidated statements of operations . net unrealized gains and losses
| the effective income tax rate for 2012 was 34.7 % whereas the effective income tax rate was a benefit of 108.8 % for 2011. the tax benefit in fiscal 2011 was primarily due to a decrease of $ 1,724,000 in unrecognized tax benefits following the conclusion of examinations by a state taxing authority during the second fiscal quarter of 2011. the change in the effective tax rate between years is also due to operating income incurred during 2012 versus losses in 2011 , and the effect of tax exempt interest income in the respective years ( see note 6 to consolidated financial statements ) . net income for the year ended september 30 , 2012 was $ 4,472,000 or $ .47 per share versus $ 224,000 or $ .02 per share for the year ended september 30 , 2011. liquidity and capital resources the company generates capital resources through operations and returns on its investments . the company had no long term debt outstanding at september 30 , 2012 or 2011. the company does not currently require a credit facility but continues to review and evaluate its needs and options for such a facility . as of september 30 , 2012 , the company has funded $ 402,000 in cash deposits at insurance companies to cover related collateral needs . as of september 30 , 2012 , the company had $ 3.4 million in cash and cash equivalents , and $ 81.4 million in marketable securities . the marketable securities are invested through a professional investment management firm . the securities may be liquidated at any time into cash and cash equivalents . the company 's backlog was $ 3.4 million at september 30 , 2012 versus $ 6.5 million at september 30 , 2011. the company 's working capital ( defined as current assets less current liabilities ) was $ 96.2 million at september 30 , 2012 versus $ 89.8 million at september 30 , 2011. deferred taxes went from a net
| 12,109 |
; and ( iv ) any member of the immediate family ( including spouse , parents , children , siblings and in- laws ) of any of the foregoing persons . as at june 30 , 2012 we were indebted $ 1,946 to carol callaghan , our former sole officer and director , for expenses paid on our behalf . this amount was non-interest bearing , unsecured and due on demand . during the nine month period ended march 31 , 2013 , we repaid $ 425 to ms. callaghan . on march 12 , 2013 , ms. callaghan agreed to forgive the remaining $ 1,519 owed . as at june 30 , 2012 we were indebted $ 78,466 to sienna funding corp. , a company controlled by rick brezer , the spouse of ms. callaghan , our former sole officer and director , for advances provided to us . this amount was non-interest bearing , unsecured and due on demand . during the nine months ended march 31 , 2013 , sienna funding corp. advanced an additional $ 22,000 to our company and we repaid $ 92,668 to sienna funding corp. on march 12 , 2013 , sienna funding corp. agreed to forgive the remaining $ 7,799 owed . as at june 30 , 2013 , we were indebted to glenn sanford , our executive officer and director , for $ 20,577 for expenses paid for on behalf of our company , which was non-interest bearing , unsecured and due on demand . for information regarding compensation for our executive officers and directors , see executive compensation . director independence our common stock is quoted on the otcqb operated by the otc markets group , which does not impose any director independence requirements . under nasdaq marketplace rule 5605 ( a ) ( 2 ) , a director is not considered to be independent if he is also an executive officer or employee of the company . using this definition of independent director , glenn sanford is not independent as he is also our executive officer . 19 item 14. principal accounting fees and services . audit fees the following table sets forth the fees billed to our company for professional services rendered by haynie & company , our independent registered public accounting firm for the years ended june 30 , 2013 and 2012 : fees 2013 2012 audit fees $ 9,500 12,098 audit related fees - - tax fees - - other fees - - total fees $ 9,500 12,098 pre-approval policies and procedures our sole director , who acts as our audit committee , pre-approves all services provided by our independent auditors . all of the above services and fees were reviewed and approved by our sole director before the services were rendered . our sole director has considered the nature and amount of fees billed by haynie & company and believes that the provision of services for activities unrelated to the audit is compatible with maintaining their independence . item 15. exhibits , financial statement schedules . exhibits exhibit number description of exhibit ( 2 ) plan of acquisition , reorganization , arrangement , liquidation or succession 2.1 merger agreement dated august 15 , 2013 with exp realty international , inc. and exp acquisition corp. ( incorporated by reference from our current report on form 8-k , filed on august 20 , 2013 ) ( 3 ) articles of incorporation and bylaws 3.1 certificate of incorporation ( incorporated by reference from our registration statement on form s-1 , filed on july 7 , 2010 ) 3.2 certificate of amendment of certificate of incorporation dated effective september 9 , 2013 ( incorporated by reference from our current report on form 8-k , filed on september 9 , 2013 ) 3.3 bylaws ( incorporated by reference from our registration statement on form s-1 , filed on july 7 , 2010 ) ( 10 ) material contracts 10.1 website development agreement with pixel blue fx dated october 29 , 2009 ( incorporated by reference from our registration statement on form s-1 , filed on july 7 , 2010 ) 10.2 affiliate stock purchase agreement ( incorporated by reference from our current report on form 8-k , filed on march 18 , 2013 ) 20 exhibit number description of exhibit 10.2 letter of intent with exp realty international , inc. dated april 8 , 2013 ( incorporated by reference from our current report on form 8-k , filed on april 11 , 2013 ) ( 21 ) subsidiaries 21.1 list of subsidiaries - exp acquisition corp. , incorporated in state of washington ( 31 ) rule 13a-14 certifications 31.1 * section 302 certification under sarbanes-oxley act of 2002 of glenn sanford ( 32 ) section 1350 certifications 32.1 * section 906 certification under sarbanes-oxley act of 2002 of glenn sanford ( 101 ) interactive data file 101.ins * xbrl instance document 101.sch * xbrl taxonomy extension schema 101.cal * xbrl taxonomy extension calculation linkbase 101.def * xbrl taxonomy extension definition linkbase 101.lab * xbrl taxonomy extension label linkbase 101.pre * xbrl taxonomy extension presentation linkbase * filed herewith 21 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereto duly authorized . exp realty international corporation glenn sanford glenn sanford president , chief executive officer , chief financial officer , secretary , treasurer and director ( principal executive officer , principal financial officer and principal accounting officer ) date : september 26 , 2013 pursuant to the requirements of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . glenn sanford glenn sanford president , chief executive officer , chief financial officer , secretary , treasurer and director ( principal story_separator_special_tag ; and ( iv ) any member of the immediate family ( including spouse , parents , children , siblings and in- laws ) of any of the foregoing persons . as at june 30 , 2012 we were indebted $ 1,946 to carol callaghan , our former sole officer and director , for expenses paid on our behalf . this amount was non-interest bearing , unsecured and due on demand . during the nine month period ended march 31 , 2013 , we repaid $ 425 to ms. callaghan . on march 12 , 2013 , ms. callaghan agreed to forgive the remaining $ 1,519 owed . as at june 30 , 2012 we were indebted $ 78,466 to sienna funding corp. , a company controlled by rick brezer , the spouse of ms. callaghan , our former sole officer and director , for advances provided to us . this amount was non-interest bearing , unsecured and due on demand . during the nine months ended march 31 , 2013 , sienna funding corp. advanced an additional $ 22,000 to our company and we repaid $ 92,668 to sienna funding corp. on march 12 , 2013 , sienna funding corp. agreed to forgive the remaining $ 7,799 owed . as at june 30 , 2013 , we were indebted to glenn sanford , our executive officer and director , for $ 20,577 for expenses paid for on behalf of our company , which was non-interest bearing , unsecured and due on demand . for information regarding compensation for our executive officers and directors , see executive compensation . director independence our common stock is quoted on the otcqb operated by the otc markets group , which does not impose any director independence requirements . under nasdaq marketplace rule 5605 ( a ) ( 2 ) , a director is not considered to be independent if he is also an executive officer or employee of the company . using this definition of independent director , glenn sanford is not independent as he is also our executive officer . 19 item 14. principal accounting fees and services . audit fees the following table sets forth the fees billed to our company for professional services rendered by haynie & company , our independent registered public accounting firm for the years ended june 30 , 2013 and 2012 : fees 2013 2012 audit fees $ 9,500 12,098 audit related fees - - tax fees - - other fees - - total fees $ 9,500 12,098 pre-approval policies and procedures our sole director , who acts as our audit committee , pre-approves all services provided by our independent auditors . all of the above services and fees were reviewed and approved by our sole director before the services were rendered . our sole director has considered the nature and amount of fees billed by haynie & company and believes that the provision of services for activities unrelated to the audit is compatible with maintaining their independence . item 15. exhibits , financial statement schedules . exhibits exhibit number description of exhibit ( 2 ) plan of acquisition , reorganization , arrangement , liquidation or succession 2.1 merger agreement dated august 15 , 2013 with exp realty international , inc. and exp acquisition corp. ( incorporated by reference from our current report on form 8-k , filed on august 20 , 2013 ) ( 3 ) articles of incorporation and bylaws 3.1 certificate of incorporation ( incorporated by reference from our registration statement on form s-1 , filed on july 7 , 2010 ) 3.2 certificate of amendment of certificate of incorporation dated effective september 9 , 2013 ( incorporated by reference from our current report on form 8-k , filed on september 9 , 2013 ) 3.3 bylaws ( incorporated by reference from our registration statement on form s-1 , filed on july 7 , 2010 ) ( 10 ) material contracts 10.1 website development agreement with pixel blue fx dated october 29 , 2009 ( incorporated by reference from our registration statement on form s-1 , filed on july 7 , 2010 ) 10.2 affiliate stock purchase agreement ( incorporated by reference from our current report on form 8-k , filed on march 18 , 2013 ) 20 exhibit number description of exhibit 10.2 letter of intent with exp realty international , inc. dated april 8 , 2013 ( incorporated by reference from our current report on form 8-k , filed on april 11 , 2013 ) ( 21 ) subsidiaries 21.1 list of subsidiaries - exp acquisition corp. , incorporated in state of washington ( 31 ) rule 13a-14 certifications 31.1 * section 302 certification under sarbanes-oxley act of 2002 of glenn sanford ( 32 ) section 1350 certifications 32.1 * section 906 certification under sarbanes-oxley act of 2002 of glenn sanford ( 101 ) interactive data file 101.ins * xbrl instance document 101.sch * xbrl taxonomy extension schema 101.cal * xbrl taxonomy extension calculation linkbase 101.def * xbrl taxonomy extension definition linkbase 101.lab * xbrl taxonomy extension label linkbase 101.pre * xbrl taxonomy extension presentation linkbase * filed herewith 21 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereto duly authorized . exp realty international corporation glenn sanford glenn sanford president , chief executive officer , chief financial officer , secretary , treasurer and director ( principal executive officer , principal financial officer and principal accounting officer ) date : september 26 , 2013 pursuant to the requirements of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . glenn sanford glenn sanford president , chief executive officer , chief financial officer , secretary , treasurer and director ( principal
| from our inception on july 30 , 2008 to june 30 , 2013 we incurred total operating expenses of $ 224,183 , including $ 12,604 in website development costs , $ 174,166 in professional fees and $ 37,413 in general and administrative expenses . our general and administrative expenses consist of transfer agent fees , filing fees , bank charges , office expenses , communication expenses ( cellular , internet , fax and telephone ) and courier and postage costs . our professional fees include legal , accounting and auditing costs . 8 liquidity and capital resources working capital as at june 30 , 2013 replace_table_token_0_th our working capital deficiency decreased from the year ended june 30 , 2012 to june 30 , 2013 primarily due to the proceeds from issuance of common stock during the year ended june 30 , 2013. as at june 30 , 2013 , we had cash of $ 40,554 and working capital deficiency of $ 3,112 , compared to cash of $ 738 and working capital deficiency of $ 91,874 as at june 30 , 2012. we have incurred operating losses since inception , and this is likely to continue in the foreseeable future . we require funds to enable us to address our minimum current and ongoing expenses . cash flows replace_table_token_1_th cash used in operating activities we used cash in operating activities in the amount of $ 22,937 during the year ended june 30 , 2013 and $ 36,536 during the year ended june 30 , 2012. cash used in operating activities was funded primarily by cash from financing activities . cash used in investing activities no cash was used in investing activities during the year ended june 30 , 2013 or during the year ended june 30 , 2012. cash from financing activities we generated cash of $ 62,753 from financing activities during the year ended june 30 , 2013 compared to cash of $ 37,274 generated from financing activities during the year ended june 30 , 2012. the increase in cash flow provided by financing activities was related to proceeds from issuance of common stock during the year ended june 30 , 2013. going concern we anticipate that our cash
| 12,110 |
16 part iv item 15. exhibits , financial statement schedules the following documents are filed as part of this 10-k : 1. financial statements the following documents are filed in part ii , item 8 of this annual report on form 10-k : report of malonebailey llp , independent registered certified public accounting firm f-2 balance sheets as of december 31 , 2016 and 2015 f-4 statements of operations for the years ended december 31 , 2016 and 2015 f-5 statements of stockholders ' deficit for the year ended december 31 , 2016 and 2015 f-6 statement of cash flows for the years ended december 31 , 2016 and 2015 f-7 notes to financial statements ( audited ) f-8 2. financial statement schedules all financial statement schedules have been omitted as they are not required , not applicable , or the required information is otherwise included . 3. exhibits the exhibits listed below are filed as part of or incorporated by reference in this report . exhibit no . identification of exhibit 31.1 certification of the chief executive officer pursuant to section 302 of the sarbanes-oxley act of 2002 . 31.2 certification of the chief financial officer pursuant to section 302 of the sarbanes-oxley act of 2002 . 32.1 certification of chief executive officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 . 32.2 certification of chief financial officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 . 17 signatures pursuant to the requirements of section 13 or 15 ( d ) of the exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . u.s. rare earth minerals , inc. ( registrant ) by : d. quincy farber name : d. quincy farber title : chief executive officer and director dated : march 31 , 2017 by : donita kendig name : donita kendig title : chief financial officer and director dated : march 31 , 2017 18 story_separator_special_tag the following discussion should be read in conjunction with our audited financial statements and the notes thereto . forward-looking statements this annual report contains forward-looking statements and information relating to us that are based on the beliefs of our management as well as assumptions made by , and information currently available to , our management . when used in this report , the words `` believe , '' `` anticipate , '' `` expect , '' `` estimate , '' “ intend ” , “ plan ” and similar expressions , as they relate to us or our management , are intended to identify forward-looking statements . these statements reflect management 's current view of us concerning future events and are subject to certain risks , uncertainties and assumptions , including among many others : a general economic downturn ; a downturn in the securities markets ; federal or state laws or regulations having an adverse effect on proposed transactions that we desire to effect ; securities and exchange commission regulations which affect trading in the securities of `` penny stocks , '' ; and other risks and uncertainties . should any of these risks or uncertainties materialize , or should underlying assumptions prove incorrect , actual results may vary materially from those described in this report as anticipated , estimated or expected . all forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statement . 6 story_separator_special_tag serif ; margin : 0 ; text-align : justify '' > the company purchases calcium montmorillonite clay pursuant to an agreement with a related party , who owns the land and mine containing such clay , and resells the product for agricultural uses . revenue from the sale of product obtained from our mining contractor is recognized when ownership passes to the purchaser at which time the following conditions are met : i ) persuasive evidence that an agreement exists ; ii ) the risks and rewards of ownership pass to the purchaser including delivery of the product ; iii ) the selling price is fixed and determinable ; or , iv ) collectively is reasonably assured . 8 stock based compensation stock based compensation is accounted for using the equity-based payments to non-employee topic of the fasb asc , which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services . it also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity 's equity instruments or that may be settled by the issuance of those equity instruments . we determine the value of stock issued at the date of grant . we also determine at the date of grant the value of stock at fair market value or the value of services rendered ( based on contract or otherwise ) whichever is more readily determinable . stock based compensation for employees is account for using the stock based compensation topic of the fasb asc . we use the fair value method for equity instruments granted to employees and will use the black scholes model for measuring the fair value of options , if issued . the stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed ( measurement date ) and is recognized over the vesting periods . going concern the company 's financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern . this contemplates the realization of assets and the liquidation of liabilities in the normal course of business . currently , the company does not have significant cash or other material assets , nor does it have story_separator_special_tag 16 part iv item 15. exhibits , financial statement schedules the following documents are filed as part of this 10-k : 1. financial statements the following documents are filed in part ii , item 8 of this annual report on form 10-k : report of malonebailey llp , independent registered certified public accounting firm f-2 balance sheets as of december 31 , 2016 and 2015 f-4 statements of operations for the years ended december 31 , 2016 and 2015 f-5 statements of stockholders ' deficit for the year ended december 31 , 2016 and 2015 f-6 statement of cash flows for the years ended december 31 , 2016 and 2015 f-7 notes to financial statements ( audited ) f-8 2. financial statement schedules all financial statement schedules have been omitted as they are not required , not applicable , or the required information is otherwise included . 3. exhibits the exhibits listed below are filed as part of or incorporated by reference in this report . exhibit no . identification of exhibit 31.1 certification of the chief executive officer pursuant to section 302 of the sarbanes-oxley act of 2002 . 31.2 certification of the chief financial officer pursuant to section 302 of the sarbanes-oxley act of 2002 . 32.1 certification of chief executive officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 . 32.2 certification of chief financial officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 . 17 signatures pursuant to the requirements of section 13 or 15 ( d ) of the exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . u.s. rare earth minerals , inc. ( registrant ) by : d. quincy farber name : d. quincy farber title : chief executive officer and director dated : march 31 , 2017 by : donita kendig name : donita kendig title : chief financial officer and director dated : march 31 , 2017 18 story_separator_special_tag the following discussion should be read in conjunction with our audited financial statements and the notes thereto . forward-looking statements this annual report contains forward-looking statements and information relating to us that are based on the beliefs of our management as well as assumptions made by , and information currently available to , our management . when used in this report , the words `` believe , '' `` anticipate , '' `` expect , '' `` estimate , '' “ intend ” , “ plan ” and similar expressions , as they relate to us or our management , are intended to identify forward-looking statements . these statements reflect management 's current view of us concerning future events and are subject to certain risks , uncertainties and assumptions , including among many others : a general economic downturn ; a downturn in the securities markets ; federal or state laws or regulations having an adverse effect on proposed transactions that we desire to effect ; securities and exchange commission regulations which affect trading in the securities of `` penny stocks , '' ; and other risks and uncertainties . should any of these risks or uncertainties materialize , or should underlying assumptions prove incorrect , actual results may vary materially from those described in this report as anticipated , estimated or expected . all forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statement . 6 story_separator_special_tag serif ; margin : 0 ; text-align : justify '' > the company purchases calcium montmorillonite clay pursuant to an agreement with a related party , who owns the land and mine containing such clay , and resells the product for agricultural uses . revenue from the sale of product obtained from our mining contractor is recognized when ownership passes to the purchaser at which time the following conditions are met : i ) persuasive evidence that an agreement exists ; ii ) the risks and rewards of ownership pass to the purchaser including delivery of the product ; iii ) the selling price is fixed and determinable ; or , iv ) collectively is reasonably assured . 8 stock based compensation stock based compensation is accounted for using the equity-based payments to non-employee topic of the fasb asc , which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services . it also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity 's equity instruments or that may be settled by the issuance of those equity instruments . we determine the value of stock issued at the date of grant . we also determine at the date of grant the value of stock at fair market value or the value of services rendered ( based on contract or otherwise ) whichever is more readily determinable . stock based compensation for employees is account for using the stock based compensation topic of the fasb asc . we use the fair value method for equity instruments granted to employees and will use the black scholes model for measuring the fair value of options , if issued . the stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed ( measurement date ) and is recognized over the vesting periods . going concern the company 's financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern . this contemplates the realization of assets and the liquidation of liabilities in the normal course of business . currently , the company does not have significant cash or other material assets , nor does it have
| several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events . however , events that are outside of our control can not be predicted and , as such , they can not be contemplated in evaluating such estimates and assumptions . if there is a significant unfavorable change to current conditions , it could result in a material adverse impact to our consolidated results of operations , financial position and liquidity . we believe that the estimates and assumptions we used when preparing our financial statements were the most appropriate at that time . presented below are those accounting policies that we believe require subjective and complex judgments that could potentially affect reported results . however , the majority of our business operates in environments where we pay a fee for a service performed , and therefore the results of the majority of our recurring operations are recorded in our financial statements using accounting policies that are not particularly subjective , nor complex . income taxes the company uses the asset and liability method of accounting for income taxes in accordance with asc topic 740 , “ income taxes ” . under this method , income tax expense is recognized for the amount of : ( i ) taxes payable or refundable for the current year and ( ii ) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity 's financial statements or tax returns . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on the deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date . a valuation allowance is provided to reduce
| 12,111 |
agreement remained valid , binding and legally enforceable with 4kids continuing to serve as the exclusive licensing agent for the merchandise licensing , television broadcast and home video rights to the yu-gi-oh ! property throughout the world outside of asia . the settlement agreement further provided for each of 4kids and the licensors to release each other from all claims they may have against each other , other than certain indemnification claims and claims that may arise under the settlement agreement . the settlement agreement also provided that the agreement does not constitute an admission by any party of any violation of any agreement or law . while the consummation of the settlement agreement represents a significant step in the process of resolving the bankruptcy cases , the timing of any resolution of the bankruptcy cases will depend on the timing and outcome of numerous other ongoing matters therein , and it is not possible at this time to accurately predict when such other matters will be resolved . we have incurred and will continue to incur significant costs associated with the bankruptcy cases . the amount of these costs , which began in april 2011 and are being expensed as incurred , are expected to significantly affect our results of operations and financial position . the bankruptcy cases have also presented challenges to our ability to generate additional revenues in all of our business segments especially as it relates to the sales of commercial advertising . the company will consider all alternatives available to generate additional cash to fund its operations , including , but not limited to sales of assets , issuance of equity or debt securities , and third party arrangements subject to any limitations and procedures arising from the bankruptcy cases . our ability to achieve and maintain profitability and positive cash flow is dependent upon the success of our reorganizational efforts and a number of other factors , including our ability to generate additional revenues . the company 's financial statements have been prepared assuming that the company will continue as a going concern and do not contain any adjustments that may result from the outcome of this uncertainty . general the company receives revenues from the following three business segments : ( i ) licensing ; ( ii ) advertising , media and broadcasting ; and ( iii ) television and film production/distribution . the company typically derives a substantial portion of its licensing revenues from a small number of properties , which usually generate revenues for only a limited period of time . the company 's revenues are highly subject to changing trends in the toy , game and entertainment businesses , potentially causing dramatic increases and decreases from year to year due to the popularity of particular properties . it is not possible to accurately predict the length of time a property will be commercially successful and or if a property will be commercially successful at all . popularity of properties can vary from months to years . as a result , the company 's revenues from particular properties may fluctuate significantly between comparable periods . the company 's licensing revenues have historically been derived primarily from the licensing of toy and game concepts . as a result , a substantial portion of the company 's revenues and net income are subject to the seasonal variations of the toy and game industry . typically , a majority of toy orders are shipped in the third and fourth calendar quarters resulting in increased royalties earned by the company during such calendar quarters . the company recognizes revenues from the sale of advertising time on the leased saturday morning programming block from the cw ( “ the cw4kids ” ) , as more fully described in note 2 of the notes to the company 's consolidated financial statements . the company 's advertising sales subsidiary , 4kids ad sales , sells advertising time on the cw4kids at higher rates in the fourth quarter due to the increased demand for commercial time by children 's advertisers during the holiday season . as a result , much of the revenues of 4kids ad sales are earned in the fourth quarter when the majority of toy and video game advertising occurs . as a result of the 16 foregoing , the company has historically experienced greater revenues during the second half of the year than during the first half of the year . effective september 30 , 2010 , the company terminated the operations of tc digital games llc ( “ tc digital ” ) , the joint venture which produced , marketed and distributed the “ chaotic ” trading card game , and tc websites llc ( “ tc websites ” ) , the joint venture that owns and operates www.chaoticgame.com , the companion website for the “ chaotic ” trading card game . the company owns 55 % of each of tc digital and tc websites . the closing of these companies enabled the company to further reduce costs and focus on its core businesses . as a consequence of the termination of their operations , tc digital and tc websites ceased supporting the chaotic trading card game and website , effective october 1 , 2010. tc digital and tc websites are included in discontinued operations in the company 's consolidated financial statements , subject to a noncontrolling interest . critical accounting policies the company 's accounting policies are fully described in note 2 of the notes to the company 's consolidated financial statements . below is a summary of the critical accounting policies , among others , that management believes involve significant judgments and estimates used in the preparation of its consolidated financial statements . story_separator_special_tag accounting for film and television costs - the company amortizes the costs of production for film and television programming using the individual-film-forecast method under which such costs are amortized for each film or television program in the ratio that revenue earned in the current period for such title bears to management 's estimate of the total revenues to be realized from all media and markets for such title . all exploitation costs , including advertising and marketing costs are expensed as incurred . management regularly reviews , and revises when necessary , its total revenue estimates on a title-by-title basis , which may result in a change in the rate of amortization and or a write-down of the film or television asset to estimated fair value . the company determines the estimated fair value for individual film and television properties based on the estimated future ultimate revenues and costs . any revisions to ultimate revenues can result in significant quarter-to-quarter and year-to-year fluctuations in film and television write-downs and amortization . a typical film or television series recognizes a substantial portion of its ultimate revenues within the first three years of release . by then , the film or television series has been exploited in the domestic and international television ( network and cable ) and home video markets . in addition , a significant portion of licensing revenues associated with the film or television series will have been realized . a similar portion of the film 's or television series ' capitalized costs should be expected to be amortized accordingly , assuming the film or television series is profitable . the commercial potential of individual films and television programming varies dramatically , and is not directly correlated with production or acquisition costs . therefore , it is difficult to predict or project the impact that individual films or television programming will have on the company 's results of operations . however , the likelihood that the company will report losses , particularly in the year of a television series initial release , is increased as the applicable accounting literature requires the immediate recognition of all of the production or acquisition costs ( through increased amortization ) in instances where it is estimated that the ultimate revenues of a film or television series will not recover those costs . conversely , the profit from a film or television series must be deferred and recognized over the entire revenue stream generated by that film or television series . as a result , significant fluctuations in reported income or loss can occur , particularly on a quarterly basis , depending on release schedules and broadcast dates , the timing of advertising campaigns and the relative performance of individual film or television series . reorganization items - the company 's costs relate to professional , consulting and trustee fees in conjunction with the filing of the bankruptcy cases . these types of expenditures are expensed as incurred and reported as reorganization items . other estimates - the company estimates reserves for future returns of product in the home video markets as well as provisions for uncollectible receivables . in determining the estimate of home video product sales that will be returned , the company performs an analysis that considers historical returns , changes in customer demand and current economic trends . based on this information , a percentage of each sale is reserved provided that the customer has the right to return unsold trading card and home video inventory . the company estimates the amount of uncollectible receivables from its business segments by monitoring delinquent accounts and estimating a reserve based on contractual terms and other customer specific issues . revenue recognition - the company 's revenue recognition policies for its three business segments are appropriate to the circumstances of each segment 's business . see note 2 of the notes to the company 's consolidated financial statements for a discussion of these revenue recognition policies . 17 4kids tv broadcast agreement - the company broadcasted certain of its properties on 4kids tv , the saturday morning programming block that the company leased from fox , under the fox agreement , until december 31 , 2008. the cost of 4kids tv has been capitalized and amortized over each broadcast year based on estimated advertising revenue up until the termination of the fox agreement on december 31 , 2008 , at which time the cost to lease 4kids tv was fully amortized . management 's discussion and analysis of financial condition and results of operations discusses the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . the company continually evaluates the policies and estimates that it uses to prepare its consolidated financial statements . in general , management 's estimates and assumptions are based on historical experience , known trends or events , information from third-party professionals and other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making the 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 and conditions . recently adopted accounting standards – there are no recently adopted accounting standards that currently apply to the company . recently issued accounting standards – in september 2011 , the fasb issued asu 2011-08 , intangibles – goodwill and other ( topic 350 ) : testing goodwill for impairment , which amended its guidance on the testing of goodwill impairment to allow an entity the option to first assess qualitative factors to determine whether performing the current two-step process is necessary .
| ” and “ american kennel club ” properties were the largest contributors of net revenues with approximately 58 % and 11 % , respectively , of the company 's revenues in this business segment for 2011. in the advertising media and broadcast segment , the increase in revenues for the year ended december 31 , 2011 , as compared to the same period in 2010 , was primarily attributable to increased sales of internet advertising on the company 's websites as well as third party websites of approximately $ 710. in the television and film production/distribution segment , the increase in revenues for 2011 , as compared to 2010 , was primarily attributable to : ( i ) decreased reserves relating to “ yu-gi-oh ! ” home video revenues of approximately $ 1,500 ; partially offset by ( ii ) decreased contract revenue from the “ yu-gi-oh ! ” television series of approximately $ 320 ; as well as ( iii ) decreased international broadcast sales from the “ dinosaur king ” and “ chaotic ” television series of approximately $ 220 and $ 130 , respectively ; as well as ( iv ) decreased broadcast sales on the “ pokémon ” property of approximately $ 240 ; as well as ( v ) decreased musical performance revenues from the “ winx ” television series of approximately $ 145 ; and ( vi ) decreased theatrical revenue from the “ yu-gi-oh ! ” movie of approximately $ 120. selling , general and administrative expenses selling , general and administrative expenses decreased 7 % , or $ 2,022 to $ 25,989 for the year ended december 31 , 2011 , when compared to the same period in 2010. the decrease was primarily attributable to broad cost-cutting initiatives implemented throughout the company and included : ( i ) decreased personnel related costs of approximately $ 4,085 ; as well as ( ii ) decreased marketing and promotional costs of approximately $ 1,415 ; as well as ( iii ) decreased bad debt expenses of approximately $ 970 ; and ( iv ) decreased office expenses of approximately $ 995 ; partially offset by ( v ) increased network selling expenses of approximately $ 3,205 ; and ( vi ) increased legal fees primarily relating to the “ yu-gi-oh ! ” litigation of approximately $ 2,070. capitalized film costs 2011 2010 $ change % change amortization of television and film costs $ 2,762 $ 6,827 $ ( 4,065 ) ( 60 ) % the decrease in amortization of television and film costs for 2011 when compared to 2010 was primarily due to the decreased amortization of the “ chaotic ” television series , as well as the prior year write-off of certain older television series . as of december 31 , 2011 , there was $ 2,465 of capitalized film production
| 12,112 |
for a delivered item to be considered a separate unit , the delivered item must have value to the customer on a standalone basis and the delivery or performance of the undelivered item must be considered probable and substantially in our control . our post-shipment obligations include installation , training services , one-year standard warranties , and extended warranties . installation does not alter the product capabilities , does not require specialized skills or tools and can be performed by the customers or other vendors . installation is typically provided within five days of product shipment and is completed within one to two days thereafter . training services are optional and do not affect the customers ' ability to use the product . we defer revenue for the selling price of installation and training . extended warranties constitute warranty obligations beyond one year and we defer revenue in accordance with financial accounting standards board ( fasb ) accounting standards codification ( asc ) 605-20 , separately priced extended warranty and product maintenance contracts and asc 605-25 , revenue recognition multiple-element arrangements. service revenue is recognized over the contractual period or as services are performed . our products are generally subject to warranty and the related costs of the warranty are provided for in cost of revenues when product revenue is recognized . we classify shipping and handling costs in cost of revenue . we do not provide our customers with contractual rights of return for any of our products . retirement and postretirement plans effective january 1 , 2012 , we changed the method of recognizing actuarial gains and losses for our defined benefit pension plans and postretirement benefit plan and calculating the expected return on plan assets for our defined benefit pension plans . historically , we recognized net actuarial gains and losses in accumulated other comprehensive income within shareholders ' equity on our consolidated balance sheets on an annual basis and amortized them into operating results over the average remaining years of service of the plan participants , to the extent such gains and losses were outside of a range ( corridor ) . we elected to immediately recognize net actuarial gains and losses and the change in the fair value of the plan assets in our operating results in the year in which they occur or upon any interim remeasurement of the plans . in addition , we used to calculate the expected return on plan assets using a calculated market-related value of plan assets . effective january 1 , 2012 , we elected to calculate the expected return on plan assets using the fair value of the plan assets . we believe that this new method is preferable as it eliminates the delay in recognizing gains and losses in our operating results and it will improve the transparency by faster recognition of the effects of economic and 20 interest rate trends on plan obligations and investments . these actuarial gains and losses are generally measured annually as of december 31 and , accordingly , will be recorded during the fourth quarter of each year or upon any interim remeasurement of the plans . in accordance with financial accounting standards board accounting standards codification topic 250 , accounting changes and error corrections , all prior periods presented in this annual report on form 10-k have been adjusted to apply the new accounting method retrospectively . inventories inventories are stated at the lower of cost ( first-in , first-out basis ) or net realizable value . on a quarterly basis , we use consistent methodologies to evaluate all inventories for net realizable value . we record a provision for both excess and obsolete inventory when such write-downs or write-offs are identified through the quarterly review process . the inventory valuation is based upon assumptions about future demand , product mix , and possible alternative uses . equity incentive and stock purchase plans stock-based compensation expense is based on the grant-date fair value estimated in accordance with the provisions of asc 718 compensationstock compensation . as required by asc 718 , we have made an estimate of expected forfeitures and are recognizing compensation costs only for those stock-based compensation awards expected to vest . income taxes on a quarterly basis , we evaluate the realizability of our deferred tax assets by jurisdiction and assess the need for a valuation allowance . we consider the probability of future taxable income and our historical profitability , among other factors , in assessing the amount of the realizability of our deferred tax assets . as a result of this review , undertaken at december 31 , 2002 , we concluded under applicable accounting criteria that it was more likely than not that our deferred tax assets would not be realized and established a valuation allowance in several jurisdictions , most notably the united states . at december 31 , 2011 , we reassessed this judgment and concluded that it is more likely than not that a substantial majority of our deferred tax assets will be realized through consideration of both the positive and negative evidence . the evidence consisted primarily of our three year u.s. historical cumulative profitability , projected future taxable income , forecasted utilization of the deferred tax assets and the fourth quarter of 2011 acquisition of litepoint offset by the volatility of the industries we operate in , primarily the semiconductor industry . as such , we reduced the valuation allowance by $ 190.2 million , which was recorded as a tax benefit in the year ended december 31 , 2011. at december 31 , 2013 and 2012 , we maintained a valuation allowance for certain deferred tax assets of $ 40.4 million and $ 55.4 million , respectively , primarily related to state net operating losses and state tax credit carryforwards , due to uncertainty regarding their realization . adjustments could be required in the future if we estimate that the amount of deferred tax assets to be realized is more or less than the net amount we have recorded . story_separator_special_tag on january 2 , 2013 , the american taxpayer relief act of 2012 was enacted which retrospectively reinstated the research and development tax credit for 2012 and extended it through december 31 , 2013. as a result , in the first quarter of 2013 , we recorded a discrete benefit related to 2012 u.s. federal research and development tax credit of approximately $ 6.7 million . investments we account for our investments in debt and equity securities in accordance with the provisions of asc 320-10 , investmentsdebt and equity securities. on a quarterly basis , we review our investments to identify and evaluate those that have an indication of a potential other-than-temporary impairment . factors considered in determining whether a loss is other-than-temporary include : the length of time and the extent to which the market value has been less than cost ; 21 the financial condition and near-term prospects of the issuer ; and the intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value . goodwill , intangible and long-lived assets we assess the impairment of intangible and long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable . factors we consider important in the determination of an impairment include significant underperformance relative to historical or projected future operating results , significant changes in the manner that we use the acquired asset and significant negative industry or economic trends . there were no events or circumstances indicating that the carrying value may not be recoverable in 2013 , 2012 or 2011. when we determine that the carrying value of intangibles and long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment , we measure any impairment based on a projected discounted cash flow method using a discount rate commensurate with the associated risks . we assess goodwill for impairment at least annually in the fourth quarter , as of december 31 , on a reporting unit basis , or more frequently , when events and circumstances occur indicating that the recorded goodwill may be impaired . if the book value of a reporting unit exceeds its fair value , the implied fair value of goodwill is compared with the carrying amount of goodwill . if the carrying amount of goodwill exceeds the implied fair value , an impairment loss is recorded in an amount equal to that excess . no goodwill impairment was identified in 2013 , 2012 or 2011 . 22 selected relationships within the consolidated statements of operations replace_table_token_6_th story_separator_special_tag during the year ended december 31 , 2013 , we recorded an inventory provision of $ 16.6 million included in cost of revenues , due to the following factors : a charge of $ 12.2 million due to downward revisions to previously forecasted demand levels , of which $ 5.2 million was in semiconductor test , $ 4.2 million was in system test and $ 2.8 million was in wireless test ; and a $ 4.4 million inventory write-down as a result of product transition in wireless test . during the year ended december 31 , 2012 , we recorded an inventory provision of $ 26.8 million included in cost of revenues , due to the following factors : a decline in demand compared to previously forecasted demand levels for prior generation nextest magnum testers resulted in an inventory provision of $ 12.0 million in semiconductor test ; a $ 5.3 million inventory write-down as a result of product transition related to the flex test platform in semiconductor test ; a $ 3.9 million inventory write-down as a result of product transition in wireless test . ; and the remainder of the charge of $ 5.6 million primarily reflects downward revisions to previously forecasted demand levels , of which $ 4.3 million was in system test , $ 0.2 million in wireless test and $ 1.1 million in semiconductor test . during the year ended december 31 , 2011 , we recorded an inventory provision of $ 11.6 million included in cost of revenues , due to the downward revisions to previously forecasted demand levels . of the $ 11.6 million of total excess and obsolete provisions recorded in 2011 , $ 10.4 million was related to semiconductor test primarily due to product transition , $ 1.1 million was in system test , and $ 0.1 million was in wireless test . 26 during the years ended december 31 , 2013 , 2012 and 2011 , we scrapped $ 35.3 million , $ 9.6 million and $ 9.2 million of inventory , respectively , and sold $ 9.8 million , $ 4.3 million and $ 8.1 million of previously written-down or written-off inventory , respectively . as of december 31 , 2013 , we had inventory related reserves for amounts which had been written-down or written-off totaling $ 115.9 million . we have no pre-determined timeline to scrap the remaining inventory . engineering and development engineering and development expenses were as follows : replace_table_token_14_th the increase of $ 8.2 million in engineering and development expenses from 2012 to 2013 was due primarily to increased spending in semiconductor test and wireless test , partially offset by pension income in 2013 compared to pension expense in 2012 and lower variable compensation in 2013. the increase of $ 54.9 million in engineering and development expenses from 2011 to 2012 was due primarily to additional costs of $ 37.1 million related to litepoint and increased spending in semiconductor test .
| the decrease in system test revenues of $ 51.8 million or approximately 18 % from 2011 to 2012 was primarily due to lower product volume in both storage test systems and commercial board test systems , partially offset by an increase in mil/aero system and instrument sales . our three reportable segments accounted for the following percentages of consolidated net revenues for each of the last three years : replace_table_token_9_th 24 net revenues by country as a percentage of total revenues were as follows ( 1 ) : replace_table_token_10_th ( 1 ) revenues attributable to a country are based on location of customer site . the breakout of product and service revenues for the past three years was as follows : replace_table_token_11_th our product revenues decreased $ 228.7 million or 17 % in 2013 from 2012 primarily due to a decrease in soc test product sales because of a lower application processor market and due to lower volume in storage test systems . service revenues , which are derived from the servicing of our installed base of products and includes equipment maintenance contracts , repairs , extended warranties , parts sales , and applications support , decreased $ 0.2 million or 0.1 % . our product revenues increased $ 223.4 million or 19 % in 2012 from 2011 primarily due to $ 254.6 million of product revenues from the addition of litepoint , an increase in soc semiconductor test products for mobility applications and an increase in mil/aero systems and instruments . the increase was partially offset by a decrease in sales in our memory test and storage test systems . service revenues increased $ 4.3 million or 2 % . in 2013 and 2012 , revenues from one customer accounted for 12 % and 10 % , respectively , of our consolidated net revenues . in 2011 , no single customer accounted for 10 % or more of our consolidated net revenues . in each of the years 2013 , 2012 and 2011 , our three largest customers in aggregate accounted for 26 % , 29 % and 19 % of our consolidated net revenues , respectively . gross profit replace_table_token_12_th
| 12,113 |
adequate funding may not be available to us on acceptable terms , or at all . if we are unable to raise capital , or to do so on acceptable terms , when needed , or to form additional collaboration partnerships to support our efforts , we could be forced to delay , reduce or eliminate our research and development programs or potential commercialization efforts . as of december 31 , 2019 , we had $ 166.0 million in cash , cash equivalents and short-term investments . in february 2020 we sold an aggregate of 10,925,000 shares of our common stock for $ 140.8 million of net proceeds after deducting underwriting discounts and commissions and estimated offering expenses . we currently expect our cash , cash equivalents and short-term investments to fund our planned operations and capital expenditures into 2022. revenue to date we have not generated any revenue from the sale of our products . we generate revenue through research , collaboration and license arrangements with our strategic partners . our ability to generate product revenue and become profitable depends upon our ability to successfully develop and commercialize our product candidates . because of the numerous risks and uncertainties associated with product development , we are unable to predict the amount or timing of product revenue . even if we are able to generate revenue from the sale of our products , we may be unable to continue our operations at planned levels and be forced to reduce our operations . as of december 31 , 2019 , we had no deferred revenue related to collaboration arrangements with our strategic partners . we recognized $ 250,000 and $ 1.6 million of revenue associated with our collaboration arrangements during the years ended december 31 , 2019 and 2018 , respectively . agreement with editas in january 2018 , we entered into an agreement to amend our collaboration , option and license agreement with editas medicine , inc. ( “ editas ” ) . we originally entered into an agreement with editas in august 2016 pursuant to which we and editas collaborated on certain studies using aav vectors in connection with editas ' genome editing technology and we granted to editas an exclusive option to obtain certain exclusive rights to use our proprietary vectors in up to five ophthalmic indications . under the terms of the agreement , as amended , editas had until november 2018 to exercise the option with respect to a designated initial indication , which editas declined to do . with respect to the four other indications , editas had until august 2019 to exercise the option , otherwise all options would expire . editas did not exercise the option , and the agreement terminated on august 8 , 2019. under topic 606 , the transaction price is $ 1.5 million , which includes the $ 1.0 million non-refundable upfront payment for license and research services at contract inception and the one-time , non-refundable cash payment of $ 0.5 million made by editas in february 2018 in consideration for extending the agreement . we allocated the transaction price of $ 1.5 million to a single performance obligation for research and development services . during the year ended december 31 , 2018 , we recognized revenue of $ 1.4 million associated with editas . the remaining performance obligations for editas were completed during 2018. during the year ended december 31 , 2019 , we recognized no revenue from the editas collaboration agreement . as our collaboration agreement with editas has terminated , we will no longer recognize any revenue from this agreement in future years . agreement with regeneron in may 2014 , we entered into a research , collaboration and license agreement with regeneron . under the terms of the agreement , we received initial payments of $ 8.0 million that included payment for research license fees , prepaid collaboration research costs and the right of first negotiation for a potential license to develop and commercialize ava-101 , a prior amd gene therapy that was discontinued in 2015. the $ 8.0 million was recognized fully by the end of 2015. in february 2017 , regeneron notified us that pursuant to the terms of the research , collaboration and license agreement , it extended the initial research term for an additional three years , through may 1 , 2020. regeneron had the option to further extend the research term of the collaboration agreement for up to two additional years , by providing notice of certain activities under the agreement by march 2 , 2020 , which regeneron did not do . we anticipate that the agreement will expire by its terms on may 1 , 2020 . 58 under our research , collaboration and license agreement with regeneron , we are required to have a mutually agreed-on research plan with regeneron in order to invoice regeneron for services performed . for 2018 and 2019 , w e d id not have a research plan in pl ace , and , consequently , did not receiv e any reimbursements from regeneron . agreement with gensight in february 2014 , we entered into an agreement with gensight , in which we granted gensight a non-exclusive license to our proprietary aav.7m8 vector to develop gene therapy products to deliver certain therapeutic transgenes . under the agreement , we are eligible to receive development , regulatory and commercial milestones . also , we are eligible to receive low to mid-single digit royalties on sales of gensight 's licensed products . during the year ended december 31 , 2019 , gensight achieved a clinical development milestone pursuant to the agreement . this milestone was previously constrained under topic 606. we earned a $ 250,000 milestone payment , which we recognized as revenue in the consolidated statement of operations and comprehensive loss for the year ended december 31 , 2019. research and development expenses conducting a significant amount of research and development is central to our business model . story_separator_special_tag research and development expenses include primarily personnel-related costs , stock-based compensation expense , laboratory supplies , consulting costs , external contract research and development expenses , including expenses incurred under agreements with cros , the cost of acquiring , developing and manufacturing clinical trial materials , and overhead expenses , such as rent , equipment depreciation , insurance and utilities . research and development costs are expensed as incurred . advance payments for goods or services for future research and development activities are deferred and expensed as the goods are delivered or the related services are performed . we estimate preclinical study and clinical trial expenses based on the services performed pursuant to contracts with research institutions and cros that conduct and manage preclinical studies and clinical trials on our behalf . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . we estimate the amounts incurred through communications with third party service providers and our estimates of accrued expenses as of each balance sheet date are based on information available at the time . if the actual timing of the performance of services or the level of effort varies from the estimate , we will adjust the accrual accordingly . at this time , we can not reasonably estimate the nature , timing or aggregate costs of the efforts that will be necessary to complete the development of any of our product candidates . the successful development and commercialization of a product candidate is highly uncertain , and clinical development timelines , the probability of success , and development and commercialization costs can differ materially from expectations . general and administrative expenses general and administrative expenses include primarily personnel-related costs , stock-based compensation , professional fees for legal , consulting , audit and tax services , overhead expenses , such as rent , equipment depreciation , insurance and utilities , and other general operating expenses not otherwise included in research and development expenses . our general and administrative expenses may increase in future periods if and to the extent we elect to increase our investment in infrastructure to support continued research and development activities and potential commercialization of our product candidates . we will continue to evaluate the need for such investment in conjunction with our ongoing consideration of our pipeline of product candidates . we anticipate increased expenses related to audit , legal , regulatory , and investor relations functions associated with being a public reporting company . other income ( expense ) , net other income ( expense ) , net primarily comprises of interest income on our cash equivalents and investments in marketable securities . critical accounting policies , significant judgments and use of estimates this discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with u.s. 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 consolidated financial statements , as well as the reported expenses incurred during the reporting periods . we base our estimates on our historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates . we believe that the accounting policies discussed below are critical to understanding our historical and future performance , as these policies relate to the more significant areas involving management 's judgments and estimates . 59 revenue recognition to date we have not generated any revenue from the sale of our products . we generate revenue through research , collaboration and license arrangements with our strategic partners . collaboration agreement with editas — under topic 606 , the transaction price was $ 1.5 million related to the $ 1.0 million non-refundable upfront payment for license and research services at contract inception and the one-time , non-refundable cash payment of $ 0.5 million made by editas in february 2018 in consideration for extending the agreement . we allocated the transaction price of $ 1.5 million to a single performance obligation to perform research and development services . during the year ended december 31 , 2019 , we did not recognize revenue from the editas collaboration agreement . during the year ended december 31 , 2018 , we recognized revenue of $ 1.4 million , associated with the editas collaboration agreement . there was no outstanding deferred revenue associated with editas as of december 31 , 2019 and 2018. license agreement with gensight — on february 2014 , we entered into an agreement with gensight , where we granted gensight a non-exclusive license to our proprietary aav.7m8 vector . under the agreement , we are eligible to receive development , regulatory and commercial milestones . also , we are eligible to receive low to mid-single digit royalties on sales of gensight 's licensed products . during the years ended december 31 , 2019 and 2018 , gensight achieved clinical development milestones pursuant to the agreement . payments related to these milestones that were previously constrained under topic 606 were recognized as revenue when achieved . for the years ended december 31 , 2019 and 2018 , we received milestone payments of $ 250,000 and $ 150,000 , respectively , which we recognized as revenue in our consolidated statements of operations and comprehensive loss . accrued and prepaid research and development expense we estimate our accrued and prepaid research and development expenses as of each balance sheet date .
| general and administrative expense general and administrative expense increased $ 3.8 million to $ 28.4 million for the year ended december 31 , 2019 from $ 24.6 million for the year ended december 31 , 2018. this reflects increases of $ 2.0 million in g & a consulting and contractor costs , $ 1.8 million in professional expenses including higher audit , legal and investor relation services , $ 1.0 million in facilities cost related to our new facility , and $ 0.7 million in other business costs , partially offset by $ 1.6 million decrease in personnel associated costs primarily resulting from lower stock-based compensation expenses . we expect that general and administrative expenses will increase in future periods as we continue to support advancing our gene therapy programs . we anticipate increased expenses related to audit , legal , regulatory , and investor relations functions to support our organizational growth . 62 goodwill and intangible assets impairment charge during the year ended december 31 , 2018 , we identified an impairment indicator related to the intangible asset for advm‑043 and performed an impairment analysis . on october 30 , 2018 , we announced our decision to discontinue the development of advm-043 . we recorded an impairment charge of $ 5.0 million on ipr & d assets related to our intangible asset for advm-043 . there were no impairment charges during the year ended december 31 , 2019. other income , net the decrease of $ 145,000 in net other income for the year ended december 31 , 2019 as compared to 2018 was primarily due to lower average invested balances . income tax benefit there was no income tax benefit during the year ended december 31 , 2019. in connection with our impairment charge , we derecognized a deferred tax liability of $ 1.3 million related to the intangible asset for advm-043 during the year ended december 31 , 2018. liquidity , capital resources and plan of operations we have not generated positive cash flow or net income from operations since our inception and as of december 31 , 2019 , we had an accumulated deficit of $ 385.0 million . as of december 31 , 2019 , we had $ 166.0 million in cash , cash equivalents and short-term investments . we believe that our existing cash , cash equivalents , and short-term investments as of december 31 , 2019 , together with the approximately $ 140.8 million of net proceeds after deducting underwriting discounts and commissions and estimated
| 12,114 |
as this enterprise business grows as a portion of our overall revenues , we expect to increase deferred revenue and our operating results and cash flow to improve , which will make us less reliant on other sources of capital in the future . components of our operating results revenue we derive revenues from the sale of real-time cloud-based services for each of cyren 's email security , web security , antimalware and advanced threat protection offerings . we sell all of our solutions as subscription services , either through oems and service providers , which are considered cyren customers , or as complete security services directly , or indirectly via our partners , to enterprises . 37 cost of revenue personnel costs , which consist of salaries , benefits , bonuses and stock-based compensation for employees that operate our network and provide support services to our customers , as well as data center costs , are the most significant components of our cost of revenues . other costs include third party contractors , royalties for use of third party technologies , amortization of intangibles and depreciation of data center equipment . we expect these costs to continue to increase in absolute dollars as we continue to invest in enhancing our cloud infrastructure and our support services . operating expenses our operating expenses consist of research and development , sales and marketing , and general and administrative expenses . personnel costs , which consist of salaries , benefits , bonuses , and stock-based compensation , are the most significant component of our operating expenses . operating expenses also include allocated overhead costs for facilities , it and depreciation . we expect operating expenses to increase in absolute dollars as we continue to grow . research and development . research and development expense consists primarily of personnel costs , outsourced engineering and threat analysis services . we believe these investments are crucial for our ability to continue to enhance the functionality of our services , as well as to develop and introduce new services to the market . we expect research and development expenses to continue increasing in absolute dollars as we continue to invest in our service offerings . development costs related to internal use technology that supports our security services are capitalized on the balance sheet , while other development costs are expensed as they are incurred . sales and marketing . sales and marketing expenses primarily include personnel costs , sales commissions , marketing activities , and travel associated with sales and marketing . we market and sell our services worldwide through our sales organization and distribution channels . we capitalize sales commissions paid to internal sales personnel and amortize these expenses over an estimated period of benefit that reflects the expected future revenue streams . we expect our sales and marketing expenses to continue to increase in absolute dollars as we continue to enhance our sales and marketing teams to support our further growth . our sales personnel are typically not immediately productive , and therefore the increase in expenses we incur when adding personnel is not immediately accompanied by increased revenue and in some cases may not result in increased revenue if these new sales personnel are unsuccessful in becoming productive . general and administrative . general and administrative expenses consist primarily of personnel costs , audit fees , legal expenses , recruiting expenses and other general operating costs . we expect our general and administrative expenses to continue to grow in absolute dollars as we continue our operational growth . other income ( expense ) , net other income ( expense ) , net consists primarily of capital gain or loss from the sale of assets . financial expenses , net financial expenses , net consist mainly of foreign exchange gains and losses , interest expense on our outstanding debt and interest income earned on our cash and cash equivalents . in 2017 these expenses also included the accretion of discount and the change in fair value associated with convertible notes and their embedded conversion feature . tax benefit our tax benefit is derived primarily from income taxes in foreign jurisdictions in which we conduct business . we estimate income taxes in each of the jurisdictions in which we operate . this process involves determining income tax expense together with calculating the deferred income tax expense related to temporary differences resulting from the differing treatment of items for tax and accounting purposes . deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled . these temporary differences result in deferred tax assets and liabilities , which are included net as applicable within our balance sheets . for most of our recent years , we have incurred operating losses in israel and the u.s. , where we have recorded a full valuation allowance against our deferred tax assets in those jurisdictions . 38 story_separator_special_tag serif ; margin : 0pt 0 '' > on december 22 , 2017 , the united states enacted the tax cuts and jobs act ( the “ u.s . tax reform ” ) ; a comprehensive tax legislation that includes significant changes to the taxation of business entities . these changes include several key tax provisions that might impact us , among others : ( i ) a permanent reduction to the statutory federal corporate income tax rate from 35 % to 21 % effective for tax years beginning after december 31 , 2017 ; ( ii ) a partial limitation on the tax deductibility of business interest expense ; ( iii ) a shift of the u.s. taxation of multinational corporations from a tax on worldwide income to a territorial system ( along with certain rules designed to prevent erosion of the u.s. income tax base ) and ( iv ) a one-time deemed repatriation tax on accumulated offshore earnings held in cash and illiquid assets , with the latter taxed at a lower rate . story_separator_special_tag 40 net operating loss carry-forwards as of december 31 , 2018 , cyren 's net operating loss carryforwards for tax purposes amounted to $ 80.1 million and capital loss carryforwards of $ 17.8 million which may be carried forward and offset against taxable income in the future , for an indefinite period . as of december 31 , 2018 the u.s. subsidiary had net operating loss carryforwards of $ 40.3 million for federal tax purposes and $ 8.8 million for state tax purposes . these losses may offset any future u.s. taxable income of the u.s. subsidiary and will expire in the years 2019 through 2038. on december 24 , 2017 , a “ change in the respective ownership ” event occurred upon the completion of the warburg pincus tender offer as described in note 8b , and in accordance with the relevant provisions of the internal revenue code 382 of 1986 and similar state provisions . therefore , utilization of u.s. net operating losses are subject to substantial annual limitation . management believes that the annual limitations will result in the partial expiration of net operating losses before utilization . management currently believes that based upon its estimations for future taxable income , it is more likely than not that the deferred tax assets regarding the loss carryforwards will not be utilized in the foreseeable future . thus , a valuation allowance was provided to reduce deferred tax assets to their realizable value . liquidity and capital resources we finance our operations primarily from our cash and cash equivalents and cash from operations . as of december 31 , 2018 and december 31 , 2017 , we had approximately $ 17.6 million and $ 24.0 million of cash and cash equivalents , respectively . in march 2017 we issued $ 6.3 million aggregate principal amount of convertible notes ( subsequently converted in full ) and in november 2017 we received gross proceeds of $ 19.6 million when we issued approximately 10.6 million ordinary shares for $ 1.85 per share to warburg pincus upon the completion of the private placement ( described in more detail below ) . in december 2018 we issued the 2018 notes for $ 10.0 million aggregate principal amount of convertible notes , which have a three year term and carry a 5.75 % interest rate . our future capital requirements will depend on many factors , including , but not limited to our growth , market acceptance of our offerings , the timing and extent of spending to support our efforts to develop our platform and the expansion of sales and marketing activities . we may be required to seek additional equity or debt financing . in the event that additional financing is required from outside sources , we may not be able to raise it on terms acceptable to us or at all . if we are unable to raise additional capital when desired , our business , financial condition and results of operations could be adversely affected . outlook during 2019 , we expect to continue to incur capital expenditures associated with r & d and data center infrastructure . over the past several years , the company has devoted substantially most of its effort to research and development , product development and increasing revenues through additional investments in sales & marketing . the company generated a loss of $ 19.4 million and negative cash flow of $ 11.4 million from operating activities in the twelve month period ended december 31 , 2018 , and has an accumulated deficit of $ 213.1 million as of december 31 , 2018. the company is planning to finance its operations from its existing and future working capital resources and to continue to evaluate additional sources of capital and financing . however , there is no assurance that additional capital and or financing will be available to the company , and even if available , whether it will be on terms acceptable to the company or in amounts required . accordingly , the company 's board approved a contingency plan , to be effected if needed , in whole or in part , at its discretion , to allow the company to continue its operations and meet its cash obligations . the contingency plan consists of cost reduction , which include mainly the following steps : reduction in consultants ' expenses , headcount , compensation paid to key management personnel and capital expenditures . the company and the board believes that its existing capital resources and other future measures that may be implemented , if so required , will be adequate to satisfy its expected liquidity requirements for at least twelve months from the filing date . 41 cash flows from operating activities in 2018 , net cash used in operating activities was $ 11.5 million and was primarily due to a net loss of $ 19.4 million adjusted for non-cash activity of $ 4.2 million amortization of intangible assets , $ 1.9 million depreciation of property and equipment , $ 1.4 million stock-based compensation expenses , $ 1.4 million amortization of deferred commissions , $ 0.7 million increase in deferred revenues , $ 0.5 million increase in employee and payroll accruals , accrued expenses and other liabilities , and offset by an increase in deferred commissions of $ 2.3 million . in 2017 , net cash used in operating activities was $ 7.2 million and was primarily due to a net loss of $ 15.6 million adjusted for non-cash activity of $ 3.7 million amortization of intangible assets , $ 1.3 million depreciation of property and equipment , $ 2.1 million stock-based compensation expenses , $ 1.3 million change in fair value of the embedded conversion feature on the convertible notes , a $ 0.8 million increase in employees and payroll accruals , accrued expenses and other liabilities , and offset by a decrease in deferred revenues of $ 0.8 million .
| these increases are required as a foundation for the continued growth in the enterprise line of business . in addition , we also incurred an increase in amortization of capitalized development expenses of $ 0.5 million compared to 2017 , as a result of capitalized projects which were released to customers . this increase had an accounting impact of reducing the gross margin in accordance with u.s. gaap . research and development , net . research and development expenses for 2018 in the amount of $ 16.1 million increased by $ 6.3 million compared to $ 9.8 million in 2017 , which represents a 64 % annual increase . the increase is mainly due to an approximate $ 3.1 million increase in payroll and related expenses and $ 1.2 million increase in outside services and outsourced engineering expenses associated with our increased investment in r & d , as well as an increase of $ 1.6 million due to a reduction in the capitalization of development expenses during 2018 in comparison to 2017. r & d headcount during 2018 increased from 110 to 140 employees . 39 sales and marketing . sales and marketing expenses for 2018 totaling $ 16.2 million increased by $ 0.6 million , compared to $ 15.6 million in 2017. the increase is mainly due to a $ 0.3 million increase in payroll and related expenses and a $ 0.3 million increase in expenses related to marketing activities as we continue to invest in sales and marketing to increase brand awareness and expand our enterprise customer base . sales and marketing headcount during 2018 decreased from 66 to 62 employees , although headcount levels had remained at higher levels throughout most of the year . general and administrative . general and administrative expenses for 2018 of $ 8.3 million increased by $ 1.0 million , compared to $ 7.3 million in 2017 , which represents a 14 %
| 12,115 |
we provide tailored solutions and value-added services for our customers to drive efficiency and control in related steps throughout the entire shipping and freight logistics chain . we conduct our business primarily through our wholly-owned subsidiaries in the people 's republic of china ( the “ prc ” ) ( including hong kong ) and the u.s. , where a majority of our clients are located . we operate in four operating segments , including ( 1 ) shipping agency services , operated by our subsidiary in hong kong ; ( 2 ) inland transportation management services , operated by our subsidiaries in the u.s. ; ( 3 ) freight logistics services , operated by our subsidiaries in the prc and the u.s. ; and ( 4 ) container trucking services , operated by our subsidiaries in the prc and the u.s. we combined freight logistics and bulk cargo container services into one segment beginning in the first quarter of fiscal year 2019 as both segments offer similar services ( cargo freight ) and serve the same customer base . due to the current economic trade dynamic , we have not generated any revenue from bulk cargo container services for year ended june 30 , 2019. revenue from bulk cargo container services accounted for approximately 3 % of our total revenue for the year ended june 30 , 2018. on september 11 , 2017 we also set up ningbo saimeinuo supply china management ltd. ( “ sino ningbo ” ) which mainly engages in transportation management and freight logistics services . sino ningbo 's operating results were included in the consolidated financial statements starting from fiscal year 2018. on september 3 , 2018 , we entered into a cooperation agreement with ningbo far-east universal shipping agency co. , ltd to set up a joint venture in hong kong named bright far east international shipping agency co. , ltd. ( “ bright far hk ” ) , to engage in worldwide shipping agency operations . we had 51 % equity interests in the joint venture . on may 23 , 2019 , bright far east international shipping agency co. , ltd. was incorporated in new york and the registration of bright far hk was terminated in hong kong . on april 10 , 2019 , we entered into a cooperation agreement with mr. weijun qin , the chief executive officer of a shipping management company in china , to set up a joint venture in new york named state priests management ltd. , of which we hold a 90 % equity interest . we have not provided any cash contribution to the joint venture pending the certification and approval from related authorities . our corporate structure diagram as of the date of this report is as below : 9 story_separator_special_tag margin : 0pt 0 '' > 11 ( 4 ) revenues from container trucking services for the years ended june 30 , 2019 and 2018 , revenues generated from container trucking services were $ 482,432 and $ 1,096,485 , respectively . overall revenues from this segment decreased by $ 614,053 or approximately 56.0 % . the decrease in revenues from this segment was primarily due to the pending trade negotiations between the u.s. and china , which decreased container shipments from china to the u.s. the related gross profit decreased by $ 344,500 from $ 399,487 for the year ended june 30 , 2018 to $ 54,987 for the year ended june 30 , 2019. gross profit margin decreased by approximately 25.0 % as a result of decrease in our trucking volume which leads to higher costs . operating costs and expenses operating costs and expenses increased by $ 25,495,079 or 114.6 % , from $ 22,246,414 for the year ended june 30 , 2018 to $ 47,741,493 for the year ended june 30 , 2019. this increase was mainly due to the increase in general and administrative expenses , impairment loss of deposit for leasehold improvement , provision for doubtful accounts , stock-based compensations and cost of revenues as discussed below . the following table sets forth the components of the company 's costs and expenses for the periods indicated : replace_table_token_5_th 12 cost of revenues cost of revenues consisted primarily of freight costs to various freight carriers , cost of labor , other overhead and sundry costs . cost of revenues was $ 36,006,510 for the year ended june 30 , 2019 , an increase of $ 20,420,817 , or approximately 131.0 % , as compared to $ 15,585,693 for the year ended june 30 , 2018. the overall cost of revenues as a percentage of our revenues increased from approximately 67.6 % for the year ended june 30 , 2018 , to approximately 86.2 % for the year ended june 30 , 2019. cost of revenues for freight logistics and container trucking services consists primarily of freight costs to various freight carriers . the increase of costs was mainly from the freight logistics services segment due to an increase in freight cost of carriers resulting from the increase in shipping volume . selling expenses our selling expenses consisted primarily of business promotion , salaries and commissions for our operating staff at the ports at which we provide services . for the year ended june 30 , 2019 , we had $ 718,754 of selling expenses , as compared to $ 458,166 for the year ended june 30 , 2018 , which represents an increase of $ 260,588 or approximately 56.9 % . selling expenses continue to increase as our business grows . story_separator_special_tag as a percentage of revenue , our selling expenses was approximately 1.7 % for the year ended june 30 , 2019 , as compared to approximately 2.0 % for the year ended june 30 , 2018. general and administrative expenses the company 's general and administrative expenses consist primarily of salaries and benefits , travel expenses , meals and entertainment , development expenses , office expenses , regulatory filing and listing fees , legal , accounting and other professional service fees , it consulting and software development costs . for the year ended june 30 , 2019 , we had $ 4,344,435 of general and administrative expenses , as compared to $ 2,812,457 for the year ended june 30 , 2018 , representing an increase of $ 1,531,978 , or approximately 54.5 % . the increase was mainly due approximately $ 1 million incurred in it consulting and software development costs . provision for doubtful accounts the company 's provision for doubtful accounts was $ 3,978,893 for the year ended june 30 , 2019 compared to the provision for doubtful accounts of $ 1,726,599 for the year ended june 30 , 2018 , an increase of $ 2,252,294 , or approximately 130.4 % . the increase was due to slower collections from customers . as we continue our business relationships with several large customers , we are monitoring collection closely with respect to our trade accounts receivable . stock-based compensation stock-based compensation was $ 2,267,833 for the year ended june 30 , 2019 , an increase of $ 604,334 , or approximately 36.3 % , as compared to $ 1,663,499 for the year ended june 30 , 2018. the significant increase in stock-based compensation was due to additional shares of common stock issued to employees and consultants . impairment loss of deposit for leasehold improvement we paid a $ 422,381 deposit for leasehold improvements on our it infrastructure facility including upgrading the server room of its shanghai office . the design plan for the leasehold improvement was not approved by the building management due to power supply issues and we planned to move the it infrastructure facility to our ningbo office . we are currently in discussion with the vendor for a partial refund of the deposit . since there is no guarantee when or if any deposit will be refunded to us , a $ 425,068 impairment loss on the deposit was recorded for the year ended june 30 , 2019. operating ( loss ) income we had an operating loss of $ 5,970,446 for the year ended june 30 , 2019 , compared to an operating income of $ 818,149 for the year ended june 30 , 2018. the significant operating loss for the current period was mainly due to the increased costs of revenue , selling expenses , general and administrative expenses , provision for doubtful accounts , stock-based compensation expenses and the impairment loss recorded of deposit for leasehold improvement as discussed above . 13 total other ( expenses ) income , net our net other expenses was $ 120,798 for the year ended june 30 , 2019 , compared to net other income of $ 654,617 for the same period in 2018. we have operations mainly in the u.s. , hong kong and the prc ; our other expenses for the year ended june 30 , 2019 primarily reflects the foreign currency transaction loss expressed in u.s. dollars . other income for the same period in 2018 was mainly other service fees received from zhiyuan hong kong . taxation on december 22 , 2017 , the u.s. enacted the “ tax cuts and jobs act ” ( the “ tax act ” ) . under the provisions of the tax act , the u.s. corporate tax rate decreased from 35 % to 21 % . since we have a june 30 fiscal year-end , a blended u.s. statutory federal rate of approximately 28 % for the fiscal year ending june 30 , 2018 is applied to the provision for income tax and a 21 % for subsequent fiscal years . the tax act also created a new requirement that certain income earned by foreign subsidiaries , known as global intangible low-tax income ( gilti ) , must be included in the gross income of their u.s. shareholder . the fasb allows an accounting policy election of either recognizing deferred taxes for temporary differences expected to reverse as gilti in future years or recognizing such taxes as a current-period expense when incurred . for the year ended june 30 , 2019 , the company elected to treat the tax effect of gilti as a current-period expense when incurred . as of june 30 , 2019 , we re-measured deferred tax assets based on a current effective rate of 21 % at which these deferred tax amounts are expected to reverse in the future . we have incurred a cumulative pre-2017 net operating loss ( “ nol ” ) of approximately $ 1,421,000 as of june 30 , 2018 which may reduce future federal taxable income . the nol will expire in 2037 for the net operating losses generated prior to the year ended june 30 , 2019. during the year ended june 30 , 2019 , approximately $ 2,744,000 of additional nol was generated . as a result of approximately $ 384,000 of gilti as taxable income , the current year 's net operating loss was reduced to approximately $ 2,360,000 for the year ended june 30 , 2019. for the year ended june 30 , 2019 , the tax benefit as a result of the use of the nol for gilti tax was approximately $ 81,000 leaving the company with a cumulative nol of approximately $ 3,781,000 which may reduce future federal taxable income , of which approximately 1,421,000 will expire in 2037 and the remaining balance carried forward indefinitely .
| the company also began providing inland transportation management services to a third-party customer , tengda northwest , following the quarter ended september 2014. the service fee charged was rmb 32 ( us $ 4.69 approximately ) per ton for tengda northwest , and rmb 38 ( us $ 5.57 approximately ) per ton for zhiyuan investment group . the rates are set in accordance with the scope of services provided . the contracts with the two customers expired subsequently after the end of fiscal year 2019. we expect revenue from this segment will decrease in the coming years due to the current trade dynamics . however , we will continue providing services on an as needed basis on short term contracts . for the years ended june 30 , 2019 and 2018 , inland transportation management services generated related- party revenue of $ 433,383 and $ 2,059,406 , respectively , representing an approximately 79.0 % decrease . the decrease was mainly due to a decrease in quantities transported from 77,804 tons for the year ended june 30 , 2019 to 354,852 tons for the year ended june 30 , 2018. revenue generated from tengda northwest for the years ended june 30 , 2019 and 2018 amounted to $ 1,036,416 and $ 3,441,001 , respectively . the overall decrease in revenue from the third party of $ 2,404,585 or approximately 69.9 % was mainly due to the decrease in quantities transported , which were 221,557 tons for the year ended june 30 , 2019 compared to 697,285 tons for the year ended june 30 , 2018. for the years ended june 30 , 2019 and 2018 , gross profit of inland transportation management services amounted to $ 1,341,175 and $ 4,625,647 , respectively , representing an approximately 71.0 % decrease . overall gross margins for this segment increased to approximately 91.2 % for the year ended june 30 , 2019 from approximately 84.1 % for the same period in 2018. the increase of gross margin was due to the improvement in our operating efficiency of our services . ( 3 ) revenues from freight logistics services freight logistics services primarily consist of cargo forwarding , brokerage and other freight services . during the year ended june 30 , 2019 , revenues increased by $ 21,257,465 or approximately 129.1 % . as discussed
| 12,116 |
share repurchase program in april 2013 , our board of directors authorized a share repurchase program for up to $ 125 million of our common shares , which was completed in august 2014. in august 2014 , our board of directors authorized the continuance of that share repurchase program , authorizing us to repurchase up to an additional $ 400 million of our common shares . these repurchases may be made from time to time in open market transactions , pursuant to trading plans established in accordance with sec rules , through privately negotiated transactions , block trades or accelerated share repurchases . the timing and number of shares repurchased will depend on a variety of factors , including price , capital availability , legal requirements and economic and market conditions . the company is not obligated to purchase any shares under the repurchase program , and repurchases may be suspended or discontinued at any time without prior notice . our share repurchase program has no expiration date . the repurchases have been and will continue to be funded by existing cash balances and by our revolving credit facility . refer to item 5. market for registrant 's common equity , related stockholder matters and issuer purchases of equity securities in part ii of this report . sale of vetstreet on december 31 , 2015 we completed the sale of our vetstreet business , resulting in a gain of $ 43.3 million . concurrent with the sale of substantially all of the assets of vetstreet , we purchased a 19.9 % interest in the continuing vetstreet business . acquisitions our annual growth strategy includes the acquisition of independent animal hospitals . we also evaluate the acquisition of animal hospital chains , laboratories or related businesses if favorable opportunities are presented . in 2015 , we acquired 55 independent animal hospitals with annualized revenue of $ 122.0 million . 25 the following table summarizes the changes in the number of facilities operated by our animal hospital and laboratory segments : replace_table_token_7_th critical accounting policies and estimates we believe that the application of the following accounting policies , which are important to our financial position and results of operations , require significant judgments and estimates on the part of management . for a summary of all of our accounting policies , including the accounting policies discussed below , see note 2 , summary of significant accounting policies , in our consolidated financial statements of this annual report on form 10-k. revenue generally , we recognize revenue when persuasive evidence of a sales arrangement exists , delivery of goods has occurred or services have been rendered , the sales price or fee is fixed or determinable and collectability is reasonably assured . for the animal hospital segment , revenue is recognized when services are performed or products are sold . for the laboratory segment , revenue is recognized when services are performed . for the other segments , revenue is generally recognized when services are provided or delivery of goods has occurred . our medical technology business sells digital radiography imaging equipment bundled with other services in certain instances . under these arrangements , the sales consideration is allocated at inception to all deliverables using the relative selling price method , whereby any discount in the arrangement is allocated proportionally to each deliverable on the basis of each deliverable 's selling price . valuation of goodwill and other long lived assets goodwill we allocate a significant portion of the purchase price for our acquired businesses to goodwill . our goodwill represents the excess of the cost of an acquired entity over the net of the amounts assigned to identifiable assets acquired and liabilities assumed . the total amount of our goodwill at december 31 , 2015 was $ 1.5 billion , consisting of $ 1.4 billion for our animal hospital reporting unit , $ 101.3 million for our laboratory reporting unit , $ 8.2 million for our medical technology reporting unit and $ 6.1 million for our camp bow wow reporting unit . we test our goodwill for impairment annually , or sooner if circumstances indicate impairment may exist , in accordance with goodwill guidance . our annual impairment testing date is october 31 , which allows us time to accurately complete our impairment testing process in order to incorporate the results in our annual financial statements and timely file those statements with the securities and exchange commission ( “ sec ” ) . we have the option 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 net book value . if we elect to not use this option , or we determine , using the qualitative method , that it is more likely than not that the fair value of a reporting unit is less than its net book value , we then perform the more detailed two-step impairment test . 26 in the two-step test , as mentioned above , first we identify potential impairment by comparing the estimated fair value of our reporting units with the carrying value defined as the reporting unit 's net assets , including goodwill . if the estimated fair value of our reporting units is greater than our carrying value , there is no impairment and the second step is not needed . if we identify a potential impairment in the first step , we then measure the amount of impairment . the amount of the impairment is determined by allocating the estimated fair value of the reporting unit as determined in step one to the reporting unit 's net assets based on fair value as would be done in an acquisition . in this hypothetical purchase price allocation , the residual estimated fair value after allocation to the reporting units ' identifiable net assets is the implied current fair value of goodwill . story_separator_special_tag if the implied current fair value of goodwill is less than the carrying amount of goodwill , goodwill is considered impaired and written down to the implied current fair value with a corresponding charge to earnings . however , if the implied current fair value of goodwill is greater than the carrying amount of goodwill , goodwill is not considered impaired and is not adjusted to the implied current fair value . determining the fair value of the net assets of our reporting units under this step requires significant estimates . our estimated fair values are calculated in accordance with generally accepted accounting principles related to fair value and utilize generally accepted valuation techniques consisting primarily of discounted cash flow techniques and market comparables , where applicable . these valuation methods involve the use of significant assumptions and estimates such as forecasted growth rates , valuation multiples , the weighted-average cost of capital , and risk premiums , which are based upon the best available market information and are consistent with our long-term strategic plans . negative changes in our projected cash flows related to variables such as revenue growth rates , margins , or the discount rate could result in a decrease in the estimated fair value of our reporting units and could ultimately result in a substantial goodwill impairment charge . the performance of our reporting units , and in turn the risk of goodwill impairment , is subject to a number of risks and uncertainties , some of which are outside of our control . 2015 impairment test after completing our october 31 , 2015 impairment test for each of our reporting units , we concluded that goodwill was not impaired for any of our reporting units . in addition , our animal hospital , laboratory , medical technology and camp bow wow reporting units were not at risk of failing step one of the goodwill impairment test . our laboratory reporting unit exceeded its carrying value by a substantial margin . we applied a hypothetical ten percent decrease to the fair values of all of our reporting units which would not have triggered additional impairment testing and analysis . 2014 interim impairment review as a result of an interim impairment review , we determined that goodwill related to our vetstreet reporting unit was impaired . we determined that a write-down of goodwill and long-lived assets was necessary as vetstreet 's fiscal 2014 actual operating results , cash flow , and projections of future operating results and cash flow , were significantly lower than previously forecasted . accordingly , we recorded a goodwill impairment charge in our vetstreet reporting unit of $ 9.2 million , $ 6.2 million net of tax , for the quarter ended september 30 , 2014 . 2014 qualitative assessment as of october 31 , 2014 , we evaluated our goodwill for impairment using the qualitative method . based on this analysis , we determined that it was more likely than not that the fair values of each of our reporting units were greater than their net carrying values at that date . as such , we concluded that goodwill was not impaired for any of our reporting units . in making this determination , we considered several factors , including the following : ( 1 ) the amount by which the fair value of the laboratory reporting segment exceeded its carrying value as of october 31 , 2013 , indicated that there would need to be a substantial deterioration of the business in order for there to be a potential impairment ; ( 2 ) during the latter half of 2014 , two large third-party animal hospital chain transactions occurred at high valuation multiples ; ( 3 ) the carrying values of our reporting units as of october 31 , 2014 compared favorably to the previously calculated fair values as of october 31 , 2013 ; and ( 4 ) the pet care industry remained very strong . 2013 impairment test after completing our october 31 , 2013 impairment test for each of our reporting units , we concluded that goodwill was not impaired for any of our reporting units . in addition , our animal hospital , laboratory and medical technology reporting units were not at risk of failing step one of the goodwill impairment test . our laboratory reporting unit exceeded its carrying value by a substantial margin . we applied a hypothetical ten percent decrease to the fair values of all of our reporting units which would not have triggered additional impairment testing and analysis . 27 the fair value of our vetstreet reporting unit , exceeded its carrying value by 10 % . the carrying amount of goodwill in the vetstreet reporting unit was $ 9.2 million . as mentioned in previous filings , vetstreet had experienced operational delays with the execution of their business strategy , in part due to complexities involved in the migration of their information systems from their former parent to our corporate data center . in early 2013 , the migration was completed and the company began the full implementation of their new business strategy . the fair value of the reporting unit for purposes of impairment testing was determined utilizing a revised estimate of future cash flows that reflected a recovery of certain aspects of the vetstreet business in 2014 and beyond . long-lived assets in addition to goodwill , we acquire other identifiable intangible assets in our acquisitions , including but not limited to covenants-not-to-compete , client lists , lease related assets and customer relationships . we value these identifiable intangible assets at estimated fair value . our estimated fair values are based on generally accepted valuation techniques such as market comparables , discounted cash flow techniques or costs to replace . these valuation methods involve the use of significant assumptions such as the timing and amount of future cash flows , risks , appropriate discount rates , and the useful lives of intangible assets .
| price increases as well as the mix in year over year growth rates of low to high-priced orders contributed to the overall increase in the average revenue per order . prices at each of our hospitals are reviewed regularly and adjustments are made based on market considerations , demographics and our costs . these adjustments historically approximated 3 % to 6 % on most services at the majority of our animal hospitals and are typically implemented in november of each year ; however , price increases in 2015 generally ranged between 4 % and 6 % . 32 direct costs animal hospital direct costs increased $ 149.5 million for the year ended december 31 , 2015 , as compared to 2014 . the increase was primarily due to an increase in compensation related expenses of $ 85.5 million , supplies of $ 26.3 million , rent of $ 5.6 million , and depreciation and amortization of $ 5.5 million . the remainder of the increase was due to numerous items , all of which were individually immaterial . the increases in compensation related costs and supplies generally are related to overall revenue growth . the increase in rent and depreciation and amortization is primarily related to acquired animal hospitals . animal hospital direct costs increased $ 75.3 million for the year ended december 31 , 2014 , as compared to 2013 . the increase was primarily due to an increase in compensation related expenses of $ 46.6 million , supplies of $ 13.4 million and depreciation and amortization of $ 3.4 million . the remainder of the increase was due to numerous items , all of which were individually immaterial . the increases in compensation related costs and supplies generally are related to overall revenue growth . the increase in depreciation and amortization is primarily related to acquired animal hospitals . gross profit animal hospital gross profit is calculated as animal hospital revenue less animal hospital direct costs . animal hospital direct costs comprise all costs of services and products at the animal
| 12,117 |
results of operations story_separator_special_tag href= '' https : //www.sec.gov/archives/edgar/data/0000004281/000119312512065493/ # toc '' > cogs as a percentage of sales was 81.7 % in 2010 compared with 91.7 % in 2009. the percentage was positively impacted by the significant rise in realized prices for alumina and aluminum ; net cost savings and productivity improvements across all segments ; and the absence of a charge related to a european commission 's decision on electricity pricing for smelters in italy ( $ 250 ) ; somewhat offset by net unfavorable foreign currency movements due to a weaker u.s. dollar ; unfavorable lifo adjustments , as a result of the considerable rise in lme prices , and a significantly smaller reduction in lifo inventory quantities ; increases in energy costs ; and higher operating costs for brazil growth projects placed in service . selling , general administrative , and other expenses sg & a expenses were $ 1,027 , or 4.1 % of sales , in 2011 compared with $ 961 , or 4.6 % of sales , in 2010. the increase of $ 66 was principally the result of higher labor costs and an increase in bad debt expense . the increase in labor costs was the result of a higher average employee base and a higher cost of employee benefits . the higher bad debt expense was caused by charges for anticipated customer credit losses , primarily related to those in europe . sg & a expenses were $ 961 , or 4.6 % of sales , in 2010 compared with $ 1,009 , or 5.5 % of sales , in 2009. the decline of $ 48 was mostly due to reductions in expenses for contractors and consultants ; lower deferred compensation , as a result of a decline in plan performance ; and decreases in bad debt expense and information technology expenditures . an increase in labor costs , principally due to higher annual incentive and performance compensation and employee benefits costs ( employer matching savings plan contributions for u.s. salaried participants were suspended during 2009 ) somewhat offset the aforementioned expense reductions . research and development expenses r & d expenses were $ 184 in 2011 compared with $ 174 in 2010 and $ 169 in 2009. the increase in 2011 as compared to 2010 and in 2010 as compared to 2009 was mainly driven by incremental increases across varying expenses necessary to support r & d activities . provision for depreciation , depletion , and amortization the provision for dd & a was $ 1,479 in 2011 compared with $ 1,450 in 2010. the increase of $ 29 , or 2 % , was mostly due to a portion of the assets placed into service in mid-2011 related to a new hydroelectric power facility in brazil , along with a number of small increases at various locations . the provision for dd & a was $ 1,450 in 2010 compared with $ 1,311 in 2009. the increase of $ 139 , or 11 % , was principally the result of the assets placed into service during the second half of 2009 related to the juruti bauxite mine development and são luís refinery expansion in brazil , the smelters in norway ( acquired on march 31 , 2009 ) , the new bohai ( china ) flat-rolled product facility , and a high-quality coated sheet line at the samara ( russia ) facility , slightly offset by the cessation in dd & a due to the decision in early 2010 to permanently shut down and demolish two u.s. smelters ( see restructuring and other charges below ) . restructuring and other charges restructuring and other charges for each year in the three-year period ended december 31 , 2011 were comprised of the following : replace_table_token_11_th layoff costs were recorded based on approved detailed action plans submitted by the operating locations that specified positions to be eliminated , benefits to be paid under existing severance plans , union contracts or statutory requirements , and the expected timetable for completion of the plans . 49 2011 actions in 2011 , alcoa recorded restructuring and other charges of $ 281 ( $ 181 after-tax and noncontrolling interests ) , which were comprised of the following components : $ 127 ( $ 82 after-tax ) in asset impairments and $ 36 ( $ 23 after-tax ) in other exit costs related to the permanent shutdown and planned demolition of certain idled structures at two u.s. locations ( see below ) ; $ 93 ( $ 68 after-tax and noncontrolling interests ) for the layoff of approximately 1,600 employees ( 820 in the primary metals segment , 470 in the flat-rolled products segment , 160 in the alumina segment , 20 in the engineered products and solutions segment , and 130 in corporate ) , including the effects of planned smelter curtailments ( see below ) ; $ 23 ( $ 12 after-tax and noncontrolling interests ) for other asset impairments , including the write-off of the carrying value of an idled structure in australia that processed spent pot lining and adjustments to the fair value of the one remaining foil location while it was classified as held for sale due to foreign currency movements ; $ 20 ( $ 8 after-tax and noncontrolling interests ) for a litigation matter related to the former st. croix location ; a net charge of $ 5 ( $ 4 after-tax ) for other small items ; and $ 23 ( $ 16 after-tax ) for the reversal of previously recorded layoff reserves due to normal attrition and changes in facts and circumstances , including a change in plans for alcoa 's aluminum powder facility in rockdale , tx . in late 2011 , management approved the permanent shutdown and demolition of certain facilities at two u.s. locations , each of which was previously temporarily idled for various reasons . story_separator_special_tag the identified facilities are the smelter located in alcoa , tn ( capacity of 215 kmt-per-year ) and two potlines ( capacity of 76 kmt-per-year ) at the smelter located in rockdale , tx ( remaining capacity of 191 kmt-per-year composed of four potlines ) . demolition and remediation activities related to these actions will begin in the first half of 2012 and are expected to be completed in 2015 for the tennessee smelter and in 2013 for the two potlines at the rockdale smelter . this decision was made after a comprehensive strategic analysis was performed to determine the best course of action for each facility . factors leading to this decision were in general focused on achieving sustained competitiveness and included , among others : lack of an economically viable , long-term power solution ; changed market fundamentals ; cost competitiveness ; required future capital investment ; and restart costs . the asset impairments of $ 127 represent the write off of the remaining book value of properties , plants , and equipment related to these facilities . additionally , remaining inventories , mostly operating supplies , were written down to their net realizable value resulting in a charge of $ 6 ( $ 4 after-tax ) , which was recorded in cogs . the other exit costs of $ 36 represent $ 18 ( $ 11 after-tax ) in environmental remediation and $ 17 ( $ 11 after-tax ) in asset retirement obligations , both triggered by the decision to permanently shut down and demolish these structures , and $ 1 ( $ 1 after-tax ) in other related costs . also , at the end of 2011 , management approved a partial or full curtailment of three european smelters as follows : portovesme , italy ( 150 kmt-per-year ) ; avilés , spain ( 46 kmt out of 93 kmt-per-year ) ; and la coruña , spain ( 44 kmt out of 87 kmt-per-year ) . these curtailments are expected to be completed in the first half of 2012. the curtailment of the portovesme smelter may lead to the permanent closure of the facility , while the curtailments at the two smelters in spain are planned to be temporary . these actions are the result of uncompetitive energy positions , combined with rising material costs and falling aluminum prices ( mid-2011 to late 2011 ) . as a result of these decisions , alcoa recorded costs of $ 33 ( $ 31 after-tax ) for the layoff of approximately 650 employees . as alcoa engages in discussions with the respective employee representatives and governments , additional charges may be recognized in 2012. as of december 31 , 2011 , approximately 380 of the 1,600 employees were terminated . the remaining terminations for the 2011 restructuring programs are expected to be completed by the end of 2012. in 2011 , cash payments of $ 24 were made against layoff reserves related to the 2011 restructuring programs . 2010 actions in 2010 , alcoa recorded restructuring and other charges of $ 207 ( $ 130 after-tax and noncontrolling interests ) , which were comprised of the following components : $ 127 ( $ 80 after-tax and noncontrolling interests ) in asset impairments and $ 46 ( $ 29 after-tax and noncontrolling interests ) in other exit costs related to the permanent shutdown and planned demolition of certain idled structures at five u.s. locations ( see below ) ; $ 43 ( $ 29 after-tax and noncontrolling interests ) for the layoff of approximately 875 employees ( 625 in the engineered products and solutions segment ; 75 in the primary metals segment ; 60 in the alumina segment ; 25 in the flat-rolled products segment ; and 90 in corporate ) ; $ 22 ( $ 14 after-tax ) in net charges ( including $ 12 ( $ 8 after-tax ) for asset impairments ) related to divested and to be divested businesses ( automotive castings , global foil , transportation products europe , and packaging and consumer ) for , among other items , the settlement of a contract with a former customer , foreign 50 currency movements , working capital adjustments , and a tax indemnification ; $ 2 ( $ 2 after-tax and noncontrolling interests ) for various other exit costs ; and $ 33 ( $ 24 after-tax and noncontrolling interests ) for the reversal of prior periods ' layoff reserves , including a portion of those related to the portovesme smelter in italy due to the execution of a new power agreement . in early 2010 , management approved the permanent shutdown and demolition of the following structures , each of which was previously temporarily idled for different reasons : the eastalco smelter located in frederick , md ( capacity of 195 kmt-per-year ) ; the smelter located in badin , nc ( capacity of 60 kmt-per-year ) ; an aluminum fluoride plant in point comfort , tx ; a paste plant and cast house in massena , ny ; and one potline at the smelter in warrick , in ( capacity of 40 kmt-per-year ) . this decision was made after a comprehensive strategic analysis was performed to determine the best course of action for each facility . factors leading to this decision included current market fundamentals , cost competitiveness , other existing idle capacity , required future capital investment , and restart costs , as well as the elimination of ongoing holding costs . the asset impairments of $ 127 represent the write off of the remaining book value of properties , plants , and equipment related to these facilities . additionally , remaining inventories , mostly operating supplies , were written down to their net realizable value resulting in a charge of $ 8 ( $ 5 after-tax and noncontrolling interests ) , which was recorded in cogs .
| net income attributable to alcoa for 2011 was $ 611 , or $ 0.55 per share , compared with net income of $ 254 , or $ 0.24 per share , in 2010 , and a net loss of $ 1,151 , or $ 1.23 per share , in 2009. in 2011 , net income of $ 611 included a loss from discontinued operations of $ 3 , and in 2010 and 2009 , net income of $ 254 and net loss of $ 1,151 included a loss from discontinued operations of $ 8 and $ 166 , respectively . in march 2009 , management initiated a series of operational and financial actions to significantly improve alcoa 's cost structure and liquidity . operational actions included procurement efficiencies and overhead rationalization to reduce costs and working capital initiatives to yield significant cash improvements . financial actions included a reduction in the quarterly common stock dividend from $ 0.17 per share to $ 0.03 per share , which began with the dividend paid on may 25 , 2009 , and the issuance of 172.5 million shares of common stock and $ 575 in convertible notes that collectively yielded $ 1,438 in net proceeds . in january 2010 , management initiated further operational actions to not only maintain the procurement and overhead savings and working capital improvements achieved in 2009 , but to improve on them throughout 2010. also , a further reduction in capital expenditures was planned in order to achieve the level necessary to sustain operations without sacrificing the quality of alcoa 's alumina and aluminum products . in 2011 , management continued its previous actions to maintain the achieved procurement and overhead savings from the past two years and to further improve cash with working capital initiatives . additionally , maintaining a level of capital expenditures consistent with that of 2010 was planned . during 2012 , management plans to continue the actions from 47 the past three years to achieve additional procurement and overhead savings , to further improve on working capital , and to maintain a consistent level of capital expenditures . in late 2008 , management made the decision to reduce alcoa 's aluminum and alumina production in response to the then global economic downturn . as a result of this decision , reductions of 750 kmt , or 18 % , of annualized output from alcoa 's global smelting
| 12,118 |
management believes that its determination of the allowance for credit losses , valuation of other real estate owned , the annual goodwill impairment assessment , the assessment for other-than-temporary impairment of securities , the valuation of mortgage servicing rights and the estimation of pension and other postretirement benefit amounts involve a higher degree of judgment and complexity than the company 's other significant accounting policies . further , these estimates can be materially impacted by changes in market conditions or the actual or perceived financial condition of the company 's borrowers , subjecting the company to significant volatility of earnings . allowance for credit losses the allowance for credit losses is established through the provision for credit losses , which is a charge against earnings . provisions for credit losses are made to reserve for estimated probable losses on loans and leases . the allowance for credit losses is a significant estimate and is regularly evaluated by the company for adequacy by taking into consideration factors such as changes in the nature and volume of the loan and lease portfolio ; trends in actual and forecasted portfolio credit quality , including delinquency , charge-off and bankruptcy rates ; and current economic conditions that may affect a borrower 's ability to pay . in determining an adequate allowance for credit losses , management makes numerous assumptions , estimates and assessments . the use of different estimates or assumptions could produce different provisions for credit losses . see “ item 7. management 's discussion and analysis of financial condition and results of operations – results of operations – provision for credit losses and allowance for credit losses ” included herein for more information . at december 31 , 2012 , the allowance for credit losses was $ 164.5 million , representing 1.90 % of total loans and leases , net of unearned income . other real estate owned oreo , consisting of assets that have been acquired through foreclosure or in satisfaction of loans , is carried at the lower of cost or fair value , less estimated selling costs . fair value is based on independent appraisals and other relevant factors . oreo is revalued on an annual basis or more often if market conditions necessitate . valuation adjustments required at foreclosure are charged to the allowance for credit losses . subsequent valuation adjustments on the periodic revaluation of the property are charged to net income as noninterest expense . significant judgments and complex estimates are required in estimating the fair value of oreo , and the period of time within which such estimates can be considered current is significantly shortened during periods of market volatility , as experienced during the past two years . as a result , the net proceeds realized from sales transactions could differ significantly from appraisals , comparable sales , and other estimates used to determine the fair value of oreo . goodwill the company 's policy is to assess goodwill for impairment at the reporting segment level on an annual basis or sooner if an event occurs or circumstances change which indicate that the fair value of a reporting segment is below its carrying amount . impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value . accounting standards require management to estimate the fair value of each reporting segment in assessing impairment at least annually . the company 's annual assessment date is during the company 's fourth quarter . the company 's annual goodwill impairment evaluation performed during the fourth quarter of 2012 indicated no impairment of goodwill for its reporting segments as the estimated fair value exceeded the respective carrying value by 23 % for the company 's community banking reporting segment and by 26 % for the company 's insurance agencies reporting segment . therefore , no goodwill impairment was recorded during 2012 . 30 in the current environment , forecasting cash flows , credit losses and growth in addition to valuing the company 's assets with any degree of assurance is very difficult and subject to significant changes over very short periods of time . management will continue to update its analysis as circumstances change . if market conditions continue to be volatile and unpredictable , impairment of goodwill related to the company 's reporting segments may be necessary in future periods . goodwill was $ 275.2 million at december 31 , 2012. assessment for other-than-temporary impairment of securities securities are evaluated periodically to determine whether a decline in their value is other-than-temporary . the term “ other-than-temporary ” is not intended to indicate a permanent decline in value . rather , it means that the prospects for near-term recovery of value are not necessarily favorable . management reviews criteria such as the magnitude and duration of the decline , as well as the reasons for the decline , and whether the company would be required to sell the securities before a full recovery of costs in order to predict whether the loss in value is other-than-temporary . once a decline in value is determined to be other-than-temporary , the impairment is separated into ( a ) the amount of the impairment related to the credit loss and ( b ) the amount of the impairment related to all other factors . the value of the security is reduced by the other-than-temporary impairment with the amount of the impairment related to credit loss recognized as a charge to earnings and the amount of the impairment related to all other factors recognized in other comprehensive income . mortgage servicing rights the company recognizes as assets the rights to service mortgage loans for others , known as mortgage servicing rights ( “ msrs ” ) . the company records msrs at fair value on a recurring basis with subsequent remeasurement of msrs based on change in fair value in accordance with financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 860 , transfers and servicing ( “ fasb asc 860 ” ) . story_separator_special_tag an estimate of the fair value of the company 's msrs is determined utilizing assumptions about factors such as mortgage interest rates , discount rates , mortgage loan prepayment speeds , market trends and industry demand . because the valuation is determined by using discounted cash flow models , the primary risk inherent in valuing the msrs is the impact of fluctuating interest rates on the estimated life of the servicing revenue stream . the use of different estimates or assumptions could also produce different fair values . the company does not hedge the change in fair value of msrs and , therefore , the company is susceptible to significant fluctuations in the fair value of its msrs in changing interest rate environments . at december 31 , 2012 , the company 's mortgage servicing asset was valued at $ 37.9 million . pension and postretirement benefits accounting for pension and other postretirement benefit amounts is another area where the accounting guidance requires management to make various assumptions in order to appropriately value any related asset or liability . estimates that the company makes to determine pension-related assets and liabilities include actuarial assumptions , expected long-term rate of return on plan assets , rate of compensation increase for participants and discount rate . estimates that the company makes to determine asset and liability amounts for other postretirement benefits include actuarial assumptions and a discount rate . changes in these estimates could impact earnings . for example , lower expected long-term rates of return on plan assets could negatively impact earnings , as would lower estimated discount rates or higher rates of compensation increase . in estimating the projected benefit obligation , actuaries must make assumptions about such factors as mortality rate , turnover rate , retirement rate , disability rate and the rate of compensation increases . the company accounts for the over-funded or under-funded status of its defined benefit and postretirement plans as an asset or liability in its consolidated balance sheets and recognizes changes in that funded status in the year in which the changes occur through comprehensive income as required by fasb asc 715 , compensation – retirement benefits ( “ fasb asc 715 ” ) . in accordance with fasb asc 715 , the company calculates the expected return on plan assets each year based on the balance in the pension asset portfolio at the beginning of the year and the expected long-term rate of return on that portfolio . in determining the reasonableness of the expected rate of return , the company considers a variety of factors including the actual return earned on plan assets , historical rates of return on the various asset classes of which the plan portfolio is comprised and current/prospective capital market conditions and economic forecasts . the company used an expected rate of return of 6 % on plan assets for 2012. the discount rate is the rate used to determine the present value of the company 's future benefit obligations for its pension and other postretirement benefit plans . the company determines the discount rate to be used to discount plan liabilities at the measurement date with the assistance of its actuary using the actuary 's proprietary model . the company developed a level equivalent yield using its actuary 's 31 model as of december 30 , 2012 and the expected cash flows from the bancorpsouth , inc. retirement plan ( the “ basic plan ” ) , the bancorpsouth , inc. restoration plan ( the “ restoration plan ” ) and the bancorpsouth , inc. supplemental executive retirement plan ( the “ supplemental plan ” ) . based on this analysis , the company established its discount rate assumptions for determination of the projected benefit obligation at 4.05 % for the basic plan , 3.65 % for the restoration plan and 2.85 % for the supplemental plan based on a december 31 , 2012 measurement date . results of operations net interest revenue net interest revenue is the difference between interest revenue earned on assets , such as loans , leases and securities , and interest expense paid on liabilities , such as deposits and borrowings , and continues to provide the company with its principal source of revenue . net interest revenue is affected by the general level of interest rates , changes in interest rates and changes in the amount and composition of interest earning assets and interest bearing liabilities . one of the company 's long-term objectives is to manage interest earning assets and interest bearing liabilities to maximize net interest revenue , while balancing interest rate , credit and liquidity risk . net interest margin is determined by dividing fully taxable equivalent net interest revenue by average earning assets . for purposes of the following discussion , revenue from tax-exempt loans and investment securities has been adjusted to a fully taxable equivalent ( “ fte ” ) basis , using an effective tax rate of 35 % . the following table presents average interest earning assets , average interest bearing liabilities , net interest revenue-fte , net interest margin-fte and net interest rate spread for the three years ended december 31 , 2012 : 32 2012 2011 2010 ( taxable equivalent basis ) average yield/ average yield/ average yield/ balance interest rate balance interest rate balance interest rate assets ( dollars in thousands , yields on taxable equivalent basis ) loans and leases ( net of unearned income ) ( 1 ) ( 2 ) $ 8,719,399 $ 428,998 4.92 % $ 9,159,431 $ 464,413 5.07 % $ 9,621,529 $ 500,108 5.20 % loans held for sale 91,215 3,033 3.33 % 53,504 2,219 4.15 % 68,980 3,024 4.38 % held-to-maturity securities : taxable ( 3 ) - - - 547,471 13,266 2.42 % 985,606 36,718 3.73 % non-taxable ( 4 ) - - - 133,827 8,673 6.48 % 236,530 16,014 6.77 % available-for-sale securities : taxable ( 5 ) 2,035,628 39,849 1.96 % 1,667,936 44,243 2.65 % 863,091 32,033 3.71 % non-taxable ( 6 ) 455,270 25,627 5.63 % 271,170 16,897 6.23 % 71,869 5,039 7.01 %
| during 2012 , the company continued its focus on improving credit quality and reducing npls , especially in the real estate construction , acquisition and development loan portfolio , as evidenced by the decrease in that portfolio 's nonaccrual loans of $ 66.5 million to $ 66.6 million at december 31 , 2012 from $ 133.1 million at december 31 , 2011. the primary source of revenue for the company is net interest revenue earned by the bank . net interest revenue is the difference between interest earned on loans , investments and other earning assets and interest paid on 28 deposits and other obligations . net interest revenue for 2012 was $ 414.6 million , compared to $ 434.9 million for 2011 and $ 441.1 million for 2010. net interest revenue is affected by the general level of interest rates , changes in interest rates and changes in the amount and composition of interest earning assets and interest bearing liabilities . one of the company 's long-term objectives is to manage those assets and liabilities to maximize net interest revenue , while balancing interest rate , credit , liquidity and capital risks . the company experienced an increase in lower rate savings deposits and a decrease in higher rate average demand deposits , other time deposits and long-term borrowing , which resulted in a decrease in interest expense of $ 31.1 million , or 30.2 % , in 2012 compared to 2011. the 4.7 % decrease in net interest revenue in 2012 compared to 2011 was a result of the decrease in interest expense being more than offset by the decrease in interest revenue that resulted from the declining interest rate environment combined with the low loan demand and loans re-pricing at lower rates , both at maturity and , in some cases , prior to maturity , as interest revenue decreased $ 51.4 million , or 9.6 % , in 2012 compared to 2011. while loan demand has been weak , the company has managed to replace some loan runoff with new loan production , primarily in its alabama , texas and louisiana markets . the company attempts to diversify its revenue stream by increasing the amount of revenue received from mortgage lending operations , insurance agency activities , brokerage and securities activities and other activities that generate fee income . management believes this
| 12,119 |
as a result of the merger , the split-off , and the associated change in our business and operations , from engaging in the business of distributing medical supplies and equipment to municipalities , hospitals , pharmacies , care centers , and clinics throughout the country of chile , to the business of designing , developing and selling exoskeletons to augment human strength , endurance and mobility , a discussion of the past financial results of pn med group inc. is not pertinent , and under generally accepted accounting principles in the united states , the historical financial results of ekso bionics , inc. , the accounting acquirer , prior to the merger are considered the historical financial results of the company . the company designs , develops and sells wearable robots , or “ human exoskeletons , ” that have applications in healthcare , industrial , military , and consumer markets . our exoskeletons systems are strapped over the user 's clothing and augment human strength , endurance and mobility . these systems serve multiple markets and can be used both by able-bodied users as well as by persons with physical disabilities . we or our partners have sold , rented or leased devices that ( a ) enable individuals with neurological conditions affecting gait ( e.g. , spinal cord injury or stroke ) to rehabilitate and to walk again ; ( b ) allow industrial workers to perform heavy duty work for extended periods ; and ( c ) permit soldiers to carry heavy loads for long distances while mitigating lower back , knee , and ankle injuries . our long-term goal is to have one million persons stand and walk in ekso exoskeletons by february 2022. the first step to achieving that goal is for us to focus on selling our medical exoskeletons to rehabilitation centers and hospitals in the united states and europe . ekso bionics began that effort with the february 2012 sale of ekso , an exoskeleton for complete spinal cord injuries ( “ sci ” ) . we have expanded that effort with the launch of our variable assist software and the announcement of our newest hardware platform , ekso gt . the variable assist software enables users with any amount of lower extremity strength to contribute their own power for either leg to achieve self-initiated walking . the ekso gt builds on the experience of the ekso and incorporates the variable assist , allowing us to expand our sales and marketing efforts beyond sci-focused centers to centers supporting stroke and related neurological patients . there are approximately 5,700 registered hospitals in the u.s. , providing services to the 12,000 to 14,000 sci incidences and approximately 650,000 persons who survive a stroke per year . 40 in parallel to the development and early commercialization of medical exoskeletons , the company has been and continues to work on the development of exoskeletons for able-bodied users . in addition to furthering the field of exoskeletons that can lead to the commercialization of exoskeletons outside our current medical applications , the company 's development work furthers technology that is also potentially applicable for use in future models of the ekso , including potentially a unit for home use . critical accounting policies , estimates , and judgments our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reporting period . we continually evaluate our estimates and judgments , our commitments to strategic alliance partners and the timing of the achievement of collaboration milestones . we base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances . materially different results can occur as circumstances change and additional information becomes known . besides the estimates identified above that are considered critical , we make many other accounting estimates in preparing our financial statements and related disclosures . all estimates , whether or not deemed critical , affect reported amounts of assets , liabilities , revenues and expenses , as well as disclosures of contingent assets and liabilities . these estimates and judgments are also based on historical experience and other factors that are believed to be reasonable under the circumstances . materially different results can occur as circumstances change and additional information becomes known , even for estimates and judgments that are not deemed critical . revenue and cost of revenue when collaboration , other research arrangements and product sales include multiple-element revenue arrangements , we account for these transactions by determining the elements , or deliverables , included in the arrangement and determining which deliverables are separable for accounting purposes . we consider delivered items to be separable if the delivered item ( s ) have stand-alone value to the customer and delivery or performance of the undelivered item is considered probable and substantially in control of the vendor . we recognize revenue when the four basic criteria of revenue recognition are met : · persuasive evidence of an arrangement exists . customer contracts and purchase orders are generally used to determine the existence of an arrangement . · the transfer of technology or products has been completed or services have been rendered . customer acceptance , when applicable , is used to verify delivery . · the sales price is fixed or determinable . we assess whether the cost is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment . · collectability is reasonably assured . we assess collectability based primarily on the creditworthiness of the customer as determined by credit checks and analysis as well as the customer 's payment history . story_separator_special_tag beginning in 2012 , with the commercialization of the ekso , we began to recognize revenue from the sales of the ekso and related services , in addition to our historical revenue streams including collaborative research and development service arrangements , technology license agreements , and government grants . medical device revenue and cost of revenue we build medical devices called the ekso for sale and capitalize into inventory materials , direct and indirect labor and overhead in connection with the manufacture and assembly of these units . 41 in a typical ekso sales arrangement , we are obligated to deliver to the customer the ekso unit and related software ( the software is essential to the unit 's functionality ) , post-sale training , technical support and maintenance . because of the uniqueness of the ekso unit and its use , none of these deliverables has standalone value to the customer . accordingly , once a sales arrangement with a fixed or determinable price and reasonably assured payment is in place , the entire sales price is accounted for as a single unit of accounting . the combined total sales price for the delivered and undelivered elements is deferred and amortized to revenue beginning at the completion of training , on a straight line basis over the maintenance period , usually three years , which is the last delivered item . because of the limited guidance about how to account for costs associated with a delivered item that can not be separated from the undelivered items , the accounting for such costs must be based on the conceptual framework and analogies to the limited guidance that does exist . accordingly , we account for the costs of the delivered items following , by analogy , the guidance in accounting standards codification ( “ asc ” ) 310-20 , nonrefundable fees and other costs ( “ asc 310-20 ” ) . under this guidance , upon completion of training , the costs capitalized into inventory , including direct material , direct and indirect labor , as well as overhead costs , are deferred and then amortized to cost of revenue on the same basis as deferred revenue . indirect labor and overhead costs are included in inventory because , under the conceptual framework , they add value to the ekso unit and are otherwise appropriate inventory costs . since we have an enforceable contract for the remaining deliverables and the entire arrangement is expected to generate positive margins , realization of the capitalized costs is probable and , as such , deferring and amortizing them on the same basis as deferred revenue is appropriate . at the time of shipment to the customer , the related inventory is reclassified to deferred cost of revenue where it is amortized to cost of revenue over the same period that revenue is recognized . all costs incurred subsequent to the date of shipment are expensed as incurred . the cost of medical device revenue includes expenses associated with the manufacture and delivery of devices including materials , payroll , benefits , subcontractor expenses , depreciation of manufacturing equipment , excess and obsolete inventory costs , and shipping charges . engineering services revenue and cost of revenue we enter into technology license agreements that typically provide for annual minimum access fees . when these annual minimum payments have separate stand-alone values , we recognize revenue when the technology is transferred or accessed , provided that the technology transferred or accessed is not dependent on the outcome of continuing engineering and or other development efforts . collaborative arrangements typically consist of cost reimbursements for specific engineering and development spending , and future product royalty payments . cost reimbursements for engineering and development spending are recognized as the related project labor hours are incurred in relation to all labor hours and when collectability is reasonably assured . amounts received in advance are recorded as deferred revenue until the technology is transferred , services are rendered , or milestones are reached . product royalty payments are recorded when earned under the arrangement . government grants , which support our research efforts in specific projects , generally provide for reimbursement of approved costs as defined in the notices of grant awards . grant revenue is recognized as the associated project labor hours are incurred in relation to total labor hours . there are some grants , like the national science foundation grants , which we draw upon and spend based on budgets preapproved by the grantor . the cost of engineering services revenue includes payroll and benefits , subcontractor expenses and materials . all costs related to engineering services are expensed as incurred and reported as cost of revenue . research and development research and development costs consist of costs incurred for our own internal research and development activities . these costs primarily include salaries and other personnel-related expenses , contractor fees , facility costs , supplies , and depreciation of equipment associated with the design and development of new products prior to the establishment of their technological feasibility . such costs are expensed as incurred . 42 inventories , net inventories are recorded at the lower of cost or market value . cost is principally determined using the average cost method . parts from vendors are received and recorded as raw material . once the raw materials are incorporated in the fabrication of the product , the related value of the component is recorded as work in progress ( “ wip ” ) . direct and indirect labor and applicable overhead costs are also allocated and recorded to wip inventory . finished goods are comprised of completed products that are ready for customer shipment . the company periodically evaluates the carrying value of inventory on hand for potential excess amounts over sales and forecasted demand . excess and obsolete inventories would be recorded as an inventory impairment charge to the consolidated statement of operations .
| these costs were lower as a percentage of revenue for 2014 compared to 2013 due to a charge of $ 0.3 million in 2013 related to retrofitting our older ekso units , with no comparable charge in 2014. engineering services cost of revenue increased $ 0.5 million , or 37 % , as compared to the year ended december 31 , 2013 primarily due to an increase in costs related to the increase in overall project work noted above . operating expenses : the following table presents our operating expenses ( in thousands ) for the periods indicated and associated percent change : replace_table_token_8_th sales and marketing expenses increased $ 2.8 million , or 65 % , as compared to the year ended december 31 , 2013 largely from an increase of $ 1.3 million in compensation related costs . in 2013 , compensation costs were kept low pending an inflow of investment capital . in addition , travel costs increased by $ 0.4 million , reflecting greater sales efforts and stock compensation increased by $ 0.2 million from grants made during the current year . marketing related expenses increased by $ 0.6 million compared to the prior year . research and development expenses increased $ 1.2 million , or 44 % , as compared to the year ended december 31 , 2013 primarily from an increase of $ 0.6 million in compensation related costs . as noted above , compensation costs were kept low in 2013 pending an inflow of investment capital . in addition , head count increased from approximately 13 employees at the end of 2013 to approximately 24 employees at the end of 2014. patent related expenses increased by approximately $ 0.2 million in the current year compared to last year . general and administrative expenses increased $ 3.5 million , or 89 % , as compared to the year ended december 31 , 2013 , due primarily to a $ 1.8 million increase in compensation-related costs as compared to the year ended december 31 , 2013. as noted above , compensation costs were kept low in 2013 pending an inflow of investment capital . in addition , the company incurred $ 1.6 million in professional services fees primarily related to the merger , public company requirements and investor relations expenses . 47 other income ( expense ) , net : the following table presents our other income ( expense ) , net ( in thousands ) for the periods indicated and associated percent change : replace_table_token_9_th total
| 12,120 |
the federal funds rate was in the range of 0.25 % to 0.50 % as of may 31 , 2016. highlights of our financial results for fiscal 2017 , compared to fiscal 2016 , are as follows : · total revenue increased 7 % to $ 3.2 billion . · total service revenue increased 7 % to $ 3.1 billion . o payroll service revenue increased 3 % to $ 1.8 billion . o hrs revenue increased 12 % to $ 1.3 billion . · interest on funds held for clients increased 10 % to $ 50.6 million . · operating income increased 8 % to $ 1.2 billion . · net income and diluted earnings per share each increased 8 % to $ 817.3 million and $ 2.25 per share , respectively . · adjusted net income ( 1 ) increased 9 % to $ 799.0 million and adjusted diluted earnings per share ( 1 ) increased 8 % to $ 2.20 per share . · dividends of $ 662.3 million were paid to stockholders , representing 81 % of net income . ( 1 ) adjusted net income and adjusted diluted earnings per share are not u.s. generally accepted accounting principle ( “ gaap ” ) measures . please refer to the “ non-gaap financ ial measures ” section on page 21 for a discussion of these non-gaap measures . business outlook our payroll client base totaled approximately 605,000 clients as of both may 31 , 2017 and may 31 , 2016 , and approximately 590,000 clients as of may 31 , 2015. our payroll client base growth was relatively flat for fiscal 2017 and increased approximately 2 % for each of the fiscal years 2016 and 2015. while hrs provides services to employers and employees beyond payroll , they effectively leverage payroll processing data and , therefore , are beneficial to o ur operating margin . our hr administration services are included as part of the integrated hcm solution within paychex flex . the following table illustrates the growth in selected hrs service offerings : replace_table_token_5_th in fiscal 2017 , we continued to focus on enhancing the value to clients of our paychex flex platform . enhancements to our paychex flex platform made in fiscal 2017 included : · mobile-first design , which allows employers and employees full functionality of all application components , regardless of device or screen size ; · t he addition of paychex flex tm time essentials , the trueshift tm time clock , and a new advanced scheduling feature within our paychex flex tm time module ; and 15 · function -focused analytics in context throughout the platform . the enhanced data analytics tool and reports assist hr leaders with making mo re informed business decisions . we believe our leading-edge technology , along with our personalized , flexible service , will help our clients stay more connected to their employees and their businesses . our continued investment in our paychex flex platform during fiscal 2017 demonstrates that we are committed to providing industry-leading solutions to our clients and their employees . our full-service paychex employer shared responsibility ( “ esr ” ) services continued to show growth in fiscal 2017. the aca sets forth specific coverage and reporting requirements that employers must meet . paychex esr services help clients navigate the complexities of those requirements , avoid steep fines and penalties , and reduce aca-related administrative work . during fiscal 2017 we enhanced our full-service esr product , offering an all-new online dashboard for ease of predictive employer workforce analysis and risk monitoring , as well as year-end reporting . we continue to strengthen our position as an expert in our industry by serving as a source of education and information to clients , small businesses , and other interested parties . we provide free webinars , white papers , and other information on our website to aid existing and prospective clients with the impact of regulatory changes . the paychex insurance agency , inc. website , www.paychexinsurance.com , helps small-business owners navigate the area of insurance coverage . both this website and www.paychex.com have sections dedicated to the topic of health care reform . financial position and liquidity our financial position as of may 31 , 2017 remained strong with cash and total corporate investments of $ 777.4 million and no debt . our investment strategy continues to focus on protecting principal and optimizing liquidity . yields on high quality financial instruments remain low , although gradually beginning to increase , negatively impacting our income earned on funds held for clients and corporate investments . we invest predominately in municipal bonds – including ge neral obligation bonds ; pre-refunded bonds , which are secured by a u.s. government escrow ; and essential services revenue bonds – along with u.s. government agency securities and corporate bonds . during fiscal 2017 , our primary short-term investment vehicles were variable rate demand notes ( “ vrdns ” ) and bank demand deposit accounts . a substantial portion of our portfolio is invested in high credit quality securities with ratings of aa or higher , and a-1/p- 1 ratings on short-term securities . we limit the amounts that can be invested in any single issuer and invest in short- to intermediate-term instruments whose fair value is less sensitive to interest rate changes . we believe that our investments as of may 31 , 2017 that were in an unrealized loss position were not other-than-temporarily impaired , nor has any event occurred subsequent to that date that would indicate any other-than-temporary impairment . our primary source of cash is our ongoing operations . cash flows from operations were $ 960.4 million for fiscal 2017. historically , we have funded our operations , capital purchases , business acquisitions , share repurchases , and dividend payments from our operating activities . our positive operating cash flows for fiscal 2017 allowed us to support our business growth and to pay substantial dividends to our stockholders . story_separator_special_tag in july 2016 , we announced an increase in our quarterly dividend of 10 % , or $ 0.04 per share . in july 2017 , we subsequently announced an additional $ 0.04 per share , or 9 % , increase in our quarterly dividend . dividends paid to stockholders were 81 % of net income for fiscal 2017 . it is anticipated that cash and total corporate investments as of may 31 , 2017 , along with projected operating cash flows and available short-term financing , will support our normal business operations , capital purchases , share repurchases , dividend payments , and business acquisitions , if any , for the foreseeable future . for further analysis of our results of operations for fiscal years 2017 , 2016 , and 2015 , and our financial position as of may 31 , 2017 , refer to the tables and analysis in the “ results of operations ” and “ liquidity and capital resources ” sections of this item 7 and the discussion in the “ critical accounting policies ” section of this item 7. outlook our outlook for the fiscal year ending may 31 , 201 8 ( “ fiscal 201 8 ” ) is based upon current market , economic , and interest rate conditions continuing with no significant cha nges . our guidance for fiscal 201 8 is as follows : · payroll service revenue is anticipated to increase in the range of 1 % to 2 % ; · hrs revenue is anticipated to increase in the range of 8 % to 10 % ; · interest on funds held for clients is expected to reflect growth in the mid- to upper-teens ; · total revenue is expected to grow approximately 5 % ; · operating income , as a percent of total revenue , is expected to approximate 40 % ; 16 · investment income , net is expected to be in the range of $ 9.0 million to $ 11.0 million ; · the effective income tax rate for fiscal 2018 is expected to be in the range of 35.5 % to 36.0 % ; · net income is expected to increase approximately 5 % and adjusted net income ( 1 ) is anticipated to increase approximately 7 % ; and · diluted earnings per share is expected to increase in the range of 5 % to 6 % and adjusted diluted earnings per share ( 1 ) is expected to increase in the range of 7 % to 8 % . ( 1 ) adjusted net income and adjusted diluted earnings per share are not u.s. gaap measure s . please refer to the “ non-gaap financial measures ” section on page 21 for a discussion of these non-gaap measure s . the difference between our guidance for the gaap measures of net income and diluted earnings per share and the related non-gaap measures of adjusted net income and adjusted diluted earnings per share is limited to the net tax benefit recognized in fiscal 2017 related to employee stock-based compensation payments . we have not incorporated any assumptions regarding such a discrete tax benefit in our fiscal 2018 projections , as factors impacting the amount are subject to uncertainty . uncertainty primarily relates to employee decisions regarding exercise of stock-based awards and the market price of our common stock at that time . the average rate of return on our combined funds held for clients and corporate investment portfolios is expected to be approximately 1.4 % for fiscal 201 8 , reflecting increases to the federal funds rate through the most recent change in june 2017 . as of may 31 , 201 7 , the long-term investment portfolio had an average yield-to-maturity of 1.7 % and an average duration of 3 . 2 years . purchases of property and equipment for fiscal 201 8 are expected to be in the range of $ 1 8 0 .0 million to $ 1 9 0 .0 million . this includes anticipated non-recurring expenditures for the purchase of currently leased space . in addition , t his includes costs for internally developed software as we continue to invest in our service supporting technology . fiscal 201 8 depreciation expense is projected to be in the range of $ 110 .0 million to $ 120 .0 million , and we project amortization of i ntangible assets for fiscal 2018 to be in the range of $ 15.0 million to $ 20.0 millio n. our guidance for fiscal 2018 is subject to factors and uncertainties , including the risk factors described in item 1a , “ risk factors , ” which could cause our actual results to differ materially from our guidance . our guidance reflects our current expectations and are not guarantees of future performance . please see our “ cautionary note regarding forward-looking statements ” on page 1 for further information regarding our forward-looking statements . 17 story_separator_special_tag as of may 31 , 2017 , we had approximately 13,7 00 employees , compared with 13,500 employees as of may 31 , 201 6 . depreciation expense is primarily related to buildings , furniture and fixtures , data processing equipment , and software . amortization of intangible assets is primarily related to client list acquisitions , which are amortized using either straight-line or a ccelerated methods . the higher growth rate for depreciation and amortization for fiscal 2017 was primarily driven by higher depreciation related to an increase in internally developed software that was placed in service over the past two years . expense growth for fiscal 2017 and fiscal 2016 was impacted by continued growth in our peo . other expenses include items such as non-capital equipment , delivery , forms and supplies , communications , travel and entertainment , professional services , and other costs incurred to support our business . c ontinued investment in product development and supporting technology impacted other expense growth for both fiscal 201 7 and fiscal 201 6 .
| the acquisition of advance partners in december 2015 contributed approximately 1 % and 0.5 % to the growth in payroll ser vice revenue for fiscal 2017 and fiscal 2016 , respectively . as of may 31 , 2017 , we served approximately 605,000 payroll clients , consistent with levels one year ago . for fiscal 201 6 and fiscal 201 5 , our total payroll client base growth was approximately 2 % . the flat growth for fiscal 2017 was impacted by a challenging comparison for new sales to a strong fiscal 2016 , which benefited from the implementation of the aca . in addition , we experienced a slight increase in client attrition for fiscal 2017 as compared to the prior year . client retention was approximately 81 % of the beginning of the year client base for fiscal 2017 , compared to approximately 82 % for both fiscal 2016 and fiscal 2015 . human resource services revenue : hrs revenue was $ 1.3 billion for fisc al 201 7 and $ 1.2 b illion for fiscal 201 6 , reflecting growth of 1 2 % and 13 % , respectively , compared to each of the prior fiscal year periods . for both fiscal 2017 and fiscal 2016 , hrs revenue growth was primarily driven by increases in client base across all major hcm services , including : comprehensive outsourcing services , retirement services , time and attendance , and hr administration . hrs product key statistics are as follows : replace_table_token_9_th we continue to experience strong demand for our paychex hr services , our largest hrs revenue stream , as evidenced by the continued strong growth in client worksite employees for both our aso and peo . retirement services revenue growth for fiscal 2017 benefited from an increase in asset fee revenue earned on the asset value of participant funds . growth for fiscal 2016 was tempered by a lower average asset value of participants ' funds , offset somewhat by higher basis points earned from external fund managers . insurance services revenue growth for both fiscal 2017 and 2016 benefited from growth of our full-service aca product
| 12,121 |
mortgage banking segment revenues decreased $ 3.1 million , or 3.5 % , to $ 84.9 million during the year ended december 31 , 2013 compared to $ 87.4 million during the year ended december 31 , 2012. in addition to the decrease in mortgage banking income , 2013 pre-tax income decreased in the mortgage banking segment due to an increase in general operating expenses . total noninterest expense increased $ 7.1 million , or 10.3 % to $ 76.2 million during the year ended december 31 , 2013 compared to $ 69.1 million during the year ended december 31 , 2012. the increase in expense resulted from an increase in staffing in anticipation of higher origination volumes which did not materialize during the last six months of the year due in large part to the significant increase in interest rates on fixed-rate mortgages during the year which led to lower demand for refinance mortgage products and decreasing spreads . consolidated net income totaled $ 14.7 million for the year ended december 31 , 2013 , compared to $ 34.9 million during the year ended december 31 , 2012. income tax expense totaled $ 8.6 million for the year ended december 31 , 2013 , which represents a 37.0 % effective tax rate . during the year ended december 31 , 2013 , we recognized an income tax benefit of $ 12.2 million , which resulted from the release of a valuation reserve against deferred tax assets . critical accounting policies critical accounting policies are those that involve significant judgments and assumptions by management and that have , or could have , a material impact on our income or the carrying value of our assets . allowance for loan losses . waterstone bank establishes valuation allowances on loans deemed to be impaired . a loan is considered impaired when , based on current information and events , it is probable that waterstone bank will not be able to collect all amounts due according to the contractual terms of the loan agreement . a valuation allowance is established for an amount equal to the impairment when the carrying amount of the loan exceeds the present value of the expected future cash flows , discounted at the loan 's original effective interest rate or the fair value of the underlying collateral ( specific component ) . the company recognizes the change in present value of expected future cash flows on impaired loans attributable to the passage of time as bad debt expense . on an ongoing basis , at least quarterly for financial reporting purposes , the fair value of collateral dependent impaired loans and real estate owned is determined or reaffirmed by the following procedures : obtaining updated real estate appraisals or performing updated discounted cash flow analysis ; confirming that the physical condition of the real estate has not significantly changed since the last valuation date ; comparison of the estimated current book value to that of updated sales values experienced on similar real estate owned ; comparison of the estimated current book value to that of updated values seen on more current appraisals of similar properties ; and comparison of the estimated current book value to that of updated listed sales prices on our real estate owned and that of similar properties ( not owned by the company ) . - 65 - waterstone bank also establishes valuation allowances based on an evaluation of the various risk components that are inherent in the credit portfolio ( general component ) . the risk components that are evaluated include past loan loss experience ; the level of non-performing and classified assets ; current economic conditions ; volume , growth , and composition of the loan portfolio ; adverse situations that may affect the borrower 's ability to repay ; the estimated value of any underlying collateral ; regulatory guidance ; and other relevant factors . the allowance is increased by provisions charged to earnings and recoveries of previously charged-off loans and reduced by charge-offs . charge-offs approximate the amount by which the outstanding principal balance exceeds the estimated net realizable value of the underlying collateral . the appropriateness of the allowance for loan losses is reviewed and approved quarterly by the waterstone bank board of directors . the allowance reflects management 's best estimate of the amount needed to provide for the probable loss on impaired loans and other inherent losses in the loan portfolio , and is based on a risk model developed and implemented by management and approved by the waterstone bank board of directors . actual results could differ from this estimate , and future additions to the allowance may be necessary based on unforeseen changes in loan quality and economic conditions . more specifically , if our future charge-off experience increases substantially from our past experience ; or if the value of underlying loan collateral , in our case real estate , declines in value by a substantial amount ; or if unemployment in our primary market area increases significantly ; our allowance for loan losses may be inadequate and we will incur higher provisions for loan losses and lower net income in the future . in addition , state and federal regulators periodically review the waterstone bank allowance for loan losses . such regulators have the authority to require waterstone bank to recognize additions to the allowance at the time of their examination . income taxes . the company and its subsidiaries file consolidated federal and combined state income tax returns . the provision for income taxes is based upon income in the consolidated financial statements , rather than amounts reported on the income tax return . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as for net operating loss carry forwards . story_separator_special_tag deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date . under generally accepted accounting principles , a valuation allowance is required to be recognized if it is `` more likely than not '' that a deferred tax asset will not be realized . the determination of the realizability of the deferred tax assets is highly subjective and dependent upon judgment concerning management 's evaluation of both positive and negative evidence , the forecasts of future income , applicable tax planning strategies , and assessments of current and future economic and business conditions . examples of positive evidence may include the existence of taxes paid in available carry-back years as well as the probability that taxable income will be generated in future periods . examples of negative evidence may include cumulative losses in a current year and prior two years and general business and economic trends . positions taken in the company 's tax returns are subject to challenge by the taxing authorities upon examination . the benefit of uncertain tax positions are initially recognized in the financial statements only when it is more likely than not the position will be sustained upon examination by the tax authorities . such tax positions are both initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 % likelihood of being realized upon settlement with the tax authority , assuming full knowledge of the position and all relevant facts . interest and penalties on income tax uncertainties are classified within income tax expense in the income statement . - 66 - fair value measurements . the company determines the fair value of its assets and liabilities in accordance with asc 820. asc 820 establishes a standard framework for measuring and disclosing fair value under gaap . a number of valuation techniques are used to determine the fair value of assets and liabilities in the company 's financial statements . the valuation techniques include quoted market prices for investment securities , appraisals of real estate from independent licensed appraisers and other valuation techniques . fair value measurements for assets and liabilities where limited or no observable market data exists are based primarily upon estimates , and are often calculated based on the economic and competitive environment , the characteristics of the asset or liability and other factors . therefore , the valuation results can not be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability . additionally , there are inherent weaknesses in any calculation technique , and changes in the underlying assumptions used , including discount rates and estimates of future cash flows , could significantly affect the results of current or future values . significant changes in the aggregate fair value of assets and liabilities required to be measured at fair value or for impairment are recognized in the income statement under the framework established by gaap . comparison of financial condition at december 31 , 2013 and at december 31 , 2012 total assets . total assets increased by $ 286.0 million , or 17.2 % , to $ 1.95 billion at december 31 , 2013 from $ 1.66 billion at december 31 , 2012. the increase in total assets primarily reflects proceeds received in connection with our second-step stock offering . as of december 31 , 2013 , the company had received stock subscription proceeds totaling $ 388.7 million . these proceeds were held as cash and cash equivalents as of december 31 , 2013. the increase in assets related to the stock offering were partially offset by decreases in loans receivable of $ 41.0 million , loans held for sale of $ 36.6 million and real estate owned of $ 13.3 million . cash and cash equivalents . cash and cash equivalents increased $ 357.7 million to $ 429.2 million at december 31 , 2013 from $ 71.5 million at december 31 , 2012. the $ 388.7 million received in conjunction with the company 's stock offering was held as cash and cash equivalents through the january 22 , 2014 closing date of the offering . exclusive of the increase related to the stock offering , cash and cash equivalent balances fluctuate based upon the timing of receipt of security and loan payments and the redeployment of cash into higher yielding assets , or the funding of deposit or borrowing obligations . securities available for sale . securities available for sale increased by $ 8.4 million , or 4.1 % , to $ 213.4 million at december 31 , 2013 from $ 205.0 million at december 31 , 2012. this increase reflects a $ 21.4 million increase in municipal securities and a $ 9.9 million increase in government sponsored enterprise bonds , partially offset by a $ 14.1 million decrease in mortgage-backed securities and a $ 10.3 million decrease in government sponsored enterprise issued collateralized mortgage obligations . during the year ended december 31 , 2013 , the proceeds from principal repayments on mortgage-related securities were reinvested in municipal securities deemed to provide a better risk-adjusted return . as of december 31 , 2013 , we held two municipal securities with a total fair value of $ 189,000 and amortized cost of $ 215,000 that were determined to be other than temporarily impaired . during the year ended december 31 , 2012 , $ 100,000 was recognized as additional other than temporary impairment with respect to these municipal securities which was charged against earnings . there was no additional other than temporary impairment recorded during the year ended december 31 , 2013. loans held for sale .
| loans originated for sale in the secondary market totaled $ 1.75 billion during the year ended december 31 , 2013 , consistent with the $ 1.75 billion originated during the year ended december 31 , 2012. the decline in average sales margins reflects a decrease in pricing on all products in almost all geographic markets and was reflective of general market conditions . during the year ended december 31 , 2013 , loan origination volume shifted towards higher yielding governmental loans and loans made for the purpose of a purchase ; however , margins decreased for all loan types and loan purposes , compared to the year ended december 31 , 2012. loans originated for the purpose of a residential property purchase , which generally yield a higher margin than loans originated for the purpose of a refinance , comprised 67.9 % of total originations during the year ended december 31 , 2013 , compared to 55.4 % during the year ended december 31 , 2012. the mix of loan type changed slightly with conventional loans and governmental loans comprising 62.7 % and 37.3 % of all loan originations , respectively , during the year ended december 31 , 2013. during the year ended december 31 , 2012 conventional loans and governmental loans comprised 67.3 % and 32.7 % of all loan originations , respectively . conventional loans include loans that conform to fannie mae and freddie mac standards , whereas governmental loans are those loans guaranteed by the federal government , such as a federal housing authority or u.s. department of agriculture loan . partially offsetting the decline in revenues related to the origination and sale of loans during the year ended december 31 , 2013 , the company sold mortgage servicing rights related to $ 541.6 million in loans receivable with a book value $ 2.8 million at a gain of $ 2.6 million . the sales were timed to take advantage of preferable market pricing conditions . there were no comparable transactions during the year ended
| 12,122 |
for the long term , the company believes the strategy of continuing to invest in product engineering and development and its focus on delivering high-quality products and superior service will strengthen the company 's market position . the company took aggressive actions to conserve cash , right-size its operations and cost structure . these actions included adjustments to workforce , reduced purchases of raw materials and reductions in selling , general , and administrative expenses . the company continues to review its internal processes to identify inefficiencies and cost reduction opportunities . the company will continue to scrutinize its relationships with external suppliers to ensure it is achieving the highest quality materials and services at the most competitive cost . story_separator_special_tag discussion addresses it 's most critical accounting policies , which are those that are most important to the portrayal of the company 's financial condition and results of operations and require management 's most difficult , subjective , or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . accounting policies , in addition to the critical accounting policies referenced below , are presented in note 1 to the consolidated financial statements , accounting policies. estimates and assumptions in preparing the consolidated financial statements , the company uses certain estimates and assumptions that may affect reported amounts and disclosures . estimates and assumptions are used , among other places , when accounting for certain revenue ( e.g . contract accounting ) , expense , and asset and liability valuations . the company believes that the estimates and assumptions made in preparing the consolidated financial statements are reasonable , but are inherently uncertain . assumptions may be incomplete or inaccurate and unanticipated events may occur . the company is subject to risks and uncertainties that may cause actual results to differ from estimated results . revenues & expenses revenues from contracts for the design , manufacture and sale of asphalt plants are recognized under the percentage-of-completion method . the percentage-of-completion method of accounting for these contracts recognizes revenue , net of any promotional discounts , and costs in proportion to actual labor costs incurred as compared with total estimated labor costs expected to be incurred during the entire contract . pre-contract costs are expensed as incurred . changes to total estimated contract costs or losses , if any , are recognized in the period in which they are determined . revenue recognized in excess of amounts billed is classified as current assets under costs and estimated earnings in excess of billings. the company anticipates that all incurred costs associated with these contracts at september 30 , 2015 , will be billed and collected within one year . revenues from all other contracts for the design and manufacture of custom equipment , for service and for parts sales , net of any discounts and return allowances , are recorded when the following four revenue recognition criteria are met : product is delivered/ownership is transferred or service is performed , persuasive evidence of an arrangement exists , the selling price is fixed or determinable , and collectability is reasonably assured . returns and allowances , which reduce product revenue , are estimated using historical experience . provisions for estimated returns and allowances and other adjustments are provided for in the same period the related sales are recorded . product warranty costs are estimated using historical experience and known issues and are charged to production costs as revenue is recognized . all product engineering and development costs , and selling , general and administrative expenses are charged to operations as incurred . provision is made for any anticipated contract losses in the period that the loss becomes evident . the allowance for doubtful accounts is determined by performing a specific review of all account balances greater than 90 days past due and other higher risk amounts to determine collectability and also adjusting for any known customer payment issues with account balances in the less-than-90-day past due aging buckets . account balances are charged off against the allowance for doubtful accounts when they are determined to be uncollectable . any recoveries of account balances previously considered in the allowance for doubtful accounts reduce future additions to the allowance for doubtful accounts . 18 inventories inventories are valued at the lower of cost or market , with cost being determined principally by using the last-in , first-out ( lifo ) method and market defined as replacement cost for raw materials and net realizable value for work in process and finished goods ( see note 2 to consolidated financial statements ) . appropriate consideration is given to obsolescence , excessive levels , deterioration , possible alternative uses and other factors in determining net realizable value . the cost of work in process and finished goods includes materials , direct labor , variable costs and overhead . the company evaluates the need to record inventory adjustments on all inventories , including raw material , work in process , finished goods , spare parts and used equipment . used equipment acquired by the company on trade-in from customers is carried at estimated net realizable value . unless specific circumstances warrant different treatment regarding inventory obsolescence , the cost basis of inventories three to four years old are reduced by 50 % , while the cost basis of inventories four to five years old are reduced by 75 % , and the cost basis of inventories greater than five years old are reduced to zero . inventory is typically reviewed for obsolescence on an annual basis computed as of september 30 th , the company 's fiscal year end . if significant known changes in trends , technology or other specific circumstances that warrant consideration occur during the year , then the impact on obsolescence is considered at that time . investments marketable debt and equity securities are categorized as trading securities and are thus marked story_separator_special_tag for the long term , the company believes the strategy of continuing to invest in product engineering and development and its focus on delivering high-quality products and superior service will strengthen the company 's market position . the company took aggressive actions to conserve cash , right-size its operations and cost structure . these actions included adjustments to workforce , reduced purchases of raw materials and reductions in selling , general , and administrative expenses . the company continues to review its internal processes to identify inefficiencies and cost reduction opportunities . the company will continue to scrutinize its relationships with external suppliers to ensure it is achieving the highest quality materials and services at the most competitive cost . story_separator_special_tag discussion addresses it 's most critical accounting policies , which are those that are most important to the portrayal of the company 's financial condition and results of operations and require management 's most difficult , subjective , or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . accounting policies , in addition to the critical accounting policies referenced below , are presented in note 1 to the consolidated financial statements , accounting policies. estimates and assumptions in preparing the consolidated financial statements , the company uses certain estimates and assumptions that may affect reported amounts and disclosures . estimates and assumptions are used , among other places , when accounting for certain revenue ( e.g . contract accounting ) , expense , and asset and liability valuations . the company believes that the estimates and assumptions made in preparing the consolidated financial statements are reasonable , but are inherently uncertain . assumptions may be incomplete or inaccurate and unanticipated events may occur . the company is subject to risks and uncertainties that may cause actual results to differ from estimated results . revenues & expenses revenues from contracts for the design , manufacture and sale of asphalt plants are recognized under the percentage-of-completion method . the percentage-of-completion method of accounting for these contracts recognizes revenue , net of any promotional discounts , and costs in proportion to actual labor costs incurred as compared with total estimated labor costs expected to be incurred during the entire contract . pre-contract costs are expensed as incurred . changes to total estimated contract costs or losses , if any , are recognized in the period in which they are determined . revenue recognized in excess of amounts billed is classified as current assets under costs and estimated earnings in excess of billings. the company anticipates that all incurred costs associated with these contracts at september 30 , 2015 , will be billed and collected within one year . revenues from all other contracts for the design and manufacture of custom equipment , for service and for parts sales , net of any discounts and return allowances , are recorded when the following four revenue recognition criteria are met : product is delivered/ownership is transferred or service is performed , persuasive evidence of an arrangement exists , the selling price is fixed or determinable , and collectability is reasonably assured . returns and allowances , which reduce product revenue , are estimated using historical experience . provisions for estimated returns and allowances and other adjustments are provided for in the same period the related sales are recorded . product warranty costs are estimated using historical experience and known issues and are charged to production costs as revenue is recognized . all product engineering and development costs , and selling , general and administrative expenses are charged to operations as incurred . provision is made for any anticipated contract losses in the period that the loss becomes evident . the allowance for doubtful accounts is determined by performing a specific review of all account balances greater than 90 days past due and other higher risk amounts to determine collectability and also adjusting for any known customer payment issues with account balances in the less-than-90-day past due aging buckets . account balances are charged off against the allowance for doubtful accounts when they are determined to be uncollectable . any recoveries of account balances previously considered in the allowance for doubtful accounts reduce future additions to the allowance for doubtful accounts . 18 inventories inventories are valued at the lower of cost or market , with cost being determined principally by using the last-in , first-out ( lifo ) method and market defined as replacement cost for raw materials and net realizable value for work in process and finished goods ( see note 2 to consolidated financial statements ) . appropriate consideration is given to obsolescence , excessive levels , deterioration , possible alternative uses and other factors in determining net realizable value . the cost of work in process and finished goods includes materials , direct labor , variable costs and overhead . the company evaluates the need to record inventory adjustments on all inventories , including raw material , work in process , finished goods , spare parts and used equipment . used equipment acquired by the company on trade-in from customers is carried at estimated net realizable value . unless specific circumstances warrant different treatment regarding inventory obsolescence , the cost basis of inventories three to four years old are reduced by 50 % , while the cost basis of inventories four to five years old are reduced by 75 % , and the cost basis of inventories greater than five years old are reduced to zero . inventory is typically reviewed for obsolescence on an annual basis computed as of september 30 th , the company 's fiscal year end . if significant known changes in trends , technology or other specific circumstances that warrant consideration occur during the year , then the impact on obsolescence is considered at that time . investments marketable debt and equity securities are categorized as trading securities and are thus marked
| product engineering and development expenses were unchanged from 2014. selling , general and administrative expenses increased $ 451,000 or 7.0 % to $ 6,878,000 from $ 6,427,000 in fiscal 2014. the 2014 general and administrative expenses were reduced by a $ 393,000 second fiscal quarter recovery of a previously reserved receivable . fiscal 2015 had an operating loss of $ ( 794,000 ) versus an operating loss of $ ( 26,000 ) in fiscal 2014. as compared to fiscal 2014 , the increased operating loss in 2015 was due to lower revenues and the positive impact on the fiscal 2014 results of the $ 393,000 recovery of a previously reserved receivable . as of september 30 , 2015 and 2014 , the cost basis of the investment portfolio was $ 87.1 million and $ 85.0 million , respectively . for the years ended september 30 , 2015 and 2014 , net investment interest and dividend income ( investment income ) was $ 0.9 million and $ 1.8 million , respectively . investment income was down in 2015 as the company disposed of its investments in corporate and municipal bonds in march 2014. the net 16 realized and unrealized losses on marketable securities were $ ( 3.6 ) million in 2015 versus gains of $ 2.2 million in 2014. total cash and investment balance at september 30 , 2015 was $ 95.5 million compared to the september 30 , 2014 cash and investment balance of $ 94.3 million . during the year ended september 30 , 2014 , the company recognized in other income a gain of $ 442,000 on the disposal of property in the united kingdom which was previously used as an operating facility . the effective income tax rate for fiscal 2014 was 21.3 % versus a benefit of ( 48.7 % ) in fiscal 2015. as of september 30 , 2013 the company had $ 805,000 in research and development tax credits ( r & d credits ) carry-forwards . of this amount , $ 313,000 reduced the company 's current federal income taxes payable for the year ended september 30 , 2014 , leaving $ 492,000 in r & d credits carry-forwards in the net deferred and other income tax liabilities
| 12,123 |
we believe that our year end cash and cash equivalents , combined with our financing activities subsequent to year end and anticipated revenues , will be sufficient to fund our anticipated levels of operations for at least the next twelve months . however , should the company experience unforeseen expenses , or if anticipated revenues are not realized , the effect could negatively impact management 's estimated operating results over the next twelve months . the timing and amount of any additional funding the company may require to broaden the commercialization of melafind ® will be affected by the commercial success of the product . the funding could be in the form of either additional equity or debt financing . in the event that the company is unable to raise additional funds , the company has the ability and intent to reduce certain discretionary expenditures . most of our expenditures to date have been for research and development activities and general and administrative expenses . research and development expenses represent costs incurred for product development , clinical trials and activities relating to regulatory filings and manufacturing development efforts . we expense all of our research and development costs as they are incurred . our research and development expenses incurred for the year ended december 31 , 2012 were related primarily to the development of melafind ® . we expect to continue to incur certain additional research and development expenses relating to melafind ® . additional research and development charges may be incurred for complementary technologies . these additional expenses could exceed our estimated amounts , possibly materially . selling , general and administrative expenses consist primarily of salaries and related human resources expenses , legal expenses , general corporate activities and costs associated with our efforts to expand our commercial infrastructure to market and sell melafind ® . we expect selling , general and administrative expenses to increase as we continue to build our sales and marketing capabilities to support placing melafind ® systems in selected markets inside and outside the u.s. at december 31 , 2012 , we had available income tax benefit from net operating loss carryforwards for federal income tax reporting purposes of approximately $ 66 million . the net operating loss carryforwards may be available to offset future taxable income expiring at various dates through the year 2032. the company 's ability to utilize its net operating losses may be significantly limited due to future changes in the company 's ownership as defined by federal income tax regulations . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the u.s. the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods . on an 42 ongoing basis , we evaluate our judgments related to accounting estimates . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 1 to our financial statements included in this annual report , we believe that the following accounting policies and significant judgments and estimates relating to revenue recognition , stock-based compensation charges , and accrued expenses are most critical to aid you in fully understanding and evaluating our reported financial results . revenue recognition the company considers revenue to be earned when all of the following criteria are met : persuasive evidence a sales arrangement exists ; delivery has occurred or services have been rendered ; the price is fixed or determinable ; and collectability is reasonably assured . the company 's agreements with dermatologists regarding the melafind ® system combine the elements noted above with a future service obligation . while the company is required to place the melafind ® systems with dermatologists for their exclusive use , ownership of the melafind ® systems remains with the company . in the u.s. , the company generates revenue generally from the sale of electronic patient record cards . these cards activate the melafind ® system , capture data and store the data for each patient visit . in january 2013 , the company began offering two additional billing options . customers now choose among three billing options : 1 ) purchase of single-use electronic cards 2 ) use of high capacity activation cards which allow for billing electronically per session or per lesion , or 3 ) a fixed monthly rental fee . additionally , the company typically charges an initial installation fee for each melafind ® system , which covers training , delivery , supplies , maintenance and the right to use melafind ® . in accordance with the accounting guidance regarding multiple-element arrangements , the company allocates total contract consideration to each element based upon the relative standalone selling prices of each element , and recognizes the associated revenue for each element as delivery occurs or over the related service period , generally expected to be two years . costs of revenue are associated with the placement of the melafind ® system in the doctor 's office , the cost of consumables delivered at installation , the cost of the electronic record cards , technical support costs and costs of the melafind ® system placed with the customer , which remains the property of the company . story_separator_special_tag certain product quality and manufacturing overhead costs associated with supporting the contract manufacturers of melafind ® are allocated to costs of goods sold and melafind ® systems on hand . in germany , the typical contract with dermatologists calls for an installation fee and or fixed monthly fee and a per patient usage charge . revenue generated from german contracts is recognized when earned . prior to the installation of the first commercial melafind ® system in the first quarter of 2012 , the company had no revenues from products since 2005 when it discontinued its difoti operations . stock-based compensation we account for non-employee stock-based awards in which goods or services are the consideration received for the equity instruments issued based on the fair value of the equity instruments issued in accordance with fasb asc 505-50 , equity based payments to non-employees. we record compensation expense associated with stock options and other forms of equity compensation in accordance with fasb asc 718 , compensation-stock compensation , as interpreted by sec staff accounting bulletins no . 107 and no . 110. a compensation charge is recorded , when it is probable that performance conditions will be satisfied , over the period estimated to satisfy the performance condition . the probability of vesting is updated at each reporting period and compensation is adjusted prospectively . 43 accrued expenses as part of the process of preparing financial statements , we are required to estimate accrued expenses . this process involves identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for such service where we have not been invoiced or otherwise notified of the actual cost . examples of estimated accrued expenses include : professional service fees ; contract clinical and regulatory related service fees ; fees paid to contract manufacturers in conjunction with the production of melafind ® components or materials ; and fees paid to third party data collection organizations and investigators in conjunction with the clinical trials and fda and other regulatory review . in connection with such service fees , our estimates are most affected by our projections of the timing of services provided relative to the actual level of services provided by such service providers . the majority of our service providers invoice us monthly in arrears for services performed . in the event that we do not identify certain costs that have begun to be incurred or we under or over estimate the level of services performed or the costs of such services , our actual expenses could differ from such estimates . the date on which certain services commence , the level of services performed on or before a given date , and the cost of such services are often subjective determinations . we make these judgments based upon the facts and circumstances known to us and accrue for such costs in accordance with accounting principles generally accepted in the us . this is done as of each balance sheet date in our financial statements . results of operations ( in thousands ) year ended december 31 , 2012 compared to year ended december 31 , 2011 in the year ended december 31 , 2012 , the company evolved from being exclusively a research and development company prior to the melafind ® launch to a commercial company with the controlled installation of melafind ® systems in the u.s. and germany . additions have been made to the direct sales force and field technical support capabilities of the company commensurate with these additional installations and the increasing demand for melafind ® . the production levels of our contract manufacturers have been increased to address the growing demand for melafind ® systems . for the first two months of 2012 the company continued to record all transactions as an r & d company , as it had in 2011. subsequent to the commercial launch of melafind ® , certain costs previously classified as research and development expenses are now classified as cost of revenue , inventory or selling , general and administrative expenses . sales and marketing efforts were increased in 2012 prior and subsequent to the commercial launch of melafind ® . revenue invoicing in the year ended december 31 , 2012 totaled $ 582 , with revenue of $ 278 and deferred revenue of $ 304 recorded as the company continued its controlled commercial launch of the melafind ® product , which commenced during march 2012. prior to the commercial launch of melafind ® , the company had not recorded any product revenue or deferred revenue since the discontinuance of its difoti product in 2005. in general , the company signs a user agreement with its customers that includes an installation fee for the placement of the melafind ® system and provides for the sale of its electronic patient record cards and consumables , which are needed to operate the system , or a fixed monthly rental fee . the company is addressing unique aspects of the european marketplace through variations of the user agreement . deferred revenue primarily reflects the timed recognition of the installation fee revenue over the term of the user agreement , which is generally two years . 44 cost of revenue costs of $ 2,042 were recorded as associated with the realization of melafind ® revenue during the year ended december 31 , 2012. these costs were made up of direct costs associated with the placement of the melafind ® system in the doctor 's office , the cost of consumables delivered at installation , the cost of the electronic record cards , technical support costs and depreciation expense of the melafind ® system placed with the customer , which remains the property of the company . certain product quality and manufacturing overhead costs associated with supporting the contract manufacturers of melafind ® are allocated to costs of goods sold and product inventory . the company had not recorded any cost of revenue prior to the commercial launch of melafind ® .
| subsequent to year end 2012 , the company signed a term sheet for a debt instrument in the amount of $ 10 million , $ 6 million of which is available immediately upon closing and $ 4 million of which will be available based on certain future milestones . as of december 31 , 2012 , we had $ 7,862 in cash and cash equivalents as compared to $ 27,997 at december 31 , 2011. the $ 20,135 decrease in 2012 from 2011 reflects the $ 5,247 of net cash provided by 2012 financing activities offset by $ 19,224 of net cash used in operating activities and $ 6,158 of net cash used in investing activities which was principally for the purchase of melafind ® systems . our cash and cash equivalents at december 31 , 2012 are liquid investments in cash with two commercial banks and money market accounts held in accounts that substantially exceed fdic limits . on may 7 , 2009 , the company entered into a committed equity financing facility ( ceff ) with kingsbridge capital limited , pursuant to which kingsbridge committed to purchase from time to time at the company 's sole discretion , up to the lesser of $ 45 million or 3,327,000 shares of the company 's common stock , prior to may 25 , 2012 subject to various conditions for individual sales , including dollar , timing , and trading volume limitations , a minimum market per share price , and other contractual and regulatory requirements . in connection with this ceff , the company issued a 5-year warrant , exercisable as of november 7 , 2009 , to kingsbridge to purchase up to 200,000 shares of our common stock at an exercise price of $ 11.35 per share with a black scholes fair value of $ 678,000. the issuance of this warrant was deemed to be a cost of the offering . 46 under the ceff , during 2009 , the company sold 1,824,941 shares of common stock to kingsbridge capital limited ,
| 12,124 |
see part ii , item 7a , quantitative and qualitative disclosures about market riskcommodity price risk included in this annual report on form 10-k. selling , general and administrative the principal components of our selling , general and administrative expenses are salaries and benefits for our office personnel , advertising and promotional expenses , product warranty expense , expenses relating to certain information technology systems and amortization of our intangibles . engineering research and development we incur costs in connection with research and development programs that are expected to contribute to future earnings . such costs are expensed as incurred . 34 non-gaap financial measures we use adjusted earnings before interest , taxes , depreciation , and amortization ( ebitda ) and adjusted ebitda margin to measure our operating profitability . we believe that adjusted ebitda and adjusted ebitda margin provide management , investors and creditors with useful measures of the operational results of our business and increase the period-to-period comparability of our operating profitability and comparability with other companies . adjusted ebitda margin is also used in the calculation of management 's incentive compensation program . the most directly comparable gaap measure to adjusted ebitda is net income . adjusted ebitda is calculated as the earnings before interest expense , income tax expense , amortization of intangible assets , depreciation of property , plant and equipment and other adjustments as defined by our senior secured credit facility . adjusted ebitda margin is calculated as adjusted ebitda divided by net sales . we use adjusted free cash flow to evaluate the amount of cash generated by our business that , after the capital investment needed to maintain and grow our business and certain mandatory debt service requirements , can be used for repayment of debt , stockholder distributions and strategic opportunities , including investing in our business and strengthening our balance sheet . we believe that adjusted free cash flow enhances the understanding of the cash flows of our business for management , investors and creditors . adjusted free cash flow is also used in the calculation of management 's incentive compensation program . the most directly comparable gaap measure to adjusted free cash flow is net cash provided by operating activities . the following is a reconciliation of net income to adjusted ebitda and adjusted ebitda margin and a reconciliation of net cash provided by operating activities to adjusted free cash flow : replace_table_token_9_th ( a ) represents expenses related to the refinancing of ati 's senior secured credit facility in the third quarter of 2016 and ati 's tender offer and redemption of its 7.125 % senior notes due may 2019 ( 7.125 % senior notes ) in the second quarter of 2015 . ( b ) represents stock-based compensation expense ( recorded in cost of sales , selling , general and administrative , and engineering research and development ) . 35 ( c ) represents expenses of $ 3.9 million ( recorded in selling , general and administrative ) and payments of $ 3.7 million for the year ended december 31 , 2016 , directly associated with stockholder activism activity including the notice , and subsequent withdrawal , of director nomination and governance proposals by ashe capital management , lp . ( d ) represents unrealized ( gains ) losses ( recorded in other income ( expense ) , net ) on the mark-to-market of our commodity hedge contracts . ( e ) represents adjustments ( recorded in selling , general and administrative ) associated with the dual power inverter module ( dpim ) extended coverage program liability . the dpim liability will continue to be reviewed for any changes in estimates as additional claims data and field information become available . ( f ) represents a charge ( recorded in other income ( expense ) , net ) for investments in co-development agreements to expand our position in transmission technologies . ( g ) represents losses ( recorded in other income ( expense ) , net ) on intercompany financing transactions related to investments in plant assets for our india facility and on the mark-to-market of our foreign currency hedge contracts . ( h ) represents environmental remediation expenses for ongoing operating , monitoring and maintenance activities at our indianapolis , indiana manufacturing facilities . ( i ) represents a charge associated with the impairment of long-lived assets related to the production of the h3000 and h4000 hybrid-propulsion systems . ( j ) represents a charge associated with the impairment of our trade name as a result of lower forecasted net sales for certain of our end markets . ( k ) represents losses ( recorded in other income ( expense ) , net ) realized on the repayments of ati 's long-term debt . ( l ) represents fees and expenses ( recorded in other income ( expense ) , net ) related to our secondary offerings in september 2014 , june 2014 , april 2014 , and february 2014 . ( m ) represents a charge ( recorded in selling , general and administrative ) related to employee headcount reductions in the second quarter of 2014 . ( n ) represents the amount of tax benefit ( recorded in income tax expense ) related to stock-based compensation adjusted from cash flows from operating activities to cash flows from financing activities . ( o ) represents payments ( recorded in engineering - research and development ) for licenses to expand our position in transmission technologies . 36 story_separator_special_tag margin-bottom:0pt ; text-indent:4 % ; font-size:10pt ; font-family : times new roman '' > in september 2016 , we refinanced our senior secured credit facility , resulting in expenses of $ 11.7 million for the year ended december 31 , 2016. in april 2015 , we completed a cash tender offer to purchase any and all of the outstanding 7.125 % senior notes . story_separator_special_tag the tender offer resulted in the repurchase of $ 420.9 million of the 7.125 % senior notes in april 2015. in may 2015 , we redeemed the remaining $ 50.4 million of the outstanding 7.125 % senior notes , resulting in premiums and expenses totaling $ 25.3 million for the year ended december 31 , 2015 . 38 other income ( expense ) , net other income ( expense ) , net for the year ended december 31 , 2016 was $ 2.4 million compared to ( $ 0.3 ) million for the year ended december 31 , 2015. the change was principally driven by $ 3.1 million of net gains on derivative contracts and $ 1.1 million of lower foreign exchange losses on intercompany financing , partially offset by $ 1.0 million of technology-related investment expense and $ 0.5 million of miscellaneous expense , net . income tax expense income tax expense for the year ended december 31 , 2016 was $ 126.4 million compared to $ 106.5 million for the year ended december 31 , 2015 , resulting in an effective tax rate of 37 % for each of the years ended december 31 , 2016 and 2015 . 39 comparison of years ended december 31 , 2015 and 2014 replace_table_token_11_th net sales net sales for the year ended december 31 , 2015 were $ 1,985.8 million compared to $ 2,127.4 million for the year ended december 31 , 2014 , a decrease of 7 % . the decrease was principally driven by a $ 55.0 million , or 12 % , decrease in net sales of parts and other products principally driven by lower demand for north american service parts , a $ 46.0 million , or 57 % , decrease in net sales of outside north america off-highway products principally driven by lower demand from the energy and mining sectors , a $ 45.0 million , or 45 % , decrease in net sales of north american off-highway products principally driven by lower demand from hydraulic fracturing applications , a $ 44.0 million , or 28 % , decrease in net sales of defense products driven by lower u.s. defense spending and the recognition of previously deferred revenue in 2014 related to shipment of certain tracked transmissions at the request of the u.s. government , a $ 20.0 million , or 22 % , decrease in net sales of north america hybrid-propulsion systems for transit buses driven by lower demand due to engine emissions improvements and non-hybrid alternatives that generally require a fully-automatic transmission , and a $ 2.0 million , or 1 % , decrease in net sales of outside north america on-highway products principally driven by lower demand in china partially offset by higher demand in europe , partially offset by a $ 71.0 million , or 7 % , increase in net sales of north american on-highway products principally driven by higher demand from rugged duty series and highway series models . cost of sales cost of sales for the year ended december 31 , 2015 was $ 1,052.0 million compared to $ 1,151.5 million for the year ended december 31 , 2014 , a decrease of 9 % . the decrease was principally driven by approximately $ 59.0 million of decreased direct material costs commensurate with decreased sales , $ 14.0 million of favorable direct material costs , $ 7.5 million of lower incentive compensation expense , and lower manufacturing cost commensurate with decreased sales and consistent with historical trends and management 's expectations given the respective change in sales volume . gross profit gross profit for the year ended december 31 , 2015 was $ 933.8 million compared to $ 975.9 million for the year ended december 31 , 2014 , a decrease of 4 % . the decrease was principally driven by $ 93.0 million related to decreased sales volume and $ 1.0 million of unfavorable foreign exchange , partially offset by $ 26.0 million resulting from price increases on certain products , $ 14.0 million of favorable material costs , $ 7.5 million of lower incentive compensation expense and $ 5.0 million of lower depreciation expense . gross profit as a percentage of net sales increased 1 % , principally driven by price increases on certain products and favorable material costs . 40 selling , general and administrative selling , general and administrative expenses for the year ended december 31 , 2015 were $ 317.1 million compared to $ 344.6 million for the year ended december 31 , 2014 , a decrease of 8 % . the decrease was principally driven by $ 9.6 million of lower incentive compensation expense , $ 4.4 million of lower stock-based compensation expense , a $ 3.1 million favorable adjustment related to the dpim extended coverage program , $ 1.7 million of lower intangible asset amortization and reduced global commercial spending activities . engineering research and development engineering expenses for the year ended december 31 , 2015 were $ 92.5 million compared to $ 103.8 million for the year ended december 31 , 2014 , a decrease of 11 % . the decrease was principally driven by $ 5.9 million of lower technology-related license expenses to expand our position in transmission technologies , $ 4.2 million of lower incentive compensation expense and decreased product initiatives spending . trade name impairment during the fourth quarter of 2015 , we recorded a trade name impairment charge of $ 80.0 million as a result of lower forecasted net sales for certain of our end markets . refer to note 5 , goodwill and other intangible assets in part ii , item 8 , of this annual report on form 10-k. environmental remediation during the third quarter of 2015 , we recorded approximately $ 14.0 million for environmental remediation expenses as a result of the epa determining that gm 's environmental remediation activities at our indianapolis , indiana manufacturing facilities were complete , and our assumption of responsibility for future operating , monitoring and maintenance activities .
| europe and japan partially offset by lower demand in china and a $ 2.0 million , or 2 % , increase in net sales in the defense end market principally driven by higher demand for wheeled defense partially offset by lower demand for tracked defense . see trends impacting our business above for additional information on net sales by end markets . cost of sales cost of sales for the year ended december 31 , 2016 was $ 976.0 million compared to $ 1,052.0 million for the year ended december 31 , 2015 , a decrease of 7 % . the decrease was principally driven by $ 51.0 million of decreased direct material costs and $ 22.0 million of lower manufacturing expense , in each case consistent with historical trends and management 's expectations given the respective change in sales volume , and $ 10.0 million of favorable direct material costs , partially offset by $ 7.0 million of higher incentive compensation expense . 37 gross profit gross profit for the year ended december 31 , 2016 was $ 864.2 million compared to $ 933.8 million for the year ended december 31 , 2015 , a decrease of 7 % . the decrease was principally driven by $ 98.0 million related to decreased net sales and $ 7.0 million of higher incentive compensation expense , partially offset by $ 22.0 million of lower manufacturing expense commensurate with decreased net sales , $ 10.0 million of favorable direct material costs and $ 3.0 million resulting from price increases on certain products . gross profit as a percent of net sales was flat for the year compared to 2015 principally driven by favorable direct material costs and price increases on certain products , offset by unfavorable sales volume and higher incentive compensation expense . selling , general and administrative selling , general and administrative for the year ended december 31 , 2016 were $ 323.9 million compared to $ 317.1 million for the
| 12,125 |
in december 2020 , we used $ 23.1 million proceeds of this facility to repay all outstanding borrowings under our previous credit facilities except the company 's previously existing $ 210 million unsecured senior notes , which had an interest rate of 8.2 % and matured in 2022 , which we redeemed subsequently in january in full following a step down in redemption price at the end of january 2021 with $ 220 million additional proceeds from this credit facility . proceeds from this facility along with cash on hand and cashflow generated from operations will be sufficient for the company 's expected cash needs within the next 12 months . capital resources we transform glass and aluminum into high specification architectural glass and custom-made aluminum profiles which require significant investments in state-of-the-art technology . during the years ended december 31 , 2020 and 2019 , we made investments primarily in building and construction , and machinery and equipment in the amounts of $ 20.5 million , and $ 26.2 million , respectively . on may 3 , 2019 , we consummated a joint venture agreement with saint-gobain , a world leader in the production of float glass , a key component of our manufacturing process , whereby we acquired a 25.8 % minority ownership interest in vidrio andino , a colombia-based subsidiary of saint-gobain . the purchase price for our interest in vidrio andino was $ 45 million , of which $ 34.1 million was paid in cash and $ 10.9 million paid through the contribution of land on december 9 , 2020. on october 28 , 2020 we acquired said land from a related party and paid for it with the issuance of an aggregate of 1,557,142 ordinary shares of the company , valued at $ 7.00 per share , which represented an approximate 33 % premium based on the closing stock price as of october 27 , 2020. the land will serve the purpose of developing a second float glass plant nearby our existing manufacturing facilities which we expect will carry significant efficiencies for us once it becomes operative , in which we will also have a 25.8 % interest . the new plant will be funded with proceeds from the original cash contribution made by the company , operating cashflows from the bogota plant , debt incurred at the joint venture level that will not consolidate into the company and an additional contribution by us of approximately $ 12.5 million if needed ( based on debt availability ) . 37 results of operations ( amounts in thousands ) replace_table_token_1_th comparison of years ended december 31 , 2020 and december 31 , 2019 our operating revenue decreased $ 56.0 million , or 13.0 % , from $ 430.9 million in the year ended december 31 , 2019 to $ 374.9 million in the year ended december 31 , 2020 . 2020 sales were negatively impacted by three weeks less of work in march and april as we shut down our manufacturing facility in colombia during the initial stages of the covid-19 nationwide shelter-in-place order . additionally , our latin american markets have been impacted by a slow return to operations as job sites are getting prepared to operate on a safely manner given covid-19 restrictions . sales in latin american markets , including colombia , have been slow to return to activity after mandatory coronavirus lockdowns in march and april . despite construction having been deemed essential businesses , construction sites have been slow to prepare to operate under new safety standards . colombia and panama combined sales decreased an aggregate of $ 30.6 million , or 54.8 % , from $ 55.8 million to $ 25.2 million . by comparison , us market sales had a much more tapered decrease , down $ 27.6 million , or 7.5 % , from $ 368.1 million in the year ended december 31 , 2019 , to $ 340.4 million in the year ended december 31 , 2020. us single family residential sales increased $ 4.9 million , or 7 % , from $ 65.7 million in 2019 to $ 70.6 million in 2020 mainly as a result further market penetration of these markets . cost of sales decreased $ 59.4 million , or 20.1 % , from $ 295.1 million in the year ended december 31 , 2019 , to $ 235.7 million for the year ended december 31 , 2020. gross profit margins , on the other hand , increased to 37.1 % during 2020 , from 31.5 % during 2019. the margin enhancement was the result of increased raw material efficiency derived from advantageous aluminum commodity prices , waste reduction benefit from our automation initiatives and better control efforts , a reduction in cost of installation work as manufacturing represented a higher portion of our revenue mix , and a reduction of labor costs driven by the automation of manufacturing processes paired with favorable foreign currency exchange rates . these margin improvements were partially offset by a negative effect of fixed cost being diluted over a lower revenue base . 38 operating expenses decreased $ 3.9 million , or 5 % , from $ 77.0 million to $ 73.1 million during the years ended december 31 , 2019 and 2020 , respectively . the decrease has been the result of our efforts to enhance our lean administrative structure and tight cost controls paired with favorable exchange rates as a significant portion of our general and administrative expenses are denominated in colombian pesos . during the year ended december 31 , 2020 and 2019 , the company recorded a net non-operating expense of less than $ 0.1 million and non-operating income of $ 1.6 million , respectively . non-operating income is comprised primarily of income from rental properties and gains on sale of scrap materials as well as non-operating expenses related to certain charitable contributions outside of the company 's direct sphere of influence . story_separator_special_tag interest expense decreased $ 1.1 million , or 5.0 % , from $ 22.8 million in the year ended december 31 , 2019 to $ 21.7 million in the year ended december 31 , 2020 as a result of low floating interest rates as well as our total debt balance decreasing during 2020 as we made voluntary repayments on our debt ahead of the transaction further described in the liquidity section . during 2020 , the company recorded foreign currency transaction losses of $ 8.6 million , most of this impact is associated with a $ 7.9 million non-cash loss on remeasurement of a net liability position of $ 119.7 million u.s. dollar denominated monetary assets and liabilities held by the company 's subsidiaries with the colombian peso as their functional currency while the colombian peso depreciated by 5 % during the twelve-month period . comparatively , the company recorded a foreign currency transaction loss of $ 1.0 million during the year ended december 31 , 2019 as the colombian peso only depreciated less than 1 % from the beginning to the end of the year , despite some volatility throughout 2019. income tax expense remained similar during both periods , decreasing $ 0.1 million , or 1.0 % , from $ 12.9 million in the year ended december 31 , 2019 to $ 13.0 million in the year ended december 31 , 2020 , as a result of comparable income before tax during both periods , along with effective income tax rates of 35.0 % and 34.8 % which roughly approximate our statutory rate . as a result of the foregoing , the company recorded net income of $ 24.2 million during both years ended december 31 , 2020 and 2019 , reflecting increased profitability of 2020 after achieving similar profits on 13 % lower sales . cash flow from operations , investing and financing activities during the year ended december 31 , 2020 and 2019 , $ 71.4 million and $ 25.7 million generated by operating activities , respectively . the positive cashflow from operations during 2020 has been related to a much higher profitability year over year , enhanced working capital efforts , easing working capital requirements to serve tapered sales during the period , and our efforts to preserve cash and solidify our liquidity position and preparedness as we continue to weather through the pandemic . during the year ended december 31 , 2020 , the main source of operating cashflows , other than net income after adjustments to reconcile with net cash provided in operating activities , were contract assets and liabilities which generated $ 23.6 million , resulting from a combination of a decrease in retainage as several jobs in the us were finalized , a reduction of unbilled receivables tied to our advance on projects currently in execution , and increase advances received from customers on fixed price contracts . in contrast , contract assets and liabilities used $ 1.5 million during the year ended december , 2019. trade accounts receivables generated $ 4.6 million and used $ 27.7 million during 2020 and 2019 , respectively . the change in trend from a steep use in 2019 to a positive cashflow in 2020 generated is related to accelerated sales growth in the previous year in contrast with tapered sales activity during the current year . the largest use of cash in operating activities was trade accounts payable , which used $ 20.9 million during 2020 , compared with $ 1.6 million used during 2019. we used $ 18.1 million and $ 59.1 million in investing activities during 2020 and 2019 , respectively . the main use of cash in investing activities during the 2020 was related to scheduled maintenance capital expenditures and the execution of our previously announced expansion and automation initiatives that are now mostly completed . during 2019 , the main use of cash in investing activities was a payment for the acquisition of 25.8 % equity interest in vidrio andino holding , a joint venture with saint-gobain described above under capital resources . additionally , in 2019 , the company paid $ 25.0 million to acquire property plant and equipment , which in combination with $ 1.2 million acquired under credit , amount to total capital expenditures of $ 26.2 million . during 2020 , we used $ 18.3 million for the acquisition or property and equipment . including assets acquired with debt or supplier credit , total capital expenditures during the period were $ 20.6 million . during 2020 , financing activities used $ 33.5 million , mainly due to voluntary prepayments of debt ahead of closing on a $ 300 million senior secured credit facility in october 2020 further described above in the liquidity section . during the year ended december 31 , 2019 , financing activities generated $ 48.3 million as a result of an underwritten follow-on public offering of 5,551,423 ordinary shares , including the underwriters ' over-allotment option , for net proceeds of $ 36.5 million , in addition to net proceeds of debt minus repayments amounting to $ 17.1 million , mostly related to a $ 30 million five-year term facility , proceeds which were mostly used to repay then existing short-term debt we had accumulated to fund working capital required to support sales growth over fiscal year 2018 . 39 off-balance sheet arrangements we did not have any material off-balance sheet arrangements as of december 31 , 2020. critical accounting estimates the preparation of financial statements in conformity with u.s. gaap requires management to make significant estimates and assumptions that affect the assets , liabilities , revenues and expenses , and other related amounts during the periods covered by the financial statements . management routinely makes judgments and estimates about the effect of matters that are inherently uncertain . as the number of variables and assumptions affecting the future resolution of the uncertainties increases , these judgments become more subjective and complex .
| our products can be found on some of the most distinctive buildings in these regions , including el dorado airport ( bogota ) , 50 united nations plaza ( new york ) , trump plaza ( panama ) , icon bay ( miami ) , and salesforce tower ( san francisco ) . our track record of successfully delivering high profile projects has earned us an increasing number of opportunities across the united states , evidenced by our expanding backlog and overall revenue growth . 35 our structural competitive advantage is underpinned by our low-cost manufacturing footprint , vertically integrated business model and geographic location . our integrated facilities in colombia and distribution and services operations in florida provide us with a significant cost advantage in both manufacturing and distribution , and we continue to invest in these operations to expand our operational capabilities . our lower cost manufacturing footprint allows us to offer competitive prices for our customers , while also providing innovative , high quality and high value-added products , together with consistent and reliable service . we have historically generated high margin organic growth based on our position as a value-added solutions provider for our customers . we have a strong presence in the florida market , which represents a substantial portion of our revenue stream and backlog . our success in florida has primarily been achieved through sustained organic growth , with further penetration now taking place into other highly populated areas of the united states . as part of our strategy to become a fully vertically integrated company , we have supplemented our organic growth with some acquisitions that have allowed us added control over our supply chain allowed for further vertical integration of our business and will act as a platform for our future expansion in the united states . in 2016 , we completed the acquisition of esw , which gave us control over the distribution of products into the united states from our manufacturing facilities in colombia . in march 2017 , we completed the acquisition of gm & p , a consulting and glazing installation business that was previously our largest installation customer . on may 3 , 2019 , we consummated the joint venture agreement with saint-gobain , acquiring a
| 12,126 |
disclosures regarding activity during a reporting period are effective for interim and annual reporting periods beginning on or after december 15 , 2010. adoption of this asu is not expected to have a material impact on the company 's consolidated financial position or results of operations . 10 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 our 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 , 2010 , 2009 and 2008 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 . 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 . the audit of the company 's federal consolidated tax returns conducted by the internal revenue service for fiscal years 2004 and 2005 resulted in no significant material adjustments . 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 , 2010 , 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 11 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 % , primarily 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 . story_separator_special_tag 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 invests for future growth . the results of 2009 compared to 2008 include the following significant items : payment and processing fee revenue decreased as the number of transactions processed decreased . this decrease was driven mainly by the decline in the transportation base customer volumes as the global economic slowdown continued . net interest income after provision for loan losses decreased $ 1,879,000 primarily due to a decline in the general level of interest rates and a less favorable mix of funding sources . the net interest margin on a tax equivalent basis was 4.79 % in 2009 , compared to 5.34 % in 2008. the growth in average earning assets was funded mainly by the increase in deposits . gains from the sale of securities were $ 697,000 in 2009 and $ 552,000 in 2008. bank service fees and other income were approximately the same in 2009 and 2008. operating expenses increased $ 821,000 , or 1 % . 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 2010 compared to 2009 include the following significant pre-tax components : transportation dollar volume increased by 21 % during the past year . 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 % . fee revenue and other income in 2009 compared to 2008 include the following significant pre-tax components : 12 transportation volume decreased by 2,717,000 transactions during the past year . this decrease was due mainly to the impact of the general economic slow-down on existing customer processing activity . utility volume experienced solid growth , adding more than 920,000 transactions in 2009. this growth was due mainly to new business . the reduction in transportation transaction volume drove the $ 2,056,000 decrease in payment and processing revenue . 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 . the following table summarizes the changes in tax-equivalent net interest income and related factors : replace_table_token_6_th * presented on a tax-equivalent basis using a tax rate of 35 % in 2010 , 34 % in 2009 , and 35 % in 2008. net interest income in 2010 compared to 2009 : the increase in net interest income was caused by the increase in average earning assets , partially offset by a decrease in net interest margin . the increase in earning assets was funded mainly by the increase in deposits and accounts and drafts payable . the decrease in net interest margin was due to the continued low interest rate environment . more information is contained in the tables below and in item 7a of this report . total average loans increased $ 62,642,000 , or 10 % , to $ 675,901,000. loans have a positive effect on interest income and the net interest margin due to the fact that loans are one of the company 's highest yielding earning assets for any given maturity . total average investment in securities increased $ 28,856,000 , or 15 % , to $ 222,249,000. the investment portfolio will expand and contract over time as the interest rate environment changes and the company manages its liquidity and interest rate position . all purchases were made in accordance with the company 's investment policy . total average federal funds sold and other short-term investments increased $ 68,280,000 , or 117 % . the bank 's average interest-bearing deposits increased $ 83,063,000 , or 30 % , compared to the prior year . this increase in deposits , along with the $ 73,729,000 , or 16 % increase in accounts and drafts payable , funded the increase in earning assets . average rates paid on interest-bearing liabilities decreased from 1.81 % to 1.37 % as a result of the continued low interest rate environment experienced during 2010. net interest income in 2009 compared to 2008 : the decrease in net interest income was caused by the decrease in net interest margin , partially offset by an increase in average earning assets . the increase in earning assets was funded mainly by the increase in deposits . the decrease in net interest margin was due mainly to the reduction in the general level of interest rates and a less favorable mix of funding sources . total average loans increased $ 60,926,000 , or 11 % , to $ 613,259,000. loans have a positive effect on interest income and the net interest margin due to the fact that loans are one of the company 's highest yielding earning assets for any given maturity . total average investment in securities decreased $ 3,880,000 , or 2 % , to $ 193,393,000. the investment portfolio will expand and contract over time as the interest rate environment changes and the company manages its liquidity and interest rate position . all purchases were made in accordance with the company 's investment policy .
| income tax expense income tax expense in 2010 totaled $ 7,623,000 compared to $ 5,405,000 in 2009 , and $ 7,160,000 in 2008. when measured as a percent of income , the company 's effective tax rate was 27 % in 2010 , 25 % in 2009 and 27 % in 2008. the effective tax rate varies from year-to-year due to changes in the company 's pre-tax income and the amount of investment in tax-exempt municipal bonds . investment portfolio investment portfolio changes from december 31 , 2009 to december 31 , 2010 : state and political subdivision securities increased $ 39,972,000 , or 18 % , to $ 264,569,000. 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 aa or better credit ratings and maturities approaching ten 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 , 2010 , the company had no mortgage-backed securities in its portfolio . there was no single issuer of securities in the investment portfolio at december 31 , 2010 for which the aggregate amortized cost exceeded 10 % of total shareholders ' equity . investments by type replace_table_token_13_th 19 investment in debt securities by maturity ( at december 31 , 2010 ) 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 decreased $ 54,000 , or less than 1 % , from december 31 , 2009 to $ 113,097,000 at december 31 , 2010. the average balances
| 12,127 |
as a result of this expansion , we have experienced corresponding increases in our variable expenses such as aircraft fuel , wages and benefits , maintenance materials and repairs , aircraft and passenger servicing , commissions and other selling expenses , other rentals and landing fees and other ( which primarily consists of purchased services , professional and technical fees , and personnel ) . we expect operating expenses to increase with the continued expansion of our services and the increase in the number of aircraft in our fleet . 35 aircraft fuel aircraft fuel expense increased $ 190.3 million , or 58.9 % , in 2011 compared to 2010 and increased $ 79.1 million , or 32.4 % in 2010 compared to 2009. the year-over-year variances are primarily attributable to the increase in the cost of aircraft fuel as well as an increase in consumption as illustrated in the following table : replace_table_token_11_th during 2011 , 2010 , and 2009 , our fuel derivatives were not designated for hedge accounting under asc 815 and were marked to fair value through nonoperating income ( expense ) in the consolidated statements of operations . we recorded losses on fuel derivatives of $ 6.9 million for the year ended december 31 , 2011 , compared to gains of $ 0.6 million and $ 2.3 million recorded for the years ended december 31 , 2010 and 2009 , respectively . we believe economic fuel expense is the best measure of the effect of fuel prices on our business as it most closely approximates the net cash outflow associated with the purchase of fuel for our operations in a period . we define economic fuel expense as raw fuel expense plus ( gains ) /losses realized through actual cash payments to/ ( receipts from ) hedge counterparties for fuel hedge derivatives settled in the period . economic fuel expense for 2011 , 2010 and 2009 is calculated as follows : replace_table_token_12_th see item 7a , quantitative and qualitative disclosures about market risk , for additional discussion of our fuel costs and related hedging program . aircraft rent aircraft rent expense increased by $ 0.2 million , or 0.1 % , in 2011 compared to 2010 , primarily due to the entire year-to-date recognition of aircraft rent expense for three leased airbus a330-200 aircraft ( leases commenced in april , may and november 2010 ) and lease return costs incurred with the return of the two leased boeing 767-300 aircraft in may and october 2011. this increase was offset by the purchase of our fleet of boeing 717-200 aircraft in june 2011 , of which the majority were previously under operating lease agreements . 36 aircraft rent expense increased by $ 10.6 million , or 10.4 % , in 2010 compared to 2009 , primarily due to the commencement of leases on three new airbus a330-200 aircraft which were added to the fleet in april , may and november 2010. maintenance materials and repairs maintenance materials and repairs expense increased by $ 45.9 million , or 37.0 % , in 2011 compared to 2010 , primarily due to additional expenses under power-by-the-hour ( pbh ) arrangements for our airbus a330-200 fleet additions during 2011 , increases in our pbh rates for our boeing 717s and 767s , heavy maintenance expense on our boeing 767 aircraft and engines and heavy maintenance expense on our boeing 717 aircraft due to the continuation of 10-year airframe checks on this fleet . maintenance materials and repairs decreased in 2010 compared to 2009 due to a decrease in our heavy maintenance expense on our boeing 767 aircraft . these decreases were slightly offset by maintenance costs associated with our three new airbus a330-200 aircraft , which we entered into revenue service during 2010 , as well as an increase in our heavy maintenance expense on our boeing 717 aircraft due to the commencement of 10-year airframe checks on this fleet . we expect maintenance materials and repairs expense to increase in future years as we continue to take delivery of additional airbus aircraft and integrate them into revenue service , as well as price escalation in certain of our pbh contracts . aircraft and passenger servicing aircraft and passenger servicing expenses increased $ 20.1 million , or 32.3 % , in 2011 compared to 2010 , primarily due to volume-related increases and increased service costs for our international routes . we expect aircraft and passenger servicing to increase in future periods as we continue to expand our fleet and increase the number of international routes . there were no significant changes to aircraft and passenger servicing from 2009 to 2010. commissions and other selling expenses commissions and other selling expenses increased $ 18.1 million , or 23.1 % , in 2011 compared to 2010 and $ 12.9 million , or 19.8 % , in 2010 compared to 2009 primarily due to increased travel agency commissions for ticket sales on our international routes and increases in the volume of ticket sales purchased through credit cards and global distribution systems . the increase in 2009 to 2010 was partially offset by a reduction in the frequent flyer liability due to a change in the estimated miles expected to expire . we expect commissions and other selling expenses to increase in future periods as we continue to expand our fleet and increase the number of international routes . story_separator_special_tag other rentals and landing fees other rentals and landing fees increased $ 14.6 million , or 25.3 % , in 2011 compared to 2010 and $ 6.5 million , or 12.7 % , in 2010 compared to 2009 , primarily due to increases in joint use and space rent at our hawaii airports and increases in rent expense and landing fees due to the addition of new routes in 2010 and 2011. lease termination on june 27 , 2011 , we entered into a purchase agreement with the lessor for the purchase of fifteen boeing 717-200 aircraft , each such aircraft including two rolls-royce br700-715 engines , previously held through four capital and eleven operating lease agreements . the purchase price for the fifteen boeing 717-200 aircraft of $ 230 million was comprised of financing of $ 192.8 million through secured loan agreements , a cash payment of $ 25.0 million and the non-cash application of maintenance 37 and security deposits held by the previous lessor and current debt financier of $ 12.2 million . see additional information on the loan agreements at note 6 and note 7 to the consolidated financial statements . we recognized the excess of the purchase price paid over the fair value of the aircraft under operating leases as a cost of terminating the leases under asc 840 leases ( formerly fasb interpretation no . 26 , accounting for purchase of a leased asset by the lessee during the term of the lease ) and elected to apply the same accounting policy to the aircraft under capital leases . we recorded the fifteen boeing 717-200 at their fair value of $ 135 million on the consolidated balance sheets and lease termination charges of $ 70.0 million on the consolidated statements of operations . the purchase of the fifteen boeing 717-200 aircraft will result in lower aircraft rent expense in future periods that will be partially offset by increases in depreciation and amortization and interest expense in future periods . nonoperating expense nonoperating expense was $ 21.4 million , $ 9.3 million , and $ 10.3 million for the years ended december 31 , 2011 , 2010 , and 2009 , respectively . the increase in nonoperating expense in 2011 compared to 2010 is primarily related to an increase in interest expense and amortization of debt discounts and issuance costs due to the additional financings we entered into in 2011 and losses recognized on our fuel derivatives . the decrease in nonoperating expense in 2010 compared to 2009 is primarily due to the release of uncertain tax positions and its related interest expense of $ 2.5 million recorded as an offset to interest expense as well as $ 2.7 million of interest that we began capitalizing as part of our a330-200 aircraft fleet in 2010. income tax ( benefit ) expense we recorded income tax expense of $ 1.6 million during 2011 and income tax benefits of $ 28.3 million and $ 19.5 million during 2010 and 2009 , respectively . the 2011 tax expense is large relative to our small net loss position when compared to the 35 % u.s. statutory rate . the income tax benefits in 2010 and 2009 were primarily driven by the release of our valuation allowance . see note 8 to the consolidated financial statements for further discussion . liquidity and capital resources our liquidity is dependent on the cash we generate from operating activities and our financing arrangements . as of december 31 , 2011 we had $ 304.1 million in cash and cash equivalents , representing an increase of $ 19.1 million from december 31 , 2010. as of december 31 , 2011 our restricted cash balance , which consisted almost entirely of cash held as collateral by entities that process our credit card transactions for advance ticket sales , increased $ 25.7 million from $ 5.2 million at december 31 , 2010 due to an increase in cash holdback on our primary credit card processing agreement . we have been able to generate sufficient funds from our operations to meet our working capital requirements and typically finance our aircraft through secured debt financing . at december 31 , 2011 , hawaiian had approximately $ 462.0 million of debt and capital lease obligations , including approximately $ 37.5 million that will become due in the next 12 months . hawaiian has a secured revolving credit facility ( the revolving credit facility ) in an amount up to $ 75.0 million , and as of december 31 , 2011 , we had no outstanding borrowings under the revolving credit facility and $ 56.9 million available ( net of various outstanding letters of credit ) . cash flows net cash provided by operating activities was $ 178.8 million for 2011 , an increase of $ 28.5 million from 2010. the increase in cash provided is primarily due to increases in our air traffic liability balance 38 for increased future bookings related to advance ticket sales and a decrease in contributions to our pension and disability plans that was partially offset by increases in accounts receivable . net cash used in investing activities was $ 281.9 million for 2011 compared to $ 108.7 million for 2010. during 2011 , we used $ 263.3 million for purchases of aircraft-related items and pre-delivery payments for the upcoming deliveries of airbus a330-200 aircraft and engines and $ 18.6 million for other property and equipment . during 2010 , we used $ 140.5 million of cash for purchases of property and equipment primarily related to pre-delivery payments for our upcoming airbus a330-200 deliveries which was offset by net sales of investments of $ 31.8 million including $ 26.7 million for the sale of our auction rate securities .
| passenger revenue passenger revenue increased over the past three years to $ 1.48 billion , $ 1.15 billion and $ 1.04 billion for the years ended december 31 , 2011 , 2010 and 2009 , respectively , primarily due to increased yields on our routes , an increase in the number of aircraft in our fleet and the expansion of 33 our longer haul international routes . the detail of these changes in passenger revenue are in the table below : replace_table_token_9_th north america north america revenue increased by $ 73.1 million in 2011 compared to 2010 due to increased yield . the $ 21.7 million increase in 2010 compared to 2009 is driven by increased capacity due to the delivery of three new airbus a330-200 aircraft in april , may and november 2010 , partially offset by a decrease in yield . neighbor island neighbor island revenue increased by $ 29.9 million in 2011 compared to 2010 and $ 60.4 million in 2010 compared to 2009. the increased revenue is due to increased yield , partially offset by decreases in capacity . international international revenue increased by $ 222.7 million in 2011 compared to 2010 and $ 32.8 million in 2010 compared to 2009. the increased revenue is primarily due to increases in both yield and capacity with the expansion of our international routes with new routes to tokyo , japan in the fourth quarter 2010 , and seoul , south korea and osaka , japan in 2011 , and increased frequency on our sydney , australia routes in 2011. other operating revenue other operating revenue increased over the past three years to $ 169.8 million , $ 155.1 million and $ 143.2 million for the years ended december 31 , 2011 , 2010 and 2009 , respectively . the increase in other operating revenue for 2011 compared to 2010 is primarily due to an increase in cargo revenue from the introduction of the larger capacity airbus 330-200 aircraft that provided additional cargo capacity , cargo revenue from our new international routes and an increase in checked baggage revenue and incidental revenue , which was partially offset by decreases in
| 12,128 |
cash cash and cash equivalents increased by $ 4,984,000 , or 5.3 % , at december 31 , 2013 to $ 98,376,000 , compared to $ 93,392,000 at december 31 , 2012. this increase was primarily due to management 's decision to increase liquidity to offset any potential decreases in customer deposits due to the low interest rate environment . this was achieved by retaining more customer deposits than necessary given the lower loan demand and loan payoffs . investments investment securities held to maturity increased by $ 10,595,000 , or 31.1 % , at december 31 , 2013 to $ 44,661,000 , compared to $ 34,066,000 at december 31 , 2012. this increase was primarily due to management 's decision to purchase us treasury and agency securities to gain higher yields than federal funds sold while demand for loans remains low . loans loans held for sale . loans held for sale decreased by $ 7,390,000 , or 66.5 % at december 31 , 2013 to $ 3,726,000 , compared to $ 11,116,000 at december 31 , 2012. this decrease was primarily due to the timing of loans pending sale as of december 31 , 2013 compared to as of december 31 , 2012. loans receivable . total loans receivable , net decreased by $ 48,896,000 , or 7.5 % at december 31 , 2013 , to $ 602,813,000 , compared to $ 651,709,000 at december 31 , 2012. the decrease was primarily the result of management 's decision to sell approximately $ 48,514,000 of underperforming and nonperforming loans during the third and fourth quarter of 2013. in addition , the allowance for loan losses decreased by $ 5,739,000 , or 32.8 % , at december 31 , 2013 to $ 11,739,000 , compared to $ 17,478,000 at december 31 , 2012. the decrease in the allowance was primarily due to the elimination of the portion of the allowance that related to the sold loans and management 's assessment of the collectability of the loans remaining in the portfolio after the loan sales . foreclosed real estate foreclosed real estate decreased by $ 2,469,000 , or 21.6 % , at december 31 , 2013 to $ 8,972,000 , compared to $ 11,441,000 at december 31 , 2012. this decrease was primarily due to an increase in the number of foreclosed properties sold in 2013 and additional write downs taken on remaining properties . premises and equipment premises and equipment decreased by $ 610,000 , or 2.3 % , at december 31 , 2013 to $ 25,838,000 , compared to $ 26,448,000 at december 31 , 2012. this decrease was primarily due to the annual depreciation of the premises and equipment with minimal new fixed assets added throughout 2013. other assets other assets decreased by $ 8,399,000 , or 48.2 % , at december 31 , 2013 to $ 9,027,000 , compared to $ 17,426,000 at december 31 , 2012. this decrease was primarily due to management 's decision to provide a 100 % valuation allowance for bancorp 's net deferred tax asset . the deferred tax asset was $ 8,708,000 at december 31 , 2012. the charge was recorded primarily due to bancorp 's non-recognition of prior year net operating loss carryforwards and the challenging operating environment currently confronting bancorp and other financial institutions that could impact future operating results . 50 liabilities deposits . total deposits decreased by $ 28,145,000 , or 4.7 % , at december 31 , 2013 to $ 571,249,000 , compared to $ 599,394,000 at december 31 , 2012. this decrease was primarily attributable to decreases in certificates of deposits of $ 17,600,000 , money markets of $ 9,633,000 and passbooks of $ 12,295,000 partially offset by increases in now accounts of $ 7,927,000. fhlb-atlanta advances . fhlb-atlanta advances at december 31 , 2013 were $ 115,000,000 , which was unchanged from december 31 , 2012. there were no contractual advance payoffs scheduled during 2013 and no additional advances were needed as cash increased during the year from the proceeds from loan payoffs . during the third quarter 2012 , the bank restructured a portion of its fhlb atlanta borrowings by repaying $ 65 million of existing advances and replacing them with $ 65 million of lower cost advances . the transaction resulted in $ 5.3 million in prepayment penalties that were deferred and will be recognized in interest expense through yield adjustments on the new borrowings in future periods . the existing borrowings had an average cost of 3.87 % . the new borrowings had an average cost of 2.72 % including the deferred adjustment . the relevant accounting treatment for this transaction was provided in asc 470-50. this transaction was executed as an earnings strategy . subordinated debentures . as of december 31 , 2013 , bancorp had outstanding approximately $ 20,619,000 principal amount of junior subordinated debt securities due 2035 ( the “ 2035 debentures ” ) . the 2035 debentures were issued pursuant to an indenture dated as of december 17 , 2004 ( the “ 2035 indenture ” ) between bancorp and wells fargo bank , national association as trustee . the 2035 debentures pay interest quarterly at a floating rate of interest of 3-month libor ( 0.24 % december 31 , 2013 ) plus 200 basis points , and mature on january 7 , 2035. payments of principal , interest , premium and other amounts under the 2035 debentures are subordinated and junior in right of payment to the prior payment in full of all senior indebtedness of bancorp , as defined in the 2035 indenture . the 2035 debentures became redeemable , in whole or in part , by bancorp on january 7 , 2010. the 2035 debentures were issued and sold to severn capital trust i ( the “ trust ” ) , of which 100 % of the common equity is owned by bancorp . story_separator_special_tag the trust was formed for the purpose of issuing corporation-obligated mandatorily redeemable capital securities ( “ capital securities ” ) to third-party investors and using the proceeds from the sale of such capital securities to purchase the 2035 debentures . the 2035 debentures held by the trust are the sole assets of the trust . distributions on the capital securities issued by the trust are payable quarterly at a rate per annum equal to the interest rate being earned by the trust on the 2035 debentures . the capital securities are subject to mandatory redemption , in whole or in part , upon repayment of the 2035 debentures . bancorp has entered into an agreement which , taken collectively , fully and unconditionally guarantees the capital securities subject to the terms of the guarantee . under the terms of the 2035 debenture , bancorp is permitted to defer the payment of interest on the 2035 debentures for up to 20 consecutive quarterly periods , provided that no event of default has occurred and is continuing . as of december 31 , 2013 , bancorp has deferred the payment of seven quarters of interest and the cumulative amount of interest in arrears not paid , including interest on unpaid interest , was $ 860,000. subordinated notes and series a preferred stock . on november 15 , 2008 , bancorp completed a private placement offering consisting of a total of 70 units , at an offering price of $ 100,000 per unit , for gross proceeds of $ 7,000,000. each unit consists of 6,250 shares of bancorp 's series a 8.0 % non-cumulative convertible preferred stock and bancorp 's subordinated notes ( “ subordinated notes ” ) in the original principal amount of $ 50,000. the subordinated notes earn interest at an annual rate of 8.0 % , payable quarterly in arrears on the last day of march , june , september and december commencing december 31 , 2008. the subordinated notes are redeemable in whole or in part at the option of bancorp at any time beginning on december 31 , 2009 until maturity , which is december 31 , 2018. dividends will not be paid on bancorp 's common stock in any quarter until the dividend on the series a preferred stock has been paid for such quarter ; however , there is no requirement that bancorp 's board of directors declare any dividends on the series a preferred stock and any unpaid dividends are not be cumulative . dividends on the series a preferred stock have not been paid since the first quarter of 2012 because bancorp has not received approval from the federal reserve to pay such dividends . 51 series b preferred stock . on november 21 , 2008 , bancorp entered into an agreement with the united states department of the treasury ( “ treasury ” ) , pursuant to which bancorp issued and sold ( i ) 23,393 shares of its series b fixed rate cumulative perpetual preferred stock , par value $ 0.01 per share and liquidation preference $ 1,000 per share , ( the “ series b preferred stock ” ) and ( ii ) a warrant ( the “ warrant ” ) to purchase 556,976 shares of bancorp 's common stock , par value $ 0.01 per share , for an aggregate purchase price of $ 23,393,000. on september 25 , 2013 , the treasury sold all of its 23,393 shares of series b preferred stock to outside investors as part of their ongoing efforts to wind down and recover its remaining investments under the troubled asset relief program ( “ tarp ” ) . the terms of the series b preferred stock remain the same . the treasury continues to hold the warrant . the series b preferred stock qualifies as tier 1 capital and paid cumulative compounding dividends at a rate of 5 % per annum for the first five years , and 9 % per annum thereafter . the series b preferred stock may be redeemed by bancorp . the series b preferred stock has no maturity date and ranks pari passu with bancorp 's existing series a preferred stock , in terms of dividend payments and distributions upon liquidation , dissolution and winding up of bancorp . the series b preferred stock is non-voting , other than class voting rights on certain matters that could adversely affect the series b preferred stock . if dividends on the series b preferred stock have not been paid for an aggregate of six quarterly dividend periods or more , whether consecutive or not , bancorp 's authorized number of directors will be automatically increased by two and the holders of the series b preferred stock , voting together with holders of any then outstanding voting parity stock , will have the right to elect those directors at bancorp 's next annual meeting of stockholders or at a special meeting of stockholders called for that purpose . these preferred share directors will be elected annually and serve until all accrued and unpaid dividends on the series b preferred stock have been paid . dividends on the series b preferred stock have not been paid since the first quarter of 2012 because bancorp has not received approval from the federal reserve to pay such dividends . as of december 31 , 2013 , bancorp had cumulative dividends and interest in arrears on the series b preferred stock of $ 2,125,000. accordingly , bancorp will not be able to pay dividends on its common stock until the dividends in arrearage on its series b preferred stock has been paid in full . in connection with the sale by the treasury of the series b preferred stock , the federal reserve obtained waivers from the outside investors who purchased the series b preferred stock in which such investors agreed not to exercise their right to elect directors , and certain other voting or control rights , without the prior approval of the federal reserve .
| partially offsetting these factors was a decrease in bancorp 's non-accrual loans from $ 37,495,000 at december 31 , 2012 to $ 11,035,000 at december 31 , 2013. this resulted in $ 449,000 of interest income not recorded on non-accrual loans in 2013 , compared to $ 1,964,000 of unrecorded interest in 2012. bancorp discontinues the accrual of interest on all non-accrual loans , at which time all previously accrued but uncollected interest is deducted from income . bancorp is uncertain whether it will be able to further reduce the interest rate paid on its interest bearing liabilities by attracting lower cost deposits , due to the general expectation of continued increased competition for deposit accounts . provision for loan losses . bancorp 's loan portfolio is subject to varying degrees of credit risk and an allowance for loan losses is maintained to absorb losses inherent in its loan portfolio . credit risk includes , but is not limited to , the potential for borrower default and the failure of collateral to be worth what the bank determined it was worth at the time of the granting of the loan . the bank monitors its loan portfolio loan delinquencies at least as often as monthly . all loans that are delinquent and all loans within the various categories of the bank 's portfolio as a group are evaluated . the bank 's board , with the advice and recommendation of the bank 's loss mitigation committee , estimates an allowance to be set aside for loan losses . included in determining the calculation are such factors as historical losses for each loan portfolio , current market value of the loan 's underlying collateral , inherent risk contained within the portfolio after considering the state of the general economy , economic trends , consideration of particular risks inherent in different kinds of lending and consideration of known information that may affect loan collectibility . the increase in the loan loss provision from the beginning of the year to the end of a year was primarily due to the additional provision recorded for the charged-off losses realized from the two bulk loan sales . 53 the total allowance for loan losses
| 12,129 |
our clinical stage product candidate , ganaxolone , is a positive allosteric modulator of gaba a being developed in three different dose forms : intravenous ( iv ) , oral capsule and oral liquid . the multiple dose forms are intended to maximize the therapeutic range of ganaxolone for adult and pediatric patient populations , in acute and chronic care , and both in-patient and self-administered settings . ganaxolone exhibits anti-seizure , anti-depression and anti-anxiety actions via its effects on synaptic and extrasynaptic gaba a receptors . our operations to date have consisted primarily of organizing and staffing our company , developing ganaxolone , including conducting preclinical testing and clinical studies , and raising capital . we have funded our operations primarily through sales of equity and debt securities . at december 31 , 2018 , we had cash , cash equivalents and investment balances of $ 72.7 million . we have no products currently available for sale , have incurred operating losses since inception , have not generated any product sales revenue and have not achieved profitable operations . we incurred a net loss of $ 36.7 million for the year ended december 31 , 2018. our accumulated deficit as of december 31 , 2018 was $ 181.5 million , and we expect to continue to incur substantial losses in future periods . we anticipate that our operating expenses will increase substantially as we continue to advance our clinical-stage product candidate , ganaxolone . we anticipate that our expenses will increase substantially as we : · conduct later stage clinical studies in targeted indications , which could include cdd , ppd , se , pcdh19-re , lgs , fxs and other indications ; · continue the research , development and scale-up manufacturing capabilities to optimize products and dose forms for which we may obtain regulatory approval ; · conduct other preclinical and clinical studies to support the filing of new drug applications ( ndas ) with the food and drug administration ( fda ) and other regulatory agencies in other countries ; · acquire the rights to other product candidates and fund their development ; · maintain , expand and protect our global intellectual property portfolio ; · hire additional clinical , manufacturing and scientific personnel ; and · add operational , financial and management information systems and personnel , including personnel to support our drug development and potential future commercialization efforts . we believe that our cash , cash equivalents and investments as of december 31 , 2018 will enable us to fund our operating expenses and capital expenditure requirements into 2021. however , we will need to secure additional funding 61 in the future , from one or more equity or debt financings , collaborations , or other sources , in order to carry out all of our planned research and development activities with respect to ganaxolone . financial overview research and development expenses our research and development expenses consist primarily of costs incurred for the development of ganaxolone , which include : · employee-related expenses , including salaries , benefits , travel and stock-based compensation expense ; · expenses incurred under agreements with clinical research organizations ( cros ) and investigative sites that conduct our clinical studies and preclinical studies ; · the cost of acquiring , developing and manufacturing clinical study materials ; · facilities , depreciation and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and other supplies ; and · costs associated with preclinical activities and regulatory operations . we expense research and development costs when we incur them . we record costs for some development activities , such as clinical studies , based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment , clinical site activations or information our vendors provide to us . we will incur substantial costs beyond our present and planned clinical studies in order to file an nda and supplemental new drug applications ( sndas ) for ganaxolone for various clinical indications , and in each case , the nature , design , size and cost of further studies and studies will depend in large part on the outcome of preceding studies and studies and discussions with regulators . it is difficult to determine with certainty the costs and duration of our current or future clinical studies and preclinical studies , or if , when or to what extent we will generate revenue from the commercialization and sale of ganaxolone if we obtain regulatory approval . we may never succeed in achieving regulatory approval for ganaxolone . the duration , costs and timing of clinical studies and development of ganaxolone will depend on a variety of factors , including the uncertainties of future clinical studies and preclinical studies , uncertainties in clinical study enrollment rate and significant and changing government regulation . in addition , the probability of success for our clinical programs will depend on numerous factors , including competition , manufacturing capability and commercial viability . see “ risk factors. ” our commercial success depends upon attaining significant market acceptance , if approved , among physicians , patients , healthcare payers and the medical community . we will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success , as well as an assessment of commercial potential . general and administrative expenses general and administrative expenses consist principally of salaries and related costs for executive and other administrative personnel and consultants , including stock-based compensation and travel expenses . other general and administrative expenses include professional fees for legal , patent review , consulting and accounting services . general and administrative expenses are expensed when incurred . story_separator_special_tag we expect that our general and administrative expenses will increase in the future as a result of employee hiring and our scaling operations commensurate with supporting more advanced clinical studies and in preparation for commercial infrastructure . these increases will likely include increased costs for insurance , hiring of additional personnel , outside consultants , legal counsel and accountants , among other expenses . 62 interest income interest income consists principally of interest income earned on cash and cash equivalent and investment balances . interest expense interest expense is attributable to interest expense associated with our credit facility entered into in april 2014 , as amended , which was paid in full and closed in july 2017. story_separator_special_tag align= '' left '' valign= '' top '' > the development , formulation and commercialization activities related to ganaxolone ; · the scope , progress , results and costs of researching and developing ganaxolone or any other future product candidates , and conducting preclinical studies and clinical studies ; · the timing of , and the costs involved in , obtaining regulatory approvals for ganaxolone or any other future product candidates ; · the cost of commercialization activities if ganaxolone or any other future product candidates are approved for sale , including marketing , sales and distribution costs ; · the cost of manufacturing and formulating ganaxolone , or any other future product candidates , to internal and regulatory standards for use in preclinical studies , clinical studies and , if approved , in commercial sale ; · our ability to establish and maintain strategic collaborations , licensing or other arrangements and the financial terms of such agreements ; · any product liability , infringement or other lawsuits related to our products ; · capital needed to attract and retain skilled personnel ; · the costs involved in preparing , filing , prosecuting , maintaining , defending and enforcing patent claims , including litigation costs and the outcome of such litigation ; and · the timing , receipt and amount of sales of , or royalties on , future approved products , if any . please see “ risk factors ” for additional risks associated with our substantial capital requirements . 65 significant contractual obligations and commitments the following summarizes our significant contractual obligations as of december 31 , 2018 ( in thousands ) : replace_table_token_5_th ( 1 ) represents commitments for future minimum lease payments . off-balance sheet arrangements we do not have any off-balance sheet arrangements , as defined by applicable sec regulations . discussion of critical accounting policies and significant judgments and estimates we base this management 's discussion and analysis of our financial condition and results of operations on our financial statements , which we have prepared in accordance with accounting principles generally accepted in the united states ( gaap ) . the preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses and the disclosure of contingent assets and liabilities in our financial statements . we evaluate our estimates and judgments , including those related to warrant liabilities , stock-based compensation and accrued clinical study expenses on an ongoing basis . we base our estimates on historical experience , known trends and events and various other factors that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . you should consider your evaluation of our financial condition and results of operations with these policies , judgments and estimates in mind . while we describe our significant accounting policies in the notes to our financial statements appearing elsewhere in this annual report on form 10-k , we believe the following accounting policies are the most critical to the judgments and estimates we use in the preparation of our financial statements . clinical study expenses as part of the process of preparing our financial statements , we are required to estimate our clinical study expenses . our clinical study accrual process seeks to account for expenses resulting from our obligations under contracts with vendors , consultants and cros and clinical site agreements in connection with conducting clinical studies . the financial terms of these contracts are subject to negotiations , which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts . our objective is to reflect the appropriate clinical study expenses in our financial statements by matching the appropriate expenses with the period in which services and efforts are expended . we account for these expenses according to the progress of the study as measured by subject progression and the timing of various aspects of the study . we determine accrual estimates based on estimates of the services received and efforts expended that take into account discussion with applicable personnel and outside service providers as to the progress or state of completion of studies . during the course of a clinical study , we adjust our clinical expense recognition if actual results differ from our estimates . we make estimates of our accrued expenses and prepaid assets as of each balance sheet date in our financial statements based on the facts and circumstances known to us at that time . our clinical study accrual and prepaid assets are dependent , in part , upon the receipt of timely and accurate reporting from cros and other third-party vendors .
| the decrease for the year ended december 31 , 2017 compared to 2016 was due primarily to the completion of significant drug manufacturing activities in 2016 . ( 6 ) indirect research and development expenses in support of all our programs increase and decrease each year commensurate with the overall increase or decrease in preclinical , clinical , and manufacturing activities . 63 ( 7 ) we discontinued further development in our focal onset seizure program in 2016. costs incurred with respect to this program in 2017 represent residual costs to wind down a completed phase 3 study . general and administrative expenses general and administrative expenses increased $ 2.1 million and $ 0.4 million for the year ended december 31 , 2018 compared to 2017 and the year ended december 31 , 2017 compared to 2016 , respectively . the increase in both periods was primarily due to an increase in noncash stock-based compensation expense . cash flows operating activities . cash used in operating activities increased to $ 27.8 million for the year ended december 31 , 2018 compared to $ 18.8 million for the same period a year ago . the increase was driven primarily by a $ 17.5 million increase in net loss offset by a $ 1.9 million increase in stock-based compensation and increase of $ 6.4 million in the change in accounts payable and accrued liabilities . the increase in the change in accounts payable and accrued liabilities was due to increased research and development activities in support of our ongoing clinical programs and preclinical supportive studies . cash used in operating activities decreased to $ 18.8 million for the year ended december 31 , 2017 compared to $ 24.8 million for the same period a year ago . the decrease was driven primarily by a decrease in our net loss of $ 9.7 million , partially offset by a decrease in the change in operating assets and liabilities of $ 3.7 million . the net decrease in the change in operating assets and liabilities was primarily due to upfront payments for planned clinical
| 12,130 |
see `` note 5 : restructuring `` of the notes to consolidated financial statements in part ii item 8 of this report for additional information . our continuing businesses wealth management the hd vest business provides wealth management solutions for financial advisors and their clients . specifically , hd vest provides an integrated platform of brokerage , investment advisory , and insurance services to assist in making each financial advisor a financial service center for his/her clients . hd vest generates revenue primarily through commissions , quarterly investment advisory fees based on assets under management , and other fees . hd vest was founded to help tax and accounting professionals integrate financial services into their practices . hd vest primarily recruits independent tax professionals with established tax practices and offers specialized training and support , which allows them to join the hd vest platform as independent financial advisors . hd vest 's business model provides an open-architecture investment platform and technology tools to help financial advisors identify investment opportunities for their clients , while the long-standing tax advisory relationships provide a large client base of possible investment clients . this results in an experienced and stable network of financial advisors , who have multiple revenue-generating options to diversify their earnings sources . hd vest also has a highly experienced home office team that is focused on solutions tailored to the advisor 's practice . the home office team provides marketing , practice management , insurance and annuity , wealth management , succession planning , and other support to our advisors . our wealth management business is directly and indirectly sensitive to several macroeconomic factors and the state of financial markets , particularly in the united states . for additional information regarding the potential impact of these macroeconomic factors on our operations and results , see the risk factors `` our financial condition and results of operations may be materially and adversely affected by market fluctuations and by economic , political , and other factors. `` and `` a drop in our investment performance could materially and adversely affect our revenues and profitability. `` in part i item 1a of this report . our wealth management business is subject to certain additional financial industry regulations and supervision , including by the sec , finra , dol , state securities and insurance regulators , and other regulatory authorities . for additional 29 information regarding the potential impact of governmental regulation on our operations and results , see the risk factor `` increased government regulation of our business may harm our operating results. `` in part i item 1a of this report . tax preparation our taxact business provides ddiy tax preparation solutions for consumers , small business owners , and tax professionals . taxact generates revenue primarily through its online service at www.taxact.com . taxact 's offerings come with a price lock guarantee , whereby the price at the start of the tax return filing process is the price when the return is filed , rather than pricing the offering at the time that the tax return is filed . we had four offerings for consumers for tax year 2015 , which is the basis for taxact 's 2016 operating results : a `` free '' federal and state edition that handled simple returns ; a `` basic '' offering that contained all of the features of the free federal edition in addition to import capabilities , taxpayer phone support , and return preparation assistance tools ; a `` plus '' offering that contained all of the basic offering features in addition to tools to maximize credits and deductions , and enhanced reporting ; and a `` premium '' offering that contained all of the plus offering features in addition to tools for self-employed individuals to maximize credits and deductions . for the latter three offerings , state returns can be filed through the separately-sold state edition . we also had an offering for small business owners . in addition to these core offerings , taxact also offers ancillary services such as refund payment transfer , data archive services , audit defense , stored value cards , and other add-on services . taxact 's professional tax preparer software allows professional tax preparers to file individual and business returns for their clients . taxact offers flexible pricing and packaging options that help tax professionals save money by paying only for what they need . acquisitions on december 31 , 2015 , we closed on our acquisition of hd vest , as described further under `` strategic transformation '' above . hd vest is included in blucora 's results of operations as of january 1 , 2016. accordingly , the results discussed below were impacted by the timing of this acquisition , in which 2016 includes a full year of results as compared to no results in 2015. on july 2 , 2015 , taxact acquired simpletax , a provider of online tax preparation services for individuals in canada through its website www.simpletax.ca , for c $ 2.4 million ( with c $ indicating canadian dollars and amounting to approximately $ 1.9 million based on the acquisition-date exchange rate ) in cash and additional consideration of up to c $ 4.6 million ( $ 3.7 million ) that is contingent upon product availability and revenue performance over a three-year period . simpletax is included in our financial results beginning on july 2 , 2015 . seasonality our tax preparation segment is highly seasonal , with a significant portion of its annual revenue earned in the first four months of our fiscal year . during the third and fourth quarters , the tax preparation segment typically reports losses because revenue from the segment is minimal while core operating expenses continue at relatively consistent levels . story_separator_special_tag results of operations story_separator_special_tag roman ; font-size:10pt ; margin-left : auto ; margin-right : auto ; width:100 % ; border-collapse : collapse ; text-align : left ; '' > ( in thousands , except percentages ) year ended december 31 , sources of revenue primary drivers 2016 advisor-driven commission - transactions - asset levels $ 150,125 advisory - advisory asset levels 129,417 other revenue asset-based - cash balances - interest rates - number of accounts - client asset levels 22,653 transaction and fee - account activity - number of clients - number of advisors - number of accounts 14,351 total revenue $ 316,546 total recurring revenue $ 249,310 recurring revenue rate 78.8 % recurring revenue consists of trailing commissions , advisory fees , fees from cash sweep programs , and certain transaction and fee revenue , all as described further below in commission revenue , advisory revenue , asset-based revenue , and transaction and fee revenue , respectively . certain recurring revenues are associated with asset balances and will fluctuate depending on market values and current interest rates . accordingly , our recurring revenue can be negatively impacted by adverse external market conditions . however , recurring revenue is meaningful despite these fluctuations because it is not dependent upon transaction volumes or other activity-based revenues , which are more difficult to predict , particularly in declining or volatile markets . business metrics ( in thousands , except percentages and as otherwise indicated ) december 31 , 2016 total assets under administration ( “ aua ” ) $ 38,663,595 advisory assets under management ( “ aum ” ) $ 10,397,071 percentage of total aua 26.9 % number of advisors ( in ones ) 4,472 32 commission revenue : we generate two types of commissions : transaction-based sales commissions and trailing commissions . transaction-based sales commissions , which occur when clients trade securities or purchase investment products , represent gross commissions generated by our financial advisors . the level of transaction-based sales commissions can vary from period to period based on the overall economic environment , number of trading days in the reporting period , and investment activity of our financial advisors ' clients . we earn trailing commissions ( a commission or fee that is paid periodically over time ) on certain mutual funds and variable annuities held by clients . trailing commissions are recurring in nature and are based on the market value of investment holdings in trail-eligible assets . our commission revenue , by product category and by sales-based and trailing , was as follows : replace_table_token_4_th advisory revenue : advisory revenue primarily includes fees charged to clients in advisory accounts where hd vest is the registered investment advisor ( “ ria ” ) and is based on the value of advisory assets under management . advisory fees are typically billed to clients quarterly , in advance , and are recognized as revenue ratably during the quarter . the value of the assets in an advisory account on the billing date determines the amount billed and , accordingly , the revenues earned in the following three-month period . the majority of our accounts are billed in advance using values as of the last business day of the prior calendar quarter . the activity within our advisory assets under management was as follows : ( in thousands ) year ended december 31 , 2016 balance , beginning of the period $ 9,692,244 net increase in new advisory assets 150,701 market impact and other 554,126 balance , end of the period $ 10,397,071 increases or decreases in advisory assets have a limited impact on advisory fee revenue in the period in which they occur . rather , increases or decreases in advisory assets are a primary driver of future advisory fee revenue . advisory revenue for a particular quarter is predominately driven by the prior quarter-end advisory assets under management . asset-based revenue : asset-based revenue primarily includes fees from financial product manufacturer sponsorship programs and cash sweep programs . transaction and fee revenue : transaction and fee revenue primarily includes fees for executing certain transactions in client accounts and fees related to services provided and other account charges as generally outlined in agreements with financial advisors , clients , and financial institutions . 33 tax preparation replace_table_token_5_th tax preparation revenue is derived primarily from sales of our consumer tax preparation software and online services as well as other offerings and ancillary services to consumers and small business owners . we also generate revenue through the professional tax preparer software that we sell to professional tax preparers who use it to prepare and file individual and business returns for their clients . revenue by category was as follows : replace_table_token_6_th we measure our consumer tax preparation customers using the number of accepted federal tax e-files made through our software and online services . we consider growth in the number of e-files to be the most important non-financial metric in measuring the performance of the consumer side of the tax preparation business . e-file metrics were as follows : replace_table_token_7_th ( 1 ) free file alliance e-files are provided as part of an irs partnership that provides free electronic tax filing services to taxpayers meeting certain income-based guidelines . we measure our professional tax preparer customers using three metrics -- the number of accepted federal tax e-files made through our software , the number of units sold , and the number of e-files per unit sold . we consider growth in these areas to be the most important non-financial metrics in measuring the performance of the professional tax preparer side of the tax preparation business . those metrics were as follows : replace_table_token_8_th year ended december 31 , 2016 compared with year ended december 31 , 2015 tax preparation revenue increase d approximately $ 21.7 million primarily due to growth in revenue earned from online consumer users , increased sales of ancillary services , and increased sales of our professional tax preparer software .
| $ 14.3 million increase in corporate-level expense activity , primarily due to ( i ) higher amortization expense related to hd vest acquisition-related intangible assets , ( ii ) higher stock-based compensation mainly related to a net increase in stock award grants ( including to hd vest employees ) , ( iii ) restructuring incurred in connection with the upcoming relocation of our corporate headquarters , ( iv ) higher depreciation expense mainly related to hd vest fixed assets , and ( v ) higher personnel expenses resulting mainly from increased costs incurred as part of our strategic transformation , offset by ( vi ) lower acquisition-related costs due to professional services fees and other direct transaction costs incurred in the prior year related to the hd vest acquisition , ( vii ) lower amortization expense associated with concluding the useful life of certain taxact acquisition-related intangible assets during 2016 , and ( viii ) separation-related costs incurred in the prior year in connection with the departure of our former chief executive officer . segment results are discussed in the next section . year ended december 31 , 2015 compared with year ended december 31 , 2014 revenue increase d approximately $ 14.0 million due to an increase in revenue related to our tax preparation business , as discussed in the following `` segment revenue/operating income '' section . operating income decrease d approximately $ 9.4 million , consisting of the $ 14.0 million increase in revenue and offset by a $ 23.4 million increase in operating expenses . key changes in operating expenses were : $ 6.7 million increase in the tax preparation segment 's operating expenses , primarily due to higher personnel expenses resulting from increased average headcount , higher spending on marketing campaigns for the related tax season , and , to a lesser extent , higher data center costs related to software support and maintenance fees . $ 16.7 million increase in corporate-level expense activity , primarily due to higher professional services fees , mainly from transaction costs related to the hd vest acquisition , and higher personnel expenses , mainly due to increased average headcount to support operations and separation-related costs in connection with the departure of our former chief executive officer . segment results are discussed in the next section . segment revenue/operating income the revenue and operating income amounts in this section are presented on a basis consistent with accounting principles generally accepted in the u.s. ( “ gaap ” ) and include certain reconciling items attributable to the segments . segment information appearing in `` note 13 : segment information `` of the notes to consolidated financial statements in part ii item 8 of
| 12,131 |
we secured the company 's liquidity position through our at-the-market equity offering resulting in net proceeds of $ 28.7 million , reductions in costs as discussed above , receipt of a $ 49.4 million federal cash tax refund , including interest , provided under provisions of the coronavirus aid , relief , and economic security act ( the `` cares act '' ) , and approximately $ 16 million of additional federal cash tax refunds expected to be received in 2021. additionally , under provisions of the cares act , we are deferring approximately $ 18 million in payroll taxes to be paid in fiscal years 2022 and 2023. the company took additional actions during 2020 to improve liquidity and enhance financial flexibility in response to the covid-19 pandemic , which enabled us to make significant progress on our transformation strategy as outlined above . these actions included temporarily reducing executive base salaries , board member cash retainer fees , restaurant support center and non-furloughed restaurant supervisory team members wages and salaries by 20 % , eliminating more than 50 restaurant support center general and administrative positions , postponing or eliminating all non-essential spend , suspending stock repurchases , temporarily halting full lease payments , and engaging in constructive discussions with landlords to achieve restructuring of lease agreements , as well as rent and other concessions . we believe the actions we have taken in response to covid-19 will be sufficient to fund our lease obligations , capital expenditures , and working capital needs for the next 12 months and foreseeable future . as of february 21 , 2021 , the company had approximately $ 122 million of liquidity , including cash on hand and available borrowing capacity under the credit facility . this liquidity amount includes the impact of a cash payment of $ 8.5 million paid during the first quarter of 2021 related to a class action settlement of legal matters originally filed in 2017. although franchisees have had to restrict dining room capacity and close indoor dining rooms as a result of state and local public health orders at various times throughout the year , as of december 27 , 2020 , the majority of our franchisees ' restaurants indoor dining rooms were open , and all of our franchisees ' restaurants were open for off-premise . 27 tabl e of contents as of february 28 , 2021 , the company had 372 total ( comparable and non-comparable ) indoor dining rooms reopened with limited capacity , representing approximately 87 % of currently open company-owned restaurants . notably , these restaurants have on average maintained off-premise sales that are more than two times what we generated before the pandemic after reopening dining rooms . as of february 28 , 2021 , 12 restaurants remained temporarily closed due to the covid-19 pandemic . of the 35 company-owned restaurants initially closed due to the pandemic , 17 restaurants have been reopened and six restaurants have been permanently closed as of february 28 , 2021. we will continue to evaluate the potential timing of reopening these remaining temporarily closed restaurants . restaurant operating level expenses incurred for these restaurants during the temporary closures have been recorded in restaurant closure and refranchising costs ( gains ) in other charges ; see note 5 , other charges , in the notes to the consolidated financial statements in part ii , item 8 of this annual report on form 10-k. net comparable restaurant revenue and average weekly net sales per company-owned restaurant with reopened indoor dining rooms for the company 's 28 day accounting periods through the second period of fiscal year 2021 and the most recent week ended february 28 , 2021 are as follows : replace_table_token_2_th — ( 1 ) net sales performance for company-owned restaurants with reopened indoor dining rooms for the full period presented . restaurant count shown is as of the end of the period presented . ( 2 ) the periods ended november 1 , november 29 , and december 27 , 2020 comprise the company 's fourth fiscal quarter . the periods ended january 24 , 2021 and february 21 , 2021 , and the week ended february 28 , 2021 , fall within our first fiscal quarter of 2021 , and amounts presented for the periods are preliminary and subject to closing adjustments . the first fiscal quarter of 2021 is comprised of the four accounting periods ended april 18 , 2021 . ( 3 ) sales performance was negatively impacted in the fourth quarter of 2020 by rising covid-19 cases resulting in new restrictions lowering or suspending dining room capacity and full restaurant closures being concentrated in our highest performing states of california , colorado , oregon , and washington . additionally , the prior year sales amounts in the comparable base included higher holiday season sales volume . ( 4 ) period includes the impact of reduced traffic due to winter weather in february of approximately 2 % to 3 % . results for this period also include the impact of reopening indoor dining rooms in jurisdictions that require lower capacity than the existing base of restaurants . ( 5 ) period represents the results of the first week of our third fiscal period . net comparable restaurant revenue and average weekly net sales per company-owned restaurant for the company 's 28 day accounting periods through the second period of fiscal year 2021 and the most recent week ended february 28 , 2021 are as follows : replace_table_token_3_th — ( 1 ) comparable restaurants are those company-owned restaurants that have operated five full fiscal quarters as of the period presented . restaurant count is as of the end of the period presented . ( 2 ) the periods ended november 1 , november 29 , and december 27 , 2020 comprise the company 's fourth fiscal quarter . story_separator_special_tag the periods ended january 24 , 2021 and february 21 , 2021 , and the week ended february 28 , 2021 , fall within our first fiscal quarter of 2021 , and amounts presented for the periods are preliminary and subject to closing adjustments . the first fiscal quarter of 2021 is comprised of the four accounting periods ended april 18 , 2021 . ( 3 ) sales performance was negatively impacted in the fourth quarter of 2020 by rising covid-19 cases resulting in new restrictions lowering or suspending dining room capacity and full restaurant closures being concentrated in our highest performing states of california , colorado , oregon , and washington . additionally , the prior year sales amounts in the comparable base included higher holiday season sales volume . ( 4 ) period includes the impact of reduced traffic due to winter weather in february of approximately 2 % to 3 % . results for this period also include the impact of reopening indoor dining rooms in jurisdictions that require lower capacity than the existing base of restaurants . ( 5 ) period represents the results of the first week of our third fiscal period . we expect to see continued benefits from outdoor seating expansion of approximately 16 to 24 incremental seats where jurisdictions and weather allow . our outdoor seating expansions have added approximately 10 % total capacity to restaurants with expanded outdoor seating . we are encouraged by the positive trends in revenues and dining room openings in early 2021 as states have begun loosening indoor dining restrictions and covid-19 vaccines have started to become more available . these factors along with our business growth initiatives planned for 2021 and the improvements made to our business during 2020 have put the foundation in place to create sustainable long-term value as we move into a post-pandemic operating environment . 28 tabl e of contents we believe donatos® will generate annual company pizza sales of more than $ 60 million and profitability of more than $ 25 million by 2023 , when we expect to have completed our rollout to approximately 400 company-owned restaurants . in 2021 , we plan to add donatos® to approximately 120 restaurants bringing the total number of company-owned restaurants that offer donatos® to approximately 200 by the end of the year . we expect restaurants with donatos® to drive incremental flow-through of $ 45 thousand in the second year , yielding a three to four year payback period . first year startup costs include pre-opening expense of $ 12 thousand , required first year marketing investments of $ 30 thousand , and capital of $ 145 thousand per restaurant . as we look ahead to a post-pandemic operating environment , we are preparing our team members with a `` ready-set-reopen '' training playbook to ensure a great experience as our guests return to our dining rooms . this prescriptive guide addresses short , medium , and long term actions required to continue building satisfaction with our guests and guides best practices for resuming the operation of our indoor dining rooms at 100 % capacity . we also have several technology solutions we plan to roll out in late 2021 , including website enhancements and a new red robin mobile app . these initiatives are cost-effective channels to engage on a direct and personalized level with our guests . our technology platforms are expected to grow revenue through higher order conversion and increased guest frequency , while driving additional royalty participation . additionally our new loyalty platform will allow us to better segment our guests and target marketing campaigns in a more meaningful way . our off-premise execution enhancements support our ability to retain off-premise food and beverage sales of more than twice pre-pandemic levels while operating at 100 % indoor capacity . in the fourth quarter of 2019 , off-premise sales comprised approximately 14 % of total food and beverage sales . story_separator_special_tag roman ' , sans-serif ; font-size:8pt ; font-weight:400 ; line-height:120 % '' > in addition to the permanent closures during 2020 , 12 company-owned restaurants that remained closed due to the covid-19 pandemic as of december 27 , 2020 may be reopened in 2021 . ( 2 ) during the fourth quarter of 2019 , the company sold 12 restaurants located in british columbia , canada to a franchisee . 30 tabl e of contents the following table presents total company-owned and franchised restaurants by state or province as of december 27 , 2020 : replace_table_token_5_th — ( 1 ) includes 12 company-owned restaurants that remained closed due to the covid-19 pandemic as of december 27 , 2020 which may be reopened in 2021 . 31 tabl e of contents results of operations operating results for each fiscal period presented below are expressed as a percentage of total revenues , except for the components of restaurant operating costs , which are expressed as a percentage of restaurant revenue . certain percentage amounts in the table below do not total due to rounding as well as restaurant operating costs being expressed as a percentage of restaurant revenue and not total revenues . replace_table_token_6_th — ( 1 ) expressed as a percentage of restaurant revenue rather than total revenue 32 tabl e of contents revenues replace_table_token_7_th restaurant revenue , which comprises primarily food and beverage sales , decreased $ 435.4 million in 2020 , or 33.8 % , as compared to 2019. the decrease was due to a $ 330.1 million , or 28.5 % , decrease in comparable restaurant revenue due to the covid-19 pandemic and a $ 105.3 million decrease from closed restaurants . the decrease in comparable restaurant revenue was driven by restaurants operating at limited occupant capacity for dining rooms that were opened during the pandemic , off-premise only restaurants with closed dining rooms , or closed restaurants due to the covid-19 pandemic . components of comparable restaurant revenue included a 27.7 % decrease in guest count and a 0.8 % decrease in average guest check .
| adjusted earnings per diluted share in 2019 was $ 0.62. we believe the non-gaap measure of adjusted ( loss ) earnings per share gives the reader additional insight into the ongoing operational results of the company , and it is intended to supplement the presentation of the company 's financial results in accordance with gaap . marketing - our red robin royalty loyalty program operates in all our company-owned red robin restaurants and has been rolled out to most of our franchised restaurants . we engage our guests through red robin royalty which allows for increased segmentation and more precise targeting of offers designed to increase frequency of visits as a key part of our overall marketing strategy . our media buying approach prioritizes digital , social , and owned channels including our website and email to effectively target and reach our guests . 29 tabl e of contents 2021 outlook the company provides guidance as it relates to selected information related to the company 's financial and operating performance , and such measures may differ from year to year . due to the uncertainty caused by the on-going covid-19 pandemic , limited guidance is being provided for fiscal year 2021. the company currently expects the following in 2021 : we expect that the recovery of our western markets which represent a meaningful portion of our portfolio , pent up demand for casual dining , higher average guest check with increasing on-premise dining , and industry restaurant closures will drive significant comparable restaurant revenue growth in 2021. we also currently expect that the combination of enterprise pricing , outdoor seating capacity expansions , restoration of full operating hours , and donatos® expansion will generate incremental growth of mid-to-high single digit comparable restaurant revenue in 2021 beyond the benefits associated with the recovery ; and we expect capital expenditures of $ 45 million to $ 55 million , including continued investment in maintaining our restaurants and infrastructure with maintenance and
| 12,132 |
general reserves are calculated for each loan pool consisting of acceptable or pass graded loans segregated by portfolio segment , by applying estimated net loss percentages based upon the banks ' actual historical net charge-offs and , adjusted as appropriate , on a consistent manner based upon consideration of qualitative factors to arrive at a total loss factor for each portfolio segment . the rationale for qualitative adjustments is to more accurately reflect the current inherent risk of loss in the respective portfolio segments than would be determined through the sole consideration of the bank 's actual historical net charge-off rates . the numerical factors assigned are based upon observable data , if applicable , as well as management 's analysis and judgment . the qualitative factors considered by the company include : volume and severity of past due , non-accrual , and adversely graded loans , volume and terms of loans , concentrations of credit , management 's experience , as well as loan underwriting and loan review policy and procedures , and economic and business conditions impacting the bank 's loan portfolios , as well as consideration of collateral values and external factors each one of the banks makes an independent determination of the applicable loss rate for these factors based on their relevant local market conditions , credit quality , and portfolio mix . each quarter , all of the banks review the loss factors to determine if there have been any changes in their respective loan portfolios , market conditions , or other risk indicators which would result in a change to the current loss factor . allocated reserves on non-impaired special mention and substandard loans reflect management 's assessment of increased risk of losses associated with these types of graded loans . an allocated reserve is assigned to these pools of loans based upon management 's consideration of the credit attributes of individual loans within each pool of loans , including consideration , of loan to value ratios , past due status , strength and willingness of the guarantors , and other relevant attributes , including the qualitative factors considered for the general reserve as discussed above . these considerations are determined separately for each type of portfolio segment . the allocated reserves are a multiple of the general reserve for each respective portfolio segments , with a greater multiple for loans with increased risk ( i.e. , special-mention loans versus substandard loans ) . a loan ( usually a larger commercial type loan ) is considered impaired in accordance with asc 310 when , based upon current information and events , it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement . impairment is measured based on the fair value of the loan , expected future cash flows discounted at the loan 's effective interest rate , or as a practical expedient , impairment may be determined based upon the 33 observable market price of the loan , or the fair value of the collateral , less estimated costs to sell , if the loan is “ collateral dependent. ” for collateral dependent loans , appraisals are generally used to determine the fair value . generally real estate appraisals are updated every 12 months or sooner if a loan continues to be impaired . appraised values are generally discounted for factors such as the bank 's intention to liquidate the property quickly in a foreclosure sale or the date when the appraisal was performed if the bank believes that collateral values have declined since the date the appraisal was done . the banks may use a broker opinion of value in addition to an appraisal to validate the appraised value . in certain instances , the banks may use broker opinions of value while an appraisal is being prepared due to the time constraint generally in obtaining new appraisals . if the loan is deemed to be collateral dependent , generally the difference between the book balance ( customer balance less any prior charge-offs or customer interest payments applied to principal ) and the net realizable value is taken as a partial charge-off through the allowance for loan losses in the current period . if the loan is not determined to be collateral dependent , then a specific allocation is established for the difference between the book balance of the loan and the expected future cash flows discounted at the loan 's effective interest rate . charge-offs for loans not considered to be collateral dependent are made when it is determined a loss has been incurred . impaired loans are removed from the general loan pools . there may be instances where the loan is considered impaired although based on the net realizable value of underlying collateral or the discounted expected future cash flows there is no impairment to be recognized . in addition , all loans which are classified as troubled debt restructurings ( “ tdrs ” ) are considered impaired . in addition to the three primary components of the allowance for loan losses discussed above ( general reserve , allocated reserves on non-impaired special-mention and substandard loans , and the allocated reserves on impaired loans ) , generally the company 's affiliate banks also maintain an insignificant amount of additional allowance for loan losses ( the unallocated allowance for loan losses ) which primarily relates to a general assessment of the potential variability of applicable qualitative factors subject to a higher degree of variability . the respective qualitative factors , as discussed above , are considered for each respective portfolio segment . only the assessment of the potential variability of applicable qualitative factors is included in the unallocated allowance for loan losses . the unallocated allowance for loan losses is not considered significant by the company . while this evaluation process utilizes historical and other objective information , the classification of loans and the establishment of the allowance for loan losses rely to a great extent on the judgment and experience of management . story_separator_special_tag while management evaluates currently available information in establishing the allowance for loan losses , future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluations . in addition , various regulatory agencies , as an integral part of their examination process , periodically review a financial institution 's allowance for loan losses as well as loan grades/classifications . such agencies may require the financial institution to recognize additions to the allowance or increases to adversely graded classified loans based on their judgments about information available to them at the time of their examination . valuation of goodwill/intangible assets and analysis for impairment the company allocates the cost of an acquired entity to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition . other intangible assets identified in acquisitions generally consist of advisory contracts , core deposit intangibles , and non-compete agreements . the value attributed to advisory contracts is based on the time period over which they are expected to generate economic benefits . the advisory contracts are generally amortized over 8-15 years depending on the contract . core deposit intangibles are valued based on the expected longevity of the core deposit accounts and the expected cost savings associated with the use of the existing core deposit base rather than alternative funding sources . the core deposit intangibles are generally amortized , on an accelerated basis , over a period of 10-12 years . non-compete agreements are valued based on the expected receipt of future economic benefits protected by clauses in the non-compete agreements that restrict competitive behavior . non-compete agreements are amortized over the life of the agreement , generally 2-4 years . other intangible assets with definite lives are tested for impairment at the reporting unit level at least annually in the fourth quarter or more frequently when events or circumstances occur that indicate that it is more likely than not that an impairment has occurred . the company tests other intangible assets with definite lives for impairment by comparing the carrying amount to the sum of the net undiscounted cash flows expected to be generated by the asset whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable . if the carrying amount of the asset exceeds its net undiscounted cash flows , then an impairment loss is recognized for the amount by which the carrying amount exceeds its fair value . the intangible impairment test is performed at the reporting unit level , and each affiliate is considered a reporting unit for goodwill and intangible impairment testing purposes . intangible assets with an indefinite useful economic life are not amortized , but are subject to impairment testing at the reporting unit on an annual basis , or when events or changes in circumstances indicate that the carrying amounts are impaired . the excess of the purchase price for acquisitions over the fair value of the net assets acquired , including other 34 intangible assets , is recorded as goodwill . goodwill is not amortized but is tested for impairment at the reporting unit level , defined as the affiliate partner level , at least annually in the fourth quarter or more frequently when events or circumstances occur that indicate that it is more likely than not that an impairment has occurred . goodwill is tested for impairment using a two-step process that begins with an estimation of the fair value of a reporting unit . goodwill impairment exists when a reporting unit 's carrying value of goodwill exceeds its implied fair value . significant judgment is applied when goodwill is assessed for impairment . this judgment includes developing cash flow projections , selecting appropriate discount rates , identifying relevant market comparables , incorporating general economic and market conditions , and selecting an appropriate control premium . the selection and weighting of the various fair value techniques may result in a higher or lower fair value . judgment is applied in determining the weightings that are most representative of fair value . the first step ( “ step 1 ” ) of impairment testing requires a comparison of each reporting unit 's fair value to its carrying value to identify potential impairment . the reporting units fall under one of the three segments : private banking , investment management , and wealth advisory . for the private banking segment , the company utilizes a market approach to determine fair value . for the market approach , earnings and market capitalization multiples of comparable public companies are selected and applied to the banking reporting unit 's applicable metrics . for the investment management and wealth advisory segments , the company utilizes both the income and market approaches to determine fair value . the income approach is primarily based on discounted cash flows derived from assumptions of income statement activity . for the market approach , ebitda and revenue multiples of comparable companies are selected and applied to the financial services reporting unit 's applicable metrics . the aggregate fair values are compared to market capitalization as an assessment of the appropriateness of the fair value measurements . a control premium analysis is performed to determine whether the implied control premium was within range of overall control premiums observed in the market place . the second step ( “ step 2 ” ) of impairment testing is necessary only if a reporting unit 's carrying amount exceeds its fair value . step 2 compares the implied fair value of the reporting unit goodwill with the carrying amount of the goodwill for the reporting unit . the implied fair value of goodwill is determined in the same manner as goodwill that is recognized in a business combination . significant judgment and estimates are involved in estimating the fair value of the assets and liabilities of the reporting unit . the excess goodwill is recognized as an impairment loss .
| the key items that affected the company 's 2010 results include : ▪ the $ 87.2 million provision for loan losses , primarily related to the commercial real estate portfolio at the northern california bank and the increased costs associated with managing a large portfolio of problem loans . ▪ increased salaries and employee benefit expenses primarily associated with executive transition charges . ▪ a 21 basis point increase in net interest margin ( “ nim ” ) to 3.30 % from 3.09 % for the twelve month periods ended december 31 , 2010 and 2009 , respectively . this increase was primarily due to higher-rate certificates of deposits rolling into lower-rate money market accounts and the decreased volume in borrowings . ▪ favorable market conditions , which increased assets under management/advisory ( “ aum ” ) to $ 19.5 billion at december 31 , 2010 compared to $ 17.7 billion at december 31 , 2009. the company has continued to actively manage its balance sheet in 2010 in order to maintain capital , reduce credit and operating risk , and create financial flexibility in an ongoing difficult economic environment . these steps include reducing construction and land exposure across our loan portfolio , and actively and conservatively managing increased levels of problem loans and charge-offs at the northern california bank . during 2010 , the company reduced its investment in construction and land loans by 52 % as the company shifts toward lower risk private banking products such as commercial and industrial loans and residential mortgages . 29 private banking the following table presents a summary of profits/ ( losses ) , revenues and expenses for the private banking segment continuing operations for 2010 , 2009 , and 2008 . replace_table_token_6_th nm - not meaningful ( 1 ) loans presented in this table are loans from the private banking segment and do not include loans of non-banking affiliates or the holding company . ( 2 ) deposits presented in this table do not include intercompany eliminations related to deposits in the banks from non-banking affiliates or the holding company . the company 's private banking segment reported a net loss of $ 0.8 million in 2010 , compared
| 12,133 |
we have never been profitable and have incurred net losses in each year since inception . our net losses were $ 32.6 million , $ 21.7 million , and $ 12.4 million for 2015 , 2014 , and 2013. as of december 31 , 2015 we had an accumulated deficit of $ 84.5 million . substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations . 48 we expect to continue to incur significant expenses and increasing operating losses over at least the next several years . we expect our expenses will increase substantially in connection with our ongoing activitie s , as we : · advance product candidates through clinical trials ; · pursue regulatory approval of product candidates ; · operate as a public company ; · continue our preclinical programs and clinical development efforts ; · continue research activities for the discovery of new product candidates ; and · manufacture supplies for our preclinical studies and clinical trials . critical accounting polices and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with united states generally accepted accounting principles , or u.s. gaap . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported expenses incurred during the reporting periods . our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe that the accounting policies discussed below are critical to understanding our historical and future performance , as these policies relate to the more significant areas involving management 's judgments and estimates . accrued research and development costs we record accrued liabilities for estimated costs of our research and development activities conducted by third-party service providers , which include the conduct of preclinical studies and clinical trials and contract manufacturing activities . we record the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced , and include these costs in accrued liabilities in the balance sheet and within research and development expense in the statement of operations . these costs are a significant component of our research and development expenses . we record accrued expenses for these costs based on the estimated amount of work completed and in accordance with agreements established with these third parties . we estimate the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services . we make significant judgments and estimates in determining the accrued balance in each reporting period . as actual costs become known , we adjust our accrued estimates . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed , the number of patients enrolled , and the rate of patient enrollment may vary from our estimates and could result in us reporting amounts that are too high or too low in any particular period . our accrued expenses are dependent , in part , upon the receipt of timely and accurate reporting from clinical research organizations and other third-party service providers . to date , there have been no material differences from our accrued expenses to actual expenses . stock-based compensation we recognize compensation costs related to stock options granted to employees based on the estimated fair value of the awards on the date of grant , net of estimated forfeitures . we estimate the grant date fair value , and the resulting stock-based compensation expense , using the black-scholes option-pricing model . the grant date fair value of the stock-based awards is generally recognized on a straight-line basis over the requisite service period , which is generally the vesting period of the respective awards . the black-scholes option-pricing model requires the use of highly subjective assumptions , which determine the fair value of stock-based awards . these assumptions include : expected term . our expected term represents the period that our stock-based awards are expected to be outstanding and is determined using the simplified method ( based on the mid-point between the vesting date and the end of the contractual term ) . expected volatility . since we have only been publicly traded for a short period and do not have adequate trading history for our common stock , the expected volatility was estimated based on the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants . the comparable companies were chosen based on their similar size , stage in the life cycle , or area of specialty . 49 risk-free interest rate . the risk- free interest rate is based on the u.s. treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option . expected dividend . we have never paid dividends on our common stock and have no plans to pay dividends on our common stock . therefore , we used an expected dividend yield of zero . in addition to the black-scholes assumptions , we estimate our forfeiture rate based on an analysis of our actual forfeitures and will continue to evaluate the adequacy of the forfeiture rate based on actual forfeiture experience , analysis of employee turnover behavior , and other factors . story_separator_special_tag the impact from any forfeiture rate adjustment would be recognized in full in the period of adjustment and if the actual number of future forfeitures differs from our estimates , we might be required to record adjustments to stock-based compensation in future periods . prior to our ipo in october 2014 , the fair value of the shares of common stock underlying our share-based awards were estimated on each grant date by our board of directors . in order to determine the fair value of our common stock underlying option grants , our board of directors considered , among other things , timely valuations of our common stock prepared by an unrelated third-party valuation firm in accordance with the guidance provide by the american institute of certified public accountants practice guide , valuation of privately-held-company equity securities issued as compensation . given the absence of a public trading market for our common stock , our board of directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of our common stock , including our stage of development ; progress of our research and development efforts ; the rights , preferences and privileges of our preferred stock relative to those of our common stock ; equity market conditions affecting comparable public companies and the lack of marketability of our common stock . after the closing of our ipo , our board of directors determines the fair value of each share of underlying common stock based on the closing price of our common stock as reported by the nasdaq select global market on the date of grant . income taxes as of december 31 , 2015 , we had approximately $ 76.7 million and $ 48.0 million , respectively , of federal and state operating loss carryforwards available to reduce future taxable income that will begin to expire in 2030 for federal and state tax purposes . as of december 31 , 2015 , we also had research and development tax credit carryforwards of approximately $ 2.4 million and $ 1.9 million , respectively , for federal and state purposes available to offset future taxable income tax . if not utilized , the federal carryforwards will expire in various amounts beginning in 2030 , and the state credits can be carried forward indefinitely . utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the internal revenue code of 1986 , as amended , and similar state provisions . we have performed an analysis to determine whether an `` ownership change '' has occurred from inception to december 31 , 2014. based on this analysis , management has determined that there was an ownership change . the annual limitation may result in the expiration of net operating losses and credits before utilization , however , we do not believe any of our net operating losses and research and development credits are limited by this potential ownership change . financial operations overview research and development expenses research and development expenses represent costs incurred to conduct research , such as the discovery and development of our product candidates . we recognize all research and development costs as they are incurred . research and development expenses consist primarily of the following : · employee-related expenses , which include salaries , benefits and stock-based compensation ; · expenses incurred under agreements with clinical trial sites that conduct research and development activities on our behalf ; · laboratory and vendor expenses related to the execution of preclinical studies and clinical trials ; · contract manufacturing expenses , primarily for the production of clinical supplies ; · facilities and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities , depreciation and amortization expense and other supplies ; · license fees and milestone payments related to our licensing agreements . 50 the largest component of our total operating expenses has historically been our investment in research and development activities including the clinical development of our product candidates . we allocate to research and developme nt expenses the salaries , benefits , stock-based compensation expense , and indirect costs of our clinical and preclinical programs on a program-specific basis , and we include these costs in the program-specific expenses . the following table shows our resear ch and development expenses for 2015 , 2014 , and 2013 : replace_table_token_5_th we expect our research and development expenses will increase during the next few years as we advance our product candidates into and through clinical trials , pursue regulatory approval of our product candidates , which will require a significant investment in contract manufacturing and inventory build-up related costs . in december 2014 , we entered into an exclusive license agreement with symbioscience to develop and commercialize their portfolio of arginase inhibitors and in march 2015 , we entered into an exclusive license agreement with transtech to develop and commercialize their hexokinase ii inhibitors . these license agreements will result in higher research and development expenses in the future . the process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming . we may never succeed in achieving marketing approval for our product candidates . the probability of success of our product candidates may be affected by numerous factors , including clinical data , 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 and sale of any of our product candidates . general and administrative expenses general and administrative expenses consist of personnel costs , allocated expenses and other expenses for outside professional services , including legal , audit and accounting services . personnel costs consist of salaries , benefits and stock-based compensation .
| research and development research and development expenses increased $ 6.5 million , or 65 % , from $ 9.9 million for 2013 to $ 16.4 million for 2014. the increase was due to an increase of $ 3.5 million in clinical trial related expenses in connection with our cb-839 phase 1 clinical trials which began enrolling patients in february 2014 , an increase of $ 1.9 million in personnel-related costs primarily as a result of higher 52 headcount , an increase of $ 0.8 million in costs related to cb-839 development and manufacturing to support our phase 1 clini cal trials , and $ 0.3 million related to our licensing arrangement for our arginase inhibitors program . general and administrative general and administrative expenses increased $ 2.9 million , or 116 % , from $ 2.5 million for 2013 , to $ 5.4 million for 2014. the increase was due to an increase of $ 1.7 million in personnel-related costs as a result of higher headcount , salary increases and stock-based compensation expense , an increase of $ 0.6 million in professional services costs primarily related to audit fees and an increase of $ 0.5 million in facility costs due to our office expansion in the second half of 2013. liquidity and capital resources as of december 31 , 2015 , we had cash , cash equivalents and investments totaling $ 71.9 million . in connection with our ipo that closed in october 2014 , we received cash proceeds of $ 71.6 million , net of underwriters ' discounts and commissions and expenses paid by us . prior to the ipo , our operations have been financed primarily by net proceeds from the sale of shares of our preferred stock . in november 2015 we filed a registration statement on form s-3 with the securities and exchange commission which permits the offering , issuance and sale by us of up to a maximum aggregate offering price of $ 150 million of our common stock . up to $ 50 million of the maximum aggregate offering price of $ 150 million may be issued and sold pursuant to an at-the-market offering program for sales of our common stock under a sales agreement with cowen and company llc , which would act as our sales agent and underwriter . as of december 31 , 2015 , we had
| 12,134 |
on february 26 , 2017 , we retired $ 835,000 of our 7.75 % senior secured notes at a premium of 103.875 % , plus accrued and unpaid interest . we incurred a loss on the extinguishment of the debt of $ 34,110 for the year ended december 31 , 2017 , which is comprised of $ 32,356 of redemption premium and tender offer costs as well as net non-cash charges of $ 1,754. mississippi dispute . in january 2016 , the attorney general for mississippi filed a motion in state chancery court in jackson county , mississippi to enforce the march 1996 settlement agreement alleging that liggett owes mississippi at least $ 27,000 in damages ( including interest ) , and $ 20,000 in punitive damages and attorneys ' fees . in april 2017 , the court ruled that the settlement agreement should be enforced and referred the matter to a special master for further proceedings to determine the amount of damages , if any , to be awarded . proceedings before the special master have resumed and the parties are engaged in discovery related to the remaining issues . a status conference is scheduled for march 29 , 2018 and a scheduling order was entered setting a hearing on damages during the week of july 23 , 2018. tax cuts and jobs act of 2017. on december 22 , 2017 , the tax act was enacted and has made significant changes to the internal revenue code . changes include , but are not limited to , a corporate tax rate decrease from 35 % to 21 % effective for tax years beginning after december 31 , 2017 and limiting interest expense deductions to 30 % of taxable income before interest , depreciation and amortization from 2018 to 2021 and then taxable income before interest thereafter . the tax act permits disallowed interest expense to be carried forward indefinitely . we have estimated our provision for income taxes in accordance with the tax act and guidance available as of the date of this filing . our estimate of the provisional amount related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future was $ 28,845 at december 31 , 2017 . the provisional estimates are based on our initial analysis of the tax act . given the significant complexity of the tax act , anticipated guidance from the u.s. treasury about implementing the tax act , and the potential for additional guidance from the securities and exchange commission or the financial accounting standards board related to the tax act , these estimates may be adjusted during 2018. on december 22 , 2017 , staff accounting bulletin no . 118 ( “ sab 118 ” ) was issued to address the application of us gaap in situations when a registrant does not have the necessary information available , prepared , or analyzed ( including computations ) in reasonable detail to complete the accounting for certain income tax effects of the tax act . in accordance with sab 118 , we have determined that the deferred tax benefit of $ 28,845 recorded in connection with the remeasurement of certain deferred tax assets and liabilities is a provisional amount and a reasonable estimate at december 31 , 2017 . 20 times square . in february 2018 , our 20 times square venture entered into an agreement to sell its underlying real estate . the closing is scheduled to occur on or before may 1 , 2018. the agreement provides that , upon closing , we will receive our net capital investment of $ 19,041 plus a 12 % annual return . in addition , after completion of the development , we will receive a percentage of any residual proceeds after repayment of debt and closing costs in accordance with our ownership interest . the venture agreed that upon closing of this real estate sale it would enter into an agreement that would require it to complete the construction of 20 times square . 32 recent developments in smoking-related litigation the cigarette industry continues to be challenged on numerous fronts . new cases continue to be commenced against liggett and other cigarette manufacturers . liggett could be subjected to substantial liabilities and bonding requirements from litigation relating to cigarette products . adverse litigation outcomes could have a negative impact on our ability to operate due to their impact on cash flows . it is possible that there could be adverse developments in pending cases including the certification of additional class actions . an unfavorable outcome or settlement of pending tobacco-related litigation could encourage the commencement of additional litigation . in addition , an unfavorable outcome in any tobacco-related litigation could have a material adverse effect on our consolidated financial position , results of operations or cash flows . liggett could face difficulties in obtaining a bond to stay execution of a judgment pending appeal . critical accounting policies general . the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses . significant estimates subject to material changes in the near term include impairment charges , valuation of intangible assets , inventory valuation , promotional accruals , sales returns and allowances , actuarial assumptions of pension plans , deferred tax assets , the estimated fair value of embedded derivative liabilities , settlement accruals , valuation of investments , including other-than-temporary impairments to such investments , and litigation and defense costs . actual results could differ from those estimates . revenue recognition . revenues from sales of cigarettes and e-cigarettes are recognized upon the shipment of finished goods when title and risk of loss have passed to the customer , there is persuasive evidence of an arrangement , the sale price is fixed or determinable and collectibility is reasonably assured . story_separator_special_tag we provide an allowance for expected sales returns , net of any related inventory cost recoveries ( e.g . federal excise taxes ) . certain sales incentives , including promotional price discounts , are classified as reductions of net sales . we include federal excise taxes on tobacco sales in revenues and cost of goods sold . in accordance with authoritative guidance on how taxes collected from customers and remitted to governmental authorities should be presented in the income statement ( that is , gross versus net presentation ) , we include federal excise taxes on cigarettes in revenues and cost of goods sold . such revenues and cost of sales totaled $ 460,561 , $ 425,980 , and $ 439,647 for the years ended december 31 , 2017 , 2016 and 2015 , respectively . since our primary line of business is tobacco , our financial position and our results of operations and cash flows have been and could continue to be materially adversely affected by significant unit sales volume declines for us and at the industry level , regulation , litigation and defense costs , increased tobacco costs or reductions in the selling price of cigarettes in the near term . revenue from real estate transactions is recognized only when persuasive evidence of an arrangement exists , the price is fixed or determinable , the transaction has been completed and collectibility of the resulting receivable is reasonably assured . real estate commissions earned by the company 's real estate brokerage businesses are recorded as revenue on a gross basis upon the closing of a real estate transaction as evidenced when the escrow or similar account is closed , the transaction documents have been recorded and funds are distributed to all appropriate parties . commissions expenses are recognized concurrently with related revenues . property management fees and rental commissions earned are recorded as revenue when the related services are performed . contingencies . we record liggett 's product liability legal expenses and other litigation costs as operating , selling , administrative and general expenses as those costs are incurred . as discussed in note 15 to our consolidated financial statements , legal proceedings regarding liggett 's tobacco products are pending or threatened in various jurisdictions against liggett and us . we record provisions in our consolidated financial statements for pending litigation when we determine that an unfavorable outcome is probable and the amount of loss can be reasonably estimated . at the present time , while it is reasonably possible that an unfavorable outcome in a case may occur , except as disclosed in note 15 to our consolidated financial statements and discussed below related to the 16 cases where an adverse verdict was entered against liggett : ( i ) management has concluded that it is not probable that a loss has been incurred in any of the pending tobacco-related cases ; or ( ii ) management is unable to reasonably estimate the possible loss or range of loss that could result from an unfavorable outcome of any of the pending tobacco-related cases and , therefore , management has not provided any amounts in the consolidated financial statements for unfavorable outcomes , if any . legal defense costs are expensed as incurred . although liggett has generally been successful in managing litigation in the past , litigation is subject to uncertainty and significant challenges remain , particularly with respect to the engle progeny cases . except as discussed in note 15 regarding the cases where an adverse verdict against liggett remains on appeal , management is unable to estimate the possible loss or range of loss from the remaining engle progeny cases as there are currently multiple defendants in each case and , in most cases , discovery has not occurred or is limited . as a result , the company lacks information about whether plaintiffs are in fact engle class members ( non-class members ' claims are generally time-barred ) , the relevant 33 smoking history , the nature of the alleged injury and the availability of various defenses , among other things . further , plaintiffs typically do not specify their demand for damages . there is other tobacco-related litigation pending against liggett , which is discussed in note 15 to our consolidated financial statements . management is not able to reasonably predict the outcome of any of the other tobacco-related litigation pending or threatened against liggett . a reader of this form 10-k should not infer from the absence of any reserve in our consolidated financial statements that we will not be subject to significant tobacco-related liabilities in the future . litigation is subject to many uncertainties , and it is possible that our consolidated financial position , results of operations or cash flows could be materially adversely affected by an unfavorable outcome in any such tobacco-related litigation . there may be several other proceedings , lawsuits and claims pending against us and certain of our consolidated subsidiaries unrelated to tobacco or tobacco product liability . we are of the opinion that the liabilities , if any , ultimately resulting from such other proceedings , lawsuits and claims should not materially affect our financial position , results of operations or cash flows . settlement agreements . as discussed in note 15 to our consolidated financial statements , liggett and vector tobacco are participants in the msa . liggett and vector tobacco have no payment obligations under the msa except to the extent their market shares exceed approximately 1.65 % and 0.28 % , respectively , of total cigarettes sold in the united states . their obligations , and the related expense charges under the msa , are subject to adjustments based upon , among other things , the volume of cigarettes sold by liggett and vector tobacco , their relative market shares and inflation . since relative market shares are based on cigarette shipments , the best estimate of the allocation of charges under the msa is recorded in cost of goods sold as the products are shipped .
| the $ 116,527 ( 6.9 % ) increase in revenues was due to a $ 69,330 increase in tobacco revenues due primarily to the increase in eagle 20 's sales and a $ 47,259 increase in real estate revenues , primarily related to increases in douglas elliman 's brokerage revenues . cost of sales . total cost of sales was $ 1,228,046 for the year ended december 31 , 2017 compared to $ 1,097,344 for the year ended december 31 , 2016 . the $ 130,702 ( 11.9 % ) increase in cost of sales was due to a $ 78,337 increase in tobacco cost of sales related to increased msa expense due to higher sales volume , offset by lower per unit manufacturing expense and a $ 52,449 increase in real estate cost of sales , which was primarily related to douglas elliman 's increased commissions . expenses . operating , selling , general and administrative expenses were $ 339,151 for the year ended december 31 , 2017 compared to $ 340,567 for the year ended december 31 , 2016 . the $ 1,416 ( 0.4 % ) decline in operating , selling and administrative expenses is due to a $ 3,628 decline in real estate operating , selling and administrative expenses primarily at douglas elliman and a $ 493 decline in e-cigarette expenses . this was offset by an $ 873 increase in corporate and other expenses and a $ 1,832 increase in tobacco expenses . operating income . operating income was $ 233,688 for the year ended december 31 , 2017 compared to $ 232,997 for the year ended december 31 , 2016 , an increase of $ 691 ( 0.3 % ) . tobacco operating income increased by $ 2,611 and e-cigarettes operating loss declined by $ 515 . this was offset by a $ 1,562 decline in real estate operating income , primarily related to douglas elliman , and an $ 873 increase in corporate and other expenses . other expenses . other expenses were $ 144,520 and $ 106,568 for the years ended december 31 , 2017 and 2016 , respectively . for the year ended december 31 , 2017 , other expenses primarily consisted
| 12,135 |
with respect to risk-based contracts , all or a portion of revenues earned are based on contractually defined percentages of either product revenues or the market value of prescriptions written and filled in a given period . these contracts are generally for terms of one to two years and may be renewed or extended . the majority of these contracts , however , are terminable by the customer for any reason upon 30 to 90 days ' notice . certain contracts provide for termination payments if the customer terminates the agreement without cause . typically , however , these penalties do not offset the revenue we could have earned under the contract or the costs we may incur as a result of its termination . the loss or termination of a large pharmaceutical detailing contract or the loss of multiple contracts could have a material adverse effect on our business , financial condition or results of operations . historically , we have derived a significant portion of its service revenue from a limited number of customers . concentration of business in the pharmaceutical services industry is common and the industry continues to consolidate . as a result , we are likely to continue to experience significant customer concentration in future periods . for the years ended december 31 , 2008 and 2007 , our three largest customers , who each individually represented 10 % or more of our service revenue , together accounted for approximately 52.5 % and 37.9 % of its service revenue , respectively . for the year ended december 31 , 2006 our two largest customers , who each individually represented 10 % or more of our service revenue , together accounted for approximately 46.8 % of our service revenue . see note 14 to our consolidated financial statements . revenue and associated costs under marketing service contracts are generally based on a single deliverable such as a promotional program , accredited continuing medical education seminar or marketing research/advisory program . the contracts are generally terminable by the customer for any reason . upon termination , the customer is generally responsible for payment for all work completed to date , plus the cost of any nonrefundable commitments made on behalf of the customer . there is significant customer concentration in our pharmakon business , and the loss or termination of one or more of pharmakon 's large master service agreements could have a material adverse effect on our business , financial condition or results of operations . due to the typical size of most contracts of tvg and vim , it is unlikely the loss or termination of any individual tvg or vim contract would have a material adverse effect on our business , financial condition or results of operations . service revenue is recognized on product detailing programs and certain marketing , promotional and medical education contracts as services are performed and the right to receive payment for the services is assured . many of the product detailing contracts allow for additional periodic incentive fees to be earned if certain performance benchmarks have been attained . revenue earned from incentive fees is recognized in the period earned and when we are reasonably assured that payment will be made . under performance based contracts , revenue is recognized when the performance based parameters are achieved . many contracts also stipulate penalties if agreed upon performance benchmarks have not been met . revenue is recognized net of any potential penalties until the performance criteria relating to the penalties have been achieved . commissions based revenue is recognized when performance is completed . revenue from recruiting and hiring contracts is recognized at the time the candidate begins full-time employment less a provision for sales allowances based on contractual commitments and historical experience . revenue and associated costs from marketing research contracts are recognized upon completion of the contract . these contracts are generally short-term in nature typically lasting two to six months . 22 pdi , inc. annual report on form 10-k ( continued ) under our promotional program included in the product commercialization segment , we recognize revenue quarterly based on a specified formula set forth in our product commercialization agreement with novartis related to product sales for the quarter . we will not receive any compensation during any quarter in which product sales are below certain thresholds established for that quarter as set forth in the agreement . revenues recognized ( if any ) under this agreement will be directly impacted by prescription data provided by a third party vendor and other information provided by novartis . additionally , we must perform a minimum number of sales calls to designated physicians each year , and the failure to satisfy this requirement could result in penalties being imposed on pdi or provide the customer with the ability to terminate the agreement . cost of services consist primarily of the costs associated with executing product detailing programs , performance based contracts or other sales and marketing services identified in the contract . cost of services include personnel costs and other costs associated with executing a product detailing or other marketing or promotional program , as well as the initial direct costs associated with staffing a product detailing program . such costs include , but are not limited to , facility rental fees , honoraria and travel expenses , sample expenses and other promotional expenses . personnel costs , which constitute the largest portion of cost of services , include all labor related costs , such as salaries , bonuses , fringe benefits and payroll taxes for the sales representatives , sales managers and professional staff that are directly responsible for executing a particular program . initial direct program costs are those costs associated with initiating a product detailing program , such as recruiting , hiring , and training the sales representatives who staff a particular product detailing program . all personnel costs and initial direct program costs , other than training costs , are expensed as incurred for service offerings . story_separator_special_tag reimbursable out-of-pocket expenses include those relating to travel and other similar costs , for which the company is reimbursed at cost by its customers . reimbursements received for out-of-pocket expenses incurred are characterized as revenue and an identical amount is included as cost of goods and services in the consolidated statements of operations . training costs include the costs of training the sales representatives and managers on a particular product detailing program so that they are qualified to properly perform the services specified in the related contract . for the majority of the company 's contracts , training costs are reimbursable out-of-pocket expenses . for contracts where the company is responsible for training costs , these costs are deferred and amortized on a straight-line basis over the shorter of the life of the contract to which they relate or 12 months . contract loss provisions provisions for losses to be incurred on contracts are recognized in full in the period in which it is determined that a loss will result from performance of the contractual arrangement . performance based contracts have the potential for higher returns but also an increased risk of contract loss as compared to the traditional fee for service contracts . we recognized a contract loss related to our product commercialization agreement in 2008. see note 10 to our consolidated financial statements . allowance for doubtful accounts we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . we review a customer 's credit history before extending credit . we establish an allowance for doubtful accounts based on the aging of a customer 's accounts receivable or when we become aware of a customer 's inability to meet its financial obligations ( e.g. , a bankruptcy filing ) . we operate almost exclusively in the pharmaceutical industry and to a great extent our revenue is dependent on a limited number of large pharmaceutical companies . we also partner with customers in the emerging pharmaceutical sector , some of whom may have limited financial resources . a general downturn in the pharmaceutical industry or a material adverse event to one or more of our emerging pharmaceutical customers could result in higher than expected customer defaults requiring additional allowances . 23 pdi , inc. annual report on form 10-k ( continued ) goodwill , intangibles and other long-lived assets we allocate the cost of acquired companies to the identifiable tangible and intangible assets and liabilities acquired , with the remaining amount being classified as goodwill . since the entities we have acquired do not have significant tangible assets , a significant portion of the purchase price has been allocated to intangible assets and goodwill . the identification and valuation of these intangible assets and the determination of the estimated useful lives at the time of acquisition , as well as the completion of annual impairment tests require significant management judgments and estimates . these estimates are made based on , among other factors , consultations with an accredited independent valuation consultant , reviews of projected future operating results and business plans , economic projections , anticipated future cash flows and the cost of capital . the use of alternative estimates and assumptions could increase or decrease the estimated fair value of goodwill and other intangible assets , and potentially result in a different impact to our results of operations . further , changes in business strategy and or market conditions may significantly impact these judgments thereby impacting the fair value of these assets , which could result in an impairment of the goodwill and acquired intangible assets . we test goodwill for impairment at least annually and whenever events or circumstances change that indicate impairment may have occurred . these events or circumstances could include a significant long-term adverse change in the business climate , poor indicators of operating performance or a sale or disposition of a significant portion of a reporting unit . we test goodwill for impairment at the reporting unit level , which is one level below its operating segments . goodwill has been assigned to the reporting units to which the value of the goodwill relates . we currently have six reporting units ; however , only one reporting unit , pharmakon , includes goodwill . goodwill is tested by estimating the fair value of the reporting unit using a discounted cash flow model . the estimated fair value of the reporting unit is then compared with the carrying value including goodwill , to determine if any impairment exists . in assessing the recoverability of goodwill , projections regarding estimated future cash flows and other factors are made to determine the fair value of the respective reporting units . the key estimates and factors used in the discounted cash flow valuation include revenue growth rates and profit margins based on internal forecasts , terminal value and the weighted-average cost of capital used to discount future cash flows . we review the recoverability of long-lived assets and finite-lived intangible assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable . if the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset , an impairment loss is recognized by reducing the recorded value of the asset to its fair value measured by future discounted cash flows . this analysis requires estimates of the amount and timing of projected cash flows and , where applicable , judgments associated with , among other factors , the appropriate discount rate . such estimates are critical in determining whether any impairment charge should be recorded and the amount of such charge if an impairment loss is deemed to be necessary . in addition , future events impacting cash flows for existing assets could render a write-down or write-off necessary that previously required no such write-down or write-off .
| million associated with an accrued contract loss , which represents the future loss expected to be incurred by us to fulfill our contractual obligations under our existing product commercialization agreement until february 1 , 2010 , the early termination date for this contract . see note 10 for more details . this segment had no activity in 2007. the sales services segment had an increase of $ 2.7 million in cost of services , which is primarily attributable to the increase in revenue at select access . cost of services within the marketing services segment decreased approximately $ 2.8 million , or 16.7 % primarily due to the decrease in new projects and the curtailment or postponement of certain existing projects at pharmakon . replace_table_token_5_th 27 pdi , inc. annual report on form 10-k ( continued ) gross profit in the sales services segment increased slightly on higher revenue for the year ended 2008 as compared to year ended 2007. in 2007 , we recognized $ 0.6 million in revenue associated with a contract with a former emerging pharmaceutical client for services performed in 2006. because of the uncertainty surrounding collections , we recognized revenue from this client on a cash basis and all costs associated with this contract were recognized in 2006. the decrease in gross profit attributable to the marketing services segment was commensurate with the decrease in revenue discussed above as total gross profit decreased at all three business units . the gross profit percentage decreased to 40.8 % from 44.1 % in the comparable prior year period primarily due to a decrease in margin percentage at tvg attributed to a change in product mix . the product commercialization segment 's negative gross profit was attributable to our sales force , promotional costs and contract loss accrual associated with this program plus the $ 1 million non-refundable upfront payment we made to novartis as per the terms of our
| 12,136 |
debiopharm has assumed all future development responsibility for debio 0932 and debiopharm or a debiopharm licensee will incur all future costs related to the development , registration and commercialization of products under the agreement . 50 in april 2010 , debiopharm initiated a phase i clinical trial to evaluate the safety of debio 0932 in patients with advanced solid tumors . in 2011 , debiopharm successfully advanced debio 0932 through the dose escalation portion of this phase i study and presented results of this study at the annual meeting of the american society of clinical oncology in june 2012. in august 2012 , debiopharm initiated the hsp90 inhibition and lung cancer outcomes study , or halo , a phase i-ii clinical trial of the safety and efficacy of debio 0932 in combination with standard of care first- and second-line chemotherapy agents in patients with advanced , stage iiib or iv nsclc , that is characterized as wild-type egfr . in addition , debiopharm has recently indicated that it plans to initiate another phase i study in patients with renal cell carcinoma during the second half of 2013. we are eligible for contingent payments upon treatment of the fifth patient in each of these phase ii studies if debio 0932 progresses to this stage . liquidity since our inception , we have funded our operations primarily through license fees , contingent cash payments , research and development funding from our corporate collaborators , the private and public placement of our equity securities , debt financings and the monetization of certain royalty rights . we have never been profitable on an annual basis and have an accumulated deficit of $ 748,505,000 as of december 31 , 2012. we expect that we will incur significant operating losses for the next several years as we seek to advance our research and development programs . although genentech recently received fda approval to market erivedge in the u.s. , the level of future sales and the amount of resulting royalty revenue payable to us are both highly uncertain . in addition , in december 2012 we entered into a $ 30,000,000 debt financing that is secured by erivedge royalty revenues and for which up to $ 4,000,000 , $ 8,000,000 and $ 12,000,000 of our royalty revenues in 2013 , 2014 and 2015 are required to be applied to debt repayments . for years after 2015 , all royalty revenues that we receive will be applied to debt repayment until the debt is fully repaid . we currently estimate that the debt will be repaid by early 2017 , but the actual timing of repayment will be dependent on the amount of royalty revenues that we earn on sales of erivedge . we will need to generate significant revenues to achieve profitability and do not expect to achieve profitability in the foreseeable future , if at all . as a result of uncertainty in the amounts of future erivedge royalty revenue and the period that will be required to repay the royalty-secured debt obligation , the timing of potential milestone payments under our agreements with genentech , debiopharm and lls and the variability in our operating expenses , we expect that our financial results in the future will be variable . we anticipate that existing capital resources as of december 31 , 2012 should enable us to maintain current and planned operations into mid-2015 . our ability to continue funding our planned operations into and beyond mid-2015 is dependent on future contingent payments that we may receive from genentech , debiopharm , or lls upon the achievement of development and regulatory approval objectives , our ability to manage our expenses and our ability to raise additional funds through additional corporate collaborations , equity or debt financings , or from other sources of financing . we believe that near term key drivers to our success will include : genentech 's ability to successfully scale up the commercialization of erivedge in advanced bcc in the u.s. ; genentech 's and or roche 's receipt of approval to commercialize erivedge in advanced bcc in europe and other territories including in australia as well as its ability to successfully launch and commercialize erivedge in these markets ; positive results in genentech 's ongoing phase ii clinical trial in patients with operable bcc ; our ability to successfully plan , finance and complete current and planned clinical trials for cudc-427 , cudc-907 and cudc-101 and advance each drug candidate into phase ii clinical testing ; debiopharm 's ability to advance debio 0932 into later stages of clinical development ; and 51 our ability to successfully enter into one or more material licenses or collaboration agreements for our proprietary drug candidates . in the longer term , a key driver to our success will be our ability , and the ability of any current or future collaborator or licensee , to successfully commercialize drugs other than erivedge based upon our proprietary technologies . our current collaboration and license agreements are summarized as follows : genentech hedgehog pathway inhibitor collaboration . under the terms of the june 2003 agreement with genentech , we granted genentech an exclusive , global , royalty-bearing license , with the right to sublicense , to make , use , sell and import small molecule and antibody hedgehog pathway inhibitors . genentech subsequently granted a sublicense to roche for non-u.s. rights to gdc-0449 , other than in japan where such rights are held by chugai . genentech and roche have primary responsibility for worldwide clinical development , regulatory affairs , manufacturing and supply , formulation and sales and marketing . we are not a party to this agreement between genentech and roche but we are eligible to receive cash payments for regulatory filing and approval objectives achieved and future royalties on products developed outside of the u.s. , if any , under our june 2003 collaboration agreement with genentech . story_separator_special_tag the lead drug candidate being developed under this program is erivedge , a first-in-class orally-administered small molecule hedgehog pathway inhibitor that is the first and only fda-approved medicine for adults with advanced forms of basal cell carcinoma . genentech and roche are responsible for worldwide clinical development , regulatory affairs , manufacturing and supply , formulation and sales and marketing of erivedge . we are eligible to receive cash payments for regulatory filing and approval objectives achieved and future royalties on products developed outside of the u.s. , if any , under our june 2003 collaboration agreement with genentech . we are eligible to receive up to $ 115,000,000 in contingent cash payments for the development of erivedge or another small molecule , assuming the successful achievement by genentech and roche of specified clinical development and regulatory objectives , of which we have received $ 46,000,000 to date . we are also eligible to receive royalties on sales of any hedgehog pathway inhibitor products that are successfully commercialized by genentech and roche , for which we recognized $ 1,530,000 in such revenue for sales of erivedge during the year ended december 31 , 2012. future royalty payments related to erivedge will service the outstanding debt and accrued interest to biopharma-ii , up to the quarterly caps for 2013 , 2014 and 2015 , and until the debt is fully repaid thereafter . genentech iap inhibitor license agreement . in november 2012 , we licensed from genentech the exclusive , worldwide rights for the development and commercialization of cudc-427 , a small molecule that is designed to promote cancer cell death by antagonizing iap proteins . under the terms of the license agreement , we have the sole right and responsibility for all research , development , manufacturing and commercialization activities related to cudc-427 . during the fourth quarter of 2012 , we incurred expenses of $ 9,500,000 representing an up-front license payment and technology transfer costs payable to genentech . in addition , genentech is entitled to receive milestone payments upon the first commercial sale of cudc-427 in certain territories and tiered single-digit royalties on net sales of cudc-427 . the leukemia & lymphoma society agreement . in november 2011 , we entered into an agreement with lls , under which lls will provide approximately 50 % of the direct costs of the development of cudc-907 , up to $ 4,000,000 , through milestone payments upon our achievement of specified development objectives with cudc-907 , in patients with relapsed or refractory lymphomas and multiple myeloma . in the fourth quarter of 2012 , we earned milestone payments of $ 1,000,000 under the terms of the agreement with lls related to cudc-907 . we will be obligated to make future contingent payments , including potential royalty payments under our agreement with lls upon our successful entry into a partnering agreement for cudc-907 or upon the achievement of regulatory and commercial objectives , with such payments being limited to a maximum of 2.5 times the actual milestone payments that we receive from lls under this agreement . 52 debiopharm hsp90 collaboration . in august 2009 , we granted a worldwide , exclusive royalty-bearing license to our hsp90 inhibitor technology to debiopharm . the lead molecule under this license collaboration was designated debio 0932 by debiopharm . debiopharm has assumed all future development responsibility and costs related to the development , registration and commercialization of products under the agreement . as part of the consideration under the agreement , debiopharm paid us an up-front license fee of $ 2,000,000 , and we received $ 11,000,000 during 2010 in payments upon debiopharm 's successful achievement of clinical and regulatory objectives , including the approval from french regulatory authorities of debiopharm 's clinical trial application , or cta , to begin phase i clinical trials and the treatment of the fifth patient in this trial . we are also eligible to receive royalties if any products under the license agreement are successfully developed and commercialized . for net sales of debio 0932 that are made directly by debiopharm , we are entitled to a high single-digit to low double-digit royalty , which escalates within this range with increasing product sales . in certain specified circumstances , the royalty rate applicable to debio 0932 may be reduced . we believe that it is more likely that debiopharm will sublicense debio 0932 following its further development , and in this case we are entitled to a share of royalties that debiopharm receives from such sublicensee . financial operations overview general . our future operating results will largely depend on the magnitude of payments from our current and potential future corporate collaborators and the progress of drug candidates currently in our research and development pipeline . the results of our operations will vary significantly from year to year and quarter to quarter and depend on , among other factors , the timing of our entry into new collaborations , if any , the timing of the receipt of payments , if any , from new or existing collaborators and the cost and outcome of any preclinical development or clinical trials then being conducted . we anticipate that existing capital resources as of december 31 , 2012 should enable us to maintain current and planned operations into mid-2015 . we expect to end 2013 with cash , cash equivalents , marketable securities and investments of $ 31 million to $ 36 million , excluding any potential payments from existing or new collaborators . we expect that our expenses associated with the clinical development will increase as we continue to treat patients in our phase i trials for cudc-907 and cudc-101 in head and neck cancers and initiate additional trials for cudc-427 and cudc-907 , resulting in an increase in our research and development expenses for future periods as compared to prior years .
| as a result of the fda 's approval of erivedge for advanced bcc , we earned a $ 10,000,000 payment from genentech , which we recognized as license revenue during the year ended december 31 , 2012. in addition , we recorded research and development expenses related to the fda 's approval of erivedge of $ 1,464,000 during this same period which represents our obligations to university licensors . of this amount , $ 964,000 represents the fair value of a one-time issuance of an aggregate of 200,000 shares of our common stock to two university licensors in connection with the fda approval of erivedge . the remaining $ 500,000 represents sublicense fees we paid to these same university licensors upon our receipt of the $ 10,000,000 milestone payment . in may 2012 , we earned a $ 4,000,000 milestone payment in connection with roche 's filing of an application for marketing registration for erivedge with australia 's tga , which we also recognized as license revenue during the year ended december 31 , 2012. during the fourth quarter of 2011 , roche submitted an maa for erivedge to the ema , for which we earned a $ 6,000,000 milestone payment . in addition , we made cash payments of $ 950,000 which represents our obligations to university licensors . of this amount , $ 450,000 represents one-time cash milestones specific to the australian territory and the remaining $ 500,000 represents ongoing sublicense fees totaling 5 % of the $ 10,000,000 in milestone payments that we received from genentech . as a result of these payments , we recognized expenses of $ 650,000 and $ 300,000 during the years ended december 31 , 2012 and 2011 , respectively . 48 roche has indicated that it anticipates potential ema approval for erivedge during the first half of 2013. roche also filed new drug applications in 2012 for marketing registration with health agencies in other territories seeking approval for erivedge in advanced bcc . erivedge 's fda approval and roche 's regulatory submissions in regards to erivedge
| 12,137 |
we do not expect to generate any meaningful product sales or royalty revenue unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates , which we expect will take a number of years . if we obtain regulatory approval for any of our product candidates , we expect to incur significant commercialization expenses related to product sales , marketing , manufacturing and distribution . accordingly , we will seek to fund our operations through public or private equity or debt financings or other sources . however , we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all . our failure to raise capital or enter into such other arrangements when needed would have a negative effect on our financial condition and ability to develop our product candidates . due to the global outbreak of sars-cov-2 , the novel strain of coronavirus that causes coronavirus disease 19 ( covid-19 ) , we experienced impacts on certain aspects of our business , including our clinical trial and research and development activities , during the year ended december 31 , 2020. for example , certain of our research and development activities have been delayed or disrupted as a result of measures we have implemented in response to governmental “ stay at home ” orders and in the interests of public health and safety , and we have experienced delays or disruptions in the initiation and conduct of our clinical trials as a result of prioritization of hospital and other medical resources toward pandemic efforts , policies and procedures implemented at clinical sites with respect to the conduct of clinical trials , and other precautionary measures taken in treating patients or in practicing medicine in response to the covid-19 pandemic . the scope and duration of these delays and disruptions , and the ultimate impacts of covid-19 on our operations , are currently unknown . we are continuing to actively monitor the situation and may take further precautionary and preemptive actions as may be required by federal , state or local authorities or that we determine are in the best interests of public health and safety and that of our patient community , employees , partners , and stockholders . we can not predict the effects that such actions , or the impact of covid-19 on global business operations and economic conditions , may have on our business , strategy , collaborations , or financial and operating results . financial operations overview we conduct substantially all of our activities through fate therapeutics , inc. , a delaware corporation , at our facilities in san diego , california . fate therapeutics , inc. owns 100 % of the voting shares of tfinity therapeutics , inc. ( tfinity ) , 100 % of the voting shares of fate therapeutics ltd. ( fate ltd. ) , incorporated in the united kingdom , and 100 % of the voting shares of fate therapeutics b.v. ( fate b.v. ) , incorporated in the netherlands . the following information is presented on a consolidated basis to include the accounts of fate therapeutics , inc. , tfinity , fate b.v. , and fate ltd. to date , the aggregate operations of our subsidiaries have not been significant and all intercompany transactions and balances have been eliminated in consolidation . collaboration revenue to date , we have not generated any revenues from therapeutic product sales or royalties . our revenues have been derived from collaboration agreements and government grants . 72 agreement with janssen biotech , inc. on april 2 , 2020 ( the effective date ) , we entered into a collaboration and option agreement ( the janssen agreement ) with janssen biotech , inc. ( janssen ) , part of the janssen pharmaceutical companies of johnson & johnson . additionally , on the effective date , we entered into a stock purchase agreement ( the stock purchase agreement ) with johnson & johnson innovation - jjdc , inc. ( jjdc ) . under the terms of the janssen agreement and the stock purchase agreement taken together , we received $ 100.0 million , of which $ 50.0 million is an upfront cash payment and $ 50.0 million is in the form of an equity investment by jjdc . additionally , we are entitled to receive fees for the conduct of all research , preclinical development and ind-enabling activities performed by us under the janssen agreement . we determined the common stock purchase by jjdc represented a premium of $ 9.93 per share , or $ 16.0 million in aggregate ( the equity premium ) , and the remaining $ 34.0 million was recorded as issuance of common stock in shareholders ' equity . we concluded that janssen represented a customer and in accordance with accounting standards codification ( asc ) 606 , revenue from contracts with customers , we determined that the initial transaction price under the janssen agreement equals $ 66.0 million , consisting of the upfront , non-refundable and non-creditable payment of $ 50.0 million and the equity premium of $ 16.0 million . in addition , we identified our potential performance obligations under the janssen agreement , including our grant to janssen of a license to certain of our intellectual property subject to certain conditions , our conduct of research and development services , and our participation in various joint oversight committees . we determined that our grant of a license to janssen and our conduct of research and development services should be accounted for as one combined performance obligation , and that the combined performance obligation is transferred over the expected term of the conduct of the research and development services , which is estimated to be four years . additionally , we determined that participation in the various joint oversight committees did not constitute a performance obligation as our participation in the various joint oversight committees does not transfer a service . story_separator_special_tag during the year ended december 31 , 2020 , we recognized $ 16.8 million of collaboration revenue under the janssen agreement . as of december 31 , 2020 , aggregate deferred revenue related to the janssen agreement was $ 59.5 million . agreement with ono pharmaceutical co. , ltd. on september 14 , 2018 , we entered into a collaboration and option agreement ( the ono agreement ) with ono for the joint development and commercialization of two off-the-shelf ipsc-derived car t-cell product candidates ( the collaboration candidate 1 and the collaboration candidate 2 ) . pursuant to the terms of the ono agreement , we received an upfront , non-refundable and non-creditable payment of $ 10.0 million . additionally , we are entitled to receive fees for the conduct of research and development under a joint development plan , which fees are estimated to be $ 20.0 million in aggregate . we concluded that ono represented a customer and in accordance with asc 606 , we determined that the initial transaction price under the ono agreement equals $ 30.0 million , consisting of the upfront , non-refundable and non-creditable payment of $ 10.0 million and the aggregate estimated research and development fees of $ 20.0 million . in addition , we identified our performance obligations under the ono agreement , including our grant to ono of a license to certain of our intellectual property subject to certain conditions , our conduct of research services , and our participation in a joint steering committee . we determined that all performance obligations should be accounted for as one combined performance obligation since no individual performance obligation is distinct , and that the combined performance obligation is transferred over the expected term of the conduct of the research services , which is estimated to be four years . on december 4 , 2020 , we entered into a letter agreement ( the ono letter agreement ) with ono in connection with the ono agreement . pursuant to the ono letter agreement , ono delivered to us proprietary antigen binding domains targeting an antigen expressed on certain solid tumors and nominated such antigen binding domains as the ono antigen binding domain for incorporation into collaboration candidate 2. in connection with such nomination , ono paid us a milestone fee of $ 10.0 million for further research and development of collaboration candidate 2 under the ono agreement , and ono continues to maintain its option to collaboration candidate 2 under the ono agreement . in addition , together with ono , we agreed to the termination of the ono agreement with respect to collaboration candidate 1. we retain all rights , in our sole discretion , to research , develop and commercialize collaboration candidate 1 throughout the world without any obligation to ono . during the years ended december 31 , 2020 and 2019 , we recognized $ 14.6 million and $ 9.3 million , respectively , of collaboration revenue under the ono agreement . as of december 31 , 2020 , aggregate deferred revenue related to the ono agreement and ono letter agreement was $ 7.7 million . 73 agreement with juno therapeutics , inc. on may 4 , 2015 , we entered into a strategic research collaboration and license agreement ( the juno agreement ) with juno therapeutics , inc. ( juno ) to screen for and identify small molecule modulators that enhance the therapeutic properties of juno 's genetically-engineered t-cell immunotherapies . no revenue was recognized during the year ended december 31 , 2020. during the year ended december 31 , 2019 , we recognized $ 1.4 million of collaboration revenue under the juno agreement . on may 4 , 2019 , the four-year initial research term under the juno agreement concluded as scheduled . the final quarterly research payment of $ 0.2 million was received during may 2019 and no additional payments are expected . research and development expenses research and development expenses consist of costs associated with the research , preclinical development , process and scale-up development , manufacture and clinical development of our product candidates , the research and development of our cell programming technology including our ipsc product platform , and the performance of research and development activities under our collaboration agreements . these costs are expensed as incurred and include : salaries and employee-related costs , including stock-based compensation ; costs incurred under clinical trial agreements with investigative sites ; costs to acquire , develop and manufacture preclinical study and clinical trial materials , including our product candidates ; costs associated with conducting our preclinical , process and scale-up development , manufacturing , clinical and regulatory activities , including fees paid to third-party professional consultants , service providers and suppliers ; costs incurred for our research , development and manufacturing activities , including under our collaboration agreements ; costs for laboratory equipment , materials and supplies for the manufacture of our product candidates and the conduct of our research activities ; costs incurred to license and maintain intellectual property ; and facilities , depreciation and other expenses including allocated expenses for rent and maintenance of facilities . we plan to increase our current level of research and development expenses for the foreseeable future as we continue the clinical and preclinical development of our product candidates , research and develop our cell programming technology including our ipsc product platform , and perform our obligations under collaboration agreements including under our agreements with janssen , ono , university of minnesota and memorial sloan kettering .
| other income ( expense ) , net was ( $ 45.3 ) million and $ 2.6 million for the years ended december 31 , 2020 and 2019 , respectively . during the year ended december 31 , 2020 , we recorded $ 47.7 million in other expense attributable to the fair value of the stock price appreciation milestones under the amended msk license . other income ( expense ) , net for the year ended december 31 , 2020 also consisted of interest income earned on cash and cash equivalents and interest income from investments ( including the amortization of discounts and premiums ) . other income ( expense ) , net for the year ended december 31 , 2019 consisted of interest income earned on cash and cash equivalents , interest income from investments ( including the amortization of discounts and premiums ) , and interest expense relating to the term loan with silicon valley bank . liquidity and capital resources we have incurred losses and negative cash flows from operations since inception . as of december 31 , 2020 , we had an accumulated deficit of $ 556.9 million and anticipate that we will continue to incur net losses for the foreseeable future . the following table sets forth a summary of the net cash flow activity for each of the years ended december 31 : replace_table_token_2_th operating activities cash used in operating activities decreased from $ 83.2 million for the year ended december 31 , 2019 to $ 39.2 million for the year ended december 31 , 2020. during the year ended december 31 , 2020 , cash used in operating activities of $ 39.2 million was attributable to a net loss of $ 173.4 million , substantially offset by cash received and recorded as deferred revenue of $ 66.0 million for the upfront fee and equity premium associated with the janssen collaboration , and non-cash charges of $ 47.7 million associated with the fair value of the stock price appreciation milestones under the amended msk license and $ 30.8 million in stock-based compensation expense . these were partially offset by payments made related to contract assets
| 12,138 |
we were incorporated in january 2017 and have devoted substantially all of our efforts to organizing and staffing our company , business planning , raising capital , in-licensing rights to efx , research and development activities for efx , building our intellectual property portfolio and providing general and administrative support for these 94 operations . to date , we have principally raised capital through the issuance of convertible preferred stock and the initial public offering of our common stock in june 2019 and an underwritten public offering of our common stock in july 2020. we have incurred significant operating losses since inception . our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of efx and any future product candidates . our net losses were $ 79.2 million and $ 43.8 million for the years ended december 31 , 2020 and 2019 , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 209.5 million . we expect to continue to incur significant expenses for at least the next several years as we advance efx through later-stage clinical development , develop additional product candidates and seek regulatory approval of any product candidates that complete clinical development . in addition , if we obtain marketing approval for any product candidates , we expect to incur significant commercialization expenses related to product manufacturing , marketing , sales and distribution . we may also incur expenses in connection with the in-licensing or acquisition of additional product candidates . as a result , we will need substantial additional funding to support our continuing operations and pursue our growth strategy . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through the sale of equity , debt financings , or other capital sources , which may include collaborations with other companies or other strategic transactions . we may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms , or at all . if we fail to raise capital or enter into such agreements as and when needed , we may have to significantly delay , reduce or eliminate the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions . because of the numerous risks and uncertainties associated with product development , we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability . even if we are able to generate product sales , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations . as of december 31 , 2020 , we had cash , cash equivalents and short-term marketable securities of $ 268.4 million . impact of the covid-19 pandemic as of march 2021 , a novel strain of coronavirus , or covid-19 , has spread globally . efforts to contain the spread of covid-19 have intensified and the united states , europe and asia have implemented severe travel restrictions , social distancing requirements , and stay-at-home orders , among other restrictions , which have led to delays in the commencement of non-covid-19-related clinical trials . as a result , the covid-19 pandemic has caused significant disruptions to the u.s. , regional and global economies and has contributed to significant volatility and negative pressure in financial markets . we have been carefully monitoring the covid-19 pandemic and its potential impact on our business and have taken important steps to help ensure the safety of employees and their families and to reduce the spread of covid-19 . we have established , and maintained without interruption , a work-from-home policy for all employees . we have also maintained efficient communication with our manufacturing and supply partners as the covid-19 situation has progressed . we have taken these precautionary steps while maintaining business continuity so that we can continue to progress our programs . our financial results for the year ended december 31 , 2020 were not significantly impacted by covid-19 , and the covid-19 pandemic did not materially impact data collection for the main portion of the balanced study , which has been completed . in addition , enrollment in our recently initiated phase 2b harmony trial has not been materially impacted by the covid-19 pandemic . 95 commercial-scale manufacture of gmp drug substance , or api , was completed in april 2020 without any impact from covid-19 . manufacture of gmp drug product for our phase 2b clinical trial was completed in september 2020 , also without any impact from covid-19 . notwithstanding the foregoing , the future impact of the covid-19 pandemic on our industry , the healthcare system and our current and future operations and financial condition will depend on future developments , which are highly uncertain and can not be predicted with confidence , including the scope , severity and duration of the pandemic , the impact of new strains of the virus , the effectiveness and availability of vaccines , the actions taken to contain the pandemic or mitigate its impact , and the direct and indirect economic effects of the pandemic and containment measures , among others . see “ item 1a . risk factors ” for a discussion of the potential adverse impact of covid-19 on our business , results of operations and financial condition . components of our results of operations revenue we have not generated any revenue since our inception and do not expect to generate any revenue from the sale of products in the near future , if at all . story_separator_special_tag if our development efforts for efx or additional product candidates that we may develop in the future are successful and result in marketing approval or if we enter into collaboration or license agreements with third parties , we may generate revenue in the future from a combination of product sales or payments from such collaboration or license agreements . operating expenses research and development expenses research and development expenses consist primarily of costs incurred in connection with the development of efx , as well as unrelated discovery program expenses . we expense research and development costs as incurred . these expenses include : ● employee-related expenses , including salaries , related benefits and stock-based compensation expense for employees engaged in research and development functions ; ● expenses incurred under agreements with cros that are primarily engaged in the oversight and conduct of our clinical trials ; cmos that are primarily engaged to provide drug substance and product for our clinical trials , research and development programs , as well as investigative sites and consultants that conduct our clinical trials , nonclinical studies and other scientific development services ; ● the cost of acquiring and manufacturing nonclinical and clinical trial materials , including manufacturing registration and validation batches ; ● costs related to compliance with quality and regulatory requirements ; and ● payments made under third-party licensing agreements . advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses . such amounts are recognized as an expense as the goods are delivered or the related services are performed , or until it is no longer expected that the goods will be delivered or the services rendered . product candidates in later stages of clinical development , such as efx , generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect that our research and development expenses will increase substantially in connection with our planned clinical development activities in the near term and in the future . we expect our research and development expenses to vary from period to period , driven primarily by spending required to conduct clinical trials and manufacturing expenses for efx . at this time , we can not accurately estimate or know the nature , timing and costs of the efforts that will be necessary to complete the clinical development of efx and any future product candidates . 96 our clinical development costs may vary significantly based on factors such as : ● per patient trial costs ; ● the number of sites included in the trials ; ● the countries in which the trials are conducted ; ● the length of time required to enroll eligible patients ; ● the number of patients that participate in the trials ; ● the number of doses that patients receive ; ● the drop-out or discontinuation rates of patients enrolled in clinical trials ; ● potential additional safety monitoring requested by regulatory agencies ; ● the duration of patient participation in the trials and follow-up ; ● any setbacks or delays to the initiation or completion of preclinical or non-clinical studies , product development or clinical trials due to the covid-19 pandemic ; ● the cost and timing of manufacturing our product candidates , including on account of any disruption or delays to the supply of our product candidates due to the covid-19 pandemic ; ● the phase of development of our product candidates ; and ● the efficacy and safety profile of our product candidates . the successful development and commercialization of product candidates is highly uncertain . this is due to the numerous risks and uncertainties associated with product development and commercialization , including the following : ● the timing and progress of nonclinical and clinical development activities ; ● the number and scope of nonclinical and clinical programs we decide to pursue ; ● the ability to raise necessary additional funds ; ● the progress of the development efforts of parties with whom we may enter into collaboration arrangements ; ● our ability to maintain our current development program and to establish new ones ; ● our ability to establish new licensing or collaboration arrangements ; ● the successful initiation and completion of clinical trials with safety , tolerability and efficacy profiles that are satisfactory to the fda or any comparable foreign regulatory authority ; ● the receipt and related terms of regulatory approvals from applicable regulatory authorities ; ● the availability of drug substance and drug product for use in production of our product candidate ; ● establishing and maintaining agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing , if our product candidate is approved ; ● our ability to obtain and maintain patents , trade secret protection and regulatory exclusivity , both in the united states and internationally ; ● our ability to protect our rights in our intellectual property portfolio ; ● the commercialization of our product candidate , if and when approved ; ● obtaining and maintaining third-party insurance coverage and adequate reimbursement ; ● the acceptance of our product candidate , if approved , by patients , the medical community and third-party payors ; ● competition with other products ; ● the impacts of a pandemic , epidemic or outbreak of an infectious disease , including covid-19 , on our supply of product candidate and ability to successfully initiate and complete preclinical and non-clinical studies and clinical trials , to receive regulatory approval for our product candidate and to commercialize our product candidate , if approved ; and ● a continued acceptable safety profile of our therapy following approval . a change in the outcome of any of these variables with respect to the development of our product candidates could significantly change the costs and timing associated with the development of that product candidate .
| legal , accounting and other professional service fees increased $ 1.9 million and insurance expenses increased by $ 1.2 million , which are related to our growth after becoming a public company in 2019. other income other income for the year ended december 31 , 2020 is comprised primarily of $ 0.9 million of interest income from our cash , cash equivalents and short-term marketable securities compared to $ 1.9 million for the year ended december 31 , 2019. this decrease is related to lower market interest rates available on our investment funds . liquidity and capital resources from our inception through december 31 , 2020 , we have incurred significant operating losses . we have not yet commercialized any products and we do not expect to generate revenue from sales of products for several years , if at all . to date , we have funded our operations primarily with proceeds from the sale of our redeemable convertible preferred stock , the initial public offering of our common stock in june 2019 and a follow-on public offering of our common stock in july 2020. through december 31 , 2020 , we had received gross proceeds totaling $ 412.7 million from sales of our redeemable convertible preferred stock in 2017 and 2018 , the initial public offering of our common stock in june 2019 and the follow-on public offering of our common stock in july 2020. as of december 31 , 2020 , we had cash , cash equivalents and short-term marketable securities of $ 268.4 million . we have invested our cash resources primarily in liquid money market accounts , commercial paper and corporate debt securities . the following table summarizes our cash flows for the periods indicated : 99 replace_table_token_6_th cash flows from operating activities cash used in operating activities for the year ended december 31 , 2020 was $ 70.8 million , consisting of a net loss of $ 79.2 million , which was partially offset by non-cash charges of $ 6.0 million for stock-based compensation expense and net cash provided by the net changes in our operating assets and liabilities of $ 2.1 million . the net change in operating assets and liabilities was
| 12,139 |
as an integral part of their examination process , the office of the comptroller of the currency will periodically review our allowance for loan losses and may require us to make additional provisions for estimated losses based upon judgments different from those of management . in establishing the allowance for loan losses , loss factors are applied to various pools of outstanding loans . loss factors are derived using our historical loss experience and may be adjusted for factors that affect the collectability of the portfolio as of the evaluation date . commercial business loans that are criticized are evaluated individually to determine the required allowance for loan losses and to evaluate the potential impairment of such loans under fasb asc 310 receivables . although management believes that it uses the best information available to establish the allowance for loan losses , future adjustments to the allowance for loan losses may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations . because future events affecting borrowers and collateral can not be predicted with certainty , there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of loans deteriorate as a result of the factors discussed previously . any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations . the allowance is based on information known at the time of the review . changes in factors underlying the assessment could have a material impact on the amount of the allowance that is necessary and the amount of provision to be charged against earnings . such changes could impact future results . valuation of investment securities . substantially all of our investment securities are classified as available-for-sale and recorded at current fair value . unrealized gains or losses , net of deferred taxes , are reported in other comprehensive income as a separate component of stockholders ' equity . in general , fair value is based upon quoted market prices of identical assets , when available . if quoted market prices are not available , fair value is based upon valuation models that use cash flow , security structure and other observable information . where sufficient data is not available to produce a fair valuation , fair value is based on broker quotes for similar assets . broker quotes may be adjusted to ensure that financial instruments are recorded at fair value . adjustments may include unobservable parameters , among other things . no adjustments were made to any broker quotes received by us . we conduct a quarterly review and evaluation of our investment securities to determine if any declines in fair value are other than temporary . in making this determination , we consider the period of time the securities were in a loss position , the percentage decline in comparison to the securities ' amortized cost , the financial condition of the issuer , if applicable , and the delinquency or default rates of underlying collateral . we consider our intent to sell the investment securities and the likelihood that we will not have to sell the investment securities before recovery of their cost basis . if impairment exists , credit related impairment losses are recorded in earnings while noncredit related impairment losses are recorded in accumulated other comprehensive income . 36 deferred income taxes . we use the asset and liability method of accounting for income taxes as prescribed in fasb asc 740 income taxes . using this method , deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . if current available information raises doubt as to the realization of the deferred tax assets , a valuation allowance is established . deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled . we exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets . these judgments require us to make projections of future taxable income . the judgments and estimates we make in determining our deferred tax assets , which are inherently subjective , are reviewed on an ongoing basis as regulatory and business factors change . a reduction in estimated future taxable income could require us to record a valuation allowance . changes in levels of valuation allowances could result in increased income tax expense , and could negatively affect earnings . financial condition introduction . total assets decreased $ 3.79 million , or 1.15 % , to $ 327.30 million at june 30 , 2012 , from $ 331.09 million at june 30 , 2011. total liabilities decreased by $ 4.96 million , or 1.78 % , to $ 273.65 million at june 30 , 2012 , from $ 278.61 million at june 30 , 2011. the loan portfolio decreased $ 11.63 million during the year . total deposits increased $ 10.80 million . noninterest checking increased $ 4.37 million or 22.95 % , to $ 23.43 million at june 30 , 2012 , and money market accounts increased $ 205,000 , or 0.72 % . interest bearing checking accounts increased $ 5.77 million , or 14.31 % , to $ 46.13 million at june 30 , 2012. certificates of deposits decreased $ 3.19 million , or 3.78 % , to $ 81.36 million at june 30 , 2012. balance sheet details . loans receivable decreased $ 11.63 million , or 6.27 % to $ 173.84 million from $ 185.47 million . though loan originations were relatively strong , much of the loan origination volume was in 30 and 15 year fixed rate one- to four-family residential mortgages which were primarily sold in the secondary market . story_separator_special_tag we sold $ 99.51 million in loans during fiscal year 2012 , a decrease of $ 12.93 million from $ 112.44 million sold in fiscal year 2011. the amount of loans sold in fiscal year 2011 was exceptionally high , particularly in the first half of the previous fiscal year , as the bank experienced a significant increase in refinance volume of one- to four-family residential mortgages . origination activity in most loan categories , with the exception of one- to four-family residential mortgages , decreased in the current fiscal year . commercial real estate and land loan originations decreased $ 28.52 million during the year , and residential mortgage loan originations increased $ 2.22 million . the available-for-sale investment portfolio decreased $ 13.42 million , or 13.07 % , to $ 89.28 million at june 30 , 2012 from $ 102.70 million at june 30 , 2011. the investment category with the largest decrease was agency cmos , which decreased $ 9.23 million . premises and equipment decreased $ 590,000 , which was primarily due to depreciation expense partially offset by equipment purchases . total deposits increased by $ 10.80 million , notwithstanding lower rates on deposits . the growth was attributable to consumers seeking additional safety and protection afforded by increased federal deposit insurance . of that increase , certificates of deposit decreased $ 3.19 million , to $ 81.36 million at june 30 , 2012 from $ 84.55 million at june 30 , 2011. the bank had no brokered deposits as of june 30 , 2012. interest-earning checking accounts increased $ 5.77 million and noninterest checking increased $ 4.37 million . money market accounts increased $ 205,000 and savings accounts increased $ 3.65 million . a portion of the deposit growth the bank has experienced over the last three fiscal years has likely been the result of a flight to quality by individual investors during the financial crisis and ensuing economic downturn . as such , as the financial crisis subsides , we believe deposit growth will be more difficult to achieve on a long-term basis due to significant competition among financial institutions in our markets . advances from the fhlb and other borrowings decreased to $ 42.70 million at year-end 2012 from $ 60.90 million at year-end 2011 , a decrease of $ 18.20 million and is largely attributable to the availability of retail funding from deposits . total shareholders ' equity was $ 53.65 million at june 30 , 2012 , an increase of $ 1.17 million over the comparable period . this increase was due to earnings , and increases in net accumulated other comprehensive gain , offset by dividends paid and treasury stock purchases . 37 analysis of net interest income the bank 's earnings have historically depended primarily upon net interest income , which is the difference between interest income earned on loans and investments and interest paid on deposits and any borrowed funds . it is the single largest component of eagle 's operating income . net interest income is affected by ( i ) the difference between rates of interest earned on loans and investments and rates paid on interest-bearing deposits and borrowings ( the “ interest rate spread ” ) and ( ii ) the relative amounts of loans and investments and interest-bearing deposits and borrowings . the following tables set forth average balance sheets , average yields and costs , and certain other information at and for the periods indicated . all average balances are daily average balances . non-accrual loans were included in the computation of average balances , but have been reflected in the table as loans carrying a zero yield . the yields set forth below include the effect of deferred fees , discounts and premiums that are amortized or accreted to interest income or expense . replace_table_token_18_th ( 1 ) interest rate spread represents the difference between the average yield on interest-earning assets and the average rate on interest-bearing liabilities . ( 2 ) net interest margin represents income before the provision for loan losses divided by average interest-earning assets . ( 3 ) for purposes of this table , tax exempt income is not calculated on a tax equivalent basis . 38 rate/volume analysis the following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities for the periods indicated . for each category of interest-earning assets and interest-bearing liabilities , information is provided on changes attributable to : ( 1 ) changes in volume multiplied by the old rate ; ( 2 ) changes in rate , which are changes in rate multiplied by the old volume ; and ( 3 ) changes not solely attributable to rate or volume , which have been allocated proportionately to the change due to volume and the change due to rate . replace_table_token_19_th comparison of operating results for the years ended june 30 , 2012 and 2011 net income . eagle 's net income decreased slightly to $ 2.178 million for the year ended june 30 , 2012 from $ 2.410 million for the year ended june 30 , 2011 , a decrease of $ 232,000. this decrease was the result of decreases in noninterest income of $ 449,000 , and increases in the provision for loan losses of $ 153,000 offset by increases in net interest income of $ 58,000 and decreases in noninterest expense of $ 48,000. eagle 's tax provision was also $ 264,000 lower in 2012. basic earnings per share for the year ended june 30 , 2012 were $ 0.59 , compared to $ 0.62 for the year ended june 30 , 2011. diluted earnings per share were $ 0.56 and $ 0.62 for 2012 and 2011 , respectively . net interest income . net interest income increased to $ 10.93 million for the year ended june 30 , 2012 , from $ 10.87 million for the previous year .
| net interest income and noninterest income are offset by provisions for loan losses , general administrative and other expenses , including salaries and employee benefits and occupancy and equipment costs , as well as by state and federal income tax expense . american federal savings bank has a strong mortgage lending focus , with the majority of its loan originations in single-family residential mortgages , which has enabled it to successfully market home equity loans , as well as a wide range of shorter term consumer loans for various personal needs ( automobiles , recreational vehicles , etc. ) . in recent years we have also focused on adding commercial loans to our portfolio , both real estate and non-real estate . we have made significant progress in this initiative . as of june 30 , 2012 , commercial real estate and land loans and commercial business loans represented 36.8 % and 8.7 % of the total loan portfolio , respectively , which represented increases from the 34.5 % and 5.6 % amounts at june 30 , 2011 , respectively . the purpose of this diversification is to mitigate our dependence on the mortgage market , as well as to improve our ability to manage our interest rate spread . american federal savings bank 's management recognizes that fee income will also enable it to be less dependent on specialized lending and it now maintains a significant loan serviced portfolio , which provides a steady source of fee income . as of june 30 , 2012 , we had mortgage servicing rights , net of $ 2.218 million compared to $ 2.142 million as of june 30 , 2011. the gain on sale of loans also provides significant fee income in periods of high mortgage loan origination volumes . fee income is also supplemented with fees generated from our deposit accounts . american federal savings bank has a high percentage of non-maturity deposits , such as checking accounts and savings accounts , which allows management flexibility in managing its spread . non-maturity deposits do not automatically reprice
| 12,140 |
since items in this area are often single use by their nature , our typical aim is to build customer satisfaction and loyalty for each product , generate repeat annual sales from existing customers and expand our customer base in the future . products in this area are both supplied by third parties and provided by us . major products and services in this area include heartworm diagnostic tests and preventives , and allergy test kits , allergy immunotherapy and testing . we consider the cca segment to be our core business and devote most of our management time and other resources to improving the prospects for this segment . maintaining a continuing , reliable and economic supply of products we currently obtain from third parties is critical to our success in this area . virtually all of our sales and marketing expenses occur in the cca segment . the majority of our research and development spending is dedicated to this segment as well . all of our cca products are ultimately sold primarily to or through veterinarians . in many cases , veterinarians will mark up their costs to their customer . the acceptance of our products by veterinarians is critical to our success . cca products are sold directly to end users by us as well as through distribution relationships , such as our agreement with intervet inc. , d/b/a merck animal health ( `` merck animal health '' ) , the sale of kits to conduct blood testing to third-party veterinary diagnostic laboratories and independent third-party distributors . revenue from direct sales and distribution relationships represented approximately 58 % and 42 % , respectively , of cca 2017 revenue , 61 % and 39 % , respectively , of cca 2016 revenue , and 66 % and 34 % , respectively , of cca 2015 revenue . the ovp segment includes our 168,000 square foot usda and fda licensed production facility in des moines , iowa . we view this facility as an asset which could allow us to control our cost of goods on any pharmaceuticals and vaccines that we may commercialize in the future . we have increased integration of this facility with our operations elsewhere . for example , virtually all our us inventory , excluding our imaging products , is now stored at this facility and related fulfillment logistics are managed there . cca segment products manufactured at this facility are transferred at cost and are not recorded as revenue for our ovp segment . we view ovp reported revenue as revenue primarily to cover the overhead costs of the facility and to generate incremental cash flow to fund our cca segment . historically , a significant portion of our ovp segment 's revenue has been generated from the sale of certain bovine vaccines , which have been sold primarily under the titanium® and masterguard® brands . we have an agreement with eli lilly and company ( `` eli lilly '' ) and its affiliates operating through elanco for the - 32 - production of these vaccines . our ovp segment also produces vaccines and pharmaceuticals for other third parties . critical accounting estimates our discussion and analysis of our financial condition and results of operations is based upon the consolidated financial statements , which have been prepared in accordance with us generally accepted accounting principles ( `` gaap '' ) . the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities as of the date of the financial statements , and the reported amounts of revenue and expense during the reporting period . actual results could differ from those estimates . significant estimates are required when establishing the allowance for doubtful accounts and the provision for excess or obsolete inventory , in determining future costs associated with warranties provided , in determining the period over which our obligations are fulfilled under agreements to license product rights and or technology rights , estimating the useful lives of equipment under leasing arrangements , estimating the expense associated with the granting of stock , and in determining the need for , and the amount of , a valuation allowance on deferred tax assets . we consider the following to be our critical accounting estimates . revenue recognition we generate our revenue through the sale of products , either by outright purchase by our customers or through a subscription agreement whereby our customers receive equipment and pay us a monthly fee for the usage of the equipment as well as , when applicable , the consumables needed to conduct testing . outright sales to customers is the majority of imaging diagnostics transactions , while subscription placement is the majority of point of care diagnostics laboratory transactions . we also may recognize revenue through licensing of technology product rights , royalties and sponsored research and development . our policy is to recognize revenue when the applicable revenue recognition criteria have been met , which generally include the following : persuasive evidence of an arrangement exists ; delivery has occurred or services rendered ; price is fixed or determinable ; and collectability is reasonably assured . revenue from the outright sale of products to customers is recognized after both the goods are shipped to the customer and acceptance has been received , if required , with an appropriate provision for estimated returns and allowances . we do not permit general returns of products sold . revenue from our point of care diagnostics laboratory subscription agreements is recognized based on the length of the agreements that are signed by our customers . among other factors , the length of the agreement determines whether a subscription is considered an operating lease or capital lease . our capital leases qualify for sales-type lease treatment . for subscription agreements that are considered operating leases , we recognize revenue of our subscriptions ratably over the term of the agreement . story_separator_special_tag the equipment is transferred from inventory to property , plant and equipment and depreciated into cost of goods sold over the term of the agreement , based on the assets ' useful life , typically over a five to seven-year period depending on the circumstance under which the instrument is placed with the customer . revenue from subscription agreements that are sales-type ( capital ) leases is recognized , along with the associated cost of the equipment , at the time of placement in our customer 's location . the amount of revenue recognized at the time of lease - 33 - inception is based on , along with other factors , observable prior sales prices of similar equipment sold by us over the prior twelve months , relative to total contract value . we record a short and long-term capital lease receivable related to sales-type leases . revenue from our rentals of digital imaging equipment is recognized ratably over the term of the rental agreement , which is typically over a 26-month period . the equipment is transferred from inventory to property , plant and equipment and depreciated over the assets ' useful life . at the conclusion of these arrangements , customers generally have the option to ( a ) extend the rental agreement for an additional term , ( b ) purchase the items for a price negotiated at the inception of the rental , less rental payments paid or ( c ) pay a termination and recovery fee and return the items and terminate the agreement . recording revenue from the sale of products involves the use of estimates and management 's judgment . we must make a determination at the time of sale whether the customer has the ability to make payments in accordance with arrangements . while we do utilize past payment history and , to the extent available for new customers , public credit information in making our assessment , the determination of whether collectability is reasonably assured is ultimately a judgment that must be made by management . we must also make estimates regarding our future obligations relating to returns , rebates , allowances and similar other programs . license revenue under arrangements to sell or license product rights or technology rights is recognized as obligations under the agreement are satisfied , which generally occurs over a period of time . generally , licensing revenue is deferred and recognized over the estimated life of the related agreements , products , patents or technology . nonrefundable licensing fees , marketing rights and milestone payments received under contractual arrangements are deferred and recognized over the remaining contractual term using the straight-line method . recording revenue from license arrangements involves the use of estimates . the primary estimate made by management is determining the useful life of the related agreement , product , patent or technology . we evaluate all of our licensing arrangements by estimating the useful life of either the product or the technology , the length of the agreement or the legal patent life and defer the revenue for recognition over the appropriate period . we enter into arrangements that include multiple elements . in these situations , we must determine whether the various elements meet the criteria to be accounted for as separate elements . if the elements can not be separated , revenue is recognized once revenue recognition criteria for the entire arrangement have been met or over the period that the company 's obligations to the customer are fulfilled , as appropriate . if the elements are determined to be separable , the revenue is allocated to the separate elements based on relative fair value and recognized separately for each element when the applicable revenue recognition criteria have been met . in accounting for these multiple element arrangements , we must make determinations about whether elements can be accounted for separately and make estimates regarding their relative fair values . in may 2014 , the fasb issued asu 2014-09 , “ revenue from contracts with customers ” and has subsequently issued several supplemental and or clarifying asus ( collectively “ asc 606 ” ) . asc 606 prescribes a single common revenue standard that replaces most existing us gaap revenue recognition guidance . asc 606 outlines a five-step model , under which heska will recognize revenue as performance obligations within a customer contract are satisfied . asc 606 is intended to provide more consistent interpretation and application of the principles outlined in the standard across filers in multiple industries and within the same industries compared to current practices , which should improve comparability . along with the issuance of asc 606 , additional cost guidance was issued and codified under asc 340-40 that outlines the requirement for capitalizing incremental costs of obtaining a contract and costs to fulfill a contract that meet certain capitalization criteria . - 34 - adoption of asc 606 is required for annual reporting periods beginning after december 15 , 2017 , including interim periods within the reporting period . upon adoption , heska must elect to adopt either retrospectively to each prior reporting period presented ( full retrospective method ) or using the cumulative effect transition method with the cumulative effect of initial adoption recognized at the date of initial application ( modified retrospective method ) . heska has elected to adopt the modified retrospective method and apply this method to contracts not yet completed as of january 1 , 2018. the cumulative effect of initially applying the new revenue standard is recognized as an adjustment to the opening balance of our fiscal year 2018 retained earnings . the comparative information will not be recast and will continue to be reported under the accounting standards in effect for those periods .
| these increases were partially offset by declines in sales of our heartworm diagnostic tests and allergy testing and treatments . ovp segment revenue increased 6 % to $ 24.2 million in 2017 compared to $ 22.7 million in 2016 and increased 11 % to $ 22.7 million in 2016 compared to $ 20.3 million in 2015 . the increase in 2017 from 2016 was due to various customer contracts . the increase in 2016 from 2015 was driven primarily by greater revenue from our contract with elanco . gross profit gross profit increased 8 % to $ 58.3 million in 2017 compared to $ 53.9 million in 2016 . gross margin percent , which we derive by dividing gross profit by total revenue , increased to 45.0 % in 2017 compared to 41.4 % in 2016 . the increase in gross profit was driven primarily by favorable pricing , while the increase in gross margin percentage was driven in part by favorable margins on consumables in our cca segment and product mix in our ovp segment . gross profit increased 22 % to $ 53.9 million in 2016 compared to $ 44.2 million in 2015 . gross margin percent decreased to 41.4 % in 2016 compared to 42.3 % in 2015 . this lower gross margin percentage was driven primarily by unfavorable product mix in our ovp segment as well as incremental sales from international imaging , which contributes slightly lower gross margins than our domestic imaging products . operating expenses selling and marketing expenses increased 5 % to $ 23.2 million in 2017 compared to $ 22.1 million in 2016 . the increase was driven primarily by a $ 1.0 million increase in compensation and benefits and a $ 0.3 million increase in stock compensation , partially offset by a $ 0.6 million decrease in commissions and other incentive compensation . selling and marketing expenses increased 4 % to $ 22.1 million in 2016 compared to $ 21.3 million in 2015 . the increase was driven primarily
| 12,141 |
ceramic segment —operating income was $ 209.8 million ( 7.8 % of segment net sales ) for 2013 reflecting an increase of $ 88.9 million , or 73.5 % , compared to operating income of $ 121.0 million ( 7.5 % of segment net sales ) for 2012 . the increase in operating income was primarily attributable to volume increases of approximately $ 161 million that were predominately driven by the marazzi acquisition , the favorable net impact of price and product mix of approximately $ 21 million and operations productivity of approximately $ 15 million , partially offset by higher restructuring and integration-related costs of approximately $ 37 million , inventory step-up related to the marazzi acquisition of approximately $ 31 million , increases in selling , general and administrative costs of approximately $ 17 million primarily attributable to sales volume increases and market expansion opportunities in the legacy business and higher input costs of approximately $ 15 million . laminate and wood segment —operating income was $ 159.4 million ( 8.9 % of segment net sales ) for 2013 reflecting an increase of $ 33.0 million , or 26.1 % , compared to operating income of $ 126.4 million ( 9.4 % of segment net sales ) for 2012 . the increase in operating income was primarily attributable to higher sales volume of approximately $ 40 million predominately driven by the pergo and spano acquisitions , lower amortization expense of approximately $ 34 million , increases in operations productivity of approximately $ 30 million , partially offset by higher restructuring and integration-related costs of approximately $ 53 million and higher input costs of approximately $ 15 million . interest expense interest expense was $ 92.2 million for 2013 , reflecting an increase of $ 17.5 million compared to interest expense of $ 74.7 million for 2012 . the increase in interest expense was primarily attributable to increased borrowings related to the three acquisitions , partially offset by lower interest rates on the company 's outstanding debt attributable to the shift from the higher interest rate senior 7.20 % notes to the 2011 senior credit facility and the positive effect of the ratings upgrades on interest associated with the 6.125 % notes . other expense other expense was $ 9.1 million for 2013 , reflecting a change of $ 8.8 million compared to other expense of $ 0.3 million for 2012 . the change was primarily attributable to net change in foreign currency gains/losses . income tax expense for 2013 , the company recorded income tax expense of $ 78.4 million on earnings from continuing operations before income taxes of $ 445.6 million for an effective tax rate of 17.6 % , as compared to an income tax expense of $ 53.6 million on earnings from continuing operations before income taxes of $ 304.5 million , resulting in an effective tax rate of 17.6 % for 2012 . loss from discontinued operations , net of income tax benefit for 2013 , the company recorded a loss from discontinued operations , net of income tax benefit of $ 17.9 million as discussed in note 4 of notes to consolidated financial statements . year ended december 31 , 2012 , as compared with year ended december 31 , 2011 net sales net sales for 2012 were $ 5,788.0 million , reflecting an increase of $ 145.7 million , or 2.6 % , from the $ 5,642.3 million reported for 2011. the increase was primarily driven by the favorable net impact of price and product mix of approximately $ 146 million and higher volume of approximately $ 92 million , partially offset by the net impact of unfavorable foreign exchange rates of approximately $ 92 million . carpet segment -net sales decreased $ 15.6 million , or 0.5 % , to $ 2,912.1 million for 2012 , compared to $ 2,927.7 million for 2011. the decrease was primarily driven by lower volume of approximately $ 142 million , which was partially offset by the favorable net impact of price and product mix of approximately $ 126 million . the volume decreases were primarily 22 index to financial statements attributable to the timing of carpet product transitions in the home center channel and lower demand for rug products in the retail channel . ceramic segment -net sales increased $ 162.1 million , or 11.1 % , to $ 1,616.4 million for 2012 , compared to $ 1,454.3 million for 2011. the increase was primarily driven by volume increases of approximately $ 157 million and the favorable net impact of price and product mix of approximately $ 11 million , partially offset by the net impact of unfavorable foreign exchange rates of approximately $ 6 million . the volume increases were primarily attributable to improvement in the u.s. commercial and residential channels and growth in the mexican market . laminate and wood segment -net sales increased $ 5.5 million , or 0.4 % , to $ 1,350.3 million for 2012 , compared to $ 1,344.8 million for 2011. the increase was primarily driven by volume increases of approximately $ 84 million and the favorable net impact of price and product mix of approximately $ 8 million , partially offset by the impact of unfavorable foreign exchange rates of approximately $ 86 million . the volume increases were primarily attributable to flooring products primarily in russia , australia and north america , as well as increases in wood panel and insulation products . story_separator_special_tag quarterly net sales and the percentage changes in net sales by quarter for 2012 versus 2011 were as follows ( dollars in millions ) : replace_table_token_6_th gross profit gross profit for 2012 was $ 1,490.1 million ( 25.7 % of net sales ) , an increase of $ 73.2 million or 5.2 % , compared to gross profit of $ 1,416.9 million ( 25.1 % of net sales ) for 2011. the increase in gross profit dollars was primarily attributable to the favorable net impact of price and product mix of approximately $ 62 million , operations productivity of approximately $ 52 million and higher sales volume of approximately $ 22 million , partially offset by higher input costs of approximately $ 42 million and the impact of unfavorable foreign exchange rates of approximately $ 19 million . selling , general and administrative expenses selling , general and administrative expenses for 2012 were $ 1,110.6 million ( 19.2 % of net sales ) , compared to $ 1,101.3 million ( 19.5 % of net sales ) for 2011. selling , general and administrative expenses decreased as a percentage of net sales compared to the prior year primarily due to increased sales volume . the increase in selling , general and administrative expenses in dollars was primarily driven by increases in costs to support new product introductions and geographic expansion of approximately $ 31 million , partially offset by favorable foreign exchange rates of approximately $ 15 million and lower amortization costs of approximately $ 9 million . operating income operating income for 2012 was $ 379.5 million ( 6.6 % of net sales ) reflecting an increase of $ 64.0 million , or 20.3 % , compared to operating income of $ 315.5 million ( 5.6 % of net sales ) for 2011. the increase in operating income was primarily driven by the favorable net impact of price and product mix of approximately $ 62 million , operations productivity of approximately $ 52 million and sales volume increases of approximately $ 22 million , partially offset by higher input costs of approximately $ 42 million and increases in selling costs to support new product introductions , geographic expansion and higher sales volume of approximately $ 31 million . carpet segment -operating income was $ 158.2 million ( 5.4 % of segment net sales ) for 2012 reflecting an increase of $ 48.3 million compared to operating income of $ 109.9 million ( 3.8 % of segment net sales ) for 2011. the increase in operating income was primarily driven by the favorable net impact of price and product mix of approximately $ 67 million , higher operations productivity of approximately $ 18 million and lower restructuring costs of approximately $ 15 million , partially offset by lower sales volume of approximately $ 36 million and higher input costs of approximately $ 18 million . ceramic segment -operating income was $ 121.0 million ( 7.5 % of segment net sales ) for 2012 reflecting an increase of $ 19.7 million compared to operating income of $ 101.3 million ( 7.0 % of segment net sales ) for 2011. the increase in operating 23 index to financial statements income was primarily driven by sales volume increases of approximately $ 42 million and favorable foreign exchange rates of approximately $ 6 million , partially offset by increases in selling costs to support new product introductions and higher sales volume of approximately $ 16 million , manufacturing start-up and restructuring costs of approximately $ 9 million and higher input costs of approximately $ 7 million . laminate and wood segment -operating income was $ 126.4 million ( 9.4 % of segment net sales ) for 2012 reflecting a decrease of $ 0.7 million compared to operating income of $ 127.1 million ( 9.5 % of segment net sales ) for 2011. the decrease in operating income was primarily driven by higher input costs of approximately $ 18 million , increases in costs to support new product introductions and geographic expansion of approximately $ 11 million and unfavorable foreign exchange rates of approximately $ 10 million , partially offset by operations productivity of approximately $ 25 million and sales volume increases of approximately $ 15 million . interest expense interest expense was $ 74.7 million for 2012 , reflecting a decrease of $ 26.9 million compared to interest expense of $ 101.6 million for 2011. the decrease in interest expense in 2012 was due to lower outstanding debt and lower interest rates on that outstanding debt . the lower interest rates were primarily attributable to the shift from higher interest rate senior notes to the 2011 senior credit facility and the rating agency upgrades discussed in `` liquidity and capital resources '' . other expense other expense was $ 0.3 million for 2012 , reflecting a change of $ 13.7 million compared to other expense of $ 14.1 million for 2011. the change was primarily attributable to net foreign currency losses of approximately $ 16 million . the unrealized foreign currency losses in the prior year were primarily a result of volatility in the mexican peso and canadian dollar that occurred late in the third quarter of 2011. prior to the second quarter of 2012 , operations carried out in mexico used the u.s. dollar as the functional currency . effective april 1 , 2012 , the company changed the functional currency of its mexico operations to the mexican peso . see note 1 ( m ) of the notes to the consolidated financial statements .
| laminate and wood segment —net sales increase d $ 442.0 million , or 32.7 % , to $ 1,792.3 million for 2013 , compared to $ 1,350.3 million for 2012 . the increase was primarily attributable to volume increases of approximately $ 418 million and the impact of favorable foreign exchange rates of approximately $ 33 million , partially offset by the unfavorable net impact of price and product mix of approximately $ 9 million . of the $ 418 million increase in volume , approximately $ 396 million was attributable to the pergo and spano acquisitions . quarterly net sales and the percentage changes in net sales by quarter for 2013 versus 2012 were as follows ( dollars in millions ) : replace_table_token_5_th gross profit gross profit for 2013 was $ 1,920.8 million ( 26.1 % of net sales ) , an increase of $ 430.8 million or 28.9 % , compared to gross profit of $ 1,490.1 million ( 25.7 % of net sales ) for 2012 . the increase in gross profit dollars was primarily attributable to higher sales volume of approximately $ 427 million that is predominately attributable to the acquisitions , operations productivity of approximately $ 82 million and the favorable net impact of price and product mix of approximately $ 45 million , partially offset by higher input costs of approximately $ 59 million , inventory step-up related to the marazzi acquisition of approximately $ 31 million and higher restructuring , acquisition and integration-related costs of approximately $ 34 million . selling , general and administrative expenses selling , general and administrative expenses for 2013 were $ 1,373.9 million ( 18.7 % of net sales ) , compared to $ 1,110.6 million ( 19.2 % of net sales ) for 2012 . selling , general and administrative expenses decreased as a percentage of net sales compared to the prior year primarily due to increased sales volume . the increase in selling , general and
| 12,142 |
in 2019 , when calculating same-store sales growth we also included in our prior year base the sales of stores that were added as a result of the telepizza strategic alliance in december 2018 and that were open for one year or more . see description of the telepizza strategic alliance within this md & a . net new unit growth reflects new unit openings offset by store closures , by us and our franchisees . to determine whether a restaurant meets the definition of a unit we consider whether the restaurant has operations that are ongoing and independent from another yum unit , serves the primary product of one of our concepts , operates under a separate franchise agreement ( if operated by a franchisee ) and has substantial and sustainable sales . we believe net new unit growth is useful to investors because we depend on net new units for a significant portion of our growth . additionally , net new unit growth is generally reflective of the economic returns to us and our franchisees from opening and operating our concept restaurants . company restaurant profit ( `` restaurant profit '' ) is defined as company sales less expenses incurred directly by our company-owned restaurants in generating company sales . company restaurant margin as a percentage of sales is defined as restaurant profit divided by company sales . restaurant profit is useful to investors as it provides a measure of profitability for our company-owned stores . in addition to the results provided in accordance with generally accepted accounting principles in the united states of america ( `` gaap '' ) , the company provides the following non-gaap measurements . system sales , system sales excluding the impacts of foreign currency translation ( `` fx '' ) , and , in 2019 , system sales excluding fx and the impact of the 53rd week for our u.s. subsidiaries and certain international subsidiaries that operate on a weekly periodic calendar . system sales include the results of all restaurants regardless of ownership , including company-owned and franchise restaurants . sales at franchise restaurants typically generate ongoing franchise and license fees for the company at a rate of 3 % to 6 % of sales . franchise restaurant sales are not included in company sales on the consolidated statements of income ; however , the franchise and license fees derived from franchise restaurants are included in the company 's revenues . we believe system sales growth is useful to investors as a significant indicator of the overall strength of our business as it incorporates all of our significant revenue drivers , company and franchise same-store sales as well as net unit growth . diluted earnings per share excluding special items ( as defined below ) ; effective tax rate excluding special items ; core operating profit and , in 2019 , core operating profit excluding the impact of the 53rd week . core operating profit excludes special items and fx and we use core operating profit for the purposes of evaluating performance internally . these non-gaap measurements are not intended to replace the presentation of our financial results in accordance with gaap . rather , the company believes that the presentation of these non-gaap measurements provide additional information to investors to facilitate the comparison of past and present operations . 27 special items are not included in any of our division segment results as the company does not believe they are indicative of our ongoing operations due to their size and or nature . our chief operating decision maker does not consider the impact of special items when assessing segment performance . certain non-gaap measurements are presented excluding the impact of fx . these amounts are derived by translating current year results at prior year average exchange rates . we believe the elimination of the fx impact provides better year-to-year comparability without the distortion of foreign currency fluctuations . for 2019 we provided core operating profit excluding the impact of the 53rd week and system sales excluding the impact of the 53rd week to further enhance the comparability given the 53rd week that was part of our fiscal calendar in 2019. results of operations story_separator_special_tag impact of deemed repatriation tax expense associated with the tax act . we recognized $ 434 million in our 2017 income tax provision that was reported as a special item as a result of the december 22 , 2017 enactment of the tax act . ( f ) the foreign currency impact on reported operating profit is presented in relation only to the immediately preceding year presented . when determining applicable core operating profit growth percentages , the core operating profit for the current year should be compared to the prior year operating profit , prior to adjustment for the prior year fx impact . ( g ) company sales represents sales from our company-operated stores as presented on our consolidated statements of income . ( h ) the foreign currency impact on system sales is presented in relation only to the immediately preceding year presented . when determining applicable system sales growth percentages , the system sales excluding fx for the current year should be compared to the prior year system sales prior to adjustment for the prior year fx impact . items impacting reported results and or expected to impact future results the following items impacted reported results in 2019 and or 2018 and or are expected to impact future results . see also the detail of special items section of this m & da for other items similarly impacting results . extra week in 2019 fiscal 2019 included a 53rd week for all of our u.s. and certain international subsidiaries that operate on a period calendar . see note 2 for additional details related to our fiscal calendar . the following table summarizes the estimated impact of the 53rd week on revenues and operating profit for the year ended december 31 , 2019. the 53rd week in 2019 favorably impacted diluted eps by $ 0.05 per share . story_separator_special_tag 33 replace_table_token_13_th impact of coronavirus outbreak since the beginning of 2020 , the novel coronavirus outbreak in mainland china has significantly impacted the operations of our largest master franchisee , yum china , who pays us a continuing fee of 3 % on system sales of our concepts in mainland china . these continuing fees represented approximately 20 % of the kfc division and 16 % of the ph division operating profits in the year ended december 31 , 2019. through the date of the filing of this form 10-k , yum china has experienced widespread store closures and significant sales declines as a result of the coronavirus . additionally , other nearby franchisees , such as those in hong kong and taiwan , have experienced significant sales declines as well . while our concepts outside of china have not experienced the same levels of same-store sales declines or store closures to date that yum china has experienced , there can be no assurance that the impacts of the coronavirus will not have a material , adverse impact on our and our franchisees ' results on a more widespread basis . the coronavirus situation is ongoing and its dynamic nature makes it difficult to forecast any impacts on the company 's 2020 results with any certainty . however , as of the date of this filing we expect our results for the quarter ending march 31 , 2020 to be significantly impacted with potential continuing , adverse impacts beyond march 31 , 2020. pizza hut u.s. franchisee issues during the year ended december 31 , 2019 the pizza hut division recorded $ 22 million in bad debt expense primarily associated with the nearly $ 600 million in continuing and initial fees earned in 2019 from franchisees . this represented an increase of $ 12 million versus the bad debt provision within the division for the year ended december 31 , 2018. the increased bad debt was largely attributable to a small number of u.s. franchisees who are facing financial challenges due to unit-level economics that have been pressured by wage increases and recent u.s. same-store sales declines of 1 % in 2019 , including a decline of 4 % in the fourth quarter of 2019. additionally , certain pizza hut u.s. franchisees are burdened by high debt service levels . we continue to believe that the move of the pizza hut u.s. system to a more delivery-focused and modern estate will optimize our ability to grow the pizza hut u.s. system going forward . however , we could see impacts to our near-term results as we work through transitions of the estate and of certain franchise stores to new franchisees . these impacts could include expense related to further bad debts and payments we may be required to make with regard to franchisee lease obligations for which we remain secondarily liable . additionally , pizza hut u.s. system sales could be negatively impacted by decreased system advertising spend due to lower franchisee contributions and closures of underperforming units , including certain units that are largely dine-in focused . given the fluid nature of issues surrounding our pizza hut u.s. franchisees , in particular surrounding our largest pizza hut u.s. franchisee who owns approximately 1,225 units or 17 % of the pizza hut u.s. system as of december 31 , 2019 , the potential impact to the company 's 2020 results is difficult to forecast . refranchising initiatives during the years ended december 31 , 2019 , 2018 and 2017 , we recorded net refranchising gains of $ 37 million , $ 540 million and $ 1,083 million , respectively . we have reflected those refranchising gains and losses that were recorded in connection with or prior to our previously announced plans to have at least 98 % franchise restaurant ownership by the end of 2018 as special items . in 34 2019 net refranchising gains reflected as special items included $ 12 million associated with sales of underlying real estate associated with stores that were franchised as of december 31 , 2018 or true-ups to refranchising gains and losses recorded prior to december 31 , 2018. all net refranchising gains recorded in 2018 and 2017 were reflected as special items . additionally , during the year ended december 31 , 2019 we recorded net refranchising gains of $ 25 million that have not been reflected as special items . these net gains relate to the refranchising of restaurants in 2019 that were not part of and arose subsequent to our aforementioned plans to achieve 98 % franchise ownership . investment in grubhub for the years ended december 31 , 2019 and 2018 we recognized pre-tax expense of $ 77 million and pre-tax income of $ 14 million , respectively , related to changes in fair value in our investment in grubhub , inc. ( `` grubhub '' ) . see note 4 for further discussion of our investment in grubhub . telepizza strategic alliance on december 30 , 2018 , the company consummated a strategic alliance with telepizza group s.a. ( “ telepizza ” ) , the largest non u.s.-based pizza delivery company in the world , to be the master franchisee of pizza hut in latin america and portions of europe . the key terms of the alliance are set forth below : in spain and portugal telepizza will continue operating the telepizza brand and will oversee franchisees operating pizza hut branded restaurants in latin america ( excluding brazil ) , the caribbean and switzerland , telepizza will progressively convert its existing restaurants to the pizza hut brand and oversee franchisees operating pizza hut branded restaurants telepizza will manage supply chain logistics for the entire master franchise territory and will become an authorized supplier of pizza hut branded restaurants across the regions covered by the master franchise agreement , telepizza will target opening at least 1,300 new units over the next ten years and 2,550 units in total over 20 years as a result of the alliance we added approximately 1,300 telepizza units to our pizza hut division unit count on december 30 ,
| our effective tax rate for the year was 5.7 % and our effective tax rate , excluding special items , was 19.8 % . worldwide gaap results replace_table_token_6_th ( a ) see note 3 for the number of shares used in this calculation . performance metrics replace_table_token_7_th ( a ) 2018 unit growth includes units added as a result of our fourth quarter 2018 strategic alliance with telepizza . replace_table_token_8_th 29 replace_table_token_9_th replace_table_token_10_th 30 replace_table_token_11_th 31 replace_table_token_12_th ( a ) we have reflected as special items those refranchising gains and losses that were recorded in connection with or prior to our previously announced plans to have at least 98 % franchise restaurant ownership by the end of 2018. as such , refranchising gains and losses recorded during 2019 as special items primarily include gains or losses associated with sales of underlying real estate associated with stores that were franchised as of december 31 , 2018 or true-ups to refranchising gains and losses recorded prior to december 31 , 2018. during the years ended december 31 , 2019 , 2018 and 2017 , we recorded net refranchising gains of $ 12 million , $ 540 million and $ 1,083 million , respectively , that have been reflected as special items . ( b ) in the second quarter of 2019 we recorded charges of $ 8 million and $ 2 million to other ( income ) expense and interest expense , net , respectively , related to cash payments in excess of our recorded liability to settle contingent consideration 32 associated with our 2013 acquisition of the kfc turkey and pizza hut turkey businesses . consistent with prior adjustments to the recorded contingent consideration we have reflected this as a special item . ( c ) tax expense on special items was determined based upon the impact of the nature , as well as the jurisdiction of the respective individual components within special items . additionally , we increased our income tax provision by $ 34 million in the fourth quarter of 2019 to record a reserve against and by $ 19
| 12,143 |
16 results of operations for the fiscal year ended june 30 , 2020 compared to the fiscal year ended june 30 , 2019 the following tables set forth results from continuing operations for the fiscal years ended june 30 , 2020 and 2019 : replace_table_token_3_th net sales the majority of our revenue is derived from designing , developing , and manufacturing powered surgical instruments for medical device original equipment manufacturers and rotary air motors . the proportion of total sales by product/service type is as follows : replace_table_token_4_th net sales in fiscal 2020 increased by $ 7.7 million , or 28 % , as compared to fiscal 2019 , due primarily to an increase in repair revenue of $ 5.2 million generated mostly from our largest customer . during fiscal 2020 , sales to our largest customer increased by $ 5.6 million to $ 22.7 million , up from $ 17.1 million in fiscal 2019. we manufacture a surgical handpiece designed to be used in orthopedic surgery applications for this customer and we have continued to see increased demand from this customer . sales of our industrial and scientific products , which consists primarily of our compact pneumatic air motors , decreased $ 153,000 , or 16 % for fiscal 2020 compared to fiscal 2019. the revenue decline relates to a lack of marketing efforts for these legacy products . 17 our dental and component revenue is generated from sales to many distributors and end-users whose purchasing activity can vary widely from year to year . these are legacy products which have not had a product line refresh in several years . in january 2018 , we sent notifications to our dental product customers that we were discontinuing the manufacture of these products and that same month we accepted final purchase orders to be fulfilled over the next six months . at this point we are focusing our product development and sales efforts almost exclusively on our medical device products , which prompted our decision to terminate the sales of our dental products . sales of our dental products and components have declined as we are no longer manufacturing this line of products , but rather are simply selling remaining component inventory . the cessation of our dental line of products is not expected to have a material impact on our financial position or results of operations . our fiscal 2020 repair revenue has increased approximately $ 5.2 million , or 458 % , over fiscal 2019 to $ 6.3 million , due largely to repairs of the orthopedic device we sell to our largest customer . typically , upon initial product launch , repair revenue is minimal as most repairs are typically covered under warranty , but as the products mature in the marketplace and after a certain number of routine duty cycles in the operating room , repairs generally increase . we expect similar repair revenue in fiscal 2021. at june 30 , 2020 , we had a backlog of $ 7.0 million compared with a backlog of $ 17.7 million at june 30 , 2019. our backlog represents firm purchase orders received and acknowledged from our customers and does not include all revenue expected to be generated from existing customer contracts . our entire backlog at june 30 , 2020 , as well as purchase orders received and yet to be received subsequent to june 30 , 2020 , is expected to be delivered during fiscal 2021. we have experienced , and may continue to experience , variability in our new order bookings due to , among other reasons , the launch of new products , the timing of customer orders based on end-user demand , and customer inventory levels . we do not typically experience seasonal fluctuations in our shipments and revenues . cost of sales and gross margin replace_table_token_5_th cost of sales in fiscal 2020 increased $ 4.3 million , or 25 % , from fiscal 2019 , primarily due to the increase in product costs , consistent with the 28 % increase in net sales . during fiscal 2020 , we incurred costs of $ 1.2 million to generate $ 834,000 in revenue related to nre and proto-type services , netting losses in the amount of $ 370,000 from the development services portion of certain contracts compared to none in fiscal 2019. during fiscal 2020 , we experienced over-absorption of manufacturing costs compared to an under-absorption in fiscal 2019 , due primarily to adjustments to our standard labor and overhead rates at the beginning of fiscal 2020 in anticipation of higher manufacturing volumes . costs related to inventory and warranty charges remained relatively flat in fiscal 2020 compared to fiscal 2019 . 18 operating expenses replace_table_token_6_th selling expenses consist of salaries and other personnel-related expenses related to our business development department , as well as trade show attendance , advertising and marketing expenses , and travel and related costs incurred in generating and maintaining customer relationships . selling expenses increased $ 162,000 , or 39 % , compared to fiscal 2019 , primarily related to increased personnel expenses in the amount of $ 95,000 as well as consulting expenses of $ 96,000 , offset by decreases in recruitment fees of $ 40,000 due to filling the previously vacant position of director of business development during the first quarter of fiscal 2019. general and administrative expenses ( g & a ) consist of salaries and other personnel-related expenses for corporate , accounting , finance , and human resource personnel , as well as costs for outsourced information technology services , professional fees , directors ' fees , and costs associated with being a public company . story_separator_special_tag the $ 697,000 increase in g & a expenses from fiscal 2019 to 2020 is due primarily to $ 277,000 in increased fiscal 2020 bonus accruals , $ 93,000 in increased personnel expenses , $ 249,000 in increased equity compensation expense due to the reallocation of previously forfeited performance awards , and increased professional fees related to outsourced information technology services and audit fees in the amount of $ 85,000. research and development costs consist of salaries and other personnel-related costs of our product development and engineering personnel , related professional and consulting fees , and costs related to intellectual property , laboratory usage , materials , and travel and related costs incurred in the development and support of our products . the $ 433,000 increase in research and development costs from fiscal 2019 to fiscal 2020 is due primarily to increased personnel-related costs in the amount of $ 386,000 and increased recruiting expenses as we hired new engineers during the fiscal 2020. although the majority of our research and development costs relate to sustaining activities related to products we currently manufacture and sell , we have created a product roadmap to develop future products . research and development costs represent between 38 % and 39 % of total operating expenses during fiscal 2019 and 2020 and are expected to increase in the future as we continue to invest in product development . the amount spent on projects under development is summarized below ( in thousands ) : replace_table_token_7_th * we substantially completed this product and began initial shipments of a private-labeled version to an existing cmf customer beginning in the third quarter of fiscal 2020 , generating $ 3.1 million in revenue during fiscal 2020 . 19 ( 1 ) this project has been internally pushed back to focus on our new internal pro-dex branded ent shaver . ( 2 ) internal development of this project is complete , but we are looking for the most attractive sales channel and have yet to sell this product . as we previously discussed , in early fiscal 2019 we entered a development contract with a current significant customer to private-label our thoracic driver for their unique specifications . we shipped initial launch quantities of this product during the third quarter ended march 31 , 2020. additionally , the customer cmf driver listed in the prior year was completed during fiscal 2020 and we began shipping initial quantities to this customer during the fourth quarter of fiscal 2020 and generated $ 556,000 in revenue related to this new product . approximately $ 6,000 in expenses included in fiscal 2020 sustaining and other is related to the jet propulsion laboratory 's ventilator intervention technology accessible locally ( vital ) , a high-pressure , lower cost ventilator . in the fourth quarter , we were one of eight us-based companies awarded a license to manufacture the vital . we are currently in the process of creating proto-types for testing and look forward to adding this as a formal product under development in our next fiscal quarter . we are excited about the opportunity to commercialize this product , which may alleviate some of the ventilator supply chain shortages experienced by hospitals during the covid-19 pandemic . other income ( expense ) interest and dividend income our interest and dividend income earned in fiscal 2020 includes $ 95,000 earned from our interest-bearing money market accounts and portfolio of equity investments . the fiscal 2019 interest and dividend income included $ 183,000 of interest related to an investment in a hotel as well as $ 83,000 of interest and dividend income earned from our interest-bearing money market accounts and portfolio of equity investments . other income during the fourth quarter of fiscal 2020 , the monogram orthopaedics inc. ( monogram ) note was repaid with interest and we collected a total of $ 952,000 during fiscal 2020. we invested in monogram , a medical device start-up specializing in precision , patient-specific orthopedic implants in april 2017. in conjunction with making the loan to monogram , we were granted the exclusive right to develop , engineer , manufacture , and supply certain products on behalf of monogram . we impaired our entire $ 800,000 investment during the fourth quarter of fiscal 2018 due to indications that monogram had exhausted its cash and had been unable to obtain additional financing to enable continued research to commercialize their technology . gain on sale of investments during the fourth quarter of fiscal 2020 , we liquidated one of the stocks in our portfolio of equity investments receiving proceeds of $ 128,000 and recording a gain of $ 25,000. during the quarter ended december 31 , 2018 , we liquidated one of the stocks in our portfolio of equity investments receiving proceeds of $ 1.9 million and recording a gain on the sale in the amount of $ 356,000. interest expense interest expense incurred in fiscal 2020 and 2019 , consists primarily of interest expense related to the term loan from minnesota bank & trust ( mbt ) described more fully in note 6 to the financial statements contained elsewhere in this report and capital lease obligations for leased equipment . income taxes the effective tax rate for the years ended june 30 , 2020 and 2019 , was consistent at 23 % and 24 % , respectively . 20 liquidity and capital resources the following table is a summary of our statements of cash flows and cash and working capital as of and for the fiscal years ended june 30 , 2020 and 2019 : replace_table_token_8_th cash flows from operating activities cash provided by operating activities during fiscal 2020 relates primarily to our net income of $ 6.1 million , the non-cash depreciation and amortization and stock compensation expense of $ 573,000 and $ 286,000 , respectively , offset by a gain on collection of a note receivable in the amount of $ 952,000 , an increase in inventory in the amount of $ 2.0 million due to
| we provide our largest customer with a device used primarily in elective surgeries and although this customer has not requested a reduction or delay to their planned shipments , if this pandemic continues to adversely impact the united states and other markets where our products are sold , coupled with the recommended deferrals of elective procedures by governments and other authorities , we would expect to see a decline in demand from our principal customer . we are focused on the health and safety of all those we serve our customers , our communities , our employees , and our suppliers . we are supporting our customers according to their priorities and working with them to the degree that we can offer relief in the form of delayed shipments . we are focused on continuity of supply by working with our suppliers . to date , a total of six of our employees including one temporary agency worker have tested positive for covid-19 and all of them have made full recoveries and returned to work as of august 18 , 2020. while the covid-19 pandemic did not materially adversely affect our financial results and business operations in our fiscal year ended june 30 , 2020 , economic and health conditions in the united states and across much of the globe have changed rapidly since the end of the quarter , and we can not predict the full impact of the covid-19 pandemic on our business . 14 critical accounting policies our financial statements are prepared in accordance with u.s. gaap . the preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues , expenses , and related disclosures . we base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates . revenue recognition effective july 1 , 2018 , we adopted new revenue recognition guidance issued by the financial accounting standards board ( fasb ) related to contracts with customers . under accounting
| 12,144 |
company overview the company consists primarily of two major lines of business , dialysis and related lab services and healthcare partners . the largest line of business is our u.s. dialysis and related lab services business , which is a leading provider of kidney dialysis services in the u.s. for patients suffering from chronic kidney failure , also known as esrd . our other major line of business is hcp , which is a patient- and physician-focused integrated health care delivery and management company with nearly three decades of providing coordinated , outcomes-based medical care in a cost-effective manner . the company also operates various other ancillary services and strategic initiatives , which includes our international dialysis operations . on november 1 , 2012 , we completed our acquisition of hcp pursuant to an agreement and plan of merger dated may 20 , 2012 , whereby hcp became a wholly-owned subsidiary of the company . hcp is one of the country 's largest operators of medical groups and physician networks generating approximately $ 3.2 billion in revenues and approximately $ 385 million in operating income for the year ended december 31 , 2013. the operating results of hcp are included in our consolidated financial results from november 1 , 2012. the total consideration paid for all of the outstanding common units of hcp was approximately $ 4.71 billion , which consisted of $ 3.65 billion in cash , net of cash acquired , and 18,760,624 shares of our common stock valued at approximately $ 1.06 billion . during 2013 , we paid an additional $ 5.3 million in cash for post-closing working capital adjustments . in addition , we paid approximately $ 137 million to the common unit holders of hcp as a result of hcp achieving certain financial performance targets in 2012. in 2013 , we reached an agreement with the representative of the former owners and option holders of hcp to settle certain post-closing adjustments , including the 2013 contingent earn-out obligation for approximately $ 68.8 million . our overall financial performance was once again strong for 2013 , excluding the estimated loss contingency reserve we accrued in connection with the 2010 and 2011 u.s. attorney physician relationship investigations , and was characterized by strong treatment volume growth , primarily from acquisitions and non-acquired growth rates , cost control initiatives in our dialysis business , a decline in the utilization of physician-prescribed pharmaceuticals and a full year of operations from our hcp business , which experienced solid growth in its senior capitated members . some of our major accomplishments and financial operating performance indicators in 2013 and year over year were as follows : improved clinical outcomes in our u.s. dialysis operations ; hcp generated incremental operating income of $ 318 million in 2013 as a result of a full year of operations being included in our consolidated financial statements ; consolidated net revenue growth of approximately 43.7 % primarily as a result of a full year of operations of hcp , which contributed 33.2 % of the increase , and an increase of 8.0 % related to our u.s. dialysis operations ; an increase of approximately 7.2 % in the overall number of u.s. dialysis related treatments ; normalized non-acquired dialysis treatment growth of 5.1 % ; consolidated operating income growth of approximately 19.5 % , which includes the impact of various unusual adjustments as described below . excluding these items adjusted consolidated operating income would have increased by 34.2 % ; and strong operating cash flows of $ 1,773 million . 73 however , we believe that 2014 will be challenging as we undertake initiatives to mitigate increases in clinical costs that we expect to experience due to inflation and other factors without any corresponding increase in our dialysis medicare reimbursement rates . hcp also faces significantly lower medicare advantage reimbursement rates from risk recalibration . in addition , congress could still make significant changes to medicare and medicaid under the health care reform legislation that was enacted in the u.s. and there is uncertainty around the potential negative impact of healthcare insurance exchanges . the utilization of physician-prescribed pharmaceuticals and pharmaceutical cost could also have a significant impact on our operating results . we also remain committed to our international expansion plans that will continue to require significant investment in 2014. in addition , if the percentage of our dialysis patients with commercial payors continues to deteriorate or if we experience a decrease in our overall commercial rates , our operating results could be adversely affected . following is a summary of consolidated operating results for reference in the discussion that follows . the operating results of hcp are included in our operating results effective november 1 , 2012. replace_table_token_7_th 74 the following table summarizes consolidated net revenues : replace_table_token_8_th the following table summarizes consolidated operating income and adjusted consolidated operating income : replace_table_token_9_th ( 1 ) for the year ended december 31 , 2013 , we have excluded $ 397 million of accruals related to an estimated loss contingency reserve . in addition , we have also excluded $ 57 million related to a decrease in hcp 's 75 2013 contingent earn-out obligation and an adjustment of $ 8 million to reduce a tax asset associated with the hcp acquisition escrow provisions . for the year ended december 31 , 2012 , we have excluded $ 86 million of expenses related to a legal settlement and we have also excluded $ 31 million of transaction expenses associated with the acquisition of hcp from operating expenses and operating income . these are non-gaap measures and are not intended as substitutes for the gaap equivalent measures . story_separator_special_tag we have presented these adjusted amounts because management believes that these presentations enhance a user 's understanding of our normal consolidated operating income by excluding : ( i ) accruals totaling $ 397 million for an estimated loss contingency reserve related to the 2010 and 2011 u.s. attorney physician relationship investigations ( see note 17 to the consolidated financial statements ) ; ( ii ) an unusual adjustment of $ 57 million for a decrease in hcp 's 2013 contingent earn-out obligation ; ( iii ) an adjustment to reduce a tax asset associated with the hcp acquisition escrow provisions that was established as a receivable to offset any potential tax liabilities ; ( iv ) $ 86 million of expenses relating to a legal settlement we reached in 2012 with the u.s. district court in the eastern district of texas to resolve federal program claims regarding erythropoietin ( epo ) that were or could have been raised in the complaint relating to historical epo practices dating back to 1997 ; and ( v ) an unusual amount of transaction expenses totaling $ 31 million associated with the acquisition of hcp in 2012. we therefore consider these adjusted consolidated operating income amounts meaningful and comparable to our normal prior period results . consolidated net revenues consolidated net revenues for 2013 increased by approximately $ 3,578 million or approximately 43.7 % from 2012. this increase in consolidated net revenues was due to an increase in dialysis and related lab services net revenues of approximately $ 669 million , principally due to strong volume growth from additional treatments from non-acquired growth and dialysis center acquisitions and from an increase of $ 8 in the average dialysis revenue per treatment , primarily from an increase in our medicare reimbursements , net of the impact of sequestration and an increase in some of our average commercial payment rates , partially offset by a decline in the intensities of physician-prescribed pharmaceuticals that are billed separately . consolidated net revenues also increased by $ 2,719 million as a result of the inclusion of a full year of operations for hcp , which benefited from an increase in its senior capitated members . in addition , revenue increased by approximately $ 210 million for our ancillary services and strategic initiatives driven primarily from growth in our pharmacy services and from our international operations . consolidated net revenues for 2012 increased by approximately $ 1,454 million or approximately 21.6 % from 2011. this increase in consolidated net revenues was due to an increase in dialysis and related lab services net revenues of approximately $ 800 million , principally due to strong volume growth from additional treatments from non-acquired growth and dialysis center acquisitions and from an increase of $ 2 in the average dialysis revenue per treatment , primarily due to an increase in our medicare reimbursements , partially offset by an increase in the provision for uncollectible accounts of $ 45 million . consolidated net revenues also increased by $ 477 million as a result of the acquisition of hcp on november 1 , 2012 and increased by approximately $ 188 million associated with the ancillary services and strategic initiatives driven primarily from growth in our pharmacy services and from our disease management services . consolidated operating income consolidated operating income of $ 1,550 million for 2013 increased by approximately $ 253 million , or 19.5 % from 2012 , which includes the estimated loss contingency reserve of $ 397 million , a contingent earn-out obligation adjustment of $ 57 million and an adjustment to reduce a tax asset associated with the hcp acquisition escrow provisions of $ 8 million in 2013 and 2012 , also includes the $ 86 million legal settlement and related expenses and the $ 31 million of transaction expenses associated with the acquisition of hcp . excluding these items from their respective periods , adjusted consolidated operating income would have increased by $ 484 million , or 34.2 % , primarily as a result of a full year of operations of hcp which generated $ 385 million in operating income in 2013 as compared to $ 67 million in 2012 , an increase in the dialysis and related lab services net revenues as a result of strong volume growth in revenue from additional treatments due to non-acquired growth and acquisitions , and from an increase in our average dialysis revenue per treatment of approximately $ 8 , partially offset by an increase in the provision for uncollectible accounts of $ 47 million . adjusted consolidated 76 operating income also increased as a result of lower operating losses associated with our ancillary services and strategic initiatives including our international operations and an overall decline in pharmaceutical costs mainly from a decline in the intensities of physician-prescribed pharmaceuticals and lower pharmaceutical unit costs . however , consolidated operating income was negatively impacted by higher labor and benefit costs , an increase in our professional fees for compliance and legal initiatives and for information technology matters , an increase in our dialysis center level impairments , the write-off of certain obsolete software costs , an increase in long-term incentive compensation and a slight decline in productivity . consolidated operating income of $ 1,297 million for 2012 increased by approximately $ 142 million , or 12.3 % , from 2011 as the 2012 results include the $ 86 million legal settlement and related expenses and the $ 31 million of transaction expenses associated with the acquisition of hcp . excluding these items in 2012 , adjusted consolidated operating income would have increased by $ 259 million , or 22.4 % , primarily due to an increase in the dialysis and related lab services net revenues as a result of strong volume growth in revenue from additional treatments as a result of non-acquired growth and acquisitions , and from an increase in our average dialysis revenue per treatment of approximately $ 2 , partially offset by an increase in the provision for uncollectible accounts of $ 45 million .
| 89 revenues the following table provides a breakdown of hcp 's revenue by source : replace_table_token_13_th net revenues hcp 's net revenue for 2013 was approximately $ 3.2 billion and was primarily driven by an increase in the number of senior capitated members during the year , an increase in the average premiums for our senior members and an increase in hcp 's net patient service revenues primarily as a result of acquisitions , partially offset by a decline in medicare reimbursements due to sequestration , a decline in the number of commercial members to whom hcp provides health care services and lower non-patient care related revenues . on april 1 , 2013 , the center for medicare and medicaid services ( cms ) announced its final 2014 medicare advantage benchmark rate structure . while these rates were generally improved from the preliminary rates which were announced in february 2013 , the rates still represent a significant decline in what hcp will realize as average revenues for its senior capitated members in 2014 relative to 2013 due to recalibration of patient risk coding . we estimate that the final cumulative impact of the 2014 rate structure will represent a reduction of approximately 6 % to 9 % of hcp 's average revenues it manages on behalf of its senior capitated members . we expect to be able to offset a portion of this rate reduction through contractual pass-throughs to our provider network and other revenue enhancement and cost control initiatives . patient care costs the following table reflects hcp 's patient care costs comprised of medical expenses , hospital expenses , clinic support and other operating costs : replace_table_token_14_th 90 operating expenses hcp 's patient care costs were approximately $ 2,405 million for the year ended december 31 , 2013 , and were approximately $ 344 million for the period november 1 , 2012 through december 31 , 2012. patient care costs were primarily driven by an increase in medical claim expenses due to increases in medicare and medicaid managed care members to whom hcp provides healthcare services and to a lesser extent contracted rate increases with its provider and hospital networks . hcp 's general and administrative costs were $ 270 million for the year ended december 31 , 2013 and were $ 47 million for the period november 1 , 2012 through december 31 , 2012. hcp 's general and administrative expenses in 2013 were impacted by a decrease in compensation expenses due to reductions in overtime and a hold on personnel increases , and a
| 12,145 |
the historically low interest rate environment continues to impact our results and our industry as investment yields are an integral component of our business operations . our assets remained flat in 2015 and totaled $ 1.5 billion as of december 31 , 2015 and december 31 , 2014. total stockholders ' equity decreased from $ 258.4 million at december 31 , 2014 , to $ 242.5 million at december 31 , 2015 due primarily to a decrease in net unrealized gains on available-for-sale securities due to higher interest rates in 2015 and net losses from other-than-temporary impairments charges in 2015 . insurance premiums rose 3.2 % and 7.0 % in 2015 and 2014 , respectively , primarily from our life insurance segment , which increased $ 5.5 million from amounts reported in 2014 . net investment income increased 11.5 % and 12.2 % for 2015 and 2014 , respectively , as rates have risen in 2015 compared to the prior two years . the average yield on the consolidated investment portfolio has changed from a yield of 4.11 % in 2013 up to 4.21 % in 2014 and increasing to a yield of 4.38 % in 2015 as rates have risen and our new investments have been focused on municipals and corporates . the increase in the investment asset balances due to premium revenue growth has also contributed to the increase in net investment income . realized net investment losses resulted from other-than-temporary impairments on investment securities which were recorded totaling $ 5.4 million and $ 0.4 million , in 2015 and 2014 , respectively , and are reported as realized losses . during 2015 , claims and surrenders expense increased 15.5 % from the comparable period in 2014 , primarily due to an increase in surrender benefits in the life segment compared to the 2014 levels . 2015 change in reserves resulted in reserve decreases related to surrender activity , primarily in the life segment and after the fifteenth policy duration . general expense remained at an increased level due to the tax compliance issue noted above relating to product qualification under irc section 7702 and 72 ( s ) and remediation costs that have been identified , as well as increased consulting costs for actuarial , tax , and legal assistance . we completed the acquisition of mglic in the first quarter of 2014 and the related results have been included in our financial results . life insurance . for over thirty-six years , cica and its predecessors have accepted policy applications from foreign nationals for u.s. dollar-denominated ordinary whole life insurance and endowment policies . we make our insurance products available using third-party marketing organizations and independent marketing consultants . endowment product sales have been on the rise and represented approximately 76.1 % of new sales in the life segment in 2015. the company currently offers a fifteen and twenty year endowment and our top selling endowment is a product that matures at age sixty-five . we also introduced a new product in 2013 that is an endowment at age eighteen with a payout over four or five years . 25 citizens , inc. and consolidated subsidiaries through the domestic market of our life insurance segment , we provide ordinary whole life , credit life insurance , and final expense policies to middle and lower income families and individuals in certain markets in the mountain west , mid-west and southern u.s. the majority of our domestic revenues are generated by the policies of domestic life insurance companies we have acquired since 1987. home service insurance . we provide final expense ordinary and industrial life insurance to middle and lower income individuals in louisiana , mississippi and arkansas . our policies in this segment are sold and serviced through a home service marketing distribution system utilizing employee-agents who work on a route system to collect premiums and service policyholders , and through networks of funeral homes that collect premiums and provide personal policyholder service . economic and insurance industry developments significant economic issues impacting our business and industry currently and into the future are discussed below . slow increases in the interest rate environment will limit increases in profit margins for insurers . we have been impacted by the historically low interest rate environment over the past several years as our fixed income investment portfolio , primarily invested in callable securities , has been reinvested at lower yields . the company 's conservative investment strategy has not changed but we have focused new purchases into holding of state , municipalities and essential service issuers compared to our historical investment in u.s. government holdings . our investment earnings also impact the reserve and deferred acquisition costs ( “ dac ” ) balances , as assumptions are used in the development of the balances . due to the recent decline in investment yields on our portfolio , our projection of long-term investment returns has declined . this has resulted in increasing the reserves on policies issued in the current year , as well as reducing the dac asset . as an increasing percentage of the world population reaches retirement age , we believe we will benefit from increased demand for living benefit products rather than death products , as customers will require cash accumulation to pay expenses to meet their lifetime income needs . our ordinary life products are designed to accumulate cash values to provide for living expenses in a policy owner 's later years , while continuously providing a death benefit . we believe there is a trend toward consolidation of domestic life insurance companies , due to significant losses incurred by the life insurance industry as a result of the credit crisis and related economic pressures , as well as increasing costs of regulatory compliance for domestic life insurance companies . we believe this trend should benefit our acquisition strategy as more complementary acquisition candidates may become available for us to consider . many of the events and trends affecting the life insurance industry have had an impact on the life reinsurance industry . story_separator_special_tag these events have led to a decline in the availability of reinsurance . while we currently cede a limited amount of our primary insurance business to reinsurers , we may find it difficult to obtain reinsurance in the future , forcing us to seek reinsurers who are more expensive to us . if we can not obtain affordable reinsurance coverage , either our net exposures will increase or we will have to reduce our underwriting commitments . while our management has extensive experience in writing life insurance policies for foreign residents , changes to foreign laws and regulations and their related application and enforcement , along with currency controls affecting our foreign resident insureds could adversely impact our revenues , results of operations and financial condition . acquisition history - last five years on august 1 , 2011 , splic entered into assumption reinsurance agreements with escude life insurance company in rehabilitation , and benton life insurance company in rehabilitation . at the time the agreements were executed , both companies were under receivership with the louisiana department of insurance . in total , splic assumed approximately $ 4.5 million in reserve liabilities and received approximately $ 4.6 million in cash , with a minimal reinsurance ceding commission being paid . these transactions are accounted for under business combination accounting and are not deemed material . on march 7 , 2014 , the company acquired magnolia guaranty life insurance company ( `` mglic '' ) in the amount of $ 5.2 million . mglic is a mississippi domiciled company that began writing business in 1992 and issues primarily industrial life policies through independent funeral homes in the state of mississippi . we recorded $ 0.1 million of goodwill as a result of this transaction . mglic is reported in our home service segment . 26 citizens , inc. and consolidated subsidiaries story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > policy surrenders increased 30.3 % in 2015 from 2014 and 10.6 % from 2013 to 2014 , or 0.7 % and 0.5 % of direct ordinary whole life insurance inforce for 2015 and 2014 , respectively . the increase in surrender expense is primarily related to our international business and is expected to increase over time due to the aging of this block of business . a significant portion of surrenders relates to policies that have been in force over fifteen years and no longer have a surrender charge associated with them . total direct insurance inforce reported in 2015 was $ 5.0 billion compared to $ 4.9 billion in 2014 and $ 4.7 billion 2013 . endowment benefits decreased slightly in 2015 compared to 2014 amounts . we have a series of international policies that carry an immediate endowment benefit of an amount selected by the policy owner . these benefits have been popular in the pacific rim and latin america , where the company has experienced increased interest in our guaranteed products in recent years . like policy dividends , annual guaranteed endowments are factored into the premium and , as such , the increase has no impact on expected profitability . the company expects these benefits to continue to increase as this block of business increases and persists . property claims increased 10 % to approximately $ 1.7 million in 2015 compared with the amount reported for 2014 due a slight increase in weather related claims . the hurricane issac claims experience in 2013 included $ 0.5 million of losses within our retention limits . other policy benefits resulted primarily from interest paid on premium deposits and policy benefit accumulations and increased as these policy liabilities also increased . reserves . the change in future policy benefit reserves has decreased in 2015 by 5.9 % primarily due to the high surrenders and increased in 2014 by 11.6 % due primarily to the current low interest rate environment necessitating higher reserves for policies issued in the last few years due to lower long term yield projections compared to prior assumptions . in addition , we continue to experience growth in new sales of endowment products , which require higher initial reserve levels , than whole life products . endowment sales totaled approximately $ 16.4 million , $ 16.1 million and $ 14.3 million in 2015 , 2014 and 2013 , respectively . policyholder dividends . policyholder dividends have risen at a rate corresponding with the growth rate in new international life insurance premiums . the company issues long duration participating policies to foreign residents that are expected to pay dividends to policyholders based upon actual experience . policyholder dividends are factored into the premiums at the time the product is developed and have no impact expected on profitability . commissions . commission expense fluctuates in a direct relationship to new and renewal insurance premiums and has decreased 0.9 % in 2015 compared to 2014 as first year premium revenues , on which higher commission rates are paid , have decreased . 30 citizens , inc. and consolidated subsidiaries other general expenses . total general expenses have decreased significantly on a consolidated basis in 2015 due primarily to the tax compliance issue we recognized in 2014 resulting in $ 10.2 million additional expense for future liabilities recorded . in 2015 , we recorded an additional $ 3.4 million of expense related to this tax compliance issue . in 2014 , we also settled litigation in the amount of $ 0.2 million which was filed in the aftermath of hurricane katrina by the louisiana attorney general against all insurers writing homeowner policies in louisiana . we perform an expense study on an annual basis , utilizing an enterprise-wide time study , and we adjust cost allocations among entities as needed based upon this review . any allocation changes are reflected in the segment operations , but do not impact total expenses . deferred policy acquisition costs . capitalized deferred policy acquisition costs ( `` dac '' ) were $ 31.1 million , $ 32.1 million and $ 29.4 million in 2015 , 2014 and 2013 .
| net investment income increased to $ 45.8 million in 2015 compared to $ 41.1 million in 2014 , due to an increase in yields from new investments primarily in municipal and corporate issues and as we experienced higher average invested assets as a result of investment of new premium revenue . our yield on average invested assets increased 16 basis points from 2014 to 2015 and we increased the holdings in higher quality rated securities . net investment income performance is summarized as follows . replace_table_token_5_th 27 citizens , inc. and consolidated subsidiaries we have traditionally invested in fixed maturity securities with a large percent held in callable issues . the sustained low interest rate environment of the past several years is now beginning to rise as noted in the table above . the interest rate direction is uncertain but if market interest rates begin to rise , our call risk will diminish , resulting in our fixed securities maturing at the stated maturity dates and our portfolio yield will rise more slowly over time , as new money investments would be made at higher rates . investment income from fixed maturity securities accounted for approximately 83.4 % of total investment income for the year ended december 31 , 2015 . we have increased our investment purchases of corporate and municipal securities over the past several years , focusing on utility service sectors in these security categories . in addition , we currently have $ 21.5 million invested in equity securities related to bond and stock mutual funds as these securities offer a competitive yield with a shorter duration . replace_table_token_6_th investment income from fixed maturity investments increased for the year of 2015 due to a rise in overall bond yields and an increase in the portfolio from new money investment purchases as noted above relative to the fixed maturity portfolio . in addition , the increase in the policy loans asset balance , which represents policyholders utilizing their accumulated policy cash value , contributed to the increase to investment income . realized losses on investments
| 12,146 |
we expect future revenue growth to be driven by our digital banking , legal spend management and settlement network solutions . over the past several years we have made strategic investments in innovative new technology offerings that we believe will enhance our competitive position , help us win new business , drive subscription revenue growth and expand our operating margins . we believe that these initiatives have positioned us effectively for revenue growth in future years . new credit agreement on december 9 , 2016 , we ( as borrower ) and certain of our domestic subsidiaries ( as guarantors ) entered into a credit agreement with bank of america , n.a . and certain other lenders . please refer to note 10 indebtedness to our consolidated financial statements included in item 8 of this annual report on form 10-k for further details regarding this matter . revenue sources our revenues are derived from multiple sources and are reported under the following classifications : s ubscriptions and transactions fees . we derive subscription and transaction 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 . 32 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 . recently however , the number of percentage of completion arrangements we enter into has declined as we have continued to de-emphasize large , highly customized projects in lieu of standard product deployments and our cloud-based solutions . 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 . 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 estimates - which also would have been reasonable - could 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 significant accounting policies to our consolidated financial statements included in item 8 of this annual report on form 10-k for further details regarding this matter . 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 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 . story_separator_special_tag 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 33 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 selling price of each element is based on vsoe if available , third-party evidence ( tpe ) if vsoe is not available or estimated selling price ( esp ) if neither vsoe nor tpe are available . the residual method of allocation in a non-software arrangement is not permitted and , instead , arrangement consideration is allocated at the inception of the arrangement to all deliverables using the relative selling price method . the relative selling price method allocates any discount in the arrangement proportionately to each deliverable based on the proportion of each deliverable 's selling price to the total arrangement fee . we are typically unable to establish tpe , which is based on the selling price charged by unrelated third-party vendors for similar deliverables when they are sold separately , as we are generally unable to obtain sufficient information on actual vendor selling prices to substantiate tpe . the objective of esp is to estimate the price at which we would transact if the deliverable were sold separately rather than as part of a multiple element arrangement . our determination of esp considers several factors , including actual selling prices for similar transactions , gross margin expectations and our ongoing pricing strategy . we formally analyze our esp determinations on at least an annual basis . goodwill and acquired intangible assets goodwill and acquired intangible assets are initially recorded at fair value and tested periodically for impairment . we performed our annual impairment test of the carrying value of our goodwill for fiscal year 2017 34 during our fourth quarter , which is consistent with the historic timing of our annual goodwill impairment review . our analysis of goodwill impairment was performed at the reporting unit level , which requires an estimate of the fair value of each reporting unit . we had identified our intellinx reporting unit as being at heightened risk of impairment during fiscal year 2016. in the second quarter of fiscal year 2017 , based on continued shortfalls of revenue against our revenue projections , we performed the first step of the goodwill impairment test for the intellinx reporting unit and determined the fair value was lower than its respective carrying value . accordingly , we performed the second step of the goodwill impairment test which compared the estimated fair value of the intellinx reporting unit 's goodwill to its carrying value . as a result of this test , we recorded a non-cash , pretax , goodwill impairment charge of $ 7.5 million .
| we expect revenue and profit for the cloud solutions segment to increase in fiscal year 2018 as a result of increased revenue from our legal spend management solutions and settlement network solutions . digital banking revenues from our digital banking segment increased $ 8.5 million for the fiscal year ended june 30 , 2017 as compared to the prior fiscal year , due primarily to increases of $ 6.7 million in subscription and transaction revenue and $ 3.3 million in service and maintenance revenue , partially offset by a decrease of $ 1.5 million in software license revenue . segment profit decreased $ 2.8 million for the fiscal year ended june 30 , 2017 as compared to the prior fiscal year , due primarily to increased product development costs of $ 3.4 million , partially offset by increased gross margins of $ 0.7 million and reduced sales and marketing costs of $ 0.7 million . we expect revenue for the digital banking segment to increase and profit for the digital banking segment to remain relatively consistent in fiscal year 2018 , as a result of our continued investment in certain of our newer digital banking solutions . payments and transactional documents revenues from our payments and transactional documents segment decreased $ 17.1 million for the fiscal year ended june 30 , 2017 as compared to the prior fiscal year , inclusive of an unfavorable impact of foreign currency exchange rates of $ 9.5 million . the overall revenue decrease was primarily attributable to revenue decreases of $ 12.0 million in service and maintenance revenue , $ 6.9 million in software license revenue and $ 1.9 million in other revenue , partially offset by increases of $ 3.7 million in subscriptions and transactions 38 revenue . the segment profit decrease of $ 4.4 million for the fiscal year ended june 30 , 2017 , as compared to the prior fiscal year , included an unfavorable impact of foreign currency exchange rates of $ 2.8 million , and was primarily attributable to the revenue decrease described above , partially offset by
| 12,147 |
million for the year ended december 31 , 2012 , an increase of $ 33.6 million , or 86.8 % , compared to legal collection costs of $ 38.7 million for the year ended december 31 , 2011 . this increase was the result of an increased portfolio size as well as a refinement of our internal scoring methodology that expanded our account selections for legal action . this strategy to expand the accounts brought into the legal collection process resulted in significant initial expenses , which may drive additional future cash collections and revenue . these legal collection costs represent 7.4 % and 5.1 % of cash receipts for the years ended december 31 , 2012 and 2011 , respectively . agent fees agent fees primarily represent costs paid to repossession agents to repossess vehicles . agent fees were $ 5.9 million for the year ended december 31 , 2012 , a decrease of $ 1.8 million , or 23.4 % , compared to agent fees of $ 7.7 million for the year ended december 31 , 2011 . the decrease was mainly due to reduced business activity associated with pls . outside fees and services outside fees and services expenses were $ 28.9 million for the year ended december 31 , 2012 , an increase of $ 9.6 million or 49.7 % compared to outside legal and other fees and services expenses of $ 19.3 million for the year ended december 31 , 2011 . of the $ 9.6 million increase , $ 8.1 million was attributable to an increase in legal reserve accruals and corporate legal expenses and the remaining $ 1.5 million increase was attributable to other outside fees and services including increases in non-capitalized software development costs . communications communications expenses were $ 29.1 million for the year ended december 31 , 2012 , an increase of $ 5.7 million or 24.4 % compared to communications expenses of $ 23.4 million for the year ended december 31 , 2011 . the increase was primarily due to additional postage expense resulting from an increase in special letter campaigns . the remaining increase was mainly attributable to telephone expenses incurred by mhh . expenses related to customer mailings were responsible for 84.2 % or $ 4.8 million of this increase , while the remaining 15.8 % or $ 0.9 million was attributable to increased telephone and telecommunication related expenses . rent and occupancy rent and occupancy expenses were $ 6.8 million for the year ended december 31 , 2012 , an increase of $ 0.9 million or 15.3 % compared to rent and occupancy expenses of $ 5.9 million for the year ended december 31 , 2011. the increase was primarily due to the additional space leased for our birmingham call center operations , the addition of our mhh foreign operations as well as increased utility charges . depreciation and amortization depreciation and amortization expenses were $ 14.5 million for the year ended december 31 , 2012 , an increase of $ 1.6 million or 12.4 % compared to depreciation and amortization expenses of $ 12.9 million for the year ended december 31 , 2011 . the increase 35 was primarily due to the additional depreciation and amortization expense incurred as a result of the acquisition of mhh and its related property , equipment and intangible assets . other operating expenses other operating expenses were $ 16.5 million for the year ended december 31 , 2012 , an increase of $ 4.1 million or 33.1 % compared to other operating expenses of $ 12.4 million for the year ended december 31 , 2011 . of the $ 4.1 million increase , $ 0.9 million was due to an increase in the provision for doubtful accounts , $ 0.8 million was due to an increase in travel and travel related expenses , $ 0.4 million was primarily attributable to additional taxes , fees and licenses , $ 0.5 million was due to an increase in repairs and maintenance and $ 0.4 million was due to increased insurance expenses , when compared to the year ended december 31 , 2011. none of the remaining $ 1.1 million increase was attributable to any significant identifiable items . gain on sale of property gain on sale of property was $ 0 for the year ended december 31 , 2012 , compared to $ 1.2 million for the year ended december 31 , 2011 . the 2011 amount was the result of the sale of a parcel of land adjacent to our norfolk headquarters during 2011. interest expense interest expense was $ 9.0 million for the year ended december 31 , 2012 , a decrease of $ 1.6 million or 15.1 % compared to interest expense of $ 10.6 million for the year ended december 31 , 2011 . the decrease was mainly due to a decrease in our weighted average interest rate which decreased to 3.27 % for the year ended december 31 , 2012 from 3.71 % for the year ended december 31 , 2011 , as well as a decrease in our average borrowings to $ 258.0 million for the year ended december 31 , 2012 compared to $ 263.2 million for the year ended december 31 , 2011 . provision for income taxes income tax expense was $ 80.9 million for the year ended december 31 , 2012 , an increase of $ 14.6 million or 22.0 % compared to income tax expense of $ 66.3 million for the year ended december 31 , 2011 . the increase was mainly due to an increase of 23.6 % in income before taxes for the year ended december 31 , 2012 when compared to the year ended december 31 , 2011 . this was partially offset by a decrease in the effective tax rate to 39.1 % for the year ended december 31 , 2012 compared to 39.6 % for the year ended december 31 , 2011 . the decrease in the effective tax rate is primarily attributable to the tax benefits created by our international operations . story_separator_special_tag year ended december 31 , 2011 compared to year ended december 31 , 2010 revenues total revenues were $ 458.9 million for the year ended december 31 , 2011 , an increase of $ 86.2 million or 23.1 % compared to total revenues of $ 372.7 million for the year ended december 31 , 2010. income recognized on finance receivables , net income recognized on finance receivables , net was $ 401.9 million for the year ended december 31 , 2011 , an increase of $ 92.2 million or 29.8 % compared to income recognized on finance receivables , net of $ 309.7 million for the year ended december 31 , 2010. the increase was primarily due to an increase in cash collections on our owned finance receivables to $ 705.5 million for the year ended december 31 , 2011 compared to $ 529.3 million for the year ended december 31 , 2010 , an increase of $ 176.2 million or 33.3 % . our finance receivables amortization rate , including net allowance charges , was 43.0 % for the year ended december 31 , 2011 compared to 41.5 % for the year ended december 31 , 2010. during the year ended december 31 , 2011 , we acquired finance receivables portfolios with an aggregate face value amount of $ 9.8 billion at a cost of $ 408.4 million . during the year ended december 31 , 2010 , we acquired finance receivable portfolios with an aggregate face value of $ 6.8 billion at a cost of $ 367.4 million . in any period , we acquire defaulted consumer receivables that can vary dramatically in their age , type and ultimate collectability . we may pay significantly different purchase rates for purchased receivables within any period as a result of this quality fluctuation . in addition , market forces can drive pricing rates up or down in any period , irrespective of other quality fluctuations . as a result , the average purchase rate paid for any given period can fluctuate dramatically based on our particular buying activity in that period . however , regardless of the average purchase price and for similar time frames , we intend to target a similar internal rate of return , after direct expenses , in pricing our portfolio acquisitions ; therefore , the absolute rate paid is not necessarily relevant to the estimated profitability of a period 's buying . income recognized on finance receivables , net is shown net of changes in valuation allowances recognized under fasb asc topic 310-30 “ loans and debt securities acquired with deteriorated credit quality ” ( “ asc 310-30 ” ) , which requires that a valuation allowance be recorded for significant decreases in expected cash flows or a change in timing of cash flows which would otherwise require a reduction in the stated yield on a pool of accounts . for the year ended december 31 , 2011 , we recorded net allowance charges 36 of $ 10.2 million , $ 6.6 million of which related to core portfolios acquired mainly in 2005 through 2008 and $ 3.6 million of which related to purchased bankruptcy portfolios acquired mainly in 2007 through 2008. for the year ended december 31 , 2010 , we recorded net allowance charges of $ 25.2 million , the majority of which related to non-bankruptcy portfolios acquired in 2005 through 2007. in any given period , we may be required to record valuation allowances due to pools of receivables underperforming our expectations . factors that may contribute to the recording of valuation allowances may include both internal as well as external factors . external factors which may have an impact on the collectability , and subsequently to the overall profitability , of purchased pools of defaulted consumer receivables include new laws or regulations relating to collections , new interpretations of existing laws or regulations , and the overall condition of the economy . internal factors which may have an impact on the collectability , and subsequently the overall profitability , of purchased pools of defaulted consumer receivables would include necessary revisions to initial and post-acquisition scoring and modeling estimates , non-optimal operational activities ( which relate to the collection and movement of accounts on both our collection floor and external channels ) , as well as decreases in productivity related to turnover and tenure of our collection staff . fee income fee income was $ 57.0 million for the year ended december 31 , 2011 , a decrease of $ 6.0 million or 9.5 % compared to fee income of $ 63.0 million for the year ended december 31 , 2010. fee income declined as a result of a decrease in revenue generated by our pls fee-for-service business , which was partially offset by an increase in revenue generated by our pra gs government processing and collection business . the decline at pls was due primarily to a decrease in volume related to a continued decline in automobile financing activity nationwide . operating expenses total operating expenses were $ 282.1 million for the year ended december 31 , 2011 , an increase of $ 39.3 million or 16.2 % compared to total operating expenses of $ 242.8 million for the year ended december 31 , 2010. total operating expenses were 37.0 % of cash receipts for the year ended december 31 , 2011 compared with 41.0 % for the year ended december 31 , 2010. compensation and employee services compensation and employee service expenses was $ 138.2 million for the year ended december 31 , 2011 , an increase of $ 14.1 million or 11.4 % compared to compensation and employee service expenses of $ 124.1 million for the year ended december 31 , 2010. this increase was mainly due to an overall increase in our owned portfolio collection staff as well as an increase in share-based compensation expense . total employees grew 6.8 % to 2,641 as of december 31 , 2011 from 2,473 as of december 31 , 2010. additionally , existing employees received normal salary increases .
| during the year ended december 31 , 2012 , excluding the initial investment in the mhh portfolio , we acquired finance receivables portfolios with an aggregate face value amount of $ 6.2 billion at a cost of $ 538.5 million . during the year ended december 31 , 2011 , we acquired finance receivable portfolios with an aggregate face value of $ 9.8 billion at a cost of $ 408.4 million . in any period , we acquire defaulted consumer receivables that can vary dramatically in their age , type and ultimate collectability . we may pay significantly different purchase rates for purchased receivables within any period as a result of this quality fluctuation . in addition , market forces can drive pricing rates up or down in any period , irrespective of other quality fluctuations . as a result , the average purchase rate paid for any given period can fluctuate dramatically based on our particular buying activity in that period . however , regardless of the average purchase price and for similar time frames , we intend to target a similar internal rate of return , after direct expenses , in pricing our portfolio acquisitions ; therefore , the absolute rate paid is not necessarily relevant to the estimated profitability of a period 's buying . income recognized on finance receivables , net , is shown net of changes in valuation allowances recognized under fasb asc topic 310-30 “ loans and debt securities acquired with deteriorated credit quality ” ( “ asc 310-30 ” ) , which requires that a valuation allowance be recorded for significant decreases in expected cash flows or a change in timing of cash flows which would otherwise require a reduction in the stated yield on a pool of accounts . for the year ended december 31 , 2012 , we recorded net allowance charges of $ 6.6 million , $ 8.6 million of which related to purchased bankruptcy portfolios acquired mainly in 2007 and 2008 , offset by a net reversal of $ 2.0 million on core portfolios . for
| 12,148 |
the increase in sg & a for the credit segment was driven by additional investments in credit personnel to improve long-term credit performance and an increase in corporate allocations . as a percent of average total customer portfolio balance , sg & a for the credit segment in the current period increased 30 basis points as compared to the prior year period . total sg & a was also impacted by investments we are making in information technology and other personnel to support long-term performance improvement initiatives . provision for bad debts replace_table_token_21_th the year-over-year increase in provision for bad debts was impacted by the following : a 6.5 % increase in the average receivable portfolio balance resulting from new store openings over the past 12 months ; a 2.0 % increase in charge-offs , net of recoveries , as a percentage of the average customer portfolio balance outstanding in fiscal year 2017 as compared to fiscal year 2016 ; and a 1.5 % increase in the allowance for bad debts as a percentage of the total customer portfolio balance outstanding for fiscal year 2017 compared to fiscal year 2016 , which was impacted by an 18.0 % increase in the balance of customer receivables accounted for as troubled debt restructurings . charges and credits replace_table_token_22_th during the year ended january 31 , 2017 , we incurred costs associated with facility closures , retirement of leasehold improvements , legal and professional fees related to our securities-related litigation , charges for severance and transition costs due to changes in our executive management team and an increase to our sales tax audit reserve . the retirement of leasehold improvements included write-offs related to two stores we relocated prior to the end of their useful lives and incurred costs for terminated store projects prior to starting construction . during the year ended january 31 , 2016 , we had costs associated with charges related to the closing of under-performing retail locations , legal and professional fees related to our exploration of strategic alternatives and our securities-related litigation , transition costs due to changes in the executive management team , and we recorded a sales tax audit reserve . interest expense for the year ended january 31 , 2017 , net interest expense increased by $ 35.5 million from the prior year primarily reflecting the increase in outstanding debt and issued asset-backed notes by our consolidated vies . 44 ( benefit ) provision for income taxes replace_table_token_23_th the decrease in the income tax rate for the year ended january 31 , 2017 compared to the year ended january 31 , 2016 primarily related to : a loss before income taxes of $ 34.5 million resulting in a tax benefit of $ 9.0 million for fiscal year 2017 compared to income before taxes of $ 49.2 million resulting in a provision for incomes taxes of $ 18.4 million for fiscal year 2016 ; and adjustments made to deferred tax balances in connection with our state taxes as more information became readily available resulting in a reduction of income tax benefit of $ 2.4 million for fiscal year 2017. impact of inflation and changing prices we do not believe that inflation has had a material effect on our net sales or results of operations . however , price deflation during the last three fiscal years , primarily in the consumer electronics industry , has negatively impacted our net sales and results of operations . significant increases in oil and gasoline prices could adversely affect our customers ' shopping decisions and payment patterns . we rely heavily on our distribution system and our next day delivery policy to satisfy our customers ' needs and desires , and increases in oil and gasoline prices could result in increased distribution costs and delivery charges . if we are unable to effectively pass increased transportation costs on to the consumer , either by increased delivery costs or higher prices , such costs could adversely affect our results of operations . conversely , significant decreases in oil and gasoline prices could negatively impact certain local economies in regions in which we have stores , impacting our customer 's employment or income , which could adversely affect our sales and collection of customer receivables . in addition , the cost of items we purchase may increase or shortages of these items may arise as a result of changes in trade regulations , currency fluctuations , border taxes , import tariffs , or other factors beyond our control . seasonality our business is seasonal with a higher portion of sales and operating profit realized during the fourth quarter due primarily to the holiday selling season . in addition , during the first quarter , our portfolio performance benefits from the timing of personal income tax refunds received by our customers which typically results in higher cash collection rates . quarterly results of operations our quarterly results may fluctuate materially depending on factors such as the following : timing of new product introductions , new store openings and store relocations ; sales contributed by new stores ; changes in our merchandise mix ; increases or decreases in comparable store sales ; changes in delinquency rates and amount of charge-offs with respect to customer accounts receivable ; the pace of growth or decline in the customer accounts receivable balance ; adverse weather conditions ; shifts in the timing of certain holidays and promotions ; and charges incurred in connection with store closures or other non-routine events . results for any quarter are not necessarily indicative of the results that may be achieved for any other quarter or for a full fiscal year . customer receivable portfolio we provide in-house financing to individual consumers on a short- and medium-term basis ( contractual terms generally range from 12 to 36 months ) for the purchase of durable products for the home . a significant portion of our customer credit portfolio is due from customers that are considered story_separator_special_tag the increase in sg & a for the credit segment was driven by additional investments in credit personnel to improve long-term credit performance and an increase in corporate allocations . as a percent of average total customer portfolio balance , sg & a for the credit segment in the current period increased 30 basis points as compared to the prior year period . total sg & a was also impacted by investments we are making in information technology and other personnel to support long-term performance improvement initiatives . provision for bad debts replace_table_token_21_th the year-over-year increase in provision for bad debts was impacted by the following : a 6.5 % increase in the average receivable portfolio balance resulting from new store openings over the past 12 months ; a 2.0 % increase in charge-offs , net of recoveries , as a percentage of the average customer portfolio balance outstanding in fiscal year 2017 as compared to fiscal year 2016 ; and a 1.5 % increase in the allowance for bad debts as a percentage of the total customer portfolio balance outstanding for fiscal year 2017 compared to fiscal year 2016 , which was impacted by an 18.0 % increase in the balance of customer receivables accounted for as troubled debt restructurings . charges and credits replace_table_token_22_th during the year ended january 31 , 2017 , we incurred costs associated with facility closures , retirement of leasehold improvements , legal and professional fees related to our securities-related litigation , charges for severance and transition costs due to changes in our executive management team and an increase to our sales tax audit reserve . the retirement of leasehold improvements included write-offs related to two stores we relocated prior to the end of their useful lives and incurred costs for terminated store projects prior to starting construction . during the year ended january 31 , 2016 , we had costs associated with charges related to the closing of under-performing retail locations , legal and professional fees related to our exploration of strategic alternatives and our securities-related litigation , transition costs due to changes in the executive management team , and we recorded a sales tax audit reserve . interest expense for the year ended january 31 , 2017 , net interest expense increased by $ 35.5 million from the prior year primarily reflecting the increase in outstanding debt and issued asset-backed notes by our consolidated vies . 44 ( benefit ) provision for income taxes replace_table_token_23_th the decrease in the income tax rate for the year ended january 31 , 2017 compared to the year ended january 31 , 2016 primarily related to : a loss before income taxes of $ 34.5 million resulting in a tax benefit of $ 9.0 million for fiscal year 2017 compared to income before taxes of $ 49.2 million resulting in a provision for incomes taxes of $ 18.4 million for fiscal year 2016 ; and adjustments made to deferred tax balances in connection with our state taxes as more information became readily available resulting in a reduction of income tax benefit of $ 2.4 million for fiscal year 2017. impact of inflation and changing prices we do not believe that inflation has had a material effect on our net sales or results of operations . however , price deflation during the last three fiscal years , primarily in the consumer electronics industry , has negatively impacted our net sales and results of operations . significant increases in oil and gasoline prices could adversely affect our customers ' shopping decisions and payment patterns . we rely heavily on our distribution system and our next day delivery policy to satisfy our customers ' needs and desires , and increases in oil and gasoline prices could result in increased distribution costs and delivery charges . if we are unable to effectively pass increased transportation costs on to the consumer , either by increased delivery costs or higher prices , such costs could adversely affect our results of operations . conversely , significant decreases in oil and gasoline prices could negatively impact certain local economies in regions in which we have stores , impacting our customer 's employment or income , which could adversely affect our sales and collection of customer receivables . in addition , the cost of items we purchase may increase or shortages of these items may arise as a result of changes in trade regulations , currency fluctuations , border taxes , import tariffs , or other factors beyond our control . seasonality our business is seasonal with a higher portion of sales and operating profit realized during the fourth quarter due primarily to the holiday selling season . in addition , during the first quarter , our portfolio performance benefits from the timing of personal income tax refunds received by our customers which typically results in higher cash collection rates . quarterly results of operations our quarterly results may fluctuate materially depending on factors such as the following : timing of new product introductions , new store openings and store relocations ; sales contributed by new stores ; changes in our merchandise mix ; increases or decreases in comparable store sales ; changes in delinquency rates and amount of charge-offs with respect to customer accounts receivable ; the pace of growth or decline in the customer accounts receivable balance ; adverse weather conditions ; shifts in the timing of certain holidays and promotions ; and charges incurred in connection with store closures or other non-routine events . results for any quarter are not necessarily indicative of the results that may be achieved for any other quarter or for a full fiscal year . customer receivable portfolio we provide in-house financing to individual consumers on a short- and medium-term basis ( contractual terms generally range from 12 to 36 months ) for the purchase of durable products for the home . a significant portion of our customer credit portfolio is due from customers that are considered
| the sg & a decrease in the retail segment of $ 9.8 million was primarily due to a decrease in compensation costs and a decrease in advertising expense , partially offset by an increase in the corporate overhead allocation , an increase in occupancy costs due to additional stores opened in fiscal year 2018 and $ 1.7 million of expenses incurred , net of estimated insurance proceeds , related to hurricane harvey . the increase in the corporate overhead allocation made to each of the segments was driven by investments we are making in information technology , other personnel to support long-term performance improvement initiatives and an increase in accrued incentive compensation . provision for bad debts for fiscal year 2018 was $ 216.9 million , a decrease of $ 25.4 million from the prior year . the year-over-year decrease was driven by the following : a decrease in our estimated non-troubled debt restructurings ( `` non-tdr '' ) loss rate as a result of an improvement in the credit quality of our portfolio ; change in estimate of $ 5.0 million in fiscal year 2017 related to estimated sales tax recoveries on previously charged-off accounts that resulted in an increase to the provision in fiscal year 2017 ; a decrease in our estimated troubled debt restructurings ( `` tdr '' ) loss rate as a result of improvements in tdr delinquency rates ; and a decrease in the average receivable portfolio balance over the past 12 months , partially offset by : an increase in the tdr balance at january 31 , 2018 as compared to january 31 , 2017 ; and an increase in the qualitative reserve related to hurricane harvey of $ 1.1 million . interest expense decreased to $ 80.2 million for fiscal year 2018 compared to $ 98.6 million for fiscal year 2017 , primarily reflecting a lower effective cost of borrowing and lower average outstanding balance of debt . interest expense during fiscal year 2018 also benefited from the early redemption of previously issued higher cost asset-backed
| 12,149 |
36 2014 highlights in february 2014 , we entered into separate equity distribution agreements with wells fargo securities llc and merrill lynch , pierce fenner & smith incorporated ( the “ managers ” ) . under the terms of the agreements , we may issue and sell from time to time through or to the managers , as sales agents and or principals , shares of our common stock having an aggregate offering amount of up to $ 150.0 million . during 2014 , we received $ 21.0 million in net proceeds from the issuance of 1,352,703 shares of our common stock pursuant to the agreements . in june 2014 , we acquired approximately seven acres of land underlying the fairmont newport beach for $ 11.0 million . prior to our acquisition , the land was leased to us by a third party . also in june 2014 , we issued 18,000,000 shares of our common stock in an underwritten public offering for net proceeds of approximately $ 262.5 million , which were used to acquire the marriott wailea in july 2014. in july 2014 , we purchased the 544-room marriott wailea for a net purchase price of $ 325.6 million , which was comprised of $ 265.6 million in cash , including $ 4.4 million of proration credits and unrestricted and restricted cash received from the seller , and $ 60.0 million of our common stock issued directly to the seller . the acquisition was funded with proceeds received from our june 2014 common stock offering , and 4,034,970 shares of our common stock valued at $ 60.0 million ( $ 14.87 per share ) . subsequent to our acquisition , three rooms were temporarily taken out of service , leaving 541 rooms available to sell . in august 2014 , we amended the non-recourse mortgage secured by the hilton san diego bayfront . the loan amendment extends the maturity date from april 2016 to august 2019 , and reduces the interest rate from three-month libor plus 325 basis points to one-month libor plus 225 basis points . the loan originally included a syndication of four lenders . one of the four lenders elected not to proceed with the amended loan , causing us to expense $ 0.5 million of the unamortized balance of the applicable deferred financing fees to loss on extinguishment of debt . in conjunction with the amendment , we paid additional deferred financing fees of $ 1.3 million to the three remaining lenders , which we are amortizing over the term of the refinanced debt . we also paid $ 0.1 million in loan fees to third parties , which we recorded as a component of interest expense . in december 2014 , we repaid the $ 38.9 million mortgage secured by the jw marriott new orleans , using proceeds received from a new $ 90.0 million mortgage secured by the jw marriott new orleans . the new loan extends the maturity date from september 2015 to december 2024 . the new loan is subject to a 30 -year amortization schedule , and reduces the interest rate from 5.45 % under a related interest rate swap agreement to a fixed rate of 4.15 % . in conjunction with our repayment of the original mortgage , we wrote off $ 39,000 of unamortized deferred financing fees , which are included in loss on extinguishment of debt in our consolidated statements of operations , and we paid $ 0.6 million to terminate the related interest rate swap agreement . in addition , we paid deferred financing fees of $ 0.6 million related to the new loan , which we are amortiz ing over the term of the new loan . also in december 2014 , we extinguished the $ 67.1 million mortgage secured by the embassy suites la jolla for a total cost of $ 71.1 million , and recorded a loss on extinguishment of debt of $ 4.0 million . the extinguishment was funded using proceeds received from a new $ 65.0 million mortgage secured by the embassy suites la jolla , along with cash on hand . the new loan is subject to a 30 -year amortization schedule , reduces the interest rate from a fixed rate of 6.6 % to a fixed rate of 4.12 % , and extends the maturity date from june 2019 to january 2025 . in conjunction with our repayment of the original mortgage , we wrote off $ 43,000 of unamortized deferred financing fees , which are included in loss on extinguishment of debt in our consolidated statements of operations . in addition , we paid deferred financing fees of $ 0.4 million related to the new loan , which we are amortiz ing over the term of the new loan . as of december 31 , 2014 , the weighted average term to maturity of our debt is approximately four years , and 71.6 % of our debt is fixed rate with a weighted average interest rate of 5 . 2 % . the weighted average interest rate on all of our debt , which includes our variable-rate debt obligations based on variable rates at december 31 , 2014 , is 4 . 5 % . 37 operating activities operating performance indicators . the following performance indicators are commonly used in the hotel industry : · occupancy , which is the quotient of total rooms sold divided by total rooms available ; · average daily room rate , or adr , which is the quotient of room revenue divided by total rooms sold ; · revenue per available room , or revpar , which is the product of occupancy and adr , and does not include food and beverage revenue , or other operating revenue ; · comparable revpar , which we define as the revpar generated by hotels we owned as of the end of the reporting period , but excluding those hotels that we classified as held for sale , those hotels that are undergoing a material repositioning and those hotels whose room counts have materially changed during story_separator_special_tag either the current or prior year . for hotels that were not owned for the entirety of the comparison periods , comparable revpar is calculated using revpar generated during periods of prior ownership . we refer to this subset of our hotels used to calculate comparable revpar as our “ comparable portfolio. ” currently our comparable portfolio includes all 30 hotels in which we have interests as of december 31 , 2014 . in addition , our comparable portfolio includes prior ownership results for the hyatt chicago magnificent mile , the hilton garden inn chicago downtown/magnificent mile , the hilton new orleans st. charles , the boston park plaza , the hyatt regency san francisco and the marriott wailea ; · revpar index , which is the quotient of a hotel 's revpar divided by the average revpar of its competitors , multiplied by 100. a revpar index in excess of 100 indicates a hotel is achieving higher revpar than the average of its competitors . in addition to absolute revpar index , we monitor changes in revpar index ; · ebitda , which is net income ( loss ) excluding : non-controlling interests ; interest expense ; provision for income taxes , including income taxes applicable to sale of assets ; and depreciation and amortization ; · adjusted ebitda , which includes ebitda but excludes : amortization of deferred stock compensation ; the impact of any gain or loss from asset sales ; impairment charges ; prior year property tax assessments or credits ; and any other identified adjustments ; · funds from operations , or ffo , which includes net income ( loss ) , excluding non-controlling interests , gains and losses from sales of property , plus real estate-related depreciation and amortization ( excluding amortization of deferred financing costs ) and real estate-related impairment losses , and after adjustment for unconsolidated partnerships and joint ventures ; and · adjusted ffo available to common stockholders , which includes ffo but excludes preferred stock dividends and redemption charges , penalties , written-off deferred financing costs , non-real estate-related impairment losses , income tax benefits or ( provisions ) associated with the application of net operating loss carryforwards , and any other identified adjustments . revenues . substantially all of our revenues are derived from the operation of our hotels . specifically , our revenues consist of the following : · room revenue , which is the product of the number of rooms sold and the adr ; · food and beverage revenue , which is comprised of revenue realized in the hotel food and beverage outlets as well as banquet and catering events ; and · other operating revenue , which includes ancillary hotel revenue and other items primarily driven by occupancy such as telephone /internet , parking , spa , resort and other facility fees , entertainment and other guest services . additionally , this category includes , among other things , operating revenue from buyefficient , and hotel space leased by third parties . 38 expenses . our expenses consist of the following : · room expense , which is primarily driven by occupancy and , therefore , has a significant correlation with room revenue ; · food and beverage expense , which is primarily driven by food and beverage sales and banquet and catering bookings and , therefore , has a significant correlation with food and beverage revenue ; · other operating expense , which includes the corresponding expense of other operating revenue , advertising and promotion , repairs and maintenance , utilities , and franchise costs ; · property tax , ground lease and insurance expense , which includes the expenses associated with property tax , ground lease and insurance payments , each of which is primarily a fixed expense , however property tax is subject to regular revaluations based on the specific tax regulations and practices of each municipality ; · property general and administrative expense , which includes our property-level general and administrative expenses , such as payroll and related costs , contract and professional fees , credit and collection expenses , employee recruitment , relocation and training expenses , travel expenses , management fees and other costs . additionally , this category includes general and administrative expense s f rom buyefficient ; · corporate overhead expense , which includes our corporate-level expenses , such as payroll and related costs , amortization of deferred stock compensation , acquisition and due diligence costs , legal expenses , contract and professional fees , relocation , entity-level state franchise and minimum taxes , travel expenses , office rent and other costs ; and · depreciation and amortization expense , which includes depreciation on our hotel buildings , improvements , furniture , fixtures and equipment , along with amortization on our franchise fees and certain intangibles . additionally , this category includes depreciation and amortization related to both our corporate office and buyefficient 's furniture , fixtures , equipment and intangibles . other revenue and expense . other revenue and expense consists of the following : · interest and other income , which includes interest we have earned on our restricted and unrestricted cash accounts and the preferred equity investment , as well as any energy rebates we have received or any gains or losses we have recognized on sales of assets other than real estate investments ; · interest expense , which includes interest expense incurred on our outstanding fixed and variable-rate debt and capital lease obligation , accretion of our operating partnership 's 4.6 % exchangeable senior notes ( the “ senior notes ” ) that were repurchased in 2013 , amortization of deferred financing fees , gains or losses on derivatives and any loan penalties and fees incurred on our debt ; · loss on extinguishment of debt , which includes loss es we recognized on amendments or early repayments of mortgages or other debt obligations ; · income tax provision , which includes federal and state income taxes charged to the company net of any refunds received , and any adjustments to unrecognized tax positions
| while growth is not expected to be uniform , we expect hotel demand to remain strong over the next several years if the u.s. economy continues to grow and employment levels continue to improve . · supply . the addition of new competitive hotels affects the ability of existing hotels to absorb demand for lodging and therefore drive revpar and profits . the development of new hotels is largely driven by construction costs and expected performance of existing hotels . the recession and financial crisis which occurred in 2008 and 2009 , served to restrict credit and tighten lending standards , which resulted in a curtailment of funding for new hotel construction projects . in aggregate , we expect the u.s. hotel supply will remain slightly below historic levels over the next few years . on a market-by-market basis , some markets may experience new hotel room openings at or greater than historic levels , including in new york city , washington dc and chicago where there are currently higher-than-average supplies of new hotel room openings . in addition , lenders are seeking higher yielding instruments , which may lead to riskier lending practices , including lending on new hotel construction . · revenues and expenses . we believe that marginal improvements in revpar index , even in the face of declining revenues , are a good indicator of the relative quality and appeal of our hotels , and our operators ' effectiveness in maximizing revenues . similarly , we also evaluate our operators ' effectiveness in minimizing incremental operating expenses in the context of increasing revenues or , conversely , in reducing operating expenses in the context of declining revenues . with respect to improving revpar index , we continue to work with our hotel operators to optimize revenue management initiatives while taking into consideration market demand trends and the pricing strategies of competitor hotels in our markets . we also develop capital investment programs designed to ensure each of our hotels is well renovated and positioned to appeal to groups
| 12,150 |
see note 3. the following table provides details of the net unrealized after-tax gains and losses from non-qualifying hedges , after-tax otti losses , net of reversals and the after-tax loss on the sale of the natural gas-fired generating assets . replace_table_token_13_th ( a ) $ 193 million , $ 176 million and $ ( 20 ) million , respectively , is included in neer 's net income ; the balance , if any , is included in corporate and other . ( b ) $ 92 million is included in neer 's net income ; the balance is included in corporate and other . the change in unrealized mark-to-market activity from non-qualifying hedges is primarily attributable to changes in forward power and natural gas prices , as well as the reversal of previously recognized unrealized mark-to-market gains or losses as the underlying transactions were realized . as a general rule , a gain ( loss ) in the non-qualifying hedge category is offset by decreases ( increases ) in the fair value of related physical asset positions in the portfolio or contracts , which are not marked to market under gaap . 2011 summary fpl 's earned regulatory roe was 11 % in both 2010 and 2011 and fpl expects to earn an 11 % regulatory roe in 2012. fpl 's increase in net income in 2011 was primarily driven by investments in plant in service and fpl 's ability to use the surplus depreciation credit , as permitted under the 2010 rate agreement , to earn up to fpl 's allowed 11 % regulatory roe on its retail rate base , as well as higher cost recovery clause results . the 2010 rate agreement results in retail base rates that remain effectively frozen until the end of 2012. additionally , cost recovery for fpl 's wcec unit no . 3 is permitted during the term of the agreement and fpl can vary the amount of surplus depreciation amortized in any one year subject to certain caps , provided its retail regulatory return on equity remains within the allowed range of 9 % to 11 % . neer 's earnings declined in 2011 reflecting the loss on sale of natural gas-fired generating assets , lower results from the customer supply and proprietary power and gas trading businesses , extended and unplanned outages at seabrook and lower deferred tax benefits associated with cash grants ( convertible itcs ) , partly offset by a higher wind resource and higher gas infrastructure results . in 2011 , neer added 379 mw of wind capacity and secured approximately 1,600 mw of long-term wind power sales agreements . additionally , in 2011 construction began on the 250 mw genesis solar project in california and the 550 mw desert sunlight solar project in california , in which neer has a 50 % equity investment . 43 corporate and other 's earnings in 2011 increased primarily due to state deferred income tax benefits related to state tax law changes and an income tax benefit related to the dissolution of a subsidiary . nee and its subsidiaries , including fpl , require funds to support and grow their businesses . these funds are primarily provided by cash flow from operations and short- and long-term borrowings and , from time to time , issuance of equity securities . as of february 9 , 2012 , nee 's total net available liquidity was approximately $ 5.1 billion , of which fpl 's portion was approximately $ 2.8 billion . outlook nee 's strategy at both of its major businesses seeks to meet customer needs more economically and reliably than competitors . meeting customer needs frequently requires the commitment of large capital expenditures to projects that have long lives and such commitments are difficult to reverse once made . at the end of 2011 , both fpl and neer had made commitments to a variety of major capital projects that are expected to be completed over the next several years . while nee management believes that these projects individually and collectively are attractive investments with the potential to create value for shareholders , there can be no guarantee that all or any of these projects will be successful . because of their importance , management focuses particular attention on these large projects . in 2012 , nee expects to focus efforts in particular on the following initiatives : at fpl : sustaining fpl 's customer value proposition . the combination of low bills , good reliability and excellent customer service that fpl currently provides its customers is both an objective of fpl 's strategy and an important contributor to its long-term business success . fpl seeks to , at minimum , maintain and ideally improve its overall customer value proposition . major capital projects : fpl is currently in a large capital expansion program and its objective is to bring these projects in on schedule and within budget . this program includes : modernizing its cape canaveral and riviera beach power plants to high-efficiency natural gas-fired 1,200 mw units to be placed in service by 2013 and 2014 , respectively , adding a total of approximately 450 mw to 490 mw of capacity at its existing nuclear units at st. lucie and turkey point , to be placed in service by 2013 , and petitioning the fpsc in november 2011 to modernize its port everglades power plant to a high-efficiency natural gas-fired 1,280 mw unit which , if approved , is expected to be in service in 2016 and cost approximately $ 1.2 billion . rate case : in january 2012 , fpl filed a formal notification with the fpsc indicating its intent to initiate a base rate proceeding . story_separator_special_tag the notification stated that , based on preliminary estimates , fpl expects to request a base rate increase of approximately $ 525 million effective january 2013 and an additional base rate increase of approximately $ 170 million annually commencing when the modernized cape canaveral plant becomes operational , which is expected to occur in june 2013. at neer : maintaining excellence in day-to-day operations . neer has developed a track record of generally running its facilities reliably and cost-effectively . the company seeks to , at minimum , maintain and ideally improve its operating performance . wind : add approximately 1,150 mw to 1,500 mw of new u.s. wind generation in 2012 and 600 mw of new canadian wind generation between 2012 and 2015 , and solar : add approximately 935 mw of new solar generation during the period 2012 through 2016 , including the 250 mw genesis solar project in california , the 99.8 mw spain solar project , the 550 mw desert sunlight solar project in california , in which neer has a 50 % equity investment , and the 250 mw mccoy solar pv project located in the mojave desert near the genesis and desert sunlight solar projects . at lone star , which is in the process of constructing approximately 320 miles of transmission lines and other associated facilities in texas : construction : achieve commercial operations by the end of the first quarter of 2013. rate case : in january 2012 , lone star filed a petition with the puct requesting , among other things , interim rates which would take effect when lone star 's first substation is placed in service , currently projected to be in 2012 , and final rates when the transmission lines are energized . if approved , based on the expected in-service dates , the requested rates would result in annual revenues of approximately $ 14 million in 2012 and $ 110 million in 2013. in addition , nee and fpl devote effort to numerous other initiatives designed to support their long-term growth and development . there can be no guarantees that nee or fpl will be successful in attaining their goals with respect to any of these initiatives . for additional information on certain of the above matters , see item 1. business . 44 results of operations nee 's net income for 2011 was $ 1.92 billion , compared to $ 1.96 billion in 2010 and $ 1.61 billion in 2009. the decrease in nee 's 2011 net income was primarily driven by lower earnings at neer , partly offset by improved results at fpl and income tax benefits at corporate and other . the increase in nee 's 2010 net income was primarily driven by improved results at fpl and by net unrealized mark-to-market after-tax gains from non-qualifying hedges at neer . nee 's effective income tax rate for all periods presented reflects ptcs for wind projects at neer and deferred tax benefits associated with convertible itcs under the recovery act . ptcs and deferred tax benefits associated with convertible itcs can significantly affect nee 's effective income tax rate depending on the amount of pretax income . ptcs can be significantly affected by wind generation and by the expiration of ptcs after ten years of production . see note 1 - income taxes and - sale of differential membership interests and note 6. fpl : results of operations fpl 's net income for 2011 , 2010 and 2009 was $ 1,068 million , $ 945 million and $ 831 million , respectively , representing an increase in 2011 of $ 123 million and an increase in 2010 of $ 114 million . fpl obtains its operating revenues primarily from the sale of electricity to retail customers at rates established by the fpsc through base rates and cost recovery clause mechanisms . in 2011 and 2010 , fpl earned a regulatory roe of 11 % , as permitted by the 2010 rate agreement , and expects to earn an 11 % regulatory roe in 2012. in 2011 and in 2010 , growth in earnings for fpl was driven by : investment in plant in service and fpl 's ability to use the surplus depreciation credit , and higher cost recovery clause results , partly offset for 2010 by , lower afudc - equity . fpl 's operating revenues consisted of the following : replace_table_token_14_th retail base as permitted by the 2010 rate agreement , fpl collected approximately $ 101 million in retail base revenues through the capacity clause related to the placement in service of wcec unit no . 3 in may 2011. in addition , a base rate increase pursuant to an fpsc order which became effective march 1 , 2010 , increased retail base revenues by approximately $ 8 million and $ 68 million in 2011 and 2010 , respectively , and retail base revenues increased in 2010 by $ 196 million resulting from wcec unit nos . 1 and 2 placed in service in 2009. fpsc rate order effective march 1 , 2010 , pursuant to the fpsc rate order , new retail base rates for fpl were established , resulting in an increase in retail base revenues of approximately $ 75 million on an annualized basis . the fpsc rate order also established a regulatory roe of 10.0 % with a range of plus or minus 100 basis points and an adjusted regulatory equity ratio of 59.1 % . it also shifted certain costs from retail base rates to the capacity clause . in addition , the fpsc rate order directed fpl to reduce depreciation expense ( surplus depreciation credit ) over the 2010 to 2013 period related to a depreciation reserve surplus . subsequently , the principal parties in fpl 's 2009 rate case signed the 2010 rate agreement and , in february 2011 , the fpsc issued a final order approving the 2010 rate agreement .
| 47 depreciation and amortization expense the major components of fpl 's depreciation and amortization expense are as follows : replace_table_token_16_th from 2002 through 2009 , fpl recorded the $ 125 million annual reduction in depreciation and amortization expense that was approved by the fpsc in previous rate orders . under the terms of the 2010 rate agreement , fpl can vary the amount of surplus depreciation credit taken in any calendar year up to a cap in 2010 of $ 267 million , a cap in subsequent years of $ 267 million plus the amount of any unused portion from prior years , and a cap of $ 776 million ( surplus depreciation credit cap ) over the 2010 to 2012 period . in any year of the 2010 rate agreement fpl must use at least enough surplus depreciation credit to maintain a 9 % earned regulatory roe but may not use any amount of surplus depreciation credit that would result in an earned regulatory roe in excess of 11 % . as of december 31 , 2011 , approximately $ 585 million of the surplus depreciation credit cap remains available for use in 2012. the increase in other depreciation and amortization expense recovered under base rates in 2011 is primarily due to higher plant in service balances . the decline in other depreciation and amortization expense recovered under base rates in 2010 is primarily due to lower depreciation rates as a result of the fpsc rate order , partly offset by higher plant in service balances related to wcec units nos . 1 and 2 , which were placed in service in 2009. the decrease in depreciation and amortization recovered under cost recovery clauses and securitized storm-recovery cost amortization in 2011 and 2010 is primarily due to lower depreciation and amortization under the fpsc 's nuclear cost recovery rule . see note 1 - electric plant , depreciation and amortization . taxes other than income taxes and other taxes other than income taxes and other increased $ 37 million in
| 12,151 |
commodity prices have remained volatile but have improved during 2017 compared to the fourth quarter of 2016 . in the event that commodity prices significantly decline , management would test the recoverability of the carrying value of its oil and gas properties and , if necessary , record an impairment charge . we believe that we are well-positioned to manage the challenges presented in depressed commodity pricing environment , and that we can endure the continued volatility in current and future commodity prices by : continuing to exercise discipline in our capital program with the expectation of funding our capital expenditures with cash on hand , operating cash flows , and if required , borrowings under our revolving credit facility . continuing to optimize our drilling , completion and operational efficiencies , resulting in lower operating costs per unit of production . continuing to manage our balance sheet , which we believe provides sufficient availability under our revolving credit facility and existing cash balances to meet our capital requirements and maintain compliance with our debt covenants . continuing to manage price risk by strategically hedging our natural gas and crude oil production . financial condition capital resources and liquidity our primary sources of cash in 2017 were from the sale of natural gas and crude oil production and proceeds from the sale of assets . these cash flows were primarily used to fund our capital expenditures ( including contributions to our equity method investments ) , repurchase of shares of our common stock and payment of dividends . see below for additional discussion and analysis of cash flow . the borrowing base under the terms of our revolving credit facility is redetermined annually in april . in addition , either we or the banks may request an interim redetermination twice a year or in connection with certain acquisitions or divestitures of oil and gas properties . effective april 11 , 2017 , the borrowing base and available commitments were reaffirmed at $ 3.2 billion and $ 1.7 billion , respectively . as of december 31 , 2017 , we had no borrowings outstanding and unused commitments of $ 1.7 billion under our revolving credit facility . in december 2017 , we entered into an agreement to sell certain of our eagle ford shale assets for $ 765.0 million and expect to close on the sale in the first quarter of 2018. the lenders under our revolving credit facility have agreed to waive the requirement that the borrowing base be reduced upon closing of the eagle ford sale provided that the sale of these assets is considered in our upcoming annual borrowing base redetermination on april 1 , 2018. a decline in commodity prices could result in the future reduction of our borrowing base and related commitments under the revolving credit facility . unless commodity prices decline significantly from current levels , we do not believe that any such reductions would have a significant impact on our ability to service our debt and fund our drilling program and related operations . 39 we strive to manage our debt at a level below the available credit line in order to maintain borrowing capacity . our revolving credit facility includes a covenant limiting our total debt . we believe that , with the existing cash on hand , internally generated cash flow and availability under our revolving credit facility , we have the capacity to finance our spending plans . at december 31 , 2017 , we were in compliance with all restrictive financial covenants for both the revolving credit facility and senior notes . as of december 31 , 2017 , based on our asset coverage and leverage ratios , there were no interest rate adjustments required for our senior notes . see note 5 of the notes to the consolidated financial statements for further details regarding our debt . cash flows our cash flows from operating activities , investing activities and financing activities are as follows : replace_table_token_16_th operating activities . operating cash flow fluctuations are substantially driven by commodity prices , changes in our production volumes and operating expenses . prices for natural gas and crude oil have historically been volatile , primarily as a result of supply and demand for natural gas and crude oil , pipeline infrastructure constraints , basis differentials , inventory storage levels and seasonal influences . in addition , fluctuations in cash flow may result in an increase or decrease in our capital expenditures . see `` results of operations '' for a review of the impact of prices and volumes on revenues . our working capital is substantially influenced by the variables discussed above and fluctuates based on the timing and amount of borrowings and repayments under our revolving credit facility , repayments of debt , the timing of cash collections and payments on our trade accounts receivable and payable , respectively , sales and repurchases of our securities and changes in the fair value of our commodity derivative activity . from time to time , our working capital will reflect a deficit , while at other times it will reflect a surplus . this fluctuation is not unusual . at december 31 , 2017 and 2016 , we had a working capital surplus of $ 134.9 million and $ 458.1 million , respectively . we believe we have adequate liquidity and availability under our revolving credit facility available to meet our working capital requirements over the next twelve months . net cash provided by operating activities in 2017 increase d by $ 500.7 million when compared to 2016 . this increase was primarily due to higher operating revenues , partially offset by higher operating expenses ( excluding non-cash expenses ) and unfavorable changes in working capital and other assets and liabilities . the increase in operating revenues was primarily due to an increase in realized natural gas and crude oil prices and higher equivalent production . average realized natural gas and crude oil prices increase d by 36 % and 29 % , respectively , for 2017 compared to 2016 . story_separator_special_tag equivalent production increase d by 9 % for 2017 over 2016 as a result of higher natural gas production in the marcellus shale . net cash provided by operating activities in 2016 decreased by $ 352.2 million when compared to 2015. this decrease was primarily due to unfavorable changes in working capital and other assets and liabilities and lower operating revenues , partially offset by lower operating expenses ( excluding non-cash expenses ) . the decrease in operating revenues was primarily due to a decrease in realized natural gas and crude oil prices , partially offset by an increase in equivalent production . average realized natural gas and crude oil prices decreased by 21 % and 18 % , respectively , for 2016 compared to 2015. equivalent production increased by 4 % for 2016 over 2015 as a result of higher natural gas production in the marcellus shale , partially offset by lower crude oil production in the eagle ford shale . see `` results of operations '' for additional information relative to commodity price , production and operating expense fluctuations . we are unable to predict future commodity prices and , as a result , can not provide any assurance about future levels of net cash provided by operating activities . investing activities . cash flows used in investing activities increase d by $ 352.9 million from 2016 to 2017 due to an increase of $ 389.4 million in capital expenditures and $ 28.6 million higher capital contributions associated with our equity method investments , partially offset by $ 65.0 million higher proceeds from the sale of assets . cash flows used in investing activities decreased by $ 640.1 million from 2015 to 2016 due to a decrease of $ 580.4 million in capital expenditures , $ 16.3 million lower acquisition costs and $ 42.8 million higher proceeds from the sale of assets . 40 financing activities . cash flows provided by financing activities decrease d by $ 664.3 million from 2016 to 2017 due to $ 995.3 million lower net proceeds from the issuance of common stock in 2016 , $ 123.7 million of repurchases of our common stock in 2017 and $ 42.7 million of higher dividend payments related to an increase in the dividend rate in 2017 and the issuance of common stock in 2016. these decrease s were partially offset by $ 497.0 million of lower net repayments of debt due to the repayment of the outstanding balance on our revolving credit facility and certain of our senior notes with the proceeds from the issuance of common stock in 2016. cash flows provided by financing activities increased by $ 230.5 million from 2015 to 2016 due to $ 995.3 million of net proceeds related to the issuance of common stock and lower capitalized debt issuance costs of $ 4.6 million related to the amendment of our revolving credit facility and senior notes in december 2015. these increases were partially offset by $ 770.0 million of higher net repayments of debt due to the repayment of the outstanding balance on our revolving credit facility and certain of our senior notes with the proceeds from the issuance of common stock and $ 3.1 million of higher dividend payments . capitalization information about our capitalization is as follows : replace_table_token_17_th _ ( 1 ) includes $ 304.0 million of current portion of long-term debt at december 31 , 2017 . there were no borrowings outstanding under our revolving credit facility as of december 31 , 2017 and 2016 , respectively . during 2017 , we repurchased 5.0 million shares of our common stock for $ 123.7 million . during 2017 and 2016 , we paid dividends of $ 78.8 million ( $ 0.17 per share ) and $ 36.2 million ( $ 0.08 per share ) on our common stock , respectively . in may 2017 , the board of directors approved an increase in the quarterly dividend on our common stock from $ 0.02 per share to $ 0.05 per share . in january 2018 , the board of directors approved an increase in the quarterly dividend on our common stock from $ 0.05 per share to $ 0.06 per share . capital and exploration expenditures on an annual basis , we generally fund most of our capital expenditures , excluding any significant property acquisitions , with cash generated from operations and , if required , borrowings under our revolving credit facility . we budget these expenditures based on our projected cash flows for the year . 41 the following table presents major components of our capital and exploration expenditures : replace_table_token_18_th _ ( 1 ) exploration expenditures include $ 3.8 million , $ 10.1 million and $ 3.3 million of exploratory dry hole expenditures in 2017 , 2016 and 2015 , respectively . in 2017 , we drilled 91 gross wells ( 82.5 net ) and completed 105 gross wells ( 94.2 net ) , of which 50 gross wells ( 44.3 net ) were drilled but uncompleted in prior years . in 2018 , we plan to allocate the majority of our capital to the marcellus shale , where we expect to drill 85 gross wells ( 85.0 net ) and complete 95 gross wells ( 95.0 net ) . our 2018 drilling program includes approximately $ 890.0 million in total capital expenditures . we will continue to assess the natural gas price environment along with our liquidity position and may increase or decrease our capital expenditures accordingly . contractual obligations we have various contractual obligations in the normal course of our operations . a summary of our contractual obligations as of december 31 , 2017 are set forth in the following table : replace_table_token_19_th _ ( 1 ) interest payments have been calculated utilizing the rates associated with our senior notes outstanding at december 31 , 2017 , assuming that our senior notes will remain outstanding through their respective maturity dates .
| the primary reasons for this fluctuation are as follows : direct operations increase d $ 1.6 million largely due to an increase in operating costs primarily driven by higher production , partially offset by improved operational efficiencies in 2017 compared to 2016 and the sale of our operations in west virginia , virginia and ohio in the third quarter of 2017. transportation and gathering increase d $ 44.9 million due to higher throughput as a result of higher marcellus shale production . brokered natural gas increase d $ 4.5 million from 2016 to 2017 . see the preceding table titled `` brokered natural gas '' for further analysis . taxes other than income increase d $ 4.3 million due to $ 4.5 million higher production taxes in texas primarily resulting from higher natural gas and crude oil prices and $ 2.5 million higher drilling impact fees due to an increase in drilling activity in pennsylvania . these increase s were offset by $ 2.9 million lower ad valorem taxes as a result of lower property values primarily in south texas . exploration decrease d $ 6.1 million as a result of a $ 6.3 million decrease in exploratory dry hole expense and lower charges related to the release of certain drilling rig contracts in south texas . these decrease s were partially offset by an increase of $ 3.0 million in geological and geophysical costs associated with our new exploratory areas . during 2017 , we recorded no rig termination charges , compared to $ 1.7 million during 2016 . depreciation , depletion and amortization decrease d $ 21.3 million , of which $ 92.8 million was due to a lower dd & a rate of $ 0.73 per mcfe for 2017 compared to $ 0.87 per mcfe for 2016 , partially offset by a $ 50.6 million increase due to higher equivalent production volumes . the lower dd & a rate was primarily due to lower cost reserve additions and the impairment charge recorded in the second quarter of 2016 associated with higher dd & a rate fields . in addition , amortization of unproved properties increased $ 27.8 million in 2017 as a result of higher lease acquisition costs and amortization rates . impairment of oil and gas properties and other assets was $ 482.8 million
| 12,152 |
in response to this challenge , the banks model quarterly the changes in income that would result from various changes in interest rates . management believes bank earning assets have the appropriate maturity and repricing characteristics to optimize earnings and the banks ' interest rate risk positions . ● if market interest rates in the three to five year term remain at low levels as compared to the short term interest rates , the interest rate environment may present a challenge to the company . the company 's earning assets ( typically priced at market interest rates in the three to five year range ) will reprice at lower interest rates , but the deposits will not reprice at significantly lower interest rates , therefore the net interest income may decrease . management believes bank earning assets have the appropriate maturity and repricing characteristics to optimize earnings and the banks ' interest rate risk positions . ● the agricultural community is subject to commodity price fluctuations . extended periods of low commodity prices , higher input costs or poor weather conditions could result in reduced profit margins , reducing demand for goods and services provided by agriculture-related businesses , which , in turn , could affect other businesses in the company 's market area . any combination of these factors could produce losses within the company 's agricultural loan portfolios . key performance indicators certain key performance indicators for the company and the industry are presented in the following chart . the industry figures are compiled by the federal deposit insurance corporation ( fdic ) and are derived from 5,913 commercial banks and savings institutions insured by the fdic . management reviews these indicators on a quarterly basis for purposes of comparing the company 's performance from quarter to quarter against the industry as a whole . 25 selected indicators for the company and the industry replace_table_token_6_th key performance indicators include : ● return on assets this ratio is calculated by dividing net income by average assets . it is used to measure how effectively the assets of the company are being utilized in generating income . the company 's return on assets ratio is higher than that of the industry , primarily as a result of the company 's net interest margin and noninterest expense relative to the industry . ● return on equity this ratio is calculated by dividing net income by average equity . it is used to measure the net income or return the company generated for the shareholders ' equity investment in the company . the company 's return on equity ratio is higher than the industry primarily as a result of the company 's net interest margin and noninterest expense relative to the industry , offset in part by a higher capital ratio . ● net interest margin this ratio is calculated by dividing net interest income by average earning assets . earning assets consist primarily of loans and investments that earn interest . this ratio is used to measure how well the company is able to maintain interest rates on earning assets above those of interest-bearing liabilities , which is the interest expense paid on deposit accounts and other borrowings . the company 's net interest margin is slightly higher than the industry , due primarily to a higher yields on earning assets at the company as compared to the industry . ● efficiency ratio this ratio is calculated by dividing noninterest expense by net interest income and noninterest income . the ratio is a measure of the company 's ability to manage noninterest expenses . the company 's efficiency ratio is lower than the industry average , primarily as a result of the company 's lower noninterest expense . ● capital ratio the capital ratio is calculated by dividing average total equity capital by average total assets . it measures the level of average assets that are funded by shareholders ' equity . given an equal level of risk in the financial condition of two companies , the higher the capital ratio , generally the more financially sound the company . the company 's capital ratio is significantly higher than the industry average . 26 story_separator_special_tag leases—those 90 days or more past-due or in nonaccrual status—declined for the 26th time in the last 27 quarters , falling by $ 2.4 billion ( 1.8 % ) during the three months ended december 31. during the quarter , noncurrent c & i loans declined for the first time in eight quarters , falling by $ 1.4 billion ( 5.3 % ) . noncurrent residential mortgage loan balances fell by $ 2 billion ( 3 % ) , while noncurrent home equity loans declined by $ 170 million ( 1.6 % ) , and noncurrent nonfarm nonresidential real estate loans fell by $ 192 million ( 2 % ) . these improvements exceeded the $ 1.1 billion ( 12.7 % ) increase in noncurrent credit card balances . the average noncurrent loan rate fell from 1.45 % to 1.41 % , the lowest level since year-end 2007 . 27 loan-loss reserves decline for the first time in five quarters banks reduced their reserves for loan and lease losses during the fourth quarter , as slightly lower loan-loss provisions were offset by higher net charge-offs . loss reserves fell by $ 649 million ( 0.5 % ) . at banks that itemize their reserves , which represent more than 90 % of total industry reserves , the decline was driven by reductions in reserves for residential real estate loan losses , which fell by $ 1.2 billion ( 6.5 % ) , and in reserves for commercial loan losses , which declined by $ 639 million ( 1.8 % ) . itemized reserves for losses on credit cards increased by $ 677 million ( 2.3 % ) . story_separator_special_tag despite the small reduction in industry reserves , the larger decline in noncurrent loan balances caused the coverage ratio of reserves to noncurrent loans to rise from 91.1 % to 92.3 % in the quarter , the highest level since third quarter 2007. equity capital posts a quarterly decline as the market value of available-for-sale securities falls total equity capital declined by $ 16.8 billion ( 0.9 % ) in fourth quarter 2016 , as higher interest rates caused the market values of available-for-sale securities at banks to fall . accumulated other comprehensive income declined by $ 39.5 billion in the quarter , mostly as a result of the drop in securities values . retained earnings contributed $ 15.1 billion to equity growth , $ 1.8 billion ( 13.5 % ) more than a year earlier . banks declared $ 28.6 billion in dividends , a $ 1.3 billion ( 4.8 % ) increase over fourth quarter 2015. the average equity-to-assets ratio for the industry declined from 11.22 % to 11.11 % . at the end of the quarter , 99.7 % of all banks , representing 99.9 % of industry assets , met or exceeded the requirements for the highest regulatory capital category as defined for prompt corrective action purposes . loan balances increase $ 72.3 billion in the fourth quarter total assets rose by $ 13.7 billion ( 0.1 % ) during the fourth quarter . total loan and lease balances increased by $ 72.3 billion ( 0.8 % ) . growth in loan balances was led by credit cards ( up $ 38.2 billion , 5 % ) , loans secured by nonfarm nonresidential real estate properties ( up $ 22.8 billion , 1.7 % ) , and real estate construction and development loans ( up $ 10.1 billion , 3.3 % ) . c & i loan balances fell for the first time in 26 quarters , declining $ 7.7 billion ( 0.4 % ) . investment securities portfolios rose by $ 52 billion ( 1.5 % ) during the quarter despite a $ 52.4 billion decline in the market values of securities available for sale . assets in trading accounts declined by $ 27.3 billion ( 4.6 % ) . banks reduced their balances at federal reserve banks by $ 116.4 billion ( 9.6 % ) . total loan balances rise 5.3 % during 2016 for full-year 2016 , total assets increased $ 812.6 billion ( 5.1 % ) . total loans and leases increased by $ 466 billion ( 5.3 % ) , as c & i loans rose by $ 94.2 billion ( 5.1 % ) , loans secured by nonfarm nonresidential real estate were up by $ 92.6 billion ( 7.5 % ) , and residential mortgages increased by $ 91.1 billion ( 4.8 % ) . all major loan categories grew in 2016. banks increased their investment securities by $ 205.9 billion ( 6.1 % ) in 2016 , with mortgage-backed securities up $ 133.3 billion ( 7.1 % ) and u.s. treasury securities up $ 97 billion ( 23 % ) . deposits rise by $ 96 billion domestic deposit growth was relatively strong in the fourth quarter . total deposits rose by $ 95.9 billion ( 0.7 % ) , as deposits in domestic offices increased by $ 186.5 billion ( 1.6 % ) , while foreign office deposits declined by $ 90.6 billion ( 6.8 % ) . balances in domestic interest-bearing accounts rose by $ 178.7 billion ( 2.1 % ) , and balances in noninterest-bearing accounts grew by $ 7.7 billion ( 0.2 % ) . balances in consumer-oriented accounts increased by $ 120.5 billion ( 3 % ) , while all other domestic office deposits rose by $ 62 billion ( 1 % ) . banks reduced their nondeposit liabilities by $ 65.4 billion ( 3.1 % ) , as securities sold under repurchase agreements declined by $ 25.1 billion ( 10.9 % ) , and trading account liabilities fell by $ 13 billion ( 5.1 % ) . 28 “ problem bank list ” continues to improve the number of fdic-insured commercial banks and savings institutions reporting quarterly financial results fell to 5,913 in the fourth quarter , from 5,980 in the third quarter of 2016. there were 65 mergers of insured institutions during the quarter , while no insured banks failed . no new charters were added during the quarter . banks reported 2,052,504 full-time equivalent employees , an increase of 18,777 from fourth quarter 2015. the number of insured institutions on the fdic 's “ problem bank list ” declined from 132 to 123 , as total assets of problem banks rose from $ 24.9 billion to $ 27.6 billion . for all of 2016 , the number of insured institutions reporting declined by 269. mergers absorbed 251 institutions , and 5 insured institutions failed . this is the smallest number of bank failures in a year since three fdic-insured institutions failed in 2007. in 2015 , there were eight failures . critical accounting policies the discussion contained in this item 7 and other disclosures included within this annual report are based on the company 's audited consolidated financial statements which appear in item 8 of this annual report . these statements have been prepared in accordance with accounting principles generally accepted in the united states of america . the financial information contained in these statements is , for the most part , based on the financial effects of transactions and events that have already occurred . however , the preparation of these statements requires management to make certain estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . the company 's significant accounting policies are described in the “ notes to consolidated financial statements ” accompanying the company 's audited financial statements .
| net interest income was $ 8.4 billion ( 7.6 % ) higher , while noninterest income declined by $ 480 million ( 0.8 % ) . the increase in net interest income was attributable to growth in interest-bearing assets ( up 5.2 % over the past 12 months ) and improvement in the industry 's aggregate nim , which rose to 3.16 % , from 3.12 % in fourth quarter 2015. the nim improvement was not broad-based . a majority of banks—54.3 % —reported lower nims than the year earlier . the decline in noninterest income was driven by a $ 950 million drop in income from changes in fair values of financial instruments and a $ 432 million decline in interchange fees . both trading income and servicing income rose $ 1.7 billion ( 39.8 % and 51.4 % , respectively ) from fourth quarter 2015. noninterest expenses up 2.6 % from a year before total noninterest expenses were $ 2.7 billion ( 2.6 % ) higher than the year before . salary and employee benefit expenses rose $ 1.7 billion ( 3.4 % ) , while goodwill impairment charges were $ 675 million higher . expenses for premises and fixed assets were only $ 9 million ( 0.1 % ) higher than the year earlier . quarterly loss provisions decline from a year ago loan-loss provisions totaled $ 12.2 billion in the fourth quarter , $ 3 million less than banks set aside a year earlier . this marks the first time since second quarter 2014 that quarterly provision expenses have not posted a year-over-year increase . for the industry , fourth-quarter provisions represented 6.7 % of the quarter 's net operating revenue , down from 7 % in fourth quarter 2015. quarterly charge-offs rise for a fifth consecutive quarter net loan losses totaled $ 12.2 billion , up $ 1.5 billion ( 13.5 % ) from a year earlier . this is the fifth quarter in a row that net charge-offs have posted a year-over-year increase . credit card charge-offs were $ 1.4 billion ( 24.8 % ) higher , while net charge-offs of loans to commercial and industrial ( c & i ) borrowers rose
| 12,153 |
as a result of the decline in 2016 sales as well as our expectation of limited sales of our military intellitube ® product going forward as a result of new competition for retrofit products for the u.s. navy , coupled with the current cost of procuring components from our suppliers for such products , versus manufacturing them at a low volume , at december 31 , 2016 , we re-evaluated the economics of manufacturing versus purchasing such components and determined that we would no longer use the equipment and software purchased to conduct this manufacturing . we evaluated the carrying value of the equipment and software versus its fair value and determined that the equipment and software were impaired . accordingly , we recorded an impairment loss of $ 857 thousand , to adjust the carrying value of the equipment and software to its net realizable value , as of december 31 , 2016. given the recent decline in our military maritime business and the timing uncertainty of commercial sales growth , we are coupling these asset impairments with a restructuring initiative during the first quarter of 2017 to achieve higher operating efficiencies and reduce our annual operating costs by approximately $ 10 million from 2016 levels . the restructuring plan includes a workforce reduction of approximately 15 % , consolidation of our office facilities , reorganization of our commercial sales force , integration of our engineering and research and development teams , reconfiguration of certain manufacturing lines , and a reduction in administrative expenses and professional fees . we are in the process of evaluating the impact of these expected actions and estimate that approximately $ 1.1 million in restructuring charges will be recorded during the first quarter of 2017. leading this effort is our new ceo , dr. ted tewksbury . on february 19 , 2017 , the board appointed dr. tewksbury to serve as the company 's chairman of the board , chief executive officer and president . story_separator_special_tag consulting and recruiting and relocation expenses of $ 383 thousand and $ 149 thousand , respectively . selling , general , and administrative expenses in 2015 increased by $ 9.0 million , or 114.7 percent , from $ 7.8 million in 2014 . the dollar increase resulted from higher salaries and related benefits , including stock-based compensation , of approximately $ 3.0 million and higher recruiting fees of $ 548 thousand as we essentially doubled our sales force in 2015 compared to 2014 , higher consulting services of approximately $ 1.4 million as we sought to grow our business , higher commissions and bonus incentives of approximately $ 0.9 million related to higher sales and earnings , higher severance costs of $ 502 thousand , higher trade show and other marketing costs of approximately $ 478 thousand to support our continued growth , and higher legal and professional fees of approximately $ 463 thousand . loss on impairment as a result of the decline in the level of expected future sales of our military maritime products and reductions in the cost of procuring components from our suppliers , we re-evaluated the economics of manufacturing versus purchasing such components and determined that we would no longer use the equipment and software purchased to conduct this manufacturing . we evaluated the carrying value of the equipment and software compared to its fair value and determined that the equipment and software were impaired . accordingly , we recorded an impairment loss of $ 857 thousand , to adjust the carrying value of the equipment and software to its net realizable value as of december 31 , 2016. other ( expense ) income interest expense interest expense includes amortization of debt discounts , interest on our line of credit facility and any other fees related to the line of credit agreement , and interest expense for outstanding borrowings . as a result of settling our debt obligations during the fourth quarter of 2015 , we incurred no interest expense during the year ended december 31 , 2016 . interest expense was $ 85 thousand , and $ 2.7 million for the years ended december 31 , 2015 and 2014 , respectively . interest expense in 2014 included a $ 2.3 million non-cash charge to write-off the remaining unamortized discount associated with the conversion of convertible notes that were issued in 2012 and 2013 , as well as $ 154 thousand of additional interest that we paid by september 30 , 2014. other expenses we recognized other expenses of $ 18 thousand in 2016 , compared to other income of $ 53 thousand in 2015 and other expenses of $ 466 thousand in 2014 . the expenses in 2016 primarily consisted of losses on the disposal of fixed assets partially offset by interest income on our cash balances . the income in 2015 primarily consisted of recognized foreign currency transaction gains partially offset by the non-cash amortization of fees related to our former revolving credit facility . the expenses in 2014 were primarily a result of the write-off of loan origination costs in connection with the convertible notes , which occurred in march 2014. income taxes for the years ended december 31 , 2016 and 2015 , our effective tax rate was 0.2 percent and 1.5 percent , respectively . in 2016 , our effective tax rate was lower than the statutory rate due to an increase in the valuation allowance as a result of the $ 10.6 million additional federal net operating loss we recognized for the year . in 2015 , our effective tax rate was lower than the statutory tax rate due primarily due to a decrease in the valuation allowance as a result of the utilization of net operating loss carry-forwards . we utilized $ 6.2 million of our federal net operating loss carry-forward in 2015 . 29 we had a full valuation allowance recorded against our united states deferred tax assets at december 31 , 2016 and 2015 , respectively . we had no net deferred liabilities at december 31 , 2016 or 2015 . story_separator_special_tag in 2016 , we recognized u.s. federal and various states income tax expense as a result of the adjustment to the 2015 provision to the actual tax on the 2015 returns that were filed in 2016. in 2015 , we recognized federal tax expense as a result of the alternative minimum tax . there was no federal tax expense for the united states operations in 2014 due to an increase to the valuation allowance . deferred income tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred income tax assets will not be realized . in considering the need for a valuation allowance , we assess all evidence , both positive and negative , available to determine whether all or some portion of the deferred tax assets will not be realized . such evidence includes , but is not limited to , recent earnings history , projections of future income or loss , reversal patterns of existing taxable and deductible temporary differences , and tax planning strategies . we will continue to evaluate the need for a valuation allowance on a quarterly basis . at december 31 , 2016 , we had net operating loss carry-forwards of approximately $ 79.8 million for federal , state , and local income tax purposes . however , due to changes in our capital structure , approximately $ 25.4 million of this amount is available after the application of irc section 382 limitations . as a result of this limitation , in 2017 , we only expect to have approximately $ 18.5 million of the net operating loss carry-forward available for use . if not utilized , these carry-forwards will begin to expire in 2021 for federal purposes and have begun to expire for state and local purposes . please refer to note 10 , “ income taxes , ” included in item 8 for further information . net ( loss ) income from continuing operations net loss from continuing operations was $ 16.9 million in 2016 , a decrease of $ 26.3 million compared to net income of $ 9.5 million in 2015 . lower net sales , changes in product mix , and continued investments in our corporate infrastructure to support future growth for our commercial products , the charges recorded for excess inventory , and the impairment recorded on abandoned equipment contributed to the difference in operating results . net income from continuing operations increased $ 13.7 million in 2015 compared to a net loss of $ 4.2 million in 2014 . higher net sales , specifically product sales to the military maritime market , as well as increased gross profit margins and operational efficiencies resulted in the improved financial results . discontinued operations efls as part of the strategy to align our resources with developing and selling our energy-efficient led products into the commercial and military maritime markets , we completed the exit of our turnkey solutions business operated by our efls subsidiary , during the third quarter of 2015. during 2014 , we shifted our focus away from the turnkey solutions business and we stopped accepting new projects and completed all outstanding solutions-based projects in the first quarter of 2015. following the completion of these projects , a remaining warranty liability existed for the replacement of potential defective products that were installed as a part of certain solutions-based jobs . the period for potential warranty replacement lasted one year from the time of job commencement . as of september 30 , 2015 , the exit of our turnkey solutions business was complete . accordingly , the operating results related to efls have been included as discontinued operations in the consolidated statements of operations for all periods presented . there were no assets disposed as a result of the disposition , and we did not recognize a gain or loss on disposal or record an income tax expense or benefit . we do not anticipate any significant continuing involvement related to this discontinued operation . cll in august 2015 , we sold our wholly-owned united kingdom subsidiary , cll . the sale was for nominal consideration under the terms of the agreement . as a result of the transaction and the elimination of this foreign subsidiary consolidated under the equity method of accounting , we recorded a one-time loss of $ 44 thousand , which included a $ 469 thousand accumulated other comprehensive income reclassification adjustment for foreign currency translation adjustments . the loss was recorded in the consolidated statements of operations under the caption “ loss on disposal of discontinued operations. ” we do not anticipate any significant continuing involvement related to this discontinued operation . 30 pool products business in november 2013 , we sold our pool products business and reported the net ( loss ) income from those activities as discontinued operations . in february 2015 , the buyer filed an arbitration claim asserting damages under the purchase agreement relating to product development . we believed the claims were without merit and asserted a counterclaim in the arbitration for the amount of the purchase price that remained in escrow . on march 18 , 2016 , a settlement agreement was executed for this claim and the funds in the escrow account , plus the interest earned on the account , were released to the buyer . the legal fees incurred for the arbitration are included in the loss on disposal of discontinued operations for all periods presented . see note 13 , “ legal matters , ” included in item 8 of this annual report for more information on this claim . revenues from discontinued operations in 2015 and 2014 were $ 1.1 million and $ 6.3 million , respectively . see note 3 , “ discontinued operations , ” included in item 8 of this annual report for more information . net ( loss ) income net ( loss ) income includes the results from continuing operations , as well as the results from discontinued operations .
| gross profit gross profit was $ 7.7 million , or 24.8 percent of net sales in 2016 , compared to $ 29.3 million , or 45.5 percent of net sales in 2015 . in addition to the gross margin impact of lower sales and product mix , we recorded additional inventory reserves of $ 4.0 million in 2016 for potential excess and obsolete inventory based on current levels . gross margins declined 20.7 percentage points as a result of product mix , as our commercial products generally have lower margins than our military maritime products , and also due to the additional excess and obsolete inventory reserves . gross profit in 2015 increased $ 21.5 million over the gross profit of $ 7.8 million in 2014 . the increase resulted from higher sales volume , product mix , lower product costs , and improvements in our manufacturing efficiencies related to our military maritime product line . gross margins improved 11.2 percentage points as a result of product mix , as our military maritime products generally have higher margins than our commercial products , lower product costs , and improvements in our military maritime manufacturing efficiencies . operating expenses product development product development expenses include salaries , contractor and consulting fees , legal fees , supplies and materials , as well as overhead items , such as depreciation and facilities costs . product development costs are expensed as they are incurred . total government reimbursements are the combination of revenues and credits from government contracts . total gross and net product development spending , including credits from government contracts , is shown in the following table ( in thousands ) : replace_table_token_5_th gross product development expenses were $ 3.6 million in 2016 , a 20.8 percent increase compared to $ 3.0 million in 2015 . the increase primarily resulted from higher salaries and related benefits , including stock-based compensation , of approximately $ 820 thousand due to hiring additional
| 12,154 |
we have also entered into an agreement with our strategic partner , rj resources , pursuant to which we have agreed , at the option of rj resources , to either ( a ) provide for the issuance of the share certificate representing the shares of capital stock due from asia sixth representing 51 % of the total issued and outstanding share capital of asia sixth which we have the right to purchase from asia sixth , to a delaware limited liability company to be formed by us and to convey to rj resources fifty percent ( 50 % ) of the limited liability company interests issued by such nominee or ( b ) provide for fifty percent ( 50 % ) of such asia sixth shares to be issued directly to rj resources or its designee . upon the closing and completion of these contemplated transactions , the company , through its ownership in asia sixth , will own an approximate 17 % beneficial interest in aral . we believe that the wattenberg , niobrara , and mississippian shale plays represent among the most promising unconventional oil and natural gas plays in the united states . we will continue to seek additional acreage proximate to our currently held core acreage . our strategy is to be the operator , directly or through our subsidiaries and joint ventures , in the majority of our acreage so we can dictate the pace of development in order to execute our business plan . the majority of our capital expenditure budget for 2014 will be focused on the acquisition , development and expansion of these formations . detailed information about our business plans and operations , including our core niobrara , eagle ford and mississippian assets , is contained under “ part 1 ” - “ item 1. business ” beginning on page 5 of this annual report . 72 how we conduct our business and evaluate our operations our use of capital for acquisitions and development allows us to direct our capital resources to what we believe to be the most attractive opportunities as market conditions evolve . we have historically acquired properties that we believe had significant appreciation potential . we intend to continue to acquire both operated and non-operated properties to the extent we believe they meet our return objectives . we will use a variety of financial and operational metrics to assess the performance of our oil and natural gas operations , including : ● production volumes ; ● realized prices on the sale of oil and natural gas , including the effects of our commodity derivative contracts ; ● oil and natural gas production and operating expenses ; ● capital expenditures ; ● general and administrative expenses ; ● net cash provided by operating activities ; and ● net income . production volumes production volumes will directly impact our results of operations . we currently have production from 11 gross operated wells and 14 gross non-operated wells in our recently acquired wattenberg asset , five gross wells in our niobrara asset , and two gross wells in our north sugar valley field , and we expect to increase production assuming drilling success in the future as we expand operations in our wattenberg , niobrara and mississippian assets . factors affecting the sales price of oil and natural gas we expect to market our crude oil and natural gas production to a variety of purchasers based on regional pricing . the relative prices of crude oil and natural gas are determined by the factors impacting global and regional supply and demand dynamics , such as economic conditions , production levels , weather cycles and other events . in addition , relative prices are heavily influenced by product quality and location relative to consuming and refining markets . oil . the new york mercantile exchange-west texas intermediate ( nymex-wti ) futures price is a widely used benchmark in the pricing of domestic crude oil in the u.s. the actual prices realized from the sale of crude oil differ from the quoted nymex-wti price as a result of quality and location differentials . quality differentials to nymex-wti prices result from the fact that crude oils differ from one another in their molecular makeup , which plays an important part in their refining and subsequent sale as petroleum products . among other things , there are two characteristics that commonly drive quality differentials : ( a ) the crude oil 's american petroleum institute , or api , gravity and ( b ) the crude oil 's percentage of sulfur content by weight . in general , lighter crude oil ( with higher api gravity ) produces a larger number of lighter products , such as gasoline , which have higher resale value and , therefore , normally sell at a higher price than heavier oil . crude oil with low sulfur content ( “ sweet ” crude oil ) is less expensive to refine and , as a result , normally sells at a higher price than high sulfur-content crude oil ( “ sour ” crude oil ) . location differentials to nymex-wti prices result from variances in transportation costs based on the produced crude oil 's proximity to the major consuming and refining markets to which it is ultimately delivered . crude oil that is produced close to major consuming and refining markets , such as near cushing , oklahoma , is in higher demand as compared to crude oil that is produced farther from such markets . consequently , crude oil that is produced close to major consuming and refining markets normally realizes a higher price ( i.e. , a lower location differential to nymex-wti ) . in the past , crude oil prices have been extremely volatile , and we expect this volatility to continue . for example , for the four years ended december 31 , 2013 , the nymex - wti oil price ranged from a high of $ 113.93 per bbl to a low of $ 68.01 per bbl . story_separator_special_tag these markets will likely continue to be volatile in the future . 73 natural gas . the nymex-henry hub price of natural gas is a widely used benchmark for the pricing of natural gas in the u.s. similar to crude oil , the actual prices realized from the sale of natural gas differ from the quoted nymex-henry hub price as a result of quality and location differentials . quality differentials to nymex-henry hub prices result from : ( a ) the british thermal unit ( btu ) content of natural gas , which measures its heating value , and ( b ) the percentage of sulfur , co2 and other inert content by volume . wet natural gas with a high btu content sells at a premium to low btu content dry natural gas because it yields a greater quantity of natural gas liquids ( ngls ) . natural gas with low sulfur and co2 content sells at a premium to natural gas with high sulfur and co2 content because of the added cost to separate the sulfur and co2 from the natural gas to render it marketable . wet natural gas is processed in third-party natural gas plants and residue natural gas as well as ngls are recovered and sold . dry natural gas residue from our properties is generally sold based on index prices in the region from which it is produced . location differentials to nymex-henry hub prices result from variances in transportation costs based on the natural gas ' proximity to the major consuming markets to which it is ultimately delivered . also affecting the differential is the processing fee deduction retained by the natural gas processing plant generally in the form of percentage of proceeds . generally , these index prices have historically been at a discount to nymex-henry hub natural gas prices . in the past , natural gas prices have been extremely volatile , and we expect this volatility to continue . for example , for the four years ended december 31 , 2013 , the nymex - henry hub natural gas price ranged from a high of $ 7.51 per mmbtu to a low of $ 1.82 per mmbtu . these markets will likely continue to be volatile in the future . commodity derivative contracts . we expect to adopt a commodity derivative policy designed to minimize volatility in our cash flows from changes in commodity prices . we have not determined the portion of our estimated production , if any , for which we will mitigate our risk through the use of commodity derivative instruments , but in no event will we maintain a commodity derivative position in an amount in excess of our estimated production . should we reduce our estimates of future production to amounts which are lower than our commodity derivative volumes , we will reduce our positions as soon as practical . if forward crude oil or natural gas prices increase to prices higher than the prices at which we have entered into commodity derivative positions , we may be required to make margin calls out of our working capital in the amounts those prices exceed the prices we have entered into commodity derivative positions . oil and natural gas production expenses . we will strive to increase our production levels to maximize our revenue . oil and natural gas production expenses are the costs incurred in the operation of producing properties and workover costs . we expect expenses for utilities , direct labor , water injection and disposal , and materials and supplies to comprise the most significant portion of our oil and natural gas production expenses . oil and natural gas production expenses do not include general and administrative costs or production and other taxes . certain items , such as direct labor and materials and supplies , generally remain relatively fixed across broad production volume ranges , but can fluctuate depending on activities performed during a specific period . for instance , repairs to our pumping equipment or surface facilities may result in increased oil and natural gas production expenses in periods during which they are performed . a majority of our operating cost components will be variable and increase or decrease as the level of produced hydrocarbons and water increases or decreases . for example , we will incur power costs in connection with various production related activities such as pumping to recover oil and natural gas and separation and treatment of water produced in connection with our oil and natural gas production . over the life of hydrocarbon fields , the amount of water produced may increase for a given volume of oil or natural gas production , and , as pressure declines in natural gas wells that also produce water , more power will be needed to provide energy to artificial lift systems that help to remove produced water from the wells . thus , production of a given volume of hydrocarbons may become more expensive each year as the cumulative oil and natural gas produced from a field increases until , at some point , additional production becomes uneconomic . production and ad valorem taxes . texas regulates the development , production , gathering and sale of oil and natural gas , including imposing production taxes and requirements for obtaining drilling permits . for oil production , texas currently imposes a production tax at 4.6 % of the market value of the oil produced and an additional regulatory fee of 3/16 of one cent per barrel of crude petroleum produced plus an oil cleanup fee of 5/16 of a cent per barrel of crude petroleum produced , and for natural gas , texas currently imposes a production tax at 7.5 % of the market value of the natural gas produced . colorado imposes production taxes ranging from 2 % to 5 % based on gross income and a conservation tax ranging from 0.07 % to 1.5 % based on the market value of oil and natural gas production .
| selling , general and administrative ( “ sg & a ” ) expenses increased by approximately $ 3,419,000 to approximately $ 7,149,000 for the year ended december 31 , 2013 compared to approximately $ 3,730,000 for the year ended december 31 , 2012. the increase was primarily due to increased stock compensation expense , professional service fees , and legal fees . replace_table_token_11_th impairment of goodwill . there were no impairment of goodwill in the year ended december 31 , 2013 compared to approximately $ 6,820,000 in the year ended december 31 , 2012. management evaluated the amount of goodwill associated with the merger with blast in 2102 following the allocation of fair value to the assets and liabilities acquired and determined that the goodwill should be fully impaired and has reflected the impairment on the statement of operations as of the date of the merger for the year ending december 31 , 2012. impairment of oil and gas properties . impairment costs for proved properties in the year ended december 31 , 2013 were approximately $ 3,303,000 compared to approximately $ 180,000 in the year ended december 31 , 2012. the company assessed the recoverability of the carrying value of the proved properties by estimating the future net undiscounted cash flows expected to result from the asset based on the reserve report prepared by the company 's independent reserve engineers , including eventual disposition . as the future net undiscounted cash flows were less than the carrying value of the asset , an impairment loss was recorded equal to the difference between the asset 's carrying value and estimated fair value of the future net discounted cash flows associated with the properties . the impairment in 2013 was primarily due to a reduction in proven reserves in the year ended december 31 , 2013. this decrease in proven reserves was due primarily to a change in our reserve engineer 's interpretation of applicable sec disclosure guidelines , such that puds could only be booked when
| 12,155 |
we use key assumptions to determine the stand-alone selling price , which may include development timelines , reimbursement rates for personnel costs , discount rates , and probabilities of technical and regulatory success . given that significant estimates depend on the development plan , these estimates could change and impact the revenue recognition . consideration received that does not meet the requirements to satisfy the revenue recognition criteria is recorded as deferred revenue in the accompanying consolidated balance sheets based on our best estimate of when such revenue will be recognized . current deferred revenue consists of amounts that are expected to be recognized as revenue in the next 12 months . amounts that we expect will not be recognized within the next 12 months are classified as long-term deferred revenue . inventory costing and recoverability — we determine the cost of inventory using the first-in , first-out or fifo method . we capitalize inventory costs associated with our products based on judgement that future economic benefits are expected to be realized . inventories are stated at the lower of cost or net realizable value . we analyzed our inventory levels to identify inventory that may expire or has a cost basis in excess of its estimated realizable value . we performed an assessment of projected sales to evaluate the lower of cost or net realizable value and the potential excess inventory on hand at december 31 , 2019 and 2018. as a result of these assessments , we recorded inventory write-offs of $ 2.2 million in the year ended december 31 , 2018. there were no inventory write-offs in the year ended december 31 , 2019. recognized loss on purchase commitments — we assess whether losses on long term purchase commitments should be accrued . losses that are expected to arise from firm , non-cancellable , commitments for future purchases of inventory items are recognized unless recoverable . the loss on the purchase commitment balance is reduced as material is received . the balance of recognized loss on purchase commitments is primarily associated with insulin purchases . as of december 31 , 2019 and 2018 the balance was $ 92.0 million and $ 98.3 million , respectively . impairment of long-lived assets — we evaluate long lived assets for impairment at least on a quarterly basis and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable . an impairment loss would be indicated when estimated undiscounted future cash flows from the use and eventual disposition of an asset group , which are identifiable and largely independent of the cash flows of other asset groups , are less than the carrying amount of the asset group . in connection with our quarterly assessment of impairment indicators , we recorded no impairments for the years ended december 31 , 2019 and 2018. for further information see note 4 — property and equipment of the notes to consolidated financial statements included in “ part ii , item 8 — financial statements and supplementary data ” . 36 mileston e rights liability — in july 2013 , in conjunction with the execution of a loan agreement ( the “ deerfield credit facility ” ) with deerfield private design fund ii , l.p. and deerfield private design international ii , l.p. ( collectively , “ deerfield ” ) that expi red following our full satisfaction of our repayment obligations , we issued to deerfield private design fund ii , l.p. and horizon santé flml sàrl , ( the “ milestone purchasers ” ) certain rights to receive payments of up to $ 90.0 million upon the occurrence of specified strategic and sales milestones , $ 70.0 million of which remains payable upon achievement of such milestones ( the “ milestone rights ” ) , pursuant to an agreement ( the “ milestone agreement ” ) that continues beyond the expiration of the loan agreement . we evaluated the milestone rights and determined that such rights do not meet the definition of a freestanding derivative . since we have elected not to apply the fair value option , we recorded the rights at the initial fair value . upon the achievement of a milestone event , the milestone payment will be allocated between ( i ) a reduction of the initial liability and ( ii ) a return on investment and the gain or loss is recognized at the time the milestone event is achieved . the estimated fair value of the mile stone rights was calculated using the income approach in which the cash flows associated with the specified contractual payments were adjusted for both the expected timing and the probability of achieving the milestones discounted to present value using a selected market discount rate ( level 3 in the fair value hierarchy ) . clinical trial expenses — our clinical trial accrual process seeks to account for expenses resulting from our obligations under contract with vendors , consultants , and clinical site agreements in connection with conducting clinical trials . the financial terms of these contracts are subject to negotiations which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts . our objective is to reflect the appropriate trial expenses in our financial statements by matching period expenses with period services and efforts expended . in the event that we do not identify certain costs that have begun to be incurred or we underestimate or overestimate the level of services performed or the costs of such services , our reported expenses for a period would be too low or too high . the date on which certain services commence , the level of services performed on or before a given date and the cost of the services are often judgmental . we make these judgments based upon the facts and circumstances known to us in accordance with gaap . story_separator_special_tag although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting amounts that are too high or too low for any particular period . stock-based compensation — share-based payments to employees , including grants of stock options , restricted stock units , performance-based awards and the compensatory elements of employee stock purchase plans , are recognized in the consolidated statements of operations based upon the fair value of the awards at the grant date . we use the black-scholes option valuation model to estimate the grant date fair value of employee stock options and the compensatory elements of employee stock purchase plans . restricted stock units are valued based on the market price on the grant date . we evaluate stock awards with performance conditions as to the probability that the performance conditions will be met and estimates the date at which the performance conditions will be met in order to properly recognize stock-based compensation expense over the requisite service period . accounting for income taxes — our management must make judgments when determining our provision for income taxes , our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets . as of december 31 , 2019 and 2018 , we had established a valuation allowance of $ 670.6 million and $ 665.4 million , respectively , against all of our net deferred tax asset balances due to uncertainties related to the realizability of our deferred tax assets as a result of our history of operating losses . the valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred tax assets will be recoverable . in the event that actual results differ from these estimates or we adjust these estimates in future periods , we may need to change the valuation allowance , which could materially impact our financial position and results of operations . legislation enacted in 2017 , informally titled the tax cuts and jobs act of 2017 ( “ tax act ” ) , subjects a u.s. shareholder to tax on global intangible low-taxed income ( “ gilti ” ) earned by certain foreign subsidiaries . the fasb staff q & a , topic 740 , no . 5 , accounting for global intangible low-taxed income , states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as gilti in future years or to provide for the tax expense related to gilti in the year the tax is incurred as a period expense only . we have elected to account for gilti in the year the tax is incurred . 37 story_separator_special_tag roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > general and administrative expenses decreased by $ 4.0 million , or 12 % , for the year ended december 31 , 2019 compared to the prior year . this decrease was primarily attributable to a $ 0.6 million decrease in personnel and employee related costs , a $ 2.2 million net decrease in consulting and professional costs and a $ 1.2 million decrease in stock-based compensation costs . under the insulin supply agreement with amphastar , payment obligations are denominated in euros . we are required to record the foreign currency translation impact of the u.s. dollar to euro exchange rate associated with the recognized loss on purchase commitments . the gain on foreign currency translation decreased $ 2.6 million , or 57 % , for the year ended december 31 , 2019 due to the translation impact of the u.s. dollar to euro exchange rates resulting in a lower gain in 2019 when compared to 2018. other income ( expense ) the following table provides a comparison of the other income ( expense ) categories for the years ended december 31 , 2019 and 2018 ( dollars in thousands ) : replace_table_token_5_th 39 interest income increased by $ 0.5 million , or 99 % , for the year ended december 31 , 2019 compared to the prior year . this increase was primarily attributable to a higher average balance on our money market funds and short-term investments . interest expense on notes , which included the midcap credit facility , our previously outstanding $ 18.7 million aggregate principal amount of 5.75 % convertible senior subordinated exchange notes due 2021 ( the “ 2021 notes ” ) , our 2024 convertible notes , the deerfield credit facility and the milestone rights , increased by $ 1.2 million , or 23 % , for the year ended december 31 , 2019 compared to the prior year . the increase was primarily attributable to additional interest of $ 3.4 million related to our milestone obligation under the milestone rights achieved in the third quarter of 2019 , partially offset by lower interest as a result of the repayment of the deerfield credit facility , which had an interest rate of 9.75 % . the gain on extinguishment of debt for the year ended december 31 , 2019 was primarily due to the cancellation of the 2021 notes in exchange for cash , common stock , 2024 convertible notes and non-interest bearing notes in august 2019 pursuant to an exchange agreement . the loss on extinguishment of debt for the year ended december 31 , 2018 was primarily attributable to conversions of convertible debt to common stock under the deerfield credit facility in september 2018. other expense increased by $ 0.5 million , or 112 % , for the year ended december 31 , 2019 compared to the prior year .
| commercial product gross profit the following table provides a comparison of the commercial product gross profit categories for the years ended december 31 , 2019 and 2018 ( dollars in thousands ) : replace_table_token_2_th commercial product gross profit increased by $ 7.3 million , or 347 % , for the year ended december 31 , 2019 from a gross loss of $ 2.1 million in the prior year . the increase was primarily attributable to higher commercial product sales . non-gaap measures to supplement our consolidated financial statements presented under gaap , we are presenting certain non-gaap financial measures to disclose additional information to facilitate the comparison of past and present operations , and they are among the indicators management uses as a basis for evaluating our financial performance . we believe that these non-gaap financial measures , when considered together with our gaap financial results , provide management and investors with an additional understanding of our business operating results , including underlying trends ( dollars in thousands ) . replace_table_token_3_th 38 expenses the following table provides a comparison of the expense categories for the years ended december 31 , 2019 and 2018 ( dollars in thousands ) : replace_table_token_4_th cost of goods sold increased by $ 0.7 million , or 4 % , for the year ended december 31 , 2019 compared to the prior year . the increase was primarily attributable to higher cost of afrezza sales of $ 2.1 million corresponding to higher afrezza gross sales of $ 13.3 million and an increase of $ 0.8 million in fees paid for amendments to our insulin supply agreement in 2018 and 2019 , partially offset by a $ 2.2 million decrease in inventory write-offs as there were no inventory write-offs in 2019 . cost of goods sold includes the fees incurred to amend our insulin supply agreement , which consisted of approximately $ 2.8 million and $ 2.0 million for the years ended december 31 , 2019 and 2018 , respectively . cost of revenue - collaborations and services increased by $ 6.8 million , or 634 % , for the year ended december 31 , 2019 compared to the
| 12,156 |
in november 2011 , idacorp 's board of directors adopted a target dividend payout ratio of between 50 and 60 percent of sustainable idacorp earnings . during 2012 , idacorp 's quarterly dividend was increased from $ 0.30 to $ 0.38 per share , and in september 2013 the quarterly dividend was increased again , to $ 0.43 per share . idaho power 's need and ability to construct infrastructure , the availability of timely regulatory recovery of costs associated with that construction , and idacorp 's earnings , among other factors discussed elsewhere in this report , all influence dividend decisions . a number of recent positive outcomes in those areas , such as the completion of the langley gulch power plant in june 2012 and inclusion of associated costs in rates , combined with the corresponding impact on idacorp 's financial performance , have been important elements that idacorp 's board of directors has considered in its recent dividend decisions . idacorp anticipates the potential for further growth in the dividend as the company and board of directors weigh factors governing dividend decisions and continues to work toward its target dividend payout ratio . brief overview of 2013 story_separator_special_tag tr > langley gulch power plant request for recovery of and return on idaho power 's investment in the langley gulch power plant , including operating costs ipuc approved a $ 58.1 million increase in rates , effective july 1 , 2012 ; opuc approved a $ 3.0 million increase in rates effective october 1 , 2012 idaho jurisdiction power cost adjustment ( pca ) - 2012 annual idaho-jurisdiction pca mechanism rate change ipuc approved a $ 43.0 million increase in pca rates , effective for the period from june 1 , 2012 to may 31 , 2013 2011 revenue sharing rate adjustment pursuant to january 2010 settlement agreement ipuc approved using $ 27.1 million of sharing to reduce pca rates . idaho jurisdiction pca - 2013 annual idaho-jurisdiction pca mechanism rate change ipuc approved a $ 121.3 million net increase in pca rates , effective for the period from june 1 , 2013 to may 31 , 2014 2012 revenue sharing rate adjustment pursuant to december 2011 settlement agreement ipuc approved using $ 7.2 million of sharing against pca rates , effective for the period from june 1 , 2013 to may 31 , 2014 depreciation for non-ami meters application for removal from rates of accelerated depreciation expense associated with non-advanced metering infrastructure ( ami ) metering equipment ipuc approved a $ 10.6 million decrease in rates and associated depreciation expense , effective june 1 , 2012 in december 2011 , the ipuc approved a settlement stipulation that permits idaho power to amortize additional accumulated deferred investment tax credits ( aditc ) to help achieve a minimum 9.5 percent idaho-jurisdiction return on year-end equity ( idaho roe ) in 2012 , 2013 , and 2014 , subject to prescribed limits and conditions . the settlement stipulation also provides for the sharing between the company and customers of idaho-jurisdictional earnings in excess of specified levels of idaho roe . based on its idaho roe , in 2012 and 2013 idaho power recorded $ 21.8 million and $ 24.1 million provisions for sharing with customers , respectively , pursuant to the terms of the december 2011 settlement stipulation . idaho power did not amortize any additional aditcs in those years . the specific terms of the settlement stipulation are described in `` regulatory matters '' in this md & a and in note 3 - `` regulatory matters '' to the consolidated financial statements included in this report . while providing no assurance that idaho power will obtain a 9.5 percent idaho roe in any of the years , idacorp and idaho power believe the ability to amortize additional aditc under the settlement stipulation provides an element of earnings stability for 2014. idaho power seeks to take an active approach to regulatory matters . for example , in november 2013 idaho power filed an application with the ipuc requesting an increase of approximately $ 106 million in the normalized or “ base level ” power supply expense to be used in the determination of the pca rate that will become effective june 1 , 2014. while approval of the application would result in no net change in the amount collected through base rates and the pca mechanism in the aggregate , approval of the application would decrease the amount of any base rate increase requested in idaho power 's next general rate case application filed with the ipuc . economic conditions and customer/load growth : idaho power monitors a number of economic indicators , including employment statistics , growth in customer numbers , foreclosure rates , and other housing-related data on a national and state scale and within idaho power 's service territory . economic conditions can impact consumer demand for electricity , collectability of accounts , the volume of off-system sales , and the need to construct and improve infrastructure , purchase power , and implement programs to meet customer load demands . idaho power has observed what it believes to be a number of improvements in economic conditions in its service territory during 2012 and 2013. for example : based on idaho department of labor preliminary data , the total number of persons employed in the service area in december 2013 was 451,526 , eclipsing the previous peak established in december 2006 , and the associated unemployment rate for the service area was 5.3 percent , compared to the state of idaho rate of 5.7 percent . the u. s. rate stood at 6.7 percent , according to u.s.department of labor data . gross area product for idaho power 's service area , as reported by moody 's analytics , indicates growth of 2.9 percent for 2013. moody 's forecasts 2.9 percent and 3.7 percent growth in gross area product for 2014 and 2015 , respectively . story_separator_special_tag housing market fundamentals continue to improve when measured by foreclosure rates , market prices , new housing permits , and available supply of housing . residential customer growth for 2013 was 1.5 percent . 35 a number of businesses have recently constructed , or are in the process of constructing , sizable facilities in idaho power 's service territory , including office and manufacturing complexes , particularly in the food processing industry . based on recent economic data , idaho power predicts that customer growth within its service area will continue to be positive . idaho power 's most recent load forecast predicts a 1.4 percent five-year compound annual growth rate in residential loads and a 2.1 percent five-year compound annual growth rate in residential customers . for resource planning purposes , idaho power 's 2013 irp , filed with the ipuc and opuc in june 2013 , included a forecasted long-term annual customer growth rate more closely aligned with the 1.1 percent growth rate it experienced in 2012. both are improvements over the 0.8 percent average annual growth rate experienced the past 5 years , but less than the 2.6 percent average annual growth realized over the past 20 years . should the updated estimates of higher growth rates materialize , or were there to be a significant increase in loads due to new , unanticipated large-load customers , growth would exceed the projections included in the 2013 irp and idaho power could be required to adjust its infrastructure development timing and plans accordingly . weather conditions and associated impacts : weather and agricultural growing conditions have a significant impact on energy sales and the seasonality of those sales . relatively low and high temperatures result in greater energy use for heating and cooling , respectively . during the agricultural growing season , which in large part occurs during the second and third quarters , irrigation customers use electricity to operate irrigation pumps , and weather conditions can impact the timing and degree of use of those pumps . idaho power also has tiered rates and seasonal rates , which contribute to increased revenues during higher-load periods , most notably during the third quarter of each year when overall customer demand is highest . in 2013 , abnormally cold temperatures in the first quarter and in december drove increased demand by retail customers for the operation of electric heating systems . warm late-spring and summer temperatures drove higher-than-normal demand for electric power for the operation of air conditioning units and irrigation equipment . idaho power 's hydroelectric facilities comprise nearly one-half of idaho power 's nameplate generation capacity . however , the availability and volume of hydroelectric power generated depends on several factors - the snow pack levels in the mountains upstream of idaho power 's facilities , reservoir storage , springtime snow pack run-off , base flows in the snake river , spring flows , rainfall , water leases and other water rights , and other weather and stream flow considerations . idaho power 's hydroelectric generation during 2013 was 5.7 million megawatt-hours ( mwh ) , compared to actual generation of 8.0 million mwh in 2012 and 10.9 million mwh in 2011. median annual hydroelectric generation is 8.4 million mwh . when hydroelectric generation is reduced , idaho power must rely on more expensive generation sources and purchased power - but most of the increase in power supply costs is collected from customers through the idaho and oregon pca mechanisms . conversely , in periods of greater hydroelectric generation most of the resulting decrease in power supply costs that typically occurs is returned to customers through the pca mechanisms . idaho power 's april 2013 request for a $ 140.4 million pca rate increase for the 2013-2014 pca collection period was largely the result of unfavorable hydroelectric conditions during the 2012-2013 pca year and a forecast of below average hydroelectric generating conditions during the 2013-2014 pca year . when favorable hydroelectric generating conditions exist for idaho power , they also may exist for other pacific northwest hydroelectric facility operators – increasing the available supply of lower-cost power , lowering regional wholesale market prices , and impacting the revenue idaho power receives from off-system sales of its excess power . conversely , when hydroelectric generating conditions are poor , wholesale market prices may be higher due to lower supply , but idaho power would generally have less surplus energy available for sale into the wholesale markets at those times . much of the adverse or favorable impact of this volatility is addressed through the pca mechanisms . fuel and purchased power expense : in addition to hydroelectric generation , idaho power relies significantly on coal and natural gas to fuel its generation facilities and power purchases in the wholesale markets . fuel costs are impacted by electricity sales volumes , the terms of contracts for fuel , idaho power 's generation capacity , the availability of hydroelectric generation resources , transmission capacity , energy market prices , and idaho power 's hedging program for managing fuel costs . operation of idaho power 's langley gulch power plant , placed into operation in june 2012 , has increased idaho power 's use of natural gas as a generation fuel and thus its exposure to volatility in natural gas prices . purchased power costs are impacted by the terms of contracts for purchased power , the rate of expansion of alternative energy generation sources such as wind energy , and wholesale energy market prices . idaho power is obligated to purchase power from some purpa generation projects at a specified price regardless of the then-current load demand or wholesale energy market prices . this increases the likelihood that idaho power will at times be required to reduce output from its lower-cost hydroelectric and fossil fuel-fired generation resources and may be required to sell in the wholesale power market the power it purchases from purpa projects at a significant loss .
| examples of idacorp 's and idaho power 's achievements during 2013 under its three-part business strategy include : earnings growth for a sixth consecutive year ; execution of business optimization initiatives , resulting in operations and maintenance costs in 2013 that are largely consistent with costs in 2012 ; reduced employee count through planned retirements , natural attrition , and business optimization ; transition to a new customer information and billing system , which is the final component of idaho power 's smart grid project ; continued progress toward the permitting of the boardman-to-hemingway and gateway west 500-kv transmission projects ; achievement of idaho power 's original goal , announced in 2009 , to reduce co 2 emissions by 10 to 15 percent below 2005 emissions for the four-year period 2010 through 2013 ; continued progress toward achieving idacorp 's previously adopted dividend policy , by increasing the quarterly dividend 13.2 percent from $ 0.38 per share to $ 0.43 per share during 2013 ; and idaho power 's ranking improved from 39 to 29 in the annual `` 40 best energy companies '' list published by public utilities fortnightly , and idaho power was one of nine energy companies out of 150 evaluated to be named as a `` sustainable utility leader '' by target rock advisors . for 2014 , in addition to its specific projects , idaho power has established a number of organizational initiatives , including the following : emphasize and enhance its enterprise safety culture ; actively manage its costs and ability to fund planned capital investments by seeking to better optimize business practices , and maintain or improve capital liquidity and credit ratings ; continue to emphasize innovative approaches to regulatory strategy ; promote economic development through collaboration with the states of idaho and oregon to attract new businesses that fit idaho power 's resource and load profile mix ; focus on operational excellence through responsible resource planning , by matching resources to customer loads , managing the impacts of environmental regulations , maintaining idaho power 's hydroelectric base , and enhancing power quality and reliability and customer satisfaction ; continued progress toward federal relicensing for the hells canyon complex ( hcc ) hydroelectric facility ; continued progress toward achieving the extended co 2 intensity
| 12,157 |
while it is difficult to predict , we expect our attrition rate to remain consistent as we continue to expand our enterprise business and invest in customer success and related programs . we expect marketing and sales costs , which were 46 percent and 47 percent for fiscal 2018 and 2017 , respectively , to continue to represent a substantial portion of total revenues in the future as we seek to grow our customer base , sell more products to existing customers , and continue to build greater brand awareness . fiscal year our fiscal year ends on january 31. references to fiscal 2018 , for example , refer to the fiscal year ending january 31 , 2018 . operating segments we operate as one operating segment . operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker , who in our case is the chief executive officer , in deciding how to allocate resources and assess performance . over the past few years , we have completed a number of acquisitions . these acquisitions have allowed us to expand our offerings , presence and reach in various market segments of the enterprise cloud computing market . while we have offerings in multiple enterprise cloud computing market segments , including as a result of our acquisitions , our business operates in one operating segment because the majority of our offerings operate on a single platform and are deployed in an identical way , and our chief operating decision maker evaluates our financial information and resources and assesses the performance of these resources on a consolidated basis . since we operate as one operating segment , all required financial segment information can be found in the consolidated financial statements . sources of revenues we derive our revenues from two sources : ( 1 ) subscription revenues , which are comprised of subscription fees from customers accessing our enterprise cloud computing services and from customers paying for additional support beyond the standard support that is included in the basic subscription fees ; and ( 2 ) related professional services such as process mapping , project management , implementation services and other revenue . “ other revenue ” consists primarily of training fees . subscription and support revenues accounted for approximately 93 percent of our total revenues for fiscal 2018 . subscription revenues are driven primarily by the number of paying subscribers , varying service types , the price of our service and renewals . we define a “ customer ” as a separate and distinct buying entity ( e.g. , a company , a distinct business unit of a large corporation , a partnership , etc . ) that has entered into a contract to access our enterprise cloud computing services . we define a “ subscription ” as a unique user account purchased by a customer for use by its employees or other customer-authorized users , and we refer to each such user as a “ subscriber. ” the number of paying subscriptions at each of our customers ranges from one to hundreds of thousands . none of our customers accounted for more than five percent of our revenues during fiscal 2018 and 2017 . subscription and support revenues are recognized ratably over the contract terms beginning on the commencement dates of each contract . the typical subscription and support term is 12 to 36 months , although terms range from one to 60 months . our subscription and support contracts are non-cancelable , though customers typically have the right to terminate their contracts for cause if we materially fail to perform . we generally invoice our customers in advance , in annual installments , and typical payment terms provide that our customers pay us within 30 days of invoice . amounts that have been invoiced are 34 recorded in accounts receivable and in deferred revenue , or in revenue depending on whether the revenue recognition criteria have been met . in general , we collect our billings in advance of the subscription service period . professional services and other revenues consist of fees associated with consulting and implementation services and training . our consulting and implementation engagements are billed on a time and materials , fixed fee or subscription basis . we also offer a number of training classes on implementing , using and administering our service that are billed on a per person , per class basis . our typical professional services payment terms provide that our customers pay us within 30 days of invoice . in determining whether professional services can be accounted for separately from subscription and support revenues , we consider a number of factors , which are described in note 1 “ summary of business and significant accounting policies. ” revenue by cloud service offering the information below is provided on a supplemental basis to give additional insight into the revenue performance of our individual core service offerings . all of the cloud offerings that we offer to customers are grouped into four major cloud service offerings . subscription and support revenues consisted of the following ( in millions ) : replace_table_token_6_th subscription and support revenues from the community cloud , quip and our industry offerings were not significant in fiscal 2018 . quip revenue is included with salesforce platform and other in the table above . our industry offerings and community cloud revenue are included in either sales cloud , service cloud or salesforce platform and other depending on the primary service offering purchased . as required under u.s. generally accepted accounting principles ( “ u.s . gaap '' ) , we recorded deferred revenue related to acquired contracts from demandware at fair value on the date of acquisition . as a result , we did not recognize certain revenues related to these acquired contracts that demandware would have otherwise recorded as an independent entity . story_separator_special_tag of the $ 1,349.9 million subscription and support revenue for marketing and commerce cloud for fiscal 2018 , approximately $ 253.4 million was attributed to commerce cloud . in situations where a customer purchases multiple cloud offerings , such as through an enterprise license agreement , we allocate the contract value to each core service offering based on the customer 's estimated product demand plan and the service that was provided at the inception of the contract . we do not update these allocations based on actual product usage during the term of the contract . we have allocated approximately 14 percent , 13 percent and 10 percent of our total subscription and support revenues for fiscal 2018 , 2017 and 2016 , respectively , based on customers ' estimated product demand plans and these allocated amounts are included in the table above . additionally , some of our service offerings have similar features and functions . for example , customers may use the sales cloud , the service cloud or our salesforce platform to record account and contact information , which are similar features across these core service offerings . depending on a customer 's actual and projected business requirements , more than one core service offering may satisfy the customer 's current and future needs . we record revenue based on the individual products ordered by a customer , not according to the customer 's business requirements and usage . in addition , as we introduce new features and functions within each offering and refine our allocation methodology for changes in our business , we do not expect it to be practical to adjust historical revenue results by service offering for comparability . accordingly , comparisons of revenue performance by core service offering over time may not be meaningful . our sales cloud service offering is our most widely distributed service offering and has historically been the largest contributor of subscription and support revenues . as a result , sales cloud has the most international exposure and foreign exchange rate exposure relative to the other cloud service offerings . conversely , revenue for marketing and commerce cloud is primarily derived from the americas with little impact from foreign exchange rate movement . the revenue growth rates of each of our core service offerings fluctuate from quarter to quarter and over time . while we are a market leader in each core offering , we manage the total balanced product portfolio to deliver solutions to our customers . accordingly , the revenue result for each cloud service offering is not necessarily indicative of the results to be expected for any subsequent quarter . 35 seasonal nature of deferred revenue , accounts receivable and operating cash flow deferred revenue primarily consists of billings to customers for our subscription service . over 90 percent of the value of our billings to customers is for our subscription and support service . we generally invoice our customers in annual cycles . approximately 80 percent of the value of all subscription and support related invoices , excluding demandware related invoices , were issued with annual terms during fiscal 2018 , 2017 and 2016 . we typically issue renewal invoices in advance of the renewal service period , and depending on timing , the initial invoice for the subscription and services contract and the subsequent renewal invoice may occur in different quarters . this may result in an increase in deferred revenue and accounts receivable . there is a disproportionate weighting toward annual billings in the fourth quarter , primarily as a result of large enterprise account buying patterns . our fourth quarter has historically been our strongest quarter for new business and renewals . the year on year compounding effect of this seasonality in both billing patterns and overall new and renewal business causes the value of invoices that we generate in the fourth quarter for both new business and renewals to increase as a proportion of our total annual billings . accordingly , because of this billing activity , our first quarter is our largest collections and operating cash flow quarter . unbilled deferred revenue , an operational measure the deferred revenue balance on our consolidated balance sheets does not represent the total contract value of annual or multi-year , non-cancelable subscription agreements . unbilled deferred revenue is an operational measure that represents future billings under our subscription agreements that have not been invoiced and , accordingly , are not recorded in deferred revenue . unbilled deferred revenue amounts by quarter are reflected in the table below . our typical contract length is between 12 and 36 months . we expect that the amount of unbilled deferred revenue will change from quarter to quarter for several reasons , including the specific timing , duration and size of large customer subscription agreements , varying billing cycles of subscription agreements , the specific timing of customer renewals , foreign currency fluctuations , the timing of when unbilled deferred revenue is to be recognized as revenue , and changes in customer financial circumstances . for multi-year subscription agreements billed annually , the associated unbilled deferred revenue is typically high at the beginning of the contract period , zero just prior to renewal , and increases if the agreement is renewed . low unbilled deferred revenue attributable to a particular subscription agreement is often associated with an impending renewal and may not be an indicator of the likelihood of renewal or future revenue from such customer . accordingly , we expect that the amount of aggregate unbilled deferred revenue will change from year-to-year depending in part upon the number and dollar amount of subscription agreements at particular stages in their renewal cycle . such fluctuations are not a reliable indicator of future revenues . unbilled deferred revenue does not include minimum revenue commitments from indirect sales channels , as we recognize revenue , deferred revenue , and any unbilled deferred revenue upon sell-through to an end user customer . unbilled deferred revenue also does not include any estimates for overage billings above a customer 's minimum commitment .
| the change was primarily due to an increase of $ 719.8 million in employee-related costs and amortization of deferred commissions , an increase of $ 79.6 million in stock-based expenses , an increase in amortization of purchased intangible assets of $ 23.7 million , and allocated overhead . our marketing and sales headcount increased by 22 percent since january 31 , 2017 . the increase in headcount was primarily attributable to hiring additional sales personnel to focus on adding new customers and increasing penetration within our existing customer base . general and administrative expenses were $ 1.1 billion , or 10 percent of total revenues , for fiscal 2018 , compared to $ 1.0 billion , or 11 percent of total revenues , during the same period a year ago , an increase of $ 120.8 million . the increase was primarily due to an increase in employee-related costs . our general and administrative headcount increased by 16 percent since january 31 , 2017 as we added personnel to support our growth . other income and expense . replace_table_token_18_th investment income was $ 35.8 million for fiscal 2018 and was $ 27.4 million during the same period a year ago . the increase was due to higher interest income across our portfolio . interest expense consists of interest on our convertible senior notes , capital leases , financing obligation related to 350 mission , the loan assumed on 50 fremont , revolving credit facility and the $ 500.0 million term loan that was entered into in connection with our acquisition of demandware . interest expense was $ 86.9 million for fiscal 2018 and was $ 89.0 million during the same period a year ago . other income ( expense ) primarily consists of non-operating transactions such as strategic investment realized gains and losses and other-than-temporary impairments , gains and losses from foreign exchange rate fluctuations and real estate transactions . the company sold a portion of its publicly-held investments in fiscal 2018 , which
| 12,158 |
effective february 9 , 2013 the venezuelan government devalued its currency and the official exchange rate changed from 4.30 to 6.30 venezuelan bolivares fuerte per dollar . the company incurred a one-time , pretax loss of $ 172 ( $ 111 aftertax loss ) , in the first quarter of 2013 related to the remeasurement of the net monetary assets in the local balance sheet at the date of the devaluation . the company remeasures the financial statements of its venezuelan subsidiary ( “ cp venezuela ” ) at the rate at which it expects to remit future dividends . at december 31 , 2013 , that rate was 6.30. as the local currency operations in venezuela translated into fewer u.s. dollars , the february 2013 devaluation had and will continue to have an ongoing adverse effect on the company ' s reported results . in addition , the venezuelan government continues to impose import authorization controls , currency exchange and payment controls and price controls . price controls , which became effective on april 1 , 2012 , affect most products in cp venezuela 's portfolio and thereby further restrict the company 's ability to implement price increases , which had been one of the key mechanisms to offset the effects of continuing high inflation and the impact of currency devaluations . cp venezuela funds its requirements for imported goods primarily through a combination of u.s. dollars obtained from cadivi and intercompany borrowings . the amount of u.s. dollars received from cadivi in 2013 was higher than the amount received in 2012 ; however , cp venezuela ' s supply of u.s. dollars to fund imports has been limited and sporadic . in the second quarter of 2013 , the venezuelan government introduced a new currency market known as sicad ( supplementary system for the administration of foreign currency ) , which is an auction market , in which only companies invited by the venezuelan government can participate . the sicad currency market is expected to be accessible to the company , however the company was not able to participate in the auctions held through december 31 , 2013. cp venezuela 's difficulty in accessing u.s. dollars to support its operations has had and is expected to continue to have an adverse effect on the business . additionally , at times , production at cp venezuela has also been negatively impacted by labor issues within the country . at december 31 , 2013 , cp venezuela 's local currency-denominated net monetary asset position , which would be subject to remeasurement in the event of a further devaluation , was approximately $ 600 . this amount does not include $ 233 of devaluation-protected bonds issued by the venezuelan government , as these bonds provide protection against devaluations by adjusting the amount of bolivares fuerte received at maturity for any devaluation subsequent to issuance . cp venezuela 's local currency-denominated non-monetary assets were approximately $ 335 at december 31 , 2013 and included approximately $ 225 of fixed assets that could be subject to impairment if cp venezuela continues to be unable to implement price increases to offset the impacts of continued high inflation or further devaluations , or if it does not have sufficient access to u.s. dollars to fund imports . for the year ended december 31 , 2013 , cp venezuela represented approximately 4 % of the company 's consolidated net sales and approximately 3 % of the company 's consolidated operating profit excluding the impact of the one-time venezuela devaluation charge and charges related to the 2012 restructuring program ( discussed below ) , the competition law matter in france related to the home care and personal care sectors and costs related to the sale of land in mexico ( discussed below ) . in late january 2014 , the venezuelan government made several announcements affecting currency exchange and other controls . although the official exchange rate remains at 6.30 bolivares fuerte per dollar , the government announced that the exchange rate for foreign investments will move to the rate available on the sicad currency market , which in the last auction was 11.70 bolivares fuerte per dollar . while there is considerable uncertainty as to the nature of transactions that will flow through sicad and how sicad will operate in the future , effective with the quarter ending march 31 , 2014 , the company expects that the majority of cp venezuela 's net monetary assets will be remeasured at the sicad rate since that is the rate the company now believes , based on the advice of legal counsel , will be applicable for future dividend remittances . in addition , because the official exchange rate remains at 6.30 bolivares fuerte per dollar , the company currently expects that the $ 233 million of devaluation-protected bonds issued by the venezuelan government and held by cp venezuela will not revalue at the rate available on the sicad currency market but will remain at the official rate . if the sicad rate were to remain at 11.70 16 ( dollars in millions except per share amounts ) during the quarter ending march 31 , 2014 , the company estimates it would incur a one-time aftertax loss of approximately $ 180- $ 200 , or $ 0.19- $ 0.21 per diluted common share . because the sicad market is auction-based and auctions are held periodically during each quarter , the exchange rate available through sicad may vary throughout the year which would cause additional remeasurements of cp venezuela 's local currency-denominated net monetary assets and further impact cp venezuela 's ongoing results . although , as described above , there is considerable uncertainty with respect to the implementation of the sicad rate , the company anticipates that there also will be ongoing impacts primarily related to the translation of the local financial statements and , to a lesser degree , the import of materials at the new exchange rate . while it is still unclear , the company believes that some of its imports may still qualify for the official rate of 6.30 story_separator_special_tag bolivares fuerte per dollar . based on this assumption and the sicad rate at the most recent 11.70 bolivares fuertes per dollar , the company preliminarily estimates that the ongoing impacts during 2014 would be in the range of $ 0.11- $ 0.14 per diluted common share . as part of the january 2014 announcements , the venezuelan government also issued a new law on fair pricing , establishing a maximum profit margin of 30 % . at this time , it is unclear based on the current regulations how this new law may affect cp venezuela and its current pricing structure and , as a result , its impact is not included in the range of estimated ongoing impacts outlined above . the company 's business in venezuela , and the company 's ability to repatriate its earnings , continue to be negatively affected by these difficult conditions and would be further negatively affected by additional devaluations or the imposition of additional or more stringent controls on foreign currency exchange , pricing , payments , profits or imports or other governmental actions or continued or increased labor unrest . the company continues to actively manage its investment in and exposure to venezuela . in the fourth quarter of 2012 , the company commenced a four-year global growth and efficiency program ( the “ 2012 restructuring program ” ) for sustained growth . the program 's initiatives are expected to help colgate ensure continued solid worldwide growth in unit volume , organic sales and earnings per share and enhance its global leadership positions in its core businesses . implementation of the 2012 restructuring program , which is expected to be substantially completed by december 31 , 2016 , is projected to result in cumulative pretax charges , once all phases are approved and implemented , totaling between $ 1,100 and $ 1,250 ( $ 775 and $ 875 aftertax ) . savings , substantially all of which are expected to increase future cash flows , are projected to be in the range of $ 365 to $ 435 pretax ( $ 275 to $ 325 aftertax ) annually by the fourth year of the program . in 2013 and 2012 , the company incurred aftertax costs of $ 278 and $ 70 , respectively , associated with the 2012 restructuring program . for more information regarding the 2012 restructuring program , see “ restructuring and related implementation charges ” below . in 2013 and 2012 , the company also incurred aftertax costs of $ 12 and $ 18 , respectively , related to the sale of land in mexico and , in 2012 , the company incurred aftertax costs of $ 14 associated with various business realignment and other cost-saving initiatives . on september 13 , 2011 , the company 's mexican subsidiary entered into an agreement to sell to the united states of america the mexico city site on which its commercial operations , technology center and soap production facility are located . the sale price is payable in three installments , with the final installment due upon the transfer of the property , which is expected to occur in 2014. the company is re-investing these payments to relocate its soap production to a new state-of-the-art facility to be constructed at its mission hills , mexico site , to relocate its commercial and technology operations within mexico city and to prepare the existing site for transfer . as a result , the company expects to make capital improvements and incur costs to exit the site through 2014. these exit costs are primarily related to staff leaving indemnities , accelerated depreciation and demolition to make the site building-ready . on july 29 , 2011 , in connection with the sanex acquisition ( discussed below ) , colgate sold its non-core laundry detergent business in colombia to unilever for $ 215 resulting in a pretax gain of $ 207 ( $ 135 aftertax gain ) . in 2011 , this gain was more than offset by pretax costs of $ 224 ( $ 177 aftertax costs ) associated with the implementation of various business realignment and other cost-saving initiatives , the sale of land in mexico and a competition law matter in france related to a divested detergent business , as discussed in part i , item 3 “ legal proceedings ” and note 13 , commitments and contingencies to the consolidated financial statements . the business realignment and other cost-saving initiatives included the integration of sanex , the right-sizing of the colombia business and the closing of an oral care facility in mississauga , canada , and a hill 's facility in los angeles , california . 17 ( dollars in millions except per share amounts ) on june 20 , 2011 , the company , colgate-palmolive europe sàrl , unilever n.v. and unilever plc ( together with unilever n.v. , “ unilever ” ) finalized the company 's acquisition from unilever of the sanex personal care business in accordance with a business and share sale and purchase agreement for an aggregate purchase price of 676 ( $ 966 ) . the acquisition was financed with available cash , proceeds from the sale of the company 's euro-denominated investment portfolio and the issuance of commercial paper . looking forward , the company expects global macroeconomic and market conditions to remain highly challenging . while the global marketplace in which the company operates has always been highly competitive , the company continues to experience heightened competitive activity in certain markets from local competitors and other large multinational companies , some of which have greater resources than the company does . such activities have included more aggressive product claims and marketing challenges , as well as increased promotional spending and geographic expansion . additionally , the company continues to experience volatile foreign currency fluctuations and high commodity costs . while the company has taken , and will continue to take , measures to mitigate the effect of these conditions , should they persist , they could adversely affect the company 's future results .
| net sales for hill 's pet nutrition increased 2.5 % in 2013 to $ 2,211 , as volume growth of 1.5 % and net selling price increases of 3.5 % were partially offset by negative foreign exchange of 2.5 % . organic sales in hill 's pet nutrition increased 5.0 % in 2013 . gains in the prescription diet , advanced nutrition and naturals categories contributed to organic sales growth for hill ' s pet nutrition . worldwide net sales were $ 17,085 in 2012 , up 2.0 % from 2011 , as volume growth of 3.0 % and net selling price increases of 3.0 % were partially offset by negative foreign exchange of 4.0 % . excluding the impact of the divestment of the non-core laundry detergent business in colombia , volume increased 3.5 % . the sanex business contributed 0.5 % to worldwide net sales and volume growth in 2012 . organic sales increased 6.0 % in 2012 . 19 ( dollars in millions except per share amounts ) gross profit/margin worldwide gross profit increased 3 % to $ 10,201 in 2013 from $ 9,932 in 2012 . gross profit in both periods included the impact of charges related to the 2012 restructuring program and costs related to the sale of land in mexico . gross profit in 2012 also included the impact of costs associated with various business realignment and other cost-saving initiatives . excluding the items described above , gross profit increased to $ 10,248 in 2013 from $ 9,963 in 2012 , primarily due to sales growth ( $ 195 ) and gross profit margin expansion ( $ 90 ) . worldwide gross profit margin increased to 58.6 % in 2013 from 58.1 % in 2012 . excluding the items described above , gross profit margin increased by 50 basis points ( bps ) to 58.8 % in 2013 . the increase was primarily due to cost savings from the company 's funding-the-growth initiatives ( 220 bps ) and higher pricing ( 30 bps ) , which were partially offset by higher raw and packaging material costs ( 210 bps ) which included foreign exchange transaction costs . worldwide gross profit increased 4 % to
| 12,159 |
revenue from our dielectrics slurry products increased 21.3 % from fiscal 2016. gross profit for fiscal 2017 expressed as a percentage of revenue was 50.1 % , compared to 48.8 % in fiscal 2016 , including 100 and 110 basis point , respectively , adverse impacts of nexplanar amortization expense . the increase in gross profit percentage from fiscal 2016 was primarily due to higher sales volume , a higher-valued product mix , and lower raw material costs , partially offset by higher fixed manufacturing costs , including costs associated with our short term incentive program ( stip ) . our gross profit percentage was slightly above our revised fiscal 2017 guidance of between 49.0 % and 50.0 % of revenue . we currently expect our gross profit percentage for full fiscal year 2018 to be between 50.0 % and 52.0 % of revenue , which includes approximately 100 basis points of nexplanar amortization expense . we may continue to experience fluctuations in our gross profit due to a number of factors , including fluctuations in our product mix and the extent to which we utilize our manufacturing capacity , which may cause our quarterly gross profit to be above or below this annual guidance range . operating expenses , which include research , development and technical , selling and marketing , and general and administrative expenses , were $ 142.1 million in fiscal 2017 compared to $ 135.7 million in fiscal 2016 , including $ 1.9 million and $ 1.8 million , respectively of nexplanar amortization expense . the increase in operating expenses of 4.8 % , or $ 6.4 million , from fiscal 2016 was primarily due to higher staffing-related costs , including costs associated with our stip . we currently expect total operating expenses for our full fiscal year 2018 to be in the range of $ 142.0 million to $ 147.0 million , including approximately $ 1.9 million of nexplanar amortization expense . diluted earnings per share in fiscal 2017 were a record level of $ 3.40 , and represented an increase of 39.9 % , or $ 0.97 , from $ 2.43 in fiscal 2016. the increase was primarily due to higher revenue and a higher gross profit margin , partially offset by a higher effective tax rate and higher operating expenses . critical accounting policies and estimates this md & a , as well as disclosures included elsewhere in this form 10-k , are based upon our audited consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingencies . on an ongoing basis , we evaluate the estimates used , including those related to bad debt expense , inventory valuation , valuation and classification of auction rate securities , impairment of long-lived assets and investments , business combinations , goodwill , other intangible assets , interest rate swaps , net investment hedge , share-based compensation , income taxes and contingencies . we base our estimates on historical experience , current conditions 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 , as well as for identifying and assessing our accounting treatment with respect to commitments and contingencies . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies involve significant judgments and estimates used in the preparation of our consolidated financial statements . allowance for doubtful accounts we maintain an allowance for doubtful accounts for estimated losses resulting from the potential inability of our customers to make required payments . our allowance for doubtful accounts is based on historical collection experience , adjusted for any specific known conditions or circumstances . while historical experience may provide a reasonable estimate of uncollectible accounts , actual results may differ from what was recorded . we will continue to monitor the financial solvency of our customers and , if global economic , or individual customer , conditions weaken , we may have to record additional increases to our allowance for doubtful accounts . as of september 30 , 2017 , our allowance for doubtful accounts represented 2.6 % of gross accounts receivable . if we had increased our estimate of bad debts by 100 basis points to 3.6 % of gross accounts receivable , our general and administrative expenses would have increased by $ 0.6 million . 27 index inventory valuation we value inventory at the lower of cost or market and write down the value of inventory for estimated obsolescence or if inventory is deemed unmarketable . an inventory reserve is maintained based upon a historical percentage of actual inventories written off applied against the inventory value at the end of the period , adjusted for known conditions and circumstances . we exercise judgment in estimating the amount of inventory that is obsolete . should actual product marketability be affected by conditions that are different from those projected by management , revisions to the estimated inventory reserve may be required . if we had increased our reserve for obsolete inventory at september 30 , 2017 by 10 % , our cost of goods sold would have increased by $ 0.2 million . valuation and classification of auction rate securities as of september 30 , 2017 , we owned two auction rate securities ( ars ) recorded at cost with a par value of $ 5.3 million and an estimated fair value of $ 4.9 million , which are classified as other long-term assets on our consolidated balance sheet and are considered held-to-maturity investments . in general , ars investments are securities with long-term nominal maturities for which interest rates are intended to be reset through a dutch auction every seven to 35 days . story_separator_special_tag historically , these periodic auctions provided a liquid market for these securities ; however , beginning in 2008 , general uncertainties in the global credit markets significantly reduced liquidity in the ars market , and this illiquidity continues . despite this lack of liquidity , there have been no defaults in payment of the underlying securities and interest income on these holdings continues to be received on scheduled interest payment dates . our ars , when purchased , were issued by a-rated municipalities . although the credit ratings of both municipalities have been downgraded since our original investment , one of the ars is credit enhanced with bond insurance , and the other has become an obligation of the bond insurer . both ars currently carry a credit rating of aa- by standard & poor 's . we classify these investments as held-to-maturity based on our intention and ability to hold the securities until maturity . although there has been occasional trading activity on these securities , the ars market is not considered active . consequently , we determine the fair value of these securities using level 2 fair value inputs , including trading activity . the calculation of fair value and the balance sheet classification for our ars requires critical judgments and estimates by management , including the probabilities that a security may be monetized through a future successful auction , of a refinancing of the underlying debt , or of a default in payment by the issuer or the bond insurance carrier . an other-than-temporary impairment must be recorded when a credit loss exists ; that is when the present value of the expected cash flows from a debt security is less than the amortized cost basis of the security . however , we believe the gross $ 0.4 million unrecognized loss on these securities is due to illiquidity in the ars market rather than credit loss . if illiquidity in the ars market continues , if issuers of our ars are unable to refinance the underlying securities , if the issuing municipalities are unable to pay their debt obligations and the bond insurance fails , or if credit ratings decline or other adverse developments occur in the credit markets , we may not be able to monetize our securities in the near term and may be required to adjust the carrying value of these instruments through an impairment charge that may be deemed other-than-temporary . impairment of long-lived assets and investments we assess the recoverability of the carrying value of long-lived assets , including finite-lived intangible assets , whenever events or changes in circumstances indicate that the assets may be impaired . we perform a periodic review of our long-lived assets to determine if such impairment indicators exist . we must exercise judgment in assessing whether an event of impairment has occurred . for purposes of recognition and measurement of an impairment loss , long-lived assets are either individually identified or grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities . we must exercise judgment in this grouping . if the sum of the undiscounted future cash flows expected to result from the identified asset group is less than the carrying value of the asset group , an impairment provision may be required . the amount of the impairment to be recognized is calculated by subtracting the fair value of the asset group from the net book value of the asset group . determining future cash flows and estimating fair values require significant judgment and are highly susceptible to change from period to period because they require management to make assumptions about future sales and cost of sales generally over a long-term period . we recorded impairment expense on long-lived assets of $ 0.9 million in fiscal 2017 related to surplus research and development equipment , which was subsequently sold for a gain . we did not record any impairment expense in fiscal 2016 or 2015. we evaluate the estimated fair value of investments annually , or more frequently if indicators of potential impairment exist , to determine if an other-than-temporary impairment in the value of the investment has taken place . 28 index business combinations our acquisition of nexplanar , which we completed on october 22 , 2015 , was our first acquisition under the current standards of accounting for business combinations . these standards require assets and liabilities of an acquired business to be recognized at their estimated fair value . we engage independent third-party appraisal firms to assist us in determining the fair values of assets and liabilities acquired . this valuation requires management to make significant estimates and assumptions , especially with respect to long-lived and intangible assets . goodwill represents the residual value of the purchase price over the fair value of net assets acquired , including identifiable intangible assets . critical estimates in valuing certain of the intangible assets include but are not limited to : future expected cash flows related to acquired developed technologies and patents and assumptions about the period of time the technologies will continue to be used in the company 's product portfolio ; expected costs to develop the in-process technology into commercially viable products and estimated cash flows from the products when completed ; and discount rates . management 's estimates of value are based upon assumptions believed to be reasonable , but which are inherently uncertain and unpredictable . assumptions may be incomplete or inaccurate , and unanticipated events and circumstances may occur which may cause actual realized values to be different from management 's estimates . in fiscal 2016 , we recorded $ 58.4 million of goodwill and $ 55.0 million of intangible assets related to our acquisition of nexplanar . the intangible assets included $ 50.0 million with finite lives and $ 5.0 million of in-process technology .
| fixed manufacturing costs in fiscal 2017 included $ 4.8 million of nexplanar amortization expense compared to $ 4.5 million in fiscal 2016. gross profit our gross profit as a percentage of revenue was 50.1 % in fiscal 2017 compared to 48.8 % for fiscal 2016. the increase in gross profit as a percentage of revenue from fiscal 2016 was primarily due to higher sales volume , a higher-valued product mix , and lower raw material costs , partially offset by higher fixed manufacturing costs , including costs associated with our stip . research , development and technical total research , development and technical expenses were $ 55.7 million in fiscal 2017 , which represented a decrease of 4.9 % , or $ 2.9 million , from fiscal 2016. the decrease was primarily due to $ 1.1 million in lower clean room material costs , a $ 1.0 million decrease due to the absence of an impairment charge recorded in fiscal 2016 for a nexplanar intangible asset related to a technology asset , a $ 0.9 million decrease for gains on sale of surplus research and development equipment , and $ 0.7 million in lower depreciation and amortization expense , partially offset by $ 1.8 million in higher staffing-related costs , including stip costs . our research , development and technical efforts are focused on the following main areas : research related to fundamental cmp technology ; development of new and enhanced cmp consumable products , including collaboration on joint development projects with technology-leading customers and suppliers ; process development to support rapid and effective commercialization of new products ; technical support of cmp products in our customers ' research , development and manufacturing facilities ; and , development of polishing and metrology applications outside of the semiconductor industry . selling and marketing selling and marketing expenses were $ 30.8 million in fiscal 2017 , which represented an increase of 11.3 % , or $ 3.1 million , from fiscal 2016. the increase was primarily due to $ 2.8 million in higher staffing-related costs , including stip costs . 32 index general and administrative general and administrative expenses were $ 55.6 million in fiscal 2017 , which represented an increase of 12.5 % , or $ 6.2 million , from fiscal 2016. the increase was primarily due to $ 5.8 million in higher staffing-related costs , including
| 12,160 |
the following table reconciles cash provided by operating activities ( gaap measure ) to free cash flow ( non-gaap measure ) : replace_table_token_8_th 2019 outlook · safety – operating a safe railroad benefits all our constituents : our employees , customers , shareholders and the communities we serve . we will continue using a multi-faceted approach to safety , utilizing technology , risk assessment , training and employee engagement , quality control , and targeted capital investments . we will continue using and expanding the deployment of total safety culture and courage to care throughout our operations , which allows us to identify and implement best practices for employee and operational safety . we will continue our efforts to increase detection of rail defects ; improve or close crossings ; and educate the public and law enforcement agencies about crossing safety through a combination of our own programs ( including risk assessment strategies ) , industry programs and local community activities across our network . · network operations – in 2019 , we will continue to implement our g55+0 and unified plan 2020 initiatives to further increase reliability of our service product , reduce variability in network operations , and improve resource utilization . we began implementation of phase 1 on october 1 , 2018 which included our north to south mid-america corridor , and was substantially completed in late 2018. phase 1 included approximately 160 changes to our transportation plan in that territory . in november of 2018 , we began the planning phase of implementation on the sunset route and on the two rail corridors between los angeles and chicago . planning for the third phase , which includes the pacific northwest and northern california , be gan in late january of 2019 . we expect full implementation of all phases of the unified plan 2020 by mid-2019 . beyond the initial implementation of unified plan 2020 , we will continue to evaluate the entire network and make further changes as warranted . 24 in addition , we are working through a terminal rationalization process to more fully optimize our train operations and crew resources . these potential changes , combined with other g55+0 initiatives , are designed to better align our management structure and decision making processes in conjunction with our unified plan 2020 operating model . · fuel prices – fuel price projections for crude oil and natural gas continue to fluctuate in the current environment . we again could see volatile fuel prices during the year , as they are sensitive to global and u.s. domestic demand , refining capacity , geopolitical events , weather conditions and other factors . as prices fluctuate , there will be a timing impact on earnings , as our fuel surcharge programs trail increases or decreases in fuel price by approximately two months . lower fuel prices could have a positive impact on the economy by increasing consumer discretionary spending that potentially could increase demand for various consumer products that we transport . alternatively , lower fuel prices could likely have a negative impact on other commodities such as coal and domestic drilling-related shipments . · capital plan – in 2019 , we expect our capital plan to be approximately $ 3.2 billion , flat compared to 2018. the plan includes expenditures to renew and improve our existing infrastructure as well as new capacity investment s designed to support future business growth and operational efficiency . in addition , expenditures will be made for locomotive modernization and freight cars . the capital plan may be revised if business conditions warrant or if new laws or regulations affect our ability to generate sufficient returns on these investments . ( see further discussion in this item 7 under liquidity and capital resources – capital plan ) . · financial expectations – economic conditions in many of our market sectors continue to drive uncertainty with respect to our vol ume levels . although we expect volume to grow in the low single digit range in 2019 compared to 2018 , uncertainties in energy markets and prices , consumer purchases , inflation , and both domestic and international economies will have an impact . in the current environment , we expect continued margin improvement driven by continued pricing opportunities , ongoing g55+0 productivity initi atives , and full implementation of our unified plan 2020 to better leverage our resources and strengthen our franchise . story_separator_special_tag ; width:53.84 % ; padding:0pt 6.9pt 0pt 0pt ; '' valign= '' top '' > 2018 industrial carloads 27 volumes were flat as growth in shipments of metals , waste , and government shipments were offset by declines in construction materials due to inclement weather in the west in the first half of the year , combined with decreased construction activity in texas and lower industrial chemical shipments . premium – freight revenue from premium shipments increased in 2018 compared to 2017 driven by volume growth , higher fuel surcharge revenue , and core pricing gains , partially offset by negative mix of traffic . volume grew 6 % driven by 9 % growth in international intermodal , including newly secured business in 2018 and a fourth quarter surge in shipments . in addition , domestic intermodal shipments , including containerized automotive parts , increased as a result of tighter truck capacity , increased production at certain auto parts facilities , and continued truck-to-rail conversions . 2018 premium carloads higher fuel surcharge revenue and core pricing gains drove an increase in freight revenue from premium shipments in 2017 compared to 2016. volumes were flat as a 1 % growth in international shipments was muted by flat domestic shipments ( including containerized automotive parts ) due to available truck capacity during most of 2017 , which offset a strong holiday shipping season in the fourth quarter . in addition , shipments of finished vehicles fell 7 % in 2017 resulting from lower domestic sales and reduced production for certain manufactures . story_separator_special_tag mexico business – each of our commodity groups includes revenue from shipments to and from mexico . freight revenue from mexico business was $ 2.5 billion in 2018 , up 10 % compared to 2017 , driven by 1 % volume growth , fuel surcharge revenue , and core pricing gains . the increase in volume was driven by higher shipments of corn and feed grains , coal , and finished vehicles , partially offset by declines in automotive parts and intermodal shipments . freight revenue from mexico business was $ 2.3 billion in 2017 , up 2 % compared to 2016. core pricing gains and higher fuel surcharge revenue more than offset the 1 % volume decline . the decrease in volume was driven by lower shipments of automotive parts , partially offset by growth in coal and refined petroleum products shipments . 28 operating expenses replace_table_token_13_th operating expenses increased $ 1,181 million in 2018 compared to 201 7 driven by higher fuel prices , excess network costs , volume-related expenses , depreciation , and inflation . in addition , 2017 results included a $ 212 million reduction to rent expense related to income tax adjustments at certain equity-method affiliates . productivity savings , lower management and administrative wage and benefit costs , lower locomotive and freight car lease expenses , joint facility , and personal injury costs partially offset these increases . operating expenses increased $ 436 million in 2017 compared to 2016 driven by higher fuel prices , inflation , $ 86 million of expenses related 2018 operating expenses to the third quarter workforce reduction plan , depreciation , contract services , and volume-related costs . partially offsetting these increases was a $ 212 million reduction to operating expense related to income tax adjustments at certain equity-method affiliates , continued productivity gains , lower locomotive and freight car lease expense , and lower environmental , personal injury , and joint facility costs . compensation and benefits – compensation and benefits include wages , payroll taxes , health and welfare costs , pension costs , other postretirement benefits , and incentive costs . in 2018 , expenses increased 2 % compared to 2017 , due to volume-related costs , excess network costs , higher training expenses for trainmen , and wage inflation . lower management and administrative wage and benefit costs partially offset these increases . in 2017 , expenses increased 3 % compared to 2016 , driven by general wage and benefit inflation , $ 86 million of expenses associated with the workforce reduction plan , volume-related costs , and higher training expenses for trainmen , which were partially offset by resource productivity gains . fuel – fuel includes locomotive fuel and gasoline for highway and non-highway vehicles and heavy equipment . locomotive diesel fuel prices , which averaged $ 2.29 per gallon ( including taxes and transportation costs ) in 2018 , compared to $ 1.81 per gallon in 2017 , increased expenses $ 507 million . in addition , gross-ton miles and the fuel consumption rate ( c-rate ) both increased 3 % in 2018 , also driving higher fuel expense compared to 2017 . the c-rate is computed as gallons of fuel consumed divided by gross ton-miles in thousands . locomotive diesel fuel prices , which averaged $ 1.81 per gallon ( including taxes and transportation costs ) in 2017 , compared to $ 1.48 per gallon in 2016 , increased expenses $ 334 million . in addition , fuel costs were higher as gross-ton miles increased 5 % compared to 2016. the c-rate improved 2 % compared to 2016 . purchased services and materials – expense for purchased services and materials includes the costs of services purchased from outside contractors and other service providers ( including equipment maintenance and contract expenses incurred by our subsidiaries for external transportation services ) ; materials used to maintain the railroad 's lines , structures , and equipment ; costs of operating facilities jointly used by uprr and other railroads ; transportation and lodging for train crew employees ; trucking and contracting costs for 29 intermodal containers ; leased automobile maintenance expenses ; and tools and supplies . purchased services and materials increased 3 % in 2018 compared to 2017 primarily due to volume-related costs , inflationary cost pressures on transportation-related contract services incurred at our subsidiaries that broker intermodal and transload services , and higher locomotive repair costs due to the larger active fleet in service . lower joint facility expenses partially offset these increases . purchased services and materials increased 5 % in 2017 compared to 2016 primarily due to volume-related costs ( including higher subsidiary contract services ) and hurricane harvey-related contract service costs , which were partially offset by lower joint facility expenses . depreciation – the majority of depreciation relates to road property , including rail , ties , ballast , and other track material . a higher depreciable asset base increased depreciation expense in 2018 compared to 2017 . a higher depreciable asset base increased depreciation expense in 2017 compared to 2016. this increase was partially offset by our recent depreciation studies that resulted in lower depreciation rates for some asset classes . equipment and other rents – equipment and other rents expense primarily includes rental expense that the railroad pays for freight cars owned by other railroads or private companies ; freight car , intermodal , and locomotive leases ; and office and other rent expenses . equity income from certain equity method investments is also included . equipment and other rents expense increased $ 184 million compared to 2017 largely driven by a $ 212 million reduction to 2017 rent expense related to income tax adjustments at certain equity-method affiliates as a result of the lower federal tax rate implemented january 1 , 2018 . i ncreased car rent expense due to volume growth and slower network velocity also contributed to the increase .
| our fuel surcharge programs generated freight revenues of $ 1.7 billion , $ 966 million , and $ 560 million in 2018 , 2017 , and 2016 , respectively . fuel surcharge revenue in 2018 increased $ 769 million as a result of a 27 % increase in fuel price and 4 % growth in carloadings . fuel surcharge revenue in 2017 increased $ 406 million as a result of a 22 % increase in fuel price , a 2 % growth in carloadings , and the lag impact on fuel surcharge ( it can generally take up to two months for changing fuel prices to affect fuel surcharge recoveries ) . in 2018 , other revenues increased from 2017 driven by higher accessorial revenues associated with carload and container volume growth . in 2017 , other revenues increased from 2016 due to higher revenues at our subsidiaries , primarily those that broker intermodal , transload , and refrigerated warehousing logistics services . the following tables summarize the year-over-year changes in freight revenues , revenue carloads , and arc by commodity type : replace_table_token_10_th replace_table_token_11_th replace_table_token_12_th [ a ] for intermodal shipments , each container or trailer equals one carload . 26 agricultural products – freight revenue from agricultural products increased in 2018 compared to 2017 driven by core pricing gains and higher fuel surcharge revenue , partially offset by a 1 % decrease in volume . grain shipments decreased 8 % in 2018 compared to 2017 largely due to lower export wheat shipments reflecting weaker u.s. competitiveness in the global market throughout 2018. conversely , fertilizer shipments increased 7 % and grain products shipments increased 4 % versus 2017 driven by continued strength in potash exports and higher export ethanol shipments . 2018 agricultural products carloads freight revenue fr om agricultural products increased in 2017 compared to 2016 driven by core pricing gains and higher fuel surcharge revenue , partially offset by a 1 % decrease in volume . grain and grain product shipments decreased 3 % in 2017 compared to 2016. strong export demand for
| 12,161 |
2017 general rate cases on april 26 , 2018 , the wutc issued a final order in our electric and natural gas general rate cases that were originally filed on may 26 , 2017. in the order , the wutc approved new electric rates , effective on may 1 , 2018 , that increased base rates by 2.2 percent ( designed to increase electric revenues by $ 10.8 million ) . the net increase in electric base rates was made up of an increase in our base revenue requirement of $ 23.2 million , an increase of $ 14.5 million in power supply costs and a decrease of $ 26.9 million for the impacts of the tcja , which reflects the federal income tax rate change from 35 percent to 21 percent and the amortization of the regulatory liability for plant excess deferred income taxes that was recorded as of december 31 , 2017. while the wutc authorized an increase in the erm baseline to reflect increased power supply costs , it directed the parties to examine the functionality and rationale of the company 's power cost modeling and adjust the baseline only in extraordinary circumstances if necessary to more closely match the baseline to actual conditions . for natural gas , the wutc approved new natural gas base rates , effective on may 1 , 2018 , that decreased base rates by 2.4 percent ( designed to decrease natural gas revenues by $ 2.1 million ) . the net decrease in natural gas base rates was made up of an increase in base revenues of $ 3.4 million that was offset by a decrease of $ 5.5 million for the impacts from the tcja , which reflects the federal income tax rate change and the amortization of the regulatory liability for plant-related excess deferred income taxes that was recorded as of december 31 , 2017. in addition to the above , the wutc also ordered , effective june 1 , 2018 , a one-year temporary reduction of $ 7.9 million in our revenue requirements for electric and $ 3.2 million for natural gas , reflecting reductions for the return of tax benefits associated with the non-plant excess deferred income taxes and the customer refund liability that was established in 2018 related to the change in federal income tax expense for the period january 1 , 2018 to april 30 , 2018. the new rates are based on a ror of 7.50 percent with a common equity ratio of 48.5 percent and a 9.5 percent roe . in our original filings , we requested three-year rate plans for electric and natural gas ; however , in the final order the wutc only provided for new rates effective on may 1 , 2018. in testimony filed in our 2017 general rate case , the wutc staff recommended the exclusion of our 2016 settlement costs of interest rate swaps from the cost of capital calculation . in the final order , the wutc disagreed with wutc staff and did not disallow the settlement costs of our interest rate swaps . however , the wutc did recommend that we make changes to our interest rate risk hedging policy to be more risk responsive . we are evaluating and making changes to our policy to meet the wutc recommendations . tcja proceedings in february 2019 , we filed an all-party settlement agreement with the wutc related to the electric tax benefits that were set aside for colstrip in the 2017 general rate case order . in the settlement agreement , the parties agreed to utilize $ 10.9 million of the electric tax benefits to offset costs associated with accelerating the depreciation of colstrip units 3 & 4 , to reflect a remaining useful life of those units through december 31 , 2027. the settlement agreement is subject to wutc approval . although the parties to the settlement agreement have agreed to the acceleration of depreciation of colstrip units 3 & 4 , the settlement does not reflect any agreement with respect to the ultimate closure of colstrip units 3 & 4 , since that decision would have to be made in conjunction with the other owners of colstrip . 2019 general rate cases we expect to file electric and natural gas general rate cases with the wutc in the first half of 2019 . 35 avista corporation idaho general rate cases and other proceedings 2016 general rate cases in december 2016 , the ipuc approved a settlement agreement between us and other parties , concluding our electric general rate case originally filed in may 2016. new rates were effective on january 1 , 2017. we did not file a natural gas general rate case in 2016. the settlement agreement increased annual electric base rates by 2.6 percent ( designed to increase annual electric revenues by $ 6.3 million ) . the settlement was based on a ror of 7.58 percent with a common equity ratio of 50 percent and a 9.5 percent roe . 2017 general rate cases on december 28 , 2017 , the ipuc approved a settlement agreement between us and other parties to our electric and natural gas general rate cases . new rates were effective on january 1 , 2018 and january 1 , 2019. the settlement agreement is a two-year rate plan and has the following electric and natural gas base rate changes each year , which are designed to result in the following increases in annual revenues ( dollars in millions ) : replace_table_token_13_th the settlement agreement is based on a ror of 7.61 percent with a common equity ratio of 50.0 percent and a 9.5 percent roe . as a part of the two-year rate plan the company will not file a new general rate case for a new rate plan to be effective prior to january 1 , 2020. tcja proceedings on may 31 , 2018 , the ipuc approved the all-party settlement agreement related to the income tax benefits associated with the tcja . story_separator_special_tag effective june 1 , 2018 , through separate tariff schedules , until such time as these changes can be reflected in base rates within the next general rate case , current customer rates were reduced to reflect the reduction of the federal income tax rate to 21 percent , and the amortization of the regulatory liability for plant-related excess deferred income taxes . this reduction reduces annual electric rates by $ 13.7 million ( or 5.3 percent reduction to base rates ) and natural gas rates by $ 2.6 million ( or 6.1 percent reduction to base rates ) . in february 2019 , we filed an all-party settlement agreement with the ipuc related to the electric tax benefits that were set aside for colstrip in the 2017 general rate case order . in the settlement agreement , the parties agreed to utilize approximately $ 6.4 million of the electric tax benefits to offset costs associated with accelerating the depreciation of colstrip units 3 & 4 , to reflect a remaining useful life of those units through december 31 , 2027. the remaining tax benefits of approximately $ 5.8 million will be returned to customers through a temporary rate reduction over a period of one year beginning on april 1 , 2019. the tax benefits being utilized are related to non-plant excess deferred income taxes , and the customer refund liability that was established in 2018 related to the change in federal income tax expense for the period january 1 , 2018 to may 31 , 2018. the settlement agreement is subject to ipuc approval . 2019 general rate cases we expect to file electric and natural gas general rate cases with the ipuc in the second quarter of 2019 . 36 avista corporation oregon general rate cases and other proceedings 2016 general rate case in september 2017 , the opuc approved a settlement agreement between us and other parties to our natural gas general rate case that was filed with the opuc in november 2016 , which resolved all issues in the case . the opuc approved rates designed to increase annual base revenues by 5.9 percent or $ 3.5 million . a rate adjustment of $ 2.6 million became effective october 1 , 2017 , and a second adjustment of $ 0.9 million became effective on november 1 , 2017 to cover specific capital projects identified in the settlement agreement , which were completed in october . in addition , in the settlement agreement , we agreed to non-recovery of certain utility plant expenditures , which resulted in a write-off of $ 0.8 million in the second quarter of 2017. the settlement agreement reflects a 7.35 percent ror with a common equity ratio of 50 percent and a 9.4 percent roe . tcja proceedings in february 2019 , the opuc approved the deferral amount of $ 3.8 million related to 2018 income tax benefits associated with the tcja . the 2018 deferred benefits are expected to be returned to customers through a temporary rate reduction over a period of one year beginning march 1 , 2019. we requested to continue the deferral of the tcja benefits during 2019 for later return to customers , until such time as these changes can be reflected in base rates . 2019 general rate case we expect to file a natural gas general rate case with the opuc in the first quarter of 2019. ami project in march 2016 , the wutc granted our petition for an accounting order to defer and include in a regulatory asset the undepreciated value of our existing washington electric meters for the opportunity for later recovery . this accounting treatment is related to our plans to replace approximately 253,000 of our existing electric meters with new two-way digital meters and the related software and support services through our ami project in washington state . as of december 31 , 2018 , the estimated future undepreciated value for the existing electric meters is $ 20.6 million . in september 2017 , the wutc also approved our request to defer the undepreciated net book value of existing natural gas encoder receiver transmitters ( ert ) ( consistent with the accounting treatment we obtained on our existing electric meters ) that will be retired as part of the ami project . as of december 31 , 2018 , the estimated future undepreciated value for the existing natural gas erts is $ 3.7 million . replacement of the electric meters and natural gas erts began during the second half of 2018. in september 2017 , the wutc approved a petition to defer the depreciation expense associated with the ami project , along with a carrying charge , and to seek recovery of the deferral and carrying charge in a future general rate case . cost savings , such as reduced meter reading costs , will occur during the implementation period which will offset a portion of the ami costs not being deferred . in may 2017 , we filed petitions with the ipuc and the opuc requesting a depreciable life of 12.5 years for the meter data management system ( mdm ) related to the ami project and both the ipuc and the opuc approved the depreciable life . in addition , in connection with the 2017 idaho electric general rate case ( discussed above ) , the settling parties agreed to cost recovery of idaho 's share of the mdm system , effective january 1 , 2019. in connection with the approval of the oregon general rate case settlement ( discussed above ) , the opuc approved cost recovery of oregon 's share of the mdm system , effective november 1 , 2017. alaska electric light and power company alaska general rate case in november 2017 , the rca approved an all-party settlement agreement related to ael & p 's electric general rate case , which was originally filed in september 2016. the settlement agreement is designed to increase base electric revenue by 3.86 percent or $ 1.3 million , making permanent the interim rate increase approved by
| general rate cases and regulatory lag due in part to the regulatory proceedings for the now terminated acquisition of the company by hydro one ( see below ) , we elected not to file any general rate cases during 2018 to allow the commissions to focus on the merger proceedings . while we received a base rate increase effective january 1 , 2019 in idaho , which was related to a rate plan approved by the ipuc in 2017 , we have not received base rate relief in oregon since november 1 , 2017 , and have not received base rate relief in washington since may 1 , 2018. during 2017 and 2018 , we continued to invest in our utility infrastructure to maintain and enhance our system ; however , only limited portions of these costs are reflected in our current rates to customers . as such , we expect to experience regulatory lag during the period 2019 through 2021 due to the delay in general rate case filings and our continued investment in utility infrastructure . we plan to file general rate cases in washington , idaho and oregon during the first half of 2019 with requested effective dates in early 2020 to begin remedying the regulatory lag . going forward , we will continue to strive to reduce the regulatory timing lag and more closely align our earned returns with those authorized by 2022. this will require adequate and timely rate relief in our jurisdictions . termination of the proposed acquisition by hydro one on july 19 , 2017 , avista corp. entered into a merger agreement that provided for avista corp. to become an indirect , wholly-owned subsidiary of hydro one , subject to the satisfaction or waiver of specified closing conditions , including approval by regulatory agencies . on january 23 , 2019 , avista corp. , hydro one and certain subsidiaries thereof , entered into a termination agreement ( termination agreement ) indicating their mutual agreement to terminate the merger agreement , effective immediately . pursuant to the terms of the merger agreement and the termination agreement , hydro one paid avista corp. a $ 103 million termination fee on january 24 , 2019. the termination fee will be
| 12,162 |
circumstances that may cause significant changes in our estimated allowance include , but are not limited to : · changes in the level and trends relating to non-performing receivables including past due interest payments and past due principal payments ; · declines in real estate market conditions , which can cause a decrease in expected market value ; · discovery of undisclosed lines ( including but not limited to , community improvement bonds , easements and delinquent property taxes ) ; · lack of progress on real estate developments after we advance funds . we will customarily monitor progress of real estate developments and approve loan advances . after further inspection of the related property , progress on construction occasionally does not substantiate an increase in value to support the related loan advances · unanticipated legal or business issues that may arise subsequent to loan origination or loan advances or upon the sale of foreclosed property · appraisals , which are only opinions of value at the time of the appraisal , may not accurately reflect the current value of the property . 21 the company considers a loan to be impaired when based on current information and events , it is probable that company will be unable to collect all amounts due according to the contractual terms of the loan agreement or when the payment of interest or principal is 90 days past due . on november 22 , 2006 , the sec declared the effectiveness of our registration statement on form s-1 in respect of the offering of the notes . since then we have entered into sales distribution agreements with certain nasd broker-dealer members for the distribution of notes in the offering . we have sold , as of march 31 , 2009 , $ 9,930,000 of notes . the notes are registered , under the applicable state securities or “ blue sky ” laws of three states . we have “ blue sky ” registration applications pending in several other states . however , we plan to focus our selling efforts in the near future in other parts of california and the neighboring states of arizona , nevada and oregon and may relinquish our registrations in the other states where we are already qualified and may withdraw pending applications in the remaining states . we have had net losses since inception . we had an accumulated deficit as of december 31 , 2008 , of $ 6,104,451 , which reflects expenditures including professional fees and services necessary for the start of our operations , as compared to an accumulated deficit as of december 31 , 2007 , of $ 1,447,248. the increase of the accumulated deficit as of december 31 , 2008 , as compared to december 31 , 2007 , was principally the result of the charge off of $ 2,500,000 of the assured notes . we believe our ability to continue as a going concern depends in large part on our ability to raise sufficient capital to enable us to make mezzanine real estate loans and receive revenue from our lending activities in excess of our obligations under the notes and our operating expenses . if we are unable to raise such additional capital we may be forced to discontinue our business . we have commenced a private placement of convertible preferred stock , and we intend to continue to privately offer shares of its preferred stock , in order to increase the company 's shareholder 's equity and make its notes more attractive to investors . there can be no assurances that the company will be successful in selling such shares , or in effecting such strategy , and , as of march 31 , 2009 we have not sold any of the convertible preferred shares . we continue to explore different ways of increasing our capital . liquidity we expect that the primary source of our liquidity will come from interest and fees earned on our loans and other investments . we expect loan and investment repayments of principal , interest and fees , scheduled to be paid in 2009 will provide adequate liquidity . however , current liquidity is being provided by the net proceeds from the notes sold prior the suspension of the note sales ( see “ capital raising challenges ” below ) . story_separator_special_tag interest only payments with a balloon payment of the principal at maturity . we have also made loans that defer interest and principal until maturity . we have both the intent and ability to hold real estate loans until maturity and therefore , real estate loans are classified and accounted for as held for investment and are carried at amortized cost . loans sold to or purchased from affiliates are accounted for at the principal balance and no gain or loss is recognized by us or any affiliate . 23 loan-to-value ratios are initially based on appraisals obtained at the time of loan origination and are updated , when new appraisals are received , to reflect subsequent changes in value estimates . such appraisals are generally dated within 12 months of the date of loan origination and may be commissioned by the borrower . allowance for loan losses we maintain an allowance for loan losses on our investments in real estate loans for estimated credit impairment . management 's estimate of losses is based on a number of factors including the types and dollar amounts of loans in the portfolio , adverse situations that may affect the borrower 's ability to repay , prevailing economic conditions and the underlying collateral securing the loan . additions to the allowance are provided through a charge to earnings and are based on an assessment of certain factors , which may indicate estimated losses on the loans . actual losses on loans are recorded as a charge-off or a reduction to the allowance for loan losses . generally , subsequent recoveries of amounts previously charged off are added story_separator_special_tag circumstances that may cause significant changes in our estimated allowance include , but are not limited to : · changes in the level and trends relating to non-performing receivables including past due interest payments and past due principal payments ; · declines in real estate market conditions , which can cause a decrease in expected market value ; · discovery of undisclosed lines ( including but not limited to , community improvement bonds , easements and delinquent property taxes ) ; · lack of progress on real estate developments after we advance funds . we will customarily monitor progress of real estate developments and approve loan advances . after further inspection of the related property , progress on construction occasionally does not substantiate an increase in value to support the related loan advances · unanticipated legal or business issues that may arise subsequent to loan origination or loan advances or upon the sale of foreclosed property · appraisals , which are only opinions of value at the time of the appraisal , may not accurately reflect the current value of the property . 21 the company considers a loan to be impaired when based on current information and events , it is probable that company will be unable to collect all amounts due according to the contractual terms of the loan agreement or when the payment of interest or principal is 90 days past due . on november 22 , 2006 , the sec declared the effectiveness of our registration statement on form s-1 in respect of the offering of the notes . since then we have entered into sales distribution agreements with certain nasd broker-dealer members for the distribution of notes in the offering . we have sold , as of march 31 , 2009 , $ 9,930,000 of notes . the notes are registered , under the applicable state securities or “ blue sky ” laws of three states . we have “ blue sky ” registration applications pending in several other states . however , we plan to focus our selling efforts in the near future in other parts of california and the neighboring states of arizona , nevada and oregon and may relinquish our registrations in the other states where we are already qualified and may withdraw pending applications in the remaining states . we have had net losses since inception . we had an accumulated deficit as of december 31 , 2008 , of $ 6,104,451 , which reflects expenditures including professional fees and services necessary for the start of our operations , as compared to an accumulated deficit as of december 31 , 2007 , of $ 1,447,248. the increase of the accumulated deficit as of december 31 , 2008 , as compared to december 31 , 2007 , was principally the result of the charge off of $ 2,500,000 of the assured notes . we believe our ability to continue as a going concern depends in large part on our ability to raise sufficient capital to enable us to make mezzanine real estate loans and receive revenue from our lending activities in excess of our obligations under the notes and our operating expenses . if we are unable to raise such additional capital we may be forced to discontinue our business . we have commenced a private placement of convertible preferred stock , and we intend to continue to privately offer shares of its preferred stock , in order to increase the company 's shareholder 's equity and make its notes more attractive to investors . there can be no assurances that the company will be successful in selling such shares , or in effecting such strategy , and , as of march 31 , 2009 we have not sold any of the convertible preferred shares . we continue to explore different ways of increasing our capital . liquidity we expect that the primary source of our liquidity will come from interest and fees earned on our loans and other investments . we expect loan and investment repayments of principal , interest and fees , scheduled to be paid in 2009 will provide adequate liquidity . however , current liquidity is being provided by the net proceeds from the notes sold prior the suspension of the note sales ( see “ capital raising challenges ” below ) . story_separator_special_tag interest only payments with a balloon payment of the principal at maturity . we have also made loans that defer interest and principal until maturity . we have both the intent and ability to hold real estate loans until maturity and therefore , real estate loans are classified and accounted for as held for investment and are carried at amortized cost . loans sold to or purchased from affiliates are accounted for at the principal balance and no gain or loss is recognized by us or any affiliate . 23 loan-to-value ratios are initially based on appraisals obtained at the time of loan origination and are updated , when new appraisals are received , to reflect subsequent changes in value estimates . such appraisals are generally dated within 12 months of the date of loan origination and may be commissioned by the borrower . allowance for loan losses we maintain an allowance for loan losses on our investments in real estate loans for estimated credit impairment . management 's estimate of losses is based on a number of factors including the types and dollar amounts of loans in the portfolio , adverse situations that may affect the borrower 's ability to repay , prevailing economic conditions and the underlying collateral securing the loan . additions to the allowance are provided through a charge to earnings and are based on an assessment of certain factors , which may indicate estimated losses on the loans . actual losses on loans are recorded as a charge-off or a reduction to the allowance for loan losses . generally , subsequent recoveries of amounts previously charged off are added
| we intend to amend the terms of any new notes to be issued to secure them with collateral we receive in connection with our mezzanine loans . we believe that unless we raise additional equity capital , we may not be able to continue to sell our notes , pursue investment opportunities , and we will not generate sufficient revenues to fund our operations , including building and expanding our lending operations by retaining additional sales personnel , underwriters and staff to administer our investments . 22 dependence on one or a few major borrowers as of december 31 , 2008 , we have purchased two notes issued by assured , and made three disbursements under our credit facility with res , and so our investment portfolio is concentrated in a handful of borrowers . until we can create a sizeable loan portfolio , our loans will be relatively more concentrated . this concentration is a result of the slower than anticipated sale of notes . concentration restrictions we expect to establish formal concentration restrictions that will require the president 's or ceo 's approval for any loan that exceeds the higher of $ 1,000,000 or 5 % of the amount of proceeds from the sale of notes ( as of december 31 , 2008 , this 5 % standard is equal to $ 496,500 ) . as we increase our portfolio of investments , the relative size of the initial loans will decrease in comparison to the amount of our notes sold . off-balance sheet arrangements the company does not have any off-balance sheet arrangements , as defined in item 303 ( c ) ( 1 ) of regulation s-b promulgated under the securities act . critical accounting estimates revenue recognition interest is recognized as revenue when earned according to the terms of the loans , using the effective interest method . we do not accrue interest income on loans once they are determined to be impaired . a loan is impaired when based on current
| 12,163 |
59 results of operations : consolidated ( continued ) in all of the periods shown below , our manager elected to reinvest any fees to which it was entitled in additional shares . in accordance with the third amended and restated management services agreement , our manager has currently elected to reinvest future base management fees and performance fees , if any , in new primary shares . replace_table_token_12_th ( 1 ) our manager elected to reinvest all of the monthly base management fees for the fourth quarter of 2018 in shares . we issued 220,208 shares for the quarter ended december 31 , 2018 , including 60,048 shares that were issued in january 2019 for the december 2018 monthly base management fee . goodwill impairment during the year ended december 31 , 2018 , we wrote-off the goodwill balance related to the previously owned design-build mechanical contractor . depreciation depreciation expense increased for the year ended december 31 , 2018 compared with the year ended december 31 , 2017 primarily as a result of contributions from acquisitions and assets placed in service . amortization of intangibles amortization of intangibles increased for the year ended december 31 , 2018 compared with the year ended december 31 , 2017 primarily due to write-off of intangible assets related to the previously owned design-build mechanical contractor . interest expense and gains on derivative instruments interest expense includes gains on derivative instruments of $ 7.6 million and $ 2.2 million for the years ended december 31 , 2018 and 2017 , respectively . gains on derivatives recorded in interest expense are attributable to the change in fair value of interest rate hedging instruments . for the year ended december 31 , 2018 , interest expense also included the non-cash write-off of deferred financing costs at atlantic aviation related to the december 2018 refinancing of its term loan and revolving credit facility . excluding the derivative adjustments and the write-off of deferred financing costs , cash interest expense was $ 98.4 million and $ 80.3 million for the years ended december 31 , 2018 and 2017 , respectively . the increase in cash interest expense reflects primarily a higher average debt balance and an increase in the weighted average interest rate . see discussions of interest expense for each of our operating businesses below . 60 results of operations : consolidated ( continued ) other ( expense ) income , net other ( expense ) income , net decreased primarily due to the write-down of our investment in the previously owned design-build mechanical contractor during the quarter ended september 30 , 2018 , partially offset by higher fee income from a developer of renewable power during 2018. discontinued operations income from discontinued operations increased primarily due to ( i ) the change in tax rates imposed on certain entities by the tax cuts and jobs act ; ( ii ) contribution from the bec plant expansion ; and ( iii ) improved wind resources . income taxes ( including continuing and discontinued operations ) we file a consolidated federal income tax return that includes the financial results of imtt , atlantic aviation , mic hawaii , bec through the date of sale , and our allocable share of the taxable income ( loss ) from the solar and wind facilities in discontinued operations . the solar and wind facilities in which we own less than 100 % of the equity interest are held in limited liability companies and treated as partnerships for tax purposes . pursuant to a tax sharing agreement , the businesses included in our consolidated federal income tax return pay mic an amount equal to the federal income tax each would have paid on a standalone basis as if they were not part of the consolidated federal income tax return . in addition , our businesses file income tax returns and may pay taxes in the state and local jurisdictions in which they operate . the change from income tax benefit for the year ended december 31 , 2017 to income tax expense for the year ended december 31 , 2018 is primarily due to the impact of the tax cut and jobs act in 2017. the tax cut and jobs act required the revaluation of the net deferred tax liability which resulted in a tax benefit of $ 312.3 million ( primarily at imtt and atlantic aviation ) . for the year ended december 31 , 2018 , current taxable income , including income from discontinued operations , is expected to be approximately $ 220.0 million , which includes the gain on sale of bec as well as the loss on the sale of the design-build mechanical contractor in the mic hawaii segment . for the year ended december 31 , 2018 , any consolidated federal income tax liabilities our businesses generated are expected to be fully offset by net operating loss ( nol ) carryforwards . our federal nol carryforward at december 31 , 2018 was $ 152.0 million . the amount of any federal income tax otherwise payable in 2019 is expected to be reduced by tax benefits associated with planned capital deployment of approximately $ 275.0 million to $ 300.0 million . gains from potential sale of assets concluded in 2019 would increase our federal income tax payable . in addition , we expect our businesses collectively to pay state/provincial income taxes of approximately $ 21.0 million in 2018 , including the expected taxes due on the sale of bec . in calculating our consolidated state income tax provision , we have provided a valuation allowance for certain state income tax nols , the use of which is uncertain . valuation allowance : at december 31 , 2018 and 2017 , we did not have a valuation allowance for our consolidated federal nol carryforwards . story_separator_special_tag in calculating our consolidated income tax provision , we reduced our valuation allowance by $ 4.4 million to $ 1.1 million at december 31 , 2018 for certain foreign tax credits and state income tax nol carryforwards , the utilization of which is not assured beyond a reasonable doubt . the tax cuts and jobs act on december 22 , 2017 , the tax cuts and jobs act was signed into law and includes provisions that will have an impact on our federal taxable income . the most significant of these are 100 % bonus depreciation on qualifying assets ( which is scheduled to decrease ratably to 0 % between 2023 and 2027 ) and a reduction in the federal corporate tax rate from 35 % to 21 % . the tax cuts and jobs act also limits the deductibility of net interest expense to 30 % of adjusted taxable income . we do not expect this limitation to have a material impact to our financial results through 2021 . 61 results of operations : consolidated ( continued ) year ended december 31 , 2017 compared with year ended december 31 , 2016 revenue consolidated revenues increased for the year ended december 31 , 2017 compared with the year ended december 31 , 2016 primarily as a result of an increase in the wholesale cost and the volume of jet fuel sold at atlantic aviation , contributions from acquisitions and an increase in the wholesale cost and volume of gas sold at mic hawaii . the increase in the consolidated revenue for the year ended december 31 , 2017 also includes a contribution from imtt from the recognition of deferred revenue resulting from termination of a construction project by a customer . cost of services and product sales consolidated cost of services and product sales increased for the year ended december 31 , 2017 compared with the year ended december 31 , 2016 primarily due to an increase in the wholesale cost of jet fuel at atlantic aviation , the wholesale cost of gas at mic hawaii and contributions from acquisitions . the changes in consolidated cost of services and product sales were also attributable to unrealized losses on commodity hedges at hawaii gas in 2017 compared with unrealized gains in 2016 ( see results of operations mic hawaii below ) . selling , general and administrative expenses selling , general and administrative expenses increased for the year ended december 31 , 2017 compared with the year ended december 31 , 2016 primarily due to ( i ) $ 9.3 million of costs incurred in connection with the evaluation of various investment and acquisition opportunities ; ( ii ) $ 8.5 million of costs incurred in connection with the implementation of our shared services center ; and ( iii ) incremental costs associated with acquired businesses . fees to manager our manager is entitled to a monthly base management fee based primarily on our market capitalization and potentially a quarterly performance fee based on total stockholder returns relative to a u.s. utilities index . for the years ended december 31 , 2017 and 2016 , we incurred base management fees of $ 71.4 million and $ 68.5 million , respectively . no performance fees were generated in any of the above periods . depreciation depreciation expense increased for the year ended december 31 , 2017 compared with the year ended december 31 , 2016 primarily due to contributions from acquisitions , partially offset by the write-off of tanks and docks in 2016 at imtt . amortization of intangibles amortization of intangibles increased for the year ended december 31 , 2017 compared with the year ended december 31 , 2016 primarily due to contributions from acquisitions . interest expense and gains ( losses ) on derivative instruments interest expense includes gains on derivative instruments of $ 2.2 million and losses on derivative instruments of $ 2.5 million for the years ended december 31 , 2017 and 2016 , respectively . for the year ended december 31 , 2016 , interest expense also included the non-cash write-off of deferred financing costs at atlantic aviation related to the october 2016 refinancing of its term loan and revolving credit facility and at hawaii gas related to the february 2016 refinancing of its $ 80.0 million term loan and its $ 60.0 million revolving credit facility . excluding the derivative adjustments and the write-off of deferred financing costs , interest expense decreased for the year ended december 31 , 2017 compared with the year ended december 31 , 2016 primarily due to a reduction in the weighted average interest rate , partially offset by a higher average debt balance . cash interest expense was $ 80.3 million and $ 83.4 million for the years ended december 31 , 2017 and 2016 , respectively . see discussions of interest expense for each of our operating businesses below . 62 results of operations : consolidated ( continued ) as part of the refinancing of the atlantic aviation debt in october 2016 , atlantic aviation paid $ 17.8 million in interest rate swap breakage fees associated with the termination of out-of-the-money interest rate swap contracts related to prior debt facilities . in addition , the business entered into $ 400.0 million of interest rate caps with a strike price of 1.0 % to hedge the one month libor floating rate interest exposure on the atlantic aviation term loan facility . the business paid $ 8.6 million in upfront premiums to enter into the caps .
| in total , we expect to deploy approximately $ 275.0 million to $ 300.0 million of growth capital during 2019. financing activities from continuing operations cash provided by financing activities primarily includes new equity issuance and debt issuance related to acquisitions and capital expenditures . cash used in financing activities primarily includes dividends to our stockholders and the repayment of debt principal balances on maturing debt . the change in consolidated cash provided by financing activities from continuing operations for the year ended december 31 , 2017 to cash used in financing activities from continuing operations for the year ended december 31 , 2018 was primarily due to : a net debt repayment in 2018 from the use of proceeds from bec , refinancing at atlantic aviation and cash on hand ; and an increase in deferred financing costs paid in 2018 ; partially offset by a net debt borrowing in 2017 to partially fund acquisitions , growth capital expenditures and general corporate purposes ; and a decrease in dividends paid to stockholders in 2018. the change in consolidated cash used in financing activities from continuing operations for the year ended december 31 , 2016 to cash provided by financing activities from continuing operations for the year ended december 31 , 2017 was primarily due to : higher net debt borrowings during 2017 to partially fund acquisitions , growth capital expenditures and general corporate purposes ; and the absence of the purchase of the remaining 33.3 % interest in imtt 's quebec terminal that it did not previously own in march 2016 ; partially offset by cash proceeds from the issuance of the 2.00 % convertible senior notes due october 2023 , net of deferred financing costs paid , in 2016 ; an increase in dividends paid to stockholders during 2017 ; and a decrease in contributions received from noncontrolling interests during 2017. imtt on december 5 , 2018 , imtt amended its credit agreement . the amendment extended the maturity date of imtt 's $ 600.0 million revolving credit facility from may
| 12,164 |
the company provides for estimated warranty costs on original product warranties at the time of sale . allowance for doubtful accounts the company 's policy is to maintain allowances for estimated losses from the inability of its customers to make required payments . credit limits are established through a process of reviewing the financial results , stability and payment history of each customer . where appropriate , the company obtains credit rating reports and financial statements of customers 46 when determining or modifying credit limits . the company 's senior management reviews accounts receivable on a periodic basis to determine if any receivables may potentially be uncollectible . the company includes any accounts receivable balances that it determines may likely be uncollectible , along with a general reserve for estimated probable losses based on historical experience , in its overall allowance for doubtful accounts . an amount would be written off against the allowance after all attempts to collect the receivable had failed . based on the information available to the company , it believes the allowance for doubtful accounts as of december 31 , 2015 is adequate . inventory inventory is valued at the lower of cost or market value , with cost determined by the first-in , first-out method . the company regularly reviews inventory quantities on hand and records a provision for excess and or obsolete inventory primarily based upon historical usage of its inventory as well as other factors . long lived assets in accordance with fasb asc topic 360 , property , plant and equipment , ( asc 360 ) , the company assesses long-lived assets for impairment if events and circumstances indicate it is more likely than not that the fair value of the asset group is less than the carrying value of the asset group . asc 360-10-35 uses events and circumstances criteria to determine when , if at all , an asset ( or asset group ) is evaluated for recoverability . thus , there is no set interval or frequency for recoverability evaluation . in accordance with asc 360-10-35-21 the following factors are examples of events or changes in circumstances that indicate the carrying amount of an asset ( asset group ) may not be recoverable and thus is to be evaluated for recoverability . a significant decrease in the market price of a long-lived asset ( asset group ) ; a significant adverse change in the extent or manner in which a long-lived asset ( asset group ) is being used or in its physical condition ; a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset ( asset group ) , including an adverse action or assessment by a regulator ; an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset ( asset group ) ; a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset ( asset group ) . as a result of external factors and general uncertainty related to reimbursement for the treatment of nmsc , the company evaluated the long-lived assets of the therapy segment and reviewed them for potential impairment . the company determined the asset group to be the assets of the therapy segment , which the company considered to be the lowest level for which the identifiable cash flows were largely independent of the cash flows of other assets and liabilities . 47 in accordance with asc 360-10-35-17 , if the carrying amount of an asset or asset group ( in use or under development ) is evaluated and found not to be fully recoverable ( the carrying amount exceeds the estimated gross , undiscounted cash flows from use and disposition ) , then an impairment loss must be recognized . the impairment loss is measured as the excess of the carrying amount over the assets ( or asset group 's ) fair value . in connection with the preparation of the financial statements for the second quarter ended june 30 , 2015 , the company completed its analysis pursuant to asc 360-10-35-17 and determined that the carrying value of the asset group was approximately $ 36.8 million , which exceeded the undiscounted cash flows by approximately $ 2.8 million . accordingly the company completed the step 2 analysis to determine the fair value of the asset group . the company recorded long-lived asset impairment charges of approximately $ 13.4 million in the second quarter ended june 30 , 2015 and as a result the long lived assets in the asset group were recorded at their current fair values . a considerable amount of judgment and assumptions are required in performing the impairment tests , principally in determining the fair value of the asset group and the reporting unit . while the company believes the judgments and assumptions are reasonable , different assumptions could change the estimated fair values and , therefore additional impairment charges could be required . significant negative industry or economic trends , disruptions to the company 's business , loss of significant customers , inability to effectively integrate acquired businesses , unexpected significant changes or planned changes in use of the assets may adversely impact the assumptions used in the fair value estimates and ultimately result in future impairment charges . intangible assets subject to amortization consist primarily of patents , technology intangibles , trade names , customer relationships and distribution agreements purchased in the company 's previous acquisitions . these assets are amortized on a straight-line basis or the pattern of economic benefit over their estimated useful lives of 5 to 10 years . story_separator_special_tag goodwill in accordance with fasb asc topic 350-20 , intangibles - goodwill and other , ( asc 350-20 ) , the company tests goodwill for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of the company is less than the carrying value of the company . factors the company considers important , which could trigger an impairment of such asset , include the following : significant underperformance relative to historical or projected future operating results ; significant changes in the manner or use of the assets or the strategy for the company 's overall business ; 48 significant negative industry or economic trends ; significant decline in the company 's stock price for a sustained period ; and a decline in the company 's market capitalization below net book value . the company 's chief operating decision maker ( codm ) is the chief executive officer ( ceo ) . the company determined that it has two reporting units and two reportable segments based on the information that is provided to the codm . the two segments and reporting units are cancer detection ( detection ) and cancer therapy ( therapy ) . each reportable segment generates revenue from the sale of medical equipment and related services and or sale of supplies . upon initial adoption , goodwill was allocated to the reporting units based on the relative fair value of the reporting units . the company would record an impairment charge if such an assessment were to indicate that the fair value of a reporting unit was less than the carrying value . when the company evaluates potential impairments outside of its annual measurement date , judgment is required in determining whether an event has occurred that may impair the value of goodwill or intangible assets . the company utilizes either discounted cash flow models or other valuation models , such as comparative transactions and market multiples , to determine the fair value of its reporting units . the company makes assumptions about future cash flows , future operating plans , discount rates , comparable companies , market multiples , purchase price premiums and other factors in those models . different assumptions and judgment determinations could yield different conclusions that would result in an impairment charge to income in the period that such change or determination was made . as a result of external factors and general uncertainty related to reimbursement for non-melanoma skin cancer and in conjunction with the long-lived asset impairment testing , the company performed an impairment assessment of the therapy reporting unit as of june 30 , 2015. as a result the company recorded a goodwill impairment charge of $ 14.0 million during the quarter ended june 30 , 2015. the implied fair value of the therapy reporting unit was determined in the same manner as the manner in which the amount of goodwill recognized in a business combination is determined . the excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied amount of goodwill . the company identified the intangible assets that were valued during this process , including technology , customer relationships , trade-names , and the company 's workforce . the allocation process was performed only for purposes of testing goodwill for impairment . the company determined the fair value of the therapy reporting unit based on the present value of estimated future cash flows , discounted at an appropriate risk adjusted rate . this approach was selected as it measures the income producing assets , primarily technology and customer relationships . this method estimates the fair value based upon the ability to generate future cash flows , which is particularly applicable when future profit margins and growth are expected to vary significantly from historical operating results . 49 the company uses internal forecasts to estimate future cash flows and includes an estimate of long-term future growth rates based on the most recent views of the long-term forecast for the reporting unit . accordingly , actual results can differ from those assumed in the forecasts . the discount rate of approximately 17 % is derived from a capital asset pricing model and analyzing published rates for industries relevant to the reporting unit to estimate the cost of equity financing . the company uses discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in the internally developed forecasts . other significant assumptions include terminal value margin rates , future capital expenditures , and changes in future working capital requirements . while there are inherent uncertainties related to the assumptions used and to the application of these assumptions to this analysis , the income approach provides a reasonable estimate of the fair value of the therapy reporting unit . the step 2 test resulted in an approximate fair value of goodwill of $ 5.7 million which resulted in a goodwill impairment loss of $ 14.0 million . the company performed the annual impairment assessment at october 1 , 2015 and compared the fair value of each of reporting unit to its carrying value as of this date . fair value of each reporting unit exceeded the carry value by approximately 584 % for the detection reporting unit and 144 % for the therapy reporting unit . the carrying values of the reporting units were determined based on an allocation of our assets and liabilities through specific allocation of certain assets and liabilities , to the reporting units and an apportionment of the remaining net assets based on the relative size of the reporting units ' revenues and operating expenses compared to the company as a whole . the determination of reporting units also requires management judgment . the company determined the fair values for each reporting unit using a weighting of the income approach and the market approach .
| revenues for the twelve months ended december 31 , 2015 were also negatively impacted as a result of the uncertainty . in addition , the company implemented expense reductions in response to the general uncertainty with respect to reimbursement levels . the company has been proactively addressing the situation in its dialogue with the regional provider and centers for medicare and medicaid services ( cms ) and implemented a strategy to target a new skin-specific level iii reimbursement code for skin ebx in the u.s. ; however , there is no assurance that payment rates under this code will be adequate and there remains insufficient clarification to fully assess the long-term impact on our business . 43 as the company has noted in its risk factors , the company 's business can be affected by coverage policies adopted by federal and state governmental authorities , such as medicare and medicaid , as well as private payers , which often follow the coverage policies of these public programs . such policies may affect which products customers purchase and the prices customers are willing to pay for those products in a particular jurisdiction . the change in cpt codes for the company 's electronic brachytherapy treatment of nmsc had a negative impact on the company 's revenues for year ended december 31 , 2015. in connection with the preparation of the financial statements for the second quarter ended june 30 , 2015 , the company evaluated the therapy reporting unit for both long-lived asset and goodwill impairment . as a result of this assessment , the company recorded material impairment charges in the therapy reporting unit ( see note h and note i to the condensed consolidated financial statements for additional discussion ) . on april 29 , 2015 , pursuant to the terms of the asset purchase agreement with vucomp , the company purchased vucomp 's m-vu breast density product for $ 1,700,000 in cash . in january 2016 , the company acquired the vucomp cancer
| 12,165 |
product portfolio our approved and marketed products include three approved autologous cell therapy products : carticel ( autologous cultured chondrocytes ) , a first-generation product for autologous chondrocyte implantation ( aci ) currently marketed in the u.s. , which will be replaced by maci ( autologous cultured chondrocytes on a porcine collagen membrane ) , a third generation autologous implant for the repair of symptomatic , full-thickness cartilage defects of the knee in adult patients and epicel ( cultured epidermal autografts ) , a permanent skin replacement for full thickness burns in adults and pediatrics with greater than or equal to 30 % of total body surface area ( tbsa ) also currently marketed in the u.s. our product candidate portfolio also includes ixmyelocel-t , a patient-specific multicellular therapy currently in development for the treatment of advanced heart failure due to ischemic dilated cardiomyopathy ( dcm ) . we completed enrolling and treating patients in our phase 2b ixcell-dcm study in february 2015 and on march 10 , 2016 announced the trial had met its primary endpoint of reduction in clinical cardiac events and that incidence of adverse events , including serious adverse events , in patients treated with ixmyelocel-t was comparable to patients in the placebo group . carticel and maci carticel , a first-generation aci product for the treatment and repair of cartilage defects in the knee , is the first fda-approved autologous cartilage repair product . carticel is indicated for the repair of symptomatic cartilage defects of the femoral condyle ( medial , lateral or trochlea ) caused by acute or repetitive trauma , in patients who have had an inadequate response to a prior arthroscopic or other surgical repair procedure such as debridement , microfracture , drilling/abrasion arthroplasty , or osteochondral allograft/autograft . carticel received a biologics license application ( bla ) approval in 1997 and is currently marketed in the u.s. it is generally used on patients with larger lesions ( greater than 3 cm 2 ) . carticel will be replaced by maci , which was approved on december 13 , 2016 by the u.s. food and drug administration . maci is a third generation autologous implant for the repair of symptomatic , single or multiple full-thickness cartilage defects of the knee with or without bone involvement in adults . the first shipment and implantation of maci occurred on january 31 , 2017 and we plan to stop manufacturing and marketing carticel as soon as practicable , and potentially as early as the second quarter in 2017. in the u.s. , the orthopedic physician target audience is very concentrated , with 60 % of our 2016 carticel business originating from approximately 110 physicians . our target carticel and maci audience is a group of physicians who self-identify as or have the formal specialty of sports medicine physicians . we believe this target audience is approximately 450 physicians . at the end of 2016 we expanded our field force from 21 to 28 representatives . most private payers have a medical policy that allows treatment with carticel and we are actively working with payers to ensure reimbursement for maci . the 15 largest payers have a formal medical policy for carticel , representing 132 million covered lives . in the year ended december 31 , 2016 , net revenues were $ 38.9 million for carticel . epicel epicel ( cultured epidermal autografts ) is a permanent skin replacement for full thickness burns greater than or equal to 30 % of tbsa . epicel is regulated by the cber under medical device authorities , and is the only fda-approved autologous epidermal product available for large total surface area burns . epicel was designated as a hud in 1998 and an hde application for the product was submitted in 1999. huds are devices that are intended for diseases or conditions that affect fewer than 4,000 individuals annually in the united states . under an hde approval , a hud can not be sold for an amount that exceeds the cost of research and development , fabrication and distribution unless certain conditions are met . currently , fewer than 100 patients are treated with epicel in the u.s. each year . in the year ended december 31 , 2016 , net revenues were $ 15.5 million for epicel . a hud is eligible to be sold for profit after receiving hde approval if the device meets certain eligibility criteria , including where the device is intended for the treatment of a disease or condition that occurs in pediatric patients and such device is labeled for use in pediatric patients . if the fda determines that a hud meets the eligibility criteria , the hud is permitted to be sold for profit as long as the number of devices distributed in any calendar year does not exceed the annual distribution number ( adn ) . 50 the adn is defined as the number of devices reasonably needed to treat a population of 4,000 individuals per year in the united states . on february 18 , 2016 , the fda approved our hde supplement to revise the labeled indications of use to specifically include pediatric patients and to add pediatric labeling . the revised product label also now specifies that the probable benefit of epicel , mainly related to survival , was demonstrated in two epicel clinical experience databases and a physician-sponsored study comparing outcomes in patients with massive burns treated with epicel relative to standard care . due to the change in the label to include use in pediatric patients , epicel is no longer subject to the hde profit restrictions . in conjunction with meeting the pediatric eligibility criteria , the fda has determined the adn number for epicel is 360,400 which is approximately 50 times larger than the volume of grafts sold in 2016. we currently have a 4-person field force . ixmyelocel-t our preapproval stage portfolio includes ixmyelocel-t , a unique patient-specific multicellular therapy derived from an adult patient 's own bone marrow which utilizes our proprietary , highly automated and scalable manufacturing system . story_separator_special_tag our proprietary cell manufacturing process significantly expands the mscs and m2-like anti-inflammatory macrophages in the patient 's bone marrow mononuclear cells while retaining many of the hematopoietic cells . these cell types are known to regulate the immune response and play a key role in tissue repair and regeneration by resolving pathologic inflammation , promoting angiogenesis , and remodeling ischemic tissue . we believe the novelty and advantage of using ixmyelocel-t is the expansion of a unique combination of cell populations , including mscs and m2-like macrophages , which secrete a distinct combination of angiogenic and regenerative factors , and possess the ability to remain anti-inflammatory in the face of inflammatory challenge . our lead clinical development program for ixmyelocel-t is focused on addressing severe , chronic ischemic cardiovascular diseases . we are currently conducting the open label extension portion of the phase 2b ixcell-dcm study , which is a randomized , double-blind , placebo-controlled clinical trial for patients with advanced heart failure due to ischemic dcm . ixmyelocel-t has been granted a u.s. orphan drug designation by the fda for the treatment of dcm . an ixmyelocel-t investigator-initiated clinical study was conducted for the treatment of craniofacial reconstruction , and we have conducted clinical studies for the treatment of critical limb ischemia . we completed enrolling and treating patients in our completed phase 2b ixcell-dcm study in february , 2015. patients were followed for 12 months for the primary efficacy endpoint of mace . on march 10 , 2016 , we announced the trial had met its primary endpoint of reduction in clinical cardiac events and that the incidence of adverse events , including serious adverse events , in patients treated with ixmyelocel-t was comparable to patients in the placebo group . patients are now being followed for an additional 12 months for safety . because the trial met the primary endpoint , patients who received placebo or were randomized to ixmyelocel-t in the double-blind portion of the trial but did not receive ixmyelocel-t have been offered the option to receive ixmyelocel-t. we successfully treated the last patients in february , 2017 , and the last follow-up visit will occur approximately one year later . given the expense required to conduct further development and our focus on growing our existing commercial products and becoming profitable , at this time we have no current plans to initiate or fund a phase 3 trial on our own . we are assessing all strategic options , including non-dilutive sources of financing , such as a strategic partner , to fund the trial . story_separator_special_tag table summarizes the approximate allocation of cost for our research and development projects : replace_table_token_6_th research and development expenses for the year ended december 31 , 2016 were $ 15.3 million compared to $ 18.9 million for the year ended december 31 , 2015 . the decrease was primarily due to lower expenses incurred for maci . in 2015 , $ 2.4 million regulatory costs were incurred for the maci bla submission filing fee paid to the fda , other regulatory consulting expenses related to the maci bla filing and expenses incurred for the hde supplement submission to obtain an exemption from the profit prohibition and to revise the labeled indications for use of epicel . in addition , development expenses related to the ixcell-dcm study for dilated cardiomyopathy decreased due to a lower population of patients who had been originally assigned to the placebo group in the double blind portion of the trial receiving ixmyelocel-t in the open label extension portion of the trial compared to those who received the treatment in 2015. carticel research and development expenses related to process development decreased as the company focused on the introduction of maci . these decreases were offset by an increase in epicel related research and development . research and development expenses for the year ended december 31 , 2015 were $ 18.9 million compared to $ 21.3 million for the year ended december 31 , 2014 . the decrease in research and development expenses is due to lower costs incurred for the ixcell-dcm study , which completed enrollment in january 2015 ; a $ 3.2 million payment in 2014 to the former shareholders of verigen whereby these shareholders agreed to discharge all obligations related to these maci milestone payments in exchange for a one-time cash payment ; and the canceled critical limb ischemia study . the decrease was offset by additional research , development and regulatory costs incurred for the maci bla submission which included a filing fee of $ 2.4 million paid in 2015 to the fda and other regulatory consulting expenses in addition to expenses incurred for the hde supplement submission to obtain an exemption from the profit prohibition and to revise the labeled indications for use of epicel . selling , general and administrative costs replace_table_token_7_th selling , general and administrative expenses for the years ended december 31 , 2016 and 2015 were $ 27.4 million and $ 22.5 million , respectively . the increase in selling , general and administrative expenses in 2016 is due primarily to an increase in start-up costs and reporting fees with our new reimbursement and patient support services for carticel of $ 1.5 million . in addition , expenses increased due to an increase in shared facility fees of $ 0.8 million , technology infrastructure of $ 0.6 million , an increase in personnel costs of $ 0.5 million , professional services including legal fees of $ 0.3 million related to the preparation for the potential launch of maci and an increase in bad debt expense of $ 0.2 million as a result of the transfer of collection risk to vericel . selling , general and administrative expenses for the years ended december 31 , 2015 and 2014 were $ 22.5 million and $ 13.8 million , respectively .
| over the last five years , the percentage of annual sales by quarter has ranged as follows : first quarter , 20 % to 24 % ; second quarter , 24 % to 26 % ; third quarter , 20 % to 23 % ; and fourth quarter , 28 % to 33 % . during 2016 , the percentage of annual sales by quarter was as follows : 24 % in the first quarter ; 24 % in the second quarter ; 20 % in the third quarter ; and 32 % in the fourth quarter . epicel revenue is also subject to seasonal fluctuations mostly associated with the use of heating elements during the colder months , with stronger sales occurring in the winter months of the first and fourth quarters , and weaker sales occurring in the hot summer months of the third quarter . however , in any single year , this trend can be absent due to the extreme variability inherent with epicel 's low patient volume of fewer than 100 patients per year . over the last five years , the percentage of annual sales by quarter has ranged as follows : first quarter , 22 % to 35 % ; second quarter , 22 % to 28 % ; third quarter , 17 % to 24 % ; and fourth quarter , 23 % to 30 % . the variability between the same quarters in consecutive years has been as high as 11 % of the annual volume . while the number of patients treated per year remains low , we expect these large swings in revenue in some quarters to continue . these seasonal trends have caused and will likely continue to cause , fluctuations in our quarterly results , including fluctuations in sequential revenue growth rates . gross profit and gross profit ratio replace_table_token_4_th gross profit remained consistent for the year ended december 31 , 2016 compared to 2015. gross profit increased for the year ended december 31 , 2015 compared to 2014 primarily due to $ 2.5 million of restructuring expenses recognized in 2014 as a
| 12,166 |
government satellite communication systems , which comprise an array of portable , mobile and fixed broadband modems , terminals , network access control systems and antenna systems using a range of satellite frequency bands for line-of-sight and beyond-line-of-sight isr and c2 missions , satellite networking services , network management systems for wi-fi and other internet access networks and global mobile broadband capability , and include products designed for manpacks , aircraft , uavs , seagoing vessels , ground mobile vehicles and fixed applications . information security and assurance products and secure networking solutions , which provide advanced , high-speed ip-based type 1 and haipe-compliant encryption solutions that enable military and government users to communicate information securely over networks , and that secure data stored on computers and storage devices . tactical data links , including mids terminals for military fighter jets and their successor , mids-jtrs terminals , disposable weapon data links and portable small tactical terminals . 43 sources of revenues our satellite services segment revenues are primarily derived from our domestic satellite broadband services business and from our worldwide managed network services . our products in our commercial networks and government systems segments are provided primarily through three types of contracts : fixed-price , time-and-materials and cost-reimbursement contracts . fixed-price contracts ( which require us to provide products and services under a contract at a specified price ) comprised approximately 90 % , 92 % and 94 % of our total revenues for these segments for fiscal years 2015 , 2014 and 2013 , respectively . the remainder of our revenue in these segments for such periods was derived from cost-reimbursement contracts ( under which we are reimbursed for all actual costs incurred in performing the contract to the extent such costs are within the contract ceiling and allowable under the terms of the contract , plus a fee or profit ) and from time-and-materials contracts ( which reimburse us for the number of labor hours expended at an established hourly rate negotiated in the contract , plus the cost of materials utilized in providing such products or services ) . our ability to grow and maintain our revenues in our commercial networks and government systems segments has to date depended on our ability to identify and target markets where the customer places a high priority on the technology solution , and our ability to obtain additional sizable contract awards . due to the nature of this process , it is difficult to predict the probability and timing of obtaining awards in these markets . historically , a significant portion of our revenues has been derived from customer contracts that include the research and development of products . the research and development efforts are conducted in direct response to the customer 's specific requirements and , accordingly , expenditures related to such efforts are included in cost of sales when incurred and the related funding ( which includes a profit component ) is included in revenues . revenues for our funded research and development from our customer contracts were approximately 23 % , 31 % and 26 % of our total revenues during fiscal years 2015 , 2014 and 2013 , respectively . we also incur ir & d expenses , which are not directly funded by a third party . ir & d expenses consist primarily of salaries and other personnel-related expenses , supplies , prototype materials , testing and certification related to research and development projects . ir & d expenses were approximately 3 % , 5 % and 3 % of total revenues in fiscal years 2015 , 2014 and 2013 , respectively . as a government contractor , we are able to recover a portion of our ir & d expenses pursuant to our government contracts . approximately 17 % , 23 % and 25 % of our total revenues in fiscal years 2015 , 2014 and 2013 , respectively , were derived from international sales . doing business internationally creates additional risks related to global political and economic conditions and other factors identified under the heading risk factors in item 1a and elsewhere in this report . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations discusses our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( gaap ) . the preparation of these 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 . we consider the policies discussed below to be critical to an understanding of our financial statements because their application places the most significant demands on management 's judgment , with financial reporting results relying on estimation about the effect of matters that are inherently uncertain . we describe the specific risks for these critical accounting policies in the following paragraphs . for all of these policies , we caution that future events rarely develop exactly as forecast , and even the best estimates routinely require adjustment . 44 revenue recognition a substantial portion of our revenues is derived from long-term contracts requiring development and delivery of complex equipment built to customer specifications . sales related to these contracts are accounted for under the authoritative guidance for the percentage-of-completion method of accounting ( accounting standards codification ( asc ) 605-35 ) . sales and earnings under these contracts are recorded either based on the ratio of actual costs incurred to date to total estimated costs expected to be incurred related to the contract , or as products are shipped under the units-of-delivery method . the percentage-of-completion method of accounting requires management to estimate the profit margin for each individual contract and to apply that profit margin on a uniform basis as sales are recorded under the contract . story_separator_special_tag the estimation of profit margins requires management to make projections of the total sales to be generated and the total costs that will be incurred under a contract . these projections require management to make numerous assumptions and estimates relating to items such as the complexity of design and related development costs , performance of subcontractors , availability and cost of materials , labor productivity and cost , overhead and capital costs , and manufacturing efficiency . these contracts often include purchase options for additional quantities and customer change orders for additional or revised product functionality . purchase options and change orders are accounted for either as an integral part of the original contract or separately depending upon the nature and value of the item . for contract claims or similar items , we apply judgment in estimating the amounts and assessing the potential for realization . these amounts are only included in contract value when they can be reliably estimated and realization is considered probable . anticipated losses on contracts are recognized in full in the period in which losses become probable and estimable . during fiscal years 2015 , 2014 and 2013 , we recorded losses of approximately $ 0.6 million , $ 3.3 million and $ 3.1 million , respectively , related to loss contracts . assuming the initial estimates of sales and costs under a contract are accurate , the percentage-of-completion method results in the profit margin being recorded evenly as revenue is recognized under the contract . changes in these underlying estimates due to revisions in sales and future cost estimates or the exercise of contract options may result in profit margins being recognized unevenly over a contract as such changes are accounted for on a cumulative basis in the period estimates are revised . we believe we have established appropriate systems and processes to enable us to reasonably estimate future costs on our programs through regular evaluations of contract costs , scheduling and technical matters by business unit personnel and management . historically , in the aggregate , we have not experienced significant deviations in actual costs from estimated program costs , and when deviations that result in significant adjustments arise , we disclose the related impact in management 's discussion and analysis of financial condition and results of operations . however , these estimates require significant management judgment and a significant change in future cost estimates on one or more programs could have a material effect on our results of operations . a one percent variance in our future cost estimates on open fixed-price contracts as of april 3 , 2015 would change our income before income taxes by approximately $ 0.5 million . we also derive a substantial portion of our revenues from contracts and purchase orders where revenue is recorded on delivery of products or performance of services in accordance with the authoritative guidance for revenue recognition ( asc 605 ) . under this standard , we recognize revenue when an arrangement exists , prices are determinable , collectability is reasonably assured and the goods or services have been delivered . we also enter into certain leasing arrangements with customers and evaluate the contracts in accordance with the authoritative guidance for leases ( asc 840 ) . our accounting for equipment leases involves specific determinations under the authoritative guidance for leases , which often involve complex provisions and significant judgments . in accordance with the authoritative guidance for leases , we classify the transactions as sales type or operating leases based on : ( 1 ) review for transfers of ownership of the equipment to the lessee by the end of the lease term , ( 2 ) review of the lease terms to determine if it contains an option to purchase the leased equipment for a price which is sufficiently lower than the expected fair value of the equipment at the date of the option , ( 3 ) review of the lease term to determine if it is equal to or greater than 75 % of the economic life of the 45 equipment , and ( 4 ) review of the present value of the minimum lease payments to determine if they are equal to or greater than 90 % of the fair market value of the equipment at the inception of the lease . additionally , we consider the cancelability of the contract and any related uncertainty of collections or risk in recoverability of the lease investment at lease inception . revenue from sales type leases is recognized at the inception of the lease or when the equipment has been delivered and installed at the customer site , if installation is required . revenues from equipment rentals under operating leases are recognized as earned over the lease term , which is generally on a straight-line basis . in accordance with the authoritative guidance for revenue recognition for multiple element arrangements , the accounting standards update ( asu ) 2009-13 ( asu 2009-13 ) , revenue recognition ( asc 605 ) multiple-deliverable revenue arrangements , which updates asc 605-25 , revenue recognition-multiple element arrangements , of the financial accounting standards board ( fasb ) codification , for substantially all of the arrangements with multiple deliverables , we allocate revenue to each element based on a selling price hierarchy at the arrangement inception . the selling price for each element is based upon the following selling price hierarchy : vendor specific objective evidence ( vsoe ) if available , third party evidence ( tpe ) if vsoe is not available , or estimated selling price ( esp ) if neither vsoe nor tpe are available ( a description as to how we determine vsoe , tpe and esp is provided below ) . if a tangible hardware systems product includes software , we determine whether the tangible hardware systems product and the software work together to deliver the product 's essential functionality and , if so , the entire product is treated as a nonsoftware deliverable .
| the cost of service revenues increase was primarily due to increased service revenues , generating a $ 65.8 million increase in cost of service revenues on a constant margin basis . this increase mainly related to our exede broadband services in our satellite services segment . however , as our exede subscribers have continued to grow and related revenues scale , we have also experienced improved margins from our broadband services in our satellite services segment , which partially offset the cost of service growth . additionally , the cost of service growth was partially offset by improved margins in our government systems segment related to our government satellite communication systems services ( mainly due to global mobile broadband services ) and the addition of our network management services for wi-fi and other internet access networks ( relating to our newly acquired subsidiary , netnearu ) . selling , general and administrative expenses fiscal years ended dollar increase ( decrease ) percentage increase ( decrease ) april 3 , 2015 april 4 , 2014 ( in millions , except percentages ) selling , general and administrative $ 270.8 $ 281.5 $ ( 10.7 ) ( 3.8 ) % the $ 10.7 million decrease in selling , general and administrative ( sg & a ) expenses was primarily attributable to the recognition of $ 18.7 million of payments made under the settlement agreement as a reduction to sg & a expenses and a decrease in legal expense as a result of the settlement of the litigation with ss/l and its former parent company loral during the second quarter of fiscal year 2015. the decrease in sg & a expenses was partially offset by an increase in new business proposal costs of $ 9.1 million ( mainly due to our government systems segment ) and an increase in other support costs ( spread across our government systems and commercial networks segments ) . sg & a expenses consisted primarily of personnel costs and expenses for business development , marketing and sales , bid and proposal , facilities , finance , contract administration and general management . independent research
| 12,167 |
historically , we have generally incurred net losses and negative cash flows from operations since our inception in 1988. our potential to generate profits and positive cash flow from operations over the next several years depends significantly on our success in commercializing eylea ® ; otherwise , we expect to continue to incur operating losses . we expect to continue to incur substantial expenses related to our research and development activities , a significant portion of which we expect to be reimbursed by our collaborators . also , our research and development activities outside our collaborations , the costs of which are not reimbursed , may expand and require additional resources . our operating results may fluctuate from quarter to quarter and will depend on , among other factors , the net sales of our marketed products , as well as the scope and progress of our research and development efforts , the timing of certain expenses , and the amount of reimbursement that we receive from collaborators . we can not predict whether or when zaltrap ® or new indications for our marketed products will receive regulatory approval or , if any such approval is received , whether we will be able to successfully commercialize such product ( s ) and whether or when they may become profitable . a primary driver of our expenses is our number of full-time employees . our annual average headcount in 2011 was 1,568 compared with 1,249 in 2010 and 980 in 2009. in 2011 , our average headcount increased primarily to support our expanded research and development activities in connection with our antibody collaboration with sanofi and in connection with commercializing eylea ® for the treatment of wet amd . in 2012 , we expect our average headcount to increase to approximately 1,800-1,850 , primarily to support antibody manufacturing at our rensselaer , new york manufacturing facilities , and activities in connection with preparing for the potential commercialization of arcalyst ® for the prevention of gout flares in patients initiating uric acid-lowering treatment . the planning , execution , and results of our clinical programs are significant factors that can affect our operating and financial results . in our clinical programs , key events in 2011 and 2012 to date were , and plans for the remainder of 2012 are , as follows : 47 trap-based clinical programs : 2011 and 2012 events to date 2012 plans eylea ® submitted a bla to the u.s. fda for the treatment of wet amd fda accepted bla for wet amd and granted our request for priority review fda advisory committee unanimously recommended fda approval of bla for the treatment of wet amd fda approved eylea ® for the treatment of wet amd in the u.s. and product was launched bayer healthcare submitted regulatory applications for marketing approval for eylea ® for the treatment of wet amd in the european union , japan , and other countries reported positive two-year data from phase 3 view 1 and view 2 trials in wet amd reported positive results in the phase 3 copernicus and galileo trials in crvo submitted a supplemental bla to the fda for the treatment of crvo initiated phase 3 trials in dme in the u.s. ( vista ) and outside the u.s. ( vivid ) bayer healthcare initiated a phase 3 trial in asia in cnv of the retina as a result of pathologic myopia bayer healthcare initiated phase 3 sight trial in china in wet amd initiate phase 3 study in brvo in the first quarter of 2012 ema decision on regulatory application for the treatment of wet amd japan authority decision on regulatory application for the treatment of wet amd target date for fda decision on supplemental bla for the treatment of crvo is september 23 , 2012 zaltrap ® presented positive results from the phase 3 velour trial in previously treated mcrc patients idmc reviewed interim results for the phase 3 venice trial in prostate cancer and recommended study continue to completion reported that the vital trial in non-small cell lung cancer did not meet its primary endpoint reported initial results in the phase 2 affirm trial in first-line mcrc submitted regulatory applications for marketing approval to the ema and fda for the treatment of mcrc report final results in the phase 3 venice trial in prostate cancer in the second quarter of 2012 arcalyst ® reported positive results from two phase 3 studies for the prevention of gout flares ( pre-surge 2 and re-surge ) submitted a supplemental bla for u.s. regulatory approval for the prevention of gout flares initiated a long-term safety study for the prevention of gout flares ( upsurge ) target date for fda decision on arcalyst ® supplemental bla is july 30 , 2012 48 antibody-based clinical programs : 2011 and 2012 events to date 2012 plans sarilumab ( il-6r antibody ) reported positive phase 2b data from the mobility trial in rheumatoid arthritis reported that the phase 2b trial in ankylosing spondylitis did not meet its primary endpoint initiated the phase 3 stage of the phase 2/3 mobility trial initiate additional phase 3 studies regn727 ( pcsk9 antibody ) initiated three phase 2 studies for ldl cholesterol reduction reported positive initial data from two of the phase 2 studies report final data from three phase 2 studies for ldl cholesterol reduction initiate phase 3 program for ldl cholesterol reduction regn668 ( il-4r antibody ) initiated phase 1b study in atopic dermatitis initiated phase 2 proof of concept study in eosinophilic asthma report initial results for phase 1b study in atopic dermatitis and initiate phase 2 program report initial results for phase 2 study in eosinophilic asthma regn421 ( dll4 antibody ) continued patient enrollment in phase 1 program initiate a phase 1b program in advanced malignancies regn910 ( ang2 antibody ) continued patient enrollment in phase 1 program regn475 ( ngf antibody ) anti-ngf class of antibodies is on clinical hold sanofi elected not to co-develop regn475 fda advisory committee meeting scheduled for march 2012 to review safety of anti-ngf class of antibodies regn728 ( story_separator_special_tag target not disclosed ) continued patient enrollment in phase 1 program regn846 ( target not disclosed ) continued patient enrollment in phase 1 program sanofi elected not to co-develop regn846 initiated phase 2a program in atopic dermatitis regn1033 ( target not disclosed ) ind accepted by the fda initiated phase 1 program regn1154 ( target not disclosed ) initiate phase 1 program 49 critical accounting policies and use of estimates a summary of the significant accounting policies that impact us is provided in note 2 to our financial statements , beginning on page f-7 . the preparation of financial statements in accordance with accounting principles generally accepted in the united states of america ( gaap ) requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements . management considers an accounting estimate to be critical if : it requires an assumption ( or assumptions ) regarding a future outcome ; and changes in the estimate or the use of different assumptions to prepare the estimate could have a material effect on our results of operations or financial condition . management believes the current assumptions used to estimate amounts reflected in our financial statements are appropriate . however , if actual experience differs from the assumptions used in estimating amounts reflected in our financial statements , the resulting changes could have a material adverse effect on our results of operations , and in certain situations , could have a material adverse effect on our liquidity and financial condition . the critical accounting estimates that impact our financial statements are described below . revenue recognition collaboration revenue we earn collaboration revenue in connection with collaboration agreements to develop and commercialize product candidates and utilize our technology platforms . we currently have collaboration agreements with sanofi and bayer healthcare . the terms of collaboration agreements typically include non-refundable up-front licensing payments , research progress ( milestone ) payments , and payments for development activities . non-refundable up-front license payments , where continuing involvement is required of us , are deferred and recognized over the related performance period . we estimate our performance period based on the specific terms of each agreement , and adjust the performance periods , if appropriate , based on the applicable facts and circumstances . although we did not enter into , or materially modify , any collaboration arrangements with multiple-deliverables in 2011 , any future arrangements with multiple deliverables will be divided into separate units of accounting if the deliverables in the arrangement meet certain criteria , including whether the delivered item or items has value to the collaborator on a standalone basis . payments which are based on achieving a specific performance milestone , involving a degree of risk , are recognized as revenue when the milestone is achieved and the related payment is due and non-refundable , provided there is no future service obligation associated with that milestone . substantive performance milestones typically consist of significant achievements in the development life-cycle of the related product candidate , such as completion of clinical trials , filing for approval with regulatory agencies , and receipt of approvals by regulatory agencies . in determining whether a payment is deemed to be a substantive performance milestone , we take into consideration ( i ) the enhancement in value to the related development product candidate , ( ii ) our performance and the relative level of effort required to achieve the milestone , ( iii ) whether the milestone relates solely to past performance , and ( iv ) whether the milestone payment is considered reasonable relative to all of the deliverables and payment terms . payments for achieving milestones which are not considered substantive are deferred and recognized over the related performance period . we enter into collaboration agreements that include varying arrangements regarding which parties perform and bear the costs of research and development activities . we may share the costs of research and development activities with our collaborator , such as in our eylea ® collaboration with bayer healthcare , or we may be reimbursed for all or a significant portion of the costs of our research and development activities , such as in our zaltrap ® and antibody collaborations with sanofi . we record our internal and third-party development costs associated with these collaborations as research and development expenses . when we are entitled to reimbursement of all or a portion of the research and development expenses that we incur under a collaboration , we record those reimbursable amounts as collaboration revenue proportionately as we recognize our expenses . if the collaboration is a cost-sharing arrangement in which both we and our collaborator perform development work and share costs , in periods when our collaborator incurs development expenses that benefit the collaboration and regeneron , we also recognize , as additional research and development expense , the portion of the collaborator 's development expenses that we are obligated to reimburse . in certain cases , we may also share the costs of pre-launch commercialization activities with our collaborators . we record our share of these costs as a reduction of collaboration revenue . 50 in connection with non-refundable licensing payments , our performance period estimates are principally based on projections of the scope , progress , and results of our research and development activities . due to the variability in the scope of activities and length of time necessary to develop a drug product , changes to development plans as programs progress , and uncertainty in the ultimate requirements to obtain governmental approval for commercialization , revisions to performance period estimates are likely to occur periodically , and could result in material changes to the amount of revenue recognized each year in the future . in addition , our estimated performance periods may change if development programs encounter delays or we and our collaborators decide to expand or contract our clinical plans for a drug candidate in various disease indications .
| in 2011 , sanofi 's reimbursement of our antibody expenses consisted of $ 161.9 million under the discovery agreement and $ 137.4 million of development costs under the license agreement , compared to $ 137.7 million and $ 138.3 million , respectively , in 2010. the higher reimbursement amount under the discovery agreement in 2011 compared to 2010 was primarily due to an increase in our antibody discovery activities . the slightly lower reimbursement of development costs in 2011 compared to 2010 was primarily due to a decrease in development activities related to regn475 , which is currently on clinical hold , offset generally by increases in development activities for other antibody candidates . recognition of deferred revenue related to sanofi 's $ 85.0 million up-front payment and other payments increased in 2011 compared to 2010. in connection with the november 2009 amendment of the discovery agreement , sanofi is funding up to $ 30 million of agreed-upon costs incurred by us to expand our manufacturing capacity at our rensselaer , new york facilities , of which $ 28.2 million was received or receivable as of december 31 , 2011. revenue related to such funding from sanofi is deferred and recognized as collaboration revenue prospectively over the related performance period in conjunction with the recognition of the original $ 85.0 million up-front payment . as of december 31 , 2011 , $ 76.4 million of these up-front and other payments was deferred and will be recognized as revenue in future periods . in august 2008 , we entered into a separate velocigene ® agreement with sanofi . in 2011 and 2010 , we recognized $ 1.6 million in revenue related to this agreement . bayer healthcare collaboration revenue the collaboration revenue we earned from bayer healthcare , as detailed below , consisted of cost sharing of regeneron eylea ® development expenses , substantive performance milestone payments , and recognition of revenue related to a non-refundable $ 75.0 million up-front payment received in october 2006 and a $ 20.0 million milestone payment received in august 2007 ( which , for the purpose of revenue recognition , was not considered substantive ) . replace_table_token_7_th cost-sharing of
| 12,168 |
in south ogden , utah ; oakleaf surgical hospital $ 30.5 million acute care facility located in altoona , wisconsin ; first choice er ( a subsidiary of adeptus health ) completed 17 acute care facilities totaling approximately $ 80.3 million . with these new investments , many of our diversification metrics have improved including : individual property diversification on an individual property basis , we had no investment of any single property greater than 3.1 % of our total assets as of december 31 , 2014 , down from 3.9 % as of december 31 , 2013 ; geographic diversification investments located in california represented 14.6 % of our total assets at december 31 , 2014 , down from 18.7 % in the prior year . investments located in texas represented 20.2 % of our total assets at december 31 , 2014 , down from 22.7 % in the prior year . in addition , we further expanded our portfolio into europe with the additional rhm acquisitions , circle bath and median transaction ( as fully described in note 3 in item 8 of this annual report on form 10-k ) . sold the real estate of la palma community hospital to prime healthcare recognizing a gain on sale of $ 2.9 million ; sold the real estate of our bucks facility pursuant to a purchase option , resulting in a $ 3.1 million impairment charge ; restructured our investment in monroe hospital by entering into a lease with an affiliate of prime which had acquired the operations of the facility ; 42 index to financial statements completed a new $ 1.15 billion senior unsecured credit facility comprised of a $ 1.025 billion senior unsecured revolving credit facility and a $ 125 million senior unsecured term loan facility , issued $ 300 million of unsecured notes , and raised $ 138 million in equity to fund the acquisition activity mentioned above ; and received investment grade rating on our unsecured debt of bbb- and a corporate credit rating upgrade from standard & poor 's ratings services to bb+ . story_separator_special_tag width= '' 100 % '' / > index to financial statements our estimates of the amount and timing of our revenues , credit losses , fair values ( either as part of a purchase price allocation , impairment analysis or in valuing certain of our ernest investments ) , periodic depreciation of our real estate assets , and stock compensation expense , along with our assessment as to whether an entity that we do business with should be consolidated with our results , have significant effects on our financial statements . each of these items involves estimates that require us to make subjective judgments . we rely on our experience , collect historical and current market data , and develop relevant assumptions to arrive at what we believe to be reasonable estimates . under different conditions or assumptions , materially different amounts could be reported related to the critical accounting policies described below . in addition , application of these critical accounting policies involves the exercise of judgment on the use of assumptions as to future uncertainties and , as a result , actual results could materially differ from these estimates . our accounting estimates include the following : revenue recognition : we receive income from operating leases based on the fixed , minimum required rents ( base rents ) per the lease agreements . rent revenue from base rents is recorded on the straight-line method over the terms of the related lease agreements for new leases and the remaining terms of existing leases for those acquired as part of a property acquisition . the straight-line method records the periodic average amount of base rent earned over the term of a lease , taking into account contractual rent adjustments over the lease term . the straight-line method typically has the effect of recording more rent revenue from a lease than a tenant is required to pay early in the term of the lease . during the later parts of a lease term , this effect reverses with less rent revenue recorded than a tenant is required to pay . rent revenue , as recorded on the straight-line method , in the consolidated statements of income is presented as two amounts : billed rent revenue and straight-line revenue . billed rent revenue is the amount of base rent actually billed to the customer each period as required by the lease . straight-line rent revenue is the difference between rent revenue earned based on the straight-line method and the amount recorded as billed rent revenue . we record the difference between base rent revenues earned and amounts due per the respective lease agreements , as applicable , as an increase or decrease to straight-line rent receivable . certain leases may provide for additional rents contingent upon a percentage of the tenant 's revenues in excess of specified base amount/threshold ( percentage rents ) . percentage rents are recognized in the period in which revenue thresholds are met . rental payments received prior to their recognition as income are classified as deferred revenue . we also receive additional rent ( contingent rent ) under some leases based on increases in the consumer price index or where the consumer price index exceeds the annual minimum percentage increase in the lease . contingent rents are recorded as billed rent revenue in the period earned . we use direct finance lease accounting ( dfl ) to record rent on certain leases deemed to be financing leases , per accounting rules , rather than operating leases . for leases accounted for as dfls , future minimum lease payments are recorded as a receivable . the difference between the future minimum lease payments and the estimated residual values less the cost of the properties is recorded as unearned income . unearned income is deferred and amortized to income over the lease terms to provide a constant yield when collectability of the lease payments is reasonably assured . story_separator_special_tag investments in dfls are presented net of unamortized and unearned income . in instances where we have a profits or equity interest in our tenant 's operations , we record income equal to our percentage interest of the tenant 's profits , as defined in the lease or tenant 's operating agreements , once annual thresholds , if any , are met . we begin recording base rent income from our development projects when the lessee takes physical possession of the facility , which may be different from the stated start date of the lease . also , during construction of our development projects , we are generally entitled to accrue rent based on the cost paid during the construction period ( construction period rent ) . we accrue construction period rent as a receivable with a corresponding offset to deferred revenue during the construction period . when the lessee takes physical possession of the facility , we begin recognizing the deferred construction period revenue on the straight-line method over the remaining term of the lease . we receive interest income from our tenants/borrowers on mortgage loans , working capital loans , and other long-term loans . interest income from these loans is recognized as earned based upon the principal outstanding and terms of the loans . 45 index to financial statements commitment fees received from development and leasing services for lessees are initially recorded as deferred revenue and recognized as income over the initial term of a lease to produce a constant effective yield on the lease ( interest method ) . commitment and origination fees from lending services are also recorded as deferred revenue initially and recognized as income over the life of the loan using the interest method . investments in real estate : we maintain our investments in real estate at cost , and we capitalize improvements and replacements when they extend the useful life or improve the efficiency of the asset . while our tenants are generally responsible for all operating costs at a facility , to the extent that we incur costs of repairs and maintenance , we expense those costs as incurred . we compute depreciation using the straight-line method over the weighted-average useful life of approximately 38 years for buildings and improvements . when circumstances indicate a possible impairment of the value of our real estate investments , we review the recoverability of the facility 's carrying value . the review of the recoverability is generally based on our estimate of the future undiscounted cash flows , excluding interest charges , from the facility 's use and eventual disposition . our forecast of these cash flows considers factors such as expected future operating income , market and other applicable trends , and residual value , as well as the effects of leasing demand , competition and other factors . if impairment exists due to the inability to recover the carrying value of a facility on an undiscounted basis , such as was the case with our monroe and bucks facilities in 2014 , an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the facility . we do not believe that the value of any of our facilities was impaired at december 31 , 2014 ; however , given the highly specialized aspects of our properties no assurance can be given that future impairment charges will not be taken . acquired real estate purchase price allocation : for existing properties acquired for leasing purposes , we account for such acquisitions based on business combination accounting rules . we allocate the purchase price of acquired properties to net tangible and identified intangible assets acquired based on their fair values . in making estimates of fair values for purposes of allocating purchase prices of acquired real estate , we may utilize a number of sources , including available real estate broker data , independent appraisals that may be obtained in connection with the acquisition or financing of the respective property , internal data from previous acquisitions or developments , and other market data . we also consider information obtained about each property as a result of our pre-acquisition due diligence , marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired . we record above-market and below-market in-place lease values , if any , for the facilities we own which are based on the present value of the difference between ( i ) the contractual amounts to be paid pursuant to the in-place leases and ( ii ) management 's estimate of fair market lease rates for the corresponding in-place leases , measured over a period equal to the remaining non-cancelable term of the lease . we amortize any resulting capitalized above-market lease values as a reduction of rental income over lease term . we amortize any resulting capitalized below-market lease values as an increase to rental income over the lease term . because our strategy to a large degree involves the origination and acquisition of long-term lease arrangements at market rates with independent parties , we do not expect the above-market and below-market in-place lease values to be significant for many of our transactions . we measure the aggregate value of other lease intangible assets to be acquired based on the difference between ( i ) the property valued with new or in-place leases adjusted to market rental rates and ( ii ) the property valued as if vacant when acquired . management 's estimates of value are made using methods similar to those used by independent appraisers ( e.g . , discounted cash flow analysis ) . factors considered by management in our analysis include an estimate of carrying costs during hypothetical expected lease-up periods , considering current market conditions , and costs to execute similar leases . we also consider information obtained about each targeted facility as a result of our pre-acquisition due diligence , marketing , and leasing activities in estimating the fair value of the intangible assets acquired .
| these properties are leased to prime pursuant to the master lease agreements ; commenced construction of several facilities pursuant to a master funding and development agreement with first choice emergency room , llc ( first choice ) to develop up to 25 free standing emergency rooms ( the remaining of these facilities were completed in 2014 ) ; financed the development of inpatient rehabilitation facilities in south ogden , utah and post falls , idaho for a total of $ 33.5 million , which is leased to ernest under the 2012 master lease ( post falls was completed in 2013 and the ogden facility opened in the 2014 first quarter ) ; and provided a $ 20 million mortgage financing to alecto for the 204-bed olympia medical center . sold the real estate of an inpatient rehabilitation facility , warm springs rehabilitation hospital of san antonio , for $ 14 million , resulting in a gain on sale of $ 5.6 million ; sold two long-term acute care hospitals in texas and arizona , chg cornerstone hospital of houston , l.p. and cornerstone hospital of southeast arizona , for total cash proceeds of $ 18.5 million , resulting in a $ 2.1 million gain on the sale . issued $ 150 million of unsecured notes ( as a tack on to the 2012 unsecured senior notes ) , completed a 200 million euro-denominated ( approximately $ 275 million ) long-term fixed rate debt transaction at an annual coupon of 5.75 % , and raised $ 313 million in equity to fund our acquisition activity above . 43 index to financial statements 2012 highlights in 2012 , we achieved a number of important milestones , including increasing our assets beyond the $ 2 billion mark and driving revenues above $ 200 million . a summary of the 2012 highlights is as follows : acquired real estate assets , entered into development agreements , entered into leases , made new loan investments , made ridea investments and committed to new development projects totaling more than $ 800 million as noted below : made loans to and acquired assets from ernest for a combined purchase price and investment of $ 396.5 million , consisting of $ 200 million to purchase real estate assets , a first mortgage loan of $ 100 million , and $ 96.5 million in ridea investments made up of an acquisition loan for $ 93.2 million and an equity contribution of $ 3.3 million . with this acquisition , we took ownership of 16 new facilities ; funded a $ 100 million mortgage loan secured by the real property of centinela hospital medical center . centinela is a 369 bed acute care
| 12,169 |
these favorable changes in working capital were partially offset by an unfavorable change in accrued income taxes of $ 33.5 million driven by lower income taxes owed at the end of 2016 given the decrease in pretax income . cash provided by operations in 2015 was $ 448.3 million compared with $ 472.4 million in 2014 . in comparison to 2014 , cash provided by operations in 2015 decreased due to unfavorable working capital requirements partially offset by higher operating results . the unfavorable working capital requirements primarily related to an unfavorable change in accounts payable and accrued liabilities of $ 132.0 million and $ 86.9 million , respectively . these cash outflows were partially offset by a favorable change in accounts receivable of $ 38.9 million driven by collections due to achieving certain project related milestones and a favorable change in inventory of $ 84.2 million due to successful efforts to control the amount of inventory on hand . investing activities . in 2016 , 2015 and 2014 , cash used in investing activities was $ 775.1 million , $ 380.1 million and $ 347.7 million , respectively . the major components of the cash outflow in 2016 were planned additions to property , plant , and equipment of $ 50.2 million for continued investments in our facilities and manufacturing processes and $ 183.1 million in net cash paid for acquisitions . this compares to $ 49.4 million for property , plant , and equipment and $ 129.6 million in net cash paid for acquisitions in 2015 . additionally , $ 744.7 million of cash was deposited into escrow to finance the pending tender offer for the purchase the noncontrolling interest of faiveley transport , which was partially offset by $ 202.9 million of cash deposited into escrow to finance the purchase of a controlling interest in faiveley transport in 2015 which was released from escrow in 2016 . refer to note 3 of the “ notes to condensed consolidated financial statements ” for additional information on acquisitions . financing activities . in 2016 , cash provided by financing activities was $ 524.2 million , which included $ 1,125.0 million in proceeds from the revolving credit facility debt , $ 770.0 million of repayments of debt on the revolving credit facility , $ 332.7 million in repayments of other debt , which was primarily driven by repayments of debt acquired from the purchase of faiveley transport , $ 750.0 million of new borrowings on the 2026 senior notes , $ 32.4 million of dividend payments and $ 212.2 million of wabtec stock repurchases . in 2015 , cash used for financing activities was $ 248.9 million , which included $ 787.4 million in proceeds from the revolving credit facility debt , $ 612.7 million of repayments of debt on the revolving credit facility , $ 27.0 million of dividend payments and $ 387.8 million of wabtec stock repurchases . 31 the following table shows outstanding indebtedness at december 31 , 2016 and 2015 . replace_table_token_16_th cash balances at december 31 , 2016 and 2015 were $ 398.5 million and $ 226.2 million , respectively . 3.45 % senior notes due november 2026 in october 2016 , the company issued $ 750.0 million of senior notes due in 2026 ( the “ 2016 notes ” ) . the 2016 notes were issued at 99.965 % of face value . interest on the 2016 notes accrues at a rate of 3.45 % per annum and is payable semi-annually on may 15 and november 15 of each year . the proceeds were used to finance the cash portion of the faiveley transport acquisition , refinance faiveley transport 's indebtedness , and for general corporate purposes . the principal balance is due in full at maturity . the company incurred $ 2.6 million of deferred financing costs related to the issuance of the 2016 notes . the 2016 notes are senior unsecured obligations of the company and rank pari passu with all existing and future senior debt and senior to all existing and future subordinated indebtedness of the company . the indenture under which the 2016 notes were issued contains covenants and restrictions which limit among other things , the following : the incurrence of indebtedness , payment of dividends and certain distributions , sale of assets , change in control , mergers and consolidations and the incurrence of liens . the company is in compliance with the restrictions and covenants in the indenture under which the 2016 notes were issued and expects that these restrictions and covenants will not be any type of limiting factor in executing our operating activities . 4.375 % senior notes due august 2023 in august 2013 , the company issued $ 250.0 million of senior notes due in 2023 ( the “ 2013 notes ” ) . the 2013 notes were issued at 99.879 % of face value . interest on the 2013 notes accrues at a rate of 4.375 % per annum and is payable semi-annually on february 15 and august 15 of each year . the proceeds were used to repay debt outstanding under the company 's existing credit agreement , and for general corporate purposes . the principal balance is due in full at maturity . the company incurred $ 2.6 million of deferred financing costs related to the issuance of the 2013 notes . the 2013 notes are senior unsecured obligations of the company and rank pari passu with all existing and future senior debt and senior to all existing and future subordinated indebtedness of the company . the indenture under which the 2013 notes were issued contains covenants and restrictions which limit among other things , the following : the incurrence of indebtedness , payment of dividends and certain distributions , sale of assets , change in control , mergers and consolidations and the incurrence of liens . the company is in compliance with the restrictions and covenants in the indenture under story_separator_special_tag these favorable changes in working capital were partially offset by an unfavorable change in accrued income taxes of $ 33.5 million driven by lower income taxes owed at the end of 2016 given the decrease in pretax income . cash provided by operations in 2015 was $ 448.3 million compared with $ 472.4 million in 2014 . in comparison to 2014 , cash provided by operations in 2015 decreased due to unfavorable working capital requirements partially offset by higher operating results . the unfavorable working capital requirements primarily related to an unfavorable change in accounts payable and accrued liabilities of $ 132.0 million and $ 86.9 million , respectively . these cash outflows were partially offset by a favorable change in accounts receivable of $ 38.9 million driven by collections due to achieving certain project related milestones and a favorable change in inventory of $ 84.2 million due to successful efforts to control the amount of inventory on hand . investing activities . in 2016 , 2015 and 2014 , cash used in investing activities was $ 775.1 million , $ 380.1 million and $ 347.7 million , respectively . the major components of the cash outflow in 2016 were planned additions to property , plant , and equipment of $ 50.2 million for continued investments in our facilities and manufacturing processes and $ 183.1 million in net cash paid for acquisitions . this compares to $ 49.4 million for property , plant , and equipment and $ 129.6 million in net cash paid for acquisitions in 2015 . additionally , $ 744.7 million of cash was deposited into escrow to finance the pending tender offer for the purchase the noncontrolling interest of faiveley transport , which was partially offset by $ 202.9 million of cash deposited into escrow to finance the purchase of a controlling interest in faiveley transport in 2015 which was released from escrow in 2016 . refer to note 3 of the “ notes to condensed consolidated financial statements ” for additional information on acquisitions . financing activities . in 2016 , cash provided by financing activities was $ 524.2 million , which included $ 1,125.0 million in proceeds from the revolving credit facility debt , $ 770.0 million of repayments of debt on the revolving credit facility , $ 332.7 million in repayments of other debt , which was primarily driven by repayments of debt acquired from the purchase of faiveley transport , $ 750.0 million of new borrowings on the 2026 senior notes , $ 32.4 million of dividend payments and $ 212.2 million of wabtec stock repurchases . in 2015 , cash used for financing activities was $ 248.9 million , which included $ 787.4 million in proceeds from the revolving credit facility debt , $ 612.7 million of repayments of debt on the revolving credit facility , $ 27.0 million of dividend payments and $ 387.8 million of wabtec stock repurchases . 31 the following table shows outstanding indebtedness at december 31 , 2016 and 2015 . replace_table_token_16_th cash balances at december 31 , 2016 and 2015 were $ 398.5 million and $ 226.2 million , respectively . 3.45 % senior notes due november 2026 in october 2016 , the company issued $ 750.0 million of senior notes due in 2026 ( the “ 2016 notes ” ) . the 2016 notes were issued at 99.965 % of face value . interest on the 2016 notes accrues at a rate of 3.45 % per annum and is payable semi-annually on may 15 and november 15 of each year . the proceeds were used to finance the cash portion of the faiveley transport acquisition , refinance faiveley transport 's indebtedness , and for general corporate purposes . the principal balance is due in full at maturity . the company incurred $ 2.6 million of deferred financing costs related to the issuance of the 2016 notes . the 2016 notes are senior unsecured obligations of the company and rank pari passu with all existing and future senior debt and senior to all existing and future subordinated indebtedness of the company . the indenture under which the 2016 notes were issued contains covenants and restrictions which limit among other things , the following : the incurrence of indebtedness , payment of dividends and certain distributions , sale of assets , change in control , mergers and consolidations and the incurrence of liens . the company is in compliance with the restrictions and covenants in the indenture under which the 2016 notes were issued and expects that these restrictions and covenants will not be any type of limiting factor in executing our operating activities . 4.375 % senior notes due august 2023 in august 2013 , the company issued $ 250.0 million of senior notes due in 2023 ( the “ 2013 notes ” ) . the 2013 notes were issued at 99.879 % of face value . interest on the 2013 notes accrues at a rate of 4.375 % per annum and is payable semi-annually on february 15 and august 15 of each year . the proceeds were used to repay debt outstanding under the company 's existing credit agreement , and for general corporate purposes . the principal balance is due in full at maturity . the company incurred $ 2.6 million of deferred financing costs related to the issuance of the 2013 notes . the 2013 notes are senior unsecured obligations of the company and rank pari passu with all existing and future senior debt and senior to all existing and future subordinated indebtedness of the company . the indenture under which the 2013 notes were issued contains covenants and restrictions which limit among other things , the following : the incurrence of indebtedness , payment of dividends and certain distributions , sale of assets , change in control , mergers and consolidations and the incurrence of liens . the company is in compliance with the restrictions and covenants in the indenture under
| transit segment sales increased by $ 134.8 million , or 10.8 % , primarily due to a $ 35.6 million increase for specialty products and electronics from higher demand for original equipment conduction systems and current collectors , and an increase of $ 22.7 million for remanufacturing , overhaul and build sales from higher demand for aftermarket locomotive builds . acquisitions increased sales by $ 134.1 million and unfavorable foreign exchange decreased sales by $ 53.9 million . cost of sales and gross profit the following table shows the major components of cost of sales for the periods indicated : replace_table_token_7_th cost of sales decreased by $ 253.2 million to $ 2,006.9 million in 2016 compared to $ 2,260.2 million in the same period of 2015 . for the twelve months ended 2016 , cost of sales as a percentage of sales was 68.4 % compared to 68.3 % in the same period of 2015 . freight segment cost of sales decreased 0.5 % as a percentage of sales to 65.8 % in 2016 compared to 66.3 % for the same period of 2015. the decrease as a percentage of sales is primarily related to sales with lower material content , lower overall material costs due to ongoing sourcing efforts , and decreases in various commodity prices partially offset by an increase in overhead costs as a percentage of sales which is primarily due to certain fixed overhead costs . transit segment cost of sales decreased 0.3 % as a percentage of sales to 71.4 % in 2016 compared to 71.7 % for the same period in 2015. the decrease is primarily due to better margin performance from prior year acquisitions and ongoing sourcing savings . these benefits were partially offset by $ 13.8 million of costs related to adjustments on certain long-term contracts . included in cost of sales is warranty expense . the provision for warranty expense is generally established for specific losses , along with historical estimates of customer claims as a percentage of
| 12,170 |
for broker prices obtained on certain investment securities that we believe are based on forced liquidation or distressed sale values in inactive markets , we individually examine these securities for the appropriate valuation methodology based on a combination of the market approach reflecting current broker prices and a discounted cash flow approach . in calculating the fair value derived from the income approach , the company makes assumptions related to the implied rate of return , general change in market rates , estimated changes in credit quality and liquidity risk premium , specific nonperformance and default experience in the collateral underlying the security , as well as taking into consideration broker discount rates in determining the discount rate . the values resulting from each approach ( i.e . market and income approaches ) are weighted to derive the final fair value for each security trading in an inactive market . we are obligated to assess , at each reporting date , whether there is an other-than-temporary impairment to our investment securities . if we determine that a decline in fair value is other-than-temporary , a credit-related impairment loss is recognized in current earnings . noncredit-related impairment losses are charged to other comprehensive income , to the extent we intend to hold the security until recovery . the determination of other-than-temporary impairment is a subjective process , requiring the use of judgments and assumptions . we examine all individual securities that are in an unrealized loss position at each reporting date for other-than-temporary impairment . specific investment-related factors are examined to assess impairment which include the nature of the investment , severity and duration of the loss , the probability that we will be unable to collect all amounts due , an analysis of the issuers of the securities and whether there has been any cause for default on the securities and any change in the rating of the securities by the various rating agencies . additionally , we evaluate whether the creditworthiness of the issuer calls the realization of contractual cash flows into question . we take into consideration the financial resources , intent and the overall ability of the company to hold the securities until their fair values recover . management does not believe that there are any investment securities , other than those identified in the current and previous periods , which are deemed to be other-than-temporarily impaired as of december 31 , 2011. investment securities are discussed in more detail in note 6 to the company 's consolidated financial statements presented elsewhere in this report . the company considers all available information relevant to the collectability of the security , including information about past events , current conditions , and reasonable and supportable forecasts , 41 when developing the estimate of future cash flows and making its other-than-temporary impairment assessment for its portfolio of trust preferred securities . the company considers factors such as remaining payment terms of the security , prepayment speeds , expected defaults , the financial condition of the issuer ( s ) , and the value of any underlying collateral . acquired loans acquired loans are initially recorded as of acquisition date at fair value in accordance with asc 805 , business combinations . loans purchased with evidence of credit deterioration since origination for which it is probable that all contractually required payments will not be collected are accounted for under asc 310-30 , receivablesloans and debt securities acquired with deteriorated credit quality . further , the company elected to account for all other acquired loans within the scope of asc 310-30 using the same methodology . an allowance for loan losses is not carried over or recorded as of the acquisition date . in situations where loans have similar risk characteristics , loans were aggregated into pools to estimate cash flows under asc 310-30. a pool is accounted for as a single asset with a single interest rate , cumulative loss rate and cash flow expectation . the company aggregated all of the loans acquired in the fdic-assisted acquisitions of wfib and ucb into different pools , based on common risk characteristics . the cash flows expected over the life of the pools are estimated using an internal cash flow model that projects cash flows and calculates the carrying values of the pools , book yields , effective interest income and impairment , if any , based on pool level events . assumptions as to cumulative loss rates , loss curves and prepayment speeds are utilized to calculate the expected cash flows . under asc 310-30 , the excess of the expected cash flows at acquisition over the recorded investment is considered to be the accretable yield and is recognized as interest income over the life of the loan or pool . the excess of the contractual cash flows over the expected cash flows is considered to be the nonaccretable difference . subsequent to the acquisition date , any increases in cash flow over those expected at purchase date in excess of the fair value that are significant and probable are recorded as an adjustment to the accretable difference on a prospective basis . any subsequent decreases in cash flow over those expected at purchase date that are significant and probable are recognized by recording an allowance for loan losses . any disposals of loans , including sales of loans , payments in full or foreclosures result in the removal of the loan from the asc 310-30 portfolio at the carrying amount . the majority of the loans acquired in the fdic-assisted acquisitions of washington first international bank and united commercial bank are included in the fdic shared-loss agreements and are referred to as covered loans . covered loans are reported exclusive of the expected cash flow reimbursements from the fdic . story_separator_special_tag at the date of acquisition , all covered loans were accounted for under asc 805 and asc 310-30. fdic indemnification asset in conjunction with the fdic-assisted acquisitions of washington first international bank and united commercial bank , the bank entered into shared-loss agreements with the fdic for amounts receivable covered by the shared-loss agreements . at the date of the acquisition the company elected to account for amounts receivable under the shared-loss agreements as an indemnification asset in accordance with asc 805. subsequent to the acquisition the indemnification asset is tied to the loss in the covered loans and is not being accounted for under fair value . the fdic indemnification asset is accounted for on the same basis as the related covered loans and is the present value of the cash flows the company expects to collect from the fdic under the shared-loss agreements . the difference between the 42 present value and the undiscounted cash flow the company expects to collect from the fdic is accreted into noninterest income over the life of the fdic indemnification asset . the fdic indemnification asset is adjusted for any changes in expected cash flows based on the loan performance . any increases in cash flow of the loans over those expected will reduce the fdic indemnification asset and any decreases in cash flow of the loans over those expected will increase the fdic indemnification asset . over the life of the fdic indemnification asset , increases and decreases are recorded as adjustments to noninterest income . in december 2010 , the bank lowered the credit discount on the ucb covered loan portfolio as the credit quality is performing better than originally estimated . by lowering the credit discount , interest income will increase over the life of the loans . correspondingly , with the lowered credit discount , the expected reimbursement from the fdic under the loss sharing agreement will decrease , resulting in amortization on the fdic indemnification asset which is recorded as a charge to noninterest income . allowance for loan losses our allowance for loan loss methodology incorporates a variety of risk considerations , both quantitative and qualitative , in establishing an allowance for loan loss that management believes is appropriate at each reporting date . quantitative factors include our historical loss experience , delinquency and charge-off trends , collateral values , changes in nonperforming loans , and other factors . qualitative considerations include , but are not limited to , prevailing economic or market conditions , relative risk profiles of various loan segments , volume concentrations , growth trends , delinquency and nonaccrual status , problem loan trends , and geographic concentrations . for a detailed discussion of our allowance for loan loss methodology see `` management 's discussion and analysis of consolidated financial condition and results of operationsallowance for loan losses '' presented elsewhere in this report . as we add new products , increase the complexity of our loan portfolio , and expand our geographic coverage , we continue to enhance our methodology to keep pace with the size and complexity of the loan portfolio and the changing credit environment . changes in any of the factors cited above could have a significant impact on the loan loss calculation . we believe that our methodologies continue to be appropriate given our size and level of complexity . this discussion should also be read in conjunction with the company 's consolidated financial statements and the accompanying notes presented elsewhere in this report including the section entitled `` loans and allowance for loan losses . '' goodwill impairment under asc 350 , intangiblesgoodwill and other , goodwill must be allocated to reporting units and tested for impairment . the company tests goodwill for impairment at least annually or more frequently if events or circumstances , such as adverse changes in the business , indicate that there may be justification for conducting an interim test . impairment testing is performed at the reporting-unit level ( which is the same level as the company 's two major operating segments identified in note 26 to the company 's consolidated financial statements presented elsewhere in this report ) . the first part of the test is a comparison , at the reporting unit level , of the fair value of each reporting unit to its carrying value , including goodwill . in order to determine the fair value of the reporting units , a combined income approach and market approach was used . under the income approach , the company provided a net income projection and a terminal growth rate was used to calculate the discounted cash flows and the present value of the reporting units . under the market approach , the fair value was calculated using the current fair values of comparable peer banks of similar size , geographic footprint and focus . the market capitalizations and multiples of these peer banks were used to calculate the market price of the company and each reporting unit . the fair value was also subject to a control premium adjustment , which is the cost savings that a purchase of the reporting unit could achieve by eliminating duplicative costs . under the combined income and market approach , the value from each approach was appropriately weighted to 43 determine the fair value . if the fair value is less than the carrying value , then the second part of the test is needed to measure the amount of goodwill impairment . the implied fair value of the reporting unit goodwill is calculated and compared to the actual carrying value of goodwill recorded within the reporting unit . if the carrying value of reporting unit goodwill exceeds the implied fair value of that goodwill , then the company would recognize an impairment loss for the amount of the difference , which would be recorded as a charge against net income . for complete discussion and disclosure see note 13 to the company 's consolidated financial statements presented elsewhere in this report .
| given the significant decline in short-term and long-term interest rates since 2007 , we reassessed our transfer pricing assumptions during the first quarter of 2009 to be consistent with the company 's strategic goal of growing core deposits and originating profitable , good credit quality loans . changes to our funds transfer pricing assumptions were made with the intent to promote core deposit growth and , given our recent credit experience , to better reflect the current risk profiles of various loan categories within our credit portfolio . our transfer pricing process is formulated with the goal of incenting loan and deposit growth that is consistent with the company 's overall growth objectives as well as to provide a reasonable and consistent basis for measurement of our business segments and product net interest margins . our transfer pricing assumptions and methodologies are reviewed at least annually to ensure that our process is reflective of current market conditions . for more information about our segments , including information about the underlying accounting and reporting process , see note 26 to the company 's consolidated financial statements presented elsewhere in this report . 53 retail banking the retail banking segment reported a $ 102.2 million pre-tax income during 2011 , compared to a $ 5.0 million pre-tax loss in 2010 , an improvement of $ 107.2 million or 2148 % . the improvement for this segment was largely due to increase in net interest income and decreases in loan loss provisions and noninterest expense , offset by a reduction in noninterest income . net interest income for this segment increased $ 43.1 million or 13 % to $ 381.5 million during 2011 , compared to $ 338.4 in 2010. the increase in net interest income during 2011 is attributable to the lower cost of funds on deposits , an increase in the mortgage portfolio and an increase in disposal activity in the covered loan portfolio , partially offset by lower loan yields from the extended low interest rate environment . the decrease in loan loss provisions for this segment of $ 45.1 million during 2011 relative to 2010 was due to decreased charge-off activity . loan loss provisions are also impacted by average loan balances for each reporting segment . noninterest income
| 12,171 |
we are also aggressively addressing costs and restructuring opportunities to enhance future margin opportunities . story_separator_special_tag margin-left : 0pt ; margin-right : 0pt '' > income tax expense ( benefit ) as a percentage of income ( loss ) from continuing operations before income tax ( benefit ) expense was 21.0 % , 817.6 % and ( 41.5 ) % in fiscal 2012 , 2011 and 2010 , respectively . the unusual percentage experienced during the year ended march 31 , 2011 is related to the recording of a deferred tax asset valuation allowance in the amount of $ 42,983,000. liquidity and capital resources cash and cash equivalents totalled $ 89,473,000 , $ 80,139,000 , and $ 63,968,000 at march 31 , 2012 , 2011 and 2010 , respectively . net cash provided by operating activities was $ 23,587,000 , $ 3,280,000 and $ 29,867,000 in fiscal 2012 , 2011 and 2010 , respectively . the net cash provided by operating activities in fiscal 2012 consisted of $ 26,967,000 in net income which was largely due to increased sales volume , a decrease in prepaid expenses and other assets of $ 3,776,000 and increases in trade accounts payable and accrued and non-current liabilities of $ 3,862,000 and $ 5,906,000 , respectively , offset by increases in trade accounts receivables and inventories of $ 9,823,000 and $ 17,489,000 respectively . the increase in inventory during fiscal 2012 was primarily to meet increasing sales volume and expected future customer demand . the net cash provided by operating activities in fiscal 2011 consisted of $ 7,033,000 in net income before a $ 42,983,000 non-cash charge related to the recording of valuation allowances against deferred tax assets , and increases in trade accounts payable and accrued and non-current liabilities of $ 4,027,000 and $ 1,668,000 respectively , offset by increases in trade accounts receivables , inventory , and prepaid expenses and other assets of $ 6,683,000 , $ 9,848,000 and $ 5,178,000 , respectively . the increase in inventories during the prior year was to meet expected future customer demand as well as avoid disruption of supply during major facility consolidation projects . the increase in prepaid expenses in the prior year was due to the timing of certain prepaid expenditures . net cash used by investing activities was $ 13,541,000 , $ 4,344,000 and $ 1,350,000 in fiscal 2012 , 2011 and 2010 , respectively . the net cash used by investing activities in fiscal 2012 consisted of $ 13,765,000 in capital expenditures ( of which $ 5,248,000 relates to implementation of our global erp system ) and $ 3,356,000 for the purchase of the remaining 80 % interest in yale lifting solutions ( pty ) ltd based in south africa , partially offset by $ 1,971,000 net proceeds from the sale of our vacant property in cedar rapids , iowa in the period . the net cash used by investing activities in fiscal 2011 consisted of $ 12,543,000 in capital expenditures ( of which $ 3,642,000 related to the initial investment in our global erp system ) offset by $ 6,621,000 in cash generated from the net sales of marketable securities ( related to the settlement of certain product liability insurance claims ) and net proceeds of $ 1,182,000 primarily from the sale of our vacant property in muskegon , michigan . 29 net cash generated by financing activities was $ 474,000 and $ 15,794,000 in fiscal 2012 and 2011 respectively compared with net cash used by financing activities of $ 5,418,000 in fiscal 2010. the net cash generated by financing activities in fiscal 2012 consisted of $ 1,436,000 of proceeds from exercises of stock options offset by $ 361,000 of net payments under international lines of credit and $ 1,036,000 in repayment of debt . the net cash generated in fiscal 2011 was due to the refinancing of the $ 124,855,000 outstanding 8 7/8 % notes with a new issuance of $ 150,000,000 7 7/8 % notes . offsetting the proceeds from the offering was $ 3,154,000 paid for tender and call redemption premiums on the 8 7/8 % notes and $ 3,185,000 paid for direct financing costs which have been deferred . we believe that our cash on hand , cash flows , and borrowing capacity under our revolving credit facility will be sufficient to fund our ongoing operations and budgeted capital expenditures for at least the next twelve months . this belief is dependent upon successful execution of our current business plan and effective working capital utilization . no material restrictions exist in accessing cash held by our non-u.s. subsidiaries . additionally we expect to meet our u.s. funding needs without repatriating non-u.s. cash and incurring the incremental u.s. taxes . as of march 31 , 2012 , $ 33,242,000 of cash and cash equivalents were held by foreign subsidiaries . we have an amended , restated and expanded revolving credit facility dated december 31 , 2009. the revolving credit facility provides availability up to a maximum of $ 85,000,000 and expires december 31 , 2013. provided there is no default , we may , on a one-time basis , request an increase in the availability of the revolving credit facility by an amount not exceeding $ 65,000,000 , subject to lender approval . the unused portion of the revolving credit facility totalled $ 70,286,000 , net of outstanding borrowings of $ 0 and outstanding letters of credit of $ 14,714,000 , as of march 31 , 2012. the outstanding letters of credit at march 31 , 2012 consisted of $ 5,425,000 in commercial letters of credit ( including a significant letter of credit related to a large customer order , amounting to $ 2,590,000 which will mature in may 2012 ) and $ 9,289,000 of standby letters of credit . story_separator_special_tag interest on the revolver is payable at varying eurodollar rates based on libor or prime plus a spread determined by our total leverage ratio amounting to 150 or 50 basis points , respectively , at march 31 , 2012. the revolving credit facility is secured by all domestic inventory , receivables , equipment , real property , subsidiary stock ( limited to 65 % of non-u.s. subsidiaries ) and intellectual property . the corresponding credit agreement associated with the revolving credit facility places certain debt covenant restrictions on us , including certain financial requirements and restrictions on dividend payments , with which we were in compliance as of march 31 , 2012. key financial covenants include a minimum fixed charge coverage ratio of 1.25x , a maximum total leverage ratio , net of cash , of 3.50x , and maximum annual capital expenditures of $ 18,000,000 excluding capital expenditures for a global erp system . our actual fixed charges coverage ratio and total leverage ratio , as calculated per the terms of our revolving credit facility , were 3.42x and 1.45x , respectively , at march 31 , 2012. during the fourth quarter of fiscal year 2011 , the company refinanced its 8 7/8 % notes through the issuance of $ 150,000,000 principal amount of 7 7/8 % senior subordinated notes due 2019 in a private placement pursuant to rule 144a under the securities act of 1933 , as amended ( “ unregistered 7 7/8 % notes ” ) . the proceeds from the sale of the unregistered 7 7/8 % notes were used to repurchase or redeem all of the outstanding 8 7/8 % notes amounting to $ 124,855,000 and to fund working capital and other corporate activities . the offering price of the unregistered 7 7/8 % notes was 98.545 % after adjustment for the original issue discount . provisions of the unregistered 7 7/8 % notes include , without limitation , restrictions on indebtedness , asset sales , and dividends and other restrictive payments . until february 1 , 2014 , the company may redeem up to 35 % of the outstanding unregistered 7 7/8 % notes at a redemption price of 107.875 % with the proceeds of equity offerings , subject to certain restrictions . on or after february 1 , 2015 , the unregistered 7 7/8 % notes are redeemable at the option of the company , in whole or in part , at a redemption price of 103.938 % , reducing to 100 % on february 1 , 2017. in the event of a change of control ( as defined in the indenture for such notes ) , each holder of the unregistered 7 7/8 % notes may require us to repurchase all or a portion of such holder 's unregistered 7 7/8 % notes at a purchase price equal to 101 % of the principal amount thereof . the unregistered 7 7/8 % notes are guaranteed by certain existing and future u.s. subsidiaries and are not subject to any sinking fund requirements . 30 during the first quarter of fiscal year 2012 , the company exchanged its $ 150,000,000 outstanding unregistered 7 7/8 % notes for a like principal amount of 7 7/8 % senior subordinated notes due 2019 registered under the securities act of 1933 , as amended ( “ 7 7/8 % notes ” ) . all of the unregistered 7 7/8 % notes were exchanged in the transaction . the 7 7/8 % notes contain identical terms and provisions as the unregistered 7 7/8 % notes . our capital lease obligations related to property and equipment leases amounted to $ 4,842,000 at march 31 , 2012. capital lease obligations are included in senior debt in the consolidated balance sheets . unsecured and uncommitted lines of credit are available to meet short-term working capital needs for certain of our subsidiaries operating outside of the u.s. the lines of credit are available on an offering basis , meaning that transactions under the line of credit will be on such terms and conditions , including interest rate , maturity , representations , covenants and events of default , as mutually agreed between our subsidiaries and the local bank at the time of each specific transaction . as of march 31 , 2012 , significant unsecured credit lines totalled approximately $ 10,361,000 , of which $ 112,000 was drawn . contractual obligations the following table reflects a summary of our contractual obligations in millions of dollars as of march 31 , 2012 , by period of estimated payments due : replace_table_token_6_th ( a ) as described in note 12 to consolidated financial statements . ( b ) as described in note 19 to consolidated financial statements . ( c ) we have no purchase obligations specifying fixed or minimum quantities to be purchased . we estimate that , at any given point in time , our open purchase orders to be executed in the normal course of business approximate $ 40 million . ( d ) estimated for our senior subordinated notes due 2/1/19 and other senior debt . ( e ) as described in note 11 to our consolidated financial statements . excludes uncertain tax positions of $ 2.4 million shown separately above . we have no additional off-balance sheet obligations that are not reflected above . capital expenditures in addition to keeping our current equipment and plants properly maintained , we are committed to replacing , enhancing and upgrading our property , plant and equipment to support new product development , improve productivity and customer responsiveness , reduce production costs , increase flexibility to respond effectively to market fluctuations and changes , meet environmental requirements , enhance safety and promote ergonomically correct work stations . our capital expenditures for fiscal 2012 , 2011 and 2010 were $ 13,765,000 , $ 12,543,000 and $ 7,245,000 , respectively . we expect capital expenditure spending in fiscal 2013 to be in the range of $ 14,000,000 to $ 17,000,000 , excluding acquisitions and strategic partnerships .
| a decrease of $ 487,000 for currency translation and other . selling expenses were $ 64,860,000 , $ 62,910,000 , and $ 64,464,000 in fiscal 2012 , 2011 and 2010 , respectively . as a percentage of net sales , selling expenses were 11.0 % , 12.0 % and 13.5 % in fiscal 2012 , 2011 and 2010 , respectively . the increase in fiscal 2012 selling expense is primarily the result of increasing revenues year over year . decreases in fiscal 2011 selling expense of $ 1,554,000 or 2.4 % are due to reorganization efforts specifically in the company 's north american sales operations , partially offset by investments in non-u.s markets and commissions on higher sales . general and administrative expenses were $ 46,677,000 , $ 40,592,000 and $ 36,892,000 in fiscal 2012 , 2011 and 2010 , respectively . as a percentage of net sales , general and administrative expenses were 7.9 % , 7.7 % and 7.7 % in fiscal 2012 , 2011 and 2010 , respectively . fiscal 2012 general and administrative expenses increased by $ 6,085,000 or 15.0 % primarily due to the new global erp system implementation project , increased variable compensation costs , as well as higher employee related costs . fiscal 2011 general and administrative expenses increased by $ 3,700,000 or 10.0 % primarily due to the company 's investments in its management team in asia and new product development . restructuring ( gains ) charges of ( $ 1,037,000 ) , $ 2,200,000 and $ 16,519,000 , or ( 0.2 % ) , 0.4 % and 3.5 % of net sales were recorded in fiscal 2012 , 2011 and 2010 , respectively . fiscal 2012 restructuring gains were the result of a gain recognized on the sale of a previously closed manufacturing facility of ( $ 1,462,000 ) offset by an employee workforce reduction effort initiated and completed at one of our european facilities . fiscal 2011 restructuring charges of $ 2,700,000 were offset by a gain from the sale
| 12,172 |
all information in this management 's discussion and analysis of financial condition and results of operations and elsewhere in this form 10-k includes only results from continuing operations ( excluding surmodics pharmaceuticals ) for all periods presented , unless otherwise noted . overview of research and development activities we manage our customer-sponsored r & d programs based largely on the requirements of our customers . in this regard , our customers typically establish the various measures and metrics that are used to monitor a program 's progress , including key deliverables , milestones , timelines , and an overall program budget . the customer is ultimately responsible for deciding whether to continue or terminate a program , and does so based on research results ( relative to the above measures and metrics ) and other factors , including their own strategic and or business priorities . customer r & d programs are mainly in our medical device segment . our internal r & d activities are engaged in the exploration , discovery and application of technologies that solve meaningful problems in the diagnosis and treatment of disease . our key r & d activities include efforts that support and expand our core offerings . these efforts include completing activities that support the development of our coating technologies that enhance drug-coated balloons . in the second quarter of fiscal 2013 , we completed development activities and launched our next generation hydrophilic coating platform which is now commercially available under the tradename serene tm ( formerly referred to as gen 5 ) . we also launched in july 2013 a new in vitro diagnostic product , stablizyme ® protein-free stabilizer , which focuses on stabilizing biomolecule activity in assay tests . additional planned activities include initiation of surface modification experiments that improve medical device performance and developing chemistries to support molecular diagnostic applications . for our internal r & d programs in our segments , we prioritize these programs based on a number of factors , including a program 's strategic fit , commercial impact , potential competitive advantage , technical feasibility , and the amount of investment required . the measures and metrics used to monitor a program 's progress vary based on the program , and typically include many of the same factors discussed above with respect to our customer r & d programs . we typically make decisions to continue or terminate a program based on research results ( relative to the above measures and metrics ) and other factors , including our own strategic and or business priorities , and the amount of additional investment required . with respect to cost components , r & d expenses consist of labor , materials and overhead costs ( for example , utilities , depreciation , and indirect labor ) for both customer r & d and internal r & d programs . we manage our r & d organization in a flexible manner , balancing workloads/resources between customer r & d and internal r & d programs primarily based on the level of customer program activity . therefore , costs incurred for customer r & d and internal r & d can shift as customer activity increases or decreases . critical accounting policies the 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 accounting principles generally accepted in the u.s. ( gaap ) . the preparation of these financial statements is based in part on the application of significant accounting policies , many of which require management to make estimates and assumptions ( see note 2 to the consolidated financial statements in item 8. financial statements and supplementary data in this annual report on form 10-k ) . actual results may differ from these estimates under different assumptions or conditions and could materially impact our results of operations . critical accounting policies are those policies that require the application of management 's most challenging subjective or complex judgment , often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods . critical accounting policies involve judgments and uncertainties that are sufficiently likely to result in materially different results under different assumptions and conditions . we believe the following are critical areas in the application of our accounting policies that currently affect our financial condition and results of operations . 32 revenue recognition . revenue is recognized when all of the following criteria are met : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) shipment has occurred or delivery has occurred if the terms specify destination ; ( 3 ) the sales price is fixed or determinable ; and ( 4 ) collectability is reasonably assured . when there are additional performance requirements , revenue is recognized when all such requirements have been satisfied . under revenue arrangements with multiple deliverables , we recognize each separable deliverable as it is earned . we license technology to third parties and collect royalties . royalty revenue is generated when a customer sells products incorporating our licensed technologies . royalty revenue is recognized as our licensees report it to us , and payment is typically submitted concurrently with the report . for stand-alone license agreements , up-front license fees are recognized over the term of the related licensing agreement . minimum royalty fees are recognized in the period earned . revenue related to a performance milestone is recognized upon the achievement of the milestone and meeting specific revenue recognition criteria . product sales to third parties are recognized at the time of shipment , provided that an order has been received , the price is fixed or determinable , collectability of the resulting receivable is reasonably assured and returns can be reasonably estimated . our sales terms provide no right of return outside of our standard warranty policy . payment terms are generally set at 30-45 days . story_separator_special_tag generally , revenue for research and development is recorded as performance progresses under the applicable contract . product sales to third parties consist of direct and distributor sales and are recognized at time of shipment . our sales terms provide no right of return outside of our standard warranty policy . payment terms are generally set at 30-45 days . multiple deliverable revenue arrangements requires us to : ( i ) disclose whether multiple deliverables exist , how the deliverables in an arrangement should be separated , and how the consideration should be allocated ; ( ii ) allocate revenue in an arrangement using estimated selling prices ( esp ) of deliverables if a vendor does not have vendor-specific objective evidence of selling price ( vsoe ) or third-party evidence of selling price ( tpe ) ; and ( iii ) eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method . we account for revenue using a multiple attribution model in which consideration allocated to r & d activities is recognized as performed , and milestone payments are recognized when the milestone events are achieved , when such activities and milestones are deemed substantive . accordingly , in situations where a unit of accounting includes both a license and r & d activities , and when a license does not have stand-alone value , we apply a multiple attribution model in which consideration allocated to the license is recognized ratably , consideration allocated to r & d activities is recognized as performed and milestone payments are recognized when the milestone events are achieved , when such activities and milestones are deemed substantive . we enter into license and development arrangements that may consist of multiple deliverables which could include a license ( s ) to our technology , r & d activities , manufacturing services , and product sales based on the customer needs . for example , a customer may enter into an arrangement to obtain a license to our intellectual property which may also include r & d activities , and supply of products manufactured by us . for these services provided , we could receive upfront license fees upon signing of an agreement and granting the license , fees for r & d activities as such activities are performed , milestone payments contingent upon advancement of the product through development and clinical stages to successful commercialization , fees for manufacturing services and supply of product , and royalty payments based on customer sales of product incorporating our technology . our license and development arrangements generally do not have refund provisions if the customer cancels or terminates the agreement . typically all payments made are non-refundable . we are required to evaluate each deliverable in a multiple element arrangement for separability . we are then required to allocate revenue to each separate deliverable using a hierarchy of vsoe , tpe , or esp . in many 33 instances , we are not able to establish vsoe for all deliverables in an arrangement with multiple elements . this may be a result of us infrequently selling each element separately or having a limited history with multiple element arrangements . when vsoe can not be established , we attempt to establish a selling price of each element based on tpe . tpe is determined based on competitor prices for similar deliverables when sold separately . when we are unable to establish a selling price using vsoe or tpe , we use esp in our allocation of arrangement consideration . the objective of esp is to determine the price at which surmodics would transact a sale if the product or service were sold on a stand-alone basis . esp is generally used for highly customized offerings . we determine esp for undelivered elements by considering multiple factors including , but not limited to , market conditions , competitive landscape and past pricing arrangements with similar features . the determination of esp is made through consultation with management , taking into consideration the marketing strategies for each business unit . customer advances are accounted for as a liability until all criteria for revenue recognition have been met . valuation of long-lived assets . accounting guidance requires us to evaluate periodically whether events and circumstances have occurred that may affect the estimated useful life or the recoverability of the remaining balance of long-lived assets , such as property and equipment and intangibles with finite lives . if such events or circumstances were to indicate that the carrying amount of these assets may not be recoverable , we would estimate the future cash flows expected to result from the use of the assets and their eventual disposition . if the sum of the expected future cash flows ( undiscounted and without interest charges ) were less than the carrying amount of the assets , we would recognize an impairment charge to reduce such assets to their fair value . in fiscal 2013 and 2012 there were no impairment charges relating to our long-lived assets as there were no events or circumstances that occurred that affected the recoverability of such assets . in the fourth quarter of fiscal 2011 , we recognized asset impairment charges totaling $ 28.1 million associated with our pharmaceuticals segment which is presented in the operating results of discontinued operations . we wrote down long-lived assets ( fixed assets of $ 23.3 million and intangibles of $ 4.8 million ) , associated with our pharmaceuticals segment , based on the valuation of the assets relative to their carrying value . we had been exploring strategic alternatives for the pharmaceuticals segment , including a potential sale . the assets of the pharmaceuticals segment did not qualify as held-for-sale as of september 30 , 2011 , because we had not committed to a plan to sell at that time .
| 37 as we have disclosed in previous filings , medical device had historically derived a substantial amount of revenue from royalties and license fees and product sales attributable to cordis , on its cypher ® sirolimus-eluting coronary stent . the cypher ® stent incorporated a proprietary surmodics polymer coating that delivers a therapeutic drug designed to reduce the occurrence of restenosis in coronary artery lesions . the cypher ® stent faced continuing competition from boston scientific , medtronic and abbott . in june 2011 , cordis announced the cessation of the manufacture of the cypher ® and cypher select ® plus stents by the end of calendar 2011. in july 2011 , cordis notified us of its intention to terminate the exclusivity arrangements under the license agreement , which also resulted in a termination of the minimum quarterly royalty requirements beginning in the first quarter of fiscal 2012. for the last several years through fiscal 2011 , royalty revenue and reagent product sales had decreased as a result of lower cypher ® stent sales . beginning with the first quarter of fiscal 2012 , the minimum royalty requirements were eliminated and royalty revenue from cordis is now based on a percentage of cypher ® sales , if any , until the products are no longer sold . in vitro diagnostics . in vitro diagnostics revenue was $ 15.0 million in 2013 , a 7 % increase from $ 14.0 million in fiscal 2012. fiscal 2012 revenue represented an increase of 7 % from $ 13.2 million in fiscal 2011. the increase in fiscal 2013 revenue was attributable to a $ 1.5 million increase in sales of stabilization and antigen products offset primarily by a $ 0.6 million decrease in microarray slide products . higher shipments of products drove the revenue increase as there were limited price increases in fiscal 2013. in addition , in certain product lines , there were increased competitive pressures that resulted in decreased pricing during fiscal 2013. the fiscal 2012 increase
| 12,173 |
in july and october 2017 , ifresh acquired ifresh glen cove inc. ( “ glen cove ” ) , new york mart ct , inc. ( “ nym ct ” ) and new york mart n. miami inc. ( “ nym n. miami ” ) from long deng , the company 's chairman and chief executive officer . the company accounted for this acquisition as a business combination under asc 805-50-30 whereby we recognize assets acquired and liabilities assumed in an acquisition at their historical costs as of the date of acquisition , since the acquisition took place between entities under common control . prior year financial statements were retrospectively adjusted to combine the financial information of these entities as if the acquisitions occurred at the beginning of the period of transfer . results of operations for the years ended march 31 , 2018 and 2017 replace_table_token_5_th 37 net sales replace_table_token_6_th ifresh 's net sales were $ 136.7 million for the year ended march 31 , 2018 , an increase of $ 5.8 million , or 4.4 % , from $ 130.1 million for the year ended march 31 , 2017. net retail sales to third parties increased by $ 2.5 million , or 2.3 % , from $ 106.8 million for the year ended march 31 , 2017 , to $ 109.3 million for the year ended march 31 , 2018. the increase resulted mainly from new stores opened in 2017 , which contribute $ 3.0 million of retail sales , offset by a decrease of sales in our stores in florida due to hurricane irma ; the company 's affiliates made immaterial purchase from its retail stores in 2018. our total net wholesale sales increased by $ 3.3 million from $ 24.1 million for the year ended march 31 , 2017 to $ 27.4 million for the year ended march 31 , 2018 , which was attributable to an increase of $ 0.2 million in sales to related parties due to ifresh focusing on improving its central procurement system through its wholesale facilities and an increase of $ 3.1 million from its wholesale revenue to third parties due to expansion of the wholesales business . cost of sales , occupancy costs and gross profit replace_table_token_7_th for the retail segment , cost of sales increased by $ 3.0 million , or 3.9 % , from $ 77 million for the year ended march 31 , 2017 , to $ 80.0 million for the year ended march 31 , 2018. the increase was mainly attributable to the increased sales in the year ended march 31 , 2018 , as well as write- off of inventory amounted to $ 360,000 which was damaged in hurricane irma . occupancy costs consist of store-level expenses such as rental expense , property taxes and other store specific costs . occupancy costs increased by approximately 4.9 % , from $ 7.2 million for the year ended march 31 , 2017 to $ 7.6 million for the year ended march 31 , 2018 , which was attributable to the new store opened in 2017. gross profit was $ 21.8 and $ 22.5 million for the years ended march 31 , 2018 and 2017 , respectively . gross margin was 20.0 % and 21.1 % for the years ended march 31 , 2018 and 2017 , respectively . the gross profit decreased due to the increase of occupancy cost , as well as the increased cost of sales discussed above . replace_table_token_8_th 38 for wholesale segment , cost of sales increased by $ 1.4 million or 7.3 % from $ 18.7 million in 2017 to $ 20.1 million in 2018. the increase is consistent with the significant increase of sales from the wholesale segment in 2017. gross profit increased by $ 1.8 million , or 33.5 % from $ 5.4 million in 2017 to $ 7.2 million in 2018. gross margin increased by 4.0 % from 22.4 % to 26.4 % . the increase was due to the relative proportion if related parties sales to the total wholesale revenue , compared to 2017. related party wholesale had relative lower gross profit . selling , general and administrative expenses selling , general and administrative expenses was $ 30,738,330 million for the year ended march 31 , 2018 , an increase of $ 4,650,463 million , or 17.8 % , compared to $ 26.1 million for the year ended march 31 , 2017 , which was mainly attributable to an increase of $ 1.3 million in payroll and related insurance and taxes , and an increase of $ 1.9 million of selling , general and administrative expenses from the acquired entities in this year , compared to 0.3 million in 2017 , which is the year of inception , an increase of $ 0.5million of rental and utility expenses , increase of $ 0.2 million of depreciation expense due to the increase of property and equipment , and increase of $ 0.5 million of bad debt expense . the remaining $ 0.5 million increase was from other general expense which was due to the expansion of our wholesales business . interest expense interest expense was $ 0.8 million for the year ended march 31 , 2018 , an increase of $ 0.5 million , or 169 % , from $ 0.3 million for the year ended march 31 , 2017 , primarily attributable to the key bank loan , which was borrowed in the last quarter of 2017 and only was outstanding for one quarter , compared to a full year in 2018 , in addition , the company borrowed $ 4.3 million under the letter of credit and delayed term loan with key bank in 2018. other income other income was $ 1.7 million for the year ended march 31 , 2018 , which included management and advertising fee income of $ 563,000 , rental income of $ 439,000 , insurance claim proceeds of $ 335,000 and lottery sales and other income of $ 329,000. other income increased 0.3 million , or 22.6 % , from $ 1.4 million for the year ended march story_separator_special_tag 31 , 2017 , primarily attributable to an increase of $ 110,000 of management fee income and advertising fee income charged to non-related third-party stores based on sale volume , $ 200,000 of insurance claims due to the fire accident in ming store . income taxes provision nym is subject to u.s. federal and state income taxes . income taxes benefit was $ 0.1 million for the year ended march 31 , 2018 , a decrease of $ 1.8 million , or 106.2 % , compared to $ 1.7 million of income tax expense for the year ended march 31 , 2017 , which was mainly attributable the decrease in taxable income . the effective income tax rate was 11 % and 58 % for the years ended march 31 , 2018 and 2017. the significant decrease was due to the fact that federal tax rate was decreased from 34 % to 21 % in 2018 . 39 net income ( loss ) replace_table_token_9_th net loss was $ 0.8 million for the year ended march 31 , 2018 , a decrease of $ 2.0 million , or 166 % , from $ 1.2 million of net income for the year ended march 31 , 2017 , mainly attributable to the increase of selling , general and administrative expenses as described above as well as damage made by hurricane irma . net profit margin as percentage of sales was -0.58 % and 0.91 % for the years ended march 31 , 2018 and 2017 , respectively . adjusted ebitda replace_table_token_10_th ( 1 ) merger expenses were professional fees paid to a financial advisor , legal counsel and auditors in connection with the business combination transaction with e-compass , which are non-recurring expenses and added back for adjusted ebitda . adjusted ebitda was $ 2.0 million for the year ended march 31 , 2018 , a decrease of $ 3.9 million , or 66.6 % , as compared to $ 5.9 million for the year ended march 31 , 2017 , mainly attributable to the decrease of net income resulting from increase of selling , general and administrative expenses as described above . the ratio of adjusted ebitda to sales was 1.4 % and 4.5 % for the years ended march 31 , 2018 and 2017 , respectively . liquidity and capital resources as of march 31 , 2018 , ifresh had cash and cash equivalents of approximately $ 0.6 million . ifresh had operating losses in fiscal year 2018 and had negative working capital of $ 2.6 million and $ 5.3 million as of march 31 , 2018 and 2017 , respectively . the company did not meet the financial covenant required in the credit agreement with keybank national association ( “ keybank ” ) . by june 29 , 2018 , the company had paid the full amount of the outstanding irs obligation . as of march 31 , 2018 , the company has outstanding loan facilities of approximately $ 17 million due to keybank . failure to maintain these loan facilities will have a significant impact on the company 's operations . ifresh had funded working capital and other capital requirements in the past primarily by equity contribution from shareholders , cash flow from operations , and bank loans . cash is required to pay purchase costs for inventory , rental , salaries , office rental expenses , income taxes , other operating expenses and repay debts . ifresh 's ability to repay its current obligation will depend on the future realization of its current assets . ifresh 's management has considered the historical experience , the economy , trends in the retail industry , the expected collectability of the accounts receivables and the realization of the inventories as of march 31 , 2018. ifresh 's ability to continue to fund these items may be affected by general economic , competitive and other factors , many of which are outside of our control . if the future cash flow from operations and other capital resources are insufficient to fund its liquidity needs , ifresh may be forced to reduce or delay its expected new store acquisition and openings , sell assets , obtain additional debt or equity capital or refinance all or a portion of its debt . our working capital position benefits from the fact that it generally collects cash from sales to customers the same day or , in the case of credit or debit card transactions , within a few business days of the related sale and the quick inventory turnover . 40 for the year ended march 31 , 2019 , ifresh is projecting that it would need approximately $ 50 million of capital in addition to its cash flow in place to fully execute the planned acquisitions , online platform development and new-store openings . we have $ 10 million of advances and receivable from the related parties we intend to collect or acquire , which will be used to offset part of the acquisition consideration for such related parties . in addition , we had $ 5.8 million of unused credit line from key bank , which includes a revolving credit of $ 1.8 million for making advance and issuance of letter of credit , and $ 4,000,000 of delayed draw term loan , which we may not draw down on until we resolve the default described below . we also plan to issue additional stock in lieu of cash as part of the acquisition consideration and plan to raise additional capital through sales of our stock if necessary . we intend to use part of the cash generated from our operations to fund our online sales initiative . based on the above considerations , ifresh 's management is of the opinion that ifresh has sufficient funds to meet its working capital requirements , capital expenditure and debt obligations as they become due .
| ifresh plans to strategically expand along the i-95 corridor and its goal is to cover all states on the east coast . a. ifresh provides unique products to meet the demands of the asian/chinese american market ; b. ifresh has established a merchandising system backed by an in-house wholesale business and by long-standing relationships with farms ; c. ifresh maintains an in-house cooling system with unique hibernation technology that is has developed over 20 years to preserve perishables , especially produce and seafood ; d. ifresh capitalizes on economies of scale , allowing strong negotiating power with upstream vendors , downstream customers and sizable competitors ; and e. ifresh has a proven and replicable track record of management , operation , acquisition and organic growth . 34 ifresh 's net sales were $ 136.7 million and $ 130.1 million for the years ended march 31 , 2018 and 2017 , respectively . in terms of sales by category , perishables constituted approximately 64.5 % of the total sales for the year ended march 31 , 2018. ifresh 's net loss was $ 0.8 million for the year end march 31 , 2018 , a decrease of $ 2 million , or 166 % , from $ 1.2 million of net income for the year end march 31 , 2017. adjusted ebitda was $ 2.0 million for the year end march 31 , 2018 , a decrease of $ 3.9 million , or 66.6 % , from $ 5.9 million for the year end march 31 , 2017. factors affecting ifresh 's operating results seasonality ifresh 's business shows seasonal fluctuations . sales in its first and second fiscal quarters ( ending june 30 and december 31 , respectively ) are usually 5 % to 10 % lower than in third and fourth quarters ( ending december 31 and march 31 , respectively ) . in its third fiscal quarter , customers make holiday purchases for thanksgiving and christmas . in its fourth quarter , customers make purchases for traditional chinese holidays , such as the spring festival ( chinese new year , in january or february ) . parking the availability of parking is important to
| 12,174 |
we believe we have achieved our leadership position in independent enterprise software support by recruiting and hiring experienced , skilled and proven staff ; delivering outcomes-based , value-driven and award-winning enterprise software support products and services ; seeking to provide an exceptional client-service , satisfaction and success experience ; and continuously innovating our unique products and services by leveraging our proprietary knowledge , tools , technology and processes . enterprise software support products and services is one of the largest categories of overall global information technology ( “ it ” ) spending . we believe core enterprise resource planning ( “ erp ” ) , customer relationship management ( “ crm ” ) , product lifecycle management ( “ plm ” ) and technology software platforms have become increasingly important in the operation of mission-critical business processes over the last 30 years , and also that the costs associated with failure , downtime , security exposure and maintaining the tax , legal and regulatory compliance of these core software systems have also increased . as a result , we believe that licensees often view software support as a mandatory cost of doing business , resulting in recurring and highly profitable revenue streams for enterprise software vendors . for example , for fiscal year 2020 , sap reported that support revenue represented approximately 42 % of its total revenue and , for fiscal 2020 , oracle reported a margin of 85 % for cloud services and license support . we believe that software vendor support is an increasingly costly model that has not evolved to offer licensees the responsiveness , quality , breadth of capabilities or value needed to meet the needs of licensees . organizations are under increasing pressure to reduce their it costs while also delivering improved business performance through the adoption and integration of emerging technologies , such as mobile , virtualization , internet of things ( “ iot ” ) and cloud computing . today , however , the majority of it budget is spent operating and maintaining existing infrastructure and systems . as a result , we believe organizations are increasingly seeking ways to redirect budgets from maintenance to new technology investments that provide greater strategic value , and our software products and services help clients achieve these objectives by reducing the total cost of support . -45- as of december 31 , 2020 , we employed approximately 1,420 professionals and supported over 2,480 active clients globally , including 75 fortune 500 companies and 17 fortune global 100 companies across a broad range of industries . we define an active client as a distinct entity , such as a company , an educational or government institution , or a business unit of a company that purchases our services to support a specific product . for example , we count as two separate active client instances in circumstances where we provide support for two different products to the same entity . we market and sell our services globally , primarily through our direct sales force , and have wholly-owned subsidiaries in australia , brazil , canada , uae ( dubai ) , france , germany , hong kong , india , israel , japan , korea , malaysia , mexico , netherlands , new zealand , poland , singapore , sweden , taiwan , the united kingdom and the united states . we believe our primary competitors are the enterprise software vendors whose products we service and support , including ibm , microsoft , oracle and sap . our subscription-based revenue provides a strong foundation for , and visibility into , future period results . we generated revenue of $ 326.8 million , $ 281.1 million and $ 253.5 million for the years ended december 31 , 2020 . 2019 , and 2018 , respectively , representing a year-over-year increase of 16 % and 11 % for 2020 and 2019 , respectively . we have a history of losses , and as of december 31 , 2020 , we had an accumulated deficit of $ 301.7 million . we earned net income of $ 13.0 million and $ 17.5 million for the years ended december 31 , 2020 and 2019 , respectively , and had a net loss of $ 64.0 million for the year ended december 31 , 2018. we generated approximately 59 % of our revenue in the united states and approximately 41 % of our revenue from our international business for the year ended december 31 , 2020. since our inception , we have financed our operations through cash collected from clients and net proceeds from equity financings and borrowings . as of december 31 , 2020 , we had no outstanding financial obligations under any note payables . we intend to continue investing for long-term growth . we have invested and expect to continue investing in expanding our ability to market , sell and provide our current and future products and services to clients globally . we also expect to continue investing in the development and improvement of new and existing products and services to address client needs . we currently do not expect to be profitable in the near future . impact of covid-19 during fiscal year 2020 , we continued investing for long-term growth . however , as we neared the end of the first quarter of 2020 , the emergence of the covid-19 pandemic took hold and is having widespread , rapidly evolving and unpredictable impacts on global society , economies , financial markets and business practices . federal and state governments have implemented multiple measures aiming to contain the spread of the virus , including social distancing , travel restrictions , border closures , quarantine guidance following travel to certain jurisdictions , limitations on public gatherings and continued closures of certain non-essential businesses . story_separator_special_tag as a result , to protect the health and well-being of our employees , clients and the communities in which we operate , we transitioned as many of our employees as possible to a work-at-home model , temporarily closed our offices worldwide , placed restrictions on non-essential business travel , transitioned to a no in-person event marketing strategy and implemented a fully remote sales model . we believe these measures have been successful and have not significantly affected our financial results for the year ended december 31 , 2020. we have implemented business continuity measures and will continue to respond to the covid-19 pandemic as circumstances dictate . as a result of the measures that we have taken in response to the covid-19 pandemic described above , we have realized reduced costs of travel , reductions in costs resulting from cancelling certain in-person marketing events , reductions in office operating costs and potential rent abatement related to office closures around the world ( that began mid-march 2020 and are expected to continue through at least june 2021 ) . while some of our offices have partially re-opened with limited staffing , our offices will not fully re-open until local authorities permit us to , and our own criteria and conditions to ensure employee health and safety are satisfied . we continue to expect to offset some of these reduced costs with accelerated investments including implementing virtual sales and other marketing programs , special compensation bonuses for lower-paid employees and special compensation bonuses for employees who have tested positive for covid-19 . for example , during fiscal year 2020 , we paid covid-19 special bonuses to certain of our employees to help with pandemic-related special costs and for the few of our employees who have tested positive for covid-19 . we have authorized covid-19 special bonuses during pandemic that have been paid throughout 2020. the cost of these special bonuses were more than offset by the cost reductions relating to travel and in-person marketing event fees and expenses described above . the covid-19 pandemic had no significant net impact on our revenue or results of operations during the year ended december 31 , 2020 , and we continued to deliver uninterrupted and critical support services to our clients during this period . our ability to utilize our secure remote-connectivity global infrastructure promotes the safety of our employees while abiding by the restrictions currently in place where they are located throughout the world . while we did implement discounted or extended payment terms for certain of our clients in 2020 , in most cases it was in exchange for contractual concessions -46- favorable to us , for example , extended contract terms or marketing support for references , and the collective impact of such changes was not material to our results . however , the covid-19 pandemic has impacted business markets worldwide , primarily due to the uncertainty relating to the continued effects of the pandemic . as a result , we have experienced some clients not renewing our services as their businesses have been adversely impacted during the pandemic . despite this , we expect to continue to be able to market , sell and provide our current and future products and services to clients globally . we also expect to continue investing in the development and improvement of new and existing products and services to address client needs . the extent to which the covid-19 pandemic impacts our business going forward will depend on numerous evolving factors we can not reliably predict , including the duration and scope of the pandemic ; governmental and business actions in response to the pandemic ; and the impact on economic activity , including the possibility of recession or financial market instability . these factors may adversely impact consumer , business , and government spending on technology as well as our clients ' ability to pay for our services on an ongoing basis . this uncertainty also affects management 's accounting estimates and assumptions , which could result in greater variability in a variety of areas that depend on these estimates and assumptions , including receivables and forward-looking guidance . as such , the effects of the covid-19 pandemic may not be fully reflected in our financial results until future periods . refer to `` risk factors '' ( part i , item 1a of this report ) for a discussion of these factors and other risks . on march 27 , 2020 , the coronavirus aid , relief , and economic security ( “ cares ” ) act was signed into law in the united states to address the economic impact of the covid-19 pandemic . we have elected to defer payroll tax payments which totaled $ 3.3 million as of december 31 , 2020 as permitted by the cares act ( such deferred payroll taxes are due in two installments : 50 % by december 31 , 2021 and 50 % by december 31 , 2022 ) . we continue to monitor any effects that may result from the cares act and other similar legislation or actions in geographies in which our business operates . recent developments reference is made to note 6 to our consolidated financial statements included in part ii , item 8 of this report for a discussion of recent developments related to the securities purchase agreements entered into on october 30 , 2020 and january 5 , 2021 , and the related private placements of series a preferred stock , common stock and convertible notes . on august 18 , 2020 , we completed a firm commitment underwritten public offering ( the `` august 2020 offering '' ) of 6.1 million shares of our common stock at a price of $ 4.50 per share for total gross proceeds of $ 27.5 million . net proceeds from the august 2020 offering were approximately $ 25.1 million after deducting underwriting discounts and offering expenses . we intend to use the net proceeds from the august 2020 offering for working capital and other general corporate purposes .
| for the year ended december 31 , 2020 , changes in operating assets and liabilities were favorable by $ 13.0 million to the operating cash flows due to an increase of deferred revenue of $ 22.7 million , a decrease in prepaid expenses , deposits and other assets of $ 3.2 million , an increase in accrued liabilities of $ 1.6 million and an increase in accounts payable of $ 0.9 million . these favorable changes were offset by unfavorable changes in accounts receivable for $ 8.5 million and deferred contract costs for $ 6.9 million . for the year ended december 31 , 2019 , cash flows provided by operating activities amounted to $ 20.4 million . we recognized net income of $ 17.5 million for the year ended december 31 , 2019 and non-cash expenses of $ 7.4 million , which were offset by unfavorable changes in operating assets and liabilities , net of $ 4.6 million . for the year ended december 31 , 2019 , non-cash expenses , net amounted to $ 7.4 million and were primarily comprised of stock-based compensation expense of $ 5.5 million and depreciation and amortization expense of $ 1.9 million . for the year ended december 31 , 2019 , changes in operating assets and liabilities were unfavorable by $ 4.6 million to operating cash flows primarily due to cash uses related to an increase in accounts receivable of $ 31.2 million , an increase in prepaid expenses , deposits and other assets of $ 9.2 million , an increase in deferred contract costs of $ 1.0 million and a decline in accounts payable for $ 10.5 million . these cash uses were offset by sources of cash from customer cash collections that resulted from an increase of deferred revenue for $ 39.1 million and an increase in accrued liabilities of $ 8.3 million . for the year ended december 31 , 2018 , cash flows provided by operating activities amounted to $ 22.4 million . while we recognized a net loss of $ 64.0 million for the year ended december 31 , 2018 ,
| 12,175 |
with grant funding from the u.s. national institutes of health ( “ nih ” ) , we have successfully completed phase 1 development of av-101 during calendar 2012. av-101 is an orally available small molecule prodrug candidate aimed at the multi-billion dollar neurological disease and disorders market , including neuropathic pain , a serious and chronic condition causing pain after an injury or disease of the peripheral or central nervous system . neuropathic pain affects approximately 1.8 million people in the u.s. alone . to date , we have been awarded over $ 8.8 million of grant funding from the nih for non-clinical and phase i clinical development of av-101 . our immediate plan is to utilize the vast amount of information available in the public domain with respect to potential small molecule drug candidates for inclusion in our drug rescue programs . we may also seek to acquire rights to drug rescue candidates that third-parties , including academic research institutions and biotechnology , medicinal chemistry and pharmaceutical companies have discontinued due to unexpected safety concerns involving the heart and or liver . in connection with our drug rescue programs , we will collaborate with contract medicinal chemistry and other third parties to generate and assess the therapeutics and commercial potential of each drug rescue variant we generate . we plan to have economic participation rights in each drug rescue variant we are able to generate in connection with our projected drug rescue programs . -45- the merger vistagen therapeutics , inc. , a california corporation ( “ vistagen california ” ) is a wholly-owned subsidiary of the company . vistagen california was incorporated in california on may 26 , 1998 . excaliber enterprises , ltd. ( excaliber ) , a publicly-held company ( formerly otcbb : exca ) , was incorporated under the laws of the state of nevada on october 6 , 2005. after being unable to generate material revenues based on its original business plan , excaliber became inactive in 2007. in may 2011 , after assessing the prospects associated with its original business plan and the business opportunities associated with a strategic merger with an established , privately-held , biotechnology company seeking the potential advantages of being a publicly-held company , excaliber 's board of directors agreed to pursue a strategic merger with vistagen california . on may 11 , 2011 , pursuant to a strategic merger transaction with vistagen california , excaliber acquired all outstanding shares of vistagen california in exchange for 6,836,452 restricted shares of excaliber 's common stock ( the “ merger ” ) , and excaliber assumed all of vistagen california 's pre-merger obligations to contingently issue restricted shares of common stock in accordance with vistagen california 's stock option agreements , warrant agreements , and a convertible promissory note . in connection with the merger , excaliber repurchased 5,064,207 shares of excaliber common stock from two of its stockholders for a nominal amount , resulting in a total of 784,500 shares of excaliber common stock outstanding at the date of the merger . the 6,836,452 restricted shares issued to vistagen california stockholders in connection with the merger represented approximately 90 % of excaliber 's outstanding shares of common stock after the closing of the merger . as a result of the merger , the biotechnology business of vistagen california became the operating business of excaliber . shortly after the merger : · each of the pre-merger directors of vistagen california was appointed as a director of excaliber ; · the pre-merger directors and officers of excaliber resigned as officers and directors of excaliber ; · each of vistagen california 's pre-merger officers was appointed an officer of like tenor of excaliber ; · the post-merger directors of excaliber ( consisting of the pre-merger directors of vistagen california ) approved a two-for-one ( 2:1 ) stock split of excaliber 's common stock ; · the post-merger directors of excaliber approved an increase in the number of shares of common stock excaliber was authorized to issue from 200 million to 400 million shares , ( see note 9 , capital stock , to the consolidated financial statements included in item 8 of this annual report on form 10-k ) ; · excaliber 's name was changed to “ vistagen therapeutics , inc. ” ; and · vistagen california 's fiscal year-end of march 31 was adopted as excaliber 's fiscal year-end . vistagen california , as the accounting acquirer in the merger , recorded the merger as the issuance of stock for the net monetary assets of excaliber , accompanied by a recapitalization . this accounting for the merger was identical to that resulting from a reverse acquisition , except that no goodwill or other intangible assets were recorded . a total of 1,569,000 shares of common stock , representing the 784,500 shares held by stockholders of excaliber immediately prior to the merger and effected for the post-merger two-for-one ( 2:1 ) stock split mentioned above , have been retroactively reflected as outstanding for the period prior to the merger in the fiscal year ended march 31 , 2012 for purposes of determining basic and diluted loss per common share in the consolidated statements of operations and comprehensive income of the company included in item 8 of this form 10-k. additionally , the accompanying consolidated balance sheets of the company retroactively reflect the authorized capital stock and $ 0.001 par value of excaliber 's common stock and the two-for one ( 2:1 ) stock split after the merger . the financial statements included in this discussion and in the consolidated financial statements of the company included in item 8 of this form 10-k represent the activity of vistagen california for the pre-merger portion of fiscal 2012 and the consolidated activity of vistagen california and excaliber from may 11 , 2011 ( the date of the merger ) through march 31 , 2013. the activities and results of operations of excaliber in the pre-merger period presented were not material . story_separator_special_tag -46- primary merger-related transactions immediately preceding and concurrent with the merger : ● vistagen california sold 2,216,106 units , consisting of one restricted share of vistagen 's common stock and a three-year warrant to purchase one-fourth ( 1/4 ) of one restricted share of vistagen common stock at an exercise price of $ 2.50 per share , at a price of $ 1.75 per unit in a private placement for aggregate gross offering proceeds of $ 3,878,197 , including $ 2,369,194 in cash ( “ 2011 private placement ” ) . the restricted shares and warrants issued in the 2011 private placement became restricted shares and warrants of the company upon consummation of the merger ; ● holders of certain promissory notes issued by vistagen california from 2006 through 2010 converted their notes totaling $ 6,174,793 , including principal and accrued but unpaid interest , into 3,528,290 units at $ 1.75 per unit . these units were the same units issued in connection with the 2011 private placement . the restricted shares and warrants issued upon the conversion of such promissory notes became restricted shares and warrants of the company upon consummation of the merger ; and ● all holders of vistagen california 's then-outstanding preferred stock converted all 2,884,655 of their restricted shares of vistagen california preferred stock into 2,884,655 restricted shares of vistagen california common stock , all of which shares became restricted shares of the company upon consummation of the merger . see note 8 , convertible promissory notes and other notes payable and note 9 , capital stock , to the consolidated financial statements included in item 8 of this form 10-k for a further description of these transactions . financial operations overview net loss we are in the development stage and , since inception , have devoted substantially all of our time and efforts to hpsc research and bioassay development , small molecule drug development , creating , protecting and patenting intellectual property , recruiting personnel and raising working capital . as of march 31 , 2013 , we had an accumulated deficit of $ 67.7 million . our net loss for the years ended march 31 , 2013 and 2012 was $ 12.9 million and $ 12.2 million , respectively . we expect these conditions to continue for the foreseeable future as we expand our drug rescue activities and the capabilities of our human clinical trials in a test tube platform . story_separator_special_tag or renewed . our cirm grant terminated in september 2011 and accounted for 6 % of our total revenue in fiscal year 2012. government grant revenue typically reimburses us for expenses incurred in the subject research area plus a nominal allocation or fee to cover our related administrative and infrastructure costs . research and development expense research and development expense represented approximately 49 % and 52 % of our operating expenses for the years ended march 31 , 2013 and 2012 , respectively . research and development costs are expensed as incurred . research and development expense consists of both internal and external expenses incurred in sponsored stem cell research and drug development activities , costs associated with the development of av-101 and costs related to the licensing , application and prosecution of our intellectual property . these expenses primarily consist of the following : salaries , benefits , including stock-based compensation costs , travel and related expense for personnel associated with research and development activities ; fees paid to contract research organizations and other professional service providers for services related to the conduct and analysis of clinical trials and other development activities ; fees paid to third parties for access to licensed technology and costs associated with securing and maintaining patents related to our internally generated inventions : laboratory supplies and materials ; leasing and depreciation of laboratory equipment ; and allocated costs of facilities and infrastructure . general and administrative expense general and administrative expense consists primarily of salaries and related expense , including stock-based compensation expense , for personnel in executive , finance and accounting , and other support functions . other costs include professional fees for legal , investor relations and accounting services and other strategic consulting and public company expenses as well as facility costs not otherwise included in research and development expense . following the merger in may 2011 , we increased our administrative headcount and engaged certain consulting services to meet our obligations as a public reporting company . other expenses , net we incurred interest expense on the outstanding balance of our convertible promissory notes issued beginning in 2006 , substantially all of which were converted into units consisting of restricted common stock and warrants in may 2011 at a price of $ 1.75 per unit in connection with the merger . we also incurred interest expense on the may 2011 platinum note prior to its exchange into our series a preferred stock in december 2011 , on the senior secured convertible promissory notes issued to platinum in october 2012 and in february 2013 and march 2013 , and on various notes issued to certain service providers during the years ended march 31 , 2011 and 2012 and on the new and modified notes issued to m & f , crl and uhn during the year ended march 31 , 2013 . -49- we recorded non-cash expense in fiscal 2013 and 2012 related to the change in the fair values of the derivatives associated with various promissory notes issued to platinum prior to fiscal 2012 and during fiscal 2013. in fiscal 2013 , we recorded non-cash losses on early extinguishment of debt in connection with the modification of certain promissory notes issued to platinum , morrison & foerster , cato holding company and to investors in convertible promissory notes issued in february 2012 as well as in connection with the settlement of accounts payable by issuing promissory notes to cato research ltd and university health network , in fiscal 2012 , we recorded a non-cash loss on early extinguishment of debt related to the exchange of the platinum note into shares of our
| -47- in august 2012 , we entered into such a strategic debt restructuring agreement with morrison & foerster ( “ m & f ” ) , our former general corporate counsel and continuing intellectual property counsel . pursuant to the m & f strategic debt restructuring agreement , we converted approximately $ 1.4 million of our then-existing promissory note debt to m & f into a new unsecured promissory note payable only in restricted shares of our common stock in connection with m & f 's future exercise of a warrant to purchase approximately 1.4 million shares of our common stock at $ 1.00 per share , provided , however , that m & f has the option to require us to repay the note in cash upon a change of control or event of default , as both are defined in the agreement . in october 2012 , we entered into similar strategic debt restructuring agreements with cato research ltd. ( “ crl ” ) , our cro collaborator for development of av-101 , and university health network ( “ uhn ” ) , our long-term stem cell research and development collaborator in canada , in which we converted approximately $ 1.0 million of existing accounts payable debt owed to crl and approximately $ 0.55 million of existing accounts payable debt owed to uhn into new notes payable only in restricted shares of our common stock in connection with future warrant exercises by crl and uhn to purchase approximately 1,000,000 and 550,000 restricted shares of our common stock , respectively , at $ 1.00 per share . additionally , we reduced the current monthly unsecured promissory note payment requirements with respect to existing debt of $ 1.0 million owed to m & f and $ 0.3 million owed to cato holding company . the platinum , m & f , crl and uhn debt restructuring transactions are described in greater detail in note 8 , convertible promissory notes and other notes payable and note 9 , capital stock , in the consolidated financial statements included in item 8 of this annual report on form 10-k. the accounting for these
| 12,176 |
the total common shares accepted for purchase represented approximately 97 % of the common shares properly tendered and not properly withdrawn at the purchase price of $ 19.00 per common share . payment for shares accepted for purchase occurred on june 24 , 2015 , and the shares purchased were retired . the company incurred approximately $ 0.6 million in costs related to the tender offer which are recorded as a reduction to shareholders ' equity in the company 's consolidated balance sheets . the company funded the tender offer and all related costs primarily from borrowings under its credit facility . share repurchase program the company 's board of directors has authorized a share repurchase program of up to $ 500 million . effective july 8 , 2015 , the company established a written trading plan ( “ plan ” ) that provided for share repurchases in open market transactions that was intended to comply with rule 10b5-1 under the securities exchange act of 1934 , as amended . since implementation through december 31 , 2015 , the company purchased approximately 1.2 million of its common shares under the plan , at a weighted-average market purchase price of approximately $ 17.61 per common share , for an aggregate purchase price of approximately $ 22.0 million . purchases under the plan were funded with availability under the company 's credit facility . to be able to more effectively respond to market conditions , the company terminated the plan in january 2016. the company plans to continue to consider opportunistic share repurchases under the $ 478 million remaining portion of its authorized $ 500 million share repurchase program . the program may be suspended or terminated at any time by the company . if not terminated earlier , the program will end in july 2016 . $ 965 million credit facility on may 18 , 2015 , concurrent with the listing , the company entered into an amendment and restatement of its unsecured $ 345 million credit facility , increasing the borrowing capacity to $ 965 million and extending the maturity dates . the $ 965 million credit facility is comprised of ( a ) a $ 540 million revolving credit facility with an initial maturity date of may 18 , 2019 , and ( b ) a $ 425 million term loan facility with a maturity date of may 18 , 2020 , consisting of three term loans funded during 2015. subject to certain conditions including covenant compliance and additional fees , the revolving credit facility maturity date may be extended one year and the amount of the total credit facility may be increased from $ 965 million to $ 1.25 billion . the terms and covenants of the unsecured $ 965 million credit facility are similar to the $ 345 million credit facility . see note 6 titled “ credit facilities and mortgage debt ” in part ii , item 8 , of the consolidated financial statements and notes thereto , appearing elsewhere in this annual report on form 10-k for additional information concerning the $ 965 million credit facility . 2015 investing activities the company continually monitors the profitability of its properties , market conditions , and capital requirements and attempts to maximize shareholder value by timely disposal of properties and using the proceeds to invest in properties that it believes provide greater value in the long term . consistent with this strategy and the company 's focus on investing in upscale select service hotels , the company acquired seven hotels for an aggregate purchase price of $ 254.8 million in 2015 : a 156-room hampton inn in fort lauderdale , florida , a 110-room hampton inn in cypress , california , a new 170-room springhill suites and a 190-room courtyard , both in burbank , california , a 245-room courtyard in san diego , california and an adjoining 102-room courtyard and 78-room residence inn complex located in syracuse , new york . the purchase price for each of these properties , net of debt assumed , was funded through the company 's credit facility with availability provided primarily from the proceeds from the sale of properties discussed below . as of december 31 , 2015 , the company has outstanding purchase contracts for four additional hotels with a total gross purchase price of $ 81.1 million . these four hotels are under construction and are planned to be completed and opened for business in 2016 and 2017 , at which time closings are expected to occur . 39 index in 2015 , the company sold 19 properties ( 13 of which were acquired in the a7 and a8 mergers discussed below ) in two separate transactions ( 18 of which were sold on february 26 , 2015 and one of which was sold on june 1 , 2015 ) for a total sales price of approximately $ 208.5 million . in conjunction with these transactions , the company recorded a gain on sale of approximately $ 15.3 million , which is included in the company 's consolidated statement of operations for the year ended december 31 , 2015. the proceeds from the sale transactions were used primarily to repay the outstanding balance under the company 's revolving credit facility , with the intent to use the increased availability to fund hotel acquisitions , hotel renovations and other general corporate purposes . the sale of these 19 properties does not represent a strategic shift that has , or will have , a major effect on the company 's operations and financial results , and therefore the operating results for the period of ownership of these properties are included in income from continuing operations for the years ended december 31 , 2015 , 2014 and 2013. see note 4 titled “ dispositions ” in part ii , item 8 , of the consolidated financial statements and notes thereto , appearing elsewhere in this annual report on form 10-k for additional information on the property dispositions . story_separator_special_tag mergers with apple reit seven , inc. and apple reit eight , inc. effective march 1 , 2014 , the company completed its mergers with apple seven and apple eight and added 99 continuing hotels located in 27 states , with an aggregate of 12,121 rooms , to the company 's real estate portfolio . in connection with the a7 and a8 mergers , the company issued approximately 90 million common shares to apple seven and apple eight shareholders . for purposes of accounting for the transactions , the total consideration of the company 's common shares transferred in the a7 and a8 mergers was estimated to be approximately $ 1.8 billion and was based on a fair value estimate of $ 20.20 per common share . upon completion of the a7 and a8 mergers , the company became self-advised and the advisory agreements between the company and its advisors were terminated . the termination of the advisory agreements resulted in the conversion of the company 's series b convertible preferred shares into approximately 5.8 million common shares . as a result of the conversion , all of the company 's series a preferred shares were terminated and the company only has common shares outstanding . in conjunction with this event , during the first quarter of 2014 , the company recorded a non-cash expense totaling approximately $ 117.1 million , included in the company 's consolidated statements of operations , to reflect the fair value estimate of the conversion of the series b convertible preferred shares to common shares at a fair value estimate of $ 20.20 per common share . see note 2 titled “ mergers with apple reit seven , inc. and apple reit eight , inc. ” in part ii , item 8 , of the consolidated financial statements and notes thereto , appearing elsewhere in this annual report on form 10-k for additional information concerning the a7 and a8 mergers . hotel operations although hotel performance can be influenced by many factors including local competition , local and general economic conditions in the united states and the performance of individual managers assigned to each hotel , performance of the company 's hotels as compared to other hotels within their respective local markets , in general , has met the company 's expectations for the period owned . the hotel industry and the company 's hotels overall continue to experience improvement in both revenues and operating income as compared to the prior year . although economic conditions in the united states have been favorable , there is no way to predict future general economic conditions , and there are certain factors that could negatively affect the lodging industry and the company , including but not limited to , increased hotel supply in certain markets , labor uncertainty both for the economy as a whole and the lodging industry in particular , global volatility and government fiscal policies . the company , on a comparable basis ( as discussed below ) , and industry are forecasting a low to mid-single digit percentage increase in revenue for 2016 as compared to 2015. based on recent revenue trends , the anticipated revenue growth rates for 2016 are slightly lower than the growth achieved in 2015 and 2014. in evaluating financial condition and operating performance , the most important indicators on which the company focuses are revenue measurements , such as average occupancy , average daily rate ( “ adr ” ) and revenue per available room ( “ revpar ” ) , and expenses , such as hotel operating expenses , general and administrative expenses and other expenses described below . results of operations for years 2015 and 2014 as of december 31 , 2015 , the company owned 179 hotels with 22,961 rooms as compared to 191 hotels with a total of 23,790 rooms as of december 31 , 2014. results of operations are included only for the period of ownership for hotels acquired or disposed of during 2015 and 2014 . additionally , the company opened two newly 40 index constructed hotels during 2014 . as a result , the comparability of results for the years ended december 31 , 2015 and 2014 as discussed below is significantly impacted by these transactions . t he results of operations for the year ended december 31 , 2014 include only 10 months of results for the hotels acquired through the a7 and a8 mergers . additionally , the results of operations for the year ended december 31 , 2015 include results of operations for the 19 hotels sold during the period only through the time of the sale . the following is a summary of the results from operations of the company 's hotels for their respective periods of ownership by the company . replace_table_token_12_th story_separator_special_tag partially offset by a decrease due to successful appeals of tax assessments for other locations . with the economy continuing to improve , the company anticipates continued increases in property tax assessments in 2016. the company will continue to appeal tax assessments in certain jurisdictions to attempt to minimize the tax increases as warranted . property taxes , insurance and other expense in 2015 and 2014 was reduced by approximately $ 1.8 million and $ 0.2 million , respectively , in settlement proceeds received , net of costs , from the deepwater horizon economic and property damages settlement program related to damages suffered at several of the company 's hotels as a result of the gulf of mexico oil spill in 2010 . 42 index ground lease expense ground lease expense for the years ended december 31 , 2015 and 2014 was $ 10.0 million and $ 8.3 million , respectively . ground lease expense primarily represents the expense incurred by the company to lease land for 10 of its hotel properties , nine of which were acquired effective march 1 , 2014 with the a7 and a8 mergers .
| 41 index during 2015 , the company experienced a slight increase in demand , with average occupancy for its comparable hotels increasing approximately 1 % as compared to 2014. in addition , also signifying general economic strength , during 2015 the company experienced an increase in adr for its comparable hotels of approximately 5 % as compared to 2014. although certain markets will vary based on local supply/demand dynamics and local market economic conditions , with continued overall demand and room rate improvement and the company 's geographically diverse portfolio of upscale , select service hotels , the company , on a comparable basis , and industry are forecasting a low to mid-single digit percentage increase in revenue for 2016 as compared to 2015. based on recent revenue trends , the anticipated revenue growth rates for 2016 are slightly lower than the growth achieved in 2015 and 2014. during the fourth quarter of 2015 , the company 's comparable hotels ' revpar increased by approximately 6 % , compared to the fourth quarter of 2014. the growth rate was impacted by approximately 37,000 rooms out of service from 22 renovations . hotel operating expense hotel operating expense consists of direct room operating expense , hotel administrative expense , sales and marketing expense , utilities expense , repair and maintenance expense , franchise fees and management fees . for the years ended december 31 , 2015 and 2014 , respectively , hotel operating expense totaled $ 507.1 million and $ 455.9 million or 56 % and 57 % of total revenue for each respective period . overall hotel operational expenses for 2015 primarily reflect the impact of the a7 and a8 mergers and the two newly constructed hotels that opened in december 2014 for the entire period , the 19 hotels sold until the respective dates of sale , and the seven hotels acquired in 2015 from their respective dates of acquisition ; and for 2014 reflect the a7 and a8 mergers only for the months of march through december and the 19 hotels sold in 2015 ( of which 13 were acquired in the a7 and a8
| 12,177 |
in order to mitigate the financial impact of covid-19 , we have continued our emphasis on cost management , and have implemented additional measures to adjust to our customers ' revised production schedules , including the following : continuing to flex our variable cost structure ; continuing to manage our controllable expenses , net of costs to ensure the health and safety of our associates ; reduced the annual cash retainer for each non-employee director by 40 % through september 30 , 2020 ; reduced salaries for executive officers by 30 % and for certain other associates by various percentages depending on level through september 30 , 2020 ; reduced our capital expenditures for the year ; amended our credit agreement to , among other things , revise our financial maintenance covenants to provide additional financial flexibility ; and utilizing options to defer and reduce tax payments and to claim tax refunds and employment credits through the coronavirus aid , relief , and economic security act ( the cares act ) and similar global initiatives . the measures we are taking to address the impact of covid-19 are expected to remain in place until further clarity can be achieved regarding the recovery and stabilization of the global economy , as well as the resulting impact of covid-19 on the global automotive industry . we expect to adjust our use of these measures , to the extent possible , based on production volumes and customer demand . manufacturing facility fire on september 22 , 2020 , a significant industrial fire occurred at our malvern manufacturing facility in ohio ( malvern fire ) . all associates were evacuated safely and without injury . we continue to focus on managing this disruption and protecting continuity of supply to our customers , including utilizing production capacity and resources at other aam facilities . see note 15 - manufacturing facility fire and insurance recovery for additional detail regarding the malvern fire . 23 industry trends there are a number of significant trends affecting the markets in which we compete . intense competition , volatility in the price of raw materials , including steel , other metallic materials , and resources used in vehicle electrification and electronic components , and significant pricing pressures remain . at the same time , there is a focus on investing in future products that will incorporate the latest technology and meet changing customer demands as certain original equipment manufacturers ( oems ) place increased emphasis on the development of battery and hybrid electric vehicles . the continued advancement of technology and product innovation , as well as the capability to source programs on a global basis , are critical to attracting and retaining business in our global markets . increase in demand for electrification and electronic integration the electrification of vehicles continues to expand , driven by a shift in focus by certain oems toward battery and hybrid electric vehicles , government regulations related to emissions , such as the corporate average fuel economy standards , and consumer demand for greater vehicle performance , enhanced functionality , increased electronic content and vehicle connectivity , and affordable convenience options . we are responding , in part , through the development of our hybrid and electric driveline systems , and related subsystems and components , which allow us to meet our customers ' needs for high performance vehicles with improved fuel economy and reduced emissions . we recently entered into a technology development agreement with suzhou inovance automotive ltd. , a leading provider of automotive power electronics and powertrain systems in china , to accelerate the development and delivery of scalable , next-generation 3-in-1 electric drive systems , which integrate an inverter , electric motor and gearbox . to date , our hybrid and electric driveline systems have been awarded multiple contracts and received multiple awards . as vehicle electrification and electronic components become an increasingly larger focus for oems and suppliers , the industry will likely continue to see the addition of new market entrants from non-traditional automotive companies , including increased competition from technology companies . further , some traditional automotive industry participants are developing strategic partnerships with technology companies as each party seeks to leverage the existing customer relationships and technical knowledge of the partner , and expedite the development and commercialization of this new technology . an area of focus will be the product development cycle and bridging the gap between the shorter development cycles of information technology ( it ) software and controls and the longer development cycles of traditional powertrain components . our hybrid and electric driveline systems , ecotrac ® disconnecting awd system , vectrac torque vectoring technology and tracrite ® differential technology , are examples of aam 's enhanced capabilities in supporting vehicle electrification and electronic integration . increased demand for fuel efficiency and emissions reductions there has been an increased demand for technologies designed to help reduce emissions , increase fuel economy and minimize the environmental impact of vehicles . as a result , oems and suppliers are competing to develop and market new and alternative technologies , such as electric vehicles , hybrid vehicles , fuel cells , higher speed transmissions , and downsized , fuel-efficient engines . at the same time , oems and suppliers are improving products to increase fuel economy and reduce emissions through lightweighting and efficiency initiatives . we are responding with ongoing research and development ( r & d ) activities that focus on fuel economy , emissions reductions and environmental improvements by integrating electronics and technology . through the development of our ecotrac ® disconnecting awd system , hybrid and electric driveline systems , quantum tm lightweight axle technology , high-efficiency axles , powerlite ® axles and powerdense ® gears , high strength connecting rod technology , refined vibration control systems , and forged axle tubes , we have significantly advanced our efforts to improve fuel efficiency , safety , and ride and handling performance while reducing emissions and mass . story_separator_special_tag these efforts have led to new business awards and further position us to compete in the global marketplace . in addition to aam 's organic growth in technology and processes , our acquisitions of metaldyne performance group , inc. ( mpg ) and certain operations of mitec automotive ag ( mitec ) , as well as our investment in our liuzhou aam joint venture , have provided us with complementary technologies , expanded our product portfolio , significantly diversified our global customer base , and strengthened our long-term financial profile through greater scale . the synergies achieved through our strategic initiatives have enhanced aam 's ability to compete in today 's technological and regulatory environment , while remaining cost competitive through increased scale and integration . 24 shift in consumer preference and oem production to light truck , cross-over vehicles ( cuvs ) and sport-utility vehicles ( suvs ) there has been a trend toward increased demand for light trucks , cuvs and suvs in certain markets , while demand for passenger cars has decreased . this increase in demand for light trucks , cuvs and suvs has been driven by changes in consumer preference as technology advancements have made these vehicles lighter and more efficient , while the stabilizing cost of fuel has made owning these vehicles more affordable . certain oems are responding to this change in consumer preference by shifting their focus to developing and manufacturing these types of vehicles , resulting in a significant reduction of passenger car vehicle programs , especially in north america . we have benefited from this trend as a significant portion of our business supports light truck , cuv and suv programs in north america . global automotive production and industry consolidation as countries around the world continue to increase in importance to the automotive industry , our customers continue to design their products to meet demand in global markets and therefore require global support from their suppliers . for this reason , it is critical that suppliers maintain a global presence in these markets in order to compete for new contracts . we have business and engineering offices around the world to support our global locations and provide technical solutions to our customers on a regional basis , including in china and europe where consumer acceptance of electric vehicles has been strong . the cyclical nature of the automotive industry , volatile commodity prices , the shifting demands of consumer preference , regulatory requirements and trade agreements require oems and suppliers to remain agile with regard to product development and global capability . a critical objective for oems and suppliers is the ability to meet these global demands while effectively managing costs . some oems and suppliers may be preparing for these challenges through merger and acquisition ( m & a ) activity , including potential increased m & a activity as a result of the recent economic impact of covid-19 , development of strategic partnerships and reduction of vehicle platform complexity . in order to effectively drive technology development , recognize cost synergies , and increase global footprint , the industry may continue to see consolidation in the supply base as companies recognize and respond to the need for scalability . evolution of the automotive industry as demand for car-sharing , ride-sharing and autonomous vehicles increases in addition to selling vehicles , oems are increasingly focused on offering their own car-sharing rental businesses and ride-sharing services . car-sharing typically allows consumers to rent a car for a short period of time , while ride-sharing matches people to available carpools or other services that provide on-demand mobility . with population growth , increased government regulations to ease congestion and generational shifts in preferences , it is expected that the markets for these services will continue to grow , which could cause a change in the type of vehicles utilized . however , the growth in this area may also be temporarily curtailed by the impact of covid-19 , as social distancing recommendations have led to reduced utilization of ride-sharing services by consumers . another trend developing is the expectation that autonomous , self-driving cars will become more common with continued advancements in technology . autonomous vehicles present many possible benefits , such as a reduction in traffic collisions caused by human error and reduced traffic congestion , but there are also foreseeable challenges such as liability for damage and software safety and reliability . the increased integration of electronics and vehicle connectivity that will likely be required in autonomous vehicle developments will provide an opportunity for suppliers , such as aam , with advanced capabilities in this area to be competitive in this expanding market . 25 the discussion of our results of operations , reportable segments , and liquidity and capital resources for 2019 , as compared to 2018 , can be found within `` part ii - item 7. management 's discussion and analysis of financial condition and results of operations '' in our 2019 annual report on form 10-k filed with the securities and exchange commission ( sec ) on february 14 , 2020 , which discussion is incorporated herein by reference . in the fourth quarter of 2019 , we completed the sale of the united states ( u.s. ) operations of our casting segment ( the casting sale ) . the casting sale did not include the entities that conduct aam 's casting operations in el carmen , mexico , which are now included in our driveline segment . the casting sale did not qualify for classification as discontinued operations , as it did not represent a strategic shift in our business that has had , or will have , a major effect on our operations and financial results . story_separator_special_tag mpg locations . this compares to acquisition-related costs and integration charges of $ 18.0 million in 2019. we expect to incur additional integration charges of approximately $ 5 million in 2021 as we finalize the integration of erp systems at legacy mpg locations . see note 2 - restructuring and acquisition-related costs for further detail .
| these reductions in cost of goods sold were partially offset as 2019 cost of goods sold reflects an estimated $ 159 million reduction associated with the gm work stoppage and there was no such impact in 2020. as a result of the malvern fire , we recorded $ 63.5 million of expenses and recorded an estimated insurance recovery receivable of $ 54.2 million , which resulted in a net impact to cost of goods sold of $ 9.3 million for the twelve months ended december 31 , 2020 , which includes our applicable deductible . see note 15 - manufacturing facility fire and insurance recovery for additional detail regarding the malvern fire . materials costs as a percentage of total cost of goods sold were approximately 55 % in 2020 and 56 % in 2019. gross profit gross profit was $ 582.7 million in 2020 as compared to $ 902.6 million in 2019. gross margin was 12.4 % in 2020 as compared to 13.8 % in 2019. gross profit and gross margin were impacted by the factors discussed in net sales and cost of goods sold above . while we were able to significantly reduce our variable costs during 2020 , the sharp decline in sales that began during the first quarter and extended into the second quarter as a result of the impact of covid-19 , as well as the magnitude of the decline in sales , resulted in a reduction of both gross profit and gross margin . selling , general and administrative expenses ( sg & a ) sg & a ( including r & d ) was $ 313.9 million in 2020 as compared to $ 364.7 million in 2019. sg & a as a percentage of net sales was 6.7 % in 2020 and 5.6 % in 2019. r & d spending was $ 117.4 million in 2020 as compared to $ 144.7 million in 2019. the change in sg & a in 2020 , as compared to 2019 , was primarily attributable to lower net r & d expense , which includes a customer engineering , design and development ( ed & d ) recovery of approximately $ 15 million . the decrease in sg & a
| 12,178 |
europe segment revenue was $ 181.9 million for the year ended december 31 , 2019 , a decrease of $ 62.3 million , or 25.5 % , compared to the year ended december 31 , 2018 , primarily due to the $ 75.3 million impact of the reclassification of network and processing fees in connection with the company 's adoption of asc 606 , partially offset by an increase of $ 13.0 million driven primarily by organic growth in poland , germany , ireland , and the united kingdom . operating expenses cost of services and products cost of services and products was $ 96.4 million for the year ended december 31 , 2019 , a decrease of $ 93.0 million , or 49.1 % , compared to the year ended december 31 , 2018 , primarily due to the company 's adoption of asc 606. excluding the impact of the reclassification of network and processing fees following the adoption of asc 606 , costs of services and products increased by $ 19.2 million , or 10.2 % , for the year ended december 31 , 2019 , primarily due to an increase in transactions processed and an increase in equipment sold . our cost of services and products includes both fixed and variable components , with variable components dependent upon transactions processed and the number merchants added . the increase in cost was due to the variable component from the increase in transactions and merchants during the year . 53 selling , general and administrative expenses selling , general and administrative expenses were $ 267.9 million for the year ended december 31 , 2019 , a decrease of $ 43.4 million , or 13.9 % , compared to the year ended december 31 , 2018. the decrease was due primarily to the vesting of share-based compensation awards upon the company 's ipo during the year ended december 31 , 2018 , which did not occur in the year ended december 31 , 2019. depreciation and amortization depreciation and amortization was $ 92.1 million for the year ended december 31 , 2019 , an increase of $ 4.9 million , or 5.6 % , compared to the year ended december 31 , 2018. this increase was due primarily to purchases of pos terminals to support growth in certain of our international markets and other hardware and software purchases as well as the amortization of intangible assets acquired during the second half of 2018. impairment of intangible assets for the year ended december 31 , 2019 , we recognized non-cash impairment charges of $ 13.1 million , primarily related to the termination of the raiffeisen bank polska marketing alliance agreement and the retirement of certain trademarks driven by an internal reorganization and the santander branch consolidation in spain . for the year ended december 31 , 2018 , we recognized a non-cash impairment charge of $ 14.6 million primarily related to the accelerated integration of the sterling tradename into the evo portfolio . interest expense interest expense was $ 44.0 million for the year ended december 31 , 2019 , compared to $ 59.8 million for the year ended december 31 , 2018. the decrease was due to lower average variable interest rates , partially offset by the use of debt for acquisitions . gain on acquisition of unconsolidated investee gain on acquisition of unconsolidated investee was $ 8.4 million for the year ended december 31 , 2018 related to the fair value mark-up on the acquisition of a previously minority owned subsidiary . income tax expense income tax expense represents federal , state , local and foreign taxes based on income in multiple domestic and foreign jurisdictions . historically , as a limited liability company treated as a partnership for u.s. federal income tax purposes , evo , llc 's income was not subject to corporate tax in the united states , but only on income earned in foreign jurisdictions . in the united states , our members were taxed on their proportionate share of income of evo , llc . however , following the reorganization transactions , we incur corporate tax at the u.s. federal income tax rate on our share of taxable income of evo , llc . our income tax expense reflects such u.s. federal , state and local income tax as well as taxes payable in foreign jurisdictions by certain of our subsidiaries . our income tax expense was $ 4.5 million for the year ended december 31 , 2019 , compared to income tax expense of $ 10.4 million for the year ended december 31 , 2018. net loss net loss was $ 23.4 million for the year ended december 31 , 2019 , a decrease of $ 75.5 million , compared to net loss of $ 98.9 million for the year ended december 31 , 2018. this improvement was due to growth in revenue and lower share-based compensation and interest expense for the year ended december 31 , 2019 , compared to the year ended december 31 , 2018 . 54 net loss attributable to non-controlling interests of evo investco , llc net income ( loss ) attributable to non-controlling interests arises from the non-owned portion of businesses where we have a controlling interest but less than 100 % ownership . this represents both the non-controlling interests that are consolidating entities of evo , llc and evo , llc non-controlling interest . net loss attributable to non-controlling interests of evo investco , llc was $ 21.1 million for the year ended december 31 , 2019 , compared to net loss attributable to non-controlling interests of evo investco , llc of $ 90.8 million for the year ended december 31 , 2018. this decrease was due to lower net loss before non-controlling interests , as described in the previous paragraph . segment performance americas segment profit for the year ended december 31 , 2019 was $ 96.6 million , compared to $ 85.4 million for the year ended december 31 , 2018 , an increase of 13.1 % . story_separator_special_tag the increase is primarily due to growth in our underlying united states and mexican markets in the year ended december 31 , 2019 and the non-cash impairment charge of $ 14.6 million recognized in the year ended december 31 , 2018. americas segment profit margin was 31.8 % for the year ended december 31 , 2019 , compared to 26.6 % for the year ended december 31 , 2018. excluding the impact of the reclassification of network and processing fees following the adoption of asc 606 , americas segment profit margin was 28.4 % for the year ended december 31 , 2019. europe segment profit was $ 55.3 million for the year ended december 31 , 2019 , compared to $ 61.2 million for the year ended december 31 , 2018 , a decrease of 9.6 % . the decrease is primarily due to revenue declines in spain and integration expenses related to acquisitions . europe segment profit margin was 30.4 % for the year ended december 31 , 2019 , compared to 25.1 % for the year ended december 31 , 2018. excluding the impact of the reclassification of network and processing fees following the adoption of asc 606 , europe segment profit margin was 21.5 % for the year ended december 31 , 2019. corporate expenses not allocated to a segment were $ 34.5 million for the year ended december 31 , 2019 , compared to $ 41.4 million for the year ended december 31 , 2018. the decrease in expense is due to initial public company costs for the year ended december 31 , 2018 , which we did not incur in the year ended december 31 , 2019. comparison of results for the years ended december 31 , 2018 and 2017 the comparison of results for the years ended december 31 , 2018 and 2017 that are not included in this form 10-k are included in “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of our annual report on form 10-k for the fiscal year ended december 31 , 2018. liquidity and capital resources for the years ended december 31 , 2019 and 2018 overview we have historically funded our operations primarily with cash flow from operations and , when needed , with borrowings , including under our senior secured credit facilities . our principal uses for liquidity have been debt service , capital expenditures , working capital and funds required to finance acquisitions . we expect to continue to use capital to innovate and advance our products as new technologies emerge and to accommodate new regulatory requirements in the markets in which we process transactions . we expect these strategies to be funded primarily through cash flow from operations and borrowings from our senior secured credit facilities , as needed . short-term liquidity needs will primarily be funded through the revolving credit facility portion of our senior secured credit facilities . as of december 31 , 2019 , our capacity under the revolving credit facility portion of our senior secured credit facilities was $ 200.0 million , with availability of $ 138.4 million for additional borrowings . to the extent that additional funds are necessary to finance future acquisitions , and to meet our long-term liquidity needs as we continue to execute on our strategy , we anticipate that they will be obtained through additional indebtedness , equity or debt issuances , or both . 55 we have structured our operations in a manner to allow for cash to be repatriated through tax-efficient methods using dividends from foreign jurisdictions as our main source of repatriation . we follow local government regulations and contractual restrictions which regulate the nature of cash as well as how much and when dividends can be repatriated . as of december 31 , 2019 , cash and cash equivalents of $ 304.1 million includes cash in the united states of $ 110.8 million and $ 193.3 million in foreign jurisdictions . of the united states cash balances , $ 109.9 million is considered merchant reserves and settlement related cash and is therefore unavailable for the company 's use . of the foreign cash balances , $ 5.0 million is related to the non-controlling interest portion of our consolidated entities and $ 33.5 is available for general purposes . the remaining $ 154.8 million is considered settlement and merchant reserves related cash and is therefore unable to be repatriated . we do not intend to pay cash dividends on our class a common stock in the foreseeable future . evo , inc. is a holding company that does not conduct any business operations of its own . as a result , evo , inc. 's ability to pay cash dividends on its common stock , if any , is dependent upon cash dividends and distributions and other transfers from evo , llc . the amounts available to evo , inc. to pay cash dividends are subject to the covenants and distribution restrictions in its subsidiaries ' loan agreements . in connection with our ipo , we entered into the exchange agreement with certain of the continuing llc owners , under which these continuing llc owners have the right , from time to time , to exchange their units in evo , llc and related shares of evo , inc. for shares of our class a common stock or , at our option , cash . if we choose to satisfy the exchange in cash , we anticipate that we will fund such exchange through cash from operations , funds available under the revolving portion of our senior secured credit facilities , equity or debt issuances or a combination thereof . in addition , in connection with the ipo , we entered into a tax receivable agreement ( “ tra ” ) with the continuing llc owners .
| · the company processed approximately 3.6 billion transactions across the americas and europe in the year ended december 31 , 2019 , an increase of 16.8 % from the year ended december 31 , 2018. factors impacting our business and results of operations in general , our revenue is impacted by factors such as global consumer spending trends , foreign exchange rates , the pace of adoption of commerce-enablement and payment solutions , acquisitions and dispositions , types and quantities of products and services provided to enterprises , timing and length of contract renewals , new enterprise wins , retention rates , mix of payment solution types employed by consumers , changes in card network fees including interchange rates and size of enterprises served . in addition , we may pursue acquisitions from time to time . these acquisitions could result in redundant costs , such as increased interest expense resulting from any indebtedness incurred to finance any acquisitions , or could require us to incur losses as we restructure or reorganize our operations following these acquisitions . seasonality we have experienced in the past , and expect to continue to experience , seasonality in our revenues as a result of consumer spending patterns . in both the americas and europe , our revenue has been strongest in our fourth quarter and weakest in our first quarter as many of our merchants experience a seasonal lift during the traditional vacation and holiday months . operating expenses do not typically fluctuate seasonally . 1 the company adopted asc 606 using the modified retrospective method as of january 1 , 2019 , and did not restate the comparative prior periods . therefore , management 's discussion and analysis includes discussion of the results of operations excluding the impact of adoption of the standard to provide comparability across the periods presented in the financial statements . 51 foreign currency translation impact on our operations our consolidated revenues and expenses are subject to variations caused by the net effect of foreign currency translation on revenues recognized and expenses incurred by our non-u.s .
| 12,179 |
Subsets and Splits
No community queries yet
The top public SQL queries from the community will appear here once available.