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demand for research models and services improved modestly in fiscal year 2016. we remain confident in the long-term drivers of this business because research models and services remain essential tools for our clients ' drug discovery and early-stage development efforts . acquisitions we continued to make strategic acquisitions designed to expand our portfolio of services to support the drug discovery and early-stage development continuum and position us as a market leader in the outsourced discovery services market . fiscal year 2016 acquisitions included : on april 4 , 2016 , we acquired wil research , a provider of safety assessment and contract development and manufacturing ( cdmo ) services to biopharmaceutical and agricultural and industrial chemical companies worldwide . the acquisition enhanced our position as a leading global early-stage cro by strengthening our ability to partner with clients across the drug discovery and development continuum . the purchase price for wil research was $ 604.8 million , including assumed liabilities of $ 0.4 million , and was funded by cash on hand and borrowings on our amended credit facility . on june 27 , 2016 , we acquired blue stream , an analytical cro supporting the development of complex biologics and biosimilars . combining blue stream with our existing discovery , safety assessment , and biologics capabilities creates a leading provider with the ability to support biologic and biosimilar development from characterization through clinical testing and commercialization . the purchase price for blue stream was $ 11.7 million , including $ 3.0 million in contingent consideration , and was subject to certain customary adjustments . the acquisition was funded by borrowings on our revolving credit facility . on september 28 , 2016 , we acquired agilux , a cro that provides a suite of integrated discovery small and large molecule bioanalytical services , drug metabolism and pharmacokinetic ( dmpk ) services , and pharmacology services . the acquisition supports our strategy to offer clients a broader , integrated portfolio that provides services continuously from the earliest stages of drug research through the nonclinical development process . the purchase price for agilux was $ 64.9 million in cash and was funded by borrowings on our revolving credit facility . segment reporting we report our performance in three reportable segments : research models and services ( rms ) , discovery and safety assessment ( dsa ) , and manufacturing support ( manufacturing ) . we aggregate our operating segments into a reportable segment if ( a ) they have similar economic characteristics ; ( b ) they are similar in the in the nature of the products or services , nature of the production process , type or class of customer for their products and services , methods used to distribute their products and services and nature of the regulatory environment ; and ( c ) the aggregation helps users better understand our performance . in the second quarter of 2016 , we acquired wil research . wil research 's safety assessment business is reported in our dsa reportable segment and its cdmo business created a new operating segment , contract manufacturing , that is reported as part of our manufacturing reportable segment . on february 10 , 2017 , we divested the cdmo business . in addition , amounts due to changes in our market strategy for certain services and resulting information provided to the chief operating decision maker were reclassified from our rms reportable segment to our manufacturing reportable segment , including revenue of $ 2.8 million and $ 3.7 million for fiscal years 2015 and 2014 , respectively , and operating income of $ 0.5 million and $ 0.6 million for fiscal years 2015 and 2014 , respectively . we reported segment results on this basis for all periods presented in this annual report on form 10-k. 31 the revised reportable segments are as follows : research models and services discovery and safety assessment manufacturing support research models discovery services microbial solutions research model services safety assessment avian biologics contract manufacturing our rms segment includes the research models and research model services businesses . research models includes the commercial production and sale of small research models , as well as the supply of large research models . research model services includes three business units : genetically engineered models and services ( gems ) , which performs contract breeding and other services associated with genetically engineered research models ; research animal diagnostic services ( rads ) , which provides health monitoring and diagnostics services related to research models ; and is , which provides management of our clients ' research operations ( including recruitment , training , staffing , and management services ) . our dsa segment includes services required to take a drug through the early development process including discovery services , which are non-regulated services to assist clients with the identification , screening , and selection of a lead compound for drug development , and regulated and non-regulated safety assessment services . our manufacturing segment includes microbial solutions , which includes in vitro ( non-animal ) lot-release testing products and microbial detection , conventional and rapid quality control testing of sterile and non-sterile biopharmaceutical and consumer products , and species identification services ; biologics , which performs specialized testing of biologics ; avian vaccine services ( avian ) , which supplies specific-pathogen-free fertile chicken eggs and chickens ; and contract manufacturing , which , until we divested this business on february 10 , 2017 , specialized in formulation design and development , manufacturing , and analytical and stability testing for small molecules . fiscal quarters our fiscal year is typically based on 52-week s , with each quarter comp osed of 13 weeks ending on the last saturday on , or closest to , march 31 , june 30 , september 30 , and december 31. a 53 rd week was included in fiscal year 2016 , which is occasionally necessary to align with a december 31 calendar year-end . the additional week was included in the fourth quarter . story_separator_special_tag critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements prepared in accordance with generally accepted accounting principles in the united states ( u.s. ) . the preparation of these financial statements requires us to make certain estimates and assumptions that may affect the reported amounts of assets and liabilities , the reported amounts of revenues and expenses during the reported periods and related disclosures . these estimates and assumptions are monitored and analyzed by us for changes in facts and circumstances , and material changes in these estimates could occur in the future . we base our estimates on our historical experience , trends in the industry , and various other factors that are believed to be reasonable under the circumstances . actual results may differ from our estimates under different assumptions or conditions . we believe that our application of the following accounting policies , each of which require significant judgments and estimates on the part of management , are the most critical to aid in fully understanding and evaluating our reported financial results . our significant accounting policies are more fully described in note 1 , “ description of business and summary of significant accounting policies ” , to our consolidated financial statements contained in item 8 , “ financial statements and other supplementary data ” in this annual report on form 10-k. we believe the following represent our critical accounting policies and estimates used in the preparation of our financial statements : revenue recognition we recognize revenue when all of the following conditions are satisfied : persuasive evidence of an arrangement exists , delivery has occurred or services have been provided , our price to the customer is fixed or determinable , and collectibility is reasonably assured . service revenue is generally evidenced by client contracts , which range in duration from a few weeks to a few years and typically take the form of an agreed upon rate per unit or fixed fee arrangements . such contracts typically do not contain acceptance provisions based upon the achievement of certain study or laboratory testing results . revenue of agreed upon rate per unit contracts is recognized as services are performed , based upon rates specified in the contract . in cases where 32 performance spans reporting periods , revenue of fixed fee contracts is recognized as services are performed , measured on the ratio of outputs or performance obligations completed to the total contractual outputs or performance obligations to be provided . changes in estimated effort to complete the fixed fee contract are reflected in the period in which the change becomes known . changes in scope of work are common , especially under long-term contracts , and generally result in a change in contract value . once the parties have agreed to the changes in scope and renegotiated pricing terms , the contract value is amended and revenue is typically recognized as described above . most contracts are terminable by the client , either immediately or upon notice . these contracts often require payment to us of expenses to wind down the project , fees earned to date or , in some cases , a termination fee . such payments are included in revenues when earned . we recognize product revenue , net of allowances for estimated returns , rebates and discounts , when title and risk of loss pass to customers . when we sell equipment with specified acceptance criteria , we assess our ability to meet the acceptance criteria in order to determine the timing of revenue recognition . we would defer revenue until completion of customer acceptance testing if we are not able to demonstrate the ability to meet such acceptance criteria . a portion of our revenue is from multiple-element arrangements that include multiple products and or services as deliverables in a single arrangement , with each deliverable , or a combination of the deliverables , representing a separate unit of accounting . we allocate revenues to each element in a multiple-element arrangement based upon the relative selling price of each deliverable . revenue allocated to each deliverable is then recognized when all revenue recognition criteria are met . judgments as to the identification of deliverables , units of accounting , the allocation of consideration to the deliverable , and the appropriate timing of revenue recognition are critical with respect to these arrangements . at the inception of each arrangement that includes milestone payments , we evaluate whether each milestone is substantive . this evaluation includes an assessment of whether ( a ) the consideration is commensurate with either ( 1 ) our performance to achieve the milestone , or ( 2 ) the enhancement of the value of the delivered item ( s ) as a result of a specific outcome resulting from our performance to achieve the milestone ; ( b ) the consideration relates solely to past performance ; and ( c ) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement . we evaluate factors such as the scientific , clinical , regulatory , and other risks that must be overcome to achieve the respective milestone , the level of effort and investment required , and whether the milestone consideration is reasonable relative to all deliverables and payment terms in the arrangement in making this assessment . if a substantive milestone is achieved and collection of the related receivable is reasonably assured , we recognize revenue related to the milestone in its entirety in the period in which the milestone is achieved . if we were to achieve milestones that we consider substantive under any of our revenue arrangements , we may experience significant fluctuations in our revenue from quarter to quarter and year to year depending on the timing of achieving such substantive milestones .
| manufacturing revenue increased $ 70.1 million due to higher revenue in the microbial solutions business , which includes the acquisition of the celsis business that contributed $ 17.9 million to revenue growth ; higher revenue in the biologics business , which includes the blue stream acquisition that contributed $ 4.1 million to revenue growth ; higher revenue in the avian business , primarily due to the acquisition of the sunrise business that contributed $ 4.9 million to revenue growth ; and contract manufacturing revenue related to the cdmo services of wil research acquired in april 2016 that contributed $ 12.6 million to revenue growth ; partially offset by the negative effect of changes in foreign currency exchange rates . the following table presents consolidated revenue by type : replace_table_token_4_th service revenue increased $ 272.5 million due to higher revenue in the safety assessment business , primarily as a result of the wil research acquisition that contributed $ 163.5 million to service revenue growth , and increased study volume , mix of services , and pricing in our legacy business ; and higher revenue in discovery services ' in vivo business , which includes the acquisitions of oncotest and agilux that contributed $ 14.6 million to revenue growth ; contract manufacturing revenue related to the cdmo services of wil research acquired in april 2016 that contributed $ 12.6 million to revenue growth ; higher revenue in the biologics business , which includes the blue stream acquisition that contributed $ 4.1 million to revenue growth ; and higher research model services revenue in north america , europe , and japan ; partially offset by lower early discovery revenue due primarily to softer demand from global clients ; and the negative effect of changes in foreign currency exchange rates . product revenue increased $ 45.6 million due to higher revenue in microbial solutions and avian , which included the acquisitions of the celsis and sunrise businesses , respectively , and in total contributed $ 22.1 million to product revenue growth ; and higher research model revenue in north america , europe , and asia ; partially offset by the negative effect of changes in foreign currency exchange rates . 37 cost of services provided and products sold ( excluding amortization of intangible assets ) the following table presents consolidated cost of services provided and products sold ( excluding amortization of intangible assets ) by reportable segment : replace_table_token_5_th cost of services provided and products sold ( excluding amortization of intangible assets ) ( costs ) for fiscal year 2016 increased $ 202.5 million , or 24.3 % , compared with
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the number of consultants , confirmation trends , number of searches or projects completed , productivity levels and the average revenue per search or project will vary from quarter to quarter , affecting net revenue and operating margin . our compensation model at the executive search consultant level , there are fixed and variable components of compensation . individuals are rewarded for their performance based on a system that directly ties a portion of their compensation to the amount of net revenue for which they are responsible . a portion of the reward may be based upon individual performance against a series of non-financial measures . credit towards the variable portion of an executive search consultant 's compensation is earned by generating net revenue for winning and executing work . each quarter , we review and update the expected annual performance of all executive search consultants and accrue variable compensation accordingly . the amount of variable compensation that is accrued for each executive search consultant is based on a tiered payout model . overall company performance determines the amount available for total variable compensation . the more net revenue that is generated by the consultant , the higher the percentage credited towards the consultant 's variable compensation and thus accrued by our company as expense . at the heidrick consulting consultant level , there are also fixed and variable components of compensation . overall compensation is determined based on the total economic contribution of the heidrick consulting segment to the business as a whole . individual consultant compensation can vary and is derived from credits earned for delivering client work plus credits earned for contributions of intellectual and human capital , client relationship development and consulting practice development . each quarter , we review and update the expected annual performance of all heidrick consulting consultants and accrue variable compensation accordingly . the mix of individual consultants who generate revenue in executive search and economic contributions in heidrick consulting can significantly affect the total amount of compensation expense recorded , which directly impacts operating margin . as a result , the variable portion of the compensation expense may fluctuate significantly from quarter to quarter . the total variable compensation is discretionary and is based on company-wide financial targets approved by the human resources and compensation committee of the board of directors . a portion of the company 's management cash bonuses are deferred and paid over a three-year vesting period . the portion of the bonus is approximately 15 % depending on the employee 's level or position . the compensation expense related to the amounts being deferred is recognized on a graded vesting attribution method over the requisite service period . this service period begins on january 1 of the respective fiscal year and continues through the deferral date , which coincides with the company 's bonus payments in the first quarter of the following year and for an additional three-year vesting period . the deferrals are recorded in accrued salaries and benefits within both current liabilities and non-current liabilities in the consolidated balance sheets . historically , the company 's consultants participated in the same cash bonus deferral program as management . in 2020 , the company terminated the cash bonus deferral for consultants and now pays 100 % of the cash bonuses earned by consultants in the first quarter of the following year . consultant cash bonuses earned prior to 2020 will continue to be paid under the terms of the cash bonus deferral program . 21 impact of covid-19 on march 11 , 2020 , the world health organization designated covid-19 as a global pandemic . covid-19 has significantly impacted various markets around the world , including the united states . with infections reported throughout the world , certain governmental authorities have issued stay-at-home orders , proclamations and or directives aimed at minimizing the spread of the pandemic . additional , more restrictive proclamations and or directives may be issued in the future . we temporarily closed our offices and shifted our workforce to remote operations to ensure the safety of our employees . our offices are now accessible to our employees , however , we continue to encourage all employees to work remotely . during this uncertain time , our critical priorities are : the health and safety of our employees , clients and their families ; providing support to our clients ; and helping our clients accelerate their business performance and transform with agility . in response to working remotely , our executive search teams employed our robust digital search platform , heidrick connect , to operate effectively and efficiently while engaging virtually with our clients . additionally , we have introduced upgrades to heidrick connect , resulting in greater flexibility , increased productivity and the ability to deliver more insights to our clients . our heidrick consulting teams have pivoted to create new digital solutions for leadership assessments , team acceleration , and organization and culture acceleration that can be delivered virtually in response to required social distancing practices . beginning in the second quarter , we experienced a decline in demand for our executive search and consulting services , a lengthening of the executive search process due to a slow-down in client decision making and an inability to execute in-person consulting engagements , which had a material adverse impact on our results of operations . story_separator_special_tag the extent to which the pandemic continues to impact our business , operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict , including , but not limited to : the duration and scope of the pandemic ; the impact of the pandemic , and actions taken in response to the pandemic , on economic activity ; governmental , business and individuals ' actions that have been and continue to be taken in response to the pandemic ; restrictions inhibiting our employees ' ability to access our offices ; the effect on our clients and client demand for our services and solutions ; our ability to sell and provide our services and solutions , including as a result of travel restrictions and people working from home ; and the ability of our clients to pay for our services and solutions . 22 we expect that all of our business segments , across all of our geographies , will continue to be impacted by the pandemic and actions taken in response to the pandemic , but the significance of the impact of the pandemic on our business and the duration for which it may have an impact can not be determined at this time . specific factors that may impact our business include , but are not limited to : a decline in demand for our executive search and consulting services due to temporary and permanent workforce reductions , and general economic uncertainty ; a lengthening of the executive search process due to a slow-down in client decision making ; an increase in executive searches placed on hold due to delays in planned work by our clients ; an inability to execute in-person consulting engagements ; and disruptions in business operations for offices in areas most impacted by the pandemic , including the united states , united kingdom , italy , spain , china and brazil . during the year ended december 31 , 2020 , and as a direct result of the economic impact of covid-19 , we experienced a decline in demand for our executive search services and a lengthening of the executive search process due to a slow-down in client decision making , which had a material adverse impact on our results of operations . as a result , we identified a triggering event and performed an interim goodwill impairment evaluation during the three months ended june 30 , 2020 resulting in the impairment of the goodwill in our europe and asia pacific reporting units . we also evaluated the recoverability our intangible and other long-lived assets and determined that no impairment was necessary . we continue to monitor the impact of the economic downturn for additional potential impairment of goodwill , other intangible assets and long-lived assets . we believe we have sufficient liquidity to satisfy our cash needs , however , we continue to evaluate and take action , as necessary , to preserve adequate liquidity and ensure that our business can continue to operate during these uncertain times . in the event we require additional liquidity , our 2018 credit agreement ( as defined below ) provides us with a senior unsecured revolving line of credit with an aggregate commitment of $ 175 million , which includes a sublimit of $ 25 million for letters of credit and a $ 10 million swingline loan sublimit . the agreement also includes a $ 75 million expansion feature . in the third quarter , we implemented a restructuring plan to optimize future growth and profitability . the expected annual cost savings from the restructuring ranges from $ 30 million to $ 40 million . the primary components of the restructuring include a workforce reduction , and a reduction of the firm 's real estate expenses , professional fees and the future elimination of certain deferred compensation programs . as part of this restructuring plan , we implemented several real estate initiatives including downsizing and terminating certain of our existing office leases . our success working from home , utilizing heidrick connect and our digital consulting solutions , allowed us to reevaluate how we utilize our offices and plan to use them in a post-pandemic environment . upon the expiration of the leases included in the restructuring , we will have reduced our square footage under lease by approximately 20 % . moving forward , we will continue with our real estate strategy , which consists of three objectives : 1 ) matching our real estate footprint to the new , post-pandemic office occupancy expectations 2 ) creating open and collaborative environments , including unassigned work spaces that facilitate work from anywhere ; and 3 ) increasing our focus on reducing our carbon footprint as part of our long-term sustainability goals . we believe we have opportunity to further decrease costs primarily through lease renewals and rightsizing offices where it makes business sense . we have not experienced any material impact to our internal controls over financial reporting due to the pandemic . we are continually monitoring and assessing the pandemic situation on our internal controls to minimize the impact on their design and operating effectiveness . 2020 overview consolidated net revenue was $ 621.6 million for the year ended december 31 , 2020 , a decrease of $ 85.3 million , or 12.1 % , compared to 2019. executive search net revenue was $ 565.2 million in 2020 , a decrease of $ 81.2 million compared to 2019. the decrease in executive search net revenue was the result of declines in asia pacific , the americas , and europe . the number of executive search consultants was 361 as of december 31 , 2020 , compared to 380 as of december 31 , 2019. executive search productivity , as measured by annualized net executive search revenue per consultant was $ 1.5 million and $ 1.7 million 23 for the years ended december 31 , 2020 and 2019 , respectively .
| consolidated total revenue decreased $ 96.2 million , or 13.3 % , to $ 629.4 million in 2020 from $ 725.6 million in 2019. the decrease in total revenue was primarily due to the decrease in revenue before reimbursements ( net revenue ) . revenue before reimbursements ( net revenue ) . consolidated net revenue decreased $ 85.3 million , or 12.1 % , to $ 621.6 million in 2020 from $ 706.9 million in 2019. foreign exchange rates negatively impacted results by $ 0.9 million , or 0.1 % . executive search net revenue was $ 565.2 million in 2020 , a decrease of $ 81.2 million , or 12.6 % , compared to 2019. the decrease in executive search net revenue was the result of declines in all three executive search regions . heidrick consulting net revenue decreased $ 4.1 million , or 6.8 % , to $ 56.4 million in 2020 from $ 60.6 million in 2019. both executive search revenue and heidrick consulting revenue were materially impacted by the ongoing covid-19 pandemic . significant factors contributing to the decline in revenue include a decline in demand for our executive search and consulting services , a lengthening of the executive search process due to a slow-down in client decision making and an inability to execute in-person consulting engagements . the number of executive search and heidrick consulting consultants was 361 and 65 , respectively , as of december 31 , 2020 , compared to 380 and 71 , respectively , as of december 31 , 2019. executive search productivity , as measured by annualized net executive search revenue per consultant , was $ 1.5 million and $ 1.7 million for the years ended december 31 , 27 2020 and 2019 , respectively . the number of confirmed searches decreased 6.3 % , compared to 2019. the average revenue per executive search decreased to $ 123,200 in 2020 compared to $ 132,000 in 2019. salaries and benefits . consolidated salaries and benefits expense decreased $ 51.4 million , or 10.2 % , to $ 450.4 million in 2020 from $ 501.8
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we expect that our ability to maintain strong relationships with the largest builders will be vital to our ability to expand into new markets as well as grow our market share . additionally , we have been successful in expanding our custom homebuilder base while maintaining acceptable credit standards . repair and remodel end market . although the repair and remodel end market is influenced by housing starts to a lesser degree than the homebuilding market , the repair and remodel end market is still dependent upon some of the same factors as the homebuilding market , including demographic trends , interest rates , consumer confidence , employment rates , foreclosure rates , and the health of the economy and home financing markets . we expect that our ability to remain competitive in this space as well as grow our market share will depend on our continued ability to provide a high level of customer service coupled with a broad product offering . use of prefabricated components . homebuilders are increasingly using prefabricated components in order to realize increased efficiency and improved quality . shortening cycle time from start to completion is a key imperative of the homebuilders during periods of strong consumer demand . while the conversion of customers to this product offering slowed during the downturn , we see the demand for prefabricated components increasing as the residential new construction market continues to strengthen and the availability of skilled construction labor remains limited . economic conditions . economic changes both nationally and locally in our markets impact our financial performance . the building products supply industry is highly dependent upon new home construction and subject to cyclical market changes . our operations are subject to fluctuations arising from changes in supply and demand , national and local economic conditions , labor costs and availability , competition , government regulation , trade policies and other factors that affect the homebuilding industry such as demographic trends , interest rates , housing starts , the availability of suitable building lots , employment levels , consumer confidence , and the availability of credit to homebuilders , contractors , and homeowners . cost of materials . prices of wood products , which are subject to cyclical market fluctuations , may adversely impact operating income when prices rapidly rise or fall within a relatively short period of time . we purchase certain materials , including lumber products , which are then sold to customers as well as used as direct production inputs for our manufactured and prefabricated products . short-term changes in the cost of these materials , some of which are subject to significant fluctuations , are sometimes passed on to our customers , but our pricing quotation periods may limit our ability to pass on such price changes . we may also be limited in our ability to pass on increases on in-bound freight costs on our products . our inability to pass on material price increases to our customers could adversely impact our operating results . controlling expenses . another important aspect of our strategy is controlling costs and striving to be the low-cost building materials supplier in the markets we serve . we pay close attention to managing our working capital and operating expenses . further , we pay careful attention to our logistics function and its effect on our shipping and handling costs . multi-family and light commercial business . our primary focus has been , and continues to be , on single-family residential new construction and the repair and remodel end market . however , we will continue to identify opportunities for profitable growth in the multi-family and light commercial markets . reduction of debt : as a result of our historical growth through acquisitions , we have substantial indebtedness . debt reduction will continue to be a key area of focus for the company . recent developments during the year ended december 31 , 2017 , the company executed three debt transactions which are described in note 8 to the consolidated financial statements included in item 8 of this annual report on form 10-k. these transactions further extended our debt maturity profile and reduced our annual cash interest on a go forward basis . on december 22 , 2017 , the 2017 tax act became enacted law . the effects of the 2017 tax act on our financial statements for the year ended december 31 , 2017 are discussed in more detail below as well as in note 11 to the consolidated financial statements included in item 8 of this annual report on form 10-k. the 2017 tax act , among several other substantial changes , reduces the statutory federal income tax rate from 35 % to 21 % for periods beginning after december 31 , 2017. we generally expect the 2017 tax act to have a positive impact on our business due to the anticipated reduction in federal cash tax payments . 25 current operating conditions and outlook though the level of housing starts remains below the historical average , the homebuilding industry has shown improvement since 2011. according to the u.s. census bureau , actual u.s. total housing starts for 2017 were 1,202,900 , an increase of 2.5 % compared to 2016. actual u.s. single-family housing starts for 2017 were 848,900 , an increase of 8.6 % compared to 2016. while the housing industry has strengthened over the past few years , the limited availability of credit to smaller homebuilders and potential homebuyers , as well as the high demand for a limited supply of skilled construction labor , among other factors , have hampered a stronger recovery . story_separator_special_tag a composite of third party sources , including the nahb , are forecasting 1,292,000 u.s. total housing starts and 921,000 u.s. single-family housing starts for 2018 , which are increases of 7.4 % and 8.5 % , respectively , from 2017. in addition , the home improvement research institute ( “ hiri ” ) is forecasting sales in the professional repair and remodel end market to increase approximately 2.5 % in 2018 compared to 2017. our net sales for the year ended december 31 , 2017 were up 10.5 % over the same period last year . we estimate that our sales volume increased 4.3 % , while commodity price inflation resulted in an additional 6.2 % increase in sales in 2017 compared to 2016. for the year ended december 31 , 2017 sales volume growth in single-family and the repair and remodel end market were partially offset by declines in multi-family . our gross margin percentage decreased by 0.5 % during the year ended december 31 , 2017 compared to the year ended december 31 , 2016. our gross margin percentage decreased primarily due to gross profit margin compression on commodity products resulting from inflation in the lumber and lumber sheet goods markets during most of 2017. we continue to invest in our business to improve our operating efficiency , which has allowed us to better leverage our operating costs against changes in net sales . our selling , general and administrative expenses , as a percentage of net sales , were 20.5 % for the year ended december 31 , 2017 , a 0.9 % decrease from 21.4 % in 2016. the decrease in selling , general and administrative expenses , as a percentage of net sales , was due to cost leverage as well as the decline in depreciation and amortization on acquired probuild assets , partially offset by investments the company made towards growth initiatives , including additional sales associates and new locations . we believe the long-term outlook for the housing industry is positive due to growth in the underlying demographics . we feel we are well-positioned to take advantage of the construction activity in our markets and to increase our market share , which may include strategic acquisitions . we will continue to focus on working capital by closely monitoring the credit exposure of our customers and by working with our vendors to improve our payment terms and pricing on our products . we strive to achieve the appropriate balance of short-term expense control while maintaining the expertise and capacity to grow the business as market conditions improve . in addition , debt reduction will continue to be a key area of focus for the company . story_separator_special_tag roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > due to the probuild acquisition , we achieved increased net sales across all product categories . our sales classification by product categories has shifted as we diversified our product offerings to support a broader customer base across 40 states through the probuild acquisition . gross margin . gross margin increased $ 695.3 million to $ 1,596.7 million . of this increase , $ 656.8 million is due to the probuild acquisition . our gross margin percentage decreased to 25.1 % in 2016 from 25.3 % in 2015 , a 0.2 % decrease . our gross margin percentage decreased primarily due to the impact of commodity price inflation relative to our short-term customer pricing commitments during the year ended december 31 , 2016. however , this decrease was mostly offset by an increase in our gross margin percentage largely attributable to the probuild acquisition , the result of probuild 's higher mix of higher margin repair & remodel and retail sales . selling , general and administrative expenses . selling , general and administrative expenses increased $ 549.7 million , or 67.8 % , largely due to the probuild acquisition . our salaries and benefits expense was $ 894.3 million , an increase of $ 383.7 million from 2015 , largely due to increased full-time equivalent employees following the probuild acquisition . delivery expense increased $ 65.9 million , office general and administrative expense increased $ 46.5 million , occupancy expense increased $ 45.9 million and intangible asset amortization increased $ 10.7 million . these increases were primarily a result of the probuild acquisition , the related integration activities and increased sales volume . these increases were partially offset by a $ 4.2 million decrease in facility closure costs . as a percentage of net sales , selling , general and administrative expenses decreased from 22.7 % in 2015 to 21.4 % in 2016 largely due to the benefit of synergy cost savings . synergy cost savings were primarily attributable to reduced payroll and benefits expense , as well as decreased delivery costs and location consolidations . interest expense , net . interest expense was $ 214.7 million in 2016 , an increase of $ 105.5 million from 2015. of the $ 105.5 million increase , $ 49.6 million was attributable to increased interest expense associated with our increased debt balances following the probuild acquisition financing and subsequent refinancing transactions , $ 28.1 million was attributable to losses on debt extinguishment largely due to the payment of redemption premiums on our 2021 and 2023 notes , $ 17.6 million was related to increased amortization and write-off of debt discount and debt issuance costs largely due to our debt transactions during the year ended december 31 , 2016 , and $ 14.2 million was due to interest expense primarily related to lease obligations assumed in the probuild acquisition . these increases were partially offset by a $ 4.6 million decrease in interest expense due to non-cash fair value adjustments related to the exercise of all remaining stock warrants in 2015. income tax expense .
| in addition , we recognized a $ 4.2 million loss on the disposal of assets during the year ended december 31 , 2017 compared to a gain of $ 5.0 million during the year ended december 31 , 2016. as a percentage of net sales , selling , general and administrative expenses decreased from 21.4 % in 2016 to 20.5 % in 2017 due to cost leverage as well as the decline in depreciation and amortization on acquired probuild assets , partially offset by investments the company made towards growth initiatives , including additional sales associates and new locations . interest expense , net . interest expense was $ 193.2 million in 2017 , a decrease of $ 21.5 million from 2016. this decrease was largely attributable to the positive results of our debt transactions executed in fiscal years 2016 and 2017. interest expense for the years ended december 31 , 2017 and 2016 included one-time charges related to the debt financing transactions of $ 58.7 million and $ 57.0 million , respectively . income tax expense . we recorded income tax expense of $ 53.1 million during the year ended december 31 , 2017 compared to an income tax benefit of $ 122.7 million during the year ended december 31 , 2016. due to the enactment of the 2017 tax act , we recorded income tax expense of $ 29.0 million for the year ended december 31 , 2017 related to the revaluation of our net deferred tax assets . we recorded reductions of $ 2.8 million and $ 131.7 million in the after tax non-cash valuation allowance on our net deferred tax assets for the years ended december 31 , 2017 and 2016 , respectively . for the year ended december 31 , 2017 , our effective tax rate was 57.8 % largely due to the impact of the additional income tax expense recognized in connection with the enactment of the 2017 tax act . our effective rate for the year ended december 31 , 2016 was ( 566.1 % ) primarily due to the release of the valuation allowance
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provision for sales returns are recorded as a reduction of revenue in the same period that revenue is recognized . the provision for sales returns represents our best estimate of the amount of goods that will be returned from our customers based on historical sales returns data . cost of revenues . cost of revenues consists primarily of material costs , employee remuneration for staff engaged in production activity , share-based compensation , depreciation and related expenses that are directly attributable to the production of products . cost of revenues also includes write-downs of inventory to lower of cost or market . cost of revenues from the sales of battery packs includes the fees we pay to pack manufacturers for assembling our prismatic cells into battery packs . research and development expenses . research and development expenses primarily consist of remuneration for r & d staff , share-based compensation , depreciation and maintenance expenses relating to r & d equipment , and r & d material costs . sales and marketing expenses . sales and marketing expenses consist primarily of remuneration for staff involved in selling and marketing efforts , including staff engaged in the packaging of goods for shipment , advertising cost , depreciation , share-based compensation and travel and entertainment expenses . we do not pay slotting fees to retail companies for displaying our products , engage in cooperative advertising programs , participate in buy-down programs or similar arrangements . no material estimates are required by management to determine our actual marketing or advertising costs for any period . general and administrative expenses . general and administrative expenses consist primarily of employee remuneration , share-based compensation , professional fees , insurance , benefits , general office expenses , depreciation , liquidated damage charge and bad debt expenses . property , plant and equipment impairment charges . impairment charges consist primarily of impairment losses for long-lived assets . these losses reflect the amounts by which the carrying values of these assets exceed their estimated fair value as determined by their estimated future discounted cash flows . government grant income . government grant income for the year ended september 30 , 2012 mainly consisted of receipt of grants to fund certain lithium battery research projects and to subsidize the payment for land use rights of bak industrial park . no present or future obligation arises from the receipt of such amount . finance costs , net . finance costs consist primarily of interest income , interest on bank loans , net of capitalized interest , and bank charges . income taxes . on march 16 , 2007 , the national people 's congress of china passed the eit law , and on november 28 , 2007 , the state council of china passed its implementing rules , both of which took effect on january 1 , 2008. the eit law unifies the application scope , tax rate , tax deduction and preferential policy for both domestic enterprises and fies . the eit law gives existing fies a five-year grandfather period during which they can continue to enjoy their existing preferential tax treatments . since shenzhen bak was acknowledged as a new and high technology enterprise , it is entitled to a preferential tax rate of 15 % for each of the calendar years 2011 , 2012 and 2013. bak electronics ' income tax rates were 11 % and 24 % for calendar years 2010 and 2011 , respectively , and starting in calendar year 2012 , it was subject to an income tax rate of 25 % . bak electronics did not incur any enterprise income tax for the calendar year 2012 due to the current tax losses carried forward from calendar year 2010 and 2011. bak tianjin is currently paying no enterprise income tax due to cumulative tax losses . our canadian , german , indian , and hong kong subsidiariesbak canada , bak europe , bak india , and bak internationalare subject to profits taxed in their respective countries at rates of 38 % , 25 % , 30 % , and 16.5 % , respectively . 37 however , because they do not have any assessable income derived from or arising in those countries , they have not paid any such tax . pursuant to the provisional regulation of china on value added tax and its implementing rules , all entities and individuals that are engaged in the sale of goods , the provision of repairs and replacement services and the importation of goods in china are generally required to pay vat at a rate of 17 % of the gross sales proceeds received , less any deductible vat already paid or borne by the taxpayer . further , when exporting goods , the exporter is entitled to some or all of the refund of vat that it has already paid or borne . our imported raw materials that are used for manufacturing export products and are deposited in bonded warehouses are exempt from import vat . story_separator_special_tag align= '' justify '' > as of september 30 , 2012 , the principal outstanding amounts included short-term bank loans of $ 151.4 million under credit facilities and long-term bank loans of $ 23.7 million maturing in over one year , and bills payable of $ 75.4 million under credit facilities , leaving $ 27.4 million of short-term and $ 0.2 million of long-term funds available under our credit facilities for additional cash needs . the following table sets forth a summary of our cash flows for the periods indicated : replace_table_token_9_th 40 operating activities net cash provided by operating activities was $ 5.1 million in the year ended september 30 , 2012 , as compared with $ 35.3 million in fiscal year 2011. the decrease of $ 30.2 million in net cash provided by operating activities was mainly attributable to the settlement of overdue accounts payables to our suppliers . story_separator_special_tag investing activities net cash used in investing activities decreased to $ 20.4 million in the year ended september 30 , 2012 , from $ 31.0 million in fiscal year 2011. the net cash used in investing activities for the year ended september 30 , 2012 , was mainly used for the procurement of machinery and equipment for our polymer cell line and construction of our research and development test centre in shenzhen . financing activities net cash used in financing activities decreased to $ 0.5 million in the year ended september 30 , 2012 , from $ 2.8 million in fiscal year 2011. this was mainly attributable to a decrease in pledged deposits of $ 3.8 million , an increase in the repayment of bank loans in an amount of $ 22.8 million , offset by the increased borrowings in an amount of 29.0 million in the year ended september 30 , 2012. as of september 30 , 2012 , the principal amounts outstanding under our credit facilities and lines of credit were as follows : replace_table_token_10_th the above principal outstanding amounts under credit facilities and lines of credit included short-term bank loans of $ 151.4 million and long-term bank loans of $ 23.7 million maturing in over one year , and bills payable of $ 75.4 million . for the purpose of presentation , the effect of increases in bills payable balances is included in operating activities in the statements of cash flows . 41 during the year ended september 30 , 2012 , we repaid borrowings under loans totaling approximately $ 195.5 million and borrowed amounts totaling approximately $ 194.7 million . the material financing terms of these borrowings are described below . on november 27 , 2012 , we renewed a comprehensive credit facility agreement with agricultural bank of china , shenzhen eastern branch , or agricultural bank – shenzhen branch , to provide a maximum loan amount of rmb 420 million ( approximately $ 66.8 million ) , including rmb 400 million ( approximately $ 63.6 million ) of one-year term credit facilities and rmb 20 million ( approximately $ 3.2 million ) of notes payable . new loans may be drawn under this credit facility from november 27 , 2012 through november 25 , 2013 , with the term of the loan established at the time each new loan is drawn . pursuant to the comprehensive credit facility , shenzhen bak must obtain prior approval from agricultural bank – shenzhen branch to renew long-term loans that are subject to this credit facility . in addition , shenzhen bak undertook to ensure that the percentage of certain business conducted with agricultural bank – shenzhen branch relative to such business it conducts with all financial institutions combined be at least equal to the percentage of its indebtedness to agricultural bank – shenzhen branch relative to its indebtedness to all financial institutions combined ( referred to as the “ percentages undertaking ” ) . the “ business ” referred to in the preceding sentence refers to the volume of transactional payments that are drawn from shenzhen bak 's accounts with agricultural bank –shenzhen branch or applicable financial institutions and the amount of foreign currencies deposited with agricultural bank – shenzhen branch or applicable financial institutions . shenzhen bak also undertook not to issue any dividends without the written consent of agricultural bank – shenzhen branch prior to the expiration of all loans under this credit facility ( this undertaking and the percentages undertaking are collectively referred to as the “ undertakings ” ) . the obligations of shenzhen bak under this comprehensive credit facility are guaranteed by mr. xiangqian li and bak international . shenzhen bak 's obligations under this credit facility agreement are also guaranteed by shenzhen bak 's pledge of the property ownership and land use rights certificates relating to its manufacturing and other facilities in shenzhen , prc , known as bak industrial park , as well as certain machinery . as of september 30 , 2012 , we had ten outstanding short-term loans under the comprehensive credit facility with agricultural bank – shenzhen branch , totaling approximately $ 63.6 million , and carry annual interest at 110 % of the benchmark rate of the people 's bank of china , or pboc , adjusted quarterly . each of the loan agreements specifically provided for acceleration of repayment of the loan under certain conditions , as well as other penalties and remedies . we had also borrowed $ 3.2 million of notes payable under this credit facility agreement as of september 30 , 2012. we have a comprehensive credit facility agreement with shenzhen development bank , longgang branch , or shenzhen development bank , to provide a maximum loan amount of rmb 180 million ( approximately $ 28.6 million ) . loans may be drawn at any time from june 5 , 2012 to may 31 , 2013 and will be due based on each loan agreement . this credit facility agreement was guaranteed by bak international , bak tianjin and mr. xiangqian li , and also was secured by $ 23.9 million of inventory . as of september 30 , 2012 , we had two outstanding loans of approximately $ 20.7 million in total . the first loan , dated july 6 , 2012 , of approximately $ 3.3 million , carries annual interest at 105 % of the benchmark rate of the pboc on the date of the loan agreement and adjusted quarterly , and is repayable on july 5 , 2013. the second loan , also dated july 6 , 2012 , of approximately $ 17.4 million , carries annual interest at the benchmark rate of the pboc on the date of the loan agreement and adjusted quarterly , and is repayable on july 5 , 2013. we have a comprehensive credit facility agreement with shenzhen branch , china citic bank , or china citic bank , to provide a maximum loan amount of rmb 75 million ( approximately $ 11.9 million ) .
| our sales volume of cylindrical cells decreased by 15.7 % due to a decrease in export sales and a 0.8 % decrease in average selling price . we sold $ 18.3 million in lithium polymer cells for the year ended september 30 , 2012 , compared to $ 10.2 million in fiscal year 2011 , an increase of $ 8.1 million , or 80.2 % , resulting from an increase of 43.6 % in sales volume , accompanied by an increase of 24.6 % in our average selling price due to the increased demand for polymer batteries used in smartphone . we also sold approximately $ 10.5 million in high-power lithium battery cells for the year ended september 30 , 2012 , as compared to $ 6.1 million in fiscal year 2011 , representing an increase of $ 4.4million , or 72.1 % .this resulted from an increase in sales volume of 52.2 % due to a strong demand from electric bicycles , power tools , uninterruptible power supplies and other applications , which products are mainly produced in our tianjin facility , and an accompanied increase of 46.8 % in average selling price . cost of revenues . cost of revenues increased to $ 204.2 million for the year ended september 30 , 2012 , as compared to $ 192.6 million for fiscal year 2011 , an increase of $ 11.6 million , or 6.0 % . the increase in cost of revenues was due to increases in raw materials and salaries cost and significant write down of obsolete inventory over the year ended september 30 , 2012. gross profit . gross profit for the year ended september 30 , 2012 was $ 1.5 million , or 0.7 % of net revenues , as compared to gross profit of $ 26.3 million , or 12.0 % of net revenues , for fiscal year 2011. the decrease in gross profit as a percentage of net revenues was primarily due to : a ) a decrease in gross profit from prismatic products , compared with fiscal year 2011 , primarily due to
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accordingly , we now report net sales in the following four geographic regions : north america , latin america , emea , and asia pacific ( `` ap '' ) . we have updated all periods presented to reflect this change in presentation . 2016 financial results and accomplishments ended 2016 with a record backlog position of $ 8.4 billion , up 29 % compared to 2015 net sales were $ 6.0 billion in 2016 compared to $ 5.7 billion in 2015 . net sales grew in emea , including $ 462 million from the acquisition of gdcl , north america and ap operating earnings were $ 1.1 billion in 2016 , compared to $ 1.0 billion in 2015 earnings from continuing operations were $ 560 million , or $ 3.24 per diluted common share in 2016 , compared to earnings of $ 640 million , or $ 3.17 per diluted common share in 2015 operating cash flow increased $ 144 million to $ 1.2 billion in 2016 returned $ 1.1 billion of capital in the form of $ 842 million in share repurchases and $ 280 million in dividends 2016 invested $ 1.3 billion in four acquisitions of software and services companies increased our quarterly dividend by 15 % to $ 0.47 per share in november 2016 financial results for our two segments in 2016 in the products segment , net sales were $ 3.6 billion in 2016 , a decrease of $ 27 million , or 1 % , compared to $ 3.7 billion in 2015 . on a geographic basis , net sales decreased in emea and latin america and increased in north america and ap , compared to 2015 . operating earnings were $ 734 million in 2016 , compared to $ 704 million in 2015 . operating margin increased in 2016 to 20.1 % from 19.2 % in 2015 . in the services segment , net sales were $ 2.4 billion in 2016 , an increase of $ 370 million , or 18 % , compared to $ 2.0 billion in 2015 . managed & support services grew 49 % primarily due to the acquisition of gdcl . managed & support services grew 5 % organically . on a geographic basis , net sales increased in emea , north america , and ap and decreased in la compared to 2015 . operating earnings were $ 333 million in 2016 , compared to $ 290 million in 2015 . operating margin decreased in 2016 to 13.9 % from 14.4 % in 2015 . looking forward we remain committed to driving shareholder value with revenue growth , operating leverage , cash flow generation , and efficient capital deployment . we strive to optimize our capital structure to enable prioritized investments in the business and targeted acquisitions as a source of generating solid future operating cash flows . these potential investments are balanced against returning excess capital to shareholders through dividends and share repurchases . we expect to continue the quarterly dividends that were initiated in 2011 , as well as the opportunity to return capital to shareholders through share repurchases . our share repurchase program has approximately $ 2.2 billion of authority available as of december 31 , 2016 . entering 2017 , we believe we are well-positioned to compete in both our core markets and adjacent growth areas . we have a broad , compelling products and services portfolio specifically tailored for our mission-critical communications customer base that spans many layers of governments , public safety , and first responders , as well as commercial and industrial customers in a number of key verticals . as we add new products , features , and software upgrades , we ensure our solutions are interoperable and backward-compatible , enabling customers to confidently invest for their future needs while allowing them to utilize their prior investment in our technology . supplementing our traditional core business is our investment in our managed & support services business and software solutions in the command center . as communication networks have become increasingly complex , software-centric , and data-driven , we have shifted our offerings to align with this technology trend in serving our customers . we expect to continue to see growing demands for our managed & support services going forward . these services offerings help customers manage , support , and upgrade their networks as well as utilize features , applications , and data in new ways including predictive policing , proactive support , or smarter response strategies . we expect our overall revenue mix to continue to shift towards software and services over time . on february 19 , 2016 , the company expanded our managed & support services business with the acquisition of gdcl , the largest private operator of a public safety network in the world , delivering mission-critical voice and data communications to more than 300 public service agencies in great britain . additionally , we expanded our software solutions 27 portfolio in 2016 with the acquisition of three software and services businesses that provide software solutions in the command center and mobile applications for public safety . another key technology trend complementing our existing business is the expanded use of broadband lte by our customers . we have been proactively investing in next-generation public safety broadband solutions for years , as we believe public safety lte solutions are the next-generation tool for our public safety first-responder customers . we believe our expertise in both public and private networks makes us uniquely qualified to provide these public safety broadband solutions to this customer base . we have now won the four largest public safety lte network installations awarded to date and expect lte sales to represent a larger portion of our revenue in the coming years . story_separator_special_tag 28 story_separator_special_tag style= '' line-height:120 % ; padding-top:6px ; text-indent:30px ; font-size:9pt ; '' > we recorded $ 282 million of net tax expense in 2016 , resulting in an effective tax rate of 33 % , compared to $ 274 million of net tax expense in 2015 , resulting in an effective tax rate of 30 % . our effective tax rate in 2016 and 2015 were lower than the u.s. statutory tax rate of 35 % primarily due to lower tax rates on non-u.s. income . our effective tax rate will change from period to period based on non-recurring events , such as the settlement of income tax audits , changes in valuation allowances , and the tax impact of significant unusual or extraordinary items , as well as recurring factors including changes in the geographic mix of income and effects of various global income tax strategies . 30 earnings ( loss ) from continuing operations attributable to motorola solutions , inc. after taxes , we had earnings from continuing operations attributable to motorola solutions , inc. of $ 560 million , or $ 3.24 per diluted share , in 2016 , compared to $ 640 million , or $ 3.17 per diluted share , in 2015 . the decrease in earnings from continuing operations in 2016 , as compared to 2015 , was primarily driven by : ( i ) a $ 165 million increase in other charges primarily due to the increase in intangible amortization expense and ( ii ) a $ 113 million decrease in gains on sales of investments and businesses , partially offset by : ( i ) a $ 150 million increase in gross margin , ( ii ) a $ 67 million decrease in r & d , and ( iii ) a $ 21 million decrease in sg & a . the increase in earnings from continuing operations per diluted share was driven by lower shares outstanding as a result of repurchases made through our ongoing share repurchase program , offset by a decrease in earnings from continuing operations . earnings from discontinued operations in 2016 , we reported no earnings from discontinued operations , compared to a loss from discontinued operations of $ 30 million , or $ 0.15 per diluted share , in 2015 . the loss from discontinued operations in 2015 was related to the sale of the enterprise business . results of operations— 2015 compared to 2014 net sales net sales were $ 5.7 billion in 2015 , down $ 186 million , or 3 % compared to $ 5.9 billion in 2014 . the decline in net sales is reflective of decreases in emea and latin america , partially offset by growth in north america and ap . the decrease in emea and latin america was primarily the result of lower products and services sales , driven by challenging macroeconomic conditions in latin america and eastern europe , and foreign exchange rate unfavorability . north america grew on strong products and services sales and ap grew on stronger products sales . gross margin gross margin was $ 2.7 billion , or 47.7 % of net sales in 2015 , compared to $ 2.8 billion , or 48.1 % of net sales in 2014 . the decrease in gross margin was primarily a result of foreign exchange rate unfavorability . the decrease in gross margin percentage is primarily attributable to a decrease in gross margin as a percentage of sales within the services segment while the gross margin percentage of the products segment remained relatively flat . the decrease in gross margin percentage in the services segment was primarily driven by : ( i ) a decrease in north america integration services margins due to the deployment of certain large projects at lower gross margins and ( ii ) lower net sales in iden services which have a slightly higher gross margin percentage compared to the rest of the services portfolio . selling , general and administrative expenses sg & a expenses decreased 14 % to $ 1.0 billion , or 17.9 % of net sales in 2015 , compared to $ 1.2 billion , or 20.1 % of net sales in 2014 . the decrease in sg & a is primarily due to : ( i ) cost savings initiatives , including headcount reductions , ( ii ) lower pension expenses , and ( iii ) the favorable impact of foreign exchange rates , partially offset by higher incentive compensation accruals . research and development expenditures r & d expenditures decreased 9 % to $ 620 million , or 10.9 % of net sales in 2015 , compared to $ 681 million , or 11.6 % of net sales in 2014 . the decrease in r & d expenditures is primarily due to : ( i ) cost savings initiatives , including headcount reductions , and the movement of employees to lower cost work sites and ( ii ) the favorable impact of foreign exchange rates , partially offset by higher incentive compensation accruals . other charges we recorded net charges of $ 84 million in 2015 , compared to net charges of $ 2.0 billion in 2014 . the charges in 2015 included : ( i ) $ 108 million of net reorganization of business charges , including a $ 31 million impairment of the corporate aircraft and ( ii ) $ 8 million of charges relating to the amortization of intangibles , partially offset by a $ 32 million non-u.s. pension curtailment gain . the charges in 2014 included : ( i ) a $ 1.9 billion charge related to the settlement of a u.s. pension plan , ( ii ) $ 64 million of net reorganization of business charges , ( iii ) $ 8 million of legal settlement charges , and ( iv ) $ 4 million of charges relating to the amortization of intangibles , partially offset by a $ 21 million gain on the sale of a building and land .
| the decrease in sg & a expenditures is primarily due to cost savings initiatives , including headcount reductions , partially offset by higher incentive compensation and acquisitions costs . research and development expenditures r & d expenditures decreased 11 % to $ 553 million , or 9.2 % of net sales in 2016 , compared to $ 620 million , or 10.9 % of net sales in 2015 . the decrease in r & d expenditures is primarily due to : ( i ) cost savings initiatives , including headcount reductions , and ( ii ) the movement of employees to lower cost work sites . other charges we recorded net other charges of $ 249 million in 2016 , compared to net charges of $ 84 million in 2015 . the charges in 2016 included : ( i ) $ 113 million of charges relating to the amortization of intangibles , ( ii ) $ 97 million of net reorganization of business charges , including a $ 17 million building impairment and a $ 3 million impairment on our corporate aircraft , ( iii ) $ 26 million of losses on settlements within a non-u.s. pension plan , and ( iv ) $ 13 million of transaction fees on the acquisition of gdcl . the charges in 2015 included : ( i ) $ 108 million of net reorganization of business charges , including a $ 31 million impairment of our corporate aircraft which was sold and ( ii ) $ 8 million of charges relating to the amortization of intangibles , partially offset by a $ 32 million non-u.s. pension curtailment gain . the net reorganization of business charges are discussed in further detail in the “ reorganization of businesses ” section . net interest expense net interest expense was $ 205 million in 2016 compared to $ 173 million in 2015 . the increase in net interest expense in 2016 compared to 2015 was a result of higher outstanding debt balances . gains ( losses ) on sales of investments and businesses , net net losses on sales of investments and businesses were $ 6 million in 2016 , compared to
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the appropriate level of the allowance is based on an ongoing analysis of the loan portfolio and represents an amount that management deems adequate to provide for inherent losses , including collective impairment as recognized under the financial accounting standards board accounting standards codification topic ( asc ) 450 , contingencies ( asc 450 ) . collective impairment is calculated based on loans grouped by grade . another component of the allowance is losses on loans assessed as impaired under asc 310 , receivables ( asc 310 ) . the balance of the loans determined to be impaired under asc 310 and the related allowance is included in management 's estimation and analysis of the allowance for loan losses . the determination of the appropriate level of the allowance is sensitive to a variety of internal factors , primarily historical loss ratios and assigned risk ratings , and external factors , primarily the economic environment . additionally , the estimate of the allowance required to absorb credit losses in the entire portfolio may change due to shifts in the mix and level of loan balances outstanding and in prevailing economic conditions , as evidenced by changes in real estate demand and values , interest rates , unemployment rates and energy costs . while no one factor is dominant , each could cause actual loan losses to differ materially from originally estimated amounts . for a discussion of other considerations in establishing the allowance for loan losses and our loan policies and procedures for addressing credit risk , please refer to the disclosures in this item under the heading risk management credit risk and allowance for loan losses. certain loans acquired in acquisitions or mergers are accounted for under asc 310-30 , loans and debt securities acquired with deteriorated credit quality ( asc 310-30 ) . asc 310-30 prohibits the carryover of an allowance for loan losses for loans acquired in which the acquirer concludes that it will not collect the contractual amount . as a result , these loans are carried at values which represent management 's estimate of the future cash flows of these loans . increases in expected cash flows to be collected from the contractual cash flows are required to be recognized as an adjustment of the loan 's yield over its remaining life , while decreases in expected cash flows are required to be recognized as an impairment . a more detailed discussion of loans accounted for under asc 310-30 , which were acquired in connection with our mergers with capital bancorp , inc. ( capital ) in 2007 and with heritage financial holding corporation ( heritage ) in 2005 and our acquisitions of crescent and american trust in fdic-assisted transactions in 2010 and 2011 , respectively , is set forth below under the heading risk management credit risk and allowance for loan losses and in note d , loans and the allowance for loan losses , in the notes to consolidated financial statements in item 8 , financial statements and supplementary data . other-than-temporary-impairment on investment securities on a quarterly basis , we evaluate our investment portfolio for other-than-temporary-impairment ( otti ) in accordance with asc 320 , investments debt and equity securities. an investment security is considered impaired if the fair value of the security is less than its cost or amortized cost basis . when impairment of an equity 32 security is considered to be other-than-temporary , the security is written down to its fair value and an impairment loss is recorded in earnings . when impairment of a debt security is considered to be other-than-temporary , the security is written down to its fair value . the amount of otti recorded as a loss in earnings depends on whether we intend to sell the debt security and whether it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis . if we intend to sell the debt security or more likely than not will be required to sell the security before recovery of its amortized cost basis , the entire difference between the security 's amortized cost basis and its fair value is recorded as an impairment loss in earnings . if we do not intend to sell the debt security and it is not more likely than not that we will be required to sell the security before recovery of its amortized cost basis , otti is separated into the amount representing credit loss and the amount related to all other market factors . the amount related to credit loss is recognized in earnings . the amount related to other market factors is recognized in other comprehensive income , net of applicable taxes . the amount of otti recorded in earnings as a credit loss is dependent upon management 's estimate of discounted future cash flows expected from the investment security . the difference between the expected cash flows and the amortized cost basis of the security is considered to be credit loss . the remaining difference between the fair value and the amortized cost basis of the security is considered to be related to all other market factors . our estimate of discounted future cash flows incorporates a number of assumptions based on both qualitative and quantitative factors . performance indicators of the security 's underlying assets , including credit ratings and current and projected default and deferral rates , as well as the credit quality and capital ratios of the issuing institutions are considered in the analysis . changes in these assumptions could impact the amount of otti recognized as a credit loss in earnings . for additional information regarding the evaluation of our securities portfolio for otti , please refer to note a , significant accounting policies , in the notes to consolidated financial statements in item 8 , financial statements and supplementary data . intangible assets our intangible assets consist of goodwill , core deposit intangibles , and customer relationship intangibles . story_separator_special_tag goodwill arises from business combinations and represents the value attributable to unidentifiable intangible elements of the business acquired . in connection with the reconstitution of our reportable segments , we redefined our reporting units with respect to the level at which our impairment testing of goodwill is performed . reporting units related to our bank that were previously defined along geographical boundaries have been consolidated into one community banks reporting unit . a wealth management reporting unit was created , and the insurance reporting unit was retained . we review the goodwill of each reporting unit for impairment on an annual basis , or more often , if events or circumstances indicate that it is more likely than not that the fair value of the reporting unit is below the carrying value of its equity . in determining the fair value of our reporting units , we use both the market and discounted cash flow approaches . the market approach averages the values derived by applying a market multiple , based on observed purchase transactions , to the book value , tangible book value , loan and or deposit balances and the last twelve months adjusted and unadjusted net income . the discounted cash flow approach requires assumptions about short and long-term net cash flow growth rates for each reporting unit , as well as discount rates . long-term net cash flow forecasts are developed for each reporting unit by considering several key business drivers such as new business initiatives , market share changes , anticipated loan and deposit growth , historical performance , and industry and economic trends , among other considerations . we assess the reasonableness of the estimated fair value of the reporting units by reference to our market capitalization ; however , due to the significant volatility in the equity markets with respect to the financial institution sector since 2008 , we also consulted supplemental information based on observable market multiples , adjusting to reflect our specific factors , as well as current market conditions . the estimated fair value of a reporting unit is highly sensitive to changes in the estimates and assumptions . in some instances changes in these assumptions could impact whether the fair value of a reporting unit is greater than its carrying value . we perform sensitivity analyses around these assumptions in order to assess the reasonableness of the assumptions and the resulting estimated fair values . if the carrying value of a reporting unit 's equity exceeds its estimated fair value , we then calculate the fair value of the reporting unit 's implied goodwill . implied goodwill is the excess fair value of a reporting unit ( as determined using the above-described methodology ) over the fair value of its net assets and is calculated by determining the fair value of the reporting unit 's assets and liabilities , including previously unrecognized intangible assets , on an individual basis . this calculation is performed in the same manner as goodwill 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 . other identifiable intangible assets , primarily core deposit intangibles and customer relationship intangibles , are reviewed at least annually for events or circumstances which could impact the recoverability of the intangible asset , such as loss of core deposits , increased competition or adverse changes in the economy . to the extent any other 33 identifiable intangible asset is deemed unrecoverable , an impairment loss would be recorded as a noninterest expense to reduce the carrying amount . these events or circumstances , when or if they occur , could be material to our operating results for any particular reporting period . benefit plans and stock based compensation our independent actuary firm prepares actuarial valuations of our pension cost under asc 715 , compensation retirement benefits ( asc 715 ) . the discount rate utilized in the december 31 , 2011 valuation was 5.06 % , compared to 5.50 % in 2010. actual plan assets as of december 31 , 2011 were used in the calculation and the expected long-term return on plan assets assumed for this valuation was 8.00 % . changes in these assumptions and estimates can materially affect the benefit plan obligation and the funded status of the plan which in turn may impact shareholders ' equity through an adjustment to accumulated other comprehensive income and future pension expense . the pension plan covered under asc 715 was frozen as of december 31 , 1996. the company recognizes compensation expense for all share-based payments to employees in accordance with asc 718 , compensation stock compensation. we utilize the black-scholes model for determining fair value of our options . determining the fair value of , and ultimately the expense we recognize related to , our stock options requires us to make assumptions regarding dividend yields , expected stock price volatility , estimated forfeitures and the expected life of the option . changes in these assumptions and estimates can materially affect the calculated fair value of stock-based compensation and the related expense to be recognized . due to the low historical forfeiture rate , the company has not estimated any forfeitures in determining the fair value of options granted in 2011 , 2010 and 2009. changes in this assumption in the future could result in lower expenses related to the company 's stock options . for a description of our assumptions utilized in calculating the fair value of our share-based payments , please refer to note n , employee benefit and deferred compensation plans , in the notes to consolidated financial statements in item 8 , financial statements and supplementary data . business combinations , accounting for acquired loans and related assets the company accounts for its acquisitions under asc 805 , business combinations , which requires the use of the purchase method of accounting . all identifiable assets acquired , including loans , are recorded at fair value .
| net interest income increased 22.86 % to $ 129,077 for 2011 compared to $ 105,062 in 2010. net interest income was $ 99,466 in 2009. on a tax equivalent basis , net interest income increased $ 24,916 to $ 135,123 in 2011 as compared to $ 110,207 in 2010 ; net interest income was $ 104,072 in 2009. with respect to the increase in net interest income in 2011 , the increase due to the change in the volume of net earning assets was $ 15,141 , while the increase from the changing interest rate environment was $ 9,775. replace_table_token_11_th 35 net interest margin , the tax equivalent net yield on earning assets , increased to 3.77 % during 2011 from 3.26 % in 2010 and 3.16 % in 2009. net interest margin and net interest income are influenced by several factors , primarily changes in interest rates , competition and the shape of the interest rate yield curve . significant reductions in interest rate indices in 2008 have put downward pressure on net interest margin since 2009. with each rate reduction in rate indices , specifically , the prime rate , rates paid on u.s. treasury securities and the london interbank offering rate ( libor ) , the yield on our variable rate loans indexed to these indices decreased . at the same time , competitive and market-wide liquidity factors prevented the cost of funding sources , particularly deposits , from declining proportionately . as a result , net interest margin declined . economic forces have continued to keep interest rates low through 2010 and 2011 ; however , a shift in our costing liabilities mix from higher costing borrowed funds to lower costing deposits and a lower overall cost of funds has offset the impact of the depressed interest rate environment on our net interest margin , resulting in net interest margin improvement in both 2010 and 2011. interest income , on a tax equivalent basis , was $ 176,524 for 2011 compared to $ 170,484 for 2010. the average balance of interest-earning assets increased during 2011 as compared to 2010 driving the increase in interest income ; however , the lower interest rate environment and the change in the mix of interest-earning assets from higher yielding loans to lower yielding investment securities contributed to a lower yield on earning assets . the following table presents the percentage of total average earning assets , by type and yield , for 2011 , 2010 and
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during 2012 , we launched our private marketplace , which allows sellers to connect directly with pre-approved buyers to execute direct sales of previously unsold advertising inventory . 60 in 2014 , we expanded our orders automation technology and expanded our capabilities in the automated guaranteed market with the acquisition of two companies , isocket , inc. , or isocket , and shiny inc. , or shiny . the addition of isocket and shiny provides additional solutions to automate the buying and selling of direct-sold , guaranteed deals , which according to emarketer , is a market that is forecasted to surpass $ 8 billion in the u.s. alone by 2016. when combined with our existing orders technology , these acquisitions have helped us create a fully integrated solution for automating , streamlining , and managing the processes of direct buying and selling of guaranteed and non-guaranteed advertising . according to magna global ( september 2014 ) , the global rtb market will grow from $ 9.2 billion in 2014 to $ 28.9 billion by 2018 , a compounded annual growth rate of 33 % . rtb is the fastest growing area of our business . managed revenue attributable to rtb grew 884 % from 2010 to 2011 , 191 % from 2011 to 2012 , 94 % from 2012 to 2013 and 71 % from 2013 to 2014. we believe this trend will directly benefit us and our prospects for continued growth . large agencies , dsps and ad networks , many of which are already established in size and scale , are responsible for the majority of automated digital advertising spending . accordingly , we believe our growth will be less affected by an increase in buyers than by increases in the amount of spending per buyer as more advertising shifts from traditional to automated buying and selling . another industry trend is the expansion of automated buying and selling of advertising through new channels . the growth of automated buying and selling advertising is also expanding into new markets , and in some markets the adoption of automated digital advertising is greater than in the united states . we intend to expand our business in existing territories served and enter new territories . we generate revenue from buyers and sellers who use our solution for the purchase and sale of advertising inventory . buyers use our solution to reach their intended audiences by purchasing advertising inventory that we make available from sellers through our solution . we recognize revenue upon the completion of a transaction , which is when an impression has been delivered to the consumer viewing a website or application , subject to satisfying all other revenue recognition criteria . we are responsible for the completion of the transaction . we generally bill and collect the full purchase price of impressions from buyers , together with other fees , if applicable . we report revenue net of amounts we pay sellers for the impressions they provide . in some cases , we generate revenue directly from sellers who maintain the primary relationship with buyers and utilize our solution to transact and optimize their activities . for the years ended december 31 , 2014 , 2013 and 2012 our revenue was $ 125.3 million , $ 83.8 million and $ 57.1 million , respectively , representing a year-over-year increase of 49 % during 2014 and 47 % during 2013 , and our managed revenue was $ 667.8 million , $ 485.1 million and $ 338.9 million , respectively , representing a year-over-year increase of 38 % during 2014 and 43 % during 2013. for the year ended december 31 , 2014 , 2013 , and 2012 our net loss was $ 18.7 million , $ 9.2 million and $ 2.4 million , respectively , and our adjusted ebitda was $ 19.1 million , $ 11.2 million and $ 9.2 million , respectively . adjusted ebitda is a non-gaap financial measure . for information on how we compute adjusted ebitda , and a reconciliation of adjusted ebitda to net income ( loss ) on a gaap basis , please refer to “ key operational and financial measures. ” our net income ( loss ) and adjusted ebitda will be impacted by the rate at which our revenue increases , seasonality , amount and the timing of our investments in our operations . substantially all of our revenue is u.s. revenue , determined based on the location of our legal entity that is a party to the relevant transaction . key operational and financial measures we regularly review our key operational and financial performance measures , including those set forth below , to help us evaluate our business , measure our performance , identify trends affecting our business , establish budgets , measure the effectiveness of investments in our technology and development and sales and marketing , and assess our operational efficiencies . in addition to revenue , we also review managed revenue and adjusted ebitda , which are discussed immediately following the table below . revenue is discussed under the headings “ components of our results of operations ” and “ results of operations. ” we report our financial results as one operating segment . our consolidated operating results , together with the following operating and financial measures , are regularly reviewed by our chief operating decision maker , principally to make decisions about how we allocate our resources and to measure our consolidated operating performance . 61 replace_table_token_7_th managed revenue managed revenue is an operational measure that represents the advertising spending transacted on our platform , and would represent our revenue if we were to record our revenue on a gross basis instead of a net basis . managed revenue does not represent revenue reported on a gaap basis . we review managed revenue for internal management purposes to assess market share and scale . many companies in our industry record revenue on a gross basis , so tracking our managed revenue allows us to compare our results to the results of those companies . story_separator_special_tag our managed revenue is influenced by the volume and characteristics of paid impressions and average cpm . our managed revenue has increased period over period as a result of increased use of our solution by buyers and sellers and increases in average cpm . we expect managed revenue to continue to grow with increases in the pricing or volume of transactions on our platform , which can result from increases in the number of buyers or advertising spending , and from improvements in our auction algorithms . this increase may fluctuate due to seasonality and increases or decreases in average cpm and paid impressions . in addition , we generally experience higher managed revenue during the fourth quarter of a given year , resulting from higher advertising spending and more bidding activity , which may drive higher volumes of paid impressions or average cpm . paid impressions paid impressions is an operational measure . we define a paid impression as an impression sold to a buyer and into which an advertisement is served for display to a user on a website or mobile application , which is transacted via our platform through either direct or indirect relationships between buyers and sellers and us , or between buyers and sellers directly . we use paid impressions as one measure to assess the performance of our platform , including the effectiveness and efficiency at which buyers and sellers are trading via our platform and using our solution , and to assist us in tracking our revenue-generating performance and operational efficiencies . the number of paid impressions may fluctuate based on various factors , including the number and spend of buyers using our solution , the number of sellers , their allocation of advertising inventory using our solution , our traffic quality control initiatives , and the seasonality in our business . because of the volatility of this metric , we believe that paid impressions are useful to review on an annual basis . average cpm pricing is generally expressed as average cost per thousand impressions , or average cpm . average cpm is an operational measure that represents the average price at which paid impressions are sold . we review average cpm for internal management purposes to assess buyer spend , liquidity in the marketplace , inventory quality , and integrity of our algorithms . average cpm may be influenced by our inventory placements and demand for such inventory facilitated by our relationships with both buyers and sellers , as well as by a variety of other factors , including the precision of matching an advertisement to an audience , changes in our algorithms , seasonality , quality of inventory provided by sellers , penetration of various channels and advertising units , and changes in buyer spend levels . we expect average cpm to increase with the continued adoption of our solution by premium buyers and sellers , resulting in a higher quantity of premium advertising inventory available to advertisers . because of the volatility of this metric , we believe that average cpm is useful to review on an annual basis . we compute average cpm by dividing managed revenue by total paid impressions and multiplying by 1,000 . 62 take rate take rate is an operational measure that represents our share of managed revenue . we review take rate for internal management purposes to assess the development of our marketplace with buyers and sellers . our take rate can be affected by a variety of factors , including the terms of our arrangements with buyers and sellers active on our platform in a particular period , the scale of a buyer ' s or seller 's activity on our platform , product mix , the implementation of new products , platforms and solution features , auction dynamics , and the overall development of the digital advertising ecosystem . adjusted ebitda adjusted ebitda is a non-gaap financial measure defined by us as net income ( loss ) adjusted for stock-based compensation expense , depreciation and amortization , interest income or expense , change in fair value of pre-ipo convertible preferred stock warrant liabilities , and other income or expense , which mainly consists of foreign exchange gains and losses , certain other non-recurring income or expenses such as acquisition and related costs , and provision for income taxes . adjusted ebitda should not be considered as an alternative to net income ( loss ) , operating income , or any other measure of financial performance calculated and presented in accordance with gaap . adjusted ebitda eliminates the impact of items that we do not consider indicative of our core operating performance . you are encouraged to evaluate these adjustments and the reason we consider them appropriate . we believe adjusted ebitda is useful to investors in evaluating our operating performance for the following reasons : adjusted ebitda is widely used by investors and securities analysts to measure a company 's operating performance without regard to items such as stock-based compensation expense , depreciation and amortization , interest income or expense , change in fair value of preferred stock warrant liabilities , foreign exchange gains and losses , certain other non-recurring income or expenses such as acquisition and related costs , and provision for income taxes that can vary substantially from company to company depending upon their financing , capital structures , and the method by which assets were acquired ; our management uses adjusted ebitda in conjunction with gaap financial measures for planning purposes , including the preparation of our annual operating budget , as a measure of operating performance and the effectiveness of our business strategies , and in communications with our board of directors concerning our financial performance ; adjusted ebitda may sometimes be considered by the compensation committee of our board of directors in connection with the determination of compensation for our executive officers ; and adjusted ebitda provides consistency and comparability with our past financial performance , facilitates period-to-period comparisons of operations and also facilitates comparisons with other peer companies , many of which use similar non-gaap financial
| our paid impressions decreased during the year ended december 31 , 2014 compared to the year ended december 31 , 2013 due to the shift in mix of advertising spend on our platform from lower-priced higher-volume static inventory to higher-priced lower-volume rtb transactions and our traffic quality control initiatives put into place during the last several months of 2013 to maintain a high standard of quality advertising inventory and reduce lower quality traffic . revenue increased $ 26.8 million , or 47 % , during the year ended december 31 , 2013 compared to the year ended december 31 , 2012 primarily for the same reasons described above . the increase was primarily attributable to an increase of $ 0.12 , or 50 % , in average cpm during the year ended december 31 , 2013 compared to the year ended december 31 , 2012 , representing an increase in revenue of approximately $ 30.5 million after consideration of our take rate . the increase in average cpm was partially offset by a decrease of 7 % in paid impressions during the year ended december 31 , 2013 compared to the year ended december 31 , 2012 , representing a decrease in revenue by approximately $ 3.8 million after consideration of our take rate . we expect revenue to continue to grow on an annual basis . revenue may be impacted by seasonality , the amounts of fees we are able to charge buyers and sellers , and other factors such as changes in the market , our execution of the business , and competition . cost of revenue replace_table_token_12_th cost of revenue increased by $ 5.4 million , or 35 % , for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 . this increase was primarily due to an increase of $ 3.6 million in depreciation and amortization expense and an increase in data center , hosting , and bandwidth costs of $ 1.2 million . the increase in depreciation and amortization was primarily attributable to increase in depreciation of computer equipment and network hardware and amortization of capitalized internal use software primarily due to additional personnel and their development of new features and functionality to our solution . the amortization of capitalized internal use software reflected in cost
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we anticipate that interest expense will decrease over the next 12 months based on our expectation of a reduction in the average balance of debt outstanding . in 2015 , amortization of intangibles increased $ 6.7 million , largely due to the acquisition of olson ; however we expect this amortization to decrease over the next 12 months as some of these intangibles assets become fully amortized . as a result of the acquisitions of olson and citytech and future growth expectations for our commercial business , we anticipate our concentration of revenue to commercial clients and revenue within the consumer and financial market will continue to increase as a percentage of our total revenue . we believe that demand for our services will continue to grow as government , industry , and other stakeholders seek to address critical long-term societal and natural resource issues in our key markets due to heightened concerns about clean energy and energy efficiency ; health promotion , treatment , and cost control ; and ongoing homeland security threats . we also see significant opportunity to leverage further our digital and client engagement capabilities across our commercial and government client base . our future results will depend on the success of our strategy to enhance our client relationships and seek larger engagements across the program life cycle in our four key markets , and to complete and successfully integrate additional strategic acquisitions . in our four markets , we will continue to focus on building scale in vertical and horizontal domain expertise ; developing business with both our government and commercial clients ; and replicating our business model in selective geographies . in doing so , we will continue to evaluate strategic acquisition opportunities that enhance our subject matter knowledge , broaden our service offerings , and or provide scale in specific geographies . federal government revenue was 48 % of our total revenue for the year ended december 31 , 2015. while we continue to see favorable long-term market opportunities , there are certain near-term challenges facing all government service providers , including top-line legislative constraints on federal government discretionary spending that limit expenditure growth through 2021. actions by congress could result in a delay or reduction to our revenue , profit , and cash flow and could have a negative impact on our business and results of operations ; however , we believe we are well positioned in markets that have been , and will continue to be , priorities to the federal government . we believe that the combination of internally-generated funds , available bank borrowings , and cash and cash equivalents on hand will provide the required liquidity and capital resources necessary to fund on-going operations , potential acquisitions , customary capital expenditures , and other current working capital requirements . our results of operations and cash flow may vary significantly from quarter to quarter depending on a number of factors , including , but not limited to : progress of contract performance ; extraordinary economic events and natural disasters ; 36 number of billable days in a quarter ; timing of client orders ; timing of award fee notices ; changes in the scope of contracts ; variations in purchasing patterns under our contracts ; federal and state and local governments ' and other clients ' spending levels ; timing of billings to , and payments by , clients ; timing of receipt of invoices from , and payments to , employees and vendors ; commencement , completion , and termination of contracts ; strategic decisions we make , such as acquisitions , consolidations , divestments , spin-offs , joint ventures , strategic investments , and changes in business strategy ; timing of significant costs and investments ( such as bid and proposal costs and the costs involved in planning or making acquisitions ) ; timing of events related to discrete tax items ; our contract mix and use of subcontractors ; additions to , and departures of , staff ; changes in staff utilization ; paid time off taken by our employees ; level and cost of our debt ; changes in accounting principles and policies ; and or general market and economic conditions . because a significant portion of our expenses , such as personnel , facilities , and related costs , are fixed in the short term , contract performance and variation in the volume of activity , as well as in the number and volume of contracts commenced or completed during any quarter , may cause significant variations in operating results from quarter to quarter . we generally have been able to price our contracts in a manner that accommodates the rates of inflation experienced in recent years , although we can not ensure that we will be able to do so in the future . critical accounting policies the preparation of our financial statements in accordance with gaap requires that we make estimates and judgments that affect the reported amount of assets , liabilities , revenue , and expenses , as well as the disclosure of contingent assets and liabilities . if any of these estimates or judgments prove to be incorrect , our reported results could be materially affected . actual results may differ significantly from our estimates under different assumptions or conditions . we believe that the estimates , assumptions , and judgments involved in the accounting practices described below have the greatest potential impact on our financial statements and therefore consider them to be critical accounting policies . our significant accounting policies , including the critical accounting policies listed below , are more fully described and discussed in “ note b—summary of significant accounting policies ” in the “ notes to consolidated financial statements. ” 37 revenue recognition we recognize revenue when persuasive evidence of an arrangement exists , services have been rendered , the contract price is fixed or determinable , and collectability is reasonably assured . we enter into three types of contracts : time-and-materials , cost-based and fixed-price . time-and-materials contracts . story_separator_special_tag revenue for time-and-materials contracts is recorded on the basis of allowable labor hours worked multiplied by the contract-defined billing rates , plus the costs of other items used in the performance of the contract . profits and losses on time-and-materials contracts result from the difference between the cost of services performed and the contract-defined billing rates for these services . cost-based contracts . revenue under cost-based contracts is recognized as costs are incurred . applicable estimated profit , if any , is included in earnings in the proportion that incurred costs bear to total estimated costs . incentives , award fees , or penalties related to performance are also considered in estimating revenue and profit rates based on actual and anticipated awards , taking into consideration factors such as our prior award experience and communications with the customer regarding performance . fixed-price contracts . revenue for fixed-price contracts is recognized when earned , generally as work is performed . services performed vary from contract to contract and are not always uniformly performed over the term of the arrangement . fixed-price contracts may contain multiple elements that must be evaluated to determine if they represent separate units of accounting that have stand-alone value . if the assessment is made that there is more than one unit of accounting , the contract value is then allocated to each unit based upon management 's best estimate of selling price and the appropriate revenue recognition method is applied to each unit . we recognize revenue in a number of different ways on fixed-price contracts based upon the nature of the services to be provided and an assessment of what best mirrors the pattern of performance for the deliverable/contract , including : proportional performance : revenue on certain fixed-price contracts is recognized based on proportional performance when the provision of services extends beyond an accounting period with more than one discrete performance act , and progress towards completion can be measured based on a reliable output or input . under this method , revenue is recorded each period based upon certain contract performance input measures incurred ( labor hours , labor costs , or total costs ) or output measures completed , expressed as a proportion of a total project estimate . progress on a contract is monitored regularly to ensure that revenue recognized reflects project status . when hours or costs incurred are used as the basis for revenue recognition , the hours or costs incurred represent a reasonable surrogate for output measures of contract performance , including the presentation of deliverables to the client . clients are obligated to pay as services are performed , and in the event that a client cancels the contract , payment for services performed through the date of cancellation is typically negotiated with the client . specific performance : w hen the services to be performed consist of a single act , revenue is recognized at the time the act is performed or at the completion of the single service . straight-line : when services are performed or are expected to be performed consistently throughout an arrangement , or when we are compensated on a retainer or fixed-fee basis , revenue is recognized ratably over the period benefited . completed contract : revenue and costs on certain fixed-price contracts are recognized at completion if the final act is so significant to the arrangement that value is deemed to be transferred only at completion . 38 revenue recognition requires us to use judgment relative to assessing risks , estimating contract revenue and costs or other variables , and making assumptions for scheduling and technical issues . due to the size and nature of many of our contracts , the estimation of revenue and estimates at completion can be complicated and are subject to many variables . contract costs include labor , subcontractor costs , and other direct costs , as well as an allocation of indirect costs . at times , we must also make assumptions regarding the length of time to complete the contract because costs include expected increases in wages , prices for subcontractors , and other direct costs . from time to time , facts develop that require us to revise our estimated total costs or hours and thus the associated revenue on a contract . to the extent that a revised estimate affects contract profit or revenue previously recognized , we record the cumulative effect of the revision in the period in which the facts requiring the revision become known . a provision for the full amount of an anticipated loss on any type of contract is recognized in the period in which it becomes probable and can be reasonably estimated . as a result , operating results could be affected by revisions to prior accounting estimates . our contractual arrangements are evaluated to assess whether revenue should be recognized on a gross versus net basis . management 's assessment when determining gross versus net revenue recognition is based on several factors such as whether we serve as the primary service provider , have autonomy in selecting subcontractors , or have credit risk , all of which are primary indicators that we serve as the principal to the transaction . in such cases , revenue is recognized on a gross basis . when such indicators are not present and we are primarily functioning as an agent under an arrangement , revenue is recognized on a net basis . we generate invoices to clients in accordance with the terms of the applicable contract , which may not be directly related to the performance of services . unbilled receivables are invoiced based upon the achievement of specific events as defined by each contract , including deliverables , timetables , and incurrence of certain costs . unbilled receivables are classified as a current asset . advanced billings to clients in excess of revenue earned are recorded as deferred revenue until the revenue recognition criteria are met . reimbursements of out-of-pocket expenses are included in revenue with corresponding costs incurred by us included in the cost of revenue .
| the increase in direct costs was primarily attributable to direct costs resulting from the acquisition of olson , partially offset by a reduction in our use of subcontracted labor . direct costs as a percent of revenue decreased to 61.4 % for the year ended december 31 , 2015 , compared to 62.4 % for the year ended december 31 , 2014. we generally expect the ratio of direct costs as a percentage of revenue to decrease when our own labor increases relative to subcontracted labor . changes in the mix of services and other direct costs provided under our contracts can result in variability in our direct costs as a percentage of revenue . for example , when we perform work in the area of implementation , we expect that more of our services will be performed in client-provided facilities and or with dedicated staff . such work generally has a higher proportion of direct costs than much of our current research and advisory work , and we anticipate that higher utilization of such staff will decrease indirect expenses . in addition , to the extent we are successful in winning larger contracts , our own labor services component could decrease because larger contracts typically are broader in scope and require more diverse capabilities , potentially resulting in more subcontracted labor , more other direct costs , and lower margins . although these factors could lead to a higher ratio of direct costs as a percentage of revenue , the economics of these larger jobs are nonetheless generally favorable because they increase income , broaden our revenue base , and have a favorable return on invested capital . indirect and selling expenses . indirect and selling expenses for the year ended december 31 , 2015 , were $ 329.2 million compared to $ 302.0 million for the year ended december 31 , 2014 , an increase of $ 27.1 million or 9.0 % . indirect and selling expenses include our management , facilities , and infrastructure costs for all employees , as well as salaries and wages , including stock-based compensation provided to employees whose compensation and other benefit costs are included in indirect and
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in the second quarter of 2015 , bancorp extended the historical period used to capture bancorp 's historical loss ratios from 12 quarters to 24 quarters . this extension of the historical period was applied to all classes and segments of our portfolio . the expansion of the look-back period for the quantitative historical loss rate caused us to review the overall methodology for the qualitative factors to ensure we were appropriately capturing the risk not addressed in the quantitative historical loss rate . management believes the extension of the look-back period is appropriate to capture the impact of a full economic cycle and more accurately represents the current level of risk inherent in the loan portfolio . to the extent that management 's assumptions prove incorrect , results from operations could be materially affected by a higher or lower provision for loan losses . the accounting policy related to the allowance for loan losses is applicable to the commercial banking segment of bancorp . the impact and any associated risks related to this policy on bancorp 's business operations are discussed in the “ allowance for loan losses ” section below . the allowance for loan losses is management 's estimate of probable losses inherent in the loan portfolio as of the balance sheet date . loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed . subsequent recoveries , if any , are credited to the allowance . bancorp 's allowance calculation includes allocations to loan portfolio segments at december 31 , 2016 for qualitative factors including , among other factors , local economic and business conditions in each of our primary markets , quality and experience of lending staff and management , exceptions to lending policies , levels of and trends in past due loans and loan classifications , concentrations of credit such as collateral type , trends in portfolio growth , changes in value of underlying collateral for collateral-dependent loans , effect of other external factors such as the national economic and business trends , quality and depth of the loan review function , and management 's judgement of current trends and potential risks . bancorp utilizes the sum of all allowance amounts derived as described above as the appropriate level of allowance for loan and lease losses . changes in criteria used in this evaluation or availability of new information could cause the allowance to be increased or decreased in future periods . in addition , bank regulatory agencies , as part of their examination process , may require adjustments to the allowance for loan and lease losses based on their judgments and estimates . 17 overview of 2016 the following discussion should be read in conjunction with bancorp 's consolidated financial statements and accompanying notes and other schedules presented elsewhere in this report . in 2016 , bancorp completed a record year of earnings , asset , and deposit growth with net income totaling $ 41.0 million , an increase of $ 3.8 million , or 10 % , over 2015. diluted earnings per share for 2016 increased 9 % over 2015 to $ 1.80 , marking the sixth consecutive year of record earnings per diluted share . increased profitability was primarily due to increases in net interest income and non-interest income , and decreased income tax expense . these were partially offset by an increased provision for loan losses and higher non-interest expenses in 2016. as is the case with most banks , the primary source of bancorp 's revenue is net interest income and fees from various financial services provided to customers . net interest income is the difference between interest income earned on loans , investment securities and other interest earning assets less interest expense on deposit accounts and other interest bearing liabilities . loan volume and interest rates earned on those loans are critical to overall profitability . similarly , deposit volume is crucial to funding loans and rates paid on deposits directly impact profitability . business volumes are influenced by economic factors including market interest rates , business spending , consumer confidence and competitive conditions within the marketplace . as a result of record loan production , lower levels of payments and prepayments , and higher utilization of available lines of credit , bancorp 's loan portfolio increased $ 272 million , or 13 % , to $ 2.3 billion as of december 31 , 2016. despite lower average rates on interest earning assets , the positive effect of increased volumes on loans and available-for-sale investments contributed to higher interest income for 2016 , as interest income increased $ 9.0 million , or 10 % , over the same period in 2015. deposit growth during 2016 , offset by lower funding costs on deposits and borrowings , resulted in only a slight increase in interest expense , year over year . under the continuing pressure of a highly competitive lending environment , net interest margin in 2016 decreased to 3.59 % , as compared to 3.67 % in 2015. total non-interest income increased $ 3.6 million , or 9.0 % in 2016 , as compared to 2015 , and remained consistent at 31 % of total revenues . with the exception of a minimal decrease in income from bank-owned life insurance , all areas of non-interest income increased , 2016 over 2015 , with the greatest dollar increase from the bancorp 's wealth management and trust department ( wm & t ) . wm & t represents an important part of the relationship focused philosophy of the company and , accordingly , income from the department represents approximately 44 % of total non-interest income for the bancorp . the magnitude of wm & t revenue distinguishes bancorp from other community banks of similar asset size and although the 2016 increase was partially the result of a rising stock market during the year , it also represented the best year ever for wm & t in terms of new clients added . story_separator_special_tag higher non-interest expenses for 2016 were primarily the result of increased personnel and technology costs , associated with growth and operational support , and increased amortization expense for investments in tax credit partnerships as the bancorp increased its commitment to customers pursuing tax-advantaged projects , primarily involving historical redevelopment . net gains on sales of other real estate owned totaled $ 409 thousand compared to net losses of $ 147 thousand for 2015. bancorp 's efficiency ratio for 2016 of 57.6 % was up from 56.8 % in 2015. for the twelve-month period ended december 31 , 2016 , bancorp recorded a $ 3.0 million provision for loan losses , compared to $ 750 thousand for the same period in 2015. the increase in the provision was primarily the result of loan growth . the provision for loan losses represents a charge to earnings necessary to establish an allowance for loan losses that , in management 's evaluation , is adequate to provide coverage for the inherent losses on outstanding loans . bancorp 's allowance for loan losses was 1.04 % of total loans at december 31 , 2016 , compared to 1.10 % of total loans at december 31 , 2015. bancorp 's effective tax rate decreased to 27.1 % in 2016 from 31.3 % in 2015 , primarily a result of the higher utilization of federal income tax credits in 2016. bancorp invests in certain partnerships that yield federal income tax credits . the tax benefit of these investments exceeds amortization expense associated with them , resulting in a positive impact on net income . 18 tangible common equity ( tce ) , a non-gaap measure , is a measure of a company 's capital which is useful in evaluating the quality and adequacy of capital . it is calculated by subtracting the value of intangible assets and any preferred equity from bancorp 's stockholders ' equity . the ratio of tangible common equity to total tangible assets was 10.26 % as of december 31 , 2016 , compared to 10.10 % at december 31 , 2015. see the non-gaap financial measures section for details on reconcilement to us gaap measures . challenges for 2017 will include managing net interest margin , achieving continued loan growth , managing credit quality and adapting to changing regulatory requirements . ● considering the recent increase in short-term interest rates implemented by the federal open market committee and with the expectation of additional increases in 2017 , management anticipates that net interest margins will increase during the coming year . however , competitive pressures on rates for new loans could result in a continued pressure on the net interest margin for 2017. increased deposit rate competition could also negatively impact this expectation , as could an increase in longer term interest rates . ● bancorp 's goals for 2017 include net loan growth at a pace comparable to that experienced in 2014 and 2015. this will be impacted by competition , prevailing economic conditions , line of credit utilization and prepayments in the loan portfolio . bancorp believes there is continued opportunity for loan growth in all three markets , and bancorp 's ability to deliver attractive loan growth over the long-term is linked to bancorp 's success . ● bancorp has been successful at gathering sufficient deposits to fund loan growth . while deposits in all market areas have grown , the most significant increases arose in the louisville market . bancorp will need to continue to increase deposits to support loan growth . ● bancorp is subject to extensive regulation , supervision and examination by federal and state banking authorities . while recent political developments indicate banking regulations may decrease , bancorp believes regulation will continue to play a significant role in the banking industry . the following sections provide more details on subjects presented in this overview . story_separator_special_tag margin : 0pt ; line-height : 1.25 '' > derivatives designated as cash flow hedges described in note 22 to bancorp 's consolidated financial statements are recognized on the consolidated balance sheet at fair value , with changes in fair value due to changes in prevailing interest rates , recorded net of tax in other comprehensive income . the following table presents the increases in net interest income due to changes in rate and volume computed on a tax-equivalent basis and indicates how net interest income in 2016 and 2015 was impacted by volume increases and the lower average interest rate environment . tax-equivalent adjustments are based on a 35 % federal tax rate . the change in interest due to both rate and volume has been allocated to the change due to rate and the change due to volume in proportion to the relationship of the absolute dollar amounts of the change in each . 21 taxable equivalent rate/volume analysis replace_table_token_7_th bancorp 's tax equivalent net interest income increased $ 8.8 million for the year ended december 31 , 2016 compared to the same period of 2015 , while 2015 increased $ 4.5 million compared to 2014. as shown in the table above , net interest income for 2016 compared to 2015 was positively impacted , most significantly by an increase in loan volume and to a lesser extent by securities volume , a more favorable mix of deposits , and a decrease in rates of fhlb advances . net interest income for the comparative periods was negatively impacted by a decline in the average rate earned on assets . the change in average rates on deposits was slight with only a minimal impact on earnings . for the year 2015 compared to 2014 , net interest income was positively impacted most significantly by an increase in loan and , to a lesser extent , securities volume , a decrease in deposit rates , a more favorable mix of deposits , and decreases in the rates of fhlb advances . net interest income was negatively impacted by a decline in the average rate earned on assets and higher volume of fhlb advances .
| 19 comparative information regarding net interest income follows : replace_table_token_5_th bp = basis point = 1/100th of a percent all references above to net interest margin and net interest spread exclude the sold portion of certain participation loans from calculations . such loans remain on bancorp 's balance sheet as required by us gaap because bancorp retains some form of effective control ; however , bancorp receives no interest income on the sold portion of these loans . these participation loans sold are excluded in the calculation of margins , because bancorp believes it provides a more accurate depiction of the performance of its loan portfolio . prime rate and the five year treasury bond rate are included above to provide a general indication of the interest rate environment in which bancorp operated . approximately $ 869 million , or 38 % , of bancorp 's loans are variable rate ; most of these loans are indexed to the prime rate and may reprice as that rate changes . however , approximately $ 287 million of variable rate loans , have reached their contractual floor of 4 % or higher . interest rates must rise above the level of the floors before these loans will begin to reprice . approximately $ 154 million of variable rate loans have contractual floors below 4 % . the remaining $ 428 million of variable rate loans have no contractual floor . bancorp intends to establish floors whenever possible upon acquisition of new customers . bancorp 's variable rate loans are primarily comprised of commercial lines of credit and real estate loans . at inception , most of bancorp 's fixed rate loans are priced in relation to the five year treasury bond . average loan balances increased $ 235 million or 12.3 % in 2016. however , competition and the sustained low interest rate environment drove average loan yields lower by 9 basis points . increased interest income from higher volumes was partially offset by these lower rates . bancorp grew average interest bearing deposits $ 170 million or 10.6 % . average interest costs on interest bearing deposits decreased 1 basis point , reflecting a stabilization of the sustained low interest rate environment
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financial overview grant income we have received grant income to support our research and development activities from two main sources ; jdrf , a charitable organization based in new york and the technology strategy board ( “ tsb ” ) , the u.k. government 's biomedical catalyst funding initiative . jdrf has provided $ 2.2 million in milestone-based financial support to advance the intravitreal drug program but this program has concluded and no further receipts are expected . under the terms of a grant approved in the second calendar quarter of 2015 , the tsb will provide a total amount of $ 7.3 million over the lifetime of the agreements between us and the tsb , to accelerate the development of the oral drug program , of which $ 5.9 million was received or was due to be received as of april 30 , 2017. research and development expenses research and development expenses primarily consist of costs associated with our research activities such as salaries and related employee costs as well the costs associated with the preclinical and clinical development of product candidates . we contract with clinical research organizations to manage our clinical trials under agreed upon budgets for each study , with oversight by our clinical program managers . all research and development costs are expensed as incurred . we expect to continue to incur substantial expenses related to development activities for the foreseeable future as we conduct clinical development , manufacturing and toxicology studies . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials , additional drug manufacturing requirements , and later stage toxicology studies such as carcinogenicity studies . the process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming . the probability of success for each product candidate is affected by numerous factors , including preclinical data , clinical data , competition , manufacturing capability and commercial viability . accordingly , we may never succeed in achieving marketing approval for any of our product candidates . completion dates and costs for clinical development programs as well as our research program can vary significantly for each current and future product candidate and are difficult to predict . as a result , we can not estimate with any degree of certainty the total project costs associated with development of our product candidates at this point in time . we anticipate making determinations as to which programs and product candidates to pursue and how much funding to direct to each program and product candidate on an ongoing basis in response to the scientific success of early research programs , results of ongoing and future clinical trials , our ability to enter into collaborative agreements with respect to programs or potential product candidates , as well as ongoing assessments as to each current or future product candidate 's commercial potential . general and administrative expenses general and administrative expenses consist primarily of the costs associated with general management , obtaining and maintaining our patent portfolio , professional fees for accounting , auditing , consulting and legal services , and general overhead expenses . we expect ongoing general and administrative expenses to increase in the future as we expand our operating activities , maintain and expand the patent portfolio and incur additional costs associated with the management of a public company and maintaining compliance with exchange listing and sec requirements . these potential increases 47 will likely include management costs , legal fees , accounting fees , directors ' and officers ' liability insurance premiums and expenses associated with investor relations . other income , net other income consists of bank interest , research and development tax credits from the u.k. government 's tax incentive programs set up to encourage research and development in the u. k. and realized and unrealized exchange rate gains/losses related to accounts denominated in foreign currencies . income taxes we historically have incurred net losses and have no corporation tax liabilities . we file u.s. federal tax returns as well as certain state returns . we also file returns in the u.k. under the u.k. government 's research and development tax incentive scheme , we have surrendered a portion of our tax losses in exchange for research and development tax credits in accordance with the relevant tax legislation . the research and development tax credits are paid out to us in cash and reported as other income . 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 generally accepted accounting principles in the united states , ( “ gaap ” ) . the preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities at the date of our financial statements and the reported revenue and expenses during the reported periods . we evaluate these estimates and judgments , including those described below , on an ongoing basis . we base our estimates on historical experience , known trends and events , contractual milestones 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 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 . see also note 2 , “ summary of significant accounting policies ” to our consolidated financial statements included in item 8 of this report , which discusses the significant assumptions used in applying our accounting policies . story_separator_special_tag those accounting policies and estimates that we deem to be critical are as follows : preclinical and clinical trial accruals we base our accrued expenses related to clinical trials on estimates of patient enrollment and related expenses at clinical investigator sites as well as estimates for services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that conduct and manage clinical trials on our behalf . 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 and based on contracted amounts applied to the level of patient enrollment and activity according to the clinical trial protocol . if timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed , we modify our estimates of accrued expenses accordingly on a prospective basis . if we do not identify costs that we have begun to incur , or if we underestimate or overestimate the level of services performed or the costs of these services , our actual expenses could differ from our estimates . at april 30 , 2017 there were no significant accruals recognized given that our significant clinical trials have yet to commence . income taxes we account for income taxes under the asset and liability method . under this method , deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income . valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized . given our history of losses , we currently provide a full valuation allowance on our net deferred tax assets . 48 we account for uncertain tax positions in accordance with asc 740-10 , accounting for uncertainty in income taxes . we assess all material positions taken in any income tax return , including all significant uncertain positions , in all tax years that are still subject to assessment or challenge by relevant taxing authorities . assessing an uncertain tax position begins with the initial determination of the position 's sustainability and is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement . as of each balance sheet date , unresolved uncertain tax positions are reassessed , and we determine whether ( i ) the factors underlying the sustainability assertion have changed and ( ii ) the amount of the recognized tax benefit is still appropriate . the recognition and measurement of tax benefits requires significant judgment . judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available . story_separator_special_tag p > research and development expenses by major programs or categorie s were as follows : replace_table_token_8_th expenses for the intravitreal program increased in the year ended april 30 , 2016 compared to the prior year due to toxicology studies that were required to support further clinical development . additional expenses were incurred for manufacturing of clinical supplies for the next clinical study . expenses for the oral program increased in the year ended april 30 , 2016 compared to the prior year as a result of increased expenditure on manufacturing of drug substance and drug product and toxicology studies to support the clinical program . the additional oral programs incurred expenses in the year ended april 30 , 2016 of $ 2.3 million compared to no expense in the prior year due to new candidates moving through discovery characterization , initial scale-up manufacture and entry into early toxicology assessment . early stage research expenses for the year ended april 30 , 2016 increased to $ 4.6 million compared to $ 3.1 million in the prior year due to an increase in early stage discovery activities . we anticipate that research and development spending will continue at or near the current rate as multiple candidates are assessed in discovery and early development . general and administrative expenses . general and administrative expenses were $ 2.7 million for the year ended april 30 , 2016 which was an increase of $ 1.1 million compared to $ 1.6 million in the prior year . the increase in general and administrative expenses for the year ended april 30 , 2016 was substantially due to $ 0.5 million of employee related expenses due to the expansion of management and other key positions and $ 0.6 million of legal and patent expenses . other income . other income was $ 3.7 million for the year ended april 30 , 2016 compared to $ 0.9 million for the prior year . the increase in the year ended april 30 , 2016 was primarily due to an increase in foreign currency exchange rate gains from cash held in usd accounts in our u.k. entity . liquidity and capital resources we have incurred losses since inception and cash outflows from operating activities for the years ended april 30 , 2017 and 2016. we have received equity funding totaling $ 58.6 million , grant income of $ 8.5 million and have an accumulated deficit of $ 55.9 million . we anticipate that we will continue to incur net losses for the foreseeable future as we continue the research and development efforts on our product candidates , hire additional staff , including clinical , scientific , operational , financial and management personnel , and incur additional costs associated with being a public company . we plan to continue to fund our operations with cash and cash equivalents at april 30 , 2017 along with future issuances of debt and or equity securities and potential collaborations or strategic partnerships with other entities . capital raises from issuances of convertible debt and equity securities could result in additional dilution to stockholders .
| approximately $ 2.0 million of the overall decline in research and development expense was due to the decline in exchange rates . research and development expenses by major programs or categories were as follows : replace_table_token_6_th 49 expenses for the intravitreal program declined in the year ende d april 30 , 2017 compared to the prior year due to completion of toxicology studies that were required to support further clinical development . expenses for the oral program decreased in the year ended april 30 , 2017 compared to t he prior year as a result of the completion o f toxicology studies in the prior year . the additional oral programs expenses in the year ended april 30 , 2017 increased to $ 2.6 million from $ 2.3 million in the prior year due to expenses incurred in connection with the progression of multiple candidates through discovery characterization , initial scale-up manufacture and entry into early toxicology assessment . early stage research expenses for the year ended april 30 , 2017 increased to $ 6.8 million compared to $ 4.6 million in the prior year due to an increase in headcount and expansion of early stage discovery activities . we anticipate that research and development spending will continue to increase as clinical trials ramp up and multiple candidates are assessed in discovery and early development . general and administrative expenses . general and administrative expenses were $ 11.2 million for the year ended april 30 , 2017 which was an increase of $ 8.5 million compared to $ 2.7 million in the prior year . the increase in general and administrative expenses for the year ended april 30 , 2017 was substantially due to $ 5.6 million of professional fees and regulatory costs the majority of which were associated with the share purchase transaction completed in november 2016 as well as $ 0.8 million of severance costs and $ 2.1 million of payroll related , facilities and other administrative expenses as we expanded the management
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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- 42 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 31 % , 26 % and 26 % of our total revenues during fiscal years 2014 , 2013 and 2012 , 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 5 % , 3 % and 3 % of total revenues in fiscal years 2014 , 2013 and 2012 , respectively . as a government contractor , we are able to recover a portion of our ir & d expenses pursuant to our government contracts . 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 . 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 . 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 43 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 2014 , 2013 and 2012 , we recorded losses of approximately $ 3.3 million , $ 3.1 million and $ 1.4 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 . story_separator_special_tag 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 4 , 2014 would change our loss before income taxes by approximately $ 0.7 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 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 44 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 total arrangement consideration is allocated to each separate unit of accounting for each of the nonsoftware deliverables using the relative selling prices of each unit based on the aforementioned selling price hierarchy . revenue for each separate unit of accounting is recognized when the applicable revenue recognition criteria for each element have been met . to determine the selling price in multiple-element arrangements , we establish vsoe of the selling price using the price charged for a deliverable when sold separately . we also consider specific renewal rates offered to customers for software license updates , product support and hardware systems support , and other services . for nonsoftware multiple-element arrangements , tpe is established by evaluating similar and or interchangeable competitor products or services in standalone arrangements with similarly situated customers and or agreements . if we are unable to determine the selling price because vsoe or tpe does n't exist , we determine esp for the purposes of allocating the arrangement by reviewing historical transactions , including transactions whereby the deliverable was sold on a standalone basis and considering several other external and internal factors including , but not limited to , pricing practices including discounting , margin objectives , competition , the geographies in which we offer our products and services , the type of customer ( i.e . distributor , value added reseller , government agency or direct end user , among others ) , volume commitments and the stage of the product lifecycle . the determination of esp considers our pricing model and go-to-market strategy . as our or our competitors ' pricing and go-to-market strategies evolve , we may modify our pricing practices in the future , which could result in changes to our determination of vsoe , tpe and esp .
| selling , general and administrative expenses fiscal years ended dollar increase ( decrease ) percentage increase ( decrease ) april 4 , 2014 march 29 , 2013 ( in millions , except percentages ) selling , general and administrative $ 281.5 $ 240.9 $ 40.7 16.9 % the $ 40.7 million increase in selling , general and administrative ( sg & a ) expenses was primarily attributable to higher support costs of $ 33.7 million , higher selling costs of $ 4.4 million , and higher new business proposal costs of $ 2.6 million . of the higher support costs , $ 23.1 million related to our satellite services segment ( due to legal expense , approximately $ 18.4 million , focused on protecting and extending our technology advantages ) , $ 8.4 million to our commercial networks segment , and $ 2.2 million related to our government systems segment . 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 and development fiscal years ended dollar increase ( decrease ) percentage increase ( decrease ) april 4 , 2014 march 29 , 2013 ( in millions , except percentages ) independent research and development $ 60.7 $ 35.4 $ 25.3 71.3 % the $ 25.3 million increase in ir & d expenses reflected increased ir & d efforts in our commercial networks segment of $ 17.7 million ( primarily due to next-generation consumer broadband and next-generation satellite communication systems ) and in our government systems segment of $ 7.8 million ( primarily due to development of next-generation dual-band mobility solutions and tactical satcom radio products ) . 49 amortization of acquired intangible assets we amortize our acquired intangible assets from prior acquisitions over their estimated useful lives ranging from three to ten years . the decrease in amortization of acquired intangible assets of approximately $ 1.0 million in fiscal year 2014 compared to last fiscal year was a
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adjusted ebitda ifresh believes that adjusted ebitda is a useful performance measure and can be used to facilitate a comparison of nym 's operating performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors and trends affecting our business than gaap measures alone can provide . ifresh also uses adjusted ebitda as one of the primary methods for planning and forecasting overall expected performance and for evaluating on a quarterly and annual basis actual results against such expectations , and as a performance evaluation metric in determining achievement of certain compensation programs and plans for employees , including senior executives . other companies in the industry may calculate adjusted ebitda differently than ifresh does , limiting its usefulness as a comparative measure . ifresh 's management defines adjusted ebitda as earnings before interest expense , income taxes , depreciation and amortization expense , store opening costs , and non-recurring expenses . all of the omitted items are either ( i ) non-cash items or ( ii ) items that we do not consider in assessing its ongoing operating performance . because it omits non-cash items , ifresh 's management believes that adjusted ebitda is less susceptible to variances in actual performance resulting from depreciation , amortization and other non-cash charges and more reflective of other factors that affect its operating performance . ifresh 's management believes that the use of these non-gaap financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the company 's financial measures with other specialty retailers , many of which present similar non-gaap financial measures to investors . 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 , 2019 and 2018 replace_table_token_5_th net sales replace_table_token_6_th 47 ifresh 's net sales were $ 125.4 million for the year ended march 31 , 2019 , an increase of $ 11.3 million , or 8.2 % , from $ 136.7 million for the year ended march 31 , 2018 . net retail sales to third parties increased by $ 2.3 million , or2.1 % , from $ 109.3 million for the year ended march 31 , 2018 , to $ 107.0 million for the year ended march 31 , 2019. the decrease resulted mainly from our quincy and boston , massachusetts stores . the company believes the sales drop caused in part by increased competition in the local market . a new asian supermarket opened near our quincy store , and the store is partially under renovation . due in part to the ongoing renovations and increased competition , sales from our quincy and boston stores decreased by $ 3.0 million . sales from other stores increased by $ 0.7 million mainly due to the open of two new stores . our total net wholesale sales decreased by $ 8.8 million from $ 27.3 million for the year ended march 31 , 2018 to $ 18.4 million for the year ended march 31 , 2019 , attributable that new york mart group . inc is going out of business and its sales decreased by $ 7.5 million from the year ended march 31 , 2018 to the year ended march 31 , 2019. cost of sales , occupancy costs and gross profit replace_table_token_7_th for the retail segment , cost of sales increased by $ 1.6 million , from 80.0 million for the year ended march 31 , 2018 , to $ 81.7 million for the year ended march 31 , 2019. the increase was due from following reasons : 1 ) from the fourth quarter of fiscal year 2019 , the company 's wholesale business gradually slows down and the retail stores are heavily rely on third party vendors for inventory supplies instead of centralized supply system . the company lost some price advantage from bulk purchase discount . 2 ) the trade conflict and friction between us and china made the import goods cost increased significantly . occupancy costs consist of store-level expenses such as rental expenses , property taxes , and other store specific costs . occupancy costs increased by approximately $ 1.6 million , which was mainly attributable to increased taxes and store specific costs and the rent of the ifresh e. colonial store which was newly open in the end of fiscal year 2018 . 48 gross profit was $ 16.2 and $ 21.8 million for the year ended march 31 , 2019 and 2018 , respectively . gross margin was 15.1 % and 20.0 % for the year ended march 31 , 2019 and 2018 , respectively . the gross profit decreased due to the performance of the quincy and boston stores , as mentioned above . the boston store 's gross profit fell to 14.1 % this year , compared to 27.3 % at the same time last year . the quincy store 's gross profit fell from 23.2 % this time last year to 13.4 % . both stores ' gross profits have decreased as they react to price pressures from competing local supermarkets . story_separator_special_tag replace_table_token_8_th for our wholesale segment , the cost of sales for the year ended march 31 , 2019 decreased by $ 5.8 million , or 29.1 % , from $ 20.1 million in 2018 to $ 14.2 million in 2019. the decrease is consistent with the significant decrease of sales from the wholesale segment in 2019. gross profit for the year ended march 31 , 2019 decreased by $ 3.0 million , or 41.2 % , from $ 7.2 million in 2018 to $ 4.2 million in 2019. gross margin decreased by 3.4 % from 26.4 % to 23 % . the decrease was due to that new york market group inc. is going out of business and they lost the bulk purchase price advantage when the sales is decreasing . the company is expecting the wholesale revenue and gross profit are going down . selling , general and administrative expenses selling , general , and administrative expenses were $ 31.9 million for the year ended march 31,2019 , an increase of $ 1.2 million , or 3.8/ % , compared to $ 30.7 million for the year ended march 31 , 2018 , which was mainly attributable to the accrual of legal expenses of $ 1.3 million in three lawsuits in which judgments were entered against us , as well as $ 0.7 million for stock compensation to employees . $ 0.8 million expense decrease was due to that new york market group inc. is going out of business and we are decreasing our headcounts . interest expense interest expense was $ 1.3 million for the year ended march 31 , 2019 , an increase of $ 0.5 million , or 60.8 % , from $ 817,000 for the year ended march 31 , 2018 , primarily attributable to the increased loan balance from keybank , which was borrowed in the year for $ 5.7 million offset by $ 1.7 million repayment , as well as increased interest rate in this year compared to last year . other income other income was $ 1.4 million for the year ended march 31 , 2019 , which included management and advertising fee income , rental income , lottery sales , and other miscellaneous income . other income decreased $ 0.3 million , or 17 % , from $ 1.7 million for the year ended march 31 , 2018. for the year ended march 31 , 2018 , the company had insurance claim proceeds in the amount of $ 335,000. income taxes provision we are subject to u.s. federal and state income taxes . income tax expense was $ 568,000 for the year ended march 31 , 2019 , which is consistent , compared to $ 102,000 of income tax benefit for the year ended march 31 , 2018. the effective income tax rate was -5 % and 11 % for the year ended march 31 , 2019 and 2018 , respectively . the significant increase of income tax expense was due to the reserve made for deferred tax assets . due to the company 's continued operating losses , management determined that the deferred tax assets from net operating loss should be fully reserved . 49 net income ( loss ) replace_table_token_9_th net loss was $ 12.0 million for the year ended march 31 , 2019 , an increase of $ 11.2 million , or 1,417 % , from $ 791,000 of net loss for the year ended march 31 , 2018 , mainly attributable to the decreased gross margin and increase in selling , general , and administrative expenses and tax expense described above . net loss as a percentage of sales was -9.04 % and -0.58 % for the year ended march 31 , 2019 and 2018 , 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 . loss before income tax , depreciation , and amortization was $ 7.8 million for for the year ended march 31 , 2019 , a decrease of $ 9.8 million , as compared to income before income tax , depreciation , and amortization of $ 2.0 million for the year ended march 31 , 2018 , mainly attributable to the decrease in net income resulting from decreased sales and increase in selling , general , and administrative expenses described above . the ratio of adjusted ebitda to sales was -6.2 % and 1.4 % for the year ended march 31 , 2019 and 2018 , respectively . liquidity and capital resources as of march 31 , 2019 , ifresh had cash and cash equivalents of approximately $ 1.0 million . ifresh had operating losses in fiscal year 2019 and had negative working capital of $ 21.6 million and $ 18.4 million as of march 31 , 2019 and march 31 , 2018 , respectively . ifresh had negative equity of $ 1.0 million as of march 31 , 2019. the long-term keybank loan of $ 21.3 million has been reclassified as short-term because the company is not in compliance with the keybank loan covenants and keybank has the option to accelerate payment at any time . the company did not meet certain financial covenants required in the credit agreement with keybank national association ( “ keybank ” ) . as of march 31 , 2019 , the company has outstanding loan facilities of approximately $ 21.3 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 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 . 44 ifresh 's net sales were $ 125.4 million and $ 136.7 million for the years ended march 31 , 2019 and 2018 , respectively . in terms of sales by category , perishables constituted approximately 56.8 % of the total sales for the year ended march 31 , 2019. ifresh 's net loss was $ 12.0 million for the year end march 31 , 2019 , an increase of $ 11.2 million , or 1416 % , from $ 0.8 million of net loss for the year end march 31 , 2018. adjusted ebitda was $ -7.8 million for the year end march 31 , 2019 , a decrease of $ 9.8 million , or 496 % , from $ 2.0 million for the year end march 31 , 2018. 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 ) . competition the company faces competition from other asian
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after a review of our allowance for doubtful accounts as of june 30 , 2018 and 2017 , we have determined that a hypothetical ten percent increase in our allowance for doubtful accounts would result in additional bad debt expense and an increase to our allowance for doubtful accounts of $ 1.2 million and $ 0.8 million , respectively . goodwill . we test goodwill for impairment on an annual basis and in the interim by reporting unit if events and circumstances indicate that goodwill may be impaired . the events and circumstances that are considered include business climate and market conditions , legal factors , operating performance indicators and competition . impairment of goodwill is evaluated on a qualitative basis to determine if using a two-step process is necessary . if the qualitative assessment suggests that impairment is more likely than not , a two-step impairment analysis is performed . the first step involves comparison of the fair value of a reporting unit with its carrying amount . the valuation of a reporting unit requires judgment in estimating future cash flows , discount rates and other factors . in making these judgments , we evaluate the financial health of our business , including such factors as industry performance , market saturation and opportunity , changes in technology and operating cash flows . changes in our forecasts or decreases in the value of our common stock could cause book value of reporting units to exceed their fair values . if the carrying amount of a reporting unit exceeds its fair value , the second step of the process involves a comparison of the fair value and the carrying amount of the goodwill of that reporting unit . if the carrying amount of the goodwill of the reporting unit exceeds the fair value of that goodwill , an impairment loss would be recognized in an amount equal to the excess of carrying value over fair value . if an event occurs that would cause a revision to the estimates and assumptions used in analyzing the value of the goodwill , the revision could result in a non-cash impairment charge that could have a material impact on the financial results . we have recorded goodwill of $ 318.6 million from the acquisitions of assurex that was completed on august 31 , 2016 , sividon that was completed on may 31 , 2016 , the clinic that was completed on february 27 , 2015 , crescendo that was completed on february 28 , 2014 and myriad rbm that was completed on may 31 , 2011. of this goodwill , $ 252.8 million is related to our molecular diagnostic segment for crescendo , sividon and assurex and $ 65.8 million for myriad rbm and the clinic related to our other segment ( see note 16 for segment descriptions ) . we qualitatively evaluated the assurex and myriad rbm reporting units for impairment noting no indicators of impairment from the date of acquisition . we measured the fair value of crescendo utilizing income and market approaches using the discounted cash flow method . the income approach considered management 's business plans and projections as the basis for expected cash flows for the next 46 fifteen years and a 2 % residual growth rate . we also used a weighted average discount rate of 20 % . other significant estimates used in the analysis include the profitability of the respectiv e reporting unit and working capital effects of each unit . we noted the fair value of the crescendo reporting unit exceeded its carrying value by 47 % using these assumptions described above . we measured the fair value of the clinic utilizing the income and market approach using the discounted cash flow method . this considered management 's plans and projections as the basis for expected cash flows for the next fifteen years using a 3 % long term growth rate . we also used a weighted discount rate of 6 % . other significant estimates used in the analysis include the profitability of the respective reporting unit and working capital effects of each unit . we noted the fair value of the clinic reporting unit exceeded its carrying value by 5 % . a 0.25 % increase in the discount rate and a 0.25 % decrease in the long term growth rate would decrease the calculated balance by $ 2.4 million which could cause an impairment . we measured the fair value of sividon utilizing the income and market approach using the discounted cash flow method . this considered management 's plans and projections as the basis for expected cash flows for the next fifteen years using a 3 % long term growth rate . we also used a discount rate of 15.5 % . other significant estimates used in the analysis include the profitability of the respective reporting unit and working capital effects of each unit . we noted the fair value of the sividon reporting unit exceeded its carrying value by 13 % . we also measured the fair value of the sividon ipr & d intangible asset using the multi-period excess earning method using a 16 % discount rate . the multi-period excess earning method is a variation of the income approach that estimates the assets value based on present value of the incremental after-tax cash flow attributable only to the intangible assets . we noted that the fair value of the sividon ipr & d exceeded its carrying value by 4 % . a 1 % increase to the discount rate would change the calculated balance by $ 1.3 million which could cause an impairment . income taxes . our income tax provision is based on income before taxes and is computed using the liability method in accordance with accounting standards codification ( “ asc ” ) 740 – income taxes . deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis story_separator_special_tag after a review of our allowance for doubtful accounts as of june 30 , 2018 and 2017 , we have determined that a hypothetical ten percent increase in our allowance for doubtful accounts would result in additional bad debt expense and an increase to our allowance for doubtful accounts of $ 1.2 million and $ 0.8 million , respectively . goodwill . we test goodwill for impairment on an annual basis and in the interim by reporting unit if events and circumstances indicate that goodwill may be impaired . the events and circumstances that are considered include business climate and market conditions , legal factors , operating performance indicators and competition . impairment of goodwill is evaluated on a qualitative basis to determine if using a two-step process is necessary . if the qualitative assessment suggests that impairment is more likely than not , a two-step impairment analysis is performed . the first step involves comparison of the fair value of a reporting unit with its carrying amount . the valuation of a reporting unit requires judgment in estimating future cash flows , discount rates and other factors . in making these judgments , we evaluate the financial health of our business , including such factors as industry performance , market saturation and opportunity , changes in technology and operating cash flows . changes in our forecasts or decreases in the value of our common stock could cause book value of reporting units to exceed their fair values . if the carrying amount of a reporting unit exceeds its fair value , the second step of the process involves a comparison of the fair value and the carrying amount of the goodwill of that reporting unit . if the carrying amount of the goodwill of the reporting unit exceeds the fair value of that goodwill , an impairment loss would be recognized in an amount equal to the excess of carrying value over fair value . if an event occurs that would cause a revision to the estimates and assumptions used in analyzing the value of the goodwill , the revision could result in a non-cash impairment charge that could have a material impact on the financial results . we have recorded goodwill of $ 318.6 million from the acquisitions of assurex that was completed on august 31 , 2016 , sividon that was completed on may 31 , 2016 , the clinic that was completed on february 27 , 2015 , crescendo that was completed on february 28 , 2014 and myriad rbm that was completed on may 31 , 2011. of this goodwill , $ 252.8 million is related to our molecular diagnostic segment for crescendo , sividon and assurex and $ 65.8 million for myriad rbm and the clinic related to our other segment ( see note 16 for segment descriptions ) . we qualitatively evaluated the assurex and myriad rbm reporting units for impairment noting no indicators of impairment from the date of acquisition . we measured the fair value of crescendo utilizing income and market approaches using the discounted cash flow method . the income approach considered management 's business plans and projections as the basis for expected cash flows for the next 46 fifteen years and a 2 % residual growth rate . we also used a weighted average discount rate of 20 % . other significant estimates used in the analysis include the profitability of the respectiv e reporting unit and working capital effects of each unit . we noted the fair value of the crescendo reporting unit exceeded its carrying value by 47 % using these assumptions described above . we measured the fair value of the clinic utilizing the income and market approach using the discounted cash flow method . this considered management 's plans and projections as the basis for expected cash flows for the next fifteen years using a 3 % long term growth rate . we also used a weighted discount rate of 6 % . other significant estimates used in the analysis include the profitability of the respective reporting unit and working capital effects of each unit . we noted the fair value of the clinic reporting unit exceeded its carrying value by 5 % . a 0.25 % increase in the discount rate and a 0.25 % decrease in the long term growth rate would decrease the calculated balance by $ 2.4 million which could cause an impairment . we measured the fair value of sividon utilizing the income and market approach using the discounted cash flow method . this considered management 's plans and projections as the basis for expected cash flows for the next fifteen years using a 3 % long term growth rate . we also used a discount rate of 15.5 % . other significant estimates used in the analysis include the profitability of the respective reporting unit and working capital effects of each unit . we noted the fair value of the sividon reporting unit exceeded its carrying value by 13 % . we also measured the fair value of the sividon ipr & d intangible asset using the multi-period excess earning method using a 16 % discount rate . the multi-period excess earning method is a variation of the income approach that estimates the assets value based on present value of the incremental after-tax cash flow attributable only to the intangible assets . we noted that the fair value of the sividon ipr & d exceeded its carrying value by 4 % . a 1 % increase to the discount rate would change the calculated balance by $ 1.3 million which could cause an impairment . income taxes . our income tax provision is based on income before taxes and is computed using the liability method in accordance with accounting standards codification ( “ asc ” ) 740 – income taxes . deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis
| research and development expenses replace_table_token_7_th in 2018 , r & d expense decreased compared to the same period in the prior year primarily due to $ 2.9 million reduction in costs related to product and clinical development and $ 0.7 million reduction in share based compensation . in 2017 , r & d expense increased compared to the same period in the prior year primarily due to the inclusion of assurex spend of $ 8.5 million . this increase was partially offset by reductions of $ 2.0 million in spend related to internal development of new products , $ 1.3 million in share-based compensation expense and $ 0.9 million in development of pharmaceutical cdx development . change in the fair value of contingent consideration replace_table_token_8_th in 2018 , the decrease in the change in fair value of contingent consideration compared to the prior year is primarily due to a $ 73.3 million decrease due to the assurex randomized control trial not meeting its primary endpoint during the quarter ended december 31 , 2017 , which resulted in us not being required to pay the related milestone as defined in the acquisition agreement . this was partially offset by increases in the fair value of the remaining assurex and sividon contingent consideration liabilities . in 2017 , the change in fair value of contingent consideration compared to the prior year is primarily due to decreases in the fair value of the assurex and sividon contingent consideration liabilities . selling , general and administrative expenses replace_table_token_9_th 41 in 2018 , the decrease in sg & a expense compared to the prior year is primarily due to a $ 10.3 million related to integration activities and net savings related to our elevate 2020 initiative , which is our company-wide efficiency program , a $ 6.7 million decrease in sales and marketing expense and a $ 5.0 million reduction in bad debt expense . these decreases were partially offset by an $ 8.3 million from the inclusion
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similarly , the overall value of our investment portfolio will be impacted by these factors as well as changes in the value of residential and commercial real estate and continuing regulatory changes . we continue to shift our portfolio to more credit sensitive assets from agency securities , which we believe given the current economic and interest rate environment , will provide a better risk adjusted return going forward . credit markets experienced a difficult fourth quarter of 2015 , and a disappointing second half of the year for rmbs and cmbs assets . credit concerns , underperformance and lack of liquidity in other credit markets overwhelmed the mortgage and asset backed sectors . rmbs and cmbs credit spreads widened during the quarter as fears of a global economic downturn from china 's economic slowdown accelerated , combined with the price of oil which continued to slide and a lack of liquidity spread across most capital markets . as a result , the spread on rmbs and cmbs assets , relative to our interest rate swap hedges , widened during the quarter , driving a deep decline in book value . the driving forces behind swap spread tightening include regulatory changes favoring duration positioning in swaps versus other cash assets , insurance fund liability matching and a very large corporate issuance calendar . consumer mortgage credit continued stable to modest improvement in borrower performance . home prices also continued to modestly rise and consumer appetite for housing continued to remain stable with expanding mortgage credit availability . despite the improvement in the mortgage credit , secondary pricing of mortgage backed assets suffered while leverage became more expensive , leading to underperformance during the second half of the year . 54 in the press release issued subsequent to the federal open market committee or fomc meeting on december 15 and 16 , 2015 , the federal reserve agreed to set the new target range for the federal funds rate at 0.25 percent to 0.50 percent , up from zero to 0.25 percent . a number of members commented that it was appropriate to begin policy normalization in response to the substantial progress in the labor market toward achieving the fomc 's objective of maximum employment and their reasonable confidence that inflation would move to 2 percent over the medium term . the fomc comments that their decision reflected both the economic outlook and the time it takes for policy actions to affect future economic outcomes . the fomc observed that after this initial increase in the federal funds rate , the stance of monetary policy would remain accommodative . some fomc members said that their decision to raise the target range was a close call , particularly given the uncertainty about inflation dynamics , and emphasized the need to monitor the progress of inflation closely . the fomc has given guidance that future rate hikes will be data dependent . the federal reserve in its january 2016 meeting felt tighter global financial conditions could affect the u.s. economy and while they still expected to raise rates gradually , they acknowledged a weakened global economy and a steep slide in stock markets was tightening financial conditions faster than the federal reserve wanted . while wall street is skeptical the federal reserve will raise rates at all in 2016 , we believe the size of future rate hikes and the pace will be modest and slow . critical accounting policies the consolidated financial statements include our accounts , those of our consolidated subsidiary , our wholly-owned trs and certain variable interest entities ( `` vies '' ) in which we are the primary beneficiary . all intercompany amounts have been eliminated in consolidation . in accordance with gaap , our consolidated financial statements require the use of estimates and assumptions that involve the exercise of judgment and use of assumptions as to future uncertainties . in accordance with sec guidance , the following discussion addresses the accounting policies that we currently apply . our most critical accounting policies will involve decisions and assessments that could affect our reported assets and liabilities , as well as our reported revenues and expenses . we believe that all of the decisions and assessments upon which our consolidated financial statements have been based were reasonable at the time made and based upon information available to us at that time . we have identified what we believe will be our most critical accounting policies to be the following : fair value option we elected the fair value option for all of our investments at the date of purchase and for our securitized debt , which permits us to measure these investments and securitized debt at fair value with the change in fair value included as a component of earnings . although we have elected the fair value option for our investments and securitized debt , we separately compute interest income on our mbs , other securities and whole-loans under the prescribed method based on the nature of the investment . valuation of financial instruments we disclose the fair value of our financial instruments according to a fair value hierarchy ( levels i , ii , and iii , as defined below ) . in accordance with gaap , we are required to provide enhanced disclosures regarding instruments in the level iii category ( which require significant management judgment ) , including a separate reconciliation of the beginning and ending balances for each major category of assets and liabilities . gaap establishes a framework for measuring fair value in accordance with gaap and expands financial statement disclosure requirements for fair value measurements . gaap further specifies a hierarchy of valuation techniques , which is based on whether the inputs into the valuation technique are observable or unobservable . the hierarchy is as follows : level iquoted prices in active markets for identical assets or liabilities . story_separator_special_tag 55 level iiquoted prices for similar assets and liabilities in active markets ; quoted prices for identical or similar instruments in markets that are not active ; and model-derived valuations whose inputs are observable or whose significant value drivers are observable . level iiiprices are determined using significant unobservable inputs . in situations where quoted prices or observable inputs are unavailable ( for example , when there is little or no market activity for an investment at the end of the period ) , unobservable inputs may be used . the level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety . when available , we use quoted market prices to determine the fair value of an asset or liability . if quoted market prices are not available , we will use independent pricing services and if the independent pricing service can not price a particular asset or liability , we will obtain third party broker quotes . our manager 's pricing group , which functions independently from its portfolio management personnel , corroborates the third party broker quote by comparing the broker price to alternate sources or using internal valuation techniques . if independent pricing service , or third party broker quotes are not available , we determine the fair value of the securities using valuation techniques that use , when possible , current market-based or independently-sourced market parameters , such as interest rates and when applicable , estimates of prepayments and credit losses . fair value under gaap represents an exit price in the normal course of business , not a forced liquidation price . if we are forced to sell assets in a short period to meet liquidity needs , the prices we receive could be substantially less than the recorded fair values of our assets . we perform quarterly reviews of the independent third party pricing data which may consist of a review of the daily change in the prices provided by the independent pricing vendor that exceed established tolerances or comparisons to executed transaction prices , utilizing our manager 's pricing group . our manager 's pricing group corroborates the price differences or changes in price by comparing the vendor price to alternate sources including other independent pricing services or broker quotations . if the price change or difference can not be corroborated , the manager 's pricing group consults with the portfolio management team for market color in reviewing such pricing data as warranted . to the extent that our manager has information , typically in the form of broker quotations that would indicate that a price received from the independent pricing service is outside of a tolerance range , our manager generally challenges the independent pricing service price . 56 linked transactions prior to january 1 , 2015 , in instances where we financed the acquisition of securities through repurchase agreements with the same counterparty from which the securities were purchased , we evaluated such transactions in accordance with gaap . this guidance in effect prior to january 1 , 2015 required that if the initial transfer of a financial asset and repurchase financing were entered into contemporaneously with , or in contemplation of , one another , such transaction would be considered linked unless all of the criteria found in the guidance were met at the inception of the transaction . if the transaction met all of the conditions , the initial transfer would be accounted for separately from the repurchase financing , and we would record the securities and the related financing on a gross basis on our consolidated balance sheets with the corresponding interest income and interest expense in our consolidated statements of operations . if the transaction was determined to be linked , we would record the initial transfer and repurchase financing on a net basis and record a forward commitment to purchase securities as a derivative instrument with changes in market value being recorded on our consolidated statements of operations . such forward commitments were recorded at fair value with subsequent changes through december 31 , 2014 in fair value recognized in gain ( loss ) on linked transactions , net on our consolidated statements of operations . we refer to these transactions as linked transactions . prior to january 1 , 2015 , when or if a transaction was no longer considered to be linked , the security and related repurchase financing reported on a gross basis . the unlinking of a transaction caused a realization event in which the fair value of the security as of the date of unlinking became the cost basis of the security . the difference between the fair value on the unlinking date and the existing cost basis of the security was the realized gain or loss . recognition of effective yield for such security was calculated prospectively using the new cost basis . for linked transactions , we reflected purchases and sales of securities within the investing section of our consolidated statements of cash flows . proceeds from repurchase agreement borrowings and repayments of repurchase agreement borrowings were reflected in the financing section of our consolidated statements of cash flows . starting in 2015 , gaap no longer requires us to segregate and treat linked transactions as derivatives . accordingly , starting january 1 , 2015 , we report such securities and the corresponding repurchase agreements on a gross basis on our consolidated balance sheets and with the corresponding interest income and interest expense reported on a gross basis in our consolidated statements of operations . see `` recent accounting pronouncements '' for details . interest income recognition and impairment agency mbs , non-agency mbs and other securities , excluding interest-only strips , rated aa and higher at the time of purchase interest income on mortgage-backed and other securities is accrued based on the respective outstanding principal balances and corresponding contractual terms .
| for the year ended december 31 , 2013 , amount includes net ( amortization of premiums ) , accretion of discounts and ( amortization/recovery of basis ) of approximately $ ( 60.3 ) million for agency rmbs , approximately $ 8.1 million for non-agency rmbs , approximately $ ( 106 ) thousand for agency and non-agency cmbs and approximately $ 152 thousand for other securities . in accordance with gaap , interest income does not include approximately $ 2.9 million and $ 1.4 million for linked transactions for the years ended december 31 , 2014 and december 31 , 2013 , respectively ; instead such amounts are included in gain ( loss ) on linked transactions . ( 2 ) for the years ended december 31 , 2015 , december 31 , 2014 and december 31 , 2013 , cost of funds does not include accrual and settlement of interest , net of premium amortization on mac swaps , of approximately $ 19.1 million , $ 29.9 million and $ 22.9 million associated with derivative instruments and $ 0 , $ 546 thousand and $ 271 thousand associated with linked transactions , respectively . in accordance with gaap , such costs are included in gain ( loss ) on derivative instruments , in the consolidated statement of operations . 83 for the years ended december 31 , 2015 , december 31 , 2014 and december 31 , 2013 , we earned interest income on our investments of approximately $ 152.7 million , $ 149.1 million and $ 125.3 million , respectively and incurred interest expense , which primarily related to our borrowings under repurchase of approximately $ 27.6 million , $ 22.3 million and $ 18.0 million , respectively . the increase in interest income for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014 was primarily the result of an increase in interest rates and our strategic shift to deploy capital to our non-agency rmbs , agency cmbs , non-agency cmbs , abs and whole-loans which generate higher yields and spreads , relative to our agency rmbs . our yield on average assets increased to 3.82 % from 3.63 % . our higher borrowing costs reflects : ( i ) the
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as a result , generally , a portion of our potential revenue is variable , subject to our achievement of performance metrics and the realization of savings in healthcare spend by our customers resulting from the utilization of our solutions . we typically achieve a substantial portion of the contractual performance metrics and realization in savings of healthcare spend . the primary cost of delivering our service includes the personnel costs of accolade health assistants , clinicians , including registered nurses , physician medical directors , pharmacists , behavioral health specialists , women ' s health specialists , and case management specialists , as well as software and tools for telephony , workforce management , business analytics , allocated overhead costs , and other expenses related to delivery and implementation of our solutions . as we support more customers with an increasing number of members over time , we expect that our support costs per member will decline due to economies of scale and improved operational efficiencies driven by continued enhancements of our technology platform and capabilities . we have experienced and expect to continue to achieve operational efficiencies realized from continued enhancements of our technology platform and capabilities . we employ a multipronged go-to-market strategy to increase adoption of our solutions to new and existing customers . we principally sell our solutions through our direct salesforce which is stratified by account size ( i.e. , strategic ( more than 35,000 employees ) , enterprise ( 5,000 to 35,000 employees ) , and mid-market ( 500 to 5,000 employees ) ) , region , and existing versus prospective customers . our sales team possesses deep domain expertise in health benefits management and brings substantial experience selling to key decision makers within our current and prospective customer organizations ( cfos , benefits executives , benefits consultants , and benefits brokers ) . we believe the effectiveness of our sales organization is evidenced by growing adoption of our platform by large strategic customers , recent traction with enterprise and mid-market customers and demonstrated demand for add-on offerings from existing customers . we have chosen to invest significantly in growing our customer base , and plan to continue both adding new customers and expanding our relationships with existing customers , which we believe will allow us to increase margins over time . when a customer renews their contract or purchases additional solutions or enhancements , the value realized from that customer increases because we generally do not incur significant incremental acquisition or implementation costs for the renewal or expansion . we believe that as our customer base grows and a higher percentage of our revenue is attributable to renewals and upsells or cross-sells to existing customers , relative to acquisition of new customers , associated sales and marketing expenses and other upfront costs will decrease as a percentage of revenue . in addition , we have strategically curated our offering portfolio to ensure we have a compelling value proposition at an appropriate price point that resonates with each identified customer segment . based on our experience , the opportunity to cross-sell is meaningfully enhanced once a customer has been on-boarded onto our platform and has benefited from a measurable and compelling return on their investment . our customer partnerships team provides 58 strategic insights , point solution recommendations , and day-to-day account support to our customers . they are focused on existing customer retention , cross-sell , and upsell . we maintain relationships with a range of third parties , including brokers , agents , benefits consultants , carriers , third-party administrators , trusted suppliers , and co-marketing and co-selling partners . these third parties provide an important source of referrals for our sales organization . we also selectively form strategic alliances to further drive customer acquisition and adoption of our solutions . for example , in march 2019 , we partnered with humana and formed a joint go-to-market strategy , which we launched in two initial geographic markets . in october 2019 , concurrent with a $ 20 million preferred stock investment from humana , we expanded our partnership to add a broader base of solutions targeting self- and fully-insured customer prospects and significantly expand our target geographic markets . we believe the breadth of our go-to-market and distribution strategy enables us to reach customers of nearly every size and across markets . we have demonstrated a consistent track record of product and technology innovation over time as evidenced by continuous improvement of our platform and new offerings . this innovation is driven by feedback we receive from our customers , industry experts , and the market generally . for example , our technology platform has enabled us to unbundle aspects of accolade total health and benefits to create two additional standalone offerings : accolade total benefits and accolade total care . we have further leveraged our technology platform to develop add-on offerings that target specific challenges faced by our customers , including accolade boost and our trusted supplier program — as well as very recently , accolade covid response care and mental health integrated care . our investments in product and technology have been focused on increasing the value we provide via our personalized member health guidance solutions and expanding the market segments we can serve with a portfolio of offerings and associated price points . covid-19 update covid-19 has created uncertainty for accolade ' s employees , members , and customers . we consider the impact of the pandemic on our business by evaluating the health of our operations , any changes to our revenue outlook , and the degree to which perceptions of , and interest in , accolade solutions have evolved during this unprecedented time . in mid-march 2020 , we closed our offices and enabled our employees to work remotely using our secure technologies to continue to meet the needs of our customers , their members , and our business . story_separator_special_tag we measure our performance through several key metrics , including but not limited to customer satisfaction , member engagement , and health assistant availability . as gauged by these core performance metrics , service levels have been high , and member engagement and satisfaction have remained relatively strong . to ensure we could address our members ' many covid-19-related concerns , our operations and clinical leaders trained our frontline teams on evidence-based guidelines and continue to equip them with relevant resources to help them ably serve under these exceptional circumstances . while the covid-19 pandemic has not had a material adverse impact on our financial condition and results of operations to date , the future impact of the covid-19 outbreak on our operational and financial performance will depend on certain developments , including the duration and spread of the outbreak , impact on our customers and our sales cycles , impact on our marketing efforts , and any decreases of workforce or benefits spending by our customers , all of which are uncertain and can not be predicted . we have a diverse set of customers across a variety of industries . while some have faced headwinds , others have experienced growth , and our membership count from existing customers has remained steady in the aggregate since the start of the 2020 calendar year . however , we may experience increased member attrition to the extent our existing customers reduce their respective workforces in response to the current economic conditions . any layoffs or reductions in employee headcounts by our employer customers would result in a reduction in our base and variable pmpm fees . in one case , a small customer filed for chapter 11 bankruptcy and terminated its health plan and associated accolade services as of october 31 , 2020. in addition , our airline customers have had significant headcount reductions , which have resulted in , and are likely to continue to result in , a reduction of revenues associated with these customers . we may not experience the impact of changes to our customers ' headcounts immediately because employees that are on furlough or are receiving continued health coverage pursuant to cobra may still have access to our services during such periods and would be included in our member count . we have also 59 engaged with our airline customers to act as a partner in managing their cash needs during the covid-19 pandemic , resulting in modified payment terms in fiscal 2021. we believe our value proposition now resonates with an even broader audience of employers as they turn their focus to safely reopening their workplaces and managing the ongoing health and well-being of employees and their families . to directly address the former , we have developed accolade covid response care , a solution that allows employers of all sizes to leverage accolade ' s platform to support employee education , testing , care plans , contact tracing , and return-to-work clearance . on the latter , we believe that the current disruptions to traditional care consumption have reinforced the need for navigation services , and that projected increases in healthcare costs ( due to some combination of covid-19-related testing and care , complications stemming from neglected non-covid conditions , pent-up demand for elective services , and strain on individuals ' mental health ) prompt the need for solutions such as ours that bend the cost curve , and improve health outcomes , by driving good utilization up and wasteful utilization down . factors affecting our performance the following factors have been important to our business and we expect them to impact our business , results of operations , and financial condition in future periods : growth of our customer base we believe there is a substantial opportunity to further grow our customer base in our large and under-penetrated market through our sales and marketing strategy . across our existing customer base and as we acquire new customers , we intend to expand and deepen these relationships . as we build trust through our proven model , we seek to cross-sell our add-on offerings , such as accolade boost , trusted supplier program , covid response care and mental health integrated care . we plan to continue to invest in sales and marketing in order to grow our customer base and increase sales to existing customers . any investments we make in our sales and marketing organization will occur in advance of experiencing any benefits from such investments , so it may be difficult for us to determine if we are efficiently allocating our resources in these areas . adoption of current and future solutions we are constantly innovating to enhance our model and develop new offerings . our ability to act as a trusted advisor to our members and customers positions us to identify new opportunities for additional offerings that can meet their existing and emerging needs . our open technology platform also allows us to efficiently add new offerings and applications on top of our existing technology stack , which we have demonstrated with the recent roll-out of two new offerings , accolade total benefits and accolade total care , as well as our new add-on offerings , accolade boost , our trusted supplier program , accolade covid response care , and mental health integrated care . we believe that as we expand our customer base and enter into new markets , we will be adept at identifying and deploying innovative new solutions whether developed internally or through acquisitions . achievement of performance-based revenue in most of our contracts , a portion of our potential fee is variable , subject to our achievement of performance metrics and the realization of savings in healthcare spend by our customers resulting from the utilization of our solutions and thus we might record higher revenue in some quarters compared to others . examples of performance metrics included in our customer contracts are achievement of specified member engagement levels , member satisfaction levels , and various operational metrics .
| results of operations the following table presents a summary of our consolidated statements of operations for the periods indicated : replace_table_token_6_th ( 1 ) the stock-based compensation expense included above was as follows : replace_table_token_7_th 65 the following table sets forth our consolidated statements of operation data expressed as a percentage of revenue : replace_table_token_8_th comparison of fiscal years ended february 28 ( 29 ) , 2021 and 2020 revenue year ended february 28 ( 29 ) , changes 2021 2020 amount % ( in thousands , except percentages ) revenue $ 170,358 $ 132,507 $ 37,851 29 % revenue increased $ 37.9 million , or 29 % , to $ 170.4 million for the fiscal year ended february 28 , 2021 , referred to as fiscal 2021 , as compared to $ 132.5 million for the fiscal year ended february 29 , 2020 , referred to as fiscal 2020. the increase was attributable primarily to growth in the number of customers served during fiscal 2021 , as compared to fiscal 2020. cost of revenue , excluding depreciation and amortization year ended february 28 ( 29 ) , changes 2021 < td colspan= '' 2 ''
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the spending in 2010 was primarily related to folding cartons equipment and system related investments . the spending in 2009 was primarily focused on equipment and system improvements . we anticipate approximately $ 3.0 million in capital spending for 2012 . 11 the company has access to a $ 3.0 million secured line of credit with a commercial bank which expires june 9 , 2013. interest on the line of credit is based on libor plus 2.75 % , with an interest floor of 3.35 % . at december 31 , 2011 , $ 0.2 million was in use through a standby letter of credit and there was no balance drawn on the line . the company was in compliance with all applicable covenants at december 31 , 2011. the amount of the line of credit that was unused and available to the company at december 31 , 2011 was $ 2.8 million . the company repurchased 182,539 and 165,572 shares in 2011 and 2010 at an average price of $ 5.53 and $ 4.74 , respectively . there were no shares repurchased in 2009. the company has authorization to repurchase 200,000 shares at december 31 , 2011. the closing price of the company 's stock at december 31 , 2011 was $ 6.67. at this price , the repurchase of 200,000 shares would require $ 1.3 million . we believe cash and cash equivalents , which totaled $ 3.9 million at december 31 , 2011 , in combination with cash expected to be generated from our 2012 operations , can meet our obligations , other working capital requirements and capital expenditure needs in 2012. contractual obligations replace_table_token_3_th ( 1 ) represents a forty-nine year lease beginning november 2003 for 203,000 square feet of office and warehouse buildings adjacent to the company 's corporate printing and manufacturing property . beginning in november 2022 and ending in october 2027 , the company has an option to purchase the property for $ 1.8 million and terminate the lease . if the purchase option is not exercised , the company is obligated to make monthly payments of $ 15,000 through october 2052. off-balance sheet arrangements the only off-balance sheet arrangements we have are operating leases for equipment and two automobile leases . rental expense under these leases was $ 16 thousand in 2011 , $ 413 thousand in 2010 and $ 490 thousand in 2009. recently issued accounting standards a variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and certain regulatory agencies . due to the tentative and preliminary nature of such proposed standards , the company has not yet determined the effect , if any , the implementation of such proposed standards would have on the consolidated financial statements . accounting policies our financial statements and accompanying notes are prepared in accordance with u.s. generally accepted accounting principles . the preparation of our financial statements requires management to make estimates , assumptions and judgments that affect the amounts reported . these estimates , assumptions and judgments are affected by management 's application of accounting policies , which are discussed in note 2 of item 8 , financial statements and supplementary data of this report . actual results may differ from these estimates under different assumptions or conditions . the critical accounting policies have been reviewed with the audit committee of our board of directors . revenue recognition revenue is recognized when title , ownership , and risk of loss pass to the customer , all of which occurs upon shipment or delivery of the product and is based on the applicable shipping terms . 12 accounts receivable and allowance for doubtful accounts a trade receivable is recorded at the value of the sale . we perform periodic credit evaluations of our customers ' financial condition and normally do not require collateral . generally , amounts not collected from customers within 120 days of the due date of the invoice are credited to an allowance for doubtful accounts . after collection efforts have been exhausted , uncollected balances are charged off to the allowance . inventory valuation inventories are stated at the lower of cost or market , with cost being determined in accordance with the first-in , first-out method . costs included in inventory are the cost to purchase the raw material , the direct labor incurred on work in progress and finished goods , and an overhead factor based on other indirect manufacturing costs incurred . a valuation reserve exists for inventory likely to be written-off or written-down . deferred tax asset and liability valuation allowances we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities . deferred tax assets are reduced , if deemed necessary , by a valuation allowance for the amount of tax benefits not expected to be realized . investment tax credits are recognized on the flow through method . specifically and with respect to deferred tax assets , we had gross deferred tax assets at december 31 , 2011 of $ 4.5 million related to new york state tax credits . these credits are subject to certain statutory provisions , such as length of available carry-forward period and minimum tax , which reduces the probability of realization of the full value of such credits . management estimates the amount of credits we are likely to realize in the future based on actual historical realization rates and the statutory carry-forward period . as a result of the analysis performed as of december 31 , 2011 , we do not expect to be able to utilize these credits and management adjusted the valuation allowance for these credits to $ 4.5 million . stock-based compensation stock-based compensation awards granted are valued at fair market value at the date of the grant and are charged to expense ratably over the requisite service period . stock story_separator_special_tag the spending in 2010 was primarily related to folding cartons equipment and system related investments . the spending in 2009 was primarily focused on equipment and system improvements . we anticipate approximately $ 3.0 million in capital spending for 2012 . 11 the company has access to a $ 3.0 million secured line of credit with a commercial bank which expires june 9 , 2013. interest on the line of credit is based on libor plus 2.75 % , with an interest floor of 3.35 % . at december 31 , 2011 , $ 0.2 million was in use through a standby letter of credit and there was no balance drawn on the line . the company was in compliance with all applicable covenants at december 31 , 2011. the amount of the line of credit that was unused and available to the company at december 31 , 2011 was $ 2.8 million . the company repurchased 182,539 and 165,572 shares in 2011 and 2010 at an average price of $ 5.53 and $ 4.74 , respectively . there were no shares repurchased in 2009. the company has authorization to repurchase 200,000 shares at december 31 , 2011. the closing price of the company 's stock at december 31 , 2011 was $ 6.67. at this price , the repurchase of 200,000 shares would require $ 1.3 million . we believe cash and cash equivalents , which totaled $ 3.9 million at december 31 , 2011 , in combination with cash expected to be generated from our 2012 operations , can meet our obligations , other working capital requirements and capital expenditure needs in 2012. contractual obligations replace_table_token_3_th ( 1 ) represents a forty-nine year lease beginning november 2003 for 203,000 square feet of office and warehouse buildings adjacent to the company 's corporate printing and manufacturing property . beginning in november 2022 and ending in october 2027 , the company has an option to purchase the property for $ 1.8 million and terminate the lease . if the purchase option is not exercised , the company is obligated to make monthly payments of $ 15,000 through october 2052. off-balance sheet arrangements the only off-balance sheet arrangements we have are operating leases for equipment and two automobile leases . rental expense under these leases was $ 16 thousand in 2011 , $ 413 thousand in 2010 and $ 490 thousand in 2009. recently issued accounting standards a variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and certain regulatory agencies . due to the tentative and preliminary nature of such proposed standards , the company has not yet determined the effect , if any , the implementation of such proposed standards would have on the consolidated financial statements . accounting policies our financial statements and accompanying notes are prepared in accordance with u.s. generally accepted accounting principles . the preparation of our financial statements requires management to make estimates , assumptions and judgments that affect the amounts reported . these estimates , assumptions and judgments are affected by management 's application of accounting policies , which are discussed in note 2 of item 8 , financial statements and supplementary data of this report . actual results may differ from these estimates under different assumptions or conditions . the critical accounting policies have been reviewed with the audit committee of our board of directors . revenue recognition revenue is recognized when title , ownership , and risk of loss pass to the customer , all of which occurs upon shipment or delivery of the product and is based on the applicable shipping terms . 12 accounts receivable and allowance for doubtful accounts a trade receivable is recorded at the value of the sale . we perform periodic credit evaluations of our customers ' financial condition and normally do not require collateral . generally , amounts not collected from customers within 120 days of the due date of the invoice are credited to an allowance for doubtful accounts . after collection efforts have been exhausted , uncollected balances are charged off to the allowance . inventory valuation inventories are stated at the lower of cost or market , with cost being determined in accordance with the first-in , first-out method . costs included in inventory are the cost to purchase the raw material , the direct labor incurred on work in progress and finished goods , and an overhead factor based on other indirect manufacturing costs incurred . a valuation reserve exists for inventory likely to be written-off or written-down . deferred tax asset and liability valuation allowances we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities . deferred tax assets are reduced , if deemed necessary , by a valuation allowance for the amount of tax benefits not expected to be realized . investment tax credits are recognized on the flow through method . specifically and with respect to deferred tax assets , we had gross deferred tax assets at december 31 , 2011 of $ 4.5 million related to new york state tax credits . these credits are subject to certain statutory provisions , such as length of available carry-forward period and minimum tax , which reduces the probability of realization of the full value of such credits . management estimates the amount of credits we are likely to realize in the future based on actual historical realization rates and the statutory carry-forward period . as a result of the analysis performed as of december 31 , 2011 , we do not expect to be able to utilize these credits and management adjusted the valuation allowance for these credits to $ 4.5 million . stock-based compensation stock-based compensation awards granted are valued at fair market value at the date of the grant and are charged to expense ratably over the requisite service period . stock
| because we provide products such as personalized dinner and cocktail napkins , small boxes for sundries at events , and other celebration type items for both the retail and corporate markets , this product line is also heavily impacted by economic downturns . we can compete with much larger companies in the personalized print industry and we have developed a strong brand in krepe-kraft among event planners and wedding coordinators . our websites , www.partybasics.com and myweddingbasics.com , make our products available directly to the retail market . we also provide our products to third-party web-stores . revenue 2011 compared with 2010 for fiscal 2011 , revenue was $ 56.2 million which was an increase of 15.4 % from $ 48.7 million in 2010. the custom folding cartons product line had sales of $ 42.8 million in 2011 , an increase of 19.9 % from 2010 , mainly attributable to additional business volume from several large existing customers , sales to three new customers and increased waste revenue due to improved market conditions in the recycled paperboard market , offset partially by decreased business from several large customers . the stock packaging product line had sales of $ 10.1 million in 2011 , up 5.2 % from $ 9.6 million in 2010. the increase from the prior year was mainly due to improved market conditions and increased waste revenue due to improved market conditions in the recycled paperboard market the personalized print product line had sales of $ 2.9 million in 2011 , down 2.0 % , from the sales in 2010. this product line continues to be hindered by weak economic conditions in this industry . 2010 compared with 2009 for fiscal 2010 , revenue was $ 48.7 million compared with $ 48.9 million in 2009 , a decrease of $ 0.2 million or 0.4 % . the custom folding cartons product line had sales of $ 35.7 million in 2010 , an increase of 2.5 % from 2009 , mainly due to increased business volume from several large existing customers and increased waste sales resulting from improved conditions in the recycled paperboard market , offset
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we will , at least initially , primarily focus our efforts on attracting customers in china . we have intentions , but no definitive plans or timelines , to expand to singapore , malaysia , hong kong , and middle eastern countries in the coming years , and subsequently we intend to make efforts to expand throughout asia . we anticipate spending a substantial amount in marketing and advertising in the coming year . story_separator_special_tag background-color : white '' > property , plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses , if any . depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational : classification estimated useful life leasehold improvement 11 months to 60 months ( over remaining lease term ) leasable equipment 5 years computer hardware and software 3 years office equipment 3 years income taxes income taxes are determined in accordance with the provisions of asc topic 740 , “ income taxes ” ( “ asc topic 740 ” ) . under this method , deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis . deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the periods in which those temporary differences are expected to be recovered or settled . any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . asc 740 prescribes a comprehensive model for how companies should recognize , measure , present , and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return . under asc 740 , tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities . such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts . the company conducts major businesses in china and is subject to tax in this jurisdiction . as a result of its business activities , the company will file tax returns that are subject to examination by the foreign tax authority . 13 net loss per share the company calculates net loss per share in accordance with asc topic 260 “ earnings per share ” . basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period . diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares were dilutive . foreign currencies translation transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction . monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates . the resulting exchange differences are recorded in the condensed consolidated statements of operations and comprehensive income . the reporting currency of the company and its subsidiary is united states dollars ( “ us $ ” ) and the accompanying financial statements have been expressed in us $ . in general , for consolidation purposes , assets and liabilities of its subsidiary whose functional currency is not us $ are translated into us $ , in accordance with asc topic 830-30 , “ translation of financial statement ” , using the exchange rate on the balance sheet date . revenues and expenses are translated at average rates prevailing during the period . the gains and losses resulting from translation of financial statements of foreign subsidiary are recorded as a separate component of accumulated other comprehensive income within the statements of shareholders ' equity . foreign currencies translation ( cont 'd ) translation of amounts from rmb and hk $ into us $ 1 has been made at the following exchange rates for the respective periods : replace_table_token_1_th related parties parties , which can be a corporation or individual , are considered to be related if the company has the ability , directly or indirectly , to control the other party or exercise significant influence over the other party in making financial and operating decisions . companies are also considered to be related if they are subject to common control or common significant influence . fair value of financial instruments : the carrying value of the company 's financial instruments : cash and cash equivalents , accounts payable and accrued liabilities , and amount due to a director approximate at their fair values because of the short-term nature of these financial instruments . the company also follows the guidance of the asc topic 820-10 , “ fair value measurements and disclosures ” ( “ asc 820-10 ” ) , with respect to financial assets and liabilities that are measured at fair value . asc 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows : level 1 : observable inputs such as quoted prices in active markets ; level 2 : inputs , other than the quoted prices in active markets , that are observable either directly or indirectly ; and level 3 : unobservable inputs in which there is little or no market data , which require the reporting entity to develop its own story_separator_special_tag we will , at least initially , primarily focus our efforts on attracting customers in china . we have intentions , but no definitive plans or timelines , to expand to singapore , malaysia , hong kong , and middle eastern countries in the coming years , and subsequently we intend to make efforts to expand throughout asia . we anticipate spending a substantial amount in marketing and advertising in the coming year . story_separator_special_tag background-color : white '' > property , plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses , if any . depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational : classification estimated useful life leasehold improvement 11 months to 60 months ( over remaining lease term ) leasable equipment 5 years computer hardware and software 3 years office equipment 3 years income taxes income taxes are determined in accordance with the provisions of asc topic 740 , “ income taxes ” ( “ asc topic 740 ” ) . under this method , deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis . deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the periods in which those temporary differences are expected to be recovered or settled . any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . asc 740 prescribes a comprehensive model for how companies should recognize , measure , present , and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return . under asc 740 , tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities . such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts . the company conducts major businesses in china and is subject to tax in this jurisdiction . as a result of its business activities , the company will file tax returns that are subject to examination by the foreign tax authority . 13 net loss per share the company calculates net loss per share in accordance with asc topic 260 “ earnings per share ” . basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period . diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares were dilutive . foreign currencies translation transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction . monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates . the resulting exchange differences are recorded in the condensed consolidated statements of operations and comprehensive income . the reporting currency of the company and its subsidiary is united states dollars ( “ us $ ” ) and the accompanying financial statements have been expressed in us $ . in general , for consolidation purposes , assets and liabilities of its subsidiary whose functional currency is not us $ are translated into us $ , in accordance with asc topic 830-30 , “ translation of financial statement ” , using the exchange rate on the balance sheet date . revenues and expenses are translated at average rates prevailing during the period . the gains and losses resulting from translation of financial statements of foreign subsidiary are recorded as a separate component of accumulated other comprehensive income within the statements of shareholders ' equity . foreign currencies translation ( cont 'd ) translation of amounts from rmb and hk $ into us $ 1 has been made at the following exchange rates for the respective periods : replace_table_token_1_th related parties parties , which can be a corporation or individual , are considered to be related if the company has the ability , directly or indirectly , to control the other party or exercise significant influence over the other party in making financial and operating decisions . companies are also considered to be related if they are subject to common control or common significant influence . fair value of financial instruments : the carrying value of the company 's financial instruments : cash and cash equivalents , accounts payable and accrued liabilities , and amount due to a director approximate at their fair values because of the short-term nature of these financial instruments . the company also follows the guidance of the asc topic 820-10 , “ fair value measurements and disclosures ” ( “ asc 820-10 ” ) , with respect to financial assets and liabilities that are measured at fair value . asc 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows : level 1 : observable inputs such as quoted prices in active markets ; level 2 : inputs , other than the quoted prices in active markets , that are observable either directly or indirectly ; and level 3 : unobservable inputs in which there is little or no market data , which require the reporting entity to develop its own
| taking into the loss for the year ended july 31 , 2019 , the accumulated loss for the company has increased from $ 29,716 to $ 975,996. liquidity and capital resources as of july 31 , 2019 , we had cash and cash equivalents of $ 394,403. we expect increased levels of operations going forward will result in more significant cash flow and in turn working . we depend substantially on financing activities to provide us with the liquidity and capital resources we need to meet our working capital requirements and to make capital investments in connection with ongoing operations . during the year ended july 31 , 2019 , we have met these requirements primarily from the receipt of subscription for convertible promissory note and share subscription from initial public offering ( ipo ) . cash used in operating activities for the year ended july 31 , 2019 and 2018 , net cash used in and from operating activities was $ 988,000 and $ 12. the cash used in operating activities was mainly for payment of general and administrative expenses . cash provided in financing activities for the year ended july 31 , 2019 and 2018 , net cash provided by financing activities was $ 1,745,769 and $ 106,405 respectively . the financing cash flow performance primarily reflects the issuance of convertible promissory notes and ipo shares . cash used in investing activities for the financial year ended july 31 , 2019 and 2018 , the net cash used in investing activities was $ 478,044 and $ 0. the investing cash flow performance primarily reflects the purchase of property , plant and equipment . credit facilities we do not have any credit facilities or other access to bank credit . critical accounting policies and estimates use of estimates management uses estimates and assumptions in preparing these financial statements in accordance with us gaap . those estimates and assumptions affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities in the balance sheets ,
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we have regular interactions with these vendors to ensure we understand their pricing methodologies and to confirm they are utilizing observable market information . in addition , 22 % of our invested asset portfolio as of december 31 , 2015 , was invested in fixed maturities that are private placement assets , where there are no readily available market quotes to determine the fair market value . the majority of these assets are valued using a spread pricing matrix that utilizes observable market inputs . securities are grouped into pricing categories that vary by sector , rating and average life . each pricing category is assigned a risk spread based on studies of observable public market data from the investment professionals assigned to specific security classes . the expected cash flows of the security are then discounted back at the current treasury curve plus the appropriate risk spread . certain market events that could impact the valuation of securities include issuer credit ratings , business climate , management changes , litigation and government actions among others . see item 8 . `` financial statements and supplementary data , notes to consolidated financial statements , note 14 , fair value measurements '' for further discussion . if we are unable to price a fixed maturity security using prices from third party pricing vendors or other sources specific to the asset class , we may obtain a broker quote or utilize an internal pricing model specific to the asset utilizing relevant market information to the extent available . as of december 31 , 2015 , less than 1 % of our fixed maturities were valued using internal pricing models . a rate increase of 100 basis points would produce a total value of approximately $ 47.5 billion , as compared to the recorded amount of $ 50.0 billion related to our fixed maturity , afs financial assets with interest rate risk held by us as of december 31 , 2015. for additional information see item 7a . `` quantitative and qualitative disclosures about market risk interest rate risk '' . the $ 1,517.7 million decrease in net unrealized gains from u.s. investment operations for the year ended december 31 , 2015 , can primarily be attributed to an approximate 19 basis points increase in interest rates and widening of credit spreads . fixed maturities classified as afs are subject to impairment reviews . when evaluating fixed maturities for impairment , we consider relevant facts and circumstances in evaluating whether a credit or interest rate-related impairment of a security is other than temporary . relevant facts and circumstances considered include : ( 1 ) the extent and length of time the fair value has been below cost ; ( 2 ) the reasons for the decline in value ; ( 3 ) the financial position and access to capital of the issuer , including the current and future impact of any specific events ; ( 4 ) for structured securities , the adequacy of the expected cash flows and ( 5 ) our intent to sell a security or whether it is more likely than not we will be required to sell the security before recovery of its amortized cost which , in some cases , may extend to maturity . to the extent we determine that a security is deemed to be other than temporarily impaired , an impairment loss is recognized . see item 8 . `` financial statements and supplementary data , notes to consolidated financial statements , note 4 , investments other-than-temporary impairments '' for further discussion . there are a number of significant risks and uncertainties inherent in the process of monitoring impairments and determining if an impairment is other than temporary . these risks and uncertainties include : ( 1 ) the risk that our assessment of an issuer 's ability to meet all of its contractual obligations will change based on changes in the credit characteristics of that issuer ; ( 2 ) the risk that the economic outlook will be worse than expected or have more of an impact on the issuer than anticipated ; ( 3 ) the risk that our investment professionals are making decisions based on fraudulent or misstated information in the financial statements provided by issuers and ( 4 ) the risk that new information obtained by us or changes in other facts and circumstances lead us to change our intent to not sell the security prior to recovery of its amortized cost . any of these situations could result in a charge to net income in a future period . at december 31 , 2015 , we had $ 16,874.5 million in afs fixed maturities with gross unrealized losses totaling $ 823.2 million . included in the gross unrealized losses are losses attributable to both movements in market interest rates as well as movement in credit spreads . net income would be reduced by approximately $ 823.2 million , on a pre-tax basis , if all the securities in an unrealized loss position were deemed to be other than temporarily impaired and our intent was to sell all such securities . 35 mortgage loans . mortgage loans consist primarily of commercial mortgage loans on real estate . as of december 31 , 2015 , the carrying value of our commercial mortgage loans was $ 11,237.8 million . commercial mortgage loans on real estate are generally reported at cost adjusted for amortization of premiums and accrual of discounts , computed using the interest method and net of valuation allowances . commercial mortgage loans on real estate are considered impaired when , based on current information and events , it is probable that we will be unable to collect all amounts due according to contractual terms of the loan agreement . when we determine that a loan is impaired , a valuation allowance is established equal to the difference between the carrying amount of the mortgage loan and the estimated value reduced by the cost to sell . story_separator_special_tag estimated value is based on either the present value of the expected future cash flows discounted at the loan 's effective interest rate , the loan 's observable market price or fair value of the collateral . subsequent changes in the estimated value are reflected in the valuation allowance . amounts on loans deemed to be uncollectible are charged off and removed from the valuation allowance . the change in the valuation allowance provision is included in net realized capital gains ( losses ) on our consolidated statements of operations . the valuation allowance is maintained at a level believed adequate by management to absorb estimated probable credit losses . management 's periodic evaluation and assessment of the valuation allowance adequacy is based on known and inherent risks in the portfolio , adverse situations that may affect a borrower 's ability to repay , the estimated value of the underlying collateral , composition of the loan portfolio , portfolio delinquency information , underwriting standards , peer group information , current economic conditions , loss experience and other relevant factors . the evaluation of our impaired loan component is subjective , as it requires the estimation of timing and amount of future cash flows expected to be received on impaired loans . for more detailed information concerning mortgage loan valuation allowances and impairments , see item 8 . `` financial statements and supplementary data , notes to consolidated financial statements , note 4 , investments mortgage loan valuation allowance . '' we have a large experienced commercial real estate staff centrally located in des moines , which includes commercial mortgage underwriters , loan closers , loan servicers , engineers , appraisers , credit analysts , research staff , legal staff , information technology personnel and portfolio managers . experienced commercial real estate senior management adheres to a disciplined process in reviewing all transactions for approval on a consistent basis . during 2015 , the typical new commercial mortgage loan at origination averaged 50 % loan-to-value with a 3.1 times debt service coverage ratio and was internally rated a on a bond equivalent basis . our entire commercial mortgage loan portfolio , excluding mortgage loans held in our principal global investors segment , averaged 46 % loan-to-value ratio with a 2.7 times debt service coverage ratio as of december 31 , 2015. the large equity cushion and strong debt service coverage in our commercial mortgage loan investments will help insulate us from stress during times of weak commercial real estate fundamentals . derivatives we primarily use derivatives to hedge or reduce exposure to market risks . the fair values of exchange-traded derivatives are determined through quoted market prices . the fair value of derivative instruments cleared through centralized clearinghouses is determined through market prices published by the clearinghouses . the fair values of non-cleared over-the-counter derivative instruments are determined using either pricing valuation models that utilize market observable inputs or broker quotes . on an absolute fair value basis as of december 31 , 2015 , 69 % of our over-the-counter derivative assets and liabilities were valued using pricing valuation models , 24 % using clearinghouse prices and the remaining 7 % using broker quotes . see item 8 . `` financial statements and supplementary data , notes to consolidated financial statements , note 14 , fair value measurements '' for further discussion . the fair values of our derivative instruments can be impacted by changes in interest rates , foreign exchange rates , credit spreads , equity indices and volatility , as well as other contributing factors . we also issue certain annuity contracts and other insurance contracts that include embedded derivatives that have been bifurcated from the host contract . they are valued using a combination of historical data and actuarial judgment . see item 8 . `` financial statements and supplementary data , notes to consolidated financial statements , note 14 , fair value measurements '' for further discussion . we include our assumption for own non-performance risk in the valuation of these embedded derivatives . as our credit spreads widen or tighten , the fair value of the embedded derivative liabilities decrease or increase , leading to an increase or decrease in net income . if the current market credit spreads reflecting our own creditworthiness move to zero ( tighten ) , the reduction to net income would be approximately $ 102.5 million , net of dac and income taxes , based on december 31 , 2015 , reported amounts . in addition , the policyholder behavior assumptions used in the valuation of embedded derivatives include risk margins , which increase the fair value of the embedded derivative liabilities . the accounting for derivatives is complex and interpretations of the applicable accounting standards continue to evolve . judgment is applied in determining the availability and application of hedge accounting designations and the appropriate accounting treatment . judgment and estimates are used to determine the fair value of some of our derivatives . volatility in net income can result from changes in fair value of derivatives that do not qualify or are not designated for hedge accounting and changes in fair value of embedded derivatives . 36 deferred acquisition costs and other actuarial balances incremental direct costs of contract acquisition as well as certain costs directly related to acquisition activities ( underwriting , policy issuance and processing , medical and inspection and sales force contract selling ) for the successful acquisition of new and renewal insurance policies and investment contract business are capitalized to the extent recoverable . commissions and other incremental direct costs of contract acquisition for the acquisition of long-term service contracts are also capitalized to the extent recoverable . maintenance costs and acquisition costs that are not deferrable are charged to net income as incurred . amortization based on estimated gross profits . dac for universal life-type insurance contracts and certain investment contracts are amortized over the expected lifetime of the policies in relation to estimated gross profits ( `` egps '' ) .
| during the third quarter of 2015 , assumption updates and model refinements were made resulting in an unlocking of dac and other actuarial balances that increased total company net income by $ 26.2 million for the year ended december 31 , 2015. the net positive segment pre-tax operating earnings impact was $ 48.1 million , which was comprised of $ 76.8 million for our u.s. insurance solutions segment and $ ( 28.7 ) million for our retirement and income solutions segment for the year ended december 31 , 2015. during the third quarter of 2014 , assumption updates and model refinements were made resulting in an unlocking of dac and other actuarial balances that increased total company net income by $ 45.3 million for the year ended december 31 , 2014. the net positive segment pre-tax operating earnings impact was $ 62.6 million , which was comprised 41 of $ 60.0 million for our u.s. insurance solutions segment and $ 2.6 million for our retirement and income solutions segment for the year ended december 31 , 2014. our review and update of actuarial assumptions in 2013 did not result in a material impact to net income . the individual life insurance business actuarial assumption updates and model refinements had the most significant impact and affected several line items within our income statement . the following table presents the increase ( decrease ) on the individual life insurance income statement line items for the years ended december 31 , 2015 and 2014. the impact for the year ended december 31 , 2013 , was not material . replace_table_token_6_th chilean legal entity merger . in january 2015 , we received regulatory approval and executed upon the merger of two of our chilean legal entities . as a result of the merger , we recognized a $ 105.2 million benefit in net income available to common stockholders in first quarter 2015 to reflect a change in deferred tax balances related to the merged entity . liongate capital management llp and liongate limited . on may 1 , 2013 , we finalized the purchase of a
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in anticipation of increased sales resulting from our developing product pipeline , on august 2 , 2017 , we completed financing transactions that provided us with up to $ 4,000,000 in cash and extended the maturity date on $ 3,000,000 of convertible debt until april 2019 providing us with significant increased liquidity and a strengthened balance sheet . the following is a summary of these completed financing transaction : 19 revolving line of credit from city national bank of florida . on august 2 , 2017 , the company issued a promissory note to city national bank of florida ( “ cnb ” ) in the principal amount of $ 2,000,000 , the cnb note . the note evidences a revolving line of credit with advances that may be requested by the company until the maturity date of august 2 , 2018 so long as no event of default exists under the note , the company or mr. nussbaum does not cease doing business , mr. nussbaum does not seek to revoke or modify his guarantee of the note , the company does not misapply the proceeds of this loan or cnb in good faith does not believe itself insecure . the cnb note bears interest at a variable rate equal to 0.250 percentage points over the wall street journal prime rate payable monthly . the company will pay to cnb a late charge of 5.0 % of any monthly payment not received by lender within 10 calendar days after its due date . the company may prepay the note at any time without penalty . in the event of a default , the interest rate will increase to the highest lawful rate . the company is obligated to maintain depository accounts with cnb with a minimum average annual balance of $ 600,000. in the event the company does not maintain this account balance , cnb may charge the company a fee equal to 2 % of the deficiency as additional interest under the note . the cnb note is personally guaranteed by mr. nussbaum , the company 's chief executive officer pursuant to written guarantee in favor of cnb ( the “ cnb guarantee ” ) . mr. nussbaum and the company are obligated to maintain an unencumbered liquidity of no less than $ 6,000,000 in the form of cash , repurchase agreements , certificates of deposit or marketable securities acceptable to cnb . in addition , to secure our obligations under the note , we entered into a security agreement in favor of cnb ( the “ security agreement ” ) encumbering all of our accounts , inventory and equipment along with an assignment of a bank account we maintain at cnb with an approximate balance of $ 90,000. as of march 23 , 2018 , we have borrowed a total of $ 1,250,000 under the cnb note leaving availability of $ 750,000 under such note . series 2017 secured convertible note . on august 2 , 2017 , the company issued a secured convertible promissory note series 2017 due august 2 , 2018 in the aggregate principal amount of $ 2,000,000 ( the “ series 2017 convertible note ” ) in a private placement to frost nevada investments trust ( “ frost nevada ” ) . frost nevada is a trust that is controlled by dr. frost , a substantial shareholder of the company . the note evidences a revolving line of credit with advances that may be requested by the company until the maturity date of august 2 , 2018 so long as no event of default exists under the loan . the company may request advances of principal under this note equal to and at the same time as it requests advances , if any , pursuant to the cnb note . the note bears interest at a variable rate equal to 0.250 percentage points over the wall street journal prime rate . the company may prepay the notes at any time without penalty . if the company does not prepay the note in full or the holder does not convert the note before the maturity date , the company may pay the outstanding principal amount and any accrued and unpaid interest on the maturity date with cash or with common stock or through a combination of cash and stock at frost nevada 's discretion . the conversion price under the note is $ 1.00 per share subject to proportional adjustment in the event of stock splits , stock dividends and similar corporate events . the series 2017 convertible note is secured by a security interest in all of the company 's assets . this security interest is subordinate to the security interest of cnb discussed above . as of march 23 , 2018 , we have borrowed a total of $ 1,250,000 under the series 2017 secured convertible note leaving availability of $ 750,000 under such note . amendments to related party convertible promissory notes . on august 3 , 2017 , the company entered into amendments ( the “ convertible note amendments ” ) with the owners and holders of the following convertible promissory notes issued by the company ( the “ convertible notes ” ) : ● convertible promissory note in the original principal amount of $ 1,500,000 issued by the company on september 29 , 2016 to frost gamma investments trust ( “ frost gamma ” ) . frost gamma is a trust that is controlled by dr. phillip frost , a substantial shareholder of the company ; and ● convertible promissory note in the original principal amount of $ 1,500,000 issued by the company on september 29 , 2016 to jay h. nussbaum , the company 's chief executive officer and chairman of the board of directors . story_separator_special_tag the convertible note amendments extend the maturity date for each of the convertible notes to april 1 , 2019 ( the “ maturity date ” ) and revise the conversion price to mean $ 1.00 per share subject to proportional adjustment in the event of stock splits , stock dividends and similar corporate events . consistent with the original terms of the convertible notes , interest accrues at the rate of 6 % interest per annum and is payable on the maturity date . the accrued interest is payable at the holders ' option in cash or shares of our common stock valued at the $ 1.00 per share conversion price . the convertible note amendments provide that an event of default in the city national bank loan will be treated as an event of default under the convertible notes . on march 23 , 2018 , the company entered into additional amendments further extending the maturity date from april 1 , 2019 until october 1 , 2020 . 20 on november 9 , 2017 , the company entered into amendments ( the “ november 2017 convertible note amendments ” ) with the owners and holders of the series 2016 convertible notes to permit the payment of , at the holders ' election , accrued and unpaid interest either in monthly or quarterly payments at any time after the effective date . both principal amount and accrued interest may be paid with : ( i ) cash ; ( ii ) the issuance and delivery to the holder of shares of common stock of the company at the conversion price provided for in the series 2016 convertible note ; or ( iii ) any combination of cash and shares of common stock , as determined by the holder in its sole discretion . the accompanying consolidated financial statements and notes have been prepared assuming the company will continue as a going concern . for the year ended december 31 , 2017 , the company incurred a net loss of $ 10,323,992 , generated negative cash flow from operations , has an accumulated deficit of $ 29,996,777 and working capital deficit of $ 557,195. these circumstances raise substantial doubt as to the company 's ability to continue as a going concern . the company 's ability to continue as a going concern is dependent upon the company 's ability to create and market innovative products , raise capital , reduce debt or renegotiate terms , and to sustain adequate working capital to finance its operations . the failure to achieve the necessary levels of profitability and cash flows or obtain additional funding would be detrimental to the company . the consolidated financial statements do not include any adjustments that might be necessary if the company is unable to continue as a going concern sources and uses of cash replace_table_token_2_th operating activities : net cash used in operating activities during 2017 was $ 3,326,022 , which was a decrease of $ 267,162 , or 7 % , from $ 3,593,184 net cash used in operating activities during 2016. the net loss of $ 10,323,992 for 2017 was $ 1,790,477 greater than the same period of 2016 , which was $ 8,533,515. accounts receivables decreased $ 283,935 and accounts payables decreased by $ ( 88,563 ) in 2017 due to decreased sales activity . inventory increased $ 531,812 to $ 991,697 in 2017 primarily due to a wasp system that was nearly completed and that was delivered in february 2018. the company recorded $ 6,602,766 in non-cash stock based compensation expenses which was an increase of $ 1,049,740 in 2017 from the previous year . the company recorded a non-cash gain on derivative liability of $ 1,831,635 , an increase of $ 1,268,674 from 2016 , which was $ 562,961. amortization expense of $ 292,000 on intangible assets during 2017 was $ 121,667 greater than the same period in 2016 , which was $ 170,333. investing activities : net cash used in investing activities was $ 73,817 in 2017 and $ 16,336 in 2016. the company acquired a truck in 2017 for $ 73,142 and equipment of $ 675. in 2016 , the company invested in the purchase of shop machines and equipment , computers and electronics and furniture and equipment . the company expects the investment in furniture and equipment in 2018 to be no greater than the investment in furniture and equipment in 2017 , but we can give no assurance that such furniture and equipment costs will remain within that range in 2018. financing activities : financing activities during 2017 included $ 1,000,000 proceeds from a bank line of credit and $ 1,000,000 proceeds from a related party convertible note payable . financing activities for 2016 included $ 3,000,000 in proceeds from the issuance of convertible notes payable offset by $ 35,000 paid to satisfy the delinquent oklahoma technology commercialization center loan . 21 as of december 31 , 2017 , the company has common stock outstanding , as well as a bank line of credit and convertible notes payable to related persons of the company . off-balance sheet arrangements we do not have any off balance sheet arrangements that have had or are reasonably likely to have a current or future material effect on our financial condition , changes in financial condition , revenues , expenses , results of operations , liquidity , capital expenditures or capital resources . critical accounting policies and estimates the following is not intended to be a comprehensive list of our accounting policies or estimates . our significant accounting policies are more fully described in note 1–summary of significant accounting policies in the notes . in preparing our financial statements and accounting for the underlying transactions and balances , we apply our accounting policies and estimates as disclosed in the notes .
| general and administrative expenses : general and administrative ( “ g & a ” ) expense increased by $ 337,622 , or 3 % , to $ 10,069,841 in 2017 from $ 9,732,219 in 2016. the company 's legal fees in 2017 were $ 132 , 418 which is a decrease of $ 119,028 , or 47 % from legal fees in 2016 of $ 251,446. the decrease is attributable to the company 's hiring of competent and respected sec counsel on an hourly versus retainer basis . marketing expenses in 2017 were $ 314,184 which is an increase of $ 60,991 , or 24 % from marketing expenses of $ 253,183 in 2016. travel expenses in 2017 were $ 221,215 which is an increase of $ 68,151 , or 45 % from travel expenses of $ 153,064 in 2016. the increase in both marketing and travel expense is related to a month long on-site demonstration conducted in the third quarter of 2017. research and development expenses decreased $ 866,846 , or 71 % to $ 351,768 in 2017 from $ 1,218,614 in 2016. this decrease was anticipated as the company is relying on past research and development efforts to support its current products . future research and development costs are not expected to increase significantly . stock based compensation , a non-cash expense , increased $ 1,049,780 , or 19 % to $ 6,602,806 in 2017 from $ 553,026 in 2016. loss from operations : loss from operations for 2017 of $ 9,846,342 was an increase of $ 1,024,860 , or 12 % , more than the loss from operations in 2016 of $ 8,821,482. the increase was primarily due to an increase in non-cash stock based compensation . 18 other income and expense : total other expense of $ 477,650 in 2017 was $ 765,617 , or 266 % , less than the total other income of $ 287,967 in 2016. this increase was primarily due to $ 1,627,297 interest expense associated with convertible notes payable , bank
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regulatory matters update approximately 18 % of revenue for the year ended december 31 , 2018 was derived directly from medicare , state medicaid programs and other government payors . we also provide services to beneficiaries of medicare , medicaid and other government-sponsored healthcare programs through managed care entities . medicare part d , for example , is administered through managed care entities . in the normal course of business , we and our customers are subject to legislative and regulatory changes impacting the level of reimbursement received from the medicare and state medicaid programs . state medicaid programs over the last several years , increased medicaid spending , combined with slow state revenue growth , led many states to institute measures aimed at controlling spending growth . spending cuts have taken many forms including reducing eligibility and benefits , eliminating certain types of services , and provider reimbursement reductions . in addition , some states have been moving beneficiaries to managed care programs in an effort to reduce costs . 34 each individual state medicaid program represents less than 5 % of our consolidated revenue for the year ended december 31 , 2018 and no individual state medicaid reimbursement reduction is expected to have a material effect on our consolidated financial statements . we are continually assessing the impact of the state medicaid reimbursement cuts as states propose , finalize and implement various cost-saving measures . these measures may include strategies to reduce coverage , restrict enrollment , or enroll more beneficiaries in managed care programs . given the reimbursement pressures , we continue to improve operational efficiencies and reduce costs to mitigate the impact on results of operations where possible . in some cases , reimbursement rate reductions may result in negative operating results , and we would likely exit some or all services where rate reductions result in unacceptable returns to our stockholders . medicare medicare currently covers home infusion therapy for selected therapies primarily through the durable medical equipment benefit . the cures act changed the new payment system for certain home infusion therapy services paid under medicare part b. the cures act significantly reduced the amount paid by medicare for the drug costs , and also provides for the implementation of a clinical services payment . under the cures act , the services payment does not take effect until 2021. however , the bipartisan budget act of 2018 provides for a temporary transitional payment , starting january 1 , 2019 , for medicare part b home infusion services . cms issued a final rule in october 2018 implementing this temporary benefit , which will continue until january 1 , 2021 , when the services payment in the cures act takes effect . we have taken steps to mitigate the impact of the cures act on our business , but the act has had material negative impact on our revenues and profitability . approximately 8 % and 7 % of revenue for the years ended december 31 , 2018 and 2017 , respectively , was derived from medicare . critical accounting estimates our consolidated financial statements have been prepared in accordance with united states gaap . in preparing our financial statements , we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period . we evaluate our estimates and judgments on an ongoing basis . we base our estimates and judgments on historical experience and on 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 at the date of the financial statements and the reported amounts of revenues and expenses for the period presented . our actual results may differ from these estimates , and different assumptions or conditions may yield different estimates . the following discussion highlights what we believe to be the critical accounting estimates and judgments made in the preparation of our consolidated financial statements . the following discussion is not intended to be a comprehensive list of all the accounting policies , estimates or judgments made in the preparation of our financial statements . a discussion of our significant accounting policies , including further discussion of the accounting policies described below , can be found in note 2 , summary of significant accounting policies , within the notes to the consolidated financial statements included in this annual report . revenue recognition we generate revenue principally through the provision of home infusion services to provide clinical management services and the delivery of cost effective prescription medications . refer to revenue recognition within note 2 , summary of significant accounting policies within the notes to the consolidated financial statements for full discussion of our revenue recognition policy . net revenue is initially recorded net of estimates of variable consideration , consisting of ( i ) implicit price concessions resulting from differences between rates charged for services performed and expected reimbursements , and ( ii ) retroactive revenue adjustments due to audits or reviews by our third-party payors . we regularly update our estimates of price concessions based on historical collection experience with similar payor classes , aged accounts receivable by payor class , terms of payment agreements , correspondence from payors related to revenue audits or reviews , our historical settlement activity of audited and reviewed claims and current economic conditions . significant changes to our mix of payors , terms of payment agreements , changes to government programs , new legislation or current economic conditions could impact our estimates of variable consideration in future periods . 35 2017 warrants the company estimated the fair value of the 2017 warrants using a valuation model that considered attributes of the company 's common stock , including the number of outstanding shares , share price and volatility . story_separator_special_tag the model further considers the exercise period of the warrants and the characteristics of other convertible instruments in estimating the number of shares that will be issued upon the exercise of the warrants . the model considers key assumptions that a market participant would use in pricing the warrants when acting in their best economic interest . changes to the estimated fair value of the warrants are primarily driven by changes to the company 's stock price . a 1.0 % change in the company 's stock price would change the estimate of the fair value of the warrants by approximately $ 0.3 million . refer to 2017 warrants presented within note 8 - preferred stock and stockholders ' deficit in the accompanying notes to consolidated financial statements for further discussion of the 2017 warrants . off-balance sheet arrangements as of december 31 , 2018 , we did not have any off-balance sheet arrangements that have , or are reasonably likely to have , a current or future effect on our financial condition , changes in financial condition , revenue or expenses , results of operations , liquidity , capital expenditures or capital resources that are material . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > depreciation and amortization expense . depreciation and amortization expense includes the depreciation of property and equipment and the amortization of intangible assets such as customer relationships , managed care contracts , licenses , trade names , and non-compete agreements with estimable lives . the decrease in depreciation expense in 2018 is attributable to the timing of placing assets in service and assets becoming fully depreciated . the decrease in amortization expense in 2018 as compared to 2017 is attributable to full amortization of certain intangible assets reducing expense by $ 1.1 million . the increase in amortization expense in 2017 as compared to 2016 is attributable to a $ 5.6 million increase in intangible asset amortization associated with the acquisition of home solutions in the third quarter of 2016 . 37 restructuring , acquisition , integration , and other expenses . restructuring , acquisition , integration , and other expenses include non-recurring costs associated with restructuring , acquisition and integration initiatives such as employee severance costs , certain legal and professional fees , training costs , redundant wage costs , impacts recorded from the change in contingent consideration obligations , and other costs related to contract terminations and closed branches/offices . restructuring , acquisition , integration , and other expenses , decreased during the year ended december 31 , 2018 primarily due to the completion of home solutions integration activities in 2017. restructuring , acquisition , integration , and other expenses decreased during the year ended december 31 , 2017 primarily due to lower expenses related to the home solutions acquisition and integration , partially offset by restructuring and other workforce optimization efforts during 2017. bad debt expense . bad debt expense decreased during the year ended december 31 , 2018 as compared to 2017 as a result of the implementation of asc topic 606 ( see revenue recognition within note 2 - summary of significant accounting policies ) which resulted in the recognition of all of the company 's bad debt expense as a reduction to revenue for the year ended december 31 , 2018 . bad debt expense for the year ended december 31 , 2017 decreased primarily due to improved collections of accounts receivable . the following table summarizes our other expenses and income and income taxes for the years ended december 31 , 2018 , 2017 and 2016 ( in thousands ) : replace_table_token_7_th interest expense , net . interest expense , net consists of interest expense and amortization of deferred financing costs offset by an immaterial amount of interest income . during the years ended december 31 , 2018 , 2017 and 2016 , we recorded $ 1.3 million , $ 1.3 million and $ 3.6 million of amortization of deferred financing costs , respectively . the increase in interest expense in 2018 as compared to 2017 is primarily the result of increasing variable interest rates on the first and second lien note facilities and an increase to the principal balance of the second lien note facility of $ 17.8 million as a result of an additional $ 10.0 million borrowing during june 2018 and $ 7.8 million of paid-in-kind interest being capitalized as principal during the second half of 2018. the increase in interest expense in 2017 as compared to 2016 is the result of the changes in our debt structure ( see note 7 - debt ) , which also resulted in a higher effective interest rate specific to the amortization of the discount associated with the 2017 warrants . change in fair value of equity linked liabilities . the increases in the change in fair value of equity linked liabilities during the years ended december 31 , 2018 and 2017 , represents the mark-to-market adjustment to the estimated fair value of the 2017 warrants . the increases were primarily driven by an increase in the company 's stock price . during the year ended december 31 , 2016 there was a gain on the reversal of a liability recorded in connection with contingent equity securities , in the form of restricted shares of company common stock , issuable in connection with the home solutions transaction . loss on extinguishment of debt . the loss on extinguishment of debt during the year ended december 31 , 2017 is attributable to the company 's entry into the notes facilities and the associated extinguishment of the senior credit facilities and the prior credit agreements ( see note 7 - debt ) . income tax benefit ( expense ) . our income tax provision for the year ended december 31 , 2018 reflects expense of $ 0.6 million , compared to a benefit of $ 4.1 million during the year ended december 31 , 2017 .
| the decrease in gross profit during 2018 as compared to 2017 was primarily driven by the decrease in revenue of $ 29.9 million associated with the impact of implementation of asc topic 606 ( see revenue recognition within note 2 - summary of significant accounting policies ) , lower revenues from the impact of the unitedhealthcare contract transition effective september 30 , 2017 , and lower patient volumes in certain product lines , including the impact of temporary closures of company branches due to inclement winter weather during the first quarter of 2018 , partially offset by higher gross profit margins due to higher core mix and lower costs of prescription medications . the increase in gross profit during 2017 as compared to 2016 was primarily driven by the home solutions acquisition , an improved mix of higher margin core therapy revenues versus lower margin non-core therapy revenues , and a decreased cost of prescription medicines and medical supplies as a result of improved supply chain 36 management , partially offset by the company 's shift in strategy to focus on growing its core revenue mix , including the unitedhealthcare contract transition effective september 30 , 2017. operating expenses the following tables summarize our operating expenses , and percentages of net revenue , for the years ended december 31 , 2018 , 2017 and 2016 ( in thousands ) : replace_table_token_5_th replace_table_token_6_th service location operating expenses . service location operating expenses consist primarily of wages and benefits , travel expenses , and professional service and field office expenses for our healthcare professionals engaged in providing infusion services to our patients . service location operating expenses for the year ended december 31 , 2018 decreased due to lower wage , benefit , and other employee costs as a result of the unitedhealthcare contract transition and integration , restructuring , and other workforce optimization efforts . service location operating expenses for the year ended december 31 , 2017 decreased primarily as the result of restructuring and other workforce optimization efforts . general and administrative expenses . general and administrative expenses consist of wages and benefits for corporate overhead personnel and certain corporate level
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while we may in the future generate revenue from a variety of sources , potentially including sales of our neonatology products , therapeutic products , other diagnostic products , license fees , milestone payments , and research and development payments in connection with potential future strategic partnerships , we have , to date , generated approximately $ 2,000 of revenue only from the 2013 license agreement pertaining to serenz , approximately $ 2.7 million in revenue from our neonatology products and approximately $ 0.2 million in government grants ; these activities are reported as discontinued operations in our accompanying consolidated financial statements . we may never be successful in commercializing our novel therapeutic and in divesting , selling or otherwise disposing of our existing neonatology products or related therapeutic products . accordingly , we expect to incur significant losses from operations for the foreseeable future , and there can be no assurance that we will ever generate significant revenue or profits . financings sabby 2016 stock purchase we issued a total of 13,780 780 shares of series b convertible preferred stock under the securities purchase agreement entered into on june 29 , 2016 with sabby healthcare master fund ltd and sabby volatility warrant fund ltd , which are funds managed by sabby management , llc , collectively referred to as sabby , as amended by amendment no . 1 dated september 2016 , referred to as the 2016 sabby purchase agreement . these shares had a par value of $ 0.001 and a stated value of $ 1,000 per share . the aggregate purchase price of the series b convertible preferred shares was $ 13.8 million , and were convertible to common stock at a rate of 200 shares of common stock for each converted share of series b convertible preferred stock , for a total of 2,756,000 shares of our common stock , based on a fixed conversion price of $ 5.00 per share on an as-converted basis . un der the terms of the series b convertible preferred stock , in no event shall shares of common stock be issued to sabby upon conversion of the series b convertible preferred stock to the extent such issuance of shares of common stock would result in sabby having ownership in excess of 4.99 % . the series b convertible preferred stock did not have an expiration date and were not redeemable at the option of the holders . in addition , on the effect date of the 2016 sabby purchase agreement the exercise price of the existing series d warrants originally issued in conjunction with the 2015 sabby purchase agreement was reduced from $ 12.30 to $ 8.75 per share . in connection with the 2016 sabby purchase agreement , we also were obligated to repurchased the remaining 7,780 outstanding series a convertible preferred stock held by sabby for an aggregate amount of $ 7.8 million , which shares were originally purchased by sabby under the 2015 sabby purchase agreement and which shares represent 841,081 shares of common stock on an as-converted basis . the sale of the series b convertible preferred stock occurred in two separate closings . the first closing was on july 5 , 2016 and the second closing was on september 29 , 2016. between the two closings , after the repurchase of the series a convertible preferred stock and estimated transaction expenses , we received $ 5.6 million of net proceeds . during 2016 , 2017 and 2018 sabby converted 1,000 , 8,209 and 4,571 shares of series b convertible preferred stock into 200,000 , 1,641,800 and 914,200 shares of common stock , respectively . as of december 31 , 2018 , there were no shares of series b convertible preferred stock outstanding . aspire stock purchase on january 27 , 2017 , we entered into a common stock purchase agreement ( the “ 2017 aspire purchase agreement ” ) with aspire capital fund , llc ( “ aspire capital ” ) , which provides that , upon the terms and subject to the conditions and limitations set forth therein , aspire capital is committed to purchase up to an aggregate of $ 17.0 million in value of shares of our common stock over the 30-month term of the 2017 aspire purchase agreement . we issued aspire capital 141,666 shares of common stock as commitment shares under the 2017 aspire purchase agreement . the 2017 aspire purchase agreement was terminated upon the closing of the 2017 pipe offering . 55 2017 pipe offering on december 11 , 2017 , we entered into a securities purchase agreement with certain purchasers , pursuant to which we sold and issued 8,141,116 immediately separable units at a price per unit of $ 1.84 , for aggregate gross proceeds of $ 15.0 million . each unit consisted of one share of our common stock and a warrant to purchase 0.74 shares of our common stock at an exercise price of $ 2.00 per share , for an aggregate of 8,141,116 shares of co mmon stock and corresponding warrants to purchase an aggregate of 6,024,425 shares of common stock , together the shares of common stock are referred to as the 2017 resale shares . we also granted certain registration rights to these stockholders , pursuant t o which , among other things , we prepared and filed a registration statement with the sec to register for resale the 2017 resale shares . the registration statement was declared effective in february 2018 . 2018 pipe offering on december 19 , 2018 , we entere d into a securities purchase agreement with certain purchasers , pursuant to which we sold and issued 10,272,375 units at a price per unit of $ 1.61 , for aggregate gross proceeds of $ 16.5 million . story_separator_special_tag each unit consisted of one share of our common stock and a wa rrant to purchase 0.05 shares of our common stock at an exercise price of $ 2.00 per share , for an aggregate of 10,272,375 shares of common stock and corresponding warrants to purchase an aggregate of 513,617 shares of common stock , together with the shares of common stock are referred to as the 2018 resale shares . we also granted certain registration rights to these stockholders , pursuant to which , among other things , we will prepare and file with the sec a registration statement to register for resale the 2018 resale shares prior to march 31 , 2019. financial overview summary we have not generated net income from operations to date , and , at december 31 , 2018 and december 31 , 2017 , we had an accumulated deficit of $ 127.0 million and $ 113.7 million , respectively , primarily as a result of research and development and general and administrative expenses . we may never be successful in commercializing our novel therapeutics products for the treatment of rare diseases . accordingly , we expect to incur significant losses from operations for the foreseeable future , and there can be no assurance that we will ever generate significant revenue or profits . revenue recognition to date , we have earned no revenue from the commercial development and sale of novel therapeutic products and the revenue resulting from commercialization and sale of the cosense , neo force , inc. and serenz products is reported in discontinued operations . research and development expenses research and development costs are expensed as incurred . research and development costs consist primarily of salaries and benefits , professional consultant fees , prototype expenses , certain facility costs and other costs associated with clinical trials , net of reimbursed amounts . costs to acquire technologies to be used in research and development that have not reached technological feasibility , and have no alternative future use , are expensed to research and development costs when incurred . research and development expenses resulting from the development of novel therapeutic products are reported in continuing operations , and research and development expenses resulting from the development of the cosense , neo force , inc. and serenz products are reported in discontinued operations . sales and marketing expenses sales and marketing expenses consist principally of salaries and benefits , professional consulting fees , and other expenses associated with commercial activities . we anticipate these expenses will increase significantly in future periods , reflecting the increased level of sales and marketing activity necessary for the commercial launch of a successful future therapeutic drug candidate . we have to date incurred no sales and marketing expenses related to the sale and commercialization of novel therapeutic products , and the sales and marketing expenses related to the cosense , neo force , inc. and serenz products are reported in discontinued operations . 56 general and administrative expenses general and administrative expenses consist principally of salaries and benefits , professional fees for legal , consulting , audit and tax services , insurance , rent , and other general operating expenses not otherwise included in research and development . we anticipate general and administrative expenses will increase in future periods , reflecting an expanding infrastructure , other administrative expenses and increased professional fees associated with being a public reporting company . general and administrative expenses incurred in operating all components of our business are classified as continuing operations and are not allocated to specific research and development or sales and marketing activities that have been discontinued . general and administrative expenses , such as rent , that are incurred specifically to directly support research and development and sales and marketing activities for the cosense , neo force , inc. and serenz products are reported in discontinued operations . change in fair value of contingent consideration change in fair value of contingent consideration represents the change in the fair value of the additional consideration that we expect to pay essentialis stockholders based on our assessment of the expected likelihood of achieving commercial sales milestones of $ 100.0 million and $ 200.0 million in future years . other income ( expense ) other income ( expense ) is primarily comprised of the gain recognized from the transfer of the majority ownership and resulting deconsolidation of capnia and changes in the fair value of the series a , series c and the 2017 and 2018 pipe common stock warrant liabilities . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of financial condition and results of operations are based upon our audited financial statements , which have been prepared in accordance with gaap . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . on an on-going basis , we evaluate our critical accounting policies and estimates . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable in 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 and conditions . our significant accounting policies are more fully described in note 3 to our audited financial statements contained herein . series a , series c , 2017 pipe warrants , and the 2018 pipe warrants we account for the series a , series c , 2017 pipe warrants , and 2018 pipe warrants , collectively referred to as the warrants , in accordance with the guidance in asc 815 derivatives and hedging . the warrants contain standard anti-dilution provisions for stock dividends , stock splits , subdivisions , combinations and similar types of recapitalization events .
| these decreases were largely offset by approximately $ 355,000 of additional amortization expense of the intangible patent asset acquired in the march 7 , 2017 acquisition of essentialis , as 2017 had amortization for a portion of the year compared to the entire period in 2018 , and an increase of approximately $ 288,000 for professional fees and investor communication expenses , primarily related to financing activities and regulatory filings required in 2018 change in fair value of contingent consideration we are obligated to make cash payments of up to a maximum of $ 30 million to essentialis stockholders upon the achievement of certain future commercial milestones associated with the sale of essentialis ' product in accordance with the terms of the essentialis merger agreement . the fair value of the liability for the contingent consideration payable by us achieving the commercial sales milestones of $ 100 million and $ 200 million was estimated to be $ 5.6 million as of december 31 , 2018 , an approximate $ 567,000 increase from the estimate as of december 31 , 2017. during 2017 the estimate increased $ 2.5 million from the initial liability of $ 2.6 million estimated at the time of the merger . other income ( expense ) other income of approximately $ 2.5 million in 2018 increased $ 3.7 million from other expense of $ 1.3 million during 2017. the increase in other income was primarily due to a $ 2.0 million gain recognized on the deconsolidation of capnia upon the issuance of majority shares to oahl and a net decrease in the fair value of warrants liabilities during 2018 compared to a net increase in 2017 , resulting in a net increase of $ 1.2 million . in addition , there was an approximate $ 528,000 decrease in interest and other expense due primarily to the fact that during 2017 there were commitment shares issued to aspire capital with a value of approximately $ 600,000 . 61 results of discontinued operations discontinued operations consist of our activities previously dedicated to the development and commercialization of innovative diagnostics , devices and therapeutics addressing unmet medical needs , which consisted of : precision metering of gas flow technology marketed as serenz ® allergy relief , or serenz ; cosense ® end-tidal carbon monoxide ( etco ) monitor , or cosense , which measures etco and
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the provision for loan losses is a function of the allowance for loan loss methodology we use to determine the appropriate level of the allowance for inherent loan losses after net charge-offs have been deducted . the portion of the allowance for loan losses attributable to loans collectively evaluated for impairment decreased $ 1.5 million , or 16.0 % , to $ 8.1 million at december 31 , 2016 , from $ 9.6 million at december 31 , 2015 . this decrease occurred primarily because the growth in our loan portfolio focused on loan types with lower loss ratios based on our historical loss experience , and improvements in the historical loan loss factors that occurred as the losses incurred in earlier periods aged and thus were either eliminated from the calculation or assigned a lower weight . net charge-offs were $ 1.3 million and $ 1.4 million for the years ended december 31 , 2016 and december 31 , 2014 , respectively , and there were $ 907,000 of recoveries for the year ended december 31 , 2015 . charge-off activity for the year ended december 31 , 2016 included a $ 1.6 million charge-off resulting from the sale of three performing loans to a single borrower with a carrying value of $ 16.2 million . for further analysis and information on how we determine the appropriate level for the allowance for loan losses and analysis of credit quality , see “ critical accounting policies , ” “ risk classification of loans ” and “ allowance for loan losses. ” noninterest income replace_table_token_6_th comparison of year 2016 to 2015 . our noninterest income decreased by $ 146,000 , or 2.2 % , to $ 6.5 million for the years ended december 31 , 2016 , from $ 6.7 million in 2015 . deposit service charges and fees increased $ 6,000 , or 0.3 % , to $ 2.3 million for the year ended december 31 , 2016 , from $ 2.2 million for the year ended december 31 , 2015 , primarily due to increased fees from deposit accounts . other fee income decreased $ 91,000 , or 4.2 % , to $ 2.1 million for the year ended december 31 , 2016 , from $ 2.1 million for the year ended december 31 , 2015 . the decrease in other fee income reflects decreased atm and visa debit card charges and other loan fees in 2016 compared to 2015 . bank-owned life insurance produced earnings of $ 207,000 for 2016 , an increase of $ 13,000 , or 6.7 % , compared to $ 194,000 for 2015 . comparison of year 2015 to 2014 . our noninterest income remained stable at $ 6.7 million for the years ended december 31 , 2015 and 2014. deposit service charges and fees increased $ 271,000 , or 13.7 % , to $ 2.2 million for the year ended december 31 , 2015 , from $ 2.0 million for the year ended december 31 , 2014 , primarily due to increased fees from deposit accounts . other fee income decreased $ 95,000 , or 4.2 % , to $ 2.1 million for the year ended december 31 , 2015 , from $ 2.2 million for the year ended 27 december 31 , 2014. the decrease is primarily due to decreased atm surcharges and service charges in 2015 compared to 2014. bank-owned life insurance produced earnings of $ 194,000 for 2015 , a decrease of $ 41,000 , or 17.4 % , compared to $ 235,000 for 2014 , due to decreased annualized policy returns . noninterest expense replace_table_token_7_th comparison of year 2016 to 2015 . for the year ended december 31 , 2016 , noninterest expense decreased by $ 403,000 , or 1.0 % , to $ 41.5 million , from $ 41.9 million for the year ended december 31 , 2015 . compensation and benefits expense increased $ 533,000 , or 2.4 % , to $ 22.8 million for the year ended december 31 , 2016 , from $ 22.2 million in 2015 . the increase was due in substantial part to stock-based compensation expense of $ 982,000 for the year ended december 31 , 2016 , compared to $ 638,000 in 2015. the stock-based compensation was partially offset by a decrease in compensation costs due in part to the reduction in full time equivalent employees to 246 at december 31 , 2016 , from 251 at december 31 , 2015 . noninterest expense for 2016 included $ 1.2 million of nonperforming asset management and oreo expenses , compared to $ 1.7 million for 2015 . nonperforming asset management expenses decreased $ 282,000 , or 41.4 % , to $ 399,000 for the year ended december 31 , 2016 , compared to $ 681,000 in 2015 . the decrease was primarily due to a decline in nonperforming assets and a corresponding decline in expenses relating to resolutions and accelerated dispositions of nonperforming assets . the most significant decrease in nonperforming asset management expense related to real estate taxes , which totaled $ 198,000 for the year ended december 31 , 2016 , compared to $ 247,000 for 2015 . oreo expenses for the year ended december 31 , 2016 totaled $ 846,000 , and included a $ 314,000 valuation adjustment to oreo properties , compared to a $ 548,000 valuation adjustment in 2015 . noninterest expense for the for the year ended december 31 , 2016 included a provision of $ 174,000 for mortgage representation and warranty reserve for mortgage loans sold , compared to a $ 80,000 provision for 2015 . comparison of year 2015 to 2014 . for the year ended december 31 , 2015 , noninterest expense decreased by $ 2.5 million , or 5.6 % , to $ 41.9 million , compared to $ 44.5 million for the year ended december 31 , 2014. compensation and benefits expense decreased $ 652,000 , or 2.9 % , to $ 22.2 million for the year ended december 31 , 2015 , compared to $ 22.9 million in 2014. story_separator_special_tag the decrease was due in part to the reduction in full time equivalent employees to 251 at december 31 , 2015 from 269 at december 31 , 2014 , the impact of which was partially offset by a $ 600,000 increase in stock-based compensation to $ 1.7 million for the year ended december 31 , 2015 , from $ 1.1 million for 2014. noninterest expense for 2015 included $ 1.7 million of nonperforming asset management and oreo expenses , compared to $ 2.2 million for 2014. nonperforming asset management expenses decreased $ 157,000 , or 18.7 % , to $ 681,000 for the year ended december 31 , 2015 , compared to $ 838,000 in 2014. the decrease was primarily due to a decline in nonperforming assets and a corresponding decline in expenses relating to resolutions and accelerated dispositions of nonperforming assets . the most significant decrease in nonperforming asset management expense related to real estate taxes , which totaled $ 247,000 for the year ended december 31 , 2015 , compared to $ 417,000 for 2014. oreo expenses for the year ended december 31 , 2015 totaled $ 1.1 million , and included a $ 548,000 valuation adjustment to oreo properties , compared to a $ 438,000 valuation adjustment in 2014. noninterest expense for the for the year ended december 31 , 2015 included a provision of $ 80,000 for mortgage representation and warranty reserve for mortgage loans sold , compared to a $ 73,000 provision for 2014 . 28 income taxes comparison of year 2016 to 2015 . for the year ended december 31 , 2016 we recorded income tax expense of $ 4.7 million , compared to $ 5.4 million recorded in 2015 . the effective tax rate for the year ended december 31 , 2016 was 38.51 % . comparison of year 2015 to 2014 . for the year ended december 31 , 2015 we recorded income tax expense of $ 5.4 million , compared to an income tax benefit of $ 31.3 million recorded in 2014 , which included the full recovery of the valuation allowance of $ 35.1 million we established for deferred tax assets in 2011. the effective tax rate for the year ended december 31 , 2015 was 38.48 % . comparison of financial condition at december 31 , 2016 and december 31 , 2015 total assets increased $ 107.6 million , or 7.1 % , to $ 1.620 billion at december 31 , 2016 , from $ 1.512 billion at december 31 , 2015 . the increase in total assets was primarily due to increases in cash and cash equivalents and loans receivable , which were partially offset by a decrease in securities . net loans increased $ 80.7 million , or 6.5 % , to $ 1.313 billion at december 31 , 2016 , from $ 1.232 billion at december 31 , 2015 . net securities decreased by $ 7.5 million , or 6.6 % , to $ 107.2 million at december 31 , 2016 , from $ 114.8 million at december 31 , 2015 . our loan portfolio consists primarily of investment and business loans ( multi-family , nonresidential real estate , commercial , construction and land loans , and commercial leases ) , which together totaled 89.6 % of gross loans at december 31 , 2016 . net loans receivable increased $ 80.7 million , or 6.5 % , to $ 1.313 billion at december 31 , 2016 . commercial leases increased $ 87.1 million , or 32.8 % , due in part to the company 's acquisition of a portfolio of investment-grade commercial leases from a competitor exiting the sector . the company closed $ 55 million of the portfolio acquisition late in the fourth quarter of 2016 , consisting of leases having an average rate of 2.31 % and an average duration of approximately 26 months . multi-family mortgage loans increased by $ 36.9 million , or 7.3 % ; commercial loans increased by $ 23.5 million , or 29.6 % ; nonresidential real estate loans decreased $ 44.6 million , or 19.7 % ; construction and land loans decreased by $ 11,000 , or 0.8 % ; and one-to-four family residential mortgage loans decreased by $ 24.3 million , or 15.2 % . our allowance for loan losses decreased by $ 1.6 million , or 16.1 % , to $ 8.1 million at december 31 , 2016 , from $ 9.7 million at december 31 , 2015 . the decrease reflected the combined impact of a $ 239,000 recovery of provision for loan losses and $ 1.3 million of net charge-offs . securities decreased $ 7.5 million , or 6.6 % , to $ 107.2 million at december 31 , 2016 , from $ 114.8 million at december 31 , 2015 , due primarily to proceeds from maturities of $ 67.7 million and repayments of $ 5.1 million on residential mortgage-backed securities and collateralized mortgage obligations . these repayments were partially offset by securities purchases of $ 65.6 million . during 2016 and 2015 , we also invested in fdic insured certificates of deposit issued by other insured depository institutions . total liabilities increased $ 115.2 million , or 8.9 % , to $ 1.415 billion at december 31 , 2016 , from $ 1.300 billion at december 31 , 2015 , primarily due to increases in interest-bearing now accounts and certificates of deposits . the increases were partially offset by decreases in borrowings , non-interest demand accounts and money market accounts . total deposits increased $ 126.5 million , or 10.4 % , to $ 1.339 billion at december 31 , 2016 , from 1.213 billion at december 31 , 2015 . certificates of deposit increased $ 128.9 million , or 57.9 % , to $ 351.6 million at december 31 , 2016 , from $ 222.7 million at december 31 , 2015 . this increase included a $ 119.3 million increase in brokered certificates of deposit . interest-bearing now accounts increased $ 18.1 million , or 7.3 % , to $ 267.1
| the $ 3.2 million , or 57.8 % , increase in year over year earnings exclusive of the 2014 tax benefit was primarily due to the combined effect of a $ 2.5 million increase in the recovery of provision for loan losses and a $ 2.5 million decrease in noninterest expense for the year ended december 31 , 2015. our earnings per share of common stock was $ 0.44 for the year ended december 31 , 2015 , compared to $ 2.01 per share of common stock for the year ended december 31 , 2014. excluding the tax benefit that we recorded for the recovery of the deferred tax assets valuation allowance , our earnings per share of common stock would have been $ 0.27 for the year ended december 31 , 2014. net interest income net interest income is our primary source of revenue . net interest income equals the excess of interest income ( including discount accretion on purchased impaired loans ) plus fees earned on interest earning assets over interest expense incurred on interest-bearing liabilities . the level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities impact net interest income . interest rate spread and net interest margin are utilized to measure and explain changes in net interest income . interest rate spread is the difference between the yield on interest-earning assets and the rate paid for interest-bearing liabilities 23 that fund those assets . the net interest margin is expressed as the percentage of net interest income to average interest-earning assets . the net interest margin exceeds the interest rate spread because noninterest-bearing sources of funds , principally noninterest-bearing demand deposits and stockholders ' equity , also support interest-earning assets . the accounting policies underlying the recognition of interest income on loans , securities , and other interest-earning assets are included in note 1 of “ notes to consolidated financial statements ” in item 8 of this annual report on form 10-k. 24 average balance sheets the following table sets forth average balance sheets , average yields and costs , and certain other information . no tax-equivalent yield adjustments were made , as the effect of these adjustments would not be material . average balances are daily average balances . nonaccrual loans are included in the computation of average balances , but have been reflected in the table as loans carrying a
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nfs ascent is aimed at providing a highly flexible solution based on the latest technology and advanced architecture for the north american customers looking to replace their legacy systems . we believe that nfs ascent can provide substantial competitive disruption to the market 's lagging technology provided by incumbent vendors . the existing customer base may also represent latent demand for increased service and maintenance revenues by offering business process optimization , customization and upgrade services . growth in europe will come from the introduction of nfs ascent tm , which will allow nte to support larger organizations than those typically selecting the existing leasesoft product set , and also opens the door for european expansion . this will attract larger license and professional services revenues across a wider geography . in addition , leveraging the core strengths of nfs ascent tm will increasingly provide opportunities in the automotive sector where nte is currently underrepresented . 14 growth in netsol 's traditionally strong base in asia pacific is expected through diversification across market segments to include new customers in related banking and commercial lending areas . at the same time , the existing customer base is tapped for increased service and maintenance revenues by offering enhanced features and new solutions to emerging customer needs . in addition , there is a potential for nfs ascent tm in asia pacific in the form of existing customers who are looking for replacement of their current system . in china , netsol is a leader in the leasing and finance enterprise solution domain . with this position , netsol continues to enjoy demand for the current nfs solution , as well as nfs ascent . netsol will continue strengthening its position within existing multinational auto manufacturers , as well as , local chinese captive finance and leasing companies . the chinese auto leasing market is young and low on consumer penetration in comparison with the giant u.s. market . we see a tremendous opportunity to grow demand for our products widely and in new markets in china such as shanghai . in thailand , netsol established a proximity delivery and client service center . netsol thai operation is the hub for netsol global markets and directly supports all apac markets including china and australia . our operation in bangkok serves a very robust and growing market for leasing companies and regional banks . material trends affecting netsol management has identified the following material trends affecting netsol . positive trends : ● improving u.s. economy generally , and particularly auto and banking markets . ● robust chinese markets as asset based leasing and finance sector are far from maturity levels . ● latin american markets , primarily in mexico , remain largely untapped . ● pakistan economy growth in gross domestic product reached 4.24 % in 2015 , according to the pakistan bureau of statistics ; and improved credit ratings by bloomberg , s & p , moody 's and forbes pakistan security and geopolitical environment has improved . ● china to invest $ 46 billion in pakistan on energy and infrastructure projects . ● continuous strong u.s. auto sales in excess of 17 million units in 2016 according to auto news.com . ● new emerging markets and it destinations in thailand , malaysia , indonesia , china and australia . ● continued interest from fortune 500 multinational auto captives and global companies in netsol ascent . ● continued interest from existing clients in the nfs legacy systems . ● growing demand for nfs ascent by existing tier one auto captive clients . ● higher caliber and quality talent joining netsol , globally . ● employee turnover is contained to 10 % level in 2016 from 20+ % in 2014. negative trends : ● growing global terrorism and extremism primarily in european countries . ● geopolitical unrest in the middle east and potential terrorism and the disruption risk it creates . ● restricted liquidity and financial burden due to tighter internal processes and limited budgets might cause delays in the receivables from some clients . ● the threats of conflict between the u.s. and middle eastern region could potentially create volatility in oil prices , causing readjustments of corporate budgets and consumer spending slowing global auto sales . critical accounting policies our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the united states ( “ u.s . gaap ” ) . preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , and expenses . these estimates and assumptions are affected by management 's application of accounting policies . critical accounting policies for us include revenue recognition and multiple element arrangements , intangible assets , software development costs , and goodwill . 15 revenue recogntion the company derives revenues from the following sources : ( 1 ) software licenses , ( 2 ) services , which include implementation and consulting services , and ( 3 ) maintenance , which includes post contract customer support . the company recognizes revenue from license contracts without major customization when a non-cancelable , non-contingent license agreement has been signed , delivery of the software has occurred , the fee is fixed or determinable , and collectability is probable . delivery is considered to have occurred upon electronic transfer of the license key that provides immediate availability of the product to the purchaser . determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenue the company reports . if an arrangement does not qualify for separate accounting of the software license and consulting transactions , then new software license revenue is generally recognized together with the consulting services based on contract accounting using either the percentage-of-completion or completed-contract method . story_separator_special_tag contract accounting is applied to any arrangements : ( 1 ) that include milestones or customer specific acceptance criteria that may affect collection of the software license fees ; ( 2 ) where services include significant modification or customization of the software ; ( 3 ) where significant consulting services are provided for in the software license contract without additional charge or are substantially discounted ; or ( 4 ) where the software license payment is tied to the performance of consulting services . revenue from consulting services is recognized as the services are performed for time-and-materials contracts . revenue from training and development services is recognized as the services are performed . revenue from maintenance agreements is recognized ratably over the term of the maintenance agreement , typically one year . multiple element arrangements the company may enter into multiple element revenue arrangements in which a customer may purchase a number of different combinations of software licenses , consulting services , maintenance and support , as well as training and development . vendor specific objective evidence ( “ vsoe ” ) of fair value for each element is based on the price for which the element is sold separately . the company determines the vsoe of fair value of each element based on historical evidence of the company 's stand-alone sales of these elements to third-parties or from the stated renewal rate for the elements contained in the initial software license arrangement . when vsoe of fair value does not exist for any undelivered element , revenue is deferred until the earlier of the point at which such vsoe of fair value exists or until all elements of the arrangement have been delivered . the only exception to this guidance is when the only undelivered element is maintenance and support or other services , then the entire arrangement fee is recognized ratably over the performance period . cost of revenues cost of revenues includes salaries and benefits for technical employees , consultant costs , amortization of capitalized computer software development costs , depreciation of computer and equipment , travel costs , and indirect costs such as rent and insurance . intangible assets intangible assets consist of product licenses , renewals , enhancements , copyrights , trademarks , trade names , and customer lists . intangible assets with finite lives are amortized over the estimated useful life and are evaluated for impairment at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable . we assess recoverability by determining whether the carrying value of such assets will be recovered through the discounted expected future cash flows . if the future discounted cash flows are less than the carrying amount of these assets , we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets . software development costs costs incurred to internally develop computer software products or to enhance an existing product are recorded as research and development costs and expensed when incurred until technological feasibility for the respective product is established . thereafter , all software development costs are capitalized and reported at the lower of unamortized cost or net realizable value . capitalization ceases when the product or enhancement is available for general release to customers . the company makes on-going evaluations of the recoverability of its capitalized software projects by comparing the amount capitalized for each product to the estimated present value of future net income from the product . if such evaluations indicate that the unamortized software development costs exceed the present value of expected future net income , the company writes off the amount which the unamortized software development costs exceed such present value . capitalized and purchased computer software development costs are being amortized ratably based on the projected revenue associated with the related software or on a straight-line basis . goodwill goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase businesses combination . goodwill is reviewed for impairment on an annual basis , or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may be impaired . the goodwill impairment test is a two-step test . under the first step , the fair value of the reporting unit is compared with its carrying value ( including goodwill ) . if the fair value of the reporting unit exceeds its carrying value , step two does not need to be performed . if the fair value of the reporting unit is less than its carrying value , an indication of goodwill impairment exists for the reporting unit and the enterprise must perform step two of the impairment test ( measurement ) . under step two , an impairment loss is recognized for any excess of the carrying amount of the reporting unit 's goodwill over the implied fair value of that goodwill . the implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation . the residual fair value after this allocation is the implied fair value of the reporting unit goodwill . the source of the company 's goodwill relates to the acquisition of four companies . netsol pk operates in the asia pacific region ; cq systems ( now netsol technologies europe limited ) and vls both operate in europe ; and mccue systems ( now netsol technologies americas , inc. ) operates in the north american region . all these geographies are considered as different reporting segments . goodwill arising from the acquisition of these companies has been allocated to their respective geographical segments to which they relate . while identifying reporting segments , we take into consideration the reports reviewed by the ceo ( chief operating decision maker ) . as our financial reports are analyzed on this regional basis , we have defined this as segment reporting for purposes of goodwill impairment testing .
| replace_table_token_4_th net revenues for the years ended june 30 , 2016 and 2015 by segment are as follows : replace_table_token_5_th revenues license fees license fees for the year ended june 30 , 2016 were $ 7,968,579 compared to $ 6,328,989 for the year ended june 30 , 2015 reflecting an increase of $ 1,639,590 with a change in constant currency of $ 1,878,542. included in the license fees are licenses provided to related parties of $ 1,616,138 for the year ended june 30 , 2016 compared to $ nil for the same period last year . during the fiscal year ended june 30 , 2016 , we increased our license revenues through sales of our regional offerings in the u.s. and the u.k. , our continued sales of our nfs legacy product , and sales of our nfs ascent product . maintenance fees maintenance fees for the year ended june 30 , 2016 were $ 13,676,363 compared to $ 12,592,024 for the year ended june 30 , 2015 reflecting an increase of $ 1,084,339 with a change in constant currency of $ 1,306,679. included in the maintenance fees are maintenance provided to related parties of $ 365,772 for the year ended june 30 , 2016 compared to $ 395,951 for the same period last year . maintenance fees begin once a customer has “ gone live ” with our product . the increase was due to the start of new maintenance agreements from customers who went live with our product during the latter stages of fiscal year 2015 and into fiscal year 2016. we anticipate maintenance fees to gradually increase as we implement both our nfs legacy product and nfs ascent . 18 services services income for the year ended june 30 , 2016 was $ 42,905,251 compared to $ 32,127,565 for the year ended june 30 , 2015 reflecting an increase of $ 10,777,686 with a change in constant currency of $ 11,280,839. included in the services revenue are services provided to related parties of $ 10,617,022 for the year ended june 30 , 2016 compared to $ 7,299,743 for the same period last year . the increase is due to services provided to new
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since november 2008 , we rented office space in everett , washington from a company owned by roula and antoine jarjour , two of our officers and directors at $ 2,000 per month . there is no written lease agreement . the lease will expire on january 2017. the net balance of these related party transactions on october 31 , 2014 was $ 2,492,190 . for the year ended october 31 , 2015 , we had an increase in accrued rent of $ 8,950 , an increase in accrued compensation of $ 338,554 , a decrease in officer and shareholder payable of $ 336,959 , and , a decrease in receivables from a related entity of $ 7,696 since the year ended october 31 , 2014. the net balance of these related party transactions on october 31 , 2015 was $ 2,493,785 . -32- item 14. principal accountant fees and services . ( 1 ) audit fees the aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for our audit of annual financial statements and review of financial statements included in our form 10-qs or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years was : replace_table_token_10_th ( 2 ) audit-related fees the aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountants that are reasonably related to the performance of the audit or review of our financial statements and are not reported in the preceding paragraph : replace_table_token_11_th ( 3 ) tax fees the aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance , tax advice , and tax planning was : replace_table_token_12_th ( 4 ) all other fees the aggregate fees billed in each of the last two fiscal years for the products and services provided by the principal accountant , other than the services reported in paragraphs ( 1 ) , ( 2 ) , and ( 3 ) was : replace_table_token_13_th ( 5 ) our audit committee 's pre-approval policies and procedures described in paragraph ( c ) ( 7 ) ( i ) of rule 2-01 of regulation s-x were that the audit committee pre-approve all accounting related activities prior to the performance of any services by any accountant or auditor . ( 6 ) the percentage of hours expended on the principal accountant 's engagement to audit our financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant 's full time , permanent employees was 0 % . -33- part iv item 15. exhibits and financial statement schedules . replace_table_token_14_th -34- replace_table_token_15_th -35- signatures in accordance with section 13 or 15 ( d ) of the securities and exchange act , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized , on this 28 th day of march , 2016. seen on screen tv , inc. by : antoine jarjour antoine jarjour president , principal executive officer , principal financial officer and principal accounting officer 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 : signature title date antoine jarjour president , principal executive officer , principal march 28 , 2016 antoine jarjour financial officer , principal accounting officer and member of the board of directors roula jarjour vice president and a member of the board march 28 , 2016 roula jarjour of directors george jarjour chief operating officer and a member of the board march 28 , 2016 george jarjour of directors charles carafoli member of the board of directors march 28 , 2016 charles carafoli member of the board of directors march _ , 2016 father gregory ofiesh -36- exhibit index replace_table_token_16_th -37- replace_table_token_17_th -38- story_separator_special_tag this section of this annual report includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance . forward-looking statements are often identified by words like : believe , expect , estimate , anticipate , intend , project and similar expressions , or words which , by their nature , refer to future events . you should not place undue certainty on these forward-looking statements , which apply only as of the date of our prospectus . these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions . overview we were formed for the purpose of selling products in our retail stores located throughout the united states . we are currently only operating our ecommerce website . our financial statements were prepared on a going concern basis , which assumes that we will be able to realize assets and discharge liabilities in the normal course of business . the ability to continue as a going concern is dependent on the company 's ability to generate profitable operations in the future , to maintain adequate financing , and to achieve a positive cash flow . there is no assurance it will be able to meet any or all of such goals . story_separator_special_tag 12.55pt '' / > overview we recognize revenue when persuasive evidence of an arrangement exists , we have delivered the product or performed the service , the fee is fixed or determinable and collection is reasonably assured . if any of these criteria are not met , we defer recognizing the revenue until such time as all criteria are met . determination of whether or not these criteria have been met may require us to make judgments , assumptions and estimates based upon current information and historical experience story_separator_special_tag since november 2008 , we rented office space in everett , washington from a company owned by roula and antoine jarjour , two of our officers and directors at $ 2,000 per month . there is no written lease agreement . the lease will expire on january 2017. the net balance of these related party transactions on october 31 , 2014 was $ 2,492,190 . for the year ended october 31 , 2015 , we had an increase in accrued rent of $ 8,950 , an increase in accrued compensation of $ 338,554 , a decrease in officer and shareholder payable of $ 336,959 , and , a decrease in receivables from a related entity of $ 7,696 since the year ended october 31 , 2014. the net balance of these related party transactions on october 31 , 2015 was $ 2,493,785 . -32- item 14. principal accountant fees and services . ( 1 ) audit fees the aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for our audit of annual financial statements and review of financial statements included in our form 10-qs or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years was : replace_table_token_10_th ( 2 ) audit-related fees the aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountants that are reasonably related to the performance of the audit or review of our financial statements and are not reported in the preceding paragraph : replace_table_token_11_th ( 3 ) tax fees the aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance , tax advice , and tax planning was : replace_table_token_12_th ( 4 ) all other fees the aggregate fees billed in each of the last two fiscal years for the products and services provided by the principal accountant , other than the services reported in paragraphs ( 1 ) , ( 2 ) , and ( 3 ) was : replace_table_token_13_th ( 5 ) our audit committee 's pre-approval policies and procedures described in paragraph ( c ) ( 7 ) ( i ) of rule 2-01 of regulation s-x were that the audit committee pre-approve all accounting related activities prior to the performance of any services by any accountant or auditor . ( 6 ) the percentage of hours expended on the principal accountant 's engagement to audit our financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant 's full time , permanent employees was 0 % . -33- part iv item 15. exhibits and financial statement schedules . replace_table_token_14_th -34- replace_table_token_15_th -35- signatures in accordance with section 13 or 15 ( d ) of the securities and exchange act , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized , on this 28 th day of march , 2016. seen on screen tv , inc. by : antoine jarjour antoine jarjour president , principal executive officer , principal financial officer and principal accounting officer 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 : signature title date antoine jarjour president , principal executive officer , principal march 28 , 2016 antoine jarjour financial officer , principal accounting officer and member of the board of directors roula jarjour vice president and a member of the board march 28 , 2016 roula jarjour of directors george jarjour chief operating officer and a member of the board march 28 , 2016 george jarjour of directors charles carafoli member of the board of directors march 28 , 2016 charles carafoli member of the board of directors march _ , 2016 father gregory ofiesh -36- exhibit index replace_table_token_16_th -37- replace_table_token_17_th -38- story_separator_special_tag this section of this annual report includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance . forward-looking statements are often identified by words like : believe , expect , estimate , anticipate , intend , project and similar expressions , or words which , by their nature , refer to future events . you should not place undue certainty on these forward-looking statements , which apply only as of the date of our prospectus . these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions . overview we were formed for the purpose of selling products in our retail stores located throughout the united states . we are currently only operating our ecommerce website . our financial statements were prepared on a going concern basis , which assumes that we will be able to realize assets and discharge liabilities in the normal course of business . the ability to continue as a going concern is dependent on the company 's ability to generate profitable operations in the future , to maintain adequate financing , and to achieve a positive cash flow . there is no assurance it will be able to meet any or all of such goals . story_separator_special_tag 12.55pt '' / > overview we recognize revenue when persuasive evidence of an arrangement exists , we have delivered the product or performed the service , the fee is fixed or determinable and collection is reasonably assured . if any of these criteria are not met , we defer recognizing the revenue until such time as all criteria are met . determination of whether or not these criteria have been met may require us to make judgments , assumptions and estimates based upon current information and historical experience
| the increased losses of $ 556,922 were primarily due to the increase of stock based compensation from the year ended in october 31 , 2014 to the year ended in october 31 , 2015. liquidity and capital resources as of october 31 , 2015 , we had a working capital deficit of $ 293,878 as compared to a working capital deficit of $ 40,405 as of october 31 , 2014. in the past we have relied on sales of our equity to raise funds for our working capital requirements , as well as loans from our majority stockholder . we will need to raise additional capital in order to implement our business plan and will seek to sell additional equity and or debt to accomplish this objective . there can be no assurance that we will be able to raise funds sufficient to carry out our business plan , or that if funds are available to us that they will be on acceptable terms . operating activities cash used in operations of $ 545,583 during the year ended october 31 , 2015 was primarily a result of our $ 1,615,362 net loss reconciled with our net non-cash expenses relating to change in assets and accounts payable and accrued expenses . cash used in operations of $ 545,583 during the year ended october 31 , 2014 was primarily a result of our $ 1,615,362 net loss reconciled with our net non-cash expenses relating to loss on abandoned property and no inventory . investing activities during the year ended october 31 , 2015 and 2014 , we had no investing activities . financing activities during the year ended october 31 , 2015 , we generated proceeds of $ 311,180 from the sale of restricted shares of common stock to investors . seasonality results we do not expect to experience any seasonality in our operating results . going concern we have not attained profitable operations and are dependent upon obtaining financing to pursue our business plan and activities . for these reasons , our auditors stated in their report on our audited financial statements that they have substantial doubt that we will be able to continue as a going concern without further financing . off-balance sheet arrangements we currently do not have any off-balance sheet arrangements or financing activities with special purpose entities . -10- principles of consolidation the consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of
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as of september 30 , 2016 , ashland owned 170 million shares of valvoline common stock , representing approximately 83 % of the total outstanding shares of valvoline common stock . the contribution of the valvoline business by ashland to valvoline inc. was treated as a reorganization of entities under common ashland control . as a result , the consolidated financial position and results of operations of valvoline inc. and its subsidiaries has been retrospectively presented for all periods presented . reportable segments valvoline 's reporting structure is principally composed of three reportable segments : core north america , quick lubes and international . additionally , certain corporate and other costs are included in an unallocated and other segment . sales by each reportable segment expressed as a percentage of total consolidated sales were as follows : replace_table_token_7_th 26 core north america the core north america business segment sells valvoline and other branded products in the united states and canada to both consumers who perform their own automotive maintenance , referred to as “ do-it-yourself ” or “ diy ” consumers , as well as to installer customers who use valvoline 's products to service vehicles owned by “ do-it-for-me ” or “ difm ” consumers . valvoline sells to diy consumers through over 30,000 retail outlets , such as autozone , advance auto parts and o'reilly auto parts , as well as leading mass merchandisers and independent auto parts stores . valvoline sells to difm consumers through installers who collectively operate over 12,000 locations in the united states and canada . installer customers include car dealers , general repair shops and third-party quick lube chains . valvoline directly serves these customers with its sales force and fulfillment capabilities , through retailers such as napa , and a network of approximately 140 distributors . valvoline 's key installer customers include large national accounts such as goodyear , monro , express oil change , tbc retail group and sears . the installer channel team also sells branded products and solutions to heavy duty customers such as on-highway fleets and construction companies , and valvoline has a strategic relationship with cummins for co-branding products in the heavy duty business . quick lubes the quick lubes business segment services the passenger car and light truck quick lube market through two platforms : company-owned and franchised vioc stores , which valvoline believes comprise the industry 's best retail quick lube service chain ; and express care , a quick lube customer platform developed for independent operators who purchase valvoline motor oil and other products pursuant to contracts while displaying valvoline branded signage . vioc provides fast , trusted service through 726 franchised and 342 company-owned stores . the vioc stores provide a broad range of preventive maintenance services , including full-service oil changes , oem mileage-based services ( transmission , radiator and gear box fluid exchange services ) , tire rotations , fuel system services and seasonal air conditioning coolant replacement services . vioc company-owned stores have had ten years of consecutive same-store sales growth . valvoline has historically determined same-store sales growth on a fiscal year basis , with new stores excluded from the metric until the completion of their first full fiscal year in operation . vioc franchisees have also enjoyed strong results and also have achieved ten years of consecutive same-store sales growth . valvoline also sells its products and provides valvoline branded signage to independent quick lube operators through the express care program . the express care platform has been designed to support smaller ( typically single store ) operators that do not fit the franchised model and typically offer other non-quick lube services such as auto repair and car washes . international the international business segment sells valvoline and valvoline 's other branded products in approximately 140 countries . valvoline 's key international markets include china , india , latin america , australia pacific and emea . valvoline has significant overall market share in india and australia and a growing presence in a number of markets , with primary growth targets being china , india and select countries within latin america . the international business segment sells products for both consumer and commercial vehicles and equipment , and is served by company-owned manufacturing facilities in the united states , australia and the netherlands , a joint venture-owned facility in india and third-party warehouses and toll manufacturers in other regions . valvoline 's heavy duty products are used in a wide variety of heavy duty equipment , including on-road trucks and buses , agricultural equipment , construction and mining equipment , and power generation equipment . valvoline goes to market in its international business in three ways : ( 1 ) through its local sales , marketing and back office support teams , which valvoline refers to as “ wholly owned affiliate markets ” ; ( 2 ) through joint ventures ; and ( 3 ) through independent distributors . in the wholly owned affiliate markets , valvoline has a direct presence and maintains the sales and marketing teams required to build effective channels . valvoline also has 50/50 joint ventures with cummins in india and china and smaller joint ventures in select countries in latin america and asia . in other countries , valvoline goes to market via independent distributors , which provide access to these geographies with limited capital investment . unallocated and other segment unallocated and other generally includes items such as components of pension and other postretirement benefit plan expenses ( excluding service costs , which are allocated to the reportable segments ) , certain significant company-wide restructuring activities including costs associated with the separation from ashland and legacy costs . story_separator_special_tag acquisitions and divestitures oil can henry 's acquisition on december 11 , 2015 , ashland announced that it signed a definitive agreement for valvoline to acquire och international , inc. ( “ oil can henry 's ” ) , which was the 13 th largest quick-lube network in the united states , servicing approximately 1 million vehicles annually with 89 quick-lube stores , 47 of which were company-owned and 42 of which were franchise locations , in oregon , washington , california , arizona , idaho and colorado . on february 1 , 2016 , ashland completed the acquisition . 27 the acquisition of oil can henry 's is reported within the quick lubes reportable segment . the total purchase price , net of cash acquired , for the acquisition of oil can henry 's was $ 62 million . see note 3 of notes to consolidated financial statements for additional information on this acquisition . car care products divestiture during 2015 , ashland entered into a definitive sale agreement to sell valvoline 's car care products within the core north america reportable segment for $ 24 million , which included car brite and eagle one automotive appearance products . prior to the sale , valvoline recognized a loss of $ 26 million before tax in 2015 to recognize the assets at fair value less cost to sell . the loss is reported within the net loss on acquisition and divestiture caption within the consolidated statements of comprehensive income . the transaction closed on june 30 , 2015 and valvoline received net proceeds of $ 19 million after adjusting for certain customary closing costs and final working capital amounts . venezuela equity method investment divestiture during 2015 , valvoline sold the equity method investment in venezuela within the international reportable segment . prior to the sale , valvoline recognized a $ 14 million impairment in 2015 , for which there was no tax effect , within the equity and other income caption of the consolidated statements of comprehensive income . valvoline 's decision to sell the equity investment and the resulting impairment charge recorded during 2015 was a result of the continued devaluation of the venezuelan currency ( bolivar ) based on changes to the venezuelan currency exchange rate mechanisms during the fiscal year . in addition , the continued lack of exchangeability between the venezuelan bolivar and u.s. dollar had restricted the equity method investee 's ability to pay dividends and obligations denominated in u.s. dollars . these exchange regulations and cash flow limitations , combined with other recent venezuelan regulations and the impact of declining oil prices on the venezuelan economy , had significantly restricted valvoline 's ability to conduct normal business operations through the joint venture arrangement . certain factors affecting financial condition and results of operations pension and other postretirement plan liabilities in connection with valvoline 's separation from ashland , the company assumed pension and postretirement benefit obligations and plan assets , of which a substantial portion relates to the u.s. pension and other postretirement plans . the unfunded portion of the pension and postretirement obligations at september 30 , 2016 was approximately $ 900 million . before the transfer , these plans were accounted for by valvoline as multi-employer plans in accordance with u.s. gaap , which provided that an employer that participates in a multi-employer defined benefit plan is required to recognize its expense associated with the plan and is not required to report a liability beyond the contributions currently due and unpaid by the plan . therefore , in prior periods , no assets or liabilities relative to these retirement plans have been included in the consolidated balance sheets . amounts recognized within the consolidated statements of comprehensive income for multi-employer defined benefit pension and other postretirement plans include an allocation to valvoline on a ratable basis of the net actuarial gains and losses on an annual basis or whenever a plan is determined to qualify for a remeasurement . as announced by ashland in march 2016 , the accrual of pension benefits for participants was frozen effective september 30 , 2016. additionally , ashland reduced retiree life benefits effective october 1 , 2016 and will reduce retiree medical and dental benefits january 1 , 2017. the net effect of these plan changes resulted in a curtailment of benefits requiring a remeasurement of the benefit obligation and plan assets . during 2016 , valvoline recognized a gain of $ 18 million within the consolidated statements of comprehensive income as a result of the plan remeasurements . the following details the components of the remeasurement impact : ( in millions ) loss ( gain ) march 2016 remeasurement ( a ) ( b ) $ 5 august 2016 remeasurement ( a ) 19 year-end remeasurement ( c ) ( 42 ) total 2016 remeasurement gain $ ( 18 ) ( a ) these remeasurements were allocations to valvoline accounted for under a multi-employer accounting model . ( b ) the components of the march 2016 remeasurement were a curtailment gain of $ 18 million and an actuarial loss of $ 23 million . ( c ) this remeasurement is the year end remeasurement subsequent to the transfer of the plans to valvoline . as a result of the transfer of the plans to valvoline , these plans are now accounted for by valvoline as single-employer plans where valvoline records the full impact of remeasurements . this gain is the result of a $ 35 million gain resulting from a change in the discount rate and other actuarial assumptions and a $ 31 million gain resulting from a change in mortality assumptions partially offset by $ 24 million in actual losses on plan assets exceeding the expected return on plan assets . for additional information on key assumptions and actual plan asset performance in each year , see “ critical accounting policies-employee benefit obligations-actuarial assumptions.
| these items are summarized as follows : income of $ 18 million in 2016 and expense of $ 46 million and $ 61 million in 2015 and 2014 , respectively , from the pension and other postretirement plans remeasurement adjustments ; separation costs of $ 6 million in 2016 ; and $ 14 million impairment related to the joint venture equity investment within venezuela during 2015. operating income for 2016 , 2015 , and 2014 included depreciation and amortization of $ 38 million , $ 38 million and $ 37 million , respectively . ebitda and adjusted ebitda ebitda totaled $ 468 million , $ 335 million , and $ 301 million for 2016 , 2015 , and 2014 , respectively . adjusted ebitda totaled $ 457 million , $ 421 million , and $ 368 million for 2016 , 2015 , and 2014 , respectively . for a reconciliation of ebitda and adjusted ebitda to net income , see “ results of operations-consolidated review-use of non-gaap measures ” . the increase in adjusted ebitda was primarily due to an increase in adjusted ebitda in the core north america and quick lubes reportable segments , while the international reportable segment 's adjusted ebitda decreased from the prior year primarily due to the negative impact of foreign currency exchange . core north america 's adjusted ebitda increased $ 11 million , or 5 % , compared to 2015 , primarily as a result of a favorable product mix with an increase in the percentage of sales for premium lubricants and increased volumes and lower raw material costs , specifically relating to the price of base oil , which increased gross profit . quick lubes ' adjusted ebitda increased $ 23 million , or 21 % , compared to 2015. approximately $ 8 million of the adjusted ebitda increase for quick lubes ' was related to a recent acquisition , while the remainder of the improvement was the result of increased volumes and lower raw material costs , specifically relating to the price of base oil , which increased gross profit . adjusted ebitda for international decreased $ 5 million , or 6 % , compared to 2015 , primarily due to the negative impact of foreign currency exchange . consolidated statements of comprehensive income – caption review fiscal years ended september 30 , 2016 , 2015 and 2014 a comparative analysis of the consolidated statements of comprehensive income by caption is provided as follows for the years ended september 30 , 2016 , 2015 and 2014. replace_table_token_9_th the following table provides
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the provision for warranty expense is generally established for specific losses , along with historical estimates of customer claims as a percentage of sales , which can cause variability in warranty expense between quarters . warranty expense was $ 28.9 million in 2016 compared to $ 35.4 million in 2015. operating expenses the following table shows our operating expenses : replace_table_token_14_th total operating expenses were 15.9 % and 13.4 % of sales for 2016 and 2015 , respectively . selling , general , and administrative expenses increased $ 24.4 million , or 7.0 % , primarily due to $ 38.9 million of costs related to the faiveley acquisition and $ 5.4 million in costs related to restructuring activity . these costs were partially offset by lower incentive and non-cash compensation expense and the effects of foreign exchange . engineering expense was consistent with the prior year . amortization expense increased $ 1.0 million due to amortization of intangibles associated with acquisitions . 30 the following table shows our segment operating expenses : replace_table_token_15_th freight segment operating expenses decreased $ 26.1 million , or 12.5 % , in 2016 and increased 160 basis points to 11.8 % of sales . the decrease is primarily attributable to reduced sales volumes and realized benefits associated with the cost saving initiatives undertaken in 2016 partially offset by $ 8.8 million of incremental operating expenses from acquisitions . transit segment operating expenses increased $ 20.2 million , or 9.8 % , in 2016 and decreased 10 basis points to 16.3 % of sales . the increase is primarily related to $ 26.2 million of incremental operating expenses related to acquisitions and $ 7.1 million related to the faiveley transport transaction . this increase is partially offset by lower operating expenses due to foreign exchange . corporate non-allocated operating expenses increased $ 31.5 million in 2016 primarily due to $ 31.8 million of costs related to the faiveley acquisition partially offset by realized benefits from cost saving initiatives in 2016. interest expense , net overall interest expense , net , increased $ 25.7 million in 2016 due to a higher overall debt balance in 2016 compared to 2015 , primarily related to the faiveley transport acquisition and $ 14.9 million of debt refinancing costs . refer to note 8 of `` notes to condensed consolidated financial statements '' included in part iv , item 15 of this report for additional information on debt . other expense , net other expense , net , decreased $ 2.3 million to $ 3.0 million for 2016 , compared to 2015 primarily due to foreign exchange adjustments . income taxes the effective income tax rate was 24.1 % and 31.9 % in 2016 and 2015 , respectively . the decrease in the effective rate is primarily the result of an enacted tax rate change which reduces the corporate income tax rate in france and a higher earnings mix in lower tax rate jurisdictions , partially offset by 2016 transaction charges related to the acquisition of faiveley transport that are not deductible . 31 liquidity and capital resources liquidity is provided by operating cash flow and borrowings under the company 's unsecured credit facility with a consortium of commercial banks . the following is a summary of selected cash flow information and other relevant data : replace_table_token_16_th operating activities . cash provided by operations in 2017 was $ 188.8 million compared with $ 450.5 million in 2016 . in comparison to 2016 , cash provided by operations decreased due to unfavorable working capital performance and lower net income of $ 51.1 million . the major components of working capital were as follows : an unfavorable change of $ 88.4 million in accounts receivable primarily due to higher sales , an unfavorable change in accounts payable of $ 72.8 million due to the timing of payments to suppliers , an unfavorable change of $ 25.4 million in other assets and liabilities primarily due to an unfavorable change in accrued liabilities due to payments related to contract liabilities , accrued expenses , and acquisition costs in 2017 , and an unfavorable change in inventory of $ 54.3 million due to efforts to ramp up production in anticipation of stronger product demand in 2018. cash provided by operations in 2016 was $ 450.5 million compared with $ 450.8 million in 2015 . in comparison to 2015 , cash provided by operations in 2016 changed due to favorable working capital requirements partially offset by lower operating results . the favorable working capital requirements primarily related to a $ 57.7 million favorable change in accounts payable principally due to the timing of payments , $ 25.2 million favorable change in inventory driven by successful efforts to control the amount of inventory on hand . 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 . investing activities . in 2017 , 2016 and 2015 , cash used in investing activities was $ 275.7 million , $ 775.1 million and $ 380.1 million , respectively . the major components of the cash outflow in 2017 were planned additions to property , plant , and equipment of $ 89.5 million for continued investments in our facilities and manufacturing processes and $ 921.5 million in net cash paid for acquisitions . these outflows were partially offset by $ 734.0 million in cash released from escrow related to the faiveley acquisition . this compares to $ 50.2 million for property , plant , and equipment and $ 183.1 million in net cash paid for acquisitions in 2016 . additionally in 2016 , $ 744.7 million of cash was deposited into escrow to finance the purchase of 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 story_separator_special_tag the provision for warranty expense is generally established for specific losses , along with historical estimates of customer claims as a percentage of sales , which can cause variability in warranty expense between quarters . warranty expense was $ 28.9 million in 2016 compared to $ 35.4 million in 2015. operating expenses the following table shows our operating expenses : replace_table_token_14_th total operating expenses were 15.9 % and 13.4 % of sales for 2016 and 2015 , respectively . selling , general , and administrative expenses increased $ 24.4 million , or 7.0 % , primarily due to $ 38.9 million of costs related to the faiveley acquisition and $ 5.4 million in costs related to restructuring activity . these costs were partially offset by lower incentive and non-cash compensation expense and the effects of foreign exchange . engineering expense was consistent with the prior year . amortization expense increased $ 1.0 million due to amortization of intangibles associated with acquisitions . 30 the following table shows our segment operating expenses : replace_table_token_15_th freight segment operating expenses decreased $ 26.1 million , or 12.5 % , in 2016 and increased 160 basis points to 11.8 % of sales . the decrease is primarily attributable to reduced sales volumes and realized benefits associated with the cost saving initiatives undertaken in 2016 partially offset by $ 8.8 million of incremental operating expenses from acquisitions . transit segment operating expenses increased $ 20.2 million , or 9.8 % , in 2016 and decreased 10 basis points to 16.3 % of sales . the increase is primarily related to $ 26.2 million of incremental operating expenses related to acquisitions and $ 7.1 million related to the faiveley transport transaction . this increase is partially offset by lower operating expenses due to foreign exchange . corporate non-allocated operating expenses increased $ 31.5 million in 2016 primarily due to $ 31.8 million of costs related to the faiveley acquisition partially offset by realized benefits from cost saving initiatives in 2016. interest expense , net overall interest expense , net , increased $ 25.7 million in 2016 due to a higher overall debt balance in 2016 compared to 2015 , primarily related to the faiveley transport acquisition and $ 14.9 million of debt refinancing costs . refer to note 8 of `` notes to condensed consolidated financial statements '' included in part iv , item 15 of this report for additional information on debt . other expense , net other expense , net , decreased $ 2.3 million to $ 3.0 million for 2016 , compared to 2015 primarily due to foreign exchange adjustments . income taxes the effective income tax rate was 24.1 % and 31.9 % in 2016 and 2015 , respectively . the decrease in the effective rate is primarily the result of an enacted tax rate change which reduces the corporate income tax rate in france and a higher earnings mix in lower tax rate jurisdictions , partially offset by 2016 transaction charges related to the acquisition of faiveley transport that are not deductible . 31 liquidity and capital resources liquidity is provided by operating cash flow and borrowings under the company 's unsecured credit facility with a consortium of commercial banks . the following is a summary of selected cash flow information and other relevant data : replace_table_token_16_th operating activities . cash provided by operations in 2017 was $ 188.8 million compared with $ 450.5 million in 2016 . in comparison to 2016 , cash provided by operations decreased due to unfavorable working capital performance and lower net income of $ 51.1 million . the major components of working capital were as follows : an unfavorable change of $ 88.4 million in accounts receivable primarily due to higher sales , an unfavorable change in accounts payable of $ 72.8 million due to the timing of payments to suppliers , an unfavorable change of $ 25.4 million in other assets and liabilities primarily due to an unfavorable change in accrued liabilities due to payments related to contract liabilities , accrued expenses , and acquisition costs in 2017 , and an unfavorable change in inventory of $ 54.3 million due to efforts to ramp up production in anticipation of stronger product demand in 2018. cash provided by operations in 2016 was $ 450.5 million compared with $ 450.8 million in 2015 . in comparison to 2015 , cash provided by operations in 2016 changed due to favorable working capital requirements partially offset by lower operating results . the favorable working capital requirements primarily related to a $ 57.7 million favorable change in accounts payable principally due to the timing of payments , $ 25.2 million favorable change in inventory driven by successful efforts to control the amount of inventory on hand . 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 . investing activities . in 2017 , 2016 and 2015 , cash used in investing activities was $ 275.7 million , $ 775.1 million and $ 380.1 million , respectively . the major components of the cash outflow in 2017 were planned additions to property , plant , and equipment of $ 89.5 million for continued investments in our facilities and manufacturing processes and $ 921.5 million in net cash paid for acquisitions . these outflows were partially offset by $ 734.0 million in cash released from escrow related to the faiveley acquisition . this compares to $ 50.2 million for property , plant , and equipment and $ 183.1 million in net cash paid for acquisitions in 2016 . additionally in 2016 , $ 744.7 million of cash was deposited into escrow to finance the purchase of 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
| transit segment sales increased by $ 1,097.1 million , or 79.0 % , primarily due to an increase in sales from acquisitions of $ 1,035.1 million with the majority related to the faiveley transport acquisition . additionally , transit products sales increased $ 45.5 million from increased demand in original train doors , air conditioning systems , and other transit electronics , overhaul & build sales increased $ 10.5 million due to an increase in transit overhaul demand , and specialty products & electronics sales increased $ 8.5 million due to increased demand for transit train control and signaling products and services . unfavorable foreign exchange decreased sales by $ 6.4 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_8_th cost of sales increased by $ 809.5 million to $ 2,816.4 million in 2017 compared to $ 2,006.9 million in the same period of 2016 . for the twelve months ended 2017 , cost of sales as a percentage of sales was 72.5 % compared to 68.4 % in the same period of 2016 . the increase as a percentage of sales is due to product mix largely attributable to higher transit segment sales due to acquisitions , along with an unfavorable product mix within the freight segment . also contributing to the increase were higher project adjustments of $ 44.5 million recorded on certain existing contracts and $ 11.8 million of restructuring and integration costs related to recent acquisitions . freight segment cost of sales increased 2.5 % as a percentage of sales to 68.3 % in 2017 compared to 65.8 % for the same period of 2016. the increase is primarily related to lower demand for freight original equipment rail products and train control and signaling products and services which typically offer a higher margin , higher project adjustments of $ 6.9 million on certain existing
| 12,505 |
as customer demand started to return to normal levels , instrument system sales increased 3 % in the second half of 2020 as compared to the prior year period , after having declined 22 % in the first half of 2020 compared to the prior year period . in 2019 , the decrease in instrument system sales was primarily driven by weaker demand for our products by our customers due to uncertainty caused by macroeconomic conditions and governmental policy changes . foreign currency translation increased instrument system sales by 1 % in 2020 and decreased sales by 1 % in 2019. recurring revenues ( combined sales of precision chemistry consumables and services ) increased 4 % and 3 % in 2020 and 2019 , respectively , as a result of a larger installed base of customers and higher billing demand for service sales . in 2020 , recurring revenues were also impacted by the interruption of business activities and the uncertainty caused by the covid-19 pandemic . as our customers began to resume laboratory and manufacturing operations , recurring revenues increased 10 % in the second half of 2020 as compared to the prior year period , after having declined 3 % in the first half of 2020 compared to the prior year period . recurring revenues were positively impacted by foreign currency translation in 2020 , which increased sales by 1 % ; however foreign currency translation negatively impacted sales by 2 % in 2019. geographically , the sales declines in 2020 were broad-based across the world , except for europe , and were due to the weaker demand and disruption of business activities caused by the covid-19 lockdowns . sales in asia decreased 4 % in 2020 and increased 2 % in 2019 , with foreign currency translation having minimal impact on sales in 2020 and negatively impacting sales by 1 % in 2019. in 2020 , the sales decline in asia was primarily driven by the 8 % decrease in sales in china due to lower demand caused by the covid-19 pandemic . excluding sales in china , the company 's 2020 sales were flat with foreign currency translation positively impacting sales by 1 % . the decline in the company 's sales in 2019 was a result of increased sales in the u.s. , canada , japan and the rest of asia being offset by a decrease in sales in other geographies on weaker demand for our products due to uncertainty caused by macroeconomic conditions , primarily from brexit as well as latin america , and governmental policy changes in china . sales in europe increased 5 % in 2020 and decreased 4 % in 2019 , with foreign currency translation positively impacting sales by 3 % in 2020 and negatively impacting sales by 4 % in 2019. sales in the americas decreased 4 % and 1 % in 2020 and 2019 , respectively , with foreign currency translation having minimal impact on sales in 2020 and negatively impacting sales by 1 % in 2019. sales to pharmaceutical customers increased 2 % and were flat in 2020 and 2019 , respectively , with foreign currency translation positively impacting sales by 1 % in 2020 and negatively impacting sales by 2 % in 2019. combined sales to industrial customers , which include material characterization , food , environmental and fine chemical markets , declined 2 % in both 2020 and 2019 , with foreign currency translation positively impacting sales by 1 % in 2020. the lower volume of sales to both pharmaceutical and industrial customers in 2020 was primarily due to the disruption in business activities caused by covid-19 . similarly , ta sales declined 8 % and 4 % in 2020 and 2019 , respectively . combined sales to academic and governmental customers decreased 16 % in 2020 and increased 2 % in 2019 , with foreign currency translation having minimal impact on sales in 2020 and decreasing sales by 1 % in 2019. the decline in sales to academic and governmental customers in 2020 was due to the lower demand for our products and services as the academic and governmental institutions adjusted their spending during the year to mitigate the effects of the covid-19 pandemic . the most significant decline in academic and governmental sales in 2020 occurred in china where sales declined 31 % due to government-mandated spending reductions . 33 sales to our academic and governmental customers are highly dependent on when institutions receive funding to purchase our instrument systems and , as such , sales can vary significantly from period to period . operating income was $ 645 million in 2020 , a decrease of 9 % as compared to 2019. this decrease can be attributed to the decline in sales volumes caused by the covid-19 pandemic , unfavorable manufacturing absorption and unfavorable foreign currency translation . the operating income decline was somewhat mitigated by a series of cost reduction actions that included salary reductions , furloughs and reductions in non-essential spending that increased operating income by approximately $ 103 million in 2020 versus our operating plan . operating income in 2020 also included $ 27 million of severance-related costs in connection with a reduction in workforce and lease termination and exit costs . operating income decreased 4 % in 2019 as compared to 2018. this decrease can be attributed to lower sales volume , the effect of foreign currency translation and $ 10 million of severance-related costs in connection with a reduction in workforce that occurred in early 2019 , offset by lower variable incentive compensation costs . the company 's effective tax rates were 14.6 % , 12.7 % and 13.0 % for 2020 , 2019 and 2018 , respectively . net income per diluted share was $ 8.36 , $ 8.69 and $ 7.65 in 2020 , 2019 and 2018 , respectively . story_separator_special_tag in 2018 , the company settled a pension plan obligation and incurred a $ 46 million expense which reduced the net income per diluted share by $ 0.39. the company generated $ 791 million , $ 643 million and $ 604 million of net cash flows from operations in 2020 , 2019 and 2018 , respectively . the increase in operating cash flow in 2020 was primarily a result of the $ 103 million reduction in expense from the cost actions implemented and working capital improvements during the year . the increase in operating cash flow in 2019 was primarily a result of payments made in 2018 that did not recur , including $ 103 million of income tax payments made in the u.s. relating to the company 's estimated 2017 transition tax liability and 2018 estimated tax payments , a $ 15 million litigation settlement payment and $ 11 million of contributions to certain defined benefit pension plans . included in the 2020 and 2019 net cash flow from operations is $ 38 million and $ 29 million , respectively , of income tax payments made in the u.s. in relation to the 2017 transition tax liability . over the next two years , the company is required to make annual u.s. federal tax payments of approximately $ 38 million to tax authorities in connection with the company 's estimated remaining transition tax liabilities of $ 365 million under the 2017 tax act . the final 60 % of the total liability is required to be paid over a three-year period beginning in 2023. cash flows used in investing activities included capital expenditures related to property , plant , equipment and software capitalization of $ 172 million , $ 164 million and $ 96 million in 2020 , 2019 and 2018 , respectively . in january of 2020 , the company acquired all of the outstanding stock of andrew alliance , s.a. and its two operating subsidiaries , andrew alliance usa , inc. and andrew alliance france , sasu ( collectively “ andrew alliance ” ) , for $ 80 million , net of cash acquired . the company had an equity investment in andrew alliance that was valued at $ 4 million and included as part of the total consideration . in december 2020 , the company acquired all of the outstanding stock of integrated software solutions pty limited and its two operating subsidiaries , integrated software solutions limited and integrated software solutions usa , llc ( collectively , “ iss ” ) , for $ 4 million , net of cash acquired . neither of these acquisitions had a material effect on the company 's sales and expenses in 2020. the cash flows from investing activities in 2020 also included $ 70 million of capital expenditures related to the expansion of the company 's precision chemistry consumable operations in the u.s. the company has incurred $ 151 million on this facility through the end of 2020 and anticipates spending a total of $ 215 million to build and equip this new state-of-the-art manufacturing facility . in january 2019 , the company 's board of directors authorized the company to repurchase up to $ 4 billion of its outstanding common stock over a two-year period . during 2020 , 2019 and 2018 , the company repurchased 34 0.8 million , 11.1 million and 6.8 million shares of the company 's outstanding common stock at a cost of $ 167 million , $ 2.5 billion and $ 1.3 billion , respectively , under authorized share repurchase programs . as of december 31 , 2020 , the company has a total of $ 1.5 billion authorized for future repurchases . in december 2020 , the company 's board of directors authorized the extension of the share repurchase program through january 21 , 2023. while the company believes that it has the financial flexibility to fund these share repurchases given current cash and investment levels and debt borrowing capacity , as well as to invest in research , technology and business acquisitions to further grow the company 's sales and profits , the company has temporarily suspended its share repurchases due to the uncertain business conditions caused by the covid-19 pandemic . story_separator_special_tag able of contents to a higher installed base of customers respectively , with sales in 2020 being partially offset by the weaker demand and disruption of business activities caused by the covid-19 lockdowns . the effect of foreign currency translation increased waters sales by 1 % in 2020 and decreased sales by 2 % in 2019. in 2020 , waters sales in europe and japan increased 6 % and 2 % , respectively , with foreign currency translation adding 3 % to waters sales growth in europe . waters sales in india increased less than 1 % , while all other geographies ' sales declined with the most significant sales decline occurring in china , which was down 9 % . in 2019 , waters sales increased 2 % in asia , were flat in the americas and decreased 3 % in europe , where the effect of foreign currency decreased sales by 4 % . within asia , waters sales decreased 1 % in china and increased 4 % in japan and 9 % in the rest of asia , excluding india . ta product and services net sales net sales for ta products and services were as follows for the years ended december 31 , 2020 and december 31 , 2019 ( dollars in thousands ) : replace_table_token_8_th ta product and service sales declines in 2020 were primarily due to lower customer demand resulting from the covid-19 pandemic . ta 's instrument system sales declined in 2019 primarily due to lower customer demand resulting from macroeconomic conditions , tariff posturing and political instability . ta service sales increased in 2019 due to sales of service plans and billings to a higher installed base of customers .
| 35 sales by trade class net sales by customer class are presented below for the years ended december 31 , 2020 , 2019 and 2018 ( dollars in thousands ) : replace_table_token_6_th in 2020 , sales to pharmaceutical customers increased 2 % with foreign currency translation positively impacting sales by 1 % . the lower sales volumes to pharmaceutical customers in the first half of 2020 can be attributed to the disruption in business activities caused by covid-19 , despite increased demand for our products and services from certain pharmaceutical customers who are involved with covid-19 diagnostic testing and the development of new drugs and therapies . sales to industrial customers in 2020 declined 2 % , which were significantly impacted by the ta sales declines of 8 % in 2020. the sales declines to academic and governmental customers were broad-based across all product classes as academic and governmental customers adjusted their spending to mitigate the effects of the covid-19 pandemic , which significantly impacted sales in china . in 2019 , sales to pharmaceutical customers were negatively impacted by the effect of foreign currency translation , which decreased sales to pharmaceutical customers by 2 % , as well as a slower release of capital budgets by our customers due to uncertain macroeconomic conditions due to brexit and regulatory changes in our food and pharmaceutical markets in china . offsetting those declines was an increase in the need for global access to prescription drugs and the testing of newer and complex biologic drugs . the decline in sales to industrial customers in 2019 was due to weaker demand for our lc-ms instruments and also a 4 % decline in ta sales . the increase in sales to academic and governmental customers was primarily due to higher instrument system sales . waters products and services net sales net sales for waters products and services were as follows for the years ended december 31 , 2020 , 2019 and 2018 ( dollars in thousands ) : replace_table_token_7_th waters products
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we currently believe we have approximately 5 % market share of the addressable global truck , bus , construction and agriculture end markets . accordingly , we believe we have significant opportunity to grow organically in our end markets . we evaluated our product portfolio in the context of this organic market growth opportunity and our ability to win in the marketplace . our core products are seats , trim and wire harnesses and our complementary products include structures , wipers , mirrors and office seats . we expect to realize some geographic diversification over the planned period toward asia-pacific . we also expect to realize some end market diversification more weighted toward the agriculture market , and to a lesser extent the construction market . we intend to allocate resources consistent with our strategic plan ; and more specifically , consistent with our core and complementary product portfolio , geographic region and end market diversification objectives . as such , we expect to increase our capital spending as we invest in our facilities , sales opportunities , operational excellence initiatives and other activities . although our long-term strategic plan is an organic growth plan , we will consider opportunistic acquisitions to supplement our product portfolio , and to enhance our ability to serve our customers in our geographic end markets . recently issued accounting pronouncements see note 2 to our consolidated financial statements in item 8 in this annual report on form 10-k for a description of recently issued and or adopted accounting pronouncements . 40 consolidated results of operations the table below sets forth certain operating data expressed as a percentage of revenues for the periods indicated ( dollars are in thousands ) : replace_table_token_9_th year ended december 31 , 2014 compared to year ended december 31 , 2013 c onsolidated r esults revenues . on a consolidated basis , revenue increased $ 92.0 million , or 12.3 % , to $ 839.7 million for the year ended december 31 , 2014 compared to $ 747.7 million for the year ended december 31 , 2013. the increase in sales primarily resulted from increased north american md / hd truck production volumes and increased sales into the north american construction and agriculture markets . specifically , the $ 92.0 million revenue increase on a consolidated basis resulted from : a $ 48.7 million , or 15 % , increase primarily in oem north american md/hd truck revenues ; a $ 25.0 million or 17 % increase in north american oem construction revenues ; a $ 6.9 million , or 5 % , increase in aftermarket revenues ; a $ 5.0 million , or 53 % , increase in agriculture revenues ; and a $ 6.4 million , or 5 % , increase in revenues from other markets . gross profit . gross profit increased $ 28.0 million to $ 107.7 million for the year ended december 31 , 2014 from $ 79.5 million for the year ended december 31 , 2013. included in gross profit is cost of revenues which consists primarily of raw materials and purchased components for our products , wages and benefits for our employees and overhead expenses such as manufacturing supplies , facility rent and utilities costs related to our operations . cost of revenues increased $ 64.1 million , or 9.6 % , resulting from an increase in raw material and purchased component costs of $ 51.6 million , wages and benefits of $ 5.9 million and overhead costs of $ 6.6 million . as a percentage of revenues , gross profit increased to 12.8 % for the year ended december 31 , 2014 from 10.7 % for the year ended december 31 , 2013. the increase in gross profit resulted from the increase in sales 41 volume as well as non-recurrence of asset impairments incurred in 2013 amounting to $ 2.7 million . this was offset by a loss of $ 0.8 million on the sale of our norwalk , ohio facility and $ 1.3 million in closure costs of our tigard , oregon facility . selling , general and administrative expenses . selling , general and administrative expenses consist primarily of wages and benefits and other overhead expenses such as marketing , travel , legal , audit , rent and utilities costs , which are not directly or indirectly associated with the manufacturing of our products . selling , general and administrative expense increased $ 0.8 million , or 1.1 % , to $ 72.5 million for the year ended december 31 , 2014 from $ 71.7 million for the year ended december 31 , 2013. the net increase in selling , general and administrative expenses primarily resulted from additional spending incurred in 2014 to support enhancements in the manner to which we go to market , including the development of a product line management infrastructure ; actions to institutionalize our operational excellence efforts ; and the development of a centrally led procurement organization . in addition , during 2013 we incurred expense of $ 2.8 million for third party consulting services , $ 2.5 million of expense related to the change in the company 's executive leadership and $ 1.8 million of expense for employee separations . we did not incur similar charges in the year ended december 31 , 2014. interest expense . interest expense decreased $ 0.4 million to $ 20.7 million for the year ended december 31 , 2014 from $ 21.1 million for the year ended december 31 , 2013. provision ( benefit ) for income taxes . our provision for income taxes increased by $ 7.4 million to $ 5.1 million for the year ended december 31 , 2014 compared to an income tax benefit of $ 2.3 million for the year ended december 31 , 2013. this primarily resulted from the mix of income between our u.s. and non-u.s. locations , and tax valuation allowances established or released during the year . story_separator_special_tag in 2014 , we established a valuation allowances for deferred tax assets associated with certain u.s. state tax net operating loss carry forwards that we have determined are likely to expire before they can be utilized . in addition , tax benefits are not recognized in u.k. , china , ukraine and india where we are subject to valuation allowances . we released valuation allowances in the czech republic and luxemburg that had been established against deferred assets in prior years . for additional information regarding the deviation from statutory income tax refer to note 9 of our consolidated financial statements in item 8 in this annual report on form 10-k. net income ( loss ) attributable to cvg stockholders . net income attributable to cvg stockholders was $ 7.6 million for the year end december 31 , 2014 compared to a loss of $ 12.4 million for the year ended december 31 , 2013. s egment r esults in the fourth quarter of 2014 , two reportable segments were established : the global truck and bus segment ( gtb segment ) and the global construction and agriculture segment ( gca segment ) . each of these segments consists of a number of manufacturing facilities . generally , the facilities in the gtb segment manufacture and sell seats and seating systems ( seats ) , trim systems and components , wipers , mirrors , structures and other products into the md / hd truck and bus markets . generally , the facilities in the gca segment manufacture and sell wire harnesses , seats and other products into the construction and agriculture markets . both segments participate in the aftermarket . certain of our manufacturing facilities manufacture and sell products through both of our segments . each manufacturing facility that sells products through both segments is reflected in the financial results of the segment that has the greatest amount of sales from that manufacturing facility . our segments are more specifically described below . the gtb segment manufactures and sells the following products : seats ; trim ; sleeper boxes ; and cab structures , structural components and body panels . these products are sold primarily to the md / hd truck markets in north america ; seats to the truck and bus markets in asia pacific and europe ; 42 mirrors and wiper systems to the truck , bus , agriculture , construction , rail and military markets in north america ; trim to the recreational and specialty vehicle market in north america ; and aftermarket seats and components into north america . the gca segment manufactures and sells the following products : electronic wire harness assemblies , and seats for commercial , construction , agricultural , industrial , automotive and mining industries in north america , europe and asia pacific ; aftermarket seats and components in europe and asia pacific office seating in europe and asia pacific ; seats to the truck and bus markets in asia pacific and europe ; and wiper systems to the construction and agriculture markets in europe . see note 10 of the notes to consolidated financial statements under item i financial statements and supplementary data for restated financial information by segment for each of the three years ended december 31 , 2014 , 2013 and 2012 , including information on sales and assets by geographic area . global truck and bus segment results replace_table_token_10_th revenues . gtb segment revenues increased $ 60.9 million or 12.9 % to $ 534.1 million for the year ended december 31 , 2014 from $ 473.2 million for the year ended december 31 , 2013. the increase in gtb segment revenues is primarily a result of : a $ 48.0 million , or 16 % , increase primarily in oem north american md/hd truck revenues ; a $ 4.1 million , or 4 % , increase in aftermarket revenues ; a $ 3.4 million , or 13 % , increase in oem bus revenues ; and a $ 5.4 million , or 13 % , increase in revenues from other markets . gross profit . gtb segment gross profit increased $ 21.9 million , or 36.8 % , to $ 81.4 million for the year ended december 31 , 2014 from $ 59.5 million for the year ended december 31 , 2013. included in gross profit is cost of revenues which consists primarily of raw material and purchased component costs for our products , wages and benefits for our employees and overhead expenses such as manufacturing supplies , facility rent and utilities costs related to our operations . cost of revenues increased $ 39.0 million , or 9.4 % , as a result of an increase in raw material and purchased component costs of $ 31.7 million , salaries and benefits of $ 4.7 million and overhead of $ 2.6 million . as a percentage of revenues , gross profit increased to 15.2 % for the year ended december 31 , 2014 from 12.6 % for the year ended december 31 , 2013. the increase in gross profit resulted from the increase in sales volume as well as non-recurrence of machinery and equipment and it asset impairments incurred in 2013 amounting to $ 2.7 million . this was offset by closure costs of $ 1.3 million associated with the closure of our tigard , oregon facility and an impairment charge of $ 0.8 million resulting from the sale of our norwalk , ohio facility . 43 selling , general and administrative expenses . selling , general and administrative expenses consist primarily of wages and benefits and other overhead expenses such as marketing , travel , legal , audit , rent and utilities costs , which are not directly or indirectly associated with the manufacturing of our products .
| as a result , gross profit as a percentage of revenues decreased to 10.7 % for the year ended december 31 , 2013 from 13.6 % for the year ended december 31 , 2012. selling , general and administrative expenses . selling , general and administrative expenses consist primarily of wages and benefits and other expenses such as marketing , travel , legal , audit , rent and utilities costs which are not directly or indirectly associated with the manufacturing of our products . selling , general and administrative expenses were substantially the same at $ 71.7 million for the year ended december 31 , 2013 compared to $ 71.9 million for the year ended december 31 , 2012. cost savings in workforce , bonus and travel totaling $ 7.3 million were offset by $ 7.1 million in costs to change executive leadership , for consulting expenses and for employee separation costs . interest expense . interest expense increased $ 0.2 million to $ 21.1 million for the year ended december 31 , 2013 from $ 20.9 million for the year ended december 31 , 2012 . ( benefit ) provision for income taxes . our benefit for income taxes decreased $ 24.6 million to a benefit of $ 2.3 million for the year ended december 31 , 2013 compared to an income tax benefit of $ 26.9 million for the year ended december 31 , 2012. this decrease in the tax benefit resulted primarily from a non-recurring benefit associated with the release of domestic valuation allowances that resulted in an income tax benefit in 2012 of $ 26.9 million . for additional information regarding the deviation from statutory income tax rates , refer to note 9 of our consolidated financial statements in item 8 in this annual report on form 10-k. net income ( loss ) attributable to cvg stockholders . net loss attributable to cvg stockholders was $ 12.4 million for the year ended december 31 , 2013 compared to net income of $ 50.1 million for the year ended december 31 , 2012. global truck and bus segment results replace_table_token_12_th revenues . gtb segment
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critical accounting policies and estimates the financial statements included in “ item 8. financial statements and supplementary data ” have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . our estimates , judgments and assumptions are continually evaluated based on available information and experiences ; however , actual amounts could differ from those estimates . 23 the following are accounting policies and estimates that involve significant management judgment and can have significant effects on the company 's reported results of operations . the audit & compliance committee of our board of directors has reviewed our disclosure of critical accounting policies and estimates . revenue and earnings recognition for construction contracts revenue and earnings on construction contracts , including construction joint ventures , are recognized under the percentage of completion method using the ratio of costs incurred to estimated total costs . revenue in an amount equal to cost incurred is recognized until there is sufficient information to determine the estimated profit on the project with a reasonable level of certainty . the factors considered in this evaluation include the stage of design completion , the stage of construction completion , the status of outstanding subcontracts or buyouts , certainty of quantities of labor and materials , certainty of schedule and the relationship with the owner . revenue from unapproved change orders is recognized to the extent the related costs have been incurred , the amount can be reliably estimated and recovery is probable . unresolved contract modifications and claims ( “ affirmative claims “ ) to recover additional costs to which the company believes it is entitled under the terms of the customers ' contracts are pending or have been submitted on certain projects . the owners or their authorized representatives and or other third parties may be in partial or full agreement with the modifications or claims , or may have rejected or disagree entirely or partially as to such entitlement . effective january 1 , 2015 , we changed our accounting policy for recognizing revenue associated with affirmative claims with customers and back charges to vendors , designers , and subcontractors . claim revenue is recognized to the extent of costs incurred when it is probable that a claim settlement with a customer will result in additional revenue and the amount can be reasonably estimated . back charges are recognized as a reduction to cost when the estimated recovery is probable and the amount can be reasonably estimated . prior to these changes in accounting policy , we recognized revenue from affirmative claims with customers and non-customers when the claims were settled , generally when a legally binding agreement was signed . we believe these changes in accounting policy are preferable as they more accurately reflect the timing and amount of revenue earned on our projects , as well as providing better comparability to our industry peers . except for contractual back charges , claims against non-customers continue to be recognized when the claims are settled . provisions are recognized in the consolidated statements of operations for the full amount of estimated losses on uncompleted contracts whenever evidence indicates that the estimated total cost of a contract exceeds its estimated total revenue . all contract costs , including those associated with affirmative claims and change orders , are recorded as incurred and revisions to estimated total costs are reflected as soon as the obligation to perform is determined . contract costs consist of direct costs on contracts , including labor and materials , amounts payable to subcontractors , direct overhead costs and equipment expense ( primarily depreciation , fuel , maintenance and repairs ) . all state and federal government contracts and many of our other contracts provide for termination of the contract at the convenience of the party contracting with us , with provisions to pay us for work performed through the date of termination . pre-contract costs are expensed as incurred . the accuracy of our revenue and profit recognition in a given period depends on the accuracy of our estimates of the cost to complete each project . cost estimates for all of our significant projects use a detailed “ bottom up ” approach and we believe our experience allows us to provide materially reliable estimates . there are a number of factors that can contribute to changes in estimates of contract cost and profitability . the most significant of these include : the completeness and accuracy of the original bid ; costs associated with scope changes ; costs of labor and or materials ; extended overhead and other costs due to owner , weather and other delays ; subcontractor performance issues ; changes in productivity expectations ; site conditions that differ from those assumed in the original bid ( to the extent contract remedies are unavailable ) ; changes from original design on design-build projects ; the availability and skill level of workers in the geographic location of the project ; a change in the availability and proximity of equipment and materials ; our ability to fully and promptly recover on claims and back charges for additional contract costs ; and the customer 's ability to properly administer the contract . the foregoing factors , as well as the stage of completion of contracts in process and the mix of contracts at different margins may cause fluctuations in gross profit between periods . significant changes in cost estimates , particularly in our larger , more complex projects , have had , and can in future periods have , a significant effect on our profitability . 24 our contracts with our customers are primarily either “ fixed unit price ” or “ fixed price. story_separator_special_tag ” under fixed unit price contracts , we are committed to provide materials or services required by a project at fixed unit prices ( for example , dollars per cubic yard of concrete placed or cubic yards of earth excavated ) . while the fixed unit price contract shifts the risk of estimating the quantity of units required for a particular project to the customer , any increase in our unit cost over the expected unit cost in the bid , whether due to inflation , inefficiency , faulty estimates or other factors , is borne by us unless otherwise provided in the contract . fixed price contracts are priced on a lump-sum basis under which we bear the risk that we may not be able to perform all the work profitably for the specified contract amount . the percentage of fixed price contracts in our contract backlog was 67.2 % at december 31 , 2015 compared with 71.0 % at december 31 , 2014 . the percentage of fixed unit price contracts in our contract backlog was 28.1 % and 19.9 % at december 31 , 2015 and 2014 , respectively . all other contract types represented 4.7 % and 9.1 % of our contract backlog at december 31 , 2015 and 2014 , respectively . goodwill as of december 31 , 2015 , we had five reporting units in which goodwill was recorded as follows : kenny group construction kenny group large project construction northwest group construction northwest group construction materials california construction the most significant goodwill balances reside in the reporting units associated with the kenny group . we perform impairment tests annually as of november 1 and more frequently when events and circumstances occur that indicate a possible impairment of goodwill . in addition , we evaluate goodwill for impairment if events or circumstances change between annual tests indicating a possible impairment . examples of such events or circumstances include the following : a significant adverse change in legal factors or in the business climate ; an adverse action or assessment by a regulator ; a more likely than not expectation that a segment or a significant portion thereof will be sold ; or the testing for recoverability of a significant asset group within the segment . in performing step one of the goodwill impairment tests , we calculate the estimated fair value of the reporting unit in which the goodwill is recorded using the discounted cash flows and market multiple methods . judgments inherent in these methods include the determination of appropriate discount rates , the amount and timing of expected future cash flows and growth rates , and appropriate benchmark companies . the cash flows used in our 2015 discounted cash flow model were based on five-year financial forecasts , which in turn were based on the 2016-2018 operating plan developed internally by management adjusted for market participant-based assumptions . our discount rate assumptions are based on an assessment of the equity cost of capital and appropriate capital structure for our reporting units . in assessing the reasonableness of our determined fair values of our reporting units , we evaluate the reasonableness of our results against our current market capitalization . after calculating the estimated fair value , we compare the resulting fair value to the net book value of the reporting unit , including goodwill . if the net book value of a reporting unit exceeds its fair value , we measure and record the amount of the impairment loss by comparing the implied fair value of the reporting unit 's goodwill with the carrying amount of that goodwill . the results of our annual goodwill impairment tests , performed in accordance with asc 350 , indicated that the estimated fair values of our reporting units exceeded their net book values ( i.e. , cushion ) by at least 50 % for the reporting units with goodwill . out of the five reporting units with goodwill , the kenny large project construction business is the most susceptible to fluctuations in results depending on awarded work given the large size and limited frequency of awards . while we believe the current cushion for the reporting unit is adequate to absorb these fluctuations , a material decline in job win rates could have a material impact to this reporting unit 's estimated fair value . 25 long-lived assets we review property and equipment and amortizable intangible assets for impairment whenever events or changes in circumstances indicate the net book value of an asset may not be recoverable . recoverability of these assets is measured by comparison of their net book values to the future undiscounted cash flows the assets are expected to generate . if the assets are considered to be impaired , an impairment charge will be recognized equal to the amount by which the net book value of the asset exceeds fair value . we group construction equipment assets at a regional level , which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets . when an individual asset or group of assets are determined to no longer contribute to the vertically integrated asset group , it is assessed for impairment independently . during 2013 and in connection with our eip , we recorded $ 14.7 million in restructuring charges related to non-performing quarry sites and incurred $ 3.2 million in lease termination charges , both related to the construction materials segment . in addition , during 2013 as part of the eip we recorded $ 31.1 million of restructuring charges , including amounts attributable to non-controlling interests of $ 3.9 million , related to consolidated real estate assets . during 2015 , we recorded restructuring gains of $ 5.0 million , including amounts attributable to non-controlling interests of $ 3.3 million , and $ 1.0 million from the sale of the consolidated real estate assets and the sale of a previously impaired quarry site , respectively .
| replace_table_token_10_th construction materials revenue for the year ended december 31 , 2015 increased $ 31.9 million , or 12.1 % , when compared to the year ended december 31 , 2014 primarily due to increased unit sales volumes from stronger economic drivers in most of the western states where we operate our plant facilities , partially offset by volume decreases in other western states . 28 contract backlog our contract backlog consists of the unearned revenue on awarded contracts , including 100 % of our consolidated joint venture contracts and our proportionate share of unconsolidated joint venture contracts . we generally include a project in our contract backlog at the time it is awarded and to the extent we believe funding is probable . certain federal government contracts where funding is appropriated on a periodic basis are included in contract backlog at the time of the award . existing contracts that include unexercised contract options and unissued task orders are included in contract backlog as task orders are issued or options are exercised as further described in “ contract backlog ” under “ item 1. business ” . substantially all of the contracts in our contract backlog may be canceled or modified at the election of the customer ; however , we have not been materially adversely affected by contract cancellations or modifications in the past . the following tables illustrate our contract backlog as of the respective dates : replace_table_token_11_th replace_table_token_12_th 1 for the periods presented , all construction contract backlog is related to contracts with public agencies . construction contract backlog of $ 860.7 million at december 31 , 2015 was $ 147.7 million , or 20.7 % , higher than at december 31 , 2014 . the increase was primarily due to improved success rate of bidding activity in the northwest , heavy civil and kenny operating groups , partially offset by progress on existing projects in the california operating group without receiving new awards . significant new awards during 2015 in the northwest , heavy civil and kenny operating groups included a $ 71.9 million dam project in texas , a $ 60.3 million interstate reconstruction project in illinois and
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in the global components business segment , sales for 2012 decreased 10.0 % compared with the year-earlier period primarily due to a decline in demand for products due to weaker economic conditions in the americas , emea , and asia pacific regions and by the impact of a stronger u.s. dollar on the translation of the company 's international financial statements offset , in part , by the impact of recently acquired businesses . adjusted for the impact of changes in foreign currencies and acquisitions , and the aforementioned change in presentation of sales , the company 's global components business segment sales decreased by 6.8 % in 2012 , compared with the year-earlier period . in the global ecs business segment , sales for 2012 increased 7.8 % due to higher demand for products in both the north america and emea regions . the increase in sales for 2012 was driven by growth in services , storage , and software , offset , in part , by a 23 decline in servers . adjusted for the impact of changes in foreign currencies and acquisitions , the company 's global ecs business segment sales increased by 6.1 % in 2012 , compared with the year-earlier period . gross profit following is an analysis of gross profit for the years ended december 31 ( in millions ) : replace_table_token_7_th the company recorded gross profit of $ 2.79 billion and $ 2.74 billion for 2013 and 2012 , respectively . the increase in gross profit was primarily due to the aforementioned 4.7 % increase in sales during 2013 . gross profit margins for 2013 decreased by approximately 30 basis points , compared with the year-earlier period primarily due to a change in mix of products and to a lesser extent competitive pricing pressure . the aforementioned change in presentation of sales had no impact on gross profit dollars but positively impacted the gross profit margin percentage by approximately 10 basis points for 2013 . adjusted for the impact of changes in foreign currencies and acquisitions , and the aforementioned change in presentation of sales , the company 's consolidated gross profit margin decreased approximately 60 basis points in 2013 , compared with the year-earlier period . following is an analysis of gross profit for the years ended december 31 ( in millions ) : replace_table_token_8_th the company recorded gross profit of $ 2.74 billion and $ 2.95 billion for 2012 and 2011 , respectively . the decrease in gross profit was primarily due to the aforementioned 4.6 % decrease in sales during 2012 . gross profit margins for 2012 decreased by approximately 40 basis points , compared with the year-earlier period . the aforementioned change in presentation of sales had no impact on gross profit dollars but positively impacted the gross profit margin percentage by approximately 20 basis points for 2012 . adjusted for the impact of changes in foreign currencies and acquisitions , and the aforementioned change in presentation of sales , the company 's consolidated gross profit margin decreased approximately 100 basis points in 2012 , principally due to increased competitive pricing pressure in both the company 's business segments and , to a lessor extent , a change in the mix of products . 24 selling , general , and administrative expenses and depreciation and amortization following is an analysis of operating expenses for the years ended december 31 ( in millions ) : replace_table_token_9_th selling , general , and administrative expenses increased by $ 24.1 million , or 1.3 % , in 2013 , on a sales increase of 4.7 % , compared with the year-earlier period . selling , general , and administrative expenses , as a percentage of sales , was 8.8 % and 9.1 % for 2013 and 2012 , respectively . depreciation and amortization expense for 2013 increased by $ 15.8 million , or 13.7 % , compared with the year-earlier period , primarily due to increased depreciation associated with the company 's erp initiative . included in depreciation and amortization expense for 2013 and 2012 was $ 36.8 million ( $ 29.3 million net of related taxes or $ .29 and $ .28 per share on a basic and diluted basis , respectively ) and $ 36.5 million ( $ 29.3 million net of related taxes or $ .27 and $ .26 per share on a basic and diluted basis , respectively ) , respectively , related to identifiable intangible asset amortization . adjusted for the impact of changes in foreign currencies and acquisitions , operating expenses ( which include both selling , general , and administrative expenses and depreciation and amortization expense ) for 2013 decreased 1.4 % , on a sales increase , as adjusted , of 3.0 % , due to the company 's ability to efficiently manage operating costs . following is an analysis of operating expenses for the years ended december 31 ( in millions ) : replace_table_token_10_th selling , general , and administrative expenses decreased $ 43.1 million , or 2.3 % , in 2012 , on a sales decrease of 4.6 % , compared with the year-earlier period . selling , general , and administrative expenses , as a percentage of sales , was 9.1 % and 8.8 % , for 2012 and 2011 , respectively . the dollar decrease in selling , general , and administrative expenses was primarily due to the company 's efforts to streamline and simplify processes and to reduce expenses in response to the decline in sales . this was offset , in part , by selling , general , and administrative expenses for certain recent acquisitions which have a higher operating cost structure relative to the company 's other businesses which is offset by higher gross profit margins for those businesses . depreciation and amortization expense for 2012 increased by $ 11.9 million , or 11.5 % , compared with the year-earlier period , primarily due to increased depreciation associated with the company 's erp initiative and increased depreciation and amortization associated with acquisitions . story_separator_special_tag included in depreciation and amortization expense for 2012 and 2011 was $ 36.5 million ( $ 29.3 million net of related taxes or $ .27 and $ .26 per share on a basic and diluted basis , respectively ) and $ 35.4 million ( $ 27.1 million net of related taxes or $ .24 and $ .23 per share on a basic and diluted basis , respectively ) , respectively , related to identifiable intangible asset amortization . 25 adjusted for the impact of changes in foreign currencies and acquisitions , operating expenses ( which include both selling , general , and administrative expenses and depreciation and amortization expense ) for 2012 decreased 3.6 % , on a sales decrease , as adjusted , of 2.6 % , due to the company 's ability to efficiently manage operating costs . restructuring , integration , and other charges 2013 charges in 2013 , the company recorded restructuring , integration , and other charges of $ 92.7 million ( $ 65.6 million net of related taxes or $ .64 and $ .63 per share on a basic and diluted basis , respectively ) . included in the restructuring , integration , and other charges for 2013 is a restructuring charge of $ 79.9 million related to initiatives taken by the company to improve operating efficiencies . also included in the restructuring , integration , and other charges for 2013 is a charge of $ .8 million related to restructuring and integration actions taken in prior periods and acquisition-related expenses of $ 11.9 million . the restructuring charge of $ 79.9 million in 2013 includes personnel costs of $ 66.2 million , facilities costs of $ 12.6 million , and other costs of $ 1.1 million . the personnel costs are related to the elimination of approximately 870 positions within the global components business segment and approximately 310 positions within the global ecs business segment . the facilities costs are related to exit activities for 38 vacated facilities worldwide due to the company 's continued efforts to streamline its operations and reduce real estate costs . these restructuring initiatives are due to the company 's continued efforts to lower cost and drive operational efficiency . 2012 charges in 2012 , the company recorded restructuring , integration , and other charges of $ 47.4 million ( $ 30.7 million net of related taxes or $ .28 per share on both a basic and diluted basis ) . included in the restructuring , integration , and other charges for 2012 is a restructuring charge of $ 43.3 million related to initiatives taken by the company to improve operating efficiencies . also included in the restructuring , integration , and other charges for 2012 is a charge of $ 1.4 million related to restructuring and integration actions taken in prior periods and acquisition-related expenses of $ 2.7 million . the restructuring charge of $ 43.3 million in 2012 includes personnel costs of $ 31.3 million , facilities costs of $ 5.4 million , and asset write-downs of $ 6.6 million . the personnel costs are related to the elimination of approximately 505 positions within the global components business segment and approximately 360 positions within the global ecs business segment . the facilities costs are related to exit activities for 14 vacated facilities worldwide due to the company 's continued efforts to streamline its operations and reduce real estate costs . the asset write-downs resulted from the company 's decision to exit certain business activities which caused these assets to become redundant and have no future benefit . these restructuring initiatives are due to the company 's continued efforts to lower cost and drive operational efficiency . 2011 charges in 2011 , the company recorded restructuring , integration , and other charges of $ 37.8 million ( $ 28.1 million net of related taxes or $ .25 and $ .24 per share on a basic and diluted basis , respectively ) . included in the restructuring , integration , and other charges for 2011 is a restructuring charge of $ 23.8 million related to initiatives taken by the company to improve operating efficiencies primarily due to the integration of recently acquired businesses . also included in the restructuring , integration , and other charges for 2011 is a credit of $ .7 million related to restructuring and integration actions taken in prior periods and acquisition-related expenses of $ 14.7 million . the restructuring charge of $ 23.8 million in 2011 primarily includes personnel costs of $ 17.5 million and facilities costs of $ 5.4 million . the personnel costs are related to the elimination of approximately 280 positions within the global components business segment and approximately 240 positions within the global ecs business segment . the facilities costs are related to exit activities for 18 vacated facilities in the americas and emea due to the company 's continued efforts to streamline its operations and reduce real estate costs . these restructuring initiatives are due to the company 's continued efforts to lower cost and drive operational efficiency , primarily related to the integration of recently acquired businesses . as of december 31 , 2013 , the company does not anticipate there will be any material adjustments relating to the aforementioned restructuring plans . refer to note 9 , `` restructuring , integration , and other charges , '' of the notes to the consolidated financial statements for further discussion of the company 's restructuring and integration activities . 26 settlement of legal matters 2012 in connection with the purchase of wyle in august 2000 , the company acquired certain of the then outstanding obligations of wyle , including wyle 's indemnification obligations to the purchasers of its wyle laboratories division for environmental clean-up costs associated with any then existing contamination or violation of environmental regulations . under the terms of the company 's purchase of wyle from the sellers , the sellers agreed to indemnify the company for certain costs associated with the wyle environmental obligations , among other things .
| 21 certain non-gaap financial information in addition to disclosing financial results that are determined in accordance with accounting principles generally accepted in the united states ( `` gaap '' ) , the company also discloses certain non-gaap financial information , including : sales , income , or expense items as adjusted for the impact of changes in foreign currencies ( referred to as `` impact of changes in foreign currencies '' ) and the impact of acquisitions by adjusting the company 's prior periods to include the operating results of businesses acquired , including the amortization expense related to acquired intangible assets , as if the acquisitions had occurred at the beginning of the period presented ( referred to as `` impact of acquisitions '' ) ; sales adjusted for certain items that impact the year-over-year comparison , which includes the aforementioned change in presentation of sales related to certain fulfillment contracts to present these revenues on an agency basis as net fees ( referred to as `` change in presentation of sales '' ) ; operating income as adjusted to exclude identifiable intangible asset amortization , restructuring , integration , and other charges , and settlement of legal matters ; and net income attributable to shareholders as adjusted to exclude identifiable intangible asset amortization , restructuring , integration , and other charges , settlement of legal matters , loss on prepayment of debt , gain on bargain purchase , settlement of certain international tax matters , and reversal of valuation allowance on deferred tax assets . management believes that providing this additional information is useful to the reader to better assess and understand the company 's operating performance , especially when comparing results with previous periods , primarily because management typically monitors the business adjusted for these items in addition to gaap results . however , analysis of results on a non-gaap basis should be used as a complement to , and in conjunction with , data presented in accordance with gaap . sales substantially all of the company 's sales are made on an order-by-order basis , rather than through long-term sales contracts . as such , the nature of the company 's business does not provide for the visibility of material forward-looking information from its customers and suppliers beyond a few months . following is an analysis of net sales by business segment for the
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our ability to continue as a going concern is dependent upon our accomplishment of the plans described in the preceding paragraph and eventually to attain profitable operations . the accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern . if we are unable to obtain adequate capital , we could be forced to cease operations . liquidity and capital resources we have financed our operations since inception primarily through private placements and public offerings of our common stock . as of december 31 , 2019 , we had cash and cash equivalents of $ 16,966,168. net cash used in operating activities was $ 12.7 million and $ 14.7 million for the years ended december 31 , 2019 and december 31 , 2018 , respectively . the decrease in cash used in operating activities during 2019 was primarily due to reduced research and development activities together with lower charges for stock-based compensation offset by increased personnel expenses . net cash used in investing activities was $ 0.5 million and $ 0.3 million for the years ended december 31 , 2019 and december 31 , 2018 , respectively . the increase in cash used in investing activities during 2019 was primarily a result of increased purchases of laboratory equipment for our research and development facility in belgium . net cash provided by financing activities was $ 16.9 million and $ 18.0 million for the years ended december 31 , 2019 and december 31 , 2018 , respectively . the decrease in cash provided by financing activities during 2019 was due to less capital raised from debt and equity financing as well as reduced debt payments during such period . during 2019 , the company received $ 16.6 million in net proceeds from the issuance of common stock plus debt funding of $ 0.9 million , offset by debt payments of $ 0.4 million . the following table summarizes our approximate contractual payments due by year as of december 31 , 2019. replace_table_token_1_th 20 we intend to use our cash reserves to predominantly fund further research and development activities . we do not currently have any substantial source of revenues and expect to rely on additional future financing , through the sale of equity or debt securities , or the sale of licensing rights , to provide sufficient funding to execute our strategic plan . there is no assurance that we will be successful in raising further funds . in the event that additional financing is delayed , we will prioritize the maintenance of our research and development personnel and facilities , primarily in belgium , and the maintenance of our patent rights . in such instance , the completion of clinical validation studies and regulatory approval processes for the purpose of bringing products to the ivd market would be delayed . in the event of an ongoing lack of financing , it may be necessary to discontinue operations , which will adversely affect the value of our common stock . we have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive activities . for these reasons , our auditors stated in their report on our audited financial statements for the fiscal year ended december 31 , 2019 an explanatory paragraph regarding factors that raise substantial doubt that we will be able to continue as a going concern . story_separator_special_tag times new roman ; margin:0 ; color : # 000000 '' > we regularly evaluate the accounting policies and estimates that we use to prepare our consolidated financial statements . a complete summary of these policies is included in the notes to our consolidated financial statements . in general , management 's estimates are based on historical experience , on information from third party professionals , and on various other assumptions that are believed to be reasonable under the facts and circumstances . actual results could differ from those estimates made by management . we consider the following accounting policies to be critical : stock-based compensation the company records stock-based compensation in accordance with asc 718 , “ compensation – stock compensation ” and asc 505-50 , “ equity-based payments to non-employees ” . all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued , whichever is more reliably measurable . equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued and are recognized over the employees required service period , which is generally the vesting period . 23 impairment of long-lived assets in accordance with asc 360 , “ property plant and equipment ” , the company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable . circumstances which could trigger a review include , but are not limited to : significant decreases in the market price of the asset ; significant adverse changes in the business climate or legal factors ; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset ; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset ; and current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life . recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset , as well as specific appraisal in story_separator_special_tag our ability to continue as a going concern is dependent upon our accomplishment of the plans described in the preceding paragraph and eventually to attain profitable operations . the accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern . if we are unable to obtain adequate capital , we could be forced to cease operations . liquidity and capital resources we have financed our operations since inception primarily through private placements and public offerings of our common stock . as of december 31 , 2019 , we had cash and cash equivalents of $ 16,966,168. net cash used in operating activities was $ 12.7 million and $ 14.7 million for the years ended december 31 , 2019 and december 31 , 2018 , respectively . the decrease in cash used in operating activities during 2019 was primarily due to reduced research and development activities together with lower charges for stock-based compensation offset by increased personnel expenses . net cash used in investing activities was $ 0.5 million and $ 0.3 million for the years ended december 31 , 2019 and december 31 , 2018 , respectively . the increase in cash used in investing activities during 2019 was primarily a result of increased purchases of laboratory equipment for our research and development facility in belgium . net cash provided by financing activities was $ 16.9 million and $ 18.0 million for the years ended december 31 , 2019 and december 31 , 2018 , respectively . the decrease in cash provided by financing activities during 2019 was due to less capital raised from debt and equity financing as well as reduced debt payments during such period . during 2019 , the company received $ 16.6 million in net proceeds from the issuance of common stock plus debt funding of $ 0.9 million , offset by debt payments of $ 0.4 million . the following table summarizes our approximate contractual payments due by year as of december 31 , 2019. replace_table_token_1_th 20 we intend to use our cash reserves to predominantly fund further research and development activities . we do not currently have any substantial source of revenues and expect to rely on additional future financing , through the sale of equity or debt securities , or the sale of licensing rights , to provide sufficient funding to execute our strategic plan . there is no assurance that we will be successful in raising further funds . in the event that additional financing is delayed , we will prioritize the maintenance of our research and development personnel and facilities , primarily in belgium , and the maintenance of our patent rights . in such instance , the completion of clinical validation studies and regulatory approval processes for the purpose of bringing products to the ivd market would be delayed . in the event of an ongoing lack of financing , it may be necessary to discontinue operations , which will adversely affect the value of our common stock . we have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive activities . for these reasons , our auditors stated in their report on our audited financial statements for the fiscal year ended december 31 , 2019 an explanatory paragraph regarding factors that raise substantial doubt that we will be able to continue as a going concern . story_separator_special_tag times new roman ; margin:0 ; color : # 000000 '' > we regularly evaluate the accounting policies and estimates that we use to prepare our consolidated financial statements . a complete summary of these policies is included in the notes to our consolidated financial statements . in general , management 's estimates are based on historical experience , on information from third party professionals , and on various other assumptions that are believed to be reasonable under the facts and circumstances . actual results could differ from those estimates made by management . we consider the following accounting policies to be critical : stock-based compensation the company records stock-based compensation in accordance with asc 718 , “ compensation – stock compensation ” and asc 505-50 , “ equity-based payments to non-employees ” . all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued , whichever is more reliably measurable . equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued and are recognized over the employees required service period , which is generally the vesting period . 23 impairment of long-lived assets in accordance with asc 360 , “ property plant and equipment ” , the company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable . circumstances which could trigger a review include , but are not limited to : significant decreases in the market price of the asset ; significant adverse changes in the business climate or legal factors ; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset ; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset ; and current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life . recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset , as well as specific appraisal in
| replace_table_token_5_th other expenses other expenses decreased to $ 56,131 compared to $ 110,924 for the years ended december 31 , 2019 and december 31 , 2018 , respectively . this decrease was primarily due the exercise of warrants to purchase approximately 1.7 million shares of our common stock by cotterford company limited during 2019 at an amended exercise price of $ 2.90 per share , which resulted in a $ 196,957 expense , offset by interest income received from cash deposited in an overnight money market account and grant income received . 22 net loss for the year ended december 31 , 2019 , the company 's net loss was $ 16.1 million , a decrease of approximately $ 1.9 million , or 11 % , in comparison to a net loss of $ 18.0 million for the year ended december 31 , 2018. the change was a result of the factors described above . going concern we have not attained profitable operations and are dependent upon obtaining external financing to continue to pursue our operational and strategic plans . for these reasons , management has determined that there is substantial doubt that the business will be able to continue as a going concern without further financing . off-balance sheet arrangements we have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to stockholders . future equity or debt financings we may seek to obtain additional capital through the sale of debt or equity securities , if we deem it desirable or necessary . however , we may be unable to obtain such additional capital when needed , or on terms favorable to us or our stockholders , if at all . if we raise additional funds by issuing equity securities , the percentage ownership of our stockholders will be reduced , stockholders may experience additional dilution , or
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in certain instances , we consider an accepted customer order , governed by a master sales agreement , to be the contract with the customer when legal rights and obligations exist . contracts with customers may include the sale of products and services , as discussed in the paragraphs above . in certain instances , contracts can contain multiple performance obligations as discussed in the paragraph below . according to the terms of a sale contract , we may receive consideration from a customer prior to transferring goods to the customer , and we record these prepayments as a contract liability . we also record deferred revenue , typically related to service contacts , when consideration is received before the services have been performed . we recognize customer deposits and deferred revenue as net sales after all revenue recognition criteria are met . when determining revenue recognition for contracts , we use judgment based on our understanding of the obligations within each contract . we determine whether or not customer acceptance criteria are perfunctory or inconsequential . the determination of whether or not customer acceptance terms are perfunctory or inconsequential impacts the amount and timing of revenue recognition . critical judgments also include estimates of warranty reserves , which are established based on historical experience and knowledge of the product under warranty . multiple performance obligations . certain agreements with customers include the sale of capital equipment involving multiple elements that may include civil works to prepare a site for the installation of equipment , manufacture and delivery of equipment , installation and integration of equipment , training of customer personnel to operate the equipment and after-market service of the equipment . we generally separate multiple elements in a contract into separate performance obligations if those elements are distinct , both individually and in the context of the contract . if multiple promises comprise a series of distinct services which are substantially the same and have the same pattern of transfer , they are combined and accounted for as a single performance obligation . in cases where obligations in a contract are distinct and thus require separation into multiple performance obligations , revenue recognition guidance requires that contract consideration be allocated to each distinct performance obligation based on its relative standalone selling price . the value allocated to each performance obligation is then recognized as revenue when the revenue recognition criteria for each distinct promise or bundle of promises has been met . the standalone selling price for each performance obligation is an amount that depicts the amount of consideration to which the entity expects to be entitled in exchange for transferring the good or service . when there is only one performance obligation associated with a contract , the entire sale value is attributed to that obligation . when a contract contains multiple performance obligations the transaction value is first allocated using the observable price , which is generally a list price net of applicable discount or the price used to sell in similar circumstances . in circumstances when a selling price is not directly observable , we will estimate the standalone selling price using information available to us including our market assessment and expected cost plus margin . 57 the timetable for fulfilment of each of the distinct performance obligations can range from completion in a short amount of time and entirely within a single reporting period to completion over several reporting periods . the timing of revenue recognition for each performance obligation may be dependent upon several milestones , including physical delivery of equipment , completion of factory acceptance test , completion of site acceptance test , installation and connectivity of equipment , certification of training of personnel and , in the case of after-market service deliverables , the passage of time ( typically evenly over the post-warranty period of the service deliverable ) . we often provide a guarantee to support our performance under multiple performance obligations . in the event that customers are permitted to terminate such arrangements , the underlying contract typically requires payment for deliverables and reimbursement of costs incurred through the date of termination . we adopted new revenue recognition guidance issued by the fasb effective july 1 , 2018 using the modified retrospective method . see note 1 to the consolidated financial statements . allowance for doubtful accounts . the allowance for doubtful accounts involves estimates based on management 's judgment , review of individual receivables and analysis of historical bad debts . we monitor collections and payments from our customers and we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . we also assess current economic trends that might impact the level of credit losses in the future . if the financial condition of our customers were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances could be required . inventory . inventories are generally stated at the lower of cost ( first-in , first-out ) or net realizable value . we write down inventory for slow-moving and obsolete inventory based on historical usage , orders on hand , assessments of future demands , market conditions among other items . if these factors are less favorable than those projected , additional inventory write-downs may be required . property and equipment . property and equipment are stated at cost less accumulated depreciation and amortization . depreciation and amortization are charged while assets are used in service and are computed using the straight-line method over the estimated useful lives of the assets taking into consideration any estimated salvage value . amortization of leasehold improvements is calculated on the straight-line method over the shorter of the useful life of the asset or the lease term . leased capital assets are included in property and equipment . amortization of property and equipment under capital leases is included with depreciation expense . story_separator_special_tag in the event that property and equipment are idle , as a result of excess capacity or the early termination , non-renewal or reduction in scope of a turnkey screening operation , such assets are assessed for impairment on a periodic basis and when an indication that impairment may exist . income taxes . our annual tax rate is based on our income , statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate . tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities . significant judgment is required in determining our tax expense and in evaluating our tax positions including evaluating uncertainties . we review our tax positions quarterly and adjust the balances as new information becomes available . deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years . such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities , as well as from net operating loss and tax credit carryforwards . we evaluate the recoverability of these future tax deductions by assessing the adequacy of future expected taxable income from all sources , including reversal of taxable temporary differences , forecasted operating earnings and available tax planning strategies . these sources of income inherently rely on estimates . to provide insight , we use our historical experience and our short and long-range business forecasts . we believe it is more likely than not that a portion of the deferred income tax assets may expire unused and therefore have established a valuation allowance against them . although realization is not assured for the remaining deferred income tax assets , we believe it is more likely 58 than not that the deferred tax assets will be fully recoverable within the applicable statutory expiration periods . however , deferred tax assets could be reduced in the near term if our estimates of taxable income are significantly reduced or available tax planning strategies are no longer viable . business combinations . in connection with the acquisition of a business , we allocate the fair value of purchase consideration to the tangible and intangible assets acquired , and liabilities assumed based on their estimated fair values . the excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill . such valuations require management to make significant estimates and assumptions , especially with respect to intangible assets . significant estimates in valuing certain intangible assets include , but are not limited to , future expected cash flows from acquired customers , acquired technology , and trade names , useful lives and discount rates . our estimates of fair value are based upon assumptions believed to be reasonable , but which are inherently uncertain and unpredictable and , as a result , actual results may differ from estimates . during the measurement period , which is up to one year from the acquisition date , we may record adjustments to the assets acquired and liabilities assumed , with the corresponding offset to goodwill . upon the conclusion of the measurement period , any subsequent adjustments are recorded to earnings . impairment of long-lived assets . goodwill represents the excess purchase price over the estimated fair value of the assets acquired and liabilities assumed in a business combination . goodwill is allocated to our segments based on the nature of the product line of the acquired business . the carrying value of goodwill is not amortized , but is annually tested for impairment as of the end of the second quarter and more frequently if there is an indicator of impairment . we assess qualitative factors of each of our three reporting units 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 . the assessments conducted as of december 31 , 2018 indicated that it is not more likely than not that the fair values of two of our three reporting units are less than their carrying amounts , including goodwill . thus , we have determined that there is no goodwill impairment for these two reporting units . for the third reporting unit , the results of our assessment of qualitative factors were not conclusive so we proceeded with a quantitative assessment to determine if the carrying amount of this reporting unit exceeds its fair value . the fair value of the reporting unit was calculated using the income approach . under the income approach , the fair value of the reporting unit was calculated by estimating the present value of associated future cash flows . the analysis indicated that the estimated fair value of the third reporting unit substantially exceeded the carry amount , plus goodwill , of the reporting unit . we applied a hypothetical 10 percent decrease to the fair value of the reporting unit , which at december 31 , 2018 , would not have indicated impairment . therefore , we have determined that there is no goodwill impairment for this reporting unit . we evaluate long-lived assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable . impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets . if impairment does exist , we measure the impairment loss and record it based on the discounted estimate of future cash flows . in estimating future cash flows , we group assets at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows from other asset groups . our estimate of future cash flows is based upon , among other things , certain assumptions about expected future operating performance , growth rates and other factors .
| the acquisition was financed with cash on hand and was in an amount determined to be insignificant by management . trends and uncertainties the following is a discussion of certain trends and uncertainties that we believe have and may continue to influence our results of operations . 55 global economic considerations . global macroeconomic factors , coupled with the u.s. political climate , have created uncertainty and impacted demand for certain of our products and services primarily in our security and healthcare divisions . the current status and potential outcomes of brexit negotiations has contributed to global economic uncertainty and could have an adverse impact on our uk business , including our orders and sales operations and personnel in the uk . we do not know how long this uncertainty will continue . therefore , we expect that there may be a period of delayed or deferred purchasing by our customers . these factors could have a material negative effect on our business , results of operations and financial condition . additionally , our international operations provide a significant portion of our total revenue and expenses . many of these revenues and expenses are denominated in currencies other than the u.s. dollar , and , as a result , may be significantly affected by changes in foreign exchange rates . global trade . the current domestic and international political environment , including existing and potential changes to u.s. and foreign policies related to global trade and tariffs , have resulted in uncertainty surrounding the future state of the global economy . further , the u.s. government has announced that sanctions would be imposed against certain businesses and individuals in select countries . additional changes may require us to modify our current business practices and could have a material adverse effect on our business , results of operations and financial condition in any particular reporting period . healthcare considerations . although our financial results improved in fiscal year 2019 , the results of our operations had been adversely impacted in prior periods
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however , because the market for technology products and services is highly competitive , our success at capitalizing on this transition will be based on our ability to tailor specific solutions to customer needs , the quality and breadth of our product and service offerings , the knowledge and expertise of our sales force , price , product availability and speed of delivery . 2013 initial public offering on july 2 , 2013 , we completed an initial public offering ( `` ipo '' ) of 23,250,000 shares of common stock . on july 31 , 2013 , we completed the sale of an additional 3,487,500 shares of common stock to the underwriters of the ipo pursuant to the underwriters ' july 26 , 2013 exercise in full of the overallotment option granted to them in connection with the ipo . our shares of common stock were sold to the underwriters at a price of $ 17.00 per share in the ipo and upon the exercise of the overallotment option , which together , generated aggregate net proceeds of $ 424.7 million to the company after deducting underwriting discounts , expenses and transaction costs . on november 19 , 2013 , we completed a secondary public offering , whereby certain selling stockholders sold 15,000,000 shares of common stock . on december 18 , 2013 , such selling stockholders sold an additional 2,250,000 shares of common stock to the underwriters of the secondary public offering pursuant to the underwriters ' december 13 , 2013 exercise in full of the overallotment option granted to them in connection with the secondary public offering . we did not receive any proceeds from the sale of shares in the secondary public offering or upon the exercise of the overallotment option . the consolidated statement of operations for the year ended december 31 , 2013 included pre-tax ipo- and secondary-offering related expenses of $ 75.0 million . see note 9 of the accompanying audited consolidated financial statements for additional discussion of our ipo and secondary offering . key business metrics our management monitors a number of financial and non-financial measures and ratios on a regular basis in order to track the progress of our business and make adjustments as necessary . we believe that the most important of these measures and ratios include average daily sales , gross margin , operating margin , net income , non-gaap net income , net income per common share , non-gaap net income per diluted share , ebitda and adjusted ebitda , return on invested capital , cash and cash equivalents , net working capital , cash conversion cycle ( defined to be days of sales outstanding in accounts receivable plus days of supply in inventory minus days of purchases outstanding in accounts payable , based on a rolling three-month average ) , debt levels including available credit and leverage ratios , sales per coworker and coworker turnover . these measures and ratios are compared to standards or objectives set by management , so that actions can be taken , as necessary , in order to achieve the standards and objectives . non-gaap net income and adjusted ebitda are non-gaap financial measures . we believe these measures provide helpful information with respect to the company 's operating performance and cash flows including our ability to meet our future debt service , capital expenditures , dividend payments , and working capital requirements , adjusted ebitda also provides helpful information as it is the primary measure used in certain financial covenants contained in our senior credit facilities . see `` selected financial data '' included elsewhere in this report for the definitions of non-gaap net income and adjusted ebitda and reconciliations to net income . 32 the results of certain key business metrics are as follows : replace_table_token_8_th ( 1 ) cash conversion cycle is defined as days of sales outstanding in accounts receivable plus days of supply in inventory minus days of purchases outstanding in accounts payable , based on a rolling three-month average . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > in 2013 , compared to 1.3 % in 2012. the dollar increase in advertising expense was due to a continued focus on advertising our solutions and products , which reinforces our reputation as a leading it solutions provider . 35 income from operations the following table presents income ( loss ) from operations by segment , in dollars and as a percentage of net sales , and the year-over-year percentage change in income ( loss ) from operations for the years ended december 31 , 2013 and 2012 : replace_table_token_12_th * not meaningful ( 1 ) segment income ( loss ) from operations includes the segment 's direct operating income ( loss ) and allocations for headquarters ' costs , allocations for income and expenses from logistics services , certain inventory adjustments and volume rebates and cooperative advertising from vendors . ( 2 ) includes certain headquarters ' function costs that are not allocated to the segments . income from operations was $ 508.6 million in 2013 , a decrease of $ 2.0 million , or 0.4 % , compared to $ 510.6 million in 2012. the decrease in income from operations was driven by higher selling and administrative expenses primarily resulting from $ 75.0 million of ipo- and secondary-offering related expenses recorded during 2013 , mostly offset by higher net sales and gross profit . total operating margin percentage decreased 30 basis points to 4.7 % in 2013 , from 5.0 % in 2012. operating margin percentage was negatively impacted by the increase in selling and administrative expenses as a percentage of net sales and gross profit margin compression , partially offset by a decrease in advertising expense as a percentage of net sales . story_separator_special_tag corporate segment income from operations was $ 363.3 million in 2013 , an increase of $ 14.3 million , or 4.1 % , compared to $ 349.0 million in 2012. corporate segment operating margin percentage decreased 20 basis points to 6.1 % in 2013 , from 6.3 % in 2012. results for 2013 included $ 26.4 million of ipo- and secondary-offering related expenses , which reduced corporate segment operating margin by 40 basis points . higher sales and gross profit dollars offset the effect of ipo- and secondary-offering related expenses on income from operations for 2013. public segment income from operations was $ 246.5 million in 2013 , a decrease of $ 0.2 million , or 0.1 % , compared to $ 246.7 million in 2012. public segment operating margin percentage decreased 20 basis points to 5.9 % in 2013 , from 6.1 % in 2012. results for 2013 included $ 14.4 million of ipo- and secondary-offering related expenses , which reduced public segment operating margin by 30 basis points . higher sales and gross profit dollars nearly offset the effect of ipo- and secondary-offering related expenses on income from operations for 2013. interest expense , net at december 31 , 2013 , our outstanding long-term debt totaled $ 3,251.2 million , compared to $ 3,771.0 million at december 31 , 2012. we reduced long-term debt throughout the year primarily through the use of a portion of the net proceeds from the ipo and cash flows provided by operating activities . net interest expense in 2013 was $ 250.1 million , a decrease of $ 57.3 million compared to $ 307.4 million in 2012. this decrease was primarily due to lower debt balances and effective interest rates for 2013 compared to 2012 as a result of debt repayments and refinancing activities completed during 2012 and 2013. see `` liquidity and capital resources '' below . net loss on extinguishments of long-term debt during 2013 , we recorded a net loss on extinguishments of long-term debt of $ 64.0 million compared to $ 17.2 million in 2012. in october 2013 , we redeemed $ 155.0 million aggregate principal amount of senior subordinated notes . in connection with this redemption , we recorded a loss on extinguishment of long-term debt of $ 8.5 million , representing the difference 36 between the redemption price and the net carrying amount of the purchased debt , adjusted for a portion of the unamortized deferred financing costs . in august 2013 , we redeemed $ 324.0 million aggregate principal amount of senior subordinated notes . in connection with this redemption , we recorded a loss on extinguishment of long-term debt of $ 24.6 million , representing the difference between the redemption price and the net carrying amount of the purchased debt , adjusted for a portion of the unamortized deferred financing costs . in july 2013 , we redeemed $ 175.0 million aggregate principal amount of senior secured notes . in connection with this redemption , we recorded a loss on extinguishment of long-term debt of $ 16.7 million , representing the difference between the redemption price and the net carrying amount of the purchased debt , adjusted for a portion of the unamortized deferred financing costs . in april 2013 , we entered into a new seven-year , $ 1,350.0 million aggregate principal amount senior secured term loan facility . substantially all of the proceeds were used to repay the $ 1,299.5 million outstanding aggregate principal amount of the prior senior secured term loan facility . in connection with this refinancing , we recorded a loss on extinguishment of long-term debt of $ 10.3 million , representing a write-off of the remaining unamortized deferred financing costs related to the prior senior secured term loan facility . in march 2013 , we redeemed $ 50.0 million aggregate principal amount of senior subordinated notes . we recorded a loss on extinguishment of long-term debt of $ 3.9 million , representing the difference between the redemption price and the net carrying amount of the purchased debt , adjusted for a portion of the unamortized deferred financing costs . in december 2012 , we redeemed $ 100.0 million aggregate principal amount of senior subordinated notes . we recorded a loss on extinguishment of long-term debt of $ 7.8 million representing the difference between the redemption price and the net carrying amount of the purchased debt , adjusted for a portion of the unamortized deferred financing costs . in february and march 2012 , we purchased or redeemed the remaining $ 129.0 million of senior notes due 2015 , funded with the issuance of an additional $ 130.0 million of senior notes due 2019. as a result , we recorded a loss on extinguishment of long-term debt of $ 9.4 million , representing the difference between the purchase or redemption price of the senior notes due 2015 and the net carrying amount of the purchased debt , adjusted for the remaining unamortized deferred financing costs . income tax expense income tax expense was $ 62.7 million in 2013 , compared to $ 67.1 million in 2012. the effective income tax rate , expressed by calculating income tax expense or benefit as a percentage of income before income taxes , was 32.1 % and 36.0 % for 2013 and 2012 , respectively . for 2013 , the effective tax rate differed from the u.s. federal statutory rate primarily due to state income taxes , including current year state income tax credits and an adjustment to deferred state income taxes due to changes in apportionment factors . for 2012 , the effective tax rate differed from the u.s. federal statutory rate primarily due to favorable adjustments to state tax credits which were partially offset by the unfavorable impact of adjustments to deferred state income taxes due to changes in state tax laws and non-deductible expenses , primarily equity-based compensation and meals and entertainment .
| corporate segment net sales in 2013 increased $ 447.3 million , or 8.1 % , compared to 2012 , driven by sales growth in the medium/large customer channel . within our corporate segment , net sales to medium/large customers increased 10.2 % between years primarily due to certain of these customers increasing their it spending , a more tenured sales force , a continued focus on seller productivity and additional customer-facing coworkers , the majority in pre- and post-sale technical positions such as technical specialists and service delivery roles . this increase was led by unit volume growth in netcomm products and growth in notebooks/mobile devices and software . partially offsetting the growth in the medium/large customer channel was a 0.6 % decline in net sales to small business customers , due to certain of these customers taking a more cautious approach to spending as macroeconomic and regulatory uncertainty impacted decision-making . this decrease was led by unit volume declines in notebooks/mobile devices , partially offset by growth in netcomm products . public segment net sales in 2013 increased $ 141.5 million , or 3.5 % , between years , driven by strong performance in the education customer channel . net sales to education customers increased $ 256.7 million , or 21.5 % , between years , led by growth in net sales to k-12 customers , reflecting increased sales of notebooks/mobile devices to support new standardized digital testing requirements that will take effect in 2014. net sales to government customers decreased $ 143.5 million , or 34 10.3 % , in 2013 compared to 2012 due to reductions and delays in federal government spending following sequestration , uncertainty over future budget negotiations and the partial shutdown of the federal government . the government customer channel net sales decline was led by decreases in sales of enterprise storage and notebooks/mobile devices , partially offset by growth in software . net sales to healthcare customers increased $ 28.3 million , or 2.0 % , between years , driven by growth in notebooks/mobile devices and desktop computers . gross
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similarly , our revenues and net income have been growing . for 2017 , revenues and net income were approximately $ 7.0 million and $ 4.9 million , respectively . for 2016 , revenues and net income were approximately $ 4.1 million and $ 3.0 , respectively . we can not assure you that we will be able to sustain these growth rates indefinitely . our loans typically have a maximum initial term of one to three years and bear interest at a fixed rate of 9.5 % to 12 % per year and a default rate for non-payment of 18 % per year . we usually receive origination fees , or “ points , ” ranging from 2 % to 5 % of the original principal amount of the loan as well as other fees relating to underwriting , funding and managing the loan . since we treat an extension or renewal of an existing loan as a new loan , we also receive additional “ points ” and other loan-related fees in connection with those transactions . interest is always payable monthly in arrears . as a matter of policy , we do not make any loans if the loan-to value ratio exceeds 65 % . in the case of construction loans , the loan-to-value ratio is based on the post-construction value of the property . under the terms of the bankwell credit facility ( described below ) , loans exceeding $ 325,000 require an independent appraisal of the collateral . failure to obtain such an appraisal would render the loan ineligible for financing under the credit facility . in the case of smaller loans , we rely on readily available market data , including tax assessment rolls , recent sales transactions and brokers to evaluate the strength of the collateral . finally , we have adopted a policy that limits the maximum amount of any loan we fund to a single borrower or a group of affiliated borrowers to 10 % of the aggregate amount of our loan portfolio after taking into account the loan under consideration . our revenue consists primarily of interest earned on our loan portfolio and our net income is the spread between the interest we earn and our cost of funds . our capital structure is more heavily weighted to equity rather than debt ( approximately 80.1 % vs. 19.9 % of our total capitalization at december 31 , 2017 ) and the interest rate on the bankwell credit facility was 6.19 % per annum . as of december 31 , 2017 , the annual yield on our loan portfolio was 12.08 % per annum . the yield has remained steady over the past few years as older loans come due and are either being repaid or refinanced at similar rates . the yield reflected above does not include other amounts collected from borrowers such as origination fees and late payment fees prior to the exchange . we expect our borrowing costs to continue to increase in 2017 as interest rates continue to increase . to date , we have not raised rates on our loans to match the recent increases in our borrowing rate . after considering the pros and cons of increasing our rates , considering our relatively low level of debt and the recent reduction in the interest rate on the bankwell credit facility , we believe the better strategy is to focus on building market share rather than short-term profits and cash flow , 39 although this strategy could adversely impact our profits and cash flow in the short-term . in addition , we seek to mitigate some of the risk associated with rising rates by limiting the term of new loans to one year , whenever possible . if , at the end of the term , the loan is not in default and meets our other underwriting criteria , we will consider an extension or renewal of the loan at our then prevailing interest rate . however , if interest rates continue to increase , we may find it necessary to change our strategy and try to increase the rates on our mortgage loans as well . if we are successful , this may undermine our strategy to increase market share . if we are not successful , the “ spread ” between our borrowing costs and the yield on our portfolio will be squeezed and would adversely impact our net income . we can not assure investors that we will be able to increase our rates at any time in the future and we can not assure you that we can continue to increase our market share . as a real estate finance company , we deal with a variety of default situations , including breaches of covenants , such as the obligation of the borrower to maintain adequate liability insurance on the mortgaged property , to pay the taxes on the property and to make timely payments to us . as such , we may not be aware that a default occurred . as a result , we are unable to quantify the number of loans that may have , at one time or another , been in default . from our inception in december 2010 through december 31 , 2017 , we made an aggregate of 659 mortgage loans having an aggregate original principal amount of $ 118.5 million . until 2015 , we never had a situation where a borrower was unable to service a loan during its term or unable to repay the entire outstanding balance , interest and principal , in full at maturity . at december 31 , 2017 , of the 337 mortgage loans in our portfolio , 12 are treated by us as “ non-performing ” , typically because the borrower is more than 90 days in arrears on its interest payment obligations or because the borrower has failed to make timely payments of real estate taxes or insurance premiums . story_separator_special_tag the aggregate outstanding principal balance of these non-performing loans and the accrued but unpaid interest as of december 31 , 2017 was approximately $ 2.2 million . the non-performing loans have all been referred to counsel to commence foreclosure proceedings or to negotiate settlement terms . in the case of each non-performing loan , we believe the value of the collateral exceeds the outstanding balance on the loan . at december 31 , 2016 , of the 217 mortgage loans in our portfolio , five are treated by us as non-performing . the aggregate outstanding principal balance of these non-performing loans and the accrued but unpaid interest as of december 31 , 2016 was approximately $ 532,000. by the end of 2017 , we settled all five loans by accepting deeds-in-lieu of foreclosure . three of the properties were sold in 2016 and one was sold in 2017. we had a net aggregate loss on the sale of the four properties of approximately $ 88,000. the fifth property is held for rental . financing strategy overview to continue to grow our business , we must increase the size of our loan portfolio , which requires that we raise additional capital either by selling shares of our capital stock or by incurring additional indebtedness . we do not have a policy limiting the amount of indebtedness that we may incur . thus , our operating income in the future will depend on how much debt we incur and the spread between our cost of funds and the yield on our loan portfolio . rising interest rates could have an adverse impact on our business if we can not increase the rates on our loans to offset the increase in our cost of funds and to satisfy investor demand for yield . in addition , rapidly rising interest rates could have an unsettling effect on real estate values , which could compromise some of our collateral . we do not have any formal policy limiting the amount of indebtedness we may incur . however , under the terms of the bankwell credit facility , we may not incur any additional indebtedness exceeding $ 100,000 in the aggregate without bankwell 's consent . depending on various factors we may , in the future , decide to take on additional debt to expand our mortgage loan origination activities to increase the potential returns to our shareholders . although we have no pre-set guidelines in terms of leverage ratio , the amount of leverage we will deploy will depend on our assessment of a variety of factors , which may include the liquidity of the real estate market in which most of our collateral is located , employment rates , general economic conditions , the cost of funds relative to the yield curve , the potential for losses and extension risk in our portfolio , the gap between the duration of our assets and liabilities , our opinion regarding the creditworthiness of our borrowers , the value of the collateral underlying our portfolio , and our outlook for interest rates and property values . at december 31 , 2017 , debt proceeds represented approximately 19.9 % 40 of our total capital . however , to grow the business and satisfy the requirement to pay out 90 % of net profits , we expect to increase our level of debt over time to approximately 50 % of our total capital . we intend to use leverage for the sole purpose of financing our portfolio and not for speculating on changes in interest rates . we consummated the ipo in february 2017 and sold 2,600,000 common shares at a price of $ 5.00 per share . the net proceeds , after payment of underwriting discounts and commissions and transaction fees were approximately $ 11.1 million . we used a portion of the net proceeds immediately to pay down the entire outstanding balance on the bankwell credit facility . in november 2017 we completed a second public offering in which we sold an aggregate of 4,312,500 common shares at a public offering price of $ 4.00 per share . the gross proceeds from the november offering were $ 17.25 million and the net proceeds were approximately $ 16.0 million , which were also used to reduce the outstanding balance on the bankwell credit facility . the bankwell credit facility is a $ 20 million revolving credit facility that we use to fund the loans we originate . assuming we are not then in default under the terms of the bankwell credit facility , upon its expiration , we have the option to repay the outstanding balance , together with all accrued interest thereon in 36 equal monthly installments beginning july 30 , 2019. the bankwell credit facility is secured by assignment of notes and mortgages and other collateral and is jointly and severally guaranteed by jjv , jeffrey c. villano and john l. villano , cpa , our co-chief executive officers . the liability of each guarantor is capped at $ 1 million . as of december 31 , 2017 , we estimate that loans having an aggregate principal amount of approximately $ 26.3 million , representing approximately 42 % of our mortgages receivable , satisfied all of the eligibility requirements set forth in the bankwell credit facility . as of december 31 , 2017 , the total amount outstanding under the bankwell credit facility was approximately $ 9.8 million . corporate reorganization and reit qualification our operating expenses have begun to increase significantly as a result of the ipo due to various factors including our conversion from a limited liability company to a regular c corporation , operating as a reit , our status as a publicly-held reporting company and growth in our operations .
| the increase in operating costs and expenses is due to the increase in our lending operations as well as a change in our status from a limited liability company to a publicly-held real estate investment trust ( reit ) subject to the reporting requirements of the securities and exchange act of 1934. interest expense and amortization of deferred financing costs in 2017 were approximately $ 664,000 compared to approximately $ 505,000 in 2016 , an increase of approximately 31.5 % , reflecting the increase in the amount outstanding under the bankwell credit line . similarly , as a result of our various financing activities in 2017 and our status as a public company , we experienced significant increases in professional fees ( approximately $ 300,000 in 2017 compared to approximately $ 87,000 in 2016 ) , listing fees ( $ 32,000 in 2017 compared to none in 2016 ) , other expenses and taxes ( approximately $ 155,000 in 2017 compared to none in 2016 ) and general and administrative expenses ( approximately $ 222,000 in 2017 compared to approximately $ 17,000 in 2016 ) . in addition , compensation and related costs in 2017 was approximately $ 700,000 compared to approximately $ 35,000 in 2016. however , this was offset , in part , by a decrease in compensation to manager to approximately $ 36,000 in 2017 compared to approximately $ 350,000 in 2016. other expenses and taxes includes excise taxes of $ 32,500 imposed because we failed to distribute 85 % of our 2017 taxable income in 2017. net income net income for 2017 was approximately $ 4.9 million compared to approximately $ 3.1 million for 2016 , an increase of approximately $ 1.8 million , or 59.3 % . basic and diluted net income per weighted average common shares outstanding for 2017 was $ 0.38. there is no comparable figure for 2016. net income per weighted average number of shares is calculated based on net income and shares outstanding for the period beginning on february 9 , 2017 ( the effective date of our ipo ) through
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performance metrics we utilize several performance metrics in analyzing and assessing our overall performance , making operating decisions , and forecasting and planning for future periods . annual contract value ( “ acv ” ) ( 1 ) ( 2 ) the change in acv measures the growth and predictability of future cash flows from committed pega cloud and client cloud arrangements as of the end of the particular reporting period . ( 1 ) data table replace_table_token_4_th total acv , as of a given date , is the sum of the following two components : client cloud : the sum of ( 1 ) the annual value of each term license contract in effect on such date , which is equal to its total license value divided by the total number of years and ( 2 ) maintenance revenue reported for the quarter ended on such date , multiplied by four . we do not provide hosting services for client cloud arrangements . pega cloud : the sum of the annual value of each cloud contract in effect on such date , which is equal to its total value divided by the total number of years . 23 ( 2 ) as foreign currency exchange rates are an important factor in understanding period to period comparisons , we believe the presentation of acv growth rates on a constant currency basis enhances the understanding of our results and evaluation of our performance in comparison to prior periods . remaining performance obligations ( `` backlog '' ) expected future revenue on existing contracts : replace_table_token_5_th replace_table_token_6_th story_separator_special_tag style= '' line-height:120 % ; padding-bottom:8px ; padding-top:0px ; text-align : left ; padding-left:0px ; text-indent:0px ; font-size:10pt ; '' > stock-based compensation we recognize stock-based compensation expense associated with equity awards in our consolidated statements of operations based on the fair value of these awards at the date of grant using the accelerated recognition method , while treating each vesting tranche as if it were an individual grant . replace_table_token_12_th the increase in 2019 was primarily due to the increased value of our annual periodic equity awards granted in march 2019 and 2018 and an increase in headcount . these awards generally have a five-year vesting schedule . see `` 14. stock-based compensation '' in item 8 of this annual report for additional information . other income ( expense ) , net replace_table_token_13_th * not meaningful the changes in foreign currency transaction ( loss ) gain were primarily due to the impact of fluctuations in foreign currency exchange rates associated with our foreign currency-denominated cash , accounts receivable , and intercompany receivables and payables held by our united kingdom ( “ u.k. ” ) subsidiary . ( benefit from ) income taxes replace_table_token_14_th the decrease in our effective income tax rate was primarily due to the excess stock option benefit relative to our overall worldwide loss . as of december 31 , 2019 , we had approximately $ 23.3 million of total unrecognized tax benefits , which would decrease our effective tax rate if recognized . we expect that the changes in the unrecognized benefits within the next twelve months will be approximately $ 0.1 million due to an anticipated settlement with tax authorities . see `` 16. income taxes '' in item 8 of this annual report for additional information . 26 liquidity and capital resources replace_table_token_15_th replace_table_token_16_th on november 6 , 2019 , we entered into a five year $ 100 million senior secured revolving credit agreement ( the “ credit facility ” ) with pnc bank , national association . we may use borrowings to finance working capital needs and for general corporate purposes . under certain circumstances , the credit facility allows us to increase the aggregate commitment up to $ 200 million . as of december 31 , 2019 , we had no borrowings under the credit facility . we believe that our current cash , cash flow from operations , and borrowing capacity will be sufficient to fund our operations and quarterly cash dividends for at least the next 12 months . whether these resources are adequate to meet our liquidity needs beyond that period will depend on our growth , operating results , and the investments required to meet possible increased demand for our services . if we require additional capital resources to grow our business , we may seek to finance our operations from available funds or additional external financing . if it became necessary to repatriate foreign funds , we may be required to pay u.s and foreign taxes upon repatriation . due to the complexity of income tax laws and regulations , and the effects of the tax reform act , it is impracticable to estimate the amount of taxes we would have to pay . see `` if it becomes necessary or desirable to repatriate any of our foreign cash balances to the united states , we may be subject to increased taxes , other restrictions , and limitations '' in item 1a of this annual report for additional information . cash ( used in ) provided by operating activities as client preferences shift in favor of our cloud and term subscription arrangements , we could continue to experience reduced or negative operating cash flow . cash from subscription arrangements is generally collected over the service period , while cash from perpetual license arrangements is often collected shortly after contract execution . the primary driver of the decrease in 2019 was the recent shift in our revenue mix toward cloud arrangements , which are generally collected over an average service period of three years , and increased costs as we accelerated investments in our cloud offerings and selling and marketing activities to support future growth . story_separator_special_tag the primary cash drivers during 2018 were net income of $ 10.6 million and $ 25.8 million from receivables and contract assets , largely due to increased cash collections and the timing of billings . cash provided by ( used in ) investing activities cash used in investing activities is primarily driven by the timing of investment maturities and purchases of new investments . during 2019 , $ 91.6 million in cash was generated from investments , primarily marketable debt securities , which was partially offset by investments of $ 10.6 million in property and equipment and $ 10.9 million to acquire in the chat communications inc. in may 2019. during 2018 , $ 35.5 million of cash was used for investments , primarily marketable securities , and $ 11.9 million was used to purchase property and equipment . cash ( used in ) financing activities we used cash primarily for repurchases of our common stock under our stock repurchase programs , stock repurchases for tax withholdings for the net settlement of our equity awards , and the payment of our quarterly dividend . net cash used in financing activities during 2019 and 2018 was primarily for repurchases of our common stock and the payment of our quarterly dividend . 27 dividends ( in thousands ) 2019 2018 dividend payments to shareholders $ 9,486 $ 9,432 it is our current intention to pay a quarterly cash dividend of $ 0.03 per share , however , the board of directors may terminate or modify this dividend program at any time without prior notice . stock repurchase program remaining authority under existing programs is : replace_table_token_17_th ( 1 ) on march 15 , 2019 , we announced that our board of directors extended the expiration date of the current stock repurchase program to june 30 , 2020 and increased the amount of common stock we are authorized to repurchase by $ 60 million . ( 2 ) purchases may be made from time to time on the open market or in privately negotiated transactions . all stock repurchases under the current program during closed trading window periods are made pursuant to established pre-arranged stock repurchase plans , intended to comply with the requirements of rule 10b5-1and rule 10b-18 under the exchange act . common stock repurchases the following table is a summary of our repurchase activity : replace_table_token_18_th ( 1 ) represents activity under our publicly announced stock repurchase program . ( 2 ) during 2019 and 2018 , instead of receiving cash from the equity holders , we withheld shares with a value of $ 41.7 million and $ 29.5 million , respectively , for the exercise price of options . these amounts have been excluded from the table above . contractual obligations as of december 31 , 2019 , our contractual obligations were : replace_table_token_19_th ( 1 ) see `` 9. leases '' in item 8 of this annual report for additional information . ( 2 ) represents the fixed or minimum amounts due under purchase obligations for hosting services and sales and marketing programs . ( 3 ) we are unable to reasonably estimate the timing of the cash outflow due to uncertainties in the timing of the effective settlement of tax positions . ( 4 ) represents the maximum funding that would be expected under existing investment agreements with privately-held companies . our investment agreements generally allow us to withhold unpaid committed funds at our discretion . a detailed discussion and analysis of the fiscal year 2017 year-over-year changes can be found in item 7. management 's discussion and analysis of financial condition and results of operations of our annual report on form 10-k for the year ended december 31 , 2018 . critical accounting estimates and significant judgments management 's discussion and analysis of the 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. and the rules and regulations of the sec for annual financial reporting . the preparation of these financial statements requires us to make estimates and 28 judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . we base our estimates and judgments on historical experience , knowledge of current conditions , and beliefs of what could occur in the future given available information . we believe that , of our significant accounting policies , which are described in “ 2. significant accounting policies ” in item 8 of this annual report , the following accounting policies are most important to the portrayal of our financial condition and require the most subjective judgment . accordingly , these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations . if actual results differ significantly from management 's estimates and projections , there could be a material effect on our financial statements . revenue recognition our contracts with clients typically contain promises by us to provide multiple products and services . specifically , contracts associated with sales of pega platform and other software applications , sold either as licenses to use functional intellectual property or as a cloud-based solution , typically include consulting services . determining whether such products and services within a client contract are considered distinct performance obligations that should be accounted for separately requires significant judgment . we review client contracts to identify all separate promises to transfer goods and services that would be considered performance obligations .
| gross profit replace_table_token_8_th the recent shift in our revenue mix toward cloud arrangements has resulted in slower total gross profit growth as our cloud business continues to grow and scale . revenue from cloud arrangements is generally recognized over the service period , while revenue from term and perpetual license arrangements is generally recognized upfront when the license rights become effective . gross profit the increase in total gross profit in 2019 was primarily due to increases in cloud and maintenance revenue . gross profit percent the decrease in cloud gross profit percent in 2019 was driven by an increase in costs as we accelerated our investments in cloud infrastructure and service delivery to support future growth . the decrease in consulting gross profit percent in 2019 was driven by a decrease in billable hours as consulting resources were transitioning to new projects after completing a large project and an increase in consulting resource availability as we continue growing and leveraging our partner network . operating expenses selling and marketing replace_table_token_9_th ( 1 ) includes compensation , benefits , and other headcount-related expenses associated with selling and marketing activities , as well as advertising , promotions , trade shows , seminars , and the amortization of client-related intangibles . ( 2 ) selling and marketing as a percent of total revenue has been impacted by a shift in revenue in favor of our subscription offerings , particularly cloud arrangements , which has resulted in slower total revenue growth in the near term . revenue from cloud arrangements is generally recognized over the service period , while revenue from term and perpetual license arrangements is generally recognized upfront when the license rights become effective . the increase in 2019 was primarily due to $ 81.2 million in compensation and benefits , attributable to an increase in headcount and $ 11.9 million in deferred contract cost amortization . the increase in headcount reflects our efforts to increase our sales capacity to deepen relationships with existing clients and target new accounts . research and development replace_table_token_10_th ( 1 ) includes compensation , benefits ,
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because adjusted ebitda does not account for these expenses , its utility as a measure of our operating performance has material limitations . our calculations of adjusted ebitda adjust for these amounts because they vary from period to period and do not directly relate to the ongoing operations of the currently underlying business of our stores and therefore complicate comparison of the underlying business between periods . nevertheless , because of the limitations described above , management does not view adjusted ebitda or store operating income before depreciation and amortization in isolation and also uses other measures , such as revenues , gross margin , operating income and net income to measure operating performance . adjusted ebitda and adjusted ebitda margin . we define adjusted ebitda as net income plus interest expense , net , loss on debt refinancing , provision for income taxes , depreciation and amortization expense , loss on asset disposal , share-based compensation , pre-opening costs , currency transaction ( gains ) losses and other costs . adjusted ebitda margin is defined as adjusted ebitda divided by total revenues . adjusted ebitda is presented because we believe that it provides useful information to investors and analysts regarding our operating performance . by reporting adjusted ebitda , we provide a basis for comparison of our business operations between current , past and future periods by excluding items that we do not believe are indicative of our core operating performance . store operating income before depreciation and amortization and store operating income before depreciation and amortization margin . we define store operating income before depreciation and amortization as operating income plus depreciation and amortization expense , general and administrative expenses and pre-opening costs . store operating income before depreciation and amortization margin is defined as store operating income before depreciation and amortization divided by total revenues . store operating income before depreciation and amortization margin allows us to evaluate operating performance of each store across stores of varying size and volume . we believe that store operating income before depreciation and amortization is another useful measure in evaluating our operating performance because it removes the impact of general and administrative expenses , which are not incurred at the store level , and the costs of opening new stores , which are non-recurring at the store level , and thereby enables the comparability of the operating performance of our stores for the periods presented . we also believe that store operating income before depreciation and amortization is a useful measure in evaluating our operating performance within the entertainment and dining industry because it permits the evaluation of store-level productivity , efficiency and performance , and we use store operating income before depreciation and amortization as a means of evaluating store financial performance compared with our competitors . however , because this measure excludes significant items such as general and administrative expenses and pre-opening costs , as well as our interest expense , net and depreciation and amortization expense , which are important in evaluating our consolidated financial performance from period to period , the value of this measure is limited as a measure of our consolidated financial performance . 33 presentation of operating results the company 's fiscal year consists of 52 or 53 weeks ending on the sunday after the saturday closest to january 31. each quarterly period has 13 weeks , except in a 53-week year when the fourth quarter has 14 weeks . fiscal 2017 , which ended on february 4 , 2018 , contained 53 weeks . fiscal 2018 and 2016 , which ended on february 3 , 2019 and january 29 , 2017 , respectively , each contained 52 weeks . all dollar amounts are presented in thousands , unless otherwise noted , except share and per share amounts . overview total revenues increased 11 % to $ 1,265,301 in fiscal 2018 compared to $ 1,139,791 in fiscal 2017. our revenue growth was primarily influenced by the number of new store openings partially offset by one less week in fiscal 2018. comparable store sales decreased 1.6 % in fiscal 2018 compared to the comparable 52-week period of fiscal 2017 , driven by lower customer volumes . operating income decreased to $ 161,000 in fiscal 2018 compared to operating income of $ 165,772 in fiscal 2017. fiscal 2018 operating margin was 12.7 % compared to 14.5 % in fiscal 2017. the decrease in operating margin in fiscal 2018 was primarily driven by the increased margin pressure on occupancy costs associated with our recent store openings and higher operating payroll and benefits as a percentage of sales , partially offset by favorable leverage of general and administrative costs . earnings per share ( eps ) for fiscal 2018 increased to $ 2.93 per diluted share , compared to eps of $ 2.84 per diluted share in fiscal 2017. cash flows from operations were $ 337,616 in fiscal 2018 compared to $ 264,672 in fiscal 2017. the increase was primarily due to increased cash flows from additional non-comparable store sales as well as an increase in our net working capital deficit . capital expenditures were $ 216,286 in fiscal 2018 compared to $ 219,901 in fiscal 2017. liquidity and cash flows the primary source of cash flow is from our operating activities and availability under the revolving credit facility . store-level variability , quarterly fluctuations , seasonality and inflation we have historically operated stores varying in size and have experienced significant variability among stores in volumes , operating results and net investment costs . our new stores typically open with sales volumes that exceed expected long-term run-rate levels , which we refer to as a honeymoon effect . we expect our new store sales volumes in year two to be 10 % to 20 % lower than year one , and to perform in line with the rest of our comparable store base thereafter . due to the substantial revenues associated with each new store , the number and timing of new store openings will result in significant fluctuations in quarterly results . story_separator_special_tag in the first year of operation new store operating margins ( excluding pre-opening expenses ) typically benefit from honeymoon sales leverage on occupancy , management labor and other fixed costs . this benefit is partially offset by normal inefficiencies in hourly labor and other costs associated with establishing a new store . in year two , operating margins may decline due to the loss of honeymoon sales leverage on fixed costs which is partially offset by improvements in store operating efficiency . furthermore , rents in our new stores are typically higher than our comparable store base . our operating results fluctuate significantly due to seasonal factors . typically , we have higher revenues associated with the spring and year-end holidays which will continue to be susceptible to the impact of severe or 34 unseasonably mild weather on customer traffic and sales during that period . our third quarter , which encompasses the back-to-school fall season , has historically had lower revenues as compared to other quarters . we expect that economic and environmental conditions and changes in regulatory legislation will continue to exert pressure on both supplier pricing and consumer spending related to entertainment and dining alternatives . although there is no assurance that our cost of products will remain stable or that federal , state or local minimum wage rates will not increase beyond amounts currently legislated , the effects of any supplier price increases or wage rate increases are expected to be partially offset by selected menu or game price increases where competitively appropriate . fiscal 2018 compared to fiscal 2017 results of operations . the following table sets forth selected data , in thousands of dollars and as a percentage of total revenues ( unless otherwise noted ) for the periods indicated . all information is derived from the accompanying consolidated statements of comprehensive income . replace_table_token_5_th ( 1 ) the change in comparable store sales in fiscal 2018 has been calculated by shifting forward our 2017 fiscal year comparable store sales results by one week , to account for the fact that our 2017 fiscal year consisted of 53 weeks . the fiscal year 2017 comparable store sales have been adjusted to remove the impact of the 53 rd week prior to calculating the year-over-year change percentage . 35 ( 2 ) our duluth ( atlanta ) , georgia store which closed after the end of fiscal 2018 , on march 3 , 2019 , is included in our store counts for all periods presented . the number of new store openings during the last two fiscal years were as follows : replace_table_token_6_th reconciliations of non-gaap financial measures adjusted ebitda the following table reconciles ( in dollars and as percent of total revenues ) net income to adjusted ebitda for the periods indicated : replace_table_token_7_th ( 1 ) primarily represents costs related to currency transaction ( gains ) or losses . store operating income before depreciation and amortization the following table reconciles ( in dollars and as a percent of total revenues ) operating income to store operating income before depreciation and amortization for the periods indicated : replace_table_token_8_th 36 capital additions the following table represents total accrual-based additions to property and equipment . total capital additions do not include any reductions for accrual-based tenant improvement allowances or proceeds from sale-leaseback transactions ( collectively , payments from landlords ) . replace_table_token_9_th results of operations revenues total revenues increased $ 125,510 or 11.0 % , to $ 1,265,301 in fiscal 2018 compared to total revenues of $ 1,139,791 in fiscal 2017. for the year ended february 3 , 2019 , we derived 28.9 % of our total revenue from food sales , 13.5 % from beverage sales , 56.8 % from amusement sales and 0.8 % from other sources . for the year ended february 4 , 2018 we derived 29.5 % of our total revenue from food sales , 13.9 % from beverage sales , 55.8 % from amusement sales and 0.8 % from other sources . the net increase in revenues for fiscal 2018 compared to fiscal 2017 were from the following sources : comparable stores $ ( 15,250 ) comparable stores - impact of one less week ( 17,551 ) non-comparable stores 163,250 other ( 4,939 ) total $ 125,510 the following discussion on comparable store sales has been prepared by comparing fiscal 2018 revenues to fiscal 2017 revenues shifted to a 52-week basis ( beginning february 6 , 2017 and ending february 4 , 2018 ) . we have estimated the impact of the first week of fiscal 2017 to be $ 19,457. comparable store revenue decreased $ 15,250 or 1.6 % , in fiscal 2018 compared to the comparable fifty two weeks of fiscal 2017. comparable store revenue compared to the prior fiscal year was , in part , negatively impacted by increased competitive pressure and sales transfers to new stores that we opened in markets where we operate . comparable walk-in revenues , which accounted for 89.7 % of comparable store revenue for fiscal 2018 , decreased $ 12,017 , or 1.4 % compared to the similar period in fiscal 2017. comparable store special events revenues , which accounted for 10.3 % of consolidated comparable store revenue for fiscal 2018 , decreased $ 3,233 , or 3.2 % compared to the comparable period in fiscal 2017. food sales at comparable stores decreased by $ 9,823 , or 3.5 % , to $ 274,262 for fiscal 2018 from $ 284,085 in the comparable period in fiscal 2017. beverage sales at comparable stores decreased by $ 4,858 , or 3.6 % , to $ 128,422 for fiscal 2018 from $ 133,280 in the 2017 comparison period . the decrease in food and beverage unit sales at comparable stores was partially offset by an overall increase in menu prices . comparable store amusement and other revenues in fiscal 2018 decreased by $ 569 , or 0.1 % , to $ 551,405 from $ 551,974 in the comparable fifty two weeks of fiscal 2017 .
| the increased revenues in fiscal 2017 were from the following sources : comparable stores - excluding impact of 53rd week $ ( 7,962 ) comparable stores - 53rd week impact 14,268 non-comparable stores 128,616 other ( 289 ) total $ 134,633 the following discussion on comparable store sales has been prepared by comparing fiscal 2017 revenues on a 52-week basis to fiscal 2016 revenues . comparable store revenue decreased $ 7,962 , or 0.9 % , in fiscal 2017 compared to fiscal 2016. comparable store revenue compared to the prior fiscal year was , in part , negatively impacted by decreases in our food and beverage unit sales throughout the year , increased pressure from competition , cannibalization of sales from our new store openings and weather-related sales interruptions in the third and fourth quarter . comparable walk-in revenues , which accounted for 89.2 % of comparable store revenue for fiscal 2017 , decreased $ 6,572 , or 0.8 % compared to fiscal 2016. comparable store special events revenues , which accounted for 10.8 % of consolidated comparable store revenue for fiscal 2017 , decreased $ 1,390 , or 1.4 % compared to fiscal 2016. food sales at comparable stores decreased by $ 11,632 , or 4.3 % , to $ 257,727 for fiscal 2017 from $ 269,359 in fiscal 2016. beverage sales at comparable stores decreased by $ 6,654 , or 5.1 % , to $ 122,710 for fiscal 2017 from $ 129,364 in fiscal 2016. the decrease in food and beverage sales at comparable stores is attributed to lower customer volumes and was partially offset by an overall increase in menu prices . comparable store amusement and other revenues in fiscal 2017 increased by $ 10,324 , or 2.1 % , to $ 499,638 from $ 489,314 in fiscal 2016 , due to an increase in the revenue per power card sold . revenue at our 30 non-comparable stores increased $ 128,616 for fiscal 2017 compared to fiscal 2016. the increase in non-comparable store revenue was primarily driven by
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outlook we expect to close on the acquisition of rockwood holdings , inc. 's performance additives and titanium dioxide businesses during the first half of 2014 and remain confident in our ability to deliver significant synergies . we continue to see the benefit of our ongoing restructuring efforts and we believe that these efforts will yield significant future annual ebitda benefits . we are investing for long term growth and are progressing well with the previously disclosed projects that we believe will yield significant future annual ebitda benefits . polyurethanes : mdi demand strong in u.s. and asia , modest in europe improving sales price leverage higher raw material costs ( notably benzene ) performance products : improving amines sales volumes and margins u.s. gulf coast raw material cost advantage increased margin pressure on european home and personal care surfactants , full european restructuring benefits in 2015 advanced materials : restructuring benefit strong aerospace market weak base liquid resin epoxy market 57 textile effects : reorganization and restructuring benefit continued growth in key countries above underlying market demand higher raw materials costs pigments : favorable ilmenite raw material advantage versus traditional chloride ores improving sales volumes and selling prices agreement for strategic acquisition of the performance additives and titanium dioxide businesses of rockwood holdings , inc. we expect to spend approximately $ 500 million in 2014 on capital expenditures , net of reimbursements , for growth initiatives and maintenance , excluding any amounts associated with the planned acquisition of the performance additives and titanium dioxide businesses of rockwood holdings , inc. we expect our full year 2014 adjusted effective tax rate to be approximately 35 % , excluding the impact of the acquisition of the performance additives and titanium dioxide businesses of rockwood holdings , inc. we believe our long-term effective income tax rate will be approximately 30 % . recent developments for a discussion of recent developments , see `` part i. item 1. businessrecent developments '' above . story_separator_special_tag benefits from adjusted ebitda , adjusted net income ( loss ) , adjusted net income ( loss ) attributable to huntsman corporation and adjusted diluted income ( loss ) per share . the amortization of actuarial gains and losses associated with pension and postretirement benefits arises from changes in actuarial assumptions and the difference between actual and expected returns on plan assets , and not from our normal , or `` core , '' operations . there is diversity in accounting for these actuarial gains and losses within our industry , and we believe that removing these gains and losses provides management and investors greater transparency into the operational results of our businesses and enhances period-over-period comparability . the service cost , amortization of prior service cost ( benefit ) , interest cost and expected return on plan assets components of our periodic pension and postretirement benefit costs ( income ) will continue to be included in adjusted ebitda , adjusted net income ( loss ) , adjusted net income ( loss ) attributable to huntsman corporation and adjusted diluted income ( loss ) per share . included within adjusted ebitda for huntsman corporation and huntsman international for 2013 , 2012 and 2011 are pension and postretirement benefit expenses of $ 28 million , $ 23 million and $ 38 million , respectively , including expected returns on plan assets of $ 166 million , $ 173 million and $ 178 million , respectively . the amounts for prior periods have been recast to conform to the current presentation . ( 2 ) adjusted net income is computed by eliminating the after-tax amounts related to the following from net income attributable to huntsman corporation or huntsman international , as appropriate : ( a ) acquisition expenses and purchase accounting inventory adjustments ; ( b ) loss ( gain ) on initial consolidation of subsidiaries ; ( c ) loss from discontinued operations ; ( d ) discount amortization on settlement financing ; ( e ) gain on disposition of businesses/assets ; ( f ) loss on early extinguishment of debt ; ( g ) extraordinary gain on the acquisition of a business ; ( h ) certain legal settlements and related expenses ; ( i ) amortization of pension and postretirement actuarial losses ; and ( j ) restructuring , impairment and plant closing and transition costs . the income tax impacts , if any , of each adjusting item represent a ratable allocation of the total difference between the unadjusted tax expense and the total adjusted tax expense , computed without consideration of any adjusting items using a with and without approach . we do not adjust for changes in tax valuation allowances because we do not believe it provides more meaningful information than is provided under gaap . basic adjusted income per share excludes dilution and is computed by dividing adjusted net income by the weighted average number of shares outstanding during the period . diluted adjusted income per share reflects all potential dilutive common shares outstanding during the period and is computed by dividing adjusted net income by the weighted average number of shares outstanding during the period increased by the number of additional shares that would have been outstanding as dilutive securities . adjusted net income and adjusted income per share amounts are presented solely as supplemental disclosures to net income applicable to huntsman corporation or huntsman international , as appropriate , and income per share because we believe that these measures are indicative of our operating performance . these measures are also used by securities analysts , lenders and others in their evaluation of different companies because they exclude certain items that can vary widely across different industries or among companies within the same industry . story_separator_special_tag nevertheless , our management recognizes that there are material limitations associated with the use of adjusted net income and adjusted income per share in the evaluation of our company as compared to net income attributable to huntsman corporation or huntsman international , as appropriate , which reflects overall financial performance for example , adjusted net income and adjusted income per share exclude items that may be recurring in nature and should not be disregarded in the evaluation of performance . however , we believe it is useful to exclude such items to provide a supplemental analysis of 63 current results and trends compared to other periods because certain excluded items can vary significantly depending on specific underlying transactions or events , and the variability of such items may not relate specifically to current operating results or trends and certain excluded items , while potentially recurring in future periods , may not be indicative of future results . for example , while loss ( gain ) from discontinued operations is a recurring item , it is not indicative of ongoing operating results and trends or future results . beginning in 2013 , we began to exclude the amortization of actuarial gains and losses associated with pension and postretirement benefits from adjusted ebitda , adjusted net income ( loss ) , adjusted net income ( loss ) attributable to huntsman corporation and adjusted diluted income ( loss ) per share . the amortization of actuarial gains and losses associated with pension and postretirement benefits arises from changes in actuarial assumptions and the difference between actual and expected returns on plan assets , and not from our normal , or `` core , '' operations . there is diversity in accounting for these actuarial gains and losses within our industry , and we believe that removing these gains and losses provides management and investors greater transparency into the operational results of our businesses and enhances period-over-period comparability . the service cost , amortization of prior service cost ( benefit ) , interest cost and expected return on plan assets components of our periodic pension and postretirement benefit costs ( income ) will continue to be included in adjusted ebitda , adjusted net income ( loss ) , adjusted net income ( loss ) attributable to huntsman corporation and adjusted diluted income ( loss ) per share . the amounts for prior periods have been recast to conform to the current presentation . ( 3 ) includes cost associated with the transition of our textile effects segment 's production from basel , switzerland to a tolling facility . these costs were included in cost of sales on our consolidated statements of operations . year ended december 31 , 2013 compared with year ended december 31 , 2012 for the year ended december 31 , 2013 , the net income attributable to huntsman corporation was $ 128 million on revenues of $ 11,079 million , compared with net income attributable to huntsman corporation of $ 363 million on revenues of $ 11,187 million for 2012. for the year ended december 31 , 2013 , the net income attributable to huntsman international was $ 126 million on revenues of $ 11,079 million , compared with net income attributable to huntsman international of $ 365 million on revenues of $ 11,187 million for 2012. the decrease of $ 235 million in net income attributable to huntsman corporation and the decrease of $ 239 million in net income attributable to huntsman international was the result of the following items : revenues for 2013 decreased by $ 108 million , or 1 % , as compared with 2012. the decrease was due principally to lower average selling prices in our pigments segment and lower sales volumes in our performance products and advanced materials segments . see `` segment analysis '' below . our gross profit and the gross profit of huntsman international for 2013 decreased by $ 281 million and $ 271 million , respectively , or 14 % and 13 % , respectively , as compared with 2012. the decrease resulted from lower gross margins in our polyurethanes and pigments segments . see `` segment analysis '' below . restructuring , impairment and plant closing costs for 2013 increased to $ 151 million from $ 92 million in 2012. for more information concerning restructuring activities , see `` note 11. restructuring , impairment and plant closing costs '' to our consolidated financial statements . our net interest expense and the net interest expense of huntsman international for 2013 decreased by $ 36 million and $ 35 million , respectively , or 16 % and 15 % , respectively , as compared with 2012. the decrease was due primarily to the reduction in noncash interest expense resulting from the repayment of our 5.50 % senior notes due 2016 ( `` 2016 senior notes '' ) in 2012 and 2013 . 64 loss on early extinguishment of debt for 2013 decreased to $ 51 million from $ 80 million in 2012. in 2012 , we recorded a loss on early extinguishment of debt of $ 80 million primarily from the repurchase of a portion of our 2016 senior notes . in 2013 , we recorded a loss on early extinguishment of debt of $ 34 million primarily from the repurchase of the remainder of our 2016 senior notes and $ 17 million primarily related to the repayment of our term loan c facility ( `` term loan c '' ) . for more information , see `` note 13. debtdirect and subsidiary debtredemption of notes and loss on early extinguishment of debt '' to our consolidated financial statements .
| moreover , ebitda and adjusted ebitda as used herein are not necessarily comparable to other similarly titled measures of other companies due to potential inconsistencies in the methods of calculation . our management believes these measures are useful to compare general operating performance from period to period and to make certain related management decisions . ebitda and adjusted ebitda are also used by securities analysts , lenders and others in their evaluation of different companies because they exclude certain items that can vary widely across different industries or among companies within the same industry . for example , interest expense can be highly dependent on a company 's capital structure , debt levels and credit ratings . therefore , the impact of interest expense on earnings can vary significantly among companies . in addition , the tax positions of companies can vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the various jurisdictions in which they operate . as a result , effective tax rates and tax expense can vary considerably among companies . finally , companies employ productive assets of different ages and utilize different methods of acquiring and depreciating such assets . this can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies . 62 nevertheless , our management recognizes that there are material limitations associated with the use of ebitda and adjusted ebitda in the evaluation of our company as compared to net income attributable to huntsman corporation or huntsman international , as appropriate , which reflects overall financial performance . for example , we have borrowed money in order to finance our operations and interest expense is a necessary element of our costs and ability to generate revenue . our management compensates for the limitations of using ebitda and adjusted ebitda by using these measures to supplement gaap results to provide a more complete understanding of the factors and trends affecting the business rather than gaap results alone . in addition to the limitations noted above ,
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utility support structures ( utility ) segment in the utility segment , the sales decrease in 2014 , as compared with 2013 , was due to lower sales volume and a decline in the percentage of sales from very large transmission projects which changed the mix of utility structure sales between the reporting periods . in north america , sales volumes in tons for steel utility structures were down in 2014 , as compared with 2013 , partially offset by increases in sales volume for concrete structures . sales decreased in the steel utility structures business in 2014 30 over 2013 by $ 139.1 million , while sales increased slightly over the same time period for contrete structures by $ 2.0 million . we believe industry supply and demand were more aligned in 2014 , as compared with 2013 , as we and our competitors increased production capacity to meet demand . we believe this has resulted in increased price competition for certain portions of the market where orders are awarded based on competitive bidding . in 2014 , as compared to 2013 , international utility structures sales decreased due to lower sales volumes and currency translation effects . sg & a expense decreased approximately $ 4.6 million in 2014 , as compared with 2013 , primarily due to lower incentive compensation tied to lower operating income offset by higher employee compensation due to increased headcount to support capacity expansion to meet projected long-term growth . operating income in 2014 , as compared with 2013 , decreased due to lower sales , reduced leverage of fixed costs , and increased depreciation expense on plant capacity added in late 2013. coatings segment coatings segment sales decreased in 2014 , as compared with 2013 , primarily due to lower sales volumes in the asia pacific region and currency translation effects related to the strengthening of the u.s. dollar against the australian dollar . more specifically , weak demand in australia led to decreases in volumes offset somewhat by improved sales volumes in asia . sales in north america were slightly down in 2014 compared to 2013 , primarily due to lower volumes and currency translation effects that were partially offset by an increase in sales prices due to higher zinc costs . operating income was also lower in 2014 , as compared with 2013 , due to the lower sales volumes , unfavorable currency impacts , and reduced leverage of fixed costs in both australia and north america . the decrease in segment operating income in 2014 compared to 2013 was also due to the $ 4.6 million gain recognized on the sale of an australian galvanizing operation in the second quarter of fiscal 2013. the decrease in segment operating income in 2014 , as compared to the same periods in 2013 , was partially offset by approximately $ 3.0 million of business interruption insurance proceeds received in 2014 related to a 2013 fire at one of our north american facilities . these proceeds were recorded against service cost of sales in the consolidated statement of earnings . irrigation segment the decrease in irrigation segment net sales in 2014 , as compared with 2013 , was mainly due to sales volume decreases in the north american market . the decrease in north america was offset to an extent by increased sales volumes in international markets . in north america , lower net farm income in 2014 , as compared with 2013 , and much lower sales backlogs at the beginning of the year resulted in lower sales of irrigation equipment in 2014 , as compared with 2013. in fiscal 2014 , net farm income in the united states is estimated to have decreased 25 % from the record levels of 2013 , due in part to lower market prices for corn and soybeans . we believe this reduction contributed to lower demand for irrigation machines in north america in 2014 , as compared with 2013. in international markets , sales improved in 2014 , as compared with 2013 , mainly due to increased activity in brazil , middle east , south africa , and australia . these increases were offset somewhat by lower sales in china and eastern europe , due to certain economic and political uncertainties in these regions . operating income for the segment declined in 2014 compared to 2013 , due to the sales volume decrease and associated operating deleverage of fixed operating costs . the primary reasons for the slight decrease in sg & a expense in 2014 , as compared with 2013 , related to reduced incentives of $ 5.8 million and lower provisions for international receivables of $ 2.8 million , partially offset by increased product development spending , the acquisition of agsense in august 2014 , and increased employee headcount in the international business . 31 other this unit includes the grinding media , industrial tubing , and industrial fasteners operations . the decrease in sales in 2014 , as compared with 2013 , was mainly due lower sales volumes due to the deconsolidation of emd in december 2013 ( $ 38.6 million ) , lower sales volumes and pricing in the grinding media operations and exchange rate translation effects . grinding media volumes and pricing were negatively affected by less favorable australian mining industry demand . tubing sales in 2014 were slightly lower due to lower volumes compared to 2013. operating income in 2014 was lower than 2013 , due to lower grinding media sales volumes and pricing , the deconsolidation of emd in 2013 , and currency translation effects . net corporate expense net corporate expense in 2014 decreased over 2013. these decreases were mainly due to : lower employee incentives associated with reduced net earnings ( $ 17.1 million ) ; decreased expenses associated with the delta pension plan ( $ 3.9 million ) ; and decreased deferred compensation plan expense ( $ 2.0 million ) . the deferred compensation expense recorded within corporate expense has a corresponding offset by the same amount in other income ( expense ) . story_separator_special_tag fiscal 2013 compared with fiscal 2012 overview on a consolidated basis , the increase in net sales in 2013 , as compared with 2012 , reflected improved sales in all reportable segments while sales were down in the `` other '' category . the increase in net sales in 2013 , as compared with 2012 , was due to the following factors : replace_table_token_11_th volume effects are estimated based on a physical production or sales measure , such as tons . as the products we sell are not uniform in nature , pricing and mix relate to a combination of changes in sales prices and the attributes of the product sold . accordingly , pricing and mix changes do not necessarily result in increased operating income . acquisitions included locker group holdings ( `` locker '' ) and pure metal galvanizing ( `` pmg '' ) . we acquired pmg in december 2012 and locker in february 2013. we report locker in the engineered infrastructure products segment and pmg in the coatings segment . in 2013 , we realized a decrease in operating profit , as compared with 2012 , due to currency translation effects . on average , the u.s. dollar strengthened in particular against the australian dollar , brazilian real and the south africa rand , resulting in less operating profit in u.s. dollar terms . the breakdown of this effect by the affected segment was as follows : replace_table_token_12_th 32 the increase in gross margin ( gross profit as a percent of sales ) in 2013 , as compared with 2012 , was due to a combination of improved sales prices and sales mix , improved factory operations and moderating raw material costs in 2013 , as compared with 2012. in general , our cost of steel and other raw materials were slightly lower in 2013 , as compared with 2012 . 2013 included a $ 12.2 million fixed asset impairment loss in our electrolytic manganese dioxide ( emd ) operation , which was recorded as product cost of sales . the impairment was a result of continued global oversupply of global manganese dioxide in the market , increased price competition and increasing input costs . in addition , a major customer advised us that its purchases from us in 2014 would be substantially below prior years . as future prospects for the operation were not as favorable as the past , we undertook an impairment review in the fourth quarter of 2013 , which resulted in the $ 12.2 million impairment . selling , general and administrative ( sg & a ) spending in 2013 increased over 2012 , mainly due to the following factors : expenses recorded by locker and pmg of $ 19.4 million ; increased employee incentive accruals of $ 13.8 million , due to improved operating results and increased share price in valuing long-term incentive plans ; increased compensation expenses of $ 8.2 million , mainly associated with increased employment levels and salary increases ; increased doubtful account provisions of $ 3.1 million , principally in the irrigation segment , and ; increased deferred compensation expenses of $ 2.4 million , which was offset by the same amount of other income . in addition , certain non-recurring items affecting the comparisons of sg & a expenses included : the sale of one of our galvanizing facilities in australia resulted in a gain of $ 4.6 million in 2013 , which was reported as a reduction of sg & a expense , and ; insurance proceeds received related to a fire in one of our galvanizing facilities in australia resulted in a non-recurring reduction in sg & a in 2012 of $ 2.0 million . on a reportable segment basis , all segments realized improved operating income in 2013 , as compared with 2012. net interest expense increased in 2013 , as compared with 2012 , due to a combination of lower interest income and slightly higher interest expense . interest income for 2013 was lower than 2012 due mainly to lower interest rates and lower average cash balances in australia . the increase in interest expense principally was due to higher bank fees and interest incurred due to increased short-term borrowings to finance working capital in our india operation . the increase in other income in 2013 , as compared with 2012 , mainly was attributable to $ 2.4 million of higher investment gains in our deferred compensation plan assets . this benefit was offset by an increase in sg & a expense of the same amount . our effective income tax rate in 2013 was comparable with 2012. in 2012 and 2013 , u.k. tax rates were collectively reduced from 26 % to 20 % . accordingly , we reduced the value of our deferred tax assets associated with net operating loss carryforwards and certain timing differences by $ 8.3 million in 2013 ( $ 4.8 million in 2012 ) , with a corresponding increase in income tax expense . the effects of the u.k. tax rate decrease were offset somewhat by approximately $ 3.2 million of tax benefits associated with the 2013 sale of our nonconsolidated investment in south africa and $ 1.8 million of increased research and development tax credits in the u.s. 33 earnings in non-consolidated subsidiaries were lower in 2013 , as compared with 2012 , due to the sale of our 49 % owned manganese materials operation in february 2013. there was no significant gain or loss on the sale . earnings attributable to non-controlling interests in 2013 was lower than 2012 , mainly due to the impairment loss recorded in our electromagnetic manganese dioxide ( emd ) operation . the total after-tax impairment loss was approximately $ 8.8 million . our proportionate share of this loss was $ 4.6 million ( $ 0.17 per share ) and the remainder was attributable to the non-controlling interest . this decrease was offset to a degree by improved earnings realized by our other operations that are less than 100 % owned .
| the decrease in gross margin ( gross profit as a percent of sales ) in 2014 , as compared with 2013 , was due to a combination of lower sales prices and unfavorable sales mix , reduced sales volumes , currency translation , and slightly higher raw material costs in 2014 , as compared with 2013. this was partially offset by the $ 12.2 million fixed asset impairment loss in our electrolytic manganese dioxide ( emd ) operation in 2013 , which was recorded as product cost of sales . in 2014 , we realized a decrease in operating profit , as compared with fiscal 2013 , due to currency translation effects . on average , the u.s. dollar strengthened in particular against the australian dollar , brazilian real , euro , and south africa rand , resulting in less operating profit in u.s. dollar terms . the breakdown of this effect by segment was as follows : replace_table_token_10_th selling , general and administrative ( sg & a ) spending in 2014 decreased from 2013 , mainly due to the following factors : decreased employee incentive accruals of $ 37.4 million , due to lower operating results and decreased share price in valuing long-term incentive plans ; decreased doubtful account provisions of $ 3.7 million , principally in the irrigation segment ; lower expenses associated with the delta pension plan of $ 3.9 million ; and 28 emd was deconsolidated in december 2013 , which resulted in reduced expenses of $ 4.9 million . the above reductions in sg & a were partially offset by the following : the sale of one of our galvanizing facilities in australia resulted in a 2013 gain of $ 4.6 million , which was reported as a reduction of sg & a expense ; higher information technology and product development costs of approximately $ 5.2 million , and ; the acquisition of shakespeare in october 2014 , agsense in august 2014 , valmont sm in march 2014 , and armorflex in december 2013 included combined sg & a expenses in 2014 of $ 16.2 million . the decrease in operating income on a reportable segment basis in 2014 , as compared to 2013 , was due to reduced operating performance in the utility , irrigation , and coatings segments . the eip segment showed improved operating performance in 2014 compared to 2013 , primarily due to the acquisitions of valmont sm , armorflex , and shakespeare . the `` other '' category reported reduced operating performance in 2014 compared to 2013 , mainly due to reduced profitability of grinding media business . net interest expense increased in 2014 , as compared with
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we consider performance obligations to be distinct when the customer can benefit from the promised good or service on its own or by combining it with other resources readily available and when the promised good or service is separately identifiable from other promised goods or services in the contract . in these arrangements , we allocate revenue on a relative standalone selling price basis by maximizing the use of observable inputs to determine the standalone selling price for each performance obligation . additionally , estimating standalone selling prices for separate performance obligations within a contract may require significant judgment and consideration of various factors including market conditions , items contemplated during negotiation of customer arrangements and internally-developed pricing models . changes to performance obligations that we identify , or the estimated selling prices pertaining to a contract , could materially impact the amounts of earned and unearned revenue that we record . allowance for doubtful accounts we maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . our evaluation of the collectability of customer accounts receivable is based on various factors . in cases where we are aware of circumstances that may impair a specific customer 's ability to meet its financial obligations subsequent to the original sale , we will record an allowance against amounts due based on those particular circumstances . for all other customers , we estimate an allowance for doubtful accounts based on the length of time the receivables are past due , our bad debt collection experience and general industry conditions . if a major customer 's credit-worthiness deteriorates , or our customers ' actual defaults exceed our estimates , our financial results could be impacted . 17 inventory valuation we value inventories at the lower of cost ( on a first-in , first-out basis ) or net realizable value , whereby we make estimates regarding the market value of our inventories , including an assessment of excess and obsolete inventories . we determine excess and obsolete inventories based on an estimate of the future sales demand for our products within a specified time horizon , which is generally 12 months . the estimates we use for demand are also used for near-term capacity planning and inventory purchasing . in addition , specific reserves are recorded to cover risks for end-of-life products , inventory located at our contract manufacturers , deferred inventory in our sales channel and warranty replacement stock . if actual product demand or market conditions are less favorable than our estimates , additional inventory write-downs could be required , which would increase our cost of revenue and reduce our gross margins . warranty reserve the standard warranty periods we provide for our products typically range from one to five years . we establish reserves for estimated product warranty costs at the time revenue is recognized based upon our historical warranty experience , and for any known or anticipated product warranty issues . our warranty obligations are impacted by a number of factors , including historical warranty costs , actual product failure rates , service delivery costs , and the use of materials . if our actual results are different from our assumptions , increases or decreases to warranty reserves could be required , which could impact our cost of revenue and gross margins . valuation of deferred income taxes we have recorded a valuation allowance to reduce our net deferred tax assets to zero , primarily due to historical net operating losses , or nols , and uncertainty of generating future taxable income . we consider estimated future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance . if we determine that it is more likely than not that we will realize a deferred tax asset that currently has a valuation allowance , we would be required to reverse the valuation allowance , which would be reflected as an income tax benefit in our consolidated statements of operations at that time . goodwill impairment testing we evaluate goodwill for impairment on an annual basis in our fourth fiscal quarter or more frequently if we believe indicators of impairment exist that would more likely than not reduce the fair value of our single reporting unit below its carrying amount . we begin our evaluation of goodwill for impairment by assessing qualitative factors to determine whether it is more likely than not that the fair value of our single reporting unit is less than its carrying value . based on that qualitative assessment , if we conclude that it is more likely than not that the fair value of our single reporting unit is less than its carrying value , we conduct a quantitative goodwill impairment test , which involves comparing the estimated fair value of our single reporting unit with its carrying value , including goodwill . we estimate the fair value of our single reporting unit using a combination of the income and market approach . if the carrying value of the reporting unit exceeds its estimated fair value , we recognize an impairment loss for the difference . significant management judgment is required in estimating the reporting unit 's fair value and in the creation of the forecasts of future operating results that are used in the discounted cash flow method of valuation , including ( i ) estimation of future cash flows , which is dependent on internal forecasts , ( ii ) estimation of the long-term rate of growth of our business , ( iii ) estimation of the period during which cash flows will be generated and ( iv ) the determination of our weighted-average cost of capital , which is a factor in determining the discount rate . our estimate of the reporting unit 's fair value would also generally include the consideration of a control premium , which is the amount that a buyer is willing to pay over the current market price of a company as indicated by the traded price per share ( i.e. story_separator_special_tag , market capitalization ) to acquire a controlling interest . if our actual financial results are not consistent with our assumptions and judgments used in estimating the fair value of our reporting unit , we may be exposed to goodwill impairment losses . during the fourth quarter of fiscal 2019 , we made a qualitative assessment of whether goodwill impairment existed . since our assessment of the qualitative factors did not result in a determination that it was more likely than not that the fair value of our single reporting unit is less than its carrying value , we were not required to perform the quantitative goodwill impairment test . as of june 30 , 2019 , the carrying value of our single reporting unit was $ 37,421,000 while our market capitalization was $ 75,961,000. we concluded that no goodwill impairment existed as of june 30 , 2019 . 18 share-based compensation we record share-based compensation in our consolidated statements of operations as an expense , based on the estimated grant date fair value of our share-based awards , with the fair values amortized to expense over the requisite service period . our share-based awards are currently comprised of restricted stock units , stock options , and common stock purchase rights granted under our 2013 employee stock purchase plan , or our espp . the fair value of our restricted stock units is based on the closing market price of our common stock on the grant date . the fair value of our stock options and common stock purchase rights is generally estimated on the grant date using the black-scholes-merton , or bsm , option-pricing formula . while utilizing the bsm model meets established requirements , the estimated fair values generated by the model may not be indicative of the actual fair values of our share-based awards as the model does not consider certain factors important to those awards to employees , such as continued employment and periodic vesting requirements as well as limited transferability . the determination of the fair value of share-based awards utilizing the bsm model is affected by our stock price and various assumptions , including the expected term , expected volatility , risk-free interest rate and expected dividend yields . the expected term of our stock options is generally estimated using the simplified method , as permitted by guidance issued by the securities and exchange commission , or sec . we use the simplified method because we believe we are unable to rely on our limited historical exercise data or alternative information as a reasonable basis upon which to estimate the expected term of these options . the expected volatility is based on the historical volatility of our stock price . the risk-free interest rate assumption is based on the u.s. treasury interest rates appropriate for the expected term of our stock options and common stock purchase rights . if factors change and we employ different assumptions , share-based compensation expense may differ significantly from what we have recorded in the past . if there are any modifications or cancellations of the underlying unvested share-based awards , we may be required to accelerate , increase or cancel any remaining unearned share-based compensation expense . if these events were to occur , it could increase or decrease our share-based compensation expense , which would impact our operating expenses and gross margins . results of operations - fiscal years ended june 30 , 2019 and 2018 story_separator_special_tag research and development activities and product certification costs . our costs from period-to-period related to outside services and product certifications vary depending on our level and timing of development activities . the following table presents our research and development expenses : replace_table_token_5_th research and development expenses increased in fiscal 2019 primarily due to ( i ) higher outside services expense for product certifications , prototype design , and other new product development projects , ( ii ) higher personnel-related expenses resulting from growth in the engineering team during fiscal 2019 , both domestically and in india , and ( iii ) higher share-based compensation expenses , primarily attributable to stock awards being granted with a higher estimated fair value as a result of an increase in the market value of our common stock . additionally , in the prior year , we benefited from the reversal of certain previously estimated accrued charges included in the “ other ” line item in the table above , for which we determined no remaining liability existed . restructuring , severance and related charges fiscal 2019 during fiscal 2019 , we executed several plans to realign certain personnel resources to better meet our business needs , for which we recorded a total of approximately $ 1,146,000 in severance-related costs . in connection with these actions , we also recorded approximately $ 271,000 in share-based compensation expense , which is categorized in the applicable functional line items in our consolidated statement of operations for fiscal 2019 . 21 fiscal 2018 during the first quarter of fiscal 2018 , we realigned certain personnel resources throughout our organization , primarily to optimize our operations and engineering efforts . these activities resulted in total net charges of approximately $ 506,000 , which consisted primarily of severance costs , and to a lesser extent , termination costs related to a facility lease in hong kong . in our consolidated financial statements for fiscal 2018 , these costs were classified within the applicable function line items in our consolidated statement of operations . these costs have been reclassified as a separate line item within this report to conform to the current fiscal 2019 presentation . acquisition-related costs during the fourth quarter of the fiscal year ended june 30 , 2019 , in connection with the acquisition of maestro , we incurred approximately $ 410,000 of acquisition related costs . these costs are mainly comprised of legal and other professional fees .
| other net revenue from our other products , which are comprised of non-focus and end-of-life product families , continues to decline as expected . gross profit gross profit represents net revenue less cost of revenue . cost of revenue consists primarily of the cost of raw material components , subcontract labor assembly by contract manufacturers , freight costs , personnel-related expenses , manufacturing overhead , inventory reserves for excess and obsolete products or raw materials , warranty costs , royalties and share-based compensation . the following table presents our gross profit : replace_table_token_3_th gross profit as a percentage of net revenue ( referred to as “ gross margin ” ) for fiscal 2019 was slightly higher than fiscal 2018 , primarily due to increased sales of higher gross margin products . this was partially offset by tariff charges of approximately $ 269,000 that we incurred for certain products during the current year . in september 2018 , the u.s. government expanded the list of products with tariffs relating to chinese goods imported into the u.s. , which effectively covers the type of products that we sell . we continue to execute on our plan to mitigate our financial exposure to these tariffs in future periods , which includes the transition of our contract manufacturing from china to south east asia . selling , general and administrative selling , general and administrative expenses consisted of personnel-related expenses including salaries and commissions , share-based compensation , facility expenses , information technology , advertising and marketing expenses and professional legal and accounting fees . 20 the following table presents our selling , general and administrative expenses : replace_table_token_4_th selling , general and administrative expenses increased in fiscal 2019 primarily due to higher share-based compensation expenses , primarily attributable to stock awards being granted during the current fiscal year with a higher estimated fair value as a result of an increase in the market value of our common stock , along with increased participation in our espp . these increases were partially offset by a decrease in personnel expenses due primarily to the decrease in headcount resulting from the restructuring
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we perform the following five steps to determine when to recognize revenue : identification of the contract ( s ) with customers ; identification of the performance obligations in the contract ; determination of the transaction price ; allocation of the transaction price to the performance obligations in the contract ; and recognition of revenue when , or as , a performance obligation is satisfied . revenue is recognized when promised goods or services ( performance obligations ) are transferred to a customer in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services . we assess collectability based on the creditworthiness of the customer and past transaction history . we perform on-going credit evaluations of , and do not require collateral from , our customers . a significant change in the liquidity or financial position of any one customer could make it more difficult for us to assess collectability . inventory valuation we write down the carrying value of our inventory to net realizable value for estimated obsolescence or unmarketable inventory in an amount equal to the difference between the cost of inventory and its estimated realizable value based upon inventory age and assumptions about future demand and market conditions . we assess the valuation of all inventories , including raw materials , work-in-process , finished goods and spare parts on a periodic basis . obsolete inventory or inventory in excess of our estimated usage is written down to its estimated market value less costs to sell , if less than its cost . the inventory write-downs are recorded as an inventory valuation allowance established on the basis of obsolete inventory or specifically identified inventory in excess of established usage . inherent in our estimates of demand and market value in determining inventory valuation are estimates related to economic trends , future demand for our products and technological obsolescence of our products . if actual demand and market conditions are less favorable than our projections , additional inventory write-downs may be required . if the inventory value is written down to its net realizable value , and subsequently there is an increased demand for the inventory at a higher value , the increased value of the inventory is not realized until the inventory is sold either as a component of a subsystem or as separate inventory . for fiscal years 2019 , 2018 and 2017 , we wrote down inventory of $ 2.6 million , $ 3.3 million , and $ 2.4 million , respectively . 36 accounting for income taxes the determination of our tax provision is highly dependent upon the geographic composition of worldwide earnings and tax regulations governing each region and is subject to judgments and estimates . management carefully monitors the changes in many factors and adjusts the effective tax rate as required . the carrying value of our net deferred tax assets , which consist primarily of future tax deductions , assumes we will be able to generate sufficient future income to fully realize these deductions . in determining whether the realization of these deferred tax assets may be impaired , we make judgments with respect to whether we are likely to generate sufficient future taxable income to realize these assets . in order to reverse a valuation allowance , accounting principles generally accepted in the united states of america suggest that we review our recent cumulative income/loss as well as determine our ability to generate sufficient future taxable income to realize our net deferred tax assets . as of december 27 , 2019 , we maintained full valuation allowances on our u.s. federal and state deferred tax assets in the amount of $ 23.1 million as we believe it is more likely than not that these deferred tax assets will not be realized . in addition , the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws . resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on the results of our operations and financial position . we believe we have adequately reserved for our uncertain tax position , however , no assurance can be given that the final tax outcome of these matters will not be different than what we expect . we adjust these reserves in light of changing facts and circumstances , such as the closing of a tax audit or the refinement of an estimate . to the extent that the final tax outcome of these matters is different than the amounts recorded , such differences will impact the provision for income taxes in the period in which such determination is made . the provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate , as well as the related net interest . we file income tax returns in the u.s. federal jurisdiction , various states and foreign jurisdictions . our 2016 through 2018 federal income tax returns are open to audit through the statute of limitations by the internal revenue service . the company 's 2015 through 2018 state income tax returns are open to audit by the california franchise tax board . the company is also subject to examination in various other jurisdictions for various periods . business combinations in accordance with accounting for business combinations , we allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values . we may engage third-party valuation firms to assist management in reviewing management 's determination of the fair values of acquired intangible assets such as customer relationships and tradenames . such valuations require management to make significant estimates and assumptions . management makes estimates of fair value based upon assumptions believed to be reasonable . these estimates are based on historical experience and information obtained from the management of the acquired companies and are inherently uncertain . story_separator_special_tag goodwill , intangibles assets , and long-lived assets goodwill is measured as the excess of the cost of an acquisition over the sum of the amounts assigned to identifiable assets acquired less liabilities assumed . we evaluate our goodwill and indefinite life tradename for impairment on an annual basis , and whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable . in addition , we evaluate our identifiable intangible assets and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . factors we consider important which could trigger an impairment review include the following : significant changes in the manner of our use of the acquired assets or the strategy of our overall business ; significant negative changes in revenue of specific products or services ; significant negative industry or economic trends ; and significant decline in our stock price for a sustained period . 37 we continually app ly judgment when performing these evaluations and continuously monitor for events and circumstances that could negatively impact the key assumptions in determining fair value , including long-term revenue growth projections , undiscounted cash flows , discoun t rates , recent market valuations from transactions by comparable companies , volatility in our market capitalization and general industry , market and macroeconomic conditions . it is possible that changes in such circumstances , or in the variables associate d with the judgments , assumptions and estimates used in assessing fair value , would require us to record a non-cash impairment charge . story_separator_special_tag acquisition required a valuation allowance . as of december 27 , 2019 , the total u.s. and foreign valuation allowances for deferred tax assets was $ 23.1 million and $ 2.7 million , respectively . our ability to realize deferred tax assets depends on our ability to generate sufficient future taxable income . in assessing our future taxable income , we have considered all sources of future taxable income available to realize our deferred tax assets , including the taxable income from future reversal of existing temporary differences , carry forwards , and tax-planning strategies . if changes occur in the assumptions underlying our tax planning strategies or in the scheduling of the reversal of our deferred tax liabilities , the valuation allowance may need to be adjusted in the future . the company remitted earnings from its subsidiaries in singapore and china in 2019 and the company has no future plans to remit earnings other than possibly remitting earnings out of its singapore entity . we may change our intent to reinvest our undistributed foreign earnings indefinitely , which could require us to accrue or pay taxes on some or all of these undistributed earnings . liquidity and capital resources cash and cash equivalents the following table summarizes our cash and cash equivalents : replace_table_token_12_th the increase in cash and cash equivalents in fiscal year 2019 compared to fiscal year 2018 was primarily due to the cash provided by operating activities of $ 121.0 million , partially offset by the $ 29.9 million acquisition of dms , $ 26.3 million used for purchases of property , plant and equipment and net debt payments of $ 50.7 million . 41 cash flows replace_table_token_13_th our primary cash inflows and outflows were as follows : we generated net cash from operating activities of $ 121.0 million in fiscal year 2019 , compared to $ 41.7 million in fiscal year 2018. the $ 79.3 million increase was driven by an increase of $ 100.1 million in the net change from operating assets and liabilities and an increase of $ 23.9 million in non-cash items offset by a decrease of $ 44.7 million in net income . the major contributors to the net change in operating assets and liabilities , net of effects of acquisition , in fiscal year 2019 were as follows : o accounts receivable increased $ 4.5 million primarily due to timing of collections . o inventories decreased $ 22.3 million due primarily to lower sps revenues together with better management of supply chain and inventories on hand . o prepaid expenses and other current assets decreased $ 3.7 million due primarily to amortization of prepaid expenses . o accounts payable increased $ 31.0 million , accrued compensation and related benefits increased $ 9.0 million , and other liabilities increased $ 6.3 million , primarily due to the timing of payments . cash used in investing activities was $ 49.2 million in fiscal year 2019 compared to $ 345.9 million in fiscal year 2018. during fiscal year 2019 , net cash used for investing activities primarily consisted of $ 29.9 million for the dms acquisition and $ 26.3 million for purchases of property , plant and equipment , offset by $ 7.0 million in proceeds from insurance and sale of property , plant and equipment . during fiscal year 2018 , net cash used for investing activities primarily consisted of $ 319.8 million , net of cash acquired , for the qgt acquisition and $ 26.1 million for purchases of property , plant and equipment . cash used in financing activities was $ 53.4 million in fiscal year 2019 compared to cash provided by financing activities of $ 380.1 million in fiscal year 2018. during fiscal year 2019 , net cash used in financing activities primarily consisted of $ 50.7 million net of debt repayments , $ 0.5 million finance leases payments , $ 0.6 million dividends payments made to a joint venture shareholder and $ 1.9 million of taxes paid upon the vesting of restricted stock units . during fiscal year 2018 , the cash provided by financing activities primarily included net bank borrowings of $ 300.7 million and $ 94.3 million net cash proceeds from the public offering of our common stock in february of 2018 , offset by $ 12.1 million payment of debt issuance costs and $ 3.1 million of taxes paid upon vesting of restricted stock units .
| united states revenue increased in absolute terms and as a percentage of total revenue due , in part , to our acquisition of dms , whose customers are primarily based in the united states . the decrease in foreign revenues in absolute terms and as a percentage of total revenue is due primarily to lower semiconductor demands . gross margin replace_table_token_6_th cost of revenues consists primarily of purchased materials , labor and overhead , including depreciation related to certain capital assets associated with the design and manufacture of products sold . sps gross profit decreased in fiscal year 2019 compared to fiscal year 2018 due primarily to lower revenues . sps gross margin decreased in fiscal year 2019 compared to fiscal year 2018 , due primarily to a change in product mix with lower product margins . ssb gross profit increased in fiscal year 2019 compared to fiscal year 2018 due primarily to the acquisition of qgt which contributed a full year of financial results in 2019 compared to four months of financial results in 2018. ssb gross margin increased in fiscal year 2019 compared to fiscal year 2018 due primarily to a change in product mix as well as an improvement in labor efficiencies . research and development replace_table_token_7_th 39 research and development expense s consist primarily of activities related to new component testing and evaluation , test equipment and fixture development , product design , the advancement of cleaning and coating and analytical processes , and other product-development activities . research a nd development expense s increased $ 1.3 million in fiscal year 2019 over fiscal year 2018 , due primarily to the acquisition of qgt which contributed a full year of financial results in 2019 compared to four months of financial results in 2018. sales and marketing replace_table_token_8_th sales and marketing expenses consist primarily of salaries and commissions paid to our sales employees , salaries paid to our engineers who work with sales and service employees to help determine the components and configuration
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on september 27 , 2018 , the borrower and western alliance entered into a second business financing modification agreement which reduced the credit limit under the business financing agreement to $ 2.5 million and extended the due date of the $ 1.5 million advance to march 6 , 2019. on october 22 , 2018 , the borrower and western alliance entered into a third business financing modification agreement , pursuant to which western alliance waived biolase 's non-compliance with certain financial operating covenants as set forth in the business financing agreement , and the borrower agreed to certain amended covenants contained in the business financing agreement , including $ 300,000 minimum unrestricted cash balance covenant and a waiver of reporting items required to be delivered by biolase to western alliance under the business financing agreement . on november 9 , 2018 , biolase entered into a five-year secured credit agreement with swk funding llc ( “ swk ” ) , pursuant to which biolase has borrowed $ 12.5 million ( the “ swk loan ” ) . biolase 's obligations are secured by substantially all of our assets . the swk loan matures on november 9 , 2023 , and the interest rate on the swk loan is libor plus 10 % . approximately , $ 0.9 million of the proceeds from the swk loan were used to repay all amounts owed to western alliance under the business financing agreement , and we plan to use the remaining proceeds to provide additional working capital to fund our growth initiatives , such as broadening our customer base and increasing the utilization of its products to drive recurring higher margin consumables revenue . on november 9 , the business financing agreement , as amended on october 22 , 2018 , was replaced by the credit agreement . all outstanding borrowings , accrued interest and fees were paid off with a portion of the proceeds under the credit agreement , and the business financing agreement was terminated . in summary , 2018 was a year of continued transformation for us , positioning ourselves to further execute on our strategic goals of returning biolase to a successful growing company and continuing as the clear worldwide industry leader in the dental laser segment . although we have made improvements throughout the year , it will take time for the financial statements to reflect the changes and as such , for the three years ended december 31 , 2018 we have reported recurring losses from operations and have not generated cash from operations . our level of cash used in operations , the potential need for additional capital , and the uncertainties surrounding our ability to raise additional capital , raise substantial doubt about our ability to continue as a going concern . as a result , the opinion we have received from our independent registered public accounting firm , on our consolidated financial statements , contains an explanatory paragraph stating that there is a substantial doubt regarding our ability to continue as a going concern . the accompanying consolidated financial statements have been prepared on a going concern basis , which assumes that we will continue in operation for the next 12 months and will be able to realize our assets and discharge our liabilities and commitments in the normal course of business . the consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern . critical accounting policies the preparation of consolidated financial statements and related disclosures in con formity with generally accepted accounting principles in the united states ( “ gaap ” ) requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes . the following is a summary of those accounting policies that we believe are necessary to understand and evaluate our reported financial results . revenue recognition revenue for sales of products and services is derived from contracts with customers . the products and services promised in contracts include delivery of laser systems , imaging systems , and consumables as well as certain ancillary services such as product training and support for extended warranties . contracts with each customer generally state the terms of the sale , including the description , quantity and price of each product or service . payment terms are stated in the contract and vary according to the arrangement . because the customer typically agrees to a stated rate and price in the contract that does not vary over the life of the contract , our contracts do not contain variable consideration . we establish a provision for estimated warranty expenses . for further information on warranty , see warranty cost discussion below . 41 at contract inception , we assess the produ cts and services promised in our contracts with customers . we then identify performance obligations to transfer distinct products or services to the customers . in order to identify performance obligations , we consider all of the products or services promis ed in the contract regardless of whether they are explicitly stated or are implied by customary business practices . revenue from products and services transferred to customers at a single point in time accounted for 86 % , 85 % and 86 % of net revenue for the years ended december 31 , 2018 , 2017 , and 2016 , respectively . the majority of the revenue recognized at a point in time is for the sale laser systems , imaging systems , and consumables . revenue from these contracts is recognized when the customer is able to direct the use of and obtain substantially all of the benefits from the product which generally coincides with title transfer during the shipping process . revenue from services transferred to customers over time accounted for 14 % , 15 % , and 14 % of net revenue for the years ended december 31 , 2018 , 2017 , and 2016 , respectively . story_separator_special_tag the majority of our revenue that is recognized over time relates to training and extended warranties . the transaction price for a contract is allocated to each distinct performance obligation and recognized as revenue when , or as , each performance obligation is satisfied . for contracts with multiple performance obligations , we allocate the contract 's transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in a contract . the primary method used to estimate standalone selling price is the observable price when the good or service is sold separately in similar circumstances and to similar customers . revenue is recorded for extended warranty over time as the customer benefits from the warranty coverage . this revenue will be recognized equally throughout the contract period as the customer receives benefits from our promise to provide such services . revenue is recorded for training as the customer attends a training program or upon the expiration of the obligation . we also have contracts that include both the product sales and product training as performance obligations . in those cases , we record revenue for product sales at the point in time when the product has been shipped . the customer obtains control of the product when it is shipped , as all shipments are made fob shipping point , and after the customer selects its shipping method and pays all shipping costs and insurance . we have concluded that control is transferred to the customer upon shipment . we perform our obligations under a contract with a customer by transferring products and or services in exchange for consideration from the customer . we invoice our customers as soon as control of an asset is transferred and a receivable due to us is established . we recognize a contract liability when a customer prepays for goods and or services and we have not transferred control of the goods and or services . accounts receivable are stated at estimated net realizable value . the allowance for doubtful accounts is based on an analysis of customer accounts and our historical experience with accounts receivable write-offs . accounting for stock-based payments . stock-based compensation expense is estimated at the grant date of the award , is based on the fair value of the award and is recognized ratably over the requisite service period of the award . for restricted stock units we estimate the fair value of the award based on the number of awards and the fair value of our common stock on the grant date and apply an estimated forfeiture rate . for stock options , we estimate the fair value of the option award using the black-scholes option pricing model . this option-pricing model requires us to make several assumptions regarding the key variables used to calculate the fair value of its stock options . the risk-free interest rate used is based on the u.s. treasury yield curve in effect for the expected lives of the options at their grant dates . since july 1 , 2005 , we have used a dividend yield of zero , as we do not intend to pay cash dividends on our common stock in the foreseeable future . the most critical assumptions used in calculating the fair value of stock options is the expected life of the option and the expected volatility of our common stock . the expected life is calculated in accordance with the simplified method , whereby for service-based awards , the expected life is calculated as a midpoint between the vesting date and expiration date . we use the simplified method , as there is not a sufficient history of share option exercises . for performance-based awards , the expected life equals the life of the award . we believe the historic volatility of our common stock is a reliable indicator of future volatility , and accordingly , a stock volatility factor based on the historical volatility of our common stock over a lookback period of the expected life is used in approximating the estimated volatility of new stock options . compensation expense is recognized using the straight-line method for all service-based employee awards and graded amortization for all performance-based awards . compensation expense is recognized only for those options expected to vest , with forfeitures estimated at the date of grant based on historical experience and future expectations . forfeitures are estimated at the time of the grant and revised in subsequent periods as actual forfeitures differ from those estimates . during the year ended december 31 , 2018 , we applied a forfeiture rate of 7.28 % and 45.31 % to awards granted to executives and employees , respectively , 42 valuation of inventory . inventory is valued at the lower of cost or net realizable value , with cost determined using the first-in , first-out method . we periodically ev aluate the carrying value of inventory and maintain an allowance for excess and obsolete inventory to adjust the carrying value as necessary to the lower of cost or net realizable value . we evaluate quantities on hand , physical condition , and technical fun ctionality , as these characteristics may be impacted by anticipated customer demand for current products and new product introductions . unfavorable changes in estimates of excess and obsolete inventory would result in an increase in cost of revenue and a d ecrease in gross profit . valuation of long-lived assets . property , plant , and equipment and certain intangibles with finite lives are amortized over their estimated useful lives . useful lives are based on our estimate of the period that the assets will generate revenue or otherwise productively support our business goals . we monitor events and changes in circumstances that could indicate that the carrying balances of long-lived assets may exceed the undiscounted expected future cash flows from those assets .
| the increase in domestic laser revenues is primarily due to our increased sales efforts in our model markets as well as the rest of the u.s. imaging system net revenue decreased by approximately $ 2.0 million , or 54 % , in fiscal 2018 compared to fiscal 2017. this decrease was primarily driven by a one-time study club purchase in 2017 and our renewed focus on laser sales in 2018. consumables and other net revenue , which includes products such as disposable tips and shipping revenue , increased approximately $ 1.0 million , or 13 % , in fiscal 2018 , as compared to fiscal 2017. the increase in consumables and other net revenue was primarily driven by an increase of approximately 12 % in domestic sales , which is attributed to our growing laser customer base . 45 license fees and royalty revenue decreased b y approximately $ 0.1 million or 91 % , in fiscal 201 8 compared to fiscal 201 7 primarily due to winding down of the previously disclosed fotona proizvodnja optoelektronskih naprav d.d . and fotona llc intellectual property litigation ( the “ fotona litigation ” ) . cost of revenue . cost of revenue decreased by $ 2.5 million , or approximately 8 % , to $ 29.3 million , or 63 % of net revenue in fiscal 2018 , compared to cost of revenue of $ 31.8 million , or 68 % of net revenue , in fiscal 2017. the decrease in cost of revenue in fiscal 2018 as compared to fiscal 2017 is primarily due to product mix . in fiscal 2018 , we sold fewer imaging systems which have lower profit margin leading to an overall decline in cost of revenue as a percentage of revenue from fiscal 2017. gross profit . gross profit as a percentage of revenue typically fluctuates with product and regional mix , selling prices , product costs and revenue levels . gross profit for fiscal 2018 was $ 16.9 million , or 37 % of net revenue , an increase of approximately $ 1.8 million , or 12 % , as compared with gross profit of $ 15.1 million , or 32 % of net revenue , for fiscal 2017. the increase in gross profit reflects new customer growth and a favorable change in product mix with an increase in laser sales , which have higher average selling prices and higher profit margins than our other product offerings . operating expenses . operating expenses for fiscal 2018 were $ 37.8 million , or 82 % of net revenue , an increase of approximately $ 4.6 million , or 14 % , as compared with $ 33.2 million , or 71 % of net
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our assets include approximately 50,000 miles of onshore and offshore pipelines ; 200 mmbbls of storage capacity for ngls , petrochemicals , refined products and crude oil ; and 14 bcf of natural gas storage capacity . in addition , our asset portfolio includes 24 natural gas processing plants , 21 ngl and propylene fractionators , six offshore hub platforms located in the gulf of mexico , a butane isomerization complex , ngl import and export terminals , and octane enhancement and high-purity isobutylene production facilities . we conduct substantially all of our business through epo and are owned 100 % by our limited partners from an economic perspective . enterprise gp manages our partnership and owns a non-economic general partner interest in us . like many publicly traded partnerships , we have no employees . all of our management , administrative and operating functions are performed by employees of epco pursuant to an administrative services agreement ( the `` asa '' ) or by other service providers . we have five reportable business segments : ( i ) ngl pipelines & services ; ( ii ) onshore natural gas pipelines & services ; ( iii ) onshore crude oil pipelines & services ; ( iv ) offshore pipelines & services ; and ( v ) petrochemical & refined products services . all activities included in our former sixth reportable business segment , other investments , ceased on january 18 , 2012 , which was the date we discontinued using the equity method to account for our previously held investment in energy transfer equity , l.p. ( `` energy transfer equity '' ) . for additional information regarding the divestiture of our investment in energy transfer equity , see `` liquidity and capital resources – liquidation of investment in energy transfer equity '' within this item 7. we completed the duncan and holdings mergers in september 2011 and november 2010 , respectively . we believe these recent merger transactions streamlined and simplified our organizational structure to be more transparent to investors , removed potential conflicts of interest due to common control considerations and reduced public company overhead costs . for additional information regarding these business combinations , see `` duncan and holdings mergers '' under part i , item 1 and 2 of this annual report . for information regarding our directors and executive officers , see part iii , item 10 of this annual report . basis of financial statement presentation as a result of the november 2010 merger of enterprise gp holdings l.p. ( `` holdings '' ) with and into one of our wholly owned subsidiaries ( the `` holdings merger '' ) , enterprise 's consolidated financial and operating results prior to november 22 , 2010 have been presented as if enterprise were holdings from an accounting perspective ( i.e. , the financial statements of holdings became the historical financial statements of enterprise ) . since we historically consolidated duncan energy partners l.p. ( `` duncan energy partners '' ) for financial reporting purposes , the september 2011 merger of one of our wholly owned subsidiaries with and into duncan energy partners ( the `` duncan merger '' ) did not change the basis of presentation of our historical financial statements . see note 1 of the notes to consolidated financial statements included under part ii , item 8 of this annual report for information regarding the basis of presentation of our general purpose financial statements . 69 significant recent developments the following information highlights significant commercial and operational developments during 2012 and through the date of this filing ( march 1 , 2013 ) . for information regarding recent offerings of our equity and debt securities , see `` liquidity and capital resources '' within this item 7. enterprise begins service at echo crude oil terminal in november 2012 , the initial phase of our enterprise crude houston ( or `` echo '' ) storage terminal located in southeast houston , texas was partially completed and started receiving deliveries of crude oil . completion of this first phase provides us with approximately 0.5 mmbbls of crude oil storage capacity ( two tanks ) at the site . a third tank was completed and placed into service in february 2013. an additional 0.9 mmbbls of storage capacity is expected to be in service as early as the second quarter of 2014. when fully developed , we estimate that the echo terminal could have up to 6.0 mmbbls of crude oil storage capacity . formation of eagle ford crude oil pipeline joint venture with plains in august 2012 , we announced the formation of a 50/50 joint venture , eagle ford pipeline llc , with plains all american pipeline , l.p. ( `` plains '' ) to provide crude oil pipeline services to producers in south texas . the arrangement provides for enterprise and plains to consolidate certain segments of previously announced pipeline projects servicing the eagle ford shale supply basin . the joint venture pipeline system is supported by long-term commitments from producers totaling up to 210 mbpd of crude oil . this joint venture is expected to provide shippers with increased market flexibility and enable enterprise and plains to optimize their respective capital investments in the area . the joint venture will include a 140-mile crude oil and condensate line extending from gardendale , texas in lasalle county to three rivers , texas in live oak county and continuing on to corpus christi , texas , and a newly constructed 35-mile pipeline segment from three rivers to our lyssy , texas station in wilson county . the system , which is currently under construction , is expected to have a capacity of 350 mbpd and will include a marine terminal facility at corpus christi and 1.8 mmbbls of operational storage capacity across the system . story_separator_special_tag segments of the new pipeline system are expected to be placed into service in the first quarter of 2013 , with the balance of the system expected to be placed into service in the third quarter of 2013. plains will serve as operator of the joint venture 's pipeline system . at lyssy , the joint venture pipeline will interconnect with the eagle ford expansion of our south texas crude oil pipeline system , which commenced operations in june 2012 ( see below ) . our south texas crude oil pipeline system is not part of the new joint venture 's pipeline system . plans to build world-scale propane dehydrogenation unit in june 2012 , we announced plans to build one of the world 's largest propane dehydrogenation ( `` pdh '' ) units , with capacity to produce up to 1.65 billion pounds per year , which equates to approximately 750 thousand metric tons per year or 25 mbpd , of polymer grade propylene . the pdh facility is expected to consume up to 35 mbpd of propane as feedstock and be located in southeast texas along the gulf coast . the new facility will be integrated with our existing propylene fractionation facilities , which will provide operational reliability and flexibility for both the pdh facility and the fractionation facilities . the pdh facility will also be integrated with our polymer grade propylene storage facilities , pipeline system and export terminal . the pdh facility , which is supported by long-term , fee-based contracts , is expected to begin commercial operations during the third quarter of 2015. we are in discussions with additional customers that could lead to the development of additional pdh capacity . eagle ford expansion of our south texas crude oil pipeline system commences operations in june 2012 , we announced that the eagle ford expansion of our south texas crude oil pipeline system commenced operations . this pipeline expansion , which has a crude oil transportation capacity of 350 mbpd , 70 allows us to serve growing production areas in the eagle ford shale supply basin . the new pipeline originates at our lyssy station in karnes county , texas and extends 147 miles to sealy , texas and includes 2.4 mmbbls of crude oil storage , including 0.8 mmbbls in karnes county , texas , 0.4 mmbbls in gonzales county , texas and 1.2 mmbbls at sealy . crude oil supplies arriving at sealy on the new pipeline are being delivered to houston area refiners through affiliate and third party owned pipelines . in addition , shippers have access to our new echo crude oil storage terminal . seaway pipeline developments in june 2012 , we and enbridge inc. announced that the seaway pipeline made its first delivery of crude oil to the texas gulf coast . the arrival marked the first southbound delivery of crude oil by pipeline from the cushing hub , and gives producers access to all of the major refineries in the greater houston area and texas city . additional pump station additions and modifications , which were completed in january 2013 , are expected to increase the pipeline 's throughput capacity . in march 2012 , we secured capacity commitments from shippers to proceed with an additional expansion of the seaway pipeline . this expansion project entails the construction of a 512-mile , 30-inch diameter pipeline mostly along the existing route of the seaway pipeline . it is anticipated that the new pipeline will commence operations during the first quarter of 2014. the seaway pipeline delivers crude oil from cushing into the houston and texas city , texas market utilizing affiliate and third party pipelines . seaway crude pipeline company llc ( `` seaway '' ) is constructing a 65-mile pipeline that will link its pipeline system to our echo crude oil storage terminal . completion of this pipeline segment is expected in the fourth quarter of 2013. in addition , seaway plans to build an 85-mile pipeline from our echo terminal to the port arthur/beaumont , texas refining center that would provide shippers access to the region 's heavy oil refining capabilities . completion of this pipeline segment is expected in mid-2014 . for additional information regarding the seaway pipeline , see our discussion of the onshore crude oil pipelines & services segment under part i , item 1 and 2 of this annual report . yoakum natural gas processing plant begins operations in eagle ford shale in may 2012 , we announced that the first phase ( or `` train '' ) of our new cryogenic natural gas processing plant at yoakum , texas commenced operations . the second train commenced operations in late august 2012. in the aggregate , these two processing trains are processing up to a combined 700 mmcf/d of natural gas and extracting over 90 mbpd of ngls . the third and final train at the yoakum facility , which is the same size as each of the first two trains , is currently undergoing commissioning operations and is expected to be fully operational in march 2013. in april 2012 , we completed a 65-mile residue natural gas pipeline linking the yoakum plant to our wilson natural gas storage facility and numerous third party markets . in addition , we recently completed construction of 168 miles of pipelines that will transport mixed ngls extracted at the yoakum plant to our ngl fractionation and storage complex at mont belvieu , texas . we are also constructing a 173-mile ngl pipeline that will extend from our yoakum facility to lasalle county , texas , and provide ngl connectivity to additional natural gas processing plants .
| the following table presents segment gross operating margin and selected volumetric data for the ngl pipelines & services segment for the years indicated ( dollars in millions , volumes as noted ) : for year ended december 31 , 2012 2011 2010 segment gross operating margin : natural gas processing and related ngl marketing activities $ 1,443.0 $ 1,324.4 $ 989.9 ngl pipelines and related storage 740.7 638.4 604.8 ngl fractionation 284.8 221.4 137.9 total $ 2,468.5 $ 2,184.2 $ 1,732.6 selected volumetric data : ngl transportation volumes ( mbpd ) 2,472 2,284 2,322 ngl fractionation volumes ( mbpd ) 659 575 485 equity ngl production ( mbpd ) ( 1 ) 101 116 121 fee-based natural gas processing ( mmcf/d ) ( 2 ) 4,382 3,820 2,932 ( 1 ) represents the ngl volumes we earn and take title to in connection with our processing activities . in general , equity ngl production decreased in 2012 compared to 2011 and 2010 due to reduced ethane recoveries associated with the weakness in natural gas processing margins resulting from lower ngl prices . ( 2 ) volumes reported correspond to the revenue streams earned by our gas plants . the increase in fee-based processing volumes in 2012 is primarily due to ( i ) the start-up of our yoakum gas plant in may 2012 and ( ii ) changes in processing agreements whereby producers are electing to process more of their natural gas on a fee basis in order to retain ngls extracted from their natural gas streams , which , in turn , also lowers our equity ngl production . 81 natural gas processing and related ngl marketing activities comparison of 2012 with 2011. gross operating margin from our natural gas processing and related ngl marketing activities for 2012 increased $ 118.6 million when compared to 2011. gross operating margin from our ngl marketing activities for 2012 increased $ 150.4 million compared to 2011 , of which we attribute a $ 94.2 million year-to-year increase to higher sales margins and the remainder attributed to higher sales volumes . our south texas natural gas processing plants posted a $ 57.2 million year-to-year increase in gross operating margin primarily due to higher equity ngl and fee-based processing volumes from the start-up of our new yoakum plant , which commenced operations in may 2012. gross operating margin from our natural gas processing plants located in the rocky mountains
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these increases were offset by $ 2.9 million of gain due to an insurance recovery on the involuntary conversion of fixed assets related to a fire in one of our brazilian facilities . in addition , 2014 net other expenses include d a $ 1.5 million write-down on a non-controlling investment . in 2014 , net other expenses decreased slightly to $ 20.1 million compared to $ 20.2 million in 2013. higher interest income and lower hedging costs were mostly offset by the recognition of a $ 1.5 million write-down on a non-controlling investment taken during the first quarter of 2014 to align with the current fair value . effective tax rate the reported effective tax rate on net income for 2015 and 2014 was 32.3 % and 33.1 % , respectively . the lower tax rate for 2015 is attributable to the reduction of valuation allowances related to u.s. state tax credits and tax benefits associated with exceptional depreciation provisions enacted in france during 2015. the reported effective tax rate on net income for 2014 and 2013 was 33.1 % and 35.0 % , respectively . the company did not repatriate any earnings from foreign jurisdictions to the u.s. in 2014 and this reduced our reported effective tax rate compared to 2013 . net income attributable to aptargroup , inc. we reported net income of $ 199.3 million compared to $ 191.7 million reported in 2014 and $ 172.0 million reported in 2013. beauty + home segment replace_table_token_7_th ( 1 ) segment income is defined as earnings before net interest expense , certain corporate expenses , restructuring initiatives and income taxes . the company evaluates performance of its business units and allocates resources based upon segment income . for a reconciliation of segment income to income before income taxes , see note 17 to the consolidated financial statements in item 8. net sales decreased approximately 15 % in 2015 to $ 1.27 billion compared to $ 1.50 billion in 2014. changes in foreign currency negatively impacted reported sales for 2015 by 13 % . core sales , which exclude changes in exchange rates , decreased 2 % in 2015 compared to the prior year . core sales to the personal care , beauty and home care markets decreased by 5 % , 1 % and 2 % , respectively , in 2015 compared to 2014. we experienced global market softness in all regions except asia leading to a sales decline on a constant currency basis compared to the prior year . decreases in selling prices due to contractual resin cost pass-throughs to our customers negatively impacted sales by $ 9.1 million . customer tooling sales , excluding foreign currency changes , increased $ 8.0 million in 2015 to $ 36.9 million compared to $ 28.9 million in the prior year . 17 /atr 2015 form 10-k in 2014 , net sales increased approximately 1 % to $ 1.50 billion compared to $ 1.49 billion in 2013. changes in foreign currency negatively impacted reported sales for 2014 by 2 % . core sales , which exclude changes in exchange rates , increased 3 % in 2014 compared to the prior year . core sales to the beauty market increased approximately 4 % while core sales to the personal care and home care markets increased approximately 3 % and 4 % , respectively , in 2014 compared to 2013. the increase in beauty sales was primarily due to growth of our prestige fragrance and skin care products . personal care increased over the prior year due to stronger sales to our personal cleansing and sun care customers while sales to the home care market increased mainly due to improved laundry care sales . geographically , all four regions reported increases in net sales with strong core sales growth in our emerging markets along with moderate growth in europe and the u.s. customer tooling sales , excluding foreign currency changes , decreased in 2014 to $ 33.9 million compared to $ 37.7 million in the prior year . in spite of the decrease in net sales , segment income for 2015 increased slightly to $ 98.7 million from $ 98.4 million reported in 2014. the negative impacts of foreign currency rate changes and lower product sales were more than offset by lower material costs , cost savings initiatives and improved productivity , mainly in north america . we recognized a $ 2.4 million negative transaction effect related to the importing of components into latin america from different regions due to the continued devaluation of certain latin american currencies . however , this was offset by a $ 5.1 million favorable impact from the timing of resin pass-throughs in 2015 primarily in north america . in 2014 , segment income decreased approximately 10 % to $ 98.4 million from $ 109.3 million reported in 2013. soft demand in certain product lines negatively impacted our north american region . we also recognized approximately $ 3.0 million in one-time costs related to the start-up of our colombian operations . due to the significant devaluation of certain latin american currencies , we recognized approximately $ 3.3 million of negative transaction effects related to the importing of components from different regions . in addition , we incurred $ 1.3 million of expense related to a fire that occurred in one of our brazilian facilities . pharma segment replace_table_token_8_th net sales decreased approximately 5 % in 2015 to $ 712.2 million compared to $ 751.2 million in 2014. foreign currency changes negatively impacted total segment sales by 13 % . core sales , which exclude changes in exchange rates , increased 8 % in 2015 compared to the prior year . core sales to the prescription and injectables markets increased 13 % and 7 % , respectively , in 2015 compared to the same period in the prior year . prescription growth was led by strong demand for allergy products in both over the counter and prescription versions in the u.s. market as well as generics in europe . story_separator_special_tag we also experienced strong demand for our asthma/copd metered dose inhaler aerosol valves from key branded and generics customers worldwide . injectables grew on increased stopper and syringe component sales with strong demand in europe , u.s. , india and latin america . core sales to the consumer health care market were down slightly to the prior year as growth in our non-prescription nasal decongestant business was offset by the softness in eastern europe and customer inventory reduction plans . customer tooling sales , excluding foreign currency changes , increased $ 6.0 million in 2015 to $ 20.3 million compared to $ 14.3 million in the prior year . in 2014 , net sales increased approximately 6 % to $ 751.2 million compared to $ 708.8 million in 2013. foreign currency changes negatively impacted total segment sales by 1 % . core sales , which exclude changes in exchange rates , increased 7 % in 2014 compared to the prior year . core sales of our products increased in each end market and geographic region we serve . core sales to the prescription drug market increased 6 % on strong demand for our metered dose inhaler valves for various asthma and copd treatments , including new generic launches in developing regions . we continued to see strong demand for our consumer health care products , which increased 12 % partially due to preservative free eye care launches in europe using our innovative ophthalmic squeeze dispenser along with strong sales of our products used for nasal decongestant . excluding foreign currency rate changes , sales to the injectables market increased 1 % . customer tooling sales , excluding foreign currency changes , decreased in 2014 to $ 16.9 million compared to $ 21.1 million in the prior year . segment income increased approximately 3 % to $ 210.5 million in 2015 compared to $ 204.7 million in 2014. this increase is mainly attributed to the higher sales volumes and improved product mix within the segment as well as cost containment initiatives . prior year results also included a $ 1.5 million write-down on a non-controlling investment to align with the current fair value . 18 /atr 2015 form 10-k in 2014 , segment income increased approximately 8 % to $ 204.7 million compared to $ 189.7 million in 2013. this increase is mainly attributed to higher sales for the prescription and consumer health care markets discussed above . the pharma segment also recognized a $ 1.5 million expense in the first quarter of 2014 related to the write-down of a non-controlling investment to fair value . food + beverage segment replace_table_token_9_th net sales decreased by approximately 5 % in 2015 to $ 332.0 million compared to $ 348.3 million in 2014. excluding changes in foreign currency rates , sales increased 2 % . decreases in prices due to resin pass-throughs to our customers negatively impacted sales by $ 6.6 million while customer tooling sales , excluding foreign currency changes , decreased $ 11.5 million in 2015 to $ 15.6 million compared to $ 27.1 million in the prior year . sales of our products , excluding foreign currency changes , to the food market increased 3 % and core sales of our products to the beverage market increased approximately 1 % in 2015 compared to the prior year . broad based growth in the food market was partially offset by lower tooling sales of $ 10.9 million in 2015 compared to 2014. beverage sales increased slightly as higher bottled water sales offset weakness in the functional drink and concentrated beverage flavorings applications . in 2014 , net sales increased by approximately 8 % to $ 348.3 million compared to $ 323.1 million in 2013. excluding changes in foreign currency rates , sales increased 9 % . sales of our products , excluding foreign currency changes , to the food market increased 7 % and core sales of our products to the beverage market increased approximately 11 % in 2014 compared to the prior year . the food sales increase was mainly due to improved sales of our products used to dispense sauces/condiments and dairy creamers . the beverage sales increase was driven by the continued success of our products used on functional beverages in the asian region as well as growth in the concentrate beverage flavoring market in europe . customer tooling sales , excluding foreign currency changes , also increased in 2014 to $ 28.5 million compared to $ 27.2 million in the prior year . segment income increased approximately 13 % to $ 42.7 million in 2015 compared to $ 37.7 million in 2014. this increase is mainly attributed to higher product sales volumes , improved operational performance and a $ 3.8 million favorable impact due to the timing of resin pass-throughs . in 2014 , segment income increased approximately 7 % to $ 37.7 million compared to $ 35.2 million in 2013. this increase is mainly driven by the increase in product sales to both the food and beverage markets . corporate & other certain costs that are not allocated to our three operating business segments are classified as “ corporate & other , ” which is presented separately in note 17 of the notes to the consolidated financial statements . corporate & other primarily includes certain corporate compensation , professional fees , certain information system costs and lifo inventory adjustments ( prior to our accounting change in the second quarter of 2015 ) . corporate & other expense in 2015 decreased to $ 28.4 million compared to $ 38.3 million in 2014. this decrease is primarily due to the favorable impact of a $ 7.4 million change in accounting principle related to our inventory valuation method during the second quarter , $ 2.9 million of gain due to an insurance recovery on the involuntary conversion of fixed assets related to a fire in one of our brazilian facilities along with the positive effect of changes in exchange rates on the translation of foreign based costs .
| the following table sets forth , for the periods indicated , net sales by geographic location : replace_table_token_6_th 15 /atr 2015 form 10-k cost of sales ( exclusive of depreciation and amortization shown below ) our cost of sales as a percent of net sales decreased to 64.8 % in 2015 compared to 67.6 % in 2014. the decrease is partly due to a one-time favorable $ 7.4 million change in our inventory accounting principle for the inventory valuation method of certain operating entities in our north american business to the first-in first-out ( fifo ) method from the last-in first-out ( lifo ) method which was recorded in the second quarter of 2015. operationally , we benefitted from our mix of products sold . our pharma segment sales represented a higher percentage of our overall sales in 2015 compared to 2014. this positively impacts our cost of sales percentage as margins on our pharmaceutical products typically are higher than the overall company average . we also benefitted from lower material costs , cost savings initiatives and productivity improvements along with a positive impact from the timing delay of resin pass-throughs of approximately $ 8.9 million as resin prices declined significantly during 2015. in 2014 , our cost of sales as a percentage of net sales decreased to 67.6 % compared to 67.8 % in 2013. positively impacting the cost of sales percentage in 2014 were the mix of products sold as the pharma segment sales represented a higher percentage of our overall sales in 2014 compared to 2013 , along with incremental cost savings from a restructuring plan to optimize certain production capacities in europe which was fully realized in 2014. these savings were partially offset by underutilized u.s. overhead as s oft demand in certain product lines negatively impacted our north american cost of sales , mainly in our beauty + home segment . we also incurred additional costs in latin america as we recognized approximately $ 3.0 million in one-time costs related to the start-up of our colombian operations and incurred $ 1.3 million of expenses related to a fire that occurred in one of our brazilian facilities .
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you are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this annual report on form 10-k . in reviewing management 's discussion and analysis of financial condition and results of operations , you should refer to our consolidated financial statements and the notes related thereto . critical accounting policies the following accounting policies are important to understanding our financial condition and results of operations and should be read as an integral part of the discussion and analysis of the results of our operations and financial position . for additional accounting policies , see note 2 to our consolidated financial statements , “ summary of significant accounting policies. ” the company adopted asc 606 , the new revenue recognition standard , beginning january 1 , 2018. the comparative prior periods have not been adjusted and continue to be reported under asc 605. the company determined that its license agreements provide for three performance obligations : ( i ) grant of use , ( ii ) technical support , and ( iii ) new improvements . the best method for determining standalone selling price of our grant of use performance obligation is through a comparison of the average royalty rate for comparable license agreements as compared to our license agreements . based on the royalty rate comparison referred to above , any pricing above and beyond the average royalty rate would relate to the technical support and new improvements performance obligations . we recognize revenue when or as the performance obligations in the contract are satisfied . for performance obligations that are fulfilled at a point in time , revenue is recognized at the fulfillment of the performance obligation . since the ip is determined to be a functional license , the value of the grant of use is recognized in the first period of the contract term in which the license agreement is in force . since the costs incurred to satisfy the technical support and new improvements performance obligations are incurred evenly throughout the year , the value of the technical support and new improvements services are recognized throughout the contract period as these performance obligations are satisfied . the company operates in a single business segment which is engaged in the development and marketing of technology and devices to control the flow of light . our revenue source comes from the licensing of this technology and all of these license agreements have similar terms and provisions . the company has entered into license agreements covering products using the company 's spd technology . when royalties from the sales of licensed products by a licensee exceed its contractual minimum annual royalties , the excess amount is recognized by the company as fee income in the period that it was earned . certain of the fees are accrued by , or paid to , the company in advance of the period in which they are earned resulting in deferred revenue . royalty receivables are stated less allowance for doubtful accounts . the allowance represents estimated uncollectible receivables usually due to licensees ' potential insolvency . the allowance includes amounts for certain licensees where risk of default has been specifically identified . the company evaluates the collectability of its receivables on at least a quarterly basis and records appropriate allowances for uncollectible accounts when necessary . the company expenses costs relating to the development or acquisition of patents due to the uncertainty of the recoverability of these items . all of our research and development costs are charged to operations as incurred . our research and development expenses consist of costs incurred for internal and external research and development . these costs include direct and indirect overhead expenses . the company has historically used the black-scholes option-pricing model to determine the estimated fair value of each option grant . the black-scholes model includes assumptions regarding dividend yields , expected volatility , expected lives , and risk-free interest rates . these assumptions reflect our best estimates , but these items involve uncertainties based on market conditions generally outside of our control . as a result , if other assumptions had been used in the current period , stock-based compensation expense could have been materially impacted . furthermore , if management uses different assumptions in future periods , stock-based compensation expense could be materially impacted in future years . on occasion , the company may issue to consultants either options or warrants to purchase shares of common stock of the company at specified share prices . these options or warrants may vest based upon specific services being performed or performance criteria being met . in accounting for equity instruments that are issued to other than employees for acquiring , or in conjunction with selling , goods or services , the company is required to record consulting expenses based upon the fair value of such options or warrants on the earlier of the service period or the period that such options or warrants vest as determined using a black-scholes option pricing model and are marked to market quarterly using the black-scholes option valuation model . the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements , and reported amounts of revenues and expenses during the reporting periods . actual results could differ from these estimates . an example of a critical estimate is the full valuation allowance for deferred taxes that was recorded based on the uncertainty that such tax benefits will be realized in future periods . story_separator_special_tag 27 story_separator_special_tag ended december 31 , 2018 was $ 10,135 as compared to $ 4,752 for the year ended december 31 , 2017. the difference was primarily due to higher cash balances available for investment . no income tax benefit or expense was recorded for the years ended december 31 , 2018 and 2017. as a consequence of the factors discussed above , the company 's net loss was $ 2,686,128 ( $ 0.10 per common share ) for the year ended december 31 , 2018 as compared to $ 2,413,859 ( $ 0.10 per common share ) for the year ended december 31 , 2017. year ended december 31 , 2017 compared to the year ended december 31 , 2016 the company 's fee income for the year ended december 31 , 2017 was $ 1,509,070 , as compared to $ 1,236,097 for the year ended december 31 , 2016. a substantial majority of this increase was principally the result of increase fees earned during 2017 from licensees focused in automotive , marine , display and architectural industries which was partially offset by slightly lower level of fee income from licensees focused in the aircraft industry ( which the company believes to be temporary ) . operating expenses decreased by $ 958,429 for the year ended december 31 , 2017 to $ 3,127,979 from $ 4,086,408 for the year ended december 31 , 2016. a substantial majority of this decrease was the result of cost reduction initiatives undertaken by the company that resulted in lower payroll and related costs ( $ 200,000 ) , marketing and investor relations costs ( $ 125,000 ) and patent costs ( $ 177,000 ) , as well as lower bad debt expenses ( $ 425,000 ) . included in operating expenses is approximately $ 64,000 and $ 51,000 of non-cash compensation charges for the years ended december 31 , 2017 and 2016 , respectively . research and development expenditures decreased by $ 617,932 to $ 799,702 for the year ended december 31 , 2017 from $ 1,417,634 for the year ended december 31 , 2016. a substantial majority of this decrease was the result of cost reduction initiatives undertaken by the company that resulted lower payroll and related costs ( $ 555,000 ) as well as lower material costs ( $ 23,000 ) . included in research and development expenses are approximately $ 12,000 and $ 16,000 of non-cash compensation charges for the years ended december 31 , 2017 and 2016 , respectively . the company 's net investment income for the year ended december 31 , 2017 was $ 4,752 as compared to $ 29,535 for the year ended december 31 , 2016. the difference was primarily due to lower interest earned from cash balances available for investment . no income tax benefit or expense was recorded for the years ended december 31 , 2017 and 2016. as a consequence of the factors discussed above , the company 's net loss was $ 2,413,859 ( $ 0.10 per common share ) for the year ended december 31 , 2017 as compared to $ 4,238,410 ( $ 0.18 per common share ) for the year ended december 31 , 2016 . 28 financial condition , liquidity and capital resources the company has primarily utilized its cash , cash equivalents , short-term investments , and the proceeds from its investments to fund its research and development , for marketing initiatives , and for other working capital purposes . the company 's working capital and capital requirements depend upon numerous factors , including , but not limited to , the results of research and development activities , competitive and technological developments , the timing and costs of patent filings , and the development of new licensees and changes in the company 's relationship with existing licensees . the degree of dependence of the company 's working capital requirements on each of the foregoing factors can not be quantified ; increased research and development activities and related costs would increase such requirements ; the addition of new licensees may provide additional working capital or working capital requirements , and changes in relationships with existing licensees would have a favorable or negative impact depending upon the nature of such changes . during 2018 , the company 's cash and cash equivalents balance increased by $ 1,231,569 principally as a result of cash proceeds of $ 3,314,292 from the sale of common stock and warrants and the exercise of options and warrants , partially offset by cash used for operations of $ 2,071,060 and cash used for the purchase of property and equipment of $ 11,663. at december 31 , 2018 the company had cash and cash equivalents of $ 2,969,416 , working capital of $ 3,254,160 and total shareholders ' equity of $ 3,099,490. our quarterly projected cash flow shortfall , based on our current operations , adjusted for any non-recurring cash expenses for the next 12 months , is approximately $ 450,000 per quarter . we may eliminate some operating expenses in the future , which will further reduce our cash flow shortfall if needed . we expect to have sufficient working capital for the next 18-24 months of operations . during 2017 , the company 's cash and cash equivalents balance increased by $ 46,244 principally because of proceeds from the sale of investments of $ 1,523,333 partially offset by cash used for operations of $ 1,470,540 and cash used for the purchase of property and equipment of $ 6,549. at december 31 , 2017 the company had working capital of $ 2,051,238 and total shareholders ' equity of $ 2,567,366. during 2016 , the company 's cash and cash equivalents balance decreased by $ 4,020,707 principally because of cash used for operations of $ 4,005,443 and cash used for the purchase of property and equipment of $ 11,715. at december 31 , 2016 the company had cash and short-term investments of $ 3,214,936 working
| as such , royalties from these five car models was accretive to the company 's royalty revenue . production efficiencies are expected to continue and accelerate with the introduction of the higher vehicle production volumes for various car models going forward , and the company expects that lower pricing per square foot of the company 's technology could expand the market opportunities , adoption rates , and revenues for its technology in automotive and non-automotive applications . the company expects to generate additional royalty income from the near-term introduction of additional new car and aircraft models from other oem 's ( original equipment manufacturers ) , continued growth of sales of products using the company 's technology for the marine industry in yachts and other watercraft , in trains , in museums , and in larger architectural projects . because the company 's license agreements typically provide for the payment of royalties by a licensee on product sales within 45 days after the end of the quarter in which a sale of a licensed product occurs ( with some of the company 's more recent license agreements providing for payments on a monthly basis ) , and because of the time period which typically will elapse between a customer order and the sale of the licensed product and installation in a home , office building , automobile , aircraft , boat or any other product , there could be a delay between when economic activity between a licensee and its customer occurs and when the company gets paid its royalty resulting from such activity . year ended december 31 , 2018 compared to the year ended december 31 , 2017 the company 's fee income from licensing activities for the year ended december 31 , 2018 was $ 1,488,642 as compared to $ 1,509,070 for the year ended december 31 , 2017 representing a $ 20,428 decrease between these two periods . this decrease in revenues was principally the result of the adoption of asc
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our costs include employee salaries and benefits , compensation paid to consultants , materials and supplies for research , costs associated with development activities including materials , sub-contractors , travel and administration , legal and accounting expenses , sales and marketing costs , general and administrative expenses , and other costs associated with an early stage , publicly-traded technology company . we currently have 17 full-time employees and 1 part-time employee . we anticipate increasing the number of employees required to support our activities in the areas of research and development , sales and marketing , and general and administrative functions . we also expect to incur consulting expenses related to technology development , when using third party expertise and resources is more cost effective than maintaining full time resources , commensurate with our current levels and we expect to incur increasing expenses to protect our intellectual property . the amount that we spend for any specific purpose may vary significantly , and could depend on a number of factors including , but not limited to , the pace of progress of our commercialization and development efforts , actual needs with respect to product testing , development and research , market conditions , and changes in or revisions to our sales and marketing strategies . research , development , and commercial acceptance of new technologies are , by their nature , unpredictable . although we undertake development and commercialization efforts with reasonable diligence , there can be no assurance that the net proceeds from our securities offerings will be sufficient to enable us to develop our technology to the extent needed to create future sales to sustain operations . if the net proceeds from these offerings are insufficient for this purpose , we will consider other options to continue our path to commercialization , including , but not limited to , additional financing through follow-on equity offerings , debt financing , co-development agreements , sale or licensing of developed intellectual or other property , or other alternatives . 21 we can not assure that our technologies will be accepted , that we will ever earn revenues sufficient to support our operations , or that we will ever be profitable . furthermore , we have no committed source of financing and we can not assure that we will be able to raise money as and when we need it to continue our operations . if we can not raise funds as and when we need them , we may be required to scale back our development plans by reducing expenditures for employees , consultants , business development and marketing efforts or to otherwise severely curtail , or even to cease , our operations . critical accounting policies the following discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in conformity with accounting principles generally accepted in the united states of america . certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations and require the application of significant judgment by our management or can be materially affected by changes from period to period in economic factors or conditions that are outside of our control . as a result , they are subject to an inherent degree of uncertainty . in applying these policies , our management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates . those estimates are based on our historical operations , our future business plans and projected financial results , the terms of existing contracts , our observance of trends in the industry , information provided by our customers and information available from other outside sources , as appropriate . see note 2 to our audited consolidated financial statements for a more complete description of our significant accounting policies . revenue recognition and cost of goods sold . effective january 1 , 2017 , the company retroactively adopted asu no . 2014-09 which has as its core principle that an entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in the exchange for those goods or services . the company reviews each contract to identify contract rights , performance obligations , and transaction prices , including the allocation of prices to separate performance obligations . revenues and costs of sales are recognized once the goods or services are delivered to the customer 's control and performance obligations are satisfied . typically , the company 's customer contracts include performance obligations related to emission levels or other metrics that are measured at project completion . since this is the singular performance obligation and can not be achieved until the air emissions and operational performance have been successfully tested , revenue related to the contracts is recognized upon project completion . product warranties . the company warrants all installed products against defects in materials and workmanship for a period specified in each contract by replacing failed parts . accruals for product warranties are based on historical warranty experience and current product performance trends , and are recorded at the time revenue is recognized as a component of cost of sales . the warranty liabilities are reduced by material and labor costs used to replace parts over the warranty period in the periods in which the costs are incurred . the company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary and such adjustments could be material in the future if estimates differ significantly from actual warranty expense . the warranty liabilities are included in accrued liabilities in the balance sheets . research and development . the cost of research and development is expensed as incurred . research and development costs consist of salaries , benefits , share-based compensation , consulting fees , story_separator_special_tag our costs include employee salaries and benefits , compensation paid to consultants , materials and supplies for research , costs associated with development activities including materials , sub-contractors , travel and administration , legal and accounting expenses , sales and marketing costs , general and administrative expenses , and other costs associated with an early stage , publicly-traded technology company . we currently have 17 full-time employees and 1 part-time employee . we anticipate increasing the number of employees required to support our activities in the areas of research and development , sales and marketing , and general and administrative functions . we also expect to incur consulting expenses related to technology development , when using third party expertise and resources is more cost effective than maintaining full time resources , commensurate with our current levels and we expect to incur increasing expenses to protect our intellectual property . the amount that we spend for any specific purpose may vary significantly , and could depend on a number of factors including , but not limited to , the pace of progress of our commercialization and development efforts , actual needs with respect to product testing , development and research , market conditions , and changes in or revisions to our sales and marketing strategies . research , development , and commercial acceptance of new technologies are , by their nature , unpredictable . although we undertake development and commercialization efforts with reasonable diligence , there can be no assurance that the net proceeds from our securities offerings will be sufficient to enable us to develop our technology to the extent needed to create future sales to sustain operations . if the net proceeds from these offerings are insufficient for this purpose , we will consider other options to continue our path to commercialization , including , but not limited to , additional financing through follow-on equity offerings , debt financing , co-development agreements , sale or licensing of developed intellectual or other property , or other alternatives . 21 we can not assure that our technologies will be accepted , that we will ever earn revenues sufficient to support our operations , or that we will ever be profitable . furthermore , we have no committed source of financing and we can not assure that we will be able to raise money as and when we need it to continue our operations . if we can not raise funds as and when we need them , we may be required to scale back our development plans by reducing expenditures for employees , consultants , business development and marketing efforts or to otherwise severely curtail , or even to cease , our operations . critical accounting policies the following discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in conformity with accounting principles generally accepted in the united states of america . certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations and require the application of significant judgment by our management or can be materially affected by changes from period to period in economic factors or conditions that are outside of our control . as a result , they are subject to an inherent degree of uncertainty . in applying these policies , our management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates . those estimates are based on our historical operations , our future business plans and projected financial results , the terms of existing contracts , our observance of trends in the industry , information provided by our customers and information available from other outside sources , as appropriate . see note 2 to our audited consolidated financial statements for a more complete description of our significant accounting policies . revenue recognition and cost of goods sold . effective january 1 , 2017 , the company retroactively adopted asu no . 2014-09 which has as its core principle that an entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in the exchange for those goods or services . the company reviews each contract to identify contract rights , performance obligations , and transaction prices , including the allocation of prices to separate performance obligations . revenues and costs of sales are recognized once the goods or services are delivered to the customer 's control and performance obligations are satisfied . typically , the company 's customer contracts include performance obligations related to emission levels or other metrics that are measured at project completion . since this is the singular performance obligation and can not be achieved until the air emissions and operational performance have been successfully tested , revenue related to the contracts is recognized upon project completion . product warranties . the company warrants all installed products against defects in materials and workmanship for a period specified in each contract by replacing failed parts . accruals for product warranties are based on historical warranty experience and current product performance trends , and are recorded at the time revenue is recognized as a component of cost of sales . the warranty liabilities are reduced by material and labor costs used to replace parts over the warranty period in the periods in which the costs are incurred . the company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary and such adjustments could be material in the future if estimates differ significantly from actual warranty expense . the warranty liabilities are included in accrued liabilities in the balance sheets . research and development . the cost of research and development is expensed as incurred . research and development costs consist of salaries , benefits , share-based compensation , consulting fees ,
| due to the decrease in operating expenses , our loss from operations decreased during 2017 by $ 1,493,000 to $ 9,712,000 , compared to $ 11,205,000 in 2016 , a decrease of approximately 13 % . net loss . primarily as a result of the decrease in operating expenses , our net loss for 2017 was $ 9,680,000 as compared to a net loss of $ 11,173,000 for 2016 , resulting in a $ 1,493,000 decrease in the net loss or approximately 13 % . liquidity and capital resources at december 31 , 2017 , our cash and cash equivalent balance totaled $ 1,247,000 compared to $ 1,259,000 at december 31 , 2016. although we are pursuing sales and co-development agreements , there is no assurance that we will be successful in entering into any such agreements or , if we do enter into such agreements , that they will provide adequate funds to support our operations and to commercialize our technology . to the extent sales and co-development agreement funding is insufficient for these purposes , we may undertake offerings of our securities , debt financing , selling or licensing our developed intellectual or other property , or other alternatives . as detailed in note 13 to our audited consolidated financial statements , on february 27 , 2018 the company completed a stock offering of 5,750,000 shares at a price of $ 2.25 per share . we received net proceeds of approximately $ 11.9 million from the offering which we believe will be adequate to support our operations for at least the next 12 months from the date of filing our form 10-k for the year ended december 31 , 2017. from inception , the company 's operations have been funded primarily through the sale of its common stock . in order to continue business operations beyond twelve months , the company currently anticipates that it will need to raise additional capital . however , there can be no assurances that the company will be able to secure any such additional financing on acceptable terms and conditions . the company filed a form s-3 shelf registration statement with the securities and exchange commission
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if actual market conditions are less favorable than projected , additional inventory reserves may be required . the company 's inventory reserve estimates have historically been proven to be materially correct based upon actual write-offs incurred . business acquisitions the company accounts for business acquisitions by establishing the acquisition-date fair value as the measurement for all assets acquired and liabilities assumed . 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 on an annual basis for impairment or 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 upon 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 . 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 , 2017 , no reporting units are at risk for impairment as the fair value of the reporting units substantially exceed the carrying value . the company has the option to perform a qualitative assessment of goodwill prior to completing the two-step process 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 two-step process . otherwise , the company will forego the two-step process and does not need to perform any further testing . 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 suffer from 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 may 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 , 2017. bonus and profit sharing the company records certain bonus and profit sharing estimates as a charge against earnings . these estimates are adjusted to actual based on final results of operations achieved during the fiscal year . certain partial bonus amounts are paid quarterly based on interim company performance , and the remainder is paid after the fiscal year end . other bonuses are paid annually . 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 33 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 . the company believes that its estimates for uncert ain 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 . 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 . story_separator_special_tag the company adopted an accounting policy to apply acquired deferred tax liabilities to pre-existing deferred tax assets before evaluating the need for a valuation allowance for acquired deferred tax assets . 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 2017 compared to fiscal year 2016 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. the following table sets forth bookings and select items from our consolidated statements of earnings for the years ended june 30 , 2017 and june 30 , 2016 ( $ in millions except per share information ) : replace_table_token_5_th 34 story_separator_special_tag new roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > bookings , revenues and operating income for each of the company 's reportable segments are discussed below . operating income differs from income from operations in that operating income excludes certain operational expenses included in other expense ( income ) – net as reported . management believes operating income to be a useful measure for investors , as it reflects the results of segment performance over which management has direct control and is used by management in its evaluation of segment performance . see “ note 11. segment and geographic reporting , ” to the consolidated financial statements included in this annual report on form 10-k for further information on the company 's reportable segments and for the reconciliation of operating income to net earnings , which is incorporated herein by reference . ii-vi laser solutions ( $ in millions ) replace_table_token_6_th 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 , and ii-vi epiworks . the company acquired ii-vi epiworks on february 1 , 2016 and ii-vi optoelectronic devices division , on march 15 , 2016. bookings for the fiscal year ended june 30 , 2017 for ii-vi laser solutions increased 20 % to $ 366.8 million , compared to $ 306.0 million last fiscal year . bookings included $ 27.2 million for fiscal year 2017 and $ 14.3 million for fiscal year 2016 , respectively , attributed to the acquisitions of ii-vi epiworks and ii-vi oed . exclusive of acquisitions , the increase in bookings for the current fiscal year was driven by higher demand for co 2 and fiber laser and direct diode laser components and photolithography related products , including diamond product optics . revenues for the fiscal year ended june 30 , 2017 for ii-vi laser solutions increased 12 % to $ 339.3 million , compared to revenues of $ 303.0 million last fiscal year . revenues included $ 24.0 million for fiscal 2017 and $ 13.9 million for fiscal year 2016 , respectively , attributed to the recent acquisitions . exclusive of acquisitions , the increase in revenues for the fiscal year ended june 30 , 2017 was the result of higher demand for high and low power laser optics , one-micron laser applications and semiconductor photolithography tools and precision optics in laser applications up to 1 kilowatt for marking and engraving . operating income for the fiscal year ended june 30 , 2017 for ii-vi laser solutions decreased 15 % to $ 30.9 million , compared to $ 36.2 million last fiscal year . operating income was impacted by the segment 's ongoing internal research and development investments for its new optoelectronic laser platform . during the current year , this expense increased approximately $ 30.2 million over the prior year . ii-vi photonics ( $ in millions ) replace_table_token_7_th 36 the company 's ii-vi photonics segment includes the combined operations of ii-vi photop and ii-vi optical communications . bookings for the year ended june 30 , 2017 for ii-vi photonics increased 22 % to $ 453.5 million , compared to $ 372.2 million for the prior fiscal year . the increase in bookings during the current fiscal year was the result of increased orders from the ongoing chinese broadband initiative , u.s. metro , datacenter communications , and the continued investment in undersea fiber optic networks .
| bookings for the year ended june 30 , 2017 increased 22 % to $ 1.1 billion , compared to $ 875.3 million for the same period last fiscal year . the company 's ii-vi photonics segment realized increased bookings of $ 81.3 million , or 22 % , over the same period last fiscal year due to increased orders from the ongoing chinese broadband initiative , u.s. metro , datacenter communications , and the continued investment in undersea fiber optic networks . the company 's ii-vi laser solutions segment realized increased bookings of $ 60.8 million , or 20 % , over the same period last fiscal year . the increase was driven by higher demand for high and low power laser optics , fiber laser and direct diode laser components and optics and components supporting semiconductor photolithography . additionally , the company 's ii-vi performance products segment realized increased bookings of $ 54.8 million , or 28 % driven by increased demand for silicon carbide ( “ sic ” ) substrates supporting radio frequency ( “ rf ” ) development and also power device products in automotive and industrial markets . revenues . revenues for the year ended june 30 , 2017 increased 18 % to $ 972.0 million , compared to $ 827.2 million for the prior fiscal year . the company has seen continued increased demand from the optical communications customer base as a result of continuation of the china broadband initiative , datacenter and u.s. metro upgrade cycles ( including cable television ) . in addition , the company 's ii-vi laser solutions segment saw increased demand for its products addressing co 2 , one-micron laser and diamond optic products . gross margin . gross margin for the year ended june 30 , 2017 was $ 388.3 million , or 39.9 % , of total revenues , compared to $ 312.8 million , or 37.8 % , of total revenues for the same period last fiscal year . the improvement in gross margin was primarily driven by incremental margins realized on the company 's higher revenue levels which increased approximately $
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this interoperability , coupled with the ability to authentic users via the device or cloud , is unique in the industry , provides a key differentiator for us , and in our opinion , makes our technology more viable than competing technologies and expands the size of the overall market for our products . we believe there is potential for significant market growth in five key areas : ● corporate network access control , including corporate campuses , computer networks and applications ; ● consumer mobile credentialing , including mobile payments , credit and payment card programs , data and application access , and commercial loyalty programs ; ● government services and highly regulated industries including , medicare , medicaid , social security , drivers licenses , campus and school id , passports/visas ; ● direct sales of fingerprint readers to consumers and commercial customers ; and ● growth in the asia pacific region . in the near-term , we expect to grow our business within government services and highly-regulated industries in which we have historically had a strong presence , such as the healthcare industry . we believe that continued heightened security and privacy requirements in these industries will generate increased demand for security solutions , including biometrics . in addition , we expect that the integration of our technology into windows 10 , will accelerate the demand for our computer network log-on solutions and fingerprint readers . finally , our entry into the asian market and licensing arrangement with cgg is expected to further expand our business by opening new markets along with the new and innovative hardware offerings that are currently available and planned for introduction in early 2017. we intend to expand our business into the cloud and mobile computing industries . the emergence of cloud computing and mobile computing are primary drivers of commercial and consumer adoption of advanced authentication applications , including biometric and bio-key authentication capabilities . as the value of assets , services and transactions increases on such networks , we expect that security and user authentication demand should rise proportionately . our integration partners include major web and network technology providers , who we believe will deliver our cloud-applicable solutions to interested service-providers . these service-providers could include , but are not limited to , financial institutions , web-service providers , consumer payment service providers , credit reporting services , consumer data service providers , healthcare providers and others . additionally , our integration partners include major technology component providers and oem manufacturers , who we believe will deliver our device-applicable solutions to interested hardware manufacturers . such manufacturers could include cellular handset and smartphone manufacturers , tablet manufacturers , laptop and pc manufacturers , among other hardware manufacturers . our recently introduced saml and open id solutions will create new opportunities for us in 2017. results of operations story_separator_special_tag style= '' font-size : 10pt ; font-family : times new roman , times , serif '' > capital resources since our inception , our capital needs have been principally met through proceeds from the sale of equity and debt securities . we expect capital expenditures to be less than $ 100,000 during the next twelve months . we do not currently maintain a line of credit or term loan with any commercial bank or other financial institution . the following sets forth our primary sources of capital during the previous two years : as of december 2011 , we entered into a 24-month accounts receivable factoring arrangement with a financial institution ( the “ factor ” ) which has since been extended through october 31 , 2017. pursuant to the terms of the arrangement , from time to time , we sell to the factor certain of our accounts receivable balances on a non-recourse basis for credit approved accounts . the factor remits 35 % of the foreign and 75 % of the domestic accounts receivable balance to us ( the “ advance amount ” ) , with the remaining balance , less fees , to be forwarded to us once the factor collects the full accounts receivable balance from the customer . in addition , from time to time , we receive over advances from the factor . factoring fees range from 2.75 % to 21 % of the face value of the invoice factored , and are determined by the number of days required for collection of the invoice . we expect to continue to use this factoring arrangement periodically to assist with our general working capital requirements due to contractual requirements . on september 23 , 2015 , we issued a promissory note and a warrant to purchase 69,445 post-split shares of common stock for an aggregate principal sum of $ 250,000. the warrants have a term of five years and an exercise price of $ 3.60 per share . the note was repaid in full in october 2015. on october 22 and 29 , 2015 , we issued 84,500 shares ( the “ series a-1 shares ” ) of series a-1 convertible preferred stock at a purchase price of $ 100.00 per share , for aggregate gross proceeds of $ 8,450,000. the series a-1 shares are convertible at any time at the option of the holder into shares of common stock at a conversion price of $ 3.60 per share , subject to adjustment for stock dividends , stock splits , combinations , and reclassifications of our capital stock , and subject to a “ blocker provision ” which prohibits conversion if such conversion would result in the holder being the beneficial owner of in excess of 9.99 % of our common stock . story_separator_special_tag the series a-1 shares accrue dividends at the rate of 6 % per annum payable quarterly on april 1 , july , 1 , october 1 , and january 1 of each year payable in cash through october 1 , 2017 and thereafter , in cash or kind through the issuance of additional shares of common stock having a value equal to the volume weighted average trading price of the company 's common stock for the ten ( 10 ) days preceding the applicable dividend payment date . on november 11 , 2015 , we issued 105,000 shares ( the “ series b-1 shares ” ) of series b-1 convertible preferred stock at a purchase price of $ 100.00 per share , for gross proceeds of $ 10,500,000 , and 5,500 additional shares of series a-1 convertible preferred stock at a purchase price of $ 100.00 per share , for gross cash proceeds of $ 550,000. the series b-1 shares are convertible at any time at the option of the holder into shares of common stock at a conversion price of $ 3.60 per share , subject to adjustment for stock dividends , stock splits , combinations , and reclassifications of our capital stock , and subject to a “ blocker provision ” which prohibits conversion if such conversion would result in the holder being the beneficial owner of in excess of 9.99 % of our common stock . the series b-1 shares accrue dividends at the rate of 2.5 % per annum payable quarterly on april 1 , july , 1 , october 1 , and january 1 of each year payable in cash . on november 18 , 2016 , we issued to wong kwok fong ( kelvin ) , a director and executive officer of the company , 516,667 shares of common stock at a purchase price of $ 3.60 per share for gross cash proceeds of $ 1,860,000. liquidity outlook at december 31 , 2016 , our total cash and cash equivalents were approximately $ 1,061,307 , as compared to approximately $ 4,321,000 at december 31 , 2015 . 19 as discussed above , we have historically financed our operations through access to the capital markets by issuing secured and convertible debt securities , convertible preferred stock , common stock , and through factoring receivables . we currently require approximately $ 592,000 per month to conduct our operations and pay dividend obligations , a monthly amount that we have been unable to consistently achieve through revenue generation . during 2016 , we generated approximately $ 2,976,000 of revenue , which is below our average monthly requirements . if we are unable to generate sufficient revenue to fund current operations or meet our goals , we will need to obtain additional third-party financing to ( i ) conduct the sales , marketing and technical support necessary to execute our plan to substantially grow operations , increase revenue and serve a significant customer base ; and ( ii ) provide working capital . we may , therefore , need to obtain additional financing through the issuance of debt or equity securities . due to several factors , including our history of losses and limited revenue , our independent auditors have included an explanatory paragraph in their opinion related to our annual financial statements as to the substantial doubt about our ability to continue as a going concern . our long-term viability and growth will depend upon the successful commercialization of our technologies and our ability to obtain adequate financing . to the extent that we require such additional financing , no assurance can be given that any form of additional financing will be available on terms acceptable to us , that adequate financing will be obtained to meet our needs , or that such financing would not be dilutive to existing stockholders . if available financing is insufficient or unavailable or we fail to continue to generate sufficient revenue , we may be required to further reduce operating expenses , delay the expansion of operations , be unable to pursue merger or acquisition candidates , or continue as a going concern . off-balance sheet arrangements we do not have any off-balance sheet arrangements that have , or are in the opinion of management reasonably likely to have , a current or future effect on our financial condition or results of operations . critical accounting policies our financial statements are prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ significantly from these estimates under different assumptions or conditions . there have been no material changes to these estimates for the periods presented in this annual report on form 10-k. we believe that of our significant accounting policies , which are described in note a of the notes to our consolidated financial statements included in this annual report on form 10-k , the following accounting policies involve a greater degree of judgment and complexity . accordingly , these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations . 1. revenue recognition revenues from software licensing are recognized in accordance with asc 985-605 , “ software revenue recognition . '' accordingly , revenue from software licensing is recognized when all of the following criteria are met : persuasive evidence of an arrangement exists , delivery has occurred , the fee is fixed or determinable , and collectability is probable .
| we continued to ship to aesynt for their continued deployments of our identification technology in their accudose® product line , and for ongoing expansion of biometric id deployments with commercial partners educational biometric technology , identimetrics and healthcare customers . royalty income decreased 80 % to approximately $ 21,000 from $ 103,000 during 2015 , as the oem agreement was completed and was not renewed in the second quarter of 2016. costs of goods sold for the year ended december 31 , 2016 , cost of service decreased approximately $ 44,000 primarily as a result of costs associated with non-recurring custom services revenue . license and other costs for the year ended december 31 , 2016 decreased approximately $ 506,000 due primarily to the decrease in hardware revenue , and third party software related revenue . overall the gross margin has been consistent year over year . 17 selling , general and administrative replace_table_token_5_th selling , general and administrative expenses for the year ended december 31 , 2016 increased largely due to a bad debt expense related to a contract whose payments are behind schedule , as a result of the payment delays , the company has reserved $ 500,000 which represents 24 % of the remaining balance owed under the contract . the increase was offset by lower professional fees , and costs related to the settlement of the lifesouth lawsuit in 2015 , as well as lower factoring and marketing fees . research , development and engineering replace_table_token_6_th for the year ended december 31 , 2016 , research , development and engineering costs increased as a result of new personnel costs and temporary outside consulting services offset by lower legal fees . other income and expense replace_table_token_7_th interest income for the years ended december 31 , 2016 and 2015 consisted of bank interest . interest expense for the year ended december 31 , 2015 represented the amortized original issue discount , the amortized debt discount from the warrant liabilities , and the interest charge under a promissory note we issued in september 2015. during the
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in january 2019 , we received positive preliminary top-line results of the in-life part of our adjunct rabbit smallpox study that was conducted under the animal efficacy rule . the study was designed to determine the effect of administering bcv to animals at certain times ( 3 , 4 , 5 or 6 days ) after inoculation with the rabbitpox virus . these preliminary results are subject to further audit , however , based on these findings the study met its primary endpoint . the topline survival results are as follows : replace_table_token_4_th the differences in survival rate observed between each group of animals that received bcv and the animals that did not are statistically significant . data from this study are in-line with those reported in 2015 from our first pivotal study in the rabbitpox model . in february 2019 , we initiated a pivotal study in the mouse ectromelia model , which constitutes our second animal model as described in the animal efficacy rule . we anticipate data from this study in the second half of 2019 and , contingent upon the results of the animal efficacy studies , we plan to submit marketing applications in 2020 . 53 iv brincidofovir progresses to phase 2 studies we are continuing to open sites in the united states and europe for enrollment in our iv bcv phase 2 studies in adult allogeneic hct recipients with adv . these studies may provide data on other viral infections such as cmv and or bkv in patients with multi-viral infections . these studies are the first-in-patient studies to demonstrate the safety and tolerability and pharmacokinetic profile of multiple doses of iv bcv in adult hct recipients . we will also evaluate the relationship between dose and change from baseline in adv in blood and stool . data from these studies are expected to inform the design of future phase 2/3 studies . similar to adapt , we have faced regulatory and site initiation delays in the implementation of these studies . we have also observed lower than anticipated incidence at the study 210/211 centers that have been initiated , which has caused enrollment to occur more slowly than expected . we plan to provide a study update in mid-2019 . data from these studies will inform the dose and dosing regimen for our potential multi viral protection ( mvp ) -peds study and potential studies of iv bcv for other dna viruses , such as bkv or hhv-6 . the improved drug concentrations in the central nervous system ( cns ) achieved with iv brincidofovir in animals could support the study of iv brincidofovir in viral cns infections such as herpes encephalitis , hhv-6 encephalitis , jc virus infection . cmx521 for norovirus cmx521 is a nucleoside analog identified from our proprietary chemical library which targets the norovirus polymerase , a part of the virus that is common to all strains and is required for viral replication . it therefore has the potential to be active against the multiple genetically diverse norovirus strains that circulate each year and cause disease in humans . we previously presented the safety and tolerability data from a phase 1 study of cmx521 , which supported continued development of the first small molecule in clinical development for prophylaxis or treatment of norovirus . evaluation of active antiviral concentrations in gastrointestinal biopsies indicate that improved intracellular delivery is needed prior to conducting efficacy studies . the norovirus research and development program has been paused indefinitely . brincidofovir expanded access program we continue to receive requests for bcv via our expanded access and named patient programs . during 2018 , we granted almost 340 requests for brincidofovir for the treatment of adv , highlighting the continued unmet need in this area . financial overview revenues to date , we have not generated any revenue from product sales . all of our revenue to date has been derived from a government grant and contract and the receipt of up-front proceeds under our collaboration and license agreements . in february 2011 , we entered into a contract with barda , a u.s. governmental agency that supports the advanced research and development , manufacturing , acquisition , and stockpiling of medical countermeasures . the contract originally consisted of an initial performance period , referred to as the base performance segment , which ended on may 31 , 2013 , plus up to four extension periods , referred to as option segments . subsequent option segments to the contract are not subject to automatic renewal and are not exercisable at chimerix 's discretion . the contract is a cost plus fixed fee development contract . under the contract as currently in effect , we may receive up to $ 75.8 million in expense reimbursement and $ 5.3 million in fees if all remaining option segments are exercised . we are currently performing under the second and third option segments of the contract during which we may receive up to a total of $ 23.9 million and $ 14.1 million in expense reimbursement and fees , respectively . the second option segment is scheduled to end on august 1 , 2019 and the third option segments is scheduled to end on march 30 , 2019. of the $ 75.8 million expense reimbursement and $ 5.3 million in fees that we may receive , approximately $ 74.3 million in expense reimbursement and fees has been funded . as of december 31 , 2018 , of the total funding the company had invoiced an aggregate of $ 62.6 million with respect to the base performance segment and the first three option segments . on december 17 , 2014 , we entered into a collaboration and licensing agreement with contravir pharmaceuticals ( nasdaq : ctrv ) . in exchange for the license to cmx157 rights , we received an upfront payment consisting of 120,000 shares of contravir series b convertible preferred stock with a stated value of $ 1.2 million . story_separator_special_tag in addition , we are eligible to receive clinical , regulatory and initial commercial milestones in the united states and europe , as well as royalties and additional milestones based on commercial sales in those territories . we recognized the upfront license fee payment from contravir as deferred revenue for the year ended december 31 , 2014 , and during the second quarter of 2015 we completed our performance obligations and recorded $ 1.5 million 54 in revenue . in september 2016 , we converted our shares of contravir series b convertible preferred stock into shares of contravir common stock . in the future , we may generate revenue from a combination of product sales , license fees , milestone payments and royalties from the sales of products developed under licenses of our intellectual property . we expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing and amount of license fees , milestone and other payments , and the amount and timing of payments that we receive upon the sale of our products , to the extent any are successfully commercialized . if we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them , our ability to generate future revenue , and our results of operations and financial position , would be materially adversely affected . research and development expenses since our inception , we have focused our resources on our research and development activities , including conducting preclinical studies and clinical trials , manufacturing development efforts and activities related to regulatory filings for our product candidates . we recognize research and development expenses as they are incurred . costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors . we can not determine with certainty the duration and completion costs of the current or future clinical studies of our product candidates . our research and development expenses consist primarily of : fees paid to consultants and contract research organizations ( cros ) , including in connection with our preclinical and clinical trials , and other related clinical trial fees , such as for investigator grants , patient screening , laboratory work , clinical trial database management , clinical trial material management and statistical compilation and analysis ; salaries and related overhead expenses , which include stock option , restricted stock unit ( rsu ) and employee stock purchase program compensation and benefits , for personnel in research and development functions ; payments to third-party manufacturers , which produce , test and package our drug substance and drug product ( including continued testing of process validation and stability ) ; costs related to legal and compliance with regulatory requirements ; and license fees for and milestone payments related to licensed products and technologies . from our inception through december 31 , 2018 , we have incurred approximately $ 460.1 million in research and development expenses , of which $ 411.6 million relates to our development of brincidofovir . these costs were largely related to the conduct of our clinical trials of brincidofovir . the table below summarizes our research and development expenses for the periods indicated ( in thousands ) . our direct research and development expenses consist primarily of external costs , such as fees paid to investigators , consultants , central laboratories and cros , in connection with our clinical trials , preclinical development , and payments to third-party manufacturers of drug substance and drug product . we typically use our employee and infrastructure resources across multiple research and development programs . replace_table_token_5_th the successful development of our clinical and preclinical product candidates is highly uncertain . at this time , we can not reasonably estimate the nature , timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our clinical or preclinical product candidates or the period , if any , in which material net cash inflows from these product candidates may commence . this is due to the numerous risks and uncertainties associated with the development of our product candidates , including : the uncertainty of the scope , rate of progress and expense of our ongoing , as well as any additional , clinical trials and other research and development activities ; the potential benefits of our candidates over other therapies ; the ability to market , commercialize and achieve market acceptance for any of our product candidates that we are developing or may develop in the future ; 55 the results of ongoing or future clinical trials ; the timing and receipt of any regulatory approvals ; and the filing , prosecuting , defending and enforcing of patent claims and other intellectual property rights , and the expense of doing so . 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 another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate in the united states or in europe , or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time with respect to the development of that product candidate .
| general and administrative expenses for the year ended december 31 , 2018 , our general and administrative expenses decreased to $ 23.6 million compared to $ 27.1 million for the year ended december 31 , 2017 . the decrease of $ 3.6 million , or 13.1 % , was primarily related to the following : a decrease of $ 2.3 million related to compensation expense ; 60 a decrease of $ 1.0 million in costs related to an indemnification claim settled in 2018 ; and a decrease of $ 0.3 million in global commercial readiness costs . interest income and other , net for the year ended december 31 , 2018 , our interest income and other , net was $ 2.5 million compared to interest income of $ 2.3 million for the year ended december 31 , 2017 . the increase of $ 0.2 million was attributable to higher interest rates offset by $ 0.4 million of realized losses on the sale of short-term investments . unrealized loss on equity investment for the year ended december 31 , 2018 , unrealized loss on equity investment was $ 0.3 million compared to an unrealized loss on equity investment of $ 1.2 million for the year ended december 31 , 2017 . these unrealized losses relate to the decrease in value of our investment in contravir common stock . comparison of the years ended december 31 , 2017 and december 31 , 2016 the following table summarizes our results of operations for the years ended december 31 , 2017 and december 31 , 2016 , together with the changes in those items in dollars and percentages ( in thousands , except for percentages ) : replace_table_token_10_th * not meaningful or not calculable contract revenue for the year ended december 31 , 2017 , contract revenue decreased to $ 4.5 million compared to $ 5.7 million for the year ended december 31 , 2016 . the decrease of $ 1.2 million , or 21.2 % , was related to a decrease in reimbursable expenses associated with our contract with barda .
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in exchange , we agreed to ( i ) make cash payments of $ 35.0 million in multiple payments over two years to allergan and medytox , ( ii ) pay to allergan and medytox certain royalties on the sale of jeuveau ® , based on a certain dollar amount per vial sold of licensed product by or on behalf of the company in the united states , from december 16 , 2020 to september 16 , 2022 , ( iii ) from december 16 , 2020 to september 16 , 2022 , pay to medytox a low-double digit royalty on net sales of jeuveau ® sold by us or on our behalf in territories we have licensed outside the united states ; ( iv ) from september 16 , 2022 to september 16 , 2032 , pay to medytox a mid-single digit royalty percentage on net sales of jeuveau ® in the united states and all territories we have licensed outside the united states , ( v ) issue to medytox of 6,762,652 shares of our common stock , par value $ 0.00001 per share , which we issued on february 18 , 2021 , and ( vi ) entered into a registration rights agreement pursuant to which we granted certain registration rights to medytox with respect to such shares of common stock beginning as of march 31 , 2022. in addition , under the medytox/allergan settlement agreements , we made certain representations and warranties and agreed to positive and negative covenants . on march 23 , 2021 , we entered into a confidential settlement and release agreement with daewoong pharmaceuticals co. ltd. , or daewoong , which we refer to as the daewoong settlement agreement , a convertible promissory note conversion agreement , which we refer to as the conversion agreement and the third amendment to the supply agreement ( which amends the daewoong agreement ) , which we refer to as the daewoong agreement amendment . we refer the daewoong settlement agreement , the conversion agreement and the daewoong agreement amendment collectively as the 2021 daewoong arrangement . under the 2021 daewoong arrangement , ( i ) daewoong agreed to ( a ) pay us an amount equal to $ 25.5 million , ( b ) pay certain reasonable legal fees incurred by our litigation counsel in connection with its defense of the itc action ( including any appeal of the resulting remedial orders ) , ( c ) cancel all remaining milestone payments up to $ 10.5 million in aggregate under our daewoong agreement , and ( d ) reimburse us certain amounts ( calculated on a dollar amount per vials sold basis in the united states ) for sales of certain products with respect to which we are required to pay medytox and allergan royalties pursuant to the u.s. settlement agreement ; and ( ii ) we agreed to ( y ) release certain claims we may have against daewoong or certain of its affiliates and representatives related to the allegations made in or the subject matter of the medytox/allergan actions , or any orders , remedies and losses resulting from the medytox/allergan actions , and ( z ) coordinate with daewoong on certain matters related to the medytox/allergan actions . in the conversion agreement , among other things , the parties agreed that ( i ) the principal balance of the $ 40.0 million aggregate principal amount convertible promissory note we issued to daewoong on july 30 , 2020 , which we refer to as the daewoong convertible note , and accrued and unpaid interest thereon shall be automatically converted , at the conversion price of $ 13.00 per share , into 3,136,869 shares of our common stock ; and ( ii ) the daewoong convertible note shall be deemed cancelled and satisfied in full in connection with such conversion . under the daewoong agreement amendment , the daewoong agreement was amended to : ( i ) expand the territory within which we may distribute jeuveau ® to certain countries in europe ; ( ii ) reduce the period of time with respect to which we are required to deliver binding forecasts to daewoong ; ( iii ) introduce certain limitations on daewoong 's ability to convert our exclusive license for certain territories to a non-exclusive license in the event we fail to meet certain minimum purchase requirements for such territory ; ( iv ) adjust the minimum purchase requirements and reduce the transfer price per vial of jeuveau ® applicable to various territories ; ( v ) require that any jeuveau ® supplied by daewoong match certain shelf-life thresholds ; and ( vi ) prohibit us from sharing certain confidential information regarding daewoong with medytox or its affiliates or representatives . as a result of the royalty payments that we are required to pay under the medytox/allergan settlement agreements , after giving effect to the offset by a certain portion thereof that will be reimbursed to us under the 2021 daewoong arrangement , we expect that our cost of sales and gross margin will be materially negatively impacted through september 2022 and negatively impacted to a lesser extent from september 2022 to september 2032. daewoong license and supply agreement in 2013 , we and daewoong entered into the daewoong agreement pursuant to which we have an exclusive distribution license to jeuveau ® from daewoong for aesthetic indications in the united states , eu , great britain , canada , australia , russia , c.i.s. , and south africa , as well as co-exclusive distribution rights with daewoong in japan . under the daewoong agreement , we are required to make certain minimum annual purchases in order to maintain the exclusivity of the license . these minimum purchase obligations are contingent upon the occurrence of future events , including receipt of governmental approvals and our future market share in various jurisdictions . in connection with our entry into the daewoong agreement , 50 we made an upfront payment to daewoong of $ 2.5 million . story_separator_special_tag we further agreed to make milestone payments upon achievement of certain confidential development and commercial milestones , including a confidential payment to daewoong upon each of the u.s. food and drug administration , or fda , and the european medicines agency , or the ema , approval of jeuveau ® . under the daewoong agreement , the maximum aggregate amount of milestone payments that could be owed to daewoong upon the satisfaction of all milestones is $ 13.5 million . upon fda approval in february 2019 and ema approval in september 2019 , the company paid $ 2.0 million and $ 1.0 million milestone payments , respectively . as of december 31 , 2020 , daewoong was eligible to receive remaining contingent milestone payments of up to $ 10.5 million , all of which were cancelled under the 2021 daewoong arrangement in march 2021. under the daewoong agreement , daewoong is responsible for all costs related to the manufacturing of jeuveau ® , including costs related to the operation and upkeep of its manufacturing facility , and we are responsible for all costs related to obtaining regulatory approval , including clinical expenses , and commercialization of jeuveau ® . for additional information about the daewoong agreement , see item 1 “ business—daewoong license and supply agreement. ” daewoong convertible note on july 6 , 2020 , pursuant to a convertible promissory note purchase agreement with daewoong , we issued to daewoong a convertible promissory note for the principal amount of $ 40.0 million , which we refer to as the daewoong convertible note , which was funded on july 30 , 2020. on march 23 , 2021 , the outstanding principal balance , together with all accrued and unpaid interest thereon , in the amount of $ 40.8 million was converted , at the conversion price of $ 13.00 per share , into the right to receive 3,136,869 shares of our common stock under the conversion agreement . see “ —liquidity and capital resources—daewoong convertible note ” for further information . royalties and notes payable to evolus founders we are obligated to make the following future payments to the founders of evolus ( i ) quarterly royalty payments of a low single digit percentage of net sales of jeuveau ® and ( ii ) a $ 20.0 million promissory note that matures in november 2021. the obligations set forth in ( i ) above will terminate in the quarter following the 10-year anniversary of the first commercial sale of jeuveau ® in the united states . the fair value of the obligations set forth in items ( i ) and ( ii ) are valued quarterly and are referred to in our financial statements as the “ contingent royalty obligation. ” impact of covid-19 outbreak on our business a novel strain of coronavirus ( covid-19 ) was first identified in wuhan , china in december 2019 , and subsequently declared a pandemic by the world health organization . the covid-19 outbreak has caused economic and social disruption on an unprecedented scale . this disruption has resulted in business closures across the united states and significant job loss due to quarantines , government-mandated actions , stay-at-home orders and other restrictions . while it is not possible to know the full extent of these impacts as of the date this filing , we are disclosing potentially material items of which we are aware . health and safety in response to the covid-19 outbreak , we have taken and will continue to take temporary precautionary measures intended to help minimize the risk of covid-19 to our employees , including requiring our employees and sales professionals , to work remotely if required by their local government and maintaining social distancing during any in-person work-related meetings . we expect to continue to implement these measures until we determine that the covid-19 pandemic is adequately contained for purposes of our business , and we may take further actions as government authorities require or recommend or as we determine to be in the best interests of our employees , customers , business partners and third-party service providers . financial position and results of operations the covid-19 outbreak and restrictions intended to slow the spread of covid-19 have resulted in temporary business closures for many of our customers and , starting in mid-march 2020 , negatively affected our sales . jeuveau ® is utilized in elective procedures , the costs of which are borne by the consumer and not third-party payors . as a result of the covid-19 outbreak and restrictions intended to slow its spread , these elective procedures declined dramatically in march 2020 due to the temporary business closures or deferment of the elective procedures . while the impact of the covid-19 outbreak on the u.s. aesthetic neurotoxin market was significant during the first half of 2020 , we experienced an increase in sales starting in june 2020 that continued throughout the rest of 2020 as many states started easing restrictions on elective procedures and many of our customers re-opened their businesses . however , due to the uncertainty of the recovery and the increase in covid-19 infections at the end of the 2020 and early in the first quarter of 2021 , new variants of covid-19 that have emerged and the possibility of further resurgences , and the availability , distribution and efficacy of vaccines and therapeutics 51 for covid-19 , we can not reasonably estimate the immediate and full impact of the covid-19 outbreak on our ongoing business , results of operations and overall financial performance . furthermore , even after the current covid-19 outbreak has subsided , we may continue to experience negative impacts to our business and financial results if customers continue to defer or avoid altogether elective procedures to administer jeuveau ® due to the continued perceived risk of infection or concern of a resurgence of the covid-19 outbreak as well as covid-19 's global economic impact , including decreases in consumer discretionary spending and any economic slowdown or recession that has occurred or may occur in the future .
| cost of sales our cost of sales , primarily consist of the cost of inventory purchased from daewoong , increased by $ 10.3 million to $ 18.3 million for the year ended december 31 , 2020 from $ 8.0 million from the year ended december 31 , 2019 primarily due to higher sales volume in 2020 as well as the depletion of inventory purchased at the one-time launch pricing in 2019. as a result of the medytox/allergan settlement agreements , cost of sales for the year ended december 31 , 2020 also included royalties payable to allergan and medytox on the sale of jeuveau ® commencing december 16 , 2020. we anticipate that our 53 cost of sales will increase materially as we pay royalty payments to allergan and medytox pursuant to the medytox/allergan settlement agreements during the initial royalty period through september 2022 and will fluctuate as our revenues fluctuate , although a portion of these royalty payments will be reimbursed to us by daewoong pursuant to the daewoong settlement agreement . our gross profit , calculated as total net revenues less product cost of sales , as a percentage of net revenues decreased to 67.6 % for the year ended december 31 , 2020 from 77.1 % for the year ended december 31 , 2019 , primarily due to changes in marketing programs in 2020 , royalties under the medytox/allergan settlement agreements for the sales starting december 16 , 2020 and the depletion of inventory purchased at the one-time launch pricing in 2019. we anticipate that our gross profit as a percentage of net revenues will decrease materially in the future as we pay royalty payments to al lergan and medytox pursuant to the medytox/allergan settlement agreements during the initial royalty period through september 2022 and will flu ctuate as we implement various marketing programs that may affect the average selling price of jeuveau ® . a portion of
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our management believes that adjusted performance measures are useful to investors in their assessment of our operating performance and the valuation of the company . in addition , these non-gaap financial measures address questions we routinely receive from analysts and investors and , in order to ensure that all investors have access to the same data , our management has determined that it is appropriate to make this data available to all investors . the adjusted performance measures exclude the impact of certain items ( as further described below ) and provide supplemental information regarding our operating performance . by disclosing these non-gaap financial measures , our management intends to provide investors with a supplemental comparison of our operating results and trends for the periods presented . our management believes these measures are also useful to investors as such measures allow investors to evaluate our performance using the same metrics that our management uses to evaluate past performance and prospects for future performance . we provide disclosure of the effects of these non-gaap financial measures by presenting the corresponding treatment prepared in conformity with gaap in our financial statements , and by providing a reconciliation to the corresponding gaap measure so that investors may understand the adjustments made in arriving at the non-gaap financial measures and use the information to perform their own analyses . adjusted operating income excludes restructuring costs and business structure realignment programs , amortization , acquisition-related costs and acquisition accounting impacts , the impact of accounting modifications from liability plan accounting to equity plan accounting as a result of amended and restated share-based compensation plans , asset impairment charges and other adjustments as described below . we do not consider these items to be reflective of our core operating performance due to the variability of such items from period-to-period in terms of size , nature and significance . they are primarily incurred to realign our operating structure and integrate new acquisitions , and fluctuate based on specific facts and circumstances . additionally , adjusted net income attributable to coty inc. and adjusted net income attributable to coty inc. per common share are adjusted for certain interest and other ( income ) expense as described below and the related tax effects of each of the items used to derive adjusted net income as such charges are not used by our management in assessing our operating performance period-to-period . the adjusted performance measures have changed in the fourth quarter of fiscal 2016 to incorporate the exclusion of expense and tax effects associated with the amortization of acquisition-related intangible assets . our management believes that such amortization is not reflective of the results of operations in a particular year because the intangible assets result from the allocation of the acquisition purchase price to the fair value of identifiable intangible assets acquired . the effect of this exclusion on our non-gaap presentation was to amend adjusted operating income in a manner that provides investors with a measure of our operating performance that facilitates period to period comparisons , as well as comparability to our peers . exclusion of the amortization expense allows investors to compare operating results that are consistent over time for the consolidated company , including newly acquired and long-held businesses , to both acquisitive and nonacquisitive peer companies . adjusted performance measures reflect adjustments based on the following items : restructuring and other business realignment costs : we have excluded costs associated with restructuring and business structure realignment programs to allow for comparable financial results to historical operations and forward-looking 35 guidance . in addition , the nature and amount of such charges vary significantly based on the size and timing of the programs . by excluding the above referenced expenses from our non-gaap financial measures , our management is able to evaluate our ability to utilize our existing assets and estimate their long-term value . furthermore , our management believes that the adjustment of these items supplement the gaap information with a measure that can be used to assess the sustainability of our operating performance . amortization expense : we have excluded the impact of amortization of finite-lived intangible assets , as such non-cash amounts are inconsistent in amount and frequency and are significantly impacted by the timing and or size of acquisitions . our management believes that the adjustment of these items supplement the gaap information with a measure that can be used to assess the sustainability of our operating performance . although we exclude amortization of intangible assets from our non-gaap expenses , our management believes that it is important for investors to understand that such intangible assets contribute to revenue generation . amortization of intangible assets that relate to past acquisitions will recur in future periods until such intangible assets have been fully amortized . any future acquisitions may result in the amortization of additional intangible assets . cost related to acquisition activities : we have excluded acquisition-related costs and acquisition accounting impacts such as those related to transaction costs and costs associated with the revaluation of acquired inventory in connection with business combinations because these costs are unique to each transaction . the nature and amount of such costs vary significantly based on the size and timing of the acquisitions and the maturities of the businesses being acquired . also , the size , complexity and or volume of past acquisitions , which often drives the magnitude of such expenses , may not be indicative of the size , complexity and or volume of any future acquisitions . share-based compensation adjustment : we have excluded the impact of the fiscal 2013 accounting modification from liability plan to equity plan accounting for the share-based compensation plans as well as other share-based compensation transactions that are not reflective of the ongoing and planned pattern of recognition for such expense . refer to “ management 's discussion and analysis of financial condition and results of operations – critical accounting policies and estimates ” contained in the respective forms filed with the sec for a full discussion of the share-based compensation adjustment . story_separator_special_tag asset impairment charges : we have excluded the impact of asset impairments as such non-cash amounts are inconsistent in amount and frequency and are significantly impacted by the timing and or size of acquisitions . our management believes that the adjustment of these items supplement the gaap information with a measure that can be used to assess the sustainability of our operating performance . other adjustments : we have excluded costs associated with the china optimization program , public entity preparedness program , real estate consolidation program , and gains on sales of assets which are not part of our ongoing business . we do not expect these items to occur , either as a result of their nature or size , as part of our normal business on a regular basis . our management believes that the exclusion of such amounts allows our management and readers of our financial statements to further understand our financial results . interest and other ( income ) expense : we have excluded foreign currency impacts associated with acquisition-related and debt financing related forward contracts as the nature and amount of such charges are not consistent and are significantly impacted by the timing and size of such transactions . loss on early extinguishment of debt : we have excluded loss on extinguishment of debt as this represents a non-cash charge , and the amount and frequency of such charges is not consistent and is significantly impacted by the timing and size of debt financing transactions . tax : this adjustment represents the impact of the tax effect of the pretax items excluded from adjusted net income . the tax impact of the non-gaap adjustments are based on the tax rates related to the jurisdiction in which the adjusted items are received or incurred . while acquiring brands and licenses comprises a part of our overall growth strategy , along with targeting organic growth opportunities , we have excluded acquisition-related costs and acquisition accounting impacts in connection with business combinations because these costs are unique to each transaction and the amount and frequency are not consistent and are significantly impacted by the timing and size of our acquisitions . our management assesses the success of an acquisition as a component of performance using a variety of indicators depending on the size and nature of the acquisition , including : the scale of the combined company by evaluating consolidated and segment financial metrics ; the expansion of product offerings by evaluating segment , brand , and geographic performance and the respective strength of the brands ; the evaluation of market share expansion in categories and geographies ; 36 the earnings per share accretion and substantial incremental free cash flow generation providing financial flexibility for us ; and the comparison of actual and projected results , including achievement of projected synergies , post integration ; provided that timing for any such comparison will depend on the size and complexity of the acquisition . constant currency we operate on a global basis , with the majority of our net revenues generated outside of the u.s. accordingly , fluctuations in foreign currency exchange rates can affect our results of operations . therefore , to supplement financial results presented in accordance with gaap , certain financial information is presented excluding the impact of foreign currency exchange translations to provide a framework for assessing how our underlying businesses performed excluding the impact of foreign currency exchange translations ( “ constant currency ” ) . constant currency information compares results between periods as if exchange rates had remained constant period-over-period . we calculate constant currency information by translating current and prior-period results for entities reporting in currencies other than u.s. dollars into u.s. dollars using prior year foreign currency exchange rates . the constant currency calculations do not adjust for the impact of revaluing specific transactions denominated in a currency that is different to the functional currency of that entity when exchange rates fluctuate . the constant currency information we present may not be comparable to similarly titled measures reported by other companies . marketing and advertising costs management reviews marketing and advertising costs on an aggregated basis , including trade marketing spend activities and advertising and consumer promotional costs , which are included as a reduction to gross revenue and in selling , general and administrative expenses , respectively , based on the counterparty . marketing and advertising costs for the years ended june 30 , 2016 , 2015 and 2014 are presented below : replace_table_token_4_th net revenues in fiscal 2016 , net revenues decreased 1 % , or $ 46.1 , to $ 4,349.1 from $ 4,395.2 in fiscal 2015 . the decrease was the result of a negative price and mix impact of 9 % and a negative foreign currency exchange translations impact of 5 % , partially offset by an increase in unit volume of 13 % . in fiscal 2016 , we divested the cutex brand , which had an immaterial impact on our consolidated net revenues and the color cosmetics segment . also , in fiscal 2016 we completed the brazil acquisition in the americas , and this acquisition positively affected our total net revenues by 2 % . in the quarter ended june 30 , 2015 , we completed the acquisition of the bourjois cosmetics brand ( “ bourjois acquisition ” ) . the incremental net revenues from the bourjois acquisition in the nine months ended march 31 , 2016 positively impacted total net revenues by 3 % . the bourjois acquisition impacted our color cosmetics segment primarily in emea . in fiscal 2014 , we announced the discontinuation of our tjoy brand and the reorganization of our mass business in china ( “ china optimization ” ) . the discontinuation of tjoy and china optimization had an immaterial impact on our consolidated net revenues , however negatively affected our skin & body care segment in asia pacific .
| partially offsetting declines in opi were incremental net revenues from product launches such as the opi hello kitty collection and opi infinite shine as well as growth in asia pacific . n.y.c . new york color net revenues declined in part due to shelf space reduction at certain retailers in the u.s. as well as a management decision to discontinue the brand in the u.k. astor net revenues declined primarily due to a negative foreign currency exchange translations impact . partially offsetting declines in the segment was net revenues growth in sally hansen primarily driven by sally hansen miracle gel , reflecting an enhanced product offering as well as the expansion of sally hansen miracle gel in international markets . however , net revenues of sally hansen have been adversely impacted by negative foreign exchange translations as well as the negative u.s. retail nail market trend in fiscal 2016. net revenues of rimmel in fiscal 2016 were consistent with fiscal 2015 as incremental net revenues from the launches of rimmel supergel nail polish , rimmel the only 1 lipstick and rimmel supercurler mascara were offset by a negative foreign exchange translations impact . excluding incremental net revenues from the bourjois acquisition in the nine months ended march 31 , 2016 and the negative foreign currency exchange translations impact of 5 % , net revenues for color cosmetics increased 2 % reflecting a positive price and mix impact of 8 % partially offset by a decrease in unit volume of 6 % . the positive price and mix impact in part reflects lower relative volumes of lower-priced products , such as the n.y.c . new york color brand and higher relative volumes of higher-priced products , such as opi hello kitty collection , sally hansen miracle gel , rimmel the only 1 lipstick and rimmel supercurler mascara as well as a lower level of promotional and discounted pricing activities . in fiscal 2015 , net revenues of color cosmetics increased 6 % , or $ 78.8 , to $ 1,445.0 from $ 1,366.2 in fiscal 2014 . the increase was primarily the
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these costs are being amortized to interest expense over the life of the amended credit agreement . 19 in connection with the acquisition of the north jackson facility on august 18 , 2011 , we issued $ 20.0 million in convertible notes ( the notes ) to the sellers of the north jackson facility as partial consideration of the acquisition . the notes are subordinated obligations and rank junior to the facilities . the notes bear interest at a fixed rate of 4.0 % per annum , payable in cash semi-annually in arrears on each june 18 and december 18 , beginning on december 18 , 2011. unless earlier converted , the notes mature and the unpaid principal balance is due on august 17 , 2017. the notes and any accrued and unpaid interest are convertible into shares of our common stock at the option of the holder at an initial conversion price of $ 47.1675 per share of common stock . the conversion price associated with the notes may be adjusted in certain circumstances . we may prepay any outstanding notes , in whole or in part , after august 17 , 2014 during a fiscal quarter if our share price is greater than 140 % of the current conversion price for at least 20 of the trading days in the 30 consecutive trading day period ending on the last trading day of the immediately preceding quarter . we evaluated the conversion feature of the notes upon issuance and determined that no beneficial conversion feature existed . we expect to meet all of our short-term liquidity requirements resulting from operations and current capital investment plans with internally generated funds and borrowings under the revolver . at december 31 , 2012 , we had $ 38.3 million in availability under the revolver . prior to our entrance into the credit agreement , we had a credit agreement with pnc which provided for an unsecured $ 12.0 million term loan ( old term loan ) and an unsecured $ 15.0 million revolving credit facility . we used a portion of our cash balance prior to the acquisition of the north jackson facility to repay the old term loan during the year ended december 31 , 2011. there were no borrowings on this revolving credit facility and it was extinguished with our entrance into the credit agreement . during the year ended december 31 , 2011 , we also repaid all of our governmental debt obligations in the amount of $ 0.6 million . we had an interest rate swap with pnc to convert the libor floating rate under the old term loan to a fixed interest rate for the life of the loan . under the agreement , our interest rate was fixed at 4.515 % . the effective portion of the change in the fair value of the interest rate swap was recorded , net of tax , in accumulated other comprehensive loss ( within stockholders ' equity ) prior to extinguishing the old term loan . we recorded a charge of $ 0.3 million during the year ended december 31 , 2011 as a component of interest expense and other financing costs on the consolidated statement of operations to terminate the interest rate swap . share-based financing activity . we issued 116,628 , 36,051 and 50,415 shares of our common stock during the years ended december 31 , 2012 , 2011 and 2010 , respectively , through our two share-based compensation plans . in 2012 , 72,050 stock options issued under the omnibus incentive plan were exercised for $ 1.3 million plus related tax benefits of $ 335,000. additionally , in 2012 , we issued 35,000 shares of restricted common stock . in 2011 , 27,500 stock options issued under the stock incentive plan were exercised for $ 375,000 plus related tax benefits of $ 172,000. in 2010 , 40,550 stock options issued under the stock incentive plan were exercised for $ 466,000 plus related tax benefits of $ 143,000. the remaining shares were issued to participants in the employee stock purchase plan . in october 1998 , we initiated a stock repurchase program to repurchase up to 315,000 shares of the company 's outstanding common stock in open market transactions at market prices . we have not repurchased any shares under the program since 2001. we are authorized to repurchase 45,100 remaining shares of common stock under this program as of december 31 , 2012 . 20 contractual obligations . at december 31 , 2012 , we had the following contractual principal , interest and purchase obligations : replace_table_token_11_th ( a ) amounts include interest expense , which was estimated based upon the december 31 , 2012 interest rate for our debt and assumes that debt will not be repaid until its maturity . ( b ) purchase obligations include the value of all open purchase orders with established quantities and purchase prices as well as minimum purchase commitments . effects of inflation despite modest inflation in recent years , rising costs , in particular increasing wage and benefit rates , continue to affect operations . we strive to mitigate the effects of inflation through cost containment , productivity improvements and sales price increases . contingent items product claims . we are subject to various claims and legal actions that arise in the normal course of conducting business . there were no material product claims outstanding at december 31 , 2012. environmental matters . we , as well as other steel companies , are subject to demanding environmental standards imposed by federal , state and local environmental laws and regulations . we are not aware of any environmental condition that currently exists at any of our facilities that are probable or reasonably possible of having a material impact on our results of operations or liquidity . we are aware of energy usage concerns relating to climate change ; however , we are not aware of any pending regulations story_separator_special_tag these costs are being amortized to interest expense over the life of the amended credit agreement . 19 in connection with the acquisition of the north jackson facility on august 18 , 2011 , we issued $ 20.0 million in convertible notes ( the notes ) to the sellers of the north jackson facility as partial consideration of the acquisition . the notes are subordinated obligations and rank junior to the facilities . the notes bear interest at a fixed rate of 4.0 % per annum , payable in cash semi-annually in arrears on each june 18 and december 18 , beginning on december 18 , 2011. unless earlier converted , the notes mature and the unpaid principal balance is due on august 17 , 2017. the notes and any accrued and unpaid interest are convertible into shares of our common stock at the option of the holder at an initial conversion price of $ 47.1675 per share of common stock . the conversion price associated with the notes may be adjusted in certain circumstances . we may prepay any outstanding notes , in whole or in part , after august 17 , 2014 during a fiscal quarter if our share price is greater than 140 % of the current conversion price for at least 20 of the trading days in the 30 consecutive trading day period ending on the last trading day of the immediately preceding quarter . we evaluated the conversion feature of the notes upon issuance and determined that no beneficial conversion feature existed . we expect to meet all of our short-term liquidity requirements resulting from operations and current capital investment plans with internally generated funds and borrowings under the revolver . at december 31 , 2012 , we had $ 38.3 million in availability under the revolver . prior to our entrance into the credit agreement , we had a credit agreement with pnc which provided for an unsecured $ 12.0 million term loan ( old term loan ) and an unsecured $ 15.0 million revolving credit facility . we used a portion of our cash balance prior to the acquisition of the north jackson facility to repay the old term loan during the year ended december 31 , 2011. there were no borrowings on this revolving credit facility and it was extinguished with our entrance into the credit agreement . during the year ended december 31 , 2011 , we also repaid all of our governmental debt obligations in the amount of $ 0.6 million . we had an interest rate swap with pnc to convert the libor floating rate under the old term loan to a fixed interest rate for the life of the loan . under the agreement , our interest rate was fixed at 4.515 % . the effective portion of the change in the fair value of the interest rate swap was recorded , net of tax , in accumulated other comprehensive loss ( within stockholders ' equity ) prior to extinguishing the old term loan . we recorded a charge of $ 0.3 million during the year ended december 31 , 2011 as a component of interest expense and other financing costs on the consolidated statement of operations to terminate the interest rate swap . share-based financing activity . we issued 116,628 , 36,051 and 50,415 shares of our common stock during the years ended december 31 , 2012 , 2011 and 2010 , respectively , through our two share-based compensation plans . in 2012 , 72,050 stock options issued under the omnibus incentive plan were exercised for $ 1.3 million plus related tax benefits of $ 335,000. additionally , in 2012 , we issued 35,000 shares of restricted common stock . in 2011 , 27,500 stock options issued under the stock incentive plan were exercised for $ 375,000 plus related tax benefits of $ 172,000. in 2010 , 40,550 stock options issued under the stock incentive plan were exercised for $ 466,000 plus related tax benefits of $ 143,000. the remaining shares were issued to participants in the employee stock purchase plan . in october 1998 , we initiated a stock repurchase program to repurchase up to 315,000 shares of the company 's outstanding common stock in open market transactions at market prices . we have not repurchased any shares under the program since 2001. we are authorized to repurchase 45,100 remaining shares of common stock under this program as of december 31 , 2012 . 20 contractual obligations . at december 31 , 2012 , we had the following contractual principal , interest and purchase obligations : replace_table_token_11_th ( a ) amounts include interest expense , which was estimated based upon the december 31 , 2012 interest rate for our debt and assumes that debt will not be repaid until its maturity . ( b ) purchase obligations include the value of all open purchase orders with established quantities and purchase prices as well as minimum purchase commitments . effects of inflation despite modest inflation in recent years , rising costs , in particular increasing wage and benefit rates , continue to affect operations . we strive to mitigate the effects of inflation through cost containment , productivity improvements and sales price increases . contingent items product claims . we are subject to various claims and legal actions that arise in the normal course of conducting business . there were no material product claims outstanding at december 31 , 2012. environmental matters . we , as well as other steel companies , are subject to demanding environmental standards imposed by federal , state and local environmental laws and regulations . we are not aware of any environmental condition that currently exists at any of our facilities that are probable or reasonably possible of having a material impact on our results of operations or liquidity . we are aware of energy usage concerns relating to climate change ; however , we are not aware of any pending regulations
| shipments of power generation products and petrochemical products decreased 24.6 % and 18.0 % , respectively , over 2011. these decreases were partially offset by increases in shipments of aerospace products , conversion services and service center plate products of 8.4 % , 44.8 % and 13.4 % , respectively , in 2012 when compared to 2011. net sales for 2011 increased by $ 52.0 million , or 30.0 % , in comparison to 2010 primarily due to an 18.4 % increase in tonnage shipped , base price increases realized in 2011 and product mix . our intersegment sales as a percent of sales increased from 2010 to 2011 to support the increased sales volume recognized by our dunkirk segment . in addition , our 2011 net sales included $ 145,000 of external sales from the north jackson operation , from august 18 , 2011 through december 31 , 2011. shipments of aerospace products , petrochemical products , conversion services and power generation products increased 44.3 % , 25.2 % , 33.9 % and 7.0 % , respectively , over 2010. these increases were partially offset by a 20.6 % reduction in service center plate shipments in 2011 when compared to 2010. our operating income for 2012 decreased by $ 8.6 million , or 42.8 % when compared to 2011. on a percentage of sales basis , our operating income decreased from 9.0 % in 2011 to 5.4 % in 2012. the decline in our operating income as a percentage of sales is largely due to the increase in operating cost as a percentage of sales in the current year . our operations costs , which include certain infrastructure costs such as overhead and depreciation , increased on a percentage of sales basis from 33.7 % in 2011 to 39.0 % in 2012. we have placed a substantial amount of fixed assets in service over the past four quarters , primarily at our north jackson facility , which has increased our depreciation expense . the higher depreciation expense , coupled with developing production at our north jackson facility , had a negative impact on our operations costs as a percentage of sales in the current period . as we continue to increase production at our north jackson facility , we believe that our infrastructure costs as a percentage of sales will decrease from current levels . 16 our operating
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also reflecting the quality of our assets was the level of net charge-offs we recorded in the twelve months ended december 31 , 2017. net charge-offs represented $ 61.2 million , or 0.16 % of average loans , and largely consisted of taxi medallion-related loans . external factors the following is a discussion of certain external factors that tend to influence our financial performance and the strategic actions we take . interest rates among the external factors that tend to influence our performance , the interest rate environment is key . just as short-term interest rates affect the cost of our deposits and that of the funds we borrow , market interest rates affect the yields on the loans we produce for investment and the securities in which we invest . as further discussed under loans held for investment later on in this discussion , the interest rates on our multi-family loans and cre credits generally are based on the five-year constant maturity treasury rate ( the cmt ) . the following table summarizes the high , low , and average five- and ten-year cmt rates in 2017 and 2016 : replace_table_token_5_th because the multi-family and cre loans we produce generate income when they prepay ( which is recorded as interest income ) , the impact of repayment activity can be especially meaningful . in 2017 , prepayment income from loans contributed $ 47.0 million to interest income ; in the prior year , the contribution was $ 60.9 million . economic indicators while we attribute our asset quality to the nature of the loans we produce and our conservative underwriting standards , the quality of our assets can also be impacted by economic conditions in our local markets and throughout the united states . the information that follows consists of recent economic data that we consider to be germane to our performance and the markets we serve . the following table presents the generally downward trend in unemployment rates , as reported by the u.s. department of labor , both nationally and in the various markets that comprise our footprint , for the months indicated : replace_table_token_6_th 36 the consumer price index ( the cpi ) measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services . the following table indicates the change in the cpi for the twelve months ended at each of the indicated dates : replace_table_token_7_th economic activity also is indicated by the consumer confidence index ® , which moved up to 122.1 in december 2017 from 113.7 in december 2016. an index level of 90 or more is considered indicative of a strong economy . the residential rental vacancy rate in new york , as reported by the u.s. department of commerce , and the office vacancy rate in manhattan , as reported by a leading commercial real estate broker ( jones lang lasalle ) , are important in view of the fact that 63.6 % of our multi-family loans and 69.3 % of our cre loans are secured by properties in new york city , with manhattan accounting for 26.4 % and 50.7 % of our multi-family and cre loans , respectively . as reflected in the following table , the residential rental vacancy rate in new york and the office vacancy rate in manhattan were both lower in the three months ended december 31 , 2017 than they were in the three months ended december 31 , 2016 : replace_table_token_8_th recent events dividend declaration on january 30 , 2018 , the board of directors declared a quarterly cash dividend on the company 's common stock of $ 0.17 per share , payable on february 27 , 2018 to common shareholders of record at the close of business on february 13 , 2018. critical accounting policies we consider certain accounting policies to be critically important to the portrayal of our financial condition and results of operations , since they require management to make complex or subjective judgments , some of which may relate to matters that are inherently uncertain . the inherent sensitivity of our consolidated financial statements to these critical accounting policies , and the judgments , estimates , and assumptions used therein , could have a material impact on our financial condition or results of operations . we have identified the following to be critical accounting policies : the determination of the allowances for loan losses ; the determination of the amount , if any , of goodwill impairment ; and the determination of the valuation allowance , if any , for deferred tax assets . the judgments used by management in applying these critical accounting policies may be influenced by adverse changes in the economic environment , which may result in changes to future financial results . allowances for loan losses allowance for losses on non-covered loans the allowance for losses on non-covered loans represents our estimate of probable and estimable losses inherent in the non-covered loan portfolio as of the date of the balance sheet . losses on non-covered loans are charged against , and recoveries of losses on non-covered loans are credited back to , the allowance for losses on non-covered loans . 37 although non-covered loans are held by either the community bank or the commercial bank , and a separate loan loss allowance is established for each , the total of the two allowances is available to cover all losses incurred . in addition , except as otherwise noted in the following discussion , the process for establishing the allowance for losses on non-covered loans is largely the same for each of the community bank and the commercial bank . story_separator_special_tag the methodology used for the allocation of the allowance for non-covered loan losses at december 31 , 2017 and december 31 , 2016 was generally comparable , whereby the community bank and the commercial bank segregated their loss factors ( used for both criticized and non-criticized loans ) into a component that was primarily based on historical loss rates and a component that was primarily based on other qualitative factors that are probable to affect loan collectability . in determining the respective allowances for non-covered loan losses , management considers the community bank 's and the commercial bank 's current business strategies and credit processes , including compliance with applicable regulatory guidelines and with guidelines approved by the respective boards of directors with regard to credit limitations , loan approvals , underwriting criteria , and loan workout procedures . the allowance for losses on non-covered loans is established based on management 's evaluation of incurred losses in the portfolio in accordance with u.s. generally accepted accounting principles ( gaap ) , and is comprised of both specific valuation allowances and general valuation allowances . specific valuation allowances are established based on management 's analyses of individual loans that are considered impaired . if a non-covered loan is deemed to be impaired , management measures the extent of the impairment and establishes a specific valuation allowance for that amount . a non-covered loan is classified as impaired when , based on current information and or events , it is probable that we will be unable to collect all amounts due under the contractual terms of the loan agreement . we apply this classification as necessary to non-covered loans individually evaluated for impairment in our portfolios . smaller-balance homogenous loans and loans carried at the lower of cost or fair value are evaluated for impairment on a collective , rather than individual , basis . loans to certain borrowers who have experienced financial difficulty and for which the terms have been modified , resulting in a concession , are considered troubled debt restructurings ( tdrs ) and are classified as impaired . we generally measure impairment on an individual loan and determine the extent to which a specific valuation allowance is necessary by comparing the loan 's outstanding balance to either the fair value of the collateral , less the estimated cost to sell , or the present value of expected cash flows , discounted at the loan 's effective interest rate . generally , when the fair value of the collateral , net of the estimated cost to sell , or the present value of the expected cash flows is less than the recorded investment in the loan , any shortfall is promptly charged off . we also follow a process to assign general valuation allowances to non-covered loan categories . general valuation allowances are established by applying our loan loss provisioning methodology , and reflect the inherent risk in outstanding held-for-investment loans . this loan loss provisioning methodology considers various factors in determining the appropriate quantified risk factors to use to determine the general valuation allowances . the factors assessed begin with the historical loan loss experience for each major loan category . we also take into account an estimated historical loss emergence period ( which is the period of time between the event that triggers a loss and the confirmation and or charge-off of that loss ) for each loan portfolio segment . the allocation methodology consists of the following components : first , we determine an allowance for loan losses based on a quantitative loss factor for loans evaluated collectively for impairment . this quantitative loss factor is based primarily on historical loss rates , after considering loan type , historical loss and delinquency experience , and loss emergence periods . the quantitative loss factors applied in the methodology are periodically re-evaluated and adjusted to reflect changes in historical loss levels , loss emergence periods , or other risks . lastly , we allocate an allowance for loan losses based on qualitative loss factors . these qualitative loss factors are designed to account for losses that may not be provided for by the quantitative loss component due to other factors evaluated by management , which include , but are not limited to : changes in lending policies and procedures , including changes in underwriting standards and collection , and charge-off and recovery practices ; changes in international , national , regional , and local economic and business conditions and developments that affect the collectability of the portfolio , including the condition of various market segments ; changes in the nature and volume of the portfolio and in the terms of loans ; 38 changes in the volume and severity of past-due loans , the volume of non-accrual loans , and the volume and severity of adversely classified or graded loans ; changes in the quality of our loan review system ; changes in the value of the underlying collateral for collateral-dependent loans ; the existence and effect of any concentrations of credit , and changes in the level of such concentrations ; changes in the experience , ability , and depth of lending management and other relevant staff ; and the effect of other external factors , such as competition and legal and regulatory requirements , on the level of estimated credit losses in the existing portfolio . by considering the factors discussed above , we determine an allowance for non-covered loan losses that is applied to each significant loan portfolio segment to determine the total allowance for losses on non-covered loans . the historical loss period we use to determine the allowance for loan losses on non-covered loans is a rolling 28-quarter look-back period , as we believe this produces an appropriate reflection of our historical loss experience .
| given the sale of those loans during 2017 , the company did not have any covered loans as of december 31 , 2017 and only $ 35.3 million of non-covered loans held for sale compared to non-covered loans held for sale of $ 409.2 million at december 31 , 2016. covered loans as previously discussed , the company sold its covered loan portfolio during the third quarter of 2017 ; therefore , the company does not have any covered loans outstanding as of december 31 , 2017. covered loans at december 31 , 2016 were $ 1.7 billion . non-covered loans held for investment the majority of the loans we produce are loans held for investment and most of the held-for-investment loans we produce are multi-family loans . our production of multi-family loans began several decades ago in the five boroughs of new york city , where the majority of the rental units currently consist of rent-regulated apartments featuring below-market rents . in addition to multi-family loans , our portfolio of loans held for investment contains a large number of cre credits , most of which are secured by income-producing properties located in new york city and on long island . in addition to multi-family loans and cre loans , our portfolio includes substantially smaller balances of one-to-four family loans , adc loans , and other loans held for investment , with commercial and industrial ( c & i ) loans comprising the bulk of the other loan portfolio . specialty finance loans and leases account for most of our c & i credits , with the remainder consisting primarily of loans to small and mid-size businesses , referred to as other c & i loans . at december 31 , 2017 , loans secured by multi-family , non-owner occupied cre , and adc properties represented 742.1 % of the consolidated banks ' total risk-based capital , within our limit of 850 % . 41 in 2017 , we originated $ 8.9 billion of held-for-investment loans , a $ 264.0 million decrease from the prior year . a major reason for this decline was related to a drop in one-to-four family originations , as we exited that business in the third quarter of the year . during 2017 , we sold $ 429.4
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allowance for doubtful accounts . we maintain allowances for doubtful accounts for estimated losses resulting from the inability of customers to make required payments . if the financial condition of these customers were to deteriorate , resulting in an impairment of their ability to make payments , we may require additional allowances or we may defer revenue until we determine that collectability is probable . we specifically analyze accounts receivable and historical bad debts , customer creditworthiness , current economic trends and changes in customer payment terms when we evaluate the adequacy of the allowance for doubtful accounts . valuation of long-lived and intangible assets . we review goodwill for impairment annually and whenever events or changes in circumstances indicate its carrying value may not be recoverable in accordance with the intangibles-goodwill and other topic of the fasb accounting standards codification . effective fiscal 2012 , we opted to perform a qualitative assessment to test a reporting unit 's goodwill for impairment . based on our qualitative assessment , if we determine that the fair value of a reporting unit is more likely than not ( i.e. , a likelihood of more than 50 percent ) to be less than its carrying amount , the two step impairment test will be performed . in the first step , we compare the fair value of each reporting unit to its carrying value . if the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit , goodwill is not considered impaired and we are not required to perform further testing . if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit , then we must perform the second step of the impairment test in order to determine the impairment . our reporting units are consistent with our operating segments identified in note 8 of notes to consolidated financial statements included elsewhere in this annual report . in accordance with the property , plant , and equipment topic of the fasb accounting standards codification , long-lived assets , such as property and equipment and intangible assets , are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability would be measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset . if the carrying amount of an asset exceeds its estimated future cash flows , we recognize an impairment charge in the amount by which the carrying amount of the asset exceeds the fair value of the asset . the determination of estimated future cash flows , however , requires management to make estimates . future events and changes in circumstances may require us to record a significant impairment charge in the period in which such events or changes occur . impairment testing requires considerable analysis and judgment in determining results . if other assumptions and estimates were used in our evaluations , the results could differ significantly . annual tests or other future events could cause us to conclude that impairment indicators exist and that our goodwill is impaired . for example , if we had reason to believe that our recorded goodwill and intangible assets had become impaired due to decreases in the fair market value of the underlying business , we would have to take a charge to income for that portion of goodwill or intangible assets that we believed was impaired . any resulting impairment loss could have a material adverse impact on our financial position and results of operations . at april 30 , 2013 , our goodwill balance was $ 12.6 million and our intangible assets with definite lives balance was $ 687,000 , net of accumulated amortization . 53 index to financial statements valuation of capitalized software assets . we capitalize certain computer software development costs in accordance with the costs of software to be sold , leased , or marketed topic of the fasb accounting standards codification . costs incurred internally to create a computer software product or to develop an enhancement to an existing product are charged to expense when incurred as research and development expense until technological feasibility for the respective product is established . thereafter , we capitalize all software development costs and report those costs at the lower of unamortized cost or net realizable value . capitalization ceases when the product or enhancement is available for general release to customers . we make ongoing evaluations of the recoverability of our capitalized software projects by comparing the amount capitalized for each product to the estimated net realizable value of the product . if such evaluations indicate that the unamortized software development costs exceed the net realizable value , we write off the amount by which the unamortized software development costs exceed net realizable value . any resulting impairment loss could have a material adverse impact on our financial position and results of operations . there was no impairment charge related to capitalized computer software during the years ended april 30 , 2013 , 2012 and 2011. at april 30 , 2013 , our capitalized software balance was $ 8.7 million , net of accumulated amortization . we amortize capitalized computer software development costs ratably based on the projected revenues associated with the related software or on a straight-line basis over three years , whichever method results in a higher level of amortization . amortization of capitalized computer software development costs is included in the cost of license revenues in the consolidated statements of operations . stock-based compensation . we estimate the value of options granted on the date of grant using the black-scholes option pricing model . management judgments and assumptions related to volatility , the expected term and the forfeiture rate are made in connection with the calculation of stock compensation expense . we periodically review all assumptions used in our stock option pricing model . story_separator_special_tag changes in these assumptions could have a significant impact on the amount of stock compensation expense . income taxes . we provide for the effect of income taxes on our financial position and results of operations in accordance with the income tax topic of the fasb accounting standards codification . under this accounting guidance , income tax expense is recognized for the amount of income taxes payable or refundable for the current year and for the change in net deferred tax assets or liabilities resulting from events that are recorded for financial reporting purposes in a different reporting period than recorded in the tax return . management must make significant assumptions , judgments and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax asset . our judgments , assumptions and estimates relative to the current provision for income tax take into account current tax laws , our interpretation of current tax laws , allowable deductions , tax planning strategies , projected tax credits and possible outcomes of current and future audits conducted by foreign and domestic tax authorities . changes in tax laws or our interpretation of tax laws and the resolution of current and future tax audits could significantly impact the amounts provided for income taxes in our financial position and results of operations . our assumptions , judgments and estimates relative to the value of our deferred tax asset take into account our expectations of the amount and category of future taxable income . actual operating results and the underlying amount and category of income in future years , which could significantly increase tax expense , could render inaccurate our current assumptions , judgments and estimates of recoverable net deferred taxes . 54 index to financial statements story_separator_special_tag may become more aggressive with their prices and or payment terms , which may adversely affect our profit margins . for more information , please see risk factors in item 1a . above . adoption of new accounting pronouncements in september 2011 , the fasb issued an accounting standards update amending the guidance on the annual testing of goodwill for impairment . the update allows entities to first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value . if a greater than 50 percent likelihood exists that the fair value is less than the carrying amount then it is necessary to perform the currently prescribed two-step goodwill impairment test . otherwise , the two-step goodwill 56 index to financial statements impairment test is not required . this standard is effective for us in the first quarter of fiscal 2013 but early adoption was permitted . we adopted the new guidance in the fourth quarter of fiscal 2012 and it did not have an impact on our consolidated financial statements . market conditions by operating segment we operate and manage our business in three segments based on software and services provided in three key product markets : ( 1 ) supply chain management ( scm ) , which provides collaborative supply chain solutions to streamline and optimize the production , distribution and management of products between trading partners ; ( 2 ) enterprise resource planning ( erp ) , which automates customers ' internal financing , human resources , and manufacturing functions ; and ( 3 ) it consulting , which consists of it staffing and consulting services . the scm segment represents the business of logility , as well as its subsidiary , dmi . our scm segment experienced decreased revenues during fiscal 2013 when compared to fiscal 2012 , due primarily to a 23 % decrease in license fees . this was partially offset by a 25 % increase in services and other revenues and a 6 % increase in maintenance revenues from logility customers . the erp segment revenues decreased 6 % in fiscal 2013 when compared to fiscal 2012 , primarily due to a 32 % decrease in license fees and a 2 % decrease in maintenance revenues partially offset by a 6 % increase in services and other revenues . our scm segment experienced increased revenues during fiscal 2012 when compared to fiscal 2011 , due primarily to a 47 % increase in license fees and services and other revenues and an 11 % increase in maintenance revenues from logility customers . we believe this increase was a result of a moderate improvement in overall economic conditions , which resulted in increased capital spending in technology and increased sales related to our recent optiant acquisition . the erp segment revenues increased 1 % in fiscal 2012 when compared to fiscal 2011 , primarily due to a 29 % increase in license fees and a 6 % increase in maintenance revenues partially offset by a 13 % decrease in services and other revenues . our it consulting segment experienced a decrease in revenues of approximately 1 % in fiscal 2013 when compared to fiscal 2012 , due primarily to a decrease in it staffing work at our primary customer . our it consulting segment experienced an increase in revenues of approximately 12 % in fiscal 2012 when compared to fiscal 2011 , due primarily to an increase in it staffing work at our primary customer , as a result of an improving economic environment for retailers . as companies have moved to cut costs and limit it budgets , they have utilized more outsourcing services , which tend to be more cost-effective for them . in the past this trend has resulted in increased business for this segment . however , there is a countervailing trend to outsourcing it to international markets that historically have been more price competitive than domestic sources like ourselves . our primary customer comprised 44 % of our it consulting revenues in fiscal 2013 and 59 % in fiscal 2012. the loss of this customer would negatively and materially affect our it consulting business .
| consequently , in 2013 , after a weak first half , real gdp growth in the advanced economies is projected to rise above 2 percent for the rest of the year and to average 2 1 / 4 percent in 2014 , spurred by u.s. growth of about 3 percent. 55 index to financial statements for fiscal 2014 , we expect the world economy to remain relatively weak with some moderate improvement towards the end of the fiscal year , which could result in a continuation of the difficult selling environment . overall information technology spending continues to be relatively weak as a result of the current global economic environment . however , we believe that information technology spending will incrementally improve over the long term as increased global competition forces companies to improve productivity by upgrading their technology systems . although this improvement could slow or regress at any time , due in part to concerns in global capital markets and general economic conditions , we believe that our organizational and financial structure will enable us to take advantage of any sustained economic rebound . customers continue to take long periods to evaluate discretionary software purchases . we believe weak economic conditions may be driving some businesses to focus on achieving more process and efficiency enhancements in their operations and to invest in solutions that improve operating margins , rather than make large infrastructure-type technology purchases . if this trend continues , we believe it may tend to favor solutions such as our logility supply chain solutions , which are designed to provide a more rapid return on investment and are targeted at some of the largest profit drivers in a customer 's business . while the current economic crisis has had a particularly adverse impact on the weaker companies in our target markets , we believe a large percentage of our customers are seeking to make investments to strengthen their operations , and some are taking advantage of current economic conditions to gain market share . business opportunities and risks we currently view the following factors as the primary opportunities and risks associated with our business : dependence on capital spending patterns . there is risk associated with our dependence on the capital spending patterns of u.s. and international businesses , which in turn are functions of economic trends and conditions over which we have no control . acquisition opportunities . there are opportunities for selective acquisitions or
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the allowance is calculated by applying loss factors to loans held for investment according to loan program type and loan classification . the loss factors are established based primarily upon the bank 's historical loss experience and the industry charge-off experience and are evaluated on a quarterly basis . various regulatory agencies , as an integral part of their examination process , periodically review the company 's alll . such agencies may require the bank to recognize additions to the allowance based on judgments different from those of management . in the opinion of management , and in accordance with the credit loss allowance methodology , the present allowance is considered adequate to absorb estimable and probable credit losses . additions and reductions to the allowance are reflected in current operations . charge-offs to the allowance are made when specific assets are considered uncollectible or are transferred to oreo and the fair value of the property is less than the loan 's recorded investment . recoveries are credited to the allowance . although management uses the best information available to make these estimates , future adjustments to the allowance may be necessary due to economic , operating , regulatory and other conditions that may be beyond the company 's control . we account for acquisitions under the purchase accounting method . all identifiable assets acquired and liabilities assumed are recorded at fair value . we review each loan or loan pool acquired to determine whether there is evidence of deterioration in credit quality since inception and if it is probable that the company will be unable to collect all amounts due under the contractual loan agreements . we consider expected prepayments and estimated cash flows including principal and interest payments at the date of acquisition . the amount in excess of the estimated future cash flows is not accreted into earnings . the amount in excess of the estimated future cash flows over the book value of the loan is accreted into interest income over the remaining life of the loan ( accretable yield ) . the company records these loans on the acquisition date at their net realizable value . thus , an allowance for estimated future losses is not established on the acquisition date . we refine our estimates of the fair value of loans acquired for up to one year from the date of acquisition . subsequent to the date of acquisition , we update the expected future cash flows on loans acquired . losses or a reduction in cash flow which arise subsequent to the date of acquisition are reflected as a charge through the provision for loan losses . an increase in the expected cash flows adjusts the level of the accretable yield recognized on a prospective basis over the remaining life of the loan . other-than-temporary impairment of investment securities the company has investment securities classified available for sale . under the available for sale classification , securities can be sold in response to certain conditions , such as changes in interest rates , fluctuations in deposit levels or loan demand or need to restructure the portfolio to better match the maturity of interest rate characteristics of liabilities with assets . securities classified as available for sale are accounted for at their current fair value . unrealized holding gains and losses , net of tax , are excluded from earnings and reported as a separate component of stockholders ' equity as accumulated other comprehensive income . at each reporting date , investment securities available for sale are assessed to determine whether there is otti . if it is probable that the company will be unable to collect all amounts due from the contractual terms of a debt security , otti is charged to operations with a corresponding write-down to the fair value of the security . these related write-downs are included in operations as realized losses in the category of otti loss on investment securities , net . in estimating otti losses , management considers : ( i ) the length of time and the extent to which the market value has been less than cost ; ( ii ) the financial condition and near-term prospects of the issuer ; ( iii ) the intent and ability of the company to retain its investment in a security for a period of time sufficient to allow for any anticipated recovery in market value ; and ( iv ) general market conditions which reflect prospects for the economy as a whole , including interest rates and sector credit spreads . story_separator_special_tag newly originated loans , purchased loans and loans acquired in the palm desert national acquisition . compared to 2011 , our net interest margin increased 7 basis points to 4.62 % in 2012 , primarily as a result of a decrease in the costs on interest-bearing liabilities of 37 basis points to 0.77 % which more than offset the decrease in the interest-earning asset yield of 28 basis points to 5.34 % . the decline in our interest-earning asset yield in 2012 was primarily from a lower yield on loans of 44 basis points , partially offset by an improved mix of higher yielding loans within interest-earning assets . the reduction in deposit costs is primarily associated with our acquisition of palm desert national bank , which added $ 80.9 million in deposits at a weighted average cost of 42 basis points as of the closing of the transaction , excluding the runoff of $ 34.1 million in wholesale certificates of deposit in the month subsequent to the acquisition . the following table presents for the periods indicated the average dollar amounts from selected balance sheet categories calculated from daily average balances and the total dollar amount , including adjustments to yields and costs , of : · interest income earned from average interest-earning assets and the resultant yields ; and · interest expense incurred from average interest-bearing liabilities and resultant costs , expressed as rates . story_separator_special_tag the table also sets forth our net interest income , net interest rate spread and net interest rate margin for the periods indicated . the net interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities . the net interest rate margin reflects the relative level of interest-earning assets to interest-bearing liabilities and equals our net interest rate spread divided by average interest-earning assets for the year . replace_table_token_23_th changes in our net interest income are a function of changes in both volumes and rates of interest-earning assets and interest-bearing liabilities . the following table presents the impact the volume and rate changes have had on our net interest income for the years indicated . for each category of interest-earning assets and interest-bearing liabilities , we have provided information on changes to our net interest income with respect to : · changes in volume ( changes in volume multiplied by prior rate ) ; · changes in interest rates ( changes in interest rates multiplied by prior volume ) ; and · the change or the combined impact of volume and rate changes allocated proportionately to changes in volume and changes in interest rates . replace_table_token_24_th provision for loan losses . for 2013 , we recorded a $ 1.9 million provision for loan losses , up from $ 751,000 recorded in 2012. the $ 1.1 million increase in the provision for loan losses was primarily attributable to the growth in our loan portfolio during the period , including the loans acquired from fab and sdtb . net loan charge-offs for 2013 amounted to $ 1.7 million , up from $ 1.3 million in 2012. charge-offs in 2013 were primarily attributable to loans that we acquired from our fdic-assisted transactions . we recorded a $ 751,000 provision for loan losses for 2012 , compared with a $ 3.3 million provision recorded in 2011. net loan charge-offs amounted to $ 1.3 million in 2012 , down $ 2.3 million from $ 3.6 million experienced during 2011. the loan charge-offs for 2012 were primarily attributable to loans that we acquired from our fdic-assisted transactions . noninterest income . for 2013 , noninterest income totaled $ 9.1 million , down from $ 12.6 million recorded in 2012. the decrease of $ 3.5 million or 27.8 % was primarily related to the one-time bargain purchase gain of $ 5.3 million recorded from the acquisition of palm desert national in 2012 , the net gain of $ 597,000 from the sale of our corporate offices and associated fixed assets in 2012 and lower net gains from the sale of investment securities of $ 409,000 in 2013 , partially offset by an increase in gain on sale of loans of $ 2.6 million . for 2012 , our noninterest income totaled $ 12.6 million , compared with $ 6.5 million in 2011. the increase of $ 6.1 million or 93.8 % was primarily due to net gains of $ 628,000 from the sale of $ 28.2 million of loans in 2012 , compared to losses of $ 3.6 million on the sale of $ 42.2 million loans in 2011 , a larger bargain purchase pre-tax gain on our fdic-assisted transactions of $ 1.2 million in 2012 ; and an improvement in otti loss on investment securities of $ 458,000 in 2012. noninterest expense . for 2013 , noninterest expense totaled $ 50.8 million , up $ 19.0 million or 59.5 % from 2012. the increase included non-recurring merger-related expenses of $ 6.9 million in 2013 , compared to $ 500,000 in 2012. excluding oreo operations and legal , audit and professional expense , each of the other categories of noninterest expense increased in 2013 primarily due to costs associated with the acquisitions of fab and sdtb and costs associated with the expansion of our lending platform to increase loan production . other real estate owned operations decreased $ 1.0 million primarily related to less activity in the category . for 2012 , noninterest expense totaled $ 31.9 million , up $ 5.0 million or 18.4 % from 2011. the increase was primarily related to a $ 3.1 million increase in compensation and benefits costs as a result of increased head count and termination costs from the palm desert national acquisition and an expansion of our lending area to increase loan production ; an increase in data processing and communication costs of $ 947,000 , primarily from running two core systems and system conversion costs associated with the palm desert national acquisition ; an increase in legal and audit costs of $ 696,000 ; and an increase in premises and occupancy costs of $ 569,000 , partially offset by a decrease in marketing expense of $ 429,000. of the total noninterest expense recorded during 2012 , there were one-time costs of $ 500,000 relating to the palm desert national acquisition and legal and audit expense of $ 404,000 relating to the pending acquisition of fab . our efficiency ratio was 64.68 % for 2013 , compared to 57.41 % for 2012 and 56.50 % for 2011. the increase in the efficiency ratio in 2013 compared to the prior periods was primarily related to the time required to redeploy the liquidity received from the acquisitions we completed in 2013 and the expansion of our lending platform to increase loan production . income taxes . the company recorded income taxes of $ 5.6 million in 2013 , compared with $ 10.0 million in 2012 and $ 6.4 million in 2011. our effective tax rate was 38.3 % for 2013 , 38.8 % for 2012 , and 37.7 % for 2011. the effective tax rate in each year is affected by various items , including enterprise zone net interest deductions , interest expense related to payments of prior year taxes , and adjustments to income tax reserves related to management 's favorable assessment of our income tax exposure . the net impact of these items were expense reductions of $ 265,000 in 2013 , $ 755,000 in 2012 , $ 577,000 in 2011.
| the company 's pre-tax income totaled $ 25.8 million in 2012 , compared with a pre-tax income of $ 17.0 million in 2011. the $ 8.8 million increase in the company 's pre-tax income for 2012 , compared to 2011 was partially related to the palm desert national acquisition from the fdic , as receiver , that was consummated in april 2012 ; a $ 7.7 million increase in net interest income due to a higher net interest margin and a higher level of interest earning assets ; a $ 6.1 million increase in noninterest income , primarily due to a $ 4.2 million increase on gain from loan sales and a $ 1.2 million increase in gain on acquisition ; and a $ 2.5 million lower provision for loan losses . partially offsetting these favorable items was a $ 5.0 million increase in noninterest expense as result of the palm desert national acquisition , which expenses were primarily associated with higher costs related to compensation of $ 3.1 million , data processing of $ 947,000 , legal and audit of $ 696,000 and premises and occupancy of $ 569,000. for 2013 , our return on average assets was 0.62 % and our return on average equity was 5.61 % . these returns were down from our 2012 returns of 1.52 % on average assets and 16.34 % on average equity and our 2011 returns of 1.12 % on average assets and 12.91 % on average equity . net interest income . our primary source of revenue is net interest income , which is the difference between the interest and dividends earned on loans , mortgage-backed securities and investment securities ( “ interest-earning assets ” ) and the interest paid on deposits and borrowings ( “ interest-bearing liabilities ” ) . the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities ( “ net interest rate spread ” ) and the relative dollar amount of these assets and liabilities principally affects our net interest income . for 2013 , net interest income totaled $ 58.2 million , up $ 12.4 million or 27.0 % over net
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utilizing our global sourcing , regulatory support and quality assurance network , aceto works with the large , global pharmaceutical companies , sourcing lower cost , quality pharmaceutical intermediates that will meet the same high level standards adhered to by their current commercial products . the performance chemicals segment includes specialty chemicals and agricultural protection products . aceto is a major supplier to many different industrial segments that require outstanding performance from chemical raw materials and additives . we provide chemicals which make plastics , surface coatings , textiles , fuels and lubricants to perform to their designed capabilities . these additive specialty products include antioxidants , photo initiators , catalysts , curatives , brighteners and adhesion promoters . aceto is a supplier of chemicals to ecofriendly technologies . for example , we supply ultraviolet photo initiators which allow inks and coatings to be cured by ultraviolet light instead of solvents , as well as curing agents and optical brighteners for powder ( non-solvent ) coatings . these growing technologies are critical in protecting and enhancing the world 's ecology . we also provide specialty chemicals for the food , beverage and fragrance industries . aceto 's raw materials are also used in sophisticated technology products , such as high-end electronic parts ( circuit boards and computer chips ) and binders for specialized rocket fuels . aceto is also a leader in the supply of diazos and couplers to the paper and film industries . specific end uses for these products include microfilm , blueprints and photo tooling of printed circuit boards . we also provide organic intermediates and colorants including automotive , industrial and residential coatings , dyes for colorful textiles for both natural and synthetic fibers , fda-approved colorants for foods and pharmaceuticals and high quality agrochemicals . the color producing industry manufactures a wide assortment of products and aceto is the supplier of choice to these producers of “ color. ” from textiles and plastics to inks and paints , our specialty colorant intermediates allow manufacturers to develop an endless rainbow of colorful possibilities . 23 aceto 's a gricultural protection products include herbicides , fungicides and insecticides which control weed growth as well as the spread of insects and microorganisms that can severely damage plant growth . the agricultural world is dependent on a large variety of deterrent products and we believe aceto has become a valued partner to the global generic agricultural industry by providing superior quality functional products . one of aceto 's most widely used agricultural protection products is a sprout inhibitor that extends the storage life of potatoes . other products are used in sugar cane , rice , corn , fruit and nut growing applications . we work with the large agrochemical distributors to provide alternate sources for key products . utilizing our global sourcing and regulatory capabilities , we identify and qualify manufacturers either producing the product or with knowledge of the chemistry necessary to produce the product and then file an application with the epa for a product registration . aceto has an ongoing working relationship with manufacturers in china and india to determine which of the non-patented , or generic , agricultural protection products they produce can be effectively marketed in the western world . over the past several years , we have successfully brought a number of products to market . in addition , we have a strong pipeline , which includes future additions to our product portfolio . the combination of our global sourcing and regulatory capabilities makes the generic agricultural market a niche for us and we will continue to offer new product additions in this market as we move forward . we believe the company 's business strengths are sourcing , regulatory support , quality assurance and marketing and distribution . we distribute more than 1,100 chemical compounds used principally as finished products or raw materials in the pharmaceutical , nutraceutical , agricultural , coatings and industrial chemical industries . with business operations in ten countries , aceto 's global reach is distinctive in the industry , enabling us to source and supply quality products on a worldwide basis . leveraging local professionals , we source more than two-thirds of our products from asia , buying from approximately 500 companies in china and 200 in india . in this md & a , we explain our general financial condition and results of operations , including , among other things , the following : factors that affect our business our earnings and costs in the periods presented changes in earnings and costs between periods sources of earnings the impact of these factors on our overall financial condition as you read this md & a , refer to the accompanying consolidated statements of income , which present the results of our operations for the three years ended june 30 , 2015. we analyze and explain the differences between periods in the specific line items of the consolidated statements of income . critical accounting estimates and policies 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. generally accepted accounting principles . in preparing these financial statements , we were required to make estimates and assumptions that affect the amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . we regularly evaluate our estimates including those related to allowances for bad debts , partnered products , inventories , goodwill and indefinite-life intangible assets , long-lived assets , environmental and other contingencies , income taxes and stock-based compensation . we base our estimates on various factors , including historical experience , advice from outside subject-matter experts , and various assumptions that we believe to be reasonable under the circumstances , which together form the basis for our 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 . story_separator_special_tag since june 30 , 2015 , there have been no significant changes to the assumptions and estimates related to those critical accounting estimates and policies . 24 we believe the following critical accounting policies affected our more significant judgments and estimates used in preparing these consolidated financial statements . revenue recognition we recognize revenue from sales of any product when it is shipped and title and risk of loss pass to the customer . we have no acceptance or other post-shipment obligations and we do not offer product warranties or services to our customers . sales are recorded net of estimated returns of damaged goods from customers , which historically have been immaterial , and sales incentives offered to customers . sales incentives include volume incentive rebates . we record volume incentive rebates based on the underlying revenue transactions that result in progress by the customer in earning the rebate . in addition , upon each sale of finished dosage form generics , estimates of rebates , chargebacks , returns , government reimbursed rebates , sales discounts and other adjustments are made . these estimates are recorded as reductions to gross revenues , with corresponding adjustments either as a reduction of accounts receivable or as a liability for price concessions . we have the experience and access to relevant information that we believe are necessary to reasonably estimate the amounts of such deductions from gross revenues . these deductions are primarily estimated based on historical experience , future expectations , contractual arrangements with wholesalers and indirect customers , and other factors known to us at the time of accrual . we regularly review the information related to these estimates and adjust our reserves accordingly , if and when actual experience differs from previous estimates . allowance for doubtful accounts we maintain allowances for doubtful accounts relating to estimated losses resulting from customers being unable to make required payments . allowances for doubtful accounts are based on historical experience and known factors regarding specific customers and the industries in which those customers operate . if the financial condition of our customers were to deteriorate , resulting in their ability to make payments being impaired , additional allowances would be required . royalty income we have royalty agreements on certain products where third party pharmaceutical and agricultural protection companies market such products . we earn and collect royalty income based on percentages of net profits as defined in those agreements . royalty income is included in net sales in our consolidated statements of income . partnered products we have various products which we have entered into collaborative arrangements with certain pharmaceutical companies . as a result of these arrangements , we share profits on sales of these products , which are included in cost of sales . the shared profits are settled on a quarterly basis . for each of the fiscal years 2015 , 2014 and 2013 , there was approximately $ 51,352 , $ 26,972 and $ 22,769 respectively , of shared profits included in cost of sales , related to these collaborative arrangements . inventories inventories , which consist principally of finished goods , are stated at the lower of cost ( first-in first-out method ) or market . we write down our inventories for estimated excess and obsolete goods by an amount equal to the difference between the carrying cost of the inventory and the estimated market value based upon assumptions about future demand and market conditions . a significant sudden increase in demand for our products could result in a short-term increase in the cost of inventory purchases , while a significant decrease in demand could result in an increase in the excess inventory quantities on-hand . additionally , we may overestimate or underestimate the demand for our products which would result in our understating or overstating , respectively , the write-down required for excess and obsolete inventory . although we make every effort to ensure the accuracy of our forecasts of future product demand , any significant unanticipated changes in demand could have a significant impact on the value of our inventory and reported operating results . goodwill and other indefinite-lived intangible assets goodwill is calculated as the excess of the cost of purchased businesses over the value of their underlying net assets . other indefinite-lived intangible assets principally consist of trademarks . goodwill and other indefinite-lived intangible assets are not amortized . 25 in accordance with gaap , we test goodwill and other indefinite-lived intangible assets for impairment on at least an annual basis . to determine the fair value of these intangible assets , we use many assumptions and estimates that directly impact the results of the testing . in making these assumptions and estimates , we use industry-accepted valuation models and appropriate market participant assumptions that are reviewed and approved by various levels of management . if our estimates or our related assumptions change in the future , we may be required to record impairment charges for these assets . long-lived assets in accordance with gaap , long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . identifiable intangible assets principally consist of customer relationships , product rights and related intangibles , epa registrations and related data , patent license , and technology-based intangibles . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset . recoverability of assets held for sale is measured by comparing the carrying amount of the assets to their estimated fair value . if such assets are considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets . assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell .
| the primary reason for the decrease is due to a $ 13,407 decline in sales of apis sold internationally , primarily from one of our european subsidiaries , as well as a decrease of $ 3,695 in sales of intermediates which represent key components used in the manufacture of certain drug products . these decreases were offset in part by an increase in sales of domestic apis of $ 8,675 due to large reorders of a recently launched api during the twelve months ended june 30 , 2014 , as well as reorders of existing products . performance chemicals net sales for the performance chemicals segment decreased to $ 173,537 for the year ended june 30 , 2014 , a decrease of $ 11,634 or 6.3 % , from net sales of $ 185,171 for the prior year . our performance chemicals segment saw a decline in sales of our agricultural protection products , primarily from a decrease in high volume sales of a broad-spectrum herbicide and a wide-range insecticide that is used on various crops including cereals , citrus , cotton , grapes , ornamental grasses and vegetables . in addition , there was a drop in domestic sales of agricultural , pigment and miscellaneous intermediates , as well as chemicals used in surface coatings , sold by our specialty chemicals business . the specialty chemicals segment also experienced a decline in products sold to the food , beverage and cosmetic industries . gross profit gross profit increased $ 16,432 to $ 114,703 ( 22.5 % of net sales ) for the year ended june 30 , 2014 , as compared to $ 98,271 ( 19.7 % of net sales ) for the prior year . human health human health 's gross profit of $ 48,496 for the year ended june 30 , 2014 increased $ 9,190 , or 23.4 % , over the prior year . the gross margin of 30.3 % remained unchanged from the prior year . the increase in gross profit in the human health segment related to increased sales volume of rising
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the company broke ground on the new plant in early february 2016 , with projected start-up in 2017. on april 28 , 2015 , the company expanded its product offering of high performance spherical roller bearings . the new product line includes medium bore high performance spherical roller bearings featuring either steel or brass cages in a variety of sizes . the new offering of spherical roller bearings includes several new features that are expected to contribute to longer bearing life and to run cooler than other comparable products . on april 10 , 2015 , the company launched the timken® uc-series ball bearing housed unit product line , an extension of the company 's housed unit bearing portfolio . on march 19 , 2015 , the company unveiled its new 27,000-square-foot , state-of-the-art gear drive manufacturing facility in houston , texas . this facility serves customers in the power generation , oil and gas exploration , refining and pipeline/pumping industries that require reliable , high-speed enclosed gearboxes to keep pumps , compressors and generators operating in harsh conditions . financing agreements and pension plan transactions on november 30 , 2015 , the company amended its $ 100 million asset securitization agreement ( accounts receivable facility ) to , among other things , extend the maturity to november 30 , 2018. on november 30 , 2015 , the company entered into an agreement pursuant to which one of its u.s. defined benefit pension plans purchased a group annuity contract from prudential insurance company of america ( prudential ) that requires prudential to pay and administer future pension benefits for approximately 3,400 u.s. timken retirees . the purchase was funded by existing pension plan assets and required no cash contribution from the company to prudential in this transaction . as a result of the purchase of the group annuity contract , the company incurred non-cash pension settlement charges of $ 241.8 million in the fourth quarter of 2015. coupled with the group annuity contract purchased in january discussed below , the company transferred a total of approximately $ 1.1 billion of pension obligations to prudential in 2015 , which reduced the company 's total projected benefit obligation by approximately 50 % . on june 19 , 2015 , the company amended and restated its five-year $ 500 million senior credit facility to , among other things , extend the maturity to june 19 , 2020. on january 23 , 2015 , the company entered into an agreement pursuant to which another of its u.s. defined benefit pension plans purchased a group annuity contract from prudential that requires prudential to pay and administer future pension benefits for approximately 5,000 u.s. timken salaried retirees . the purchase was funded by existing pension plan assets and required no cash contribution from the company to prudential in this transaction . as a result of the purchase of the group annuity contract as well as lump-sum distributions to new retirees , the company incurred pension settlement charges of $ 215.2 million in the first quarter of 2015 . 20 acquisitions and divestitures on october 21 , 2015 , the company completed the sale of all of the outstanding stock of timken alcor aerospace technologies , inc. ( alcor ) , located in mesa , arizona . alcor was engaged in the design , engineering , sourcing , manufacture and sale of parts and components used in gas turbine engines and helicopter drivetrain applications and filing applications for and obtaining certificates reflecting a parts manufacturer approval ( pma ) issued by the united states federal aviation administration ( faa ) for such parts and components . for the twelve months ending september 30 , 2015 , alcor had sales of $ 20.6 million . the results of the operations of alcor prior to the sale were reported in the mobile industries segment . the company recognized a gain on the sale of alcor of approximately $ 29 million . on september 1 , 2015 , the company acquired all the membership interests of carlstar belt llc ( the belts business ) . the belts business is a leading north american manufacturer of belts used in industrial , commercial and consumer applications . based in springfield , missouri , the belts business had sales of approximately $ 140 million for the twelve months ending june 30 , 2015. the results of the operations of the belts business are reported in the mobile industries and process industries segments based on the customers served . 21 story_separator_special_tag related to the sale of real estate in sao paulo . during the fourth quarter of 2015 , the company wrote-off $ 9.7 million that remained in construction in process ( cip ) after the related assets were placed into service . the majority of these assets were placed into service between 2008 and 2012. this item was identified during an examination of aged balances in the cip account . management of the company concluded that the correction of this error in the fourth quarter of 2015 and the presence of this error in prior periods was immaterial to all periods presented . 24 income tax expense : replace_table_token_16_th the effective tax rate for 2015 was 64.1 % , which reflects a tax benefit on pretax loss . the tax benefit rate of 64.1 % was greater than the u.s. statutory rate of 35 % primarily due to the tax benefits of reversals of certain valuation allowances in foreign jurisdictions , u.s. foreign tax credits , earnings in certain foreign jurisdictions where the effective tax rate was less than 35 % , reversals of reserves for uncertain tax positions , state and local taxes , the u.s. manufacturing deduction , the u.s. research tax credit and other u.s. tax benefits . these factors were offset by u.s. taxation of foreign earnings , recording of deferred tax liabilities related to foreign branch operations , and losses at certain foreign subsidiaries where no tax benefit could be recorded . story_separator_special_tag the effective tax rate on pretax income for 2014 was favorable relative to the u.s. federal statutory rate primarily due to u.s. foreign tax credits , earnings in certain foreign jurisdictions where the effective tax rate was less than 35 % , adjustments to tax accruals for undistributed foreign earnings , the u.s. manufacturing deduction , the u.s. research tax credit and other u.s. tax benefits . these factors were partially offset by u.s. taxation of foreign income , losses at certain foreign subsidiaries where no tax benefit could be recorded , non-deductible intangible asset impairment charges recorded in the mobile industries segment and accruals for uncertain tax positions . the following is the reconciliation between the provision/ ( benefit ) for income taxes and the amount computed by applying income tax rate of 35 % to income before taxes : replace_table_token_17_th discontinued operations : replace_table_token_18_th on june 30 , 2014 , the company completed the spinoff of timkensteel . the operating results , net of tax , included one-time transaction costs of $ 57.1 million during 2014. these costs included consulting and professional fees associated with preparing for and executing the spinoff of timkensteel . 25 business segments the company ' s reportable segments are business units that target different industry sectors . while the segments often operate using a shared infrastructure , each reportable segment is managed to address specific customer needs in these diverse market segments . the primary measurement used by management to measure the financial performance of each segment is earnings before interest and taxes ( ebit ) . refer to note 16 - segment information in the notes to the consolidated financial statements for the reconciliation of ebit by segment to consolidated income before income taxes . the presentation of segment results below includes a reconciliation of the changes in net sales for each segment reported in accordance with u.s. gaap to net sales adjusted to remove the effects of acquisitions and divestitures completed in 2015 and 2014 and foreign currency exchange rate changes . the effects of acquisitions , divestitures and foreign currency exchange rate changes on net sales are removed to allow investors and the company to meaningfully evaluate the percentage change in net sales on a comparable basis from period to period . the following items highlight the company ' s acquisitions and divestitures completed in 2015 and 2014 : during the fourth quarter of 2015 , the company sold all of the outstanding stock of alcor . results for alcor were reported in the mobile industries segment . during the third quarter of 2015 , the company acquired the belts business . results for the belts business are reported in the mobile industries and process industries segments based on the customers served . during the fourth quarter of 2014 , the company acquired substantially all of the assets of revolvo ltd. ( revolvo ) . results for revolvo are reported in the process industries segment . during the fourth quarter of 2014 , the company sold its aerospace engine overhaul business . results for the aerospace engine overhaul business were reported in the mobile industries segment . during the second quarter of 2014 , the company acquired substantially all of the assets of schulz group ( schulz ) . results for schulz are reported in the process industries segment . mobile industries segment : replace_table_token_19_th the mobile industries segment 's net sales , excluding the effects of acquisitions , divestitures and foreign currency exchange rate changes , decreased $ 47.6 million or 2.8 % in 2015 compared with 2014 . the decrease in net sales was primarily due to lower volume in the off-highway ( primarily agriculture ) and aerospace end market sectors , partially offset by organic growth in the rail and automotive sectors . ebit increased in 2015 compared with 2014 primarily due to the impact of goodwill impairment and inventory valuation adjustments of $ 118 million recorded in 2014 , a gain on the sale of alcor of $ 29 million recorded in 2015 , the benefit of lower raw material and operating costs net of manufacturing underutilization , lower selling , general and administrative expenses and the impact of acquisitions . these factors were partially offset by a gain on the sale of real estate in brazil of $ 23 million recorded in 2014 , lower volume of $ 20 million and unfavorable price/mix of $ 14 million and the negative impact of foreign currency exchange rate changes of $ 18 million . 26 full-year sales for the mobile industries segment are expected to be down approximately 5 % in 2016 compared with 2015. this reflects lower expected volume in the rail , off-highway and aerospace end market sectors and the estimated impact of foreign currency exchange rate changes , partially offset by organic growth in the automotive end market sector and the benefit of acquisitions . ebit for the mobile industries segment is expected to decrease in 2016 compared with 2015 as a result of the gain from the sale of alcor in 2015 , the impact of lower volume and the impact of foreign currency exchange rate changes , partially offset by lower raw material and operating costs , selling , general and administrative expenses and the benefit of acquisitions . process industries segment : replace_table_token_20_th the process industries segment 's net sales , excluding the effects of acquisitions and foreign currency exchange rate changes , decreased $ 43.5 million or 3.1 % in 2015 compared with 2014 primarily due to lower volume in the industrial distribution , services and heavy industries end market sectors , partially offset by organic growth in the wind energy and military marine sectors . ebit was lower in 2015 compared with 2014 primarily due to the impact of lower volume of $ 21 million , unfavorable price/mix of $ 24 million , the impact of unfavorable foreign currency exchange rate changes of $ 25 million and higher impairment and restructuring charges .
| the company expects capital expenditures to be approximately 4.5 % of sales in 2016 , compared with 3.7 % of sales in 2015 . 22 the statements of income sales : replace_table_token_8_th net sales decreased in 2015 compared with 2014 primarily due to the effect of foreign currency exchange rates of $ 152 million and lower organic sales of $ 90 million , partially offset by the benefit of acquisitions of $ 39 million . the decrease in organic sales volume was driven by lower demand across most of the company 's end market sectors , partially offset by growth in the wind , military marine , rail and automotive sectors . gross profit : replace_table_token_9_th gross profit decreased in 2015 compared with 2014 , primarily due to the impact of lower volume of $ 40 million , unfavorable price/mix of $ 37 million and the impact of foreign currency exchange rate changes of $ 63 million . these factors were partially offset by the impact of inventory valuation adjustments that occurred during 2014 of $ 20 million , lower raw material and operating costs net of manufacturing underutilization and the impact of acquisitions . selling , general and administrative expenses : replace_table_token_10_th the decrease in selling , general and administrative expenses in 2015 compared with 2014 was primarily due to lower incentive compensation expense of $ 28 million and the impact of foreign currency exchange rate changes of $ 20 million . the benefits of cost reduction initiatives were largely offset by the impact of acquisitions , higher pension and bad debt expense and costs associated with ongoing growth initiatives . impairment and restructuring charges : replace_table_token_11_th impairment and restructuring charges of $ 14.7 million in 2015 were primarily due to severance and related benefit costs associated with initiatives to reduce headcount , impairment charges of $ 3.0 million related to the company 's service center in niles , ohio and exit costs of approximately $ 3.0 million related to the company 's
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however , individual u.s. government agencies , which include the military services , nasa , the missile defense agency , and the prime contractors that serve these agencies , exercise independent purchasing power within “ budget top-line ” limits . therefore , sales to the u.s. government are not regarded as sales to one customer , but rather each contracting agency is viewed as a separate customer . sales to the u.s. government and its agencies , including sales to our significant customers disclosed below , were as follows : replace_table_token_12_th the standard missile program , which is included in the u.s. government sales and is comprised of multiple contracts , represented 12 % , 14 % , 12 % , and 12 % of net sales for fiscal 2016 , fiscal 2015 , fiscal 2014 , and the one month ended december 31 , 2015 , respectively . the thaad program , which is included in the u.s. government sales and is comprised of multiple contracts , represented 13 % , 13 % , 12 % , and 13 % of net sales for fiscal 2016 , fiscal 2015 , fiscal 2014 , and the one month ended december 31 , 2015 , respectively . the demand for certain of our services and products is directly related to the level of funding of u.s. government programs . customers that represented more than 10 % of net sales for the periods presented were as follows : replace_table_token_13_th our sales to each of the major customers listed above involve several product lines and programs . industry update our primary aerospace and defense customers include the dod and its agencies , nasa , and the prime contractors that supply products to these customers . we rely on u.s. government spending on propulsion systems for defense , space and armament systems , precision tactical weapon systems and munitions applications , and our backlog depends , in large part , on continued funding by the u.s. government for the programs in which we are involved . these funding levels are not generally correlated with any specific economic cycle , but rather follow the cycle of general public policy and political support for this type of funding . moreover , although our contracts often contemplate that our services will be performed over a period of several years , the u.s. congress must appropriate funds for a given program and the u.s. president must sign government 30 budget legislation each gfy and may significantly increase , decrease or eliminate , funding for a program . a decrease in dod and or nasa expenditures , the elimination or curtailment of a material program in which we are or hope to be involved , or changes in payment patterns of our customers as a result of changes in u.s. government outlays , could have a material adverse effect on our operating results , financial condition , and or cash flows . even with overall budget levels set for gfy 2017 , congress was not able to pass a full year appropriation for either the dod or nasa prior to the start of gfy 2017 on october 1 , 2016. as a result , congress passed a short-term cr to fund the u.s. government until december 9 , 2016. after the november u.s. presidential election , at the request of the incoming trump administration , congress passed another cr through april 28 , 2017 to allow the new administration to shape federal spending . although details of the plans to address perceived shortfalls in dod readiness and modernization remain unsettled , the trump administration has signaled strong support for nuclear modernization and missile defense . the sls appears to remain a top congressional priority as the cr included a provision to allow nasa the funding flexibility for sls and deep exploration to remain on track . the sls program also has enjoyed wide , bipartisan support in both chambers of congress . we maintain a strong relationship with nasa and our propulsion systems have been powering nasa launch vehicles and spacecraft since the inception of the u.s. space program . our booster , upper stage and orion vehicle propulsion systems are currently baselined on the new sls vehicle and both upper stage and booster engines are in development for future sls variants . due to the retirement of the space shuttle fleet , u.s. astronauts are now dependent on russian soyuz flights for access to and from the iss for the better part of this decade . nasa has been working to re-establish u.s. manned space capability as soon as possible through development of a new “ space taxi ” to ferry astronauts and cargo to the iss . in 2014 , boeing 's cst-100 starliner capsule , powered by aerojet rocketdyne propulsion , was selected by nasa to transport astronauts to and from the iss . as boeing 's teammate , aerojet rocketdyne will be providing the propulsion system for this new capsule , thereby supplementing its work for nasa on the sls designed for manned deep space exploration . in both instances , we have significant propulsion content and we look forward to supporting these generational programs for nasa . the competitive dynamics of our multi-faceted marketplace vary by product sector and customer as we experience many of the same influences felt by the broader aerospace and defense industry . the large majority of products we manufacture are highly complex , technically sophisticated and extremely hazardous to build , demanding rigorous manufacturing procedures and highly specialized manufacturing equipment . while historically these factors , coupled with the high cost to establish the infrastructure required to meet these needs , posed substantial barriers to entry , modern design tools and manufacturing techniques ( e.g. , additive manufacturing ) available to new entrants with the ability to self-fund start-up as well as development costs has led to increased competition in space related markets . to date , the competition has been limited to a few participants who tend to be narrowly focused on products that are sub-elements of our overall product portfolio . story_separator_special_tag for example , entrepreneurs such as spacex and blue origin , who have been or are in the process of developing liquid fuel propulsion capabilities are primarily focused on the development of space propulsion systems for heavy lift launch vehicles and are not pursuing or participating in the missile defense or tactical propulsion business segments that make up a substantial portion of our overall business . these new entrepreneurs have signaled their intent to compete primarily on price and are therefore bringing pressure to bear on existing cost paradigms and manufacturing methodologies . competitive improvement program in march 2015 , we initiated the cip comprised of activities and initiatives aimed at reducing costs in order for us to continue to compete successfully . the company-wide initiative is being undertaken after a comprehensive assessment of our product portfolio to underpin aerojet rocketdyne 's technological and competitive leadership in our markets through continued research and development . the cip is composed of three major components : ( i ) facilities optimization and footprint reduction ; ( ii ) product affordability ; and ( iii ) reduced administrative and overhead costs . under the cip , we expect an estimated 500 headcount reduction . we currently estimate that we will incur restructuring and related costs over the four-year cip program of approximately $ 82 million ( excluding approximately $ 31 million of capital expenditures ) . the revisions to the estimated costs of the cip in fiscal 2016 were primarily driven by reduced severance costs as employees left voluntarily at a higher rate than anticipated . when fully implemented , we anticipate that the cip will result in annual cost savings of approximately $ 145 million beginning in fiscal 2019. as a result of this effort , we will be better positioned to deliver our innovative , high quality and reliable products at a lower cost to our customers . the cost savings will be realized by the u.s. government in the form of more competitive pricing . the cip costs will consist primarily of severance and other employee related costs totaling approximately $ 25 million , operating facility costs totaling approximately $ 19 million , and $ 38 million for other costs relating to product re-qualification , knowledge transfer and other cip implementation costs . we have incurred $ 18.4 million related to the cip program through december 31 , 2016 and additionally we have incurred $ 28.9 million in capital expenditures to support the cip . the costs associated with the cip will be a component of our u.s. government forward pricing rates , and therefore , will be recovered through the pricing of our products and services to the u.s. government . environmental matters 31 our current and former business operations are subject to , and affected by , federal , state , local , and foreign environmental laws and regulations relating to the discharge , treatment , storage , disposal , investigation , and remediation of certain materials , substances , and wastes . our policy is to conduct our business with due regard for the preservation and protection of the environment . we continually assess compliance with these regulations and we believe our current operations are materially in compliance with all applicable environmental laws and regulations . the following table summarizes our recoverable amounts , environmental reserves , and range of liability , as of december 31 , 2016 : replace_table_token_14_th _ ( 1 ) excludes the receivable from northrop of $ 68.0 million as of december 31 , 2016 related to environmental costs already paid ( and therefore not reserved ) in prior years and reimbursable under the northrop agreement . most of our environmental costs are incurred by our aerospace and defense segment , and certain of these future costs are allowable to be included in our contracts with the u.s. government and allocable to northrop until the cumulative expenditure limitation is reached . see note 7 ( c ) and ( d ) of the notes to consolidated financial statements and `` environmental matters '' below for summary of our environmental reserve activity . capital structure we have a substantial amount of debt for which we are required to make interest and principal payments . interest on long-term financing is not a recoverable cost under our u.s. government contracts . as of december 31 , 2016 , we had $ 725.6 million of debt principal outstanding . retirement benefits we expect to make cash contributions of approximately $ 72.0 million to our tax-qualified defined benefit pension plan in fiscal 2017 of which $ 37.0 million is expected to be recoverable in our u.s. government contracts in fiscal 2017 with the remaining $ 35.0 million being potentially recoverable in our u.s. government contracts in the future . we generally are able to recover cash contributions related to our tax-qualified defined benefit pension plan as allowable costs on our u.s. government contracts , but there is a lag between when we contribute cash to our tax-qualified defined benefit pension plan under pension funding rules and recover it under the cas . during fiscal 2016 , we made cash contributions of $ 32.8 million to our tax-qualified defined benefit pension plan of which $ 27.5 million was recoverable in our u.s. government contracts in fiscal 2016 with the remaining $ 5.3 million being potentially recoverable in our u.s. government contracts in the future . the funded status of our retirement benefit plans may be adversely affected by investment experience , by any changes in u.s. law and by changes in the statutory interest rates used by tax-qualified pension plans in the u.s. to calculate funding requirements . accordingly , if the performance of our retirement benefit assets does not meet our assumptions , if there are changes to the irs regulations or other applicable law or if other actuarial assumptions are modified , our future contributions to our underfunded retirement benefit plans could be higher than we expect .
| the increase in net sales was primarily due to the following : ( i ) an increase of $ 84.3 million in space advanced programs primarily driven by the rs-25 program which is currently engaged in a significant development and integration effort in support of the sls development program and increased development work on the orion program partially offset by the successful completion of current j-2x program ; ( ii ) an increase of $ 80.3 million in missile defense and strategic systems programs primarily driven by the increased deliveries on the thaad and standard missile programs ; and ( iii ) sale of approximately 550 acres of our sacramento land for $ 42.0 million . the increase in net sales was partially offset by a decrease of $ 109.7 million in space launch programs primarily associated with the rl10 and rs-68 programs as a result of the timing of deliveries and costs incurred on these multi-year contracts and lower sales related to the antares aj-26 program close-out ( see discussion below ) . one month ended december 31 , 2015 ( in millions ) net sales : $ 96.3 net sales for the month ended december 31 , 2015 was primarily comprised of the following : ( i ) sales of $ 32.4 million in missile defense and strategic systems programs primarily driven by the deliveries on the thaad and standard missile programs ; ( ii ) sales of $ 26.4 million in our space launch programs primarily associated with the rl10 program as a result of deliveries on this multi-year contract and deliveries on the atlas v program ; and ( iii ) sales of $ 26.1 million in space advanced programs primarily driven by work on the commercial crew development program and the rs-25 program which is currently engaged in a significant development and integration effort in support of the sls program . cost of sales ( exclusive of items shown separately below ) : replace_table_token_17_th * primary reason for change . the increase in cost of sales as a percentage of net sales excluding retirement benefit expense and the step-up in fair value of inventory was primarily due to the fiscal 2015 land sale of approximately 550 acres of sacramento land resulting in gross profit of $ 30.6 million . * * primary reason for change . the decrease in cost of sales as a percentage of net sales excluding retirement benefit expense and the step-up in fair value of inventory was primarily due to ( i ) land sale of approximately 550 acres of sacramento land resulting
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in 2016 , we incurred a net loss of $ 29.9 million , compared to $ 54.1 million in 2015 and $ 15.2 million in 2014 . in 2016 , we reported adjusted ebitda of $ 57.1 million compared to $ 31.0 million in 2015 and $ 23.1 million in 2014 . see “ — non-gaap financial measures ” for more information and for a reconciliation of adjusted ebitda to net loss , the most directly comparable financial measure calculated in accordance with gaap . key operating and financial metrics we collect and analyze operating and financial data to evaluate the health of our ecosystem , allocate our resources ( such as capital , people and technology investments ) and assess the performance of our business . the unaudited key operating metrics , unaudited non-gaap financial measure and key financial metrics we use are : replace_table_token_7_th gms gross merchandise sales , or gms , is the dollar value of items sold in our markets within the applicable period , excluding shipping fees and net of refunds associated with canceled transactions . gms does not represent revenue earned by etsy . gms is largely driven by transactions in our markets and is not directly impacted by seller services activity . however , because our revenue and cost of revenue depend significantly on the dollar value of items sold in our markets , we believe that gms is an indicator of the success of etsy sellers , the satisfaction of etsy buyers , the health of our ecosystem and the scale and growth of our business . adjusted ebitda adjusted ebitda represents our net loss adjusted to exclude : interest and other non-operating expense , net ; provision for income taxes ; depreciation and amortization ; stock-based compensation expense ; loss on asset impairment ; net unrealized loss on warrant and other liabilities ; foreign exchange loss ; acquisition-related expenses and contributions to good work institute ( formerly etsy.org ) . see “ non-gaap financial measures ” for information regarding our use of adjusted ebitda , including its limitations as a financial measure , and for a reconciliation of adjusted ebitda to net loss , the most directly comparable financial measure calculated in accordance with gaap . 38 active sellers an active seller is an etsy seller who has incurred at least one charge from us in the last 12 months . charges include transaction fees , listing fees and fees for direct checkout , promoted listings , shipping labels , pattern , google shopping and etsy wholesale enrollment . an etsy seller is identified by a unique e-mail address ; a single person can have multiple etsy seller accounts . we succeed when etsy sellers succeed , so we view the number of active sellers as a key indicator of the awareness of our brand , the reach of our platform , the potential for growth in gms and revenue and the health of our ecosystem . active buyers an active buyer is an etsy buyer who has made at least one purchase in the last 12 months . an etsy buyer is identified by a unique e-mail address ; a single person can have multiple etsy buyer accounts . we generate revenue when etsy buyers order items from etsy sellers , so we view the number of active buyers as a key indicator of our potential for growth in gms and revenue , the reach of our platform , awareness of our brand , the engagement and loyalty of etsy buyers and the health of our ecosystem . mobile visits a visit represents activity from a unique browser or mobile app . a visit ends after 30 minutes of inactivity . a mobile visit is a visit that occurs on a mobile device , such as a tablet or a smartphone . etsy sellers are increasingly using mobile devices to manage their listings and track their business performance on our platform . in addition , etsy buyers increasingly use mobile devices to search , browse and purchase items on our platform . we view percent mobile visits as a key indicator of the level of engagement of etsy sellers and etsy buyers on our mobile website and mobile apps and of our ability to sustain gms and revenue . mobile gms mobile gms is gms that results from a transaction completed on a mobile device , such as a tablet or a smartphone . mobile gms excludes orders initiated on mobile devices but ultimately completed on a desktop . we believe that mobile gms indicates our success in converting mobile activity into mobile purchases and demonstrates our ability to grow gms and revenue . international gms international gms is gms from transactions where either the billing address for the etsy seller or the shipping address for the etsy buyer at the time of sale is outside of the united states . we believe that international gms shows the level of engagement of our community outside the united states and demonstrates our ability to grow gms and revenue . non-gaap financial measures adjusted ebitda in this annual report on form 10-k , we provide adjusted ebitda , a non-gaap financial measure that represents our net loss adjusted to exclude : interest and other non-operating expense , net ; provision for income taxes ; depreciation and amortization ; stock-based compensation expense ; loss on asset impairment ; net unrealized loss on warrant and other liabilities ; foreign exchange loss ; acquisition-related expenses and contributions to good work institute ( formerly etsy.org ) . below is a reconciliation of adjusted ebitda to net loss , the most directly comparable gaap financial measure . we have included adjusted ebitda because it is a key measure used by our management and board of directors to evaluate our operating performance and trends , allocate internal resources , prepare and approve our annual budget , develop short- and long-term operating plans , determine incentive compensation and assess the health of our business . story_separator_special_tag as our adjusted ebitda increases , we are able to invest more in our platform . we believe that adjusted ebitda can provide a useful measure for period-to-period comparisons of our business as it removes the impact of certain non-cash items and certain variable charges . 39 adjusted ebitda has limitations as an analytical tool , and you should not consider it in isolation or as a substitute for analysis of our results as reported under gaap . some of these limitations are : although depreciation and amortization are non-cash charges , the assets being depreciated and amortized may have to be replaced in the future , and adjusted ebitda does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements ; adjusted ebitda does not consider the impact of stock-based compensation expense or changes in the fair value of warrants ; adjusted ebitda does not reflect tax payments that may represent a reduction in cash available to us ; adjusted ebitda does not consider the impact of foreign exchange loss ; adjusted ebitda does not consider the impact of loss on asset impairment ; adjusted ebitda does not reflect acquisition-related expenses ; adjusted ebitda does not reflect other non-operating expenses , net of other non-operating income , including net interest expense ; adjusted ebitda does not reflect the impact of our contributions to good work institute ( formerly etsy.org ) ; and other companies , including companies in our industry , may calculate adjusted ebitda differently , which reduces its usefulness as a comparative measure . because of these limitations , you should consider adjusted ebitda alongside other financial performance measures , including net loss and our other gaap results . the following table reflects the reconciliation of net loss to adjusted ebitda for each of the periods indicated : replace_table_token_8_th ( 1 ) included in interest and depreciation expense amounts above , interest and depreciation expense related to our new headquarters under build-to-suit accounting requirements , which commenced in may 2016 , for the years ended december 31 , 2014 , 2015 and 2016 is as follows : year ended december 31 , 2014 2015 2016 ( in thousands ) interest expense $ — $ — $ 5,337 depreciation — — 2,186 ( 2 ) etsy made a one-time contribution of 188,235 shares of common stock totaling $ 3.2 million and $ 0.3 million to good work institute ( formerly etsy.org ) during the first and second quarters of 2015 , respectively . 40 key factors affecting our performance we believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges , including those discussed in the section titled “ risk factors . ” growth and retention of active sellers and active buyers our success depends in part on the growth and retention of our active sellers and active buyers . our revenue is driven by the number of active sellers , seller engagement , the number of active buyers , buyer engagement and our ability to maintain trusted markets . as of december 31 , 2016 , our markets had grown to 1.7 million active sellers and 28.6 million active buyers , up from 1.6 million active sellers and 24.0 million active buyers as of december 31 , 2015 . we believe two of our most significant opportunities to drive growth within our markets are to bring new buyers to etsy and to encourage existing buyers to return more frequently . repeat purchases demonstrate the loyalty of etsy buyers . in 2016 , approximately 41.0 % of our active buyers made purchases on two or more days in the previous 12 months , up from 40.6 % in 2015 . to analyze our retention rates , we measure repeat activity by etsy sellers and etsy buyers . cohort of 2011 , 2012 and 2013 active sellers we refer to active sellers as of december 31 , 2011 as “ 2011 active sellers , ” as of december 31 , 2012 as “ 2012 active sellers ” and as of december 31 , 2013 as “ 2013 active sellers. ” of total 2011 active sellers , 32.3 % remained active sellers through their fourth year on the platform , compared to 32.3 % for 2012 active sellers and 31.5 % for 2013 active sellers . the average annual gms per 2011 active seller during their fourth year on the platform was over five times higher than their first year , compared to over four times higher for 2012 active sellers and almost four times higher for 2013 active sellers . cohort of 2011 , 2012 and 2013 active sellers this cohort data demonstrates our success in retaining sellers over a multi-year period , with the sellers that remain on our platform maintaining consistent gms growth . 41 cohort of 2011 , 2012 and 2013 active buyers we refer to active buyers as of december 31 , 2011 as “ 2011 active buyers , ” as of december 31 , 2012 as “ 2012 active buyers ” and as of december 31 , 2013 as “ 2013 active buyers. ” of total 2011 active buyers , 44.7 % remained active buyers through their fourth year on the platform , compared to 42.5 % for 2012 active buyers and 41.1 % for 2013 active buyers . the average annual gms per 2011 active buyer during their fourth year on the platform was 89.2 % higher than their first year , compared to 88.3 % for 2012 active buyers and 80.5 % for 2013 active buyers . we note that 2013 was the first year we started to significantly invest in our paid acquisition marketing efforts to grow our buyer base . cohort of 2011 , 2012 and 2013 active buyers this cohort data demonstrates our ability to consistently retain buyers over a multi-year period and reflects the loyalty of our buyer base .
| we anticipate conversion rate gains across both mobile and desktop in 2017 that reflect improvements in our search and recommendations capabilities . we believe that we will continue to see the gap between mobile visits and mobile gms narrow over time . for the year ended december 31 , 2016 , international gms increased as a percentage of total gms to 30.4 % , from 29.8 % for the year ended december 31 , 2015 . the improved performance in percent international gms was largely driven by gms growth between u.s. buyers and international sellers and gms growth between buyers and sellers outside of the u.s. , both in the same country and cross-border . we continue to believe the decline of gms between u.s. sellers and international buyers , which decreased 8 % for the year ended december 31 , 2016 , is indicative of the indirect impact of fluctuating currency exchange rates on international buyer behavior , which is difficult to estimate . finally , gms growth between international buyers and sellers in the same country remains the fastest growing category of international gms . gms between international buyers and sellers in the same country grew approximately 47 % year-over-year during the year ended december 31 , 2016 and has grown from our smallest category historically to be more similar in size to gms between international buyers and sellers in different countries . we believe the robust growth in this gms category demonstrates the progress we are making on our strategy to build and deepen local etsy communities around the world . revenue increased $ 91.5 million , or 33.4 % , to $ 365.0 million in the year ended december 31 , 2016 compared to the year ended december 31 , 2015 , of which 55.0 % consisted of seller services revenue and 43.3 % consisted of markets revenue . markets revenue increased $ 25.6 million , or 19.3 % , to $ 158.2 million in the year ended december 31 , 2016 compared to the year ended
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we record rental income for the full term of each lease on a straight-line basis , even if there are periods for which no rent is due or where minimum rental payments increase during the term of the lease . as such , the company records a receivable from lessees for the difference between the straight-line rent and the rent that is contractually due from the lessees . long-lived assets held and used we review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable . if the undiscounted future cash flows from the long-lived asset are less than the carrying value , we recognize a loss equal to the difference between the carrying value and the discounted future cash flows of the asset . our estimate of future cash flows will be based on our experience , knowledge , and typically third-party advice or market data . however , these estimates can be affected by other factors and economic conditions that can be difficult to predict . estimates various assumptions and other factors underlie the determination of significant accounting estimates . the process of determining significant estimates is fact specific and takes into account factors such as historical experience , known facts , current and expected economic conditions . we periodically reevaluate these significant factors and make adjustments when facts and circumstances dictate , however , actual results may differ from estimates . 11 story_separator_special_tag size= '' 2 '' > other operating expenses ( which include depreciation and amortization , utilities , repairs and maintenance , property taxes , and insurance ) were $ 7,731 in 2004 , and $ 11,904 and $ 14,716 on a pro forma basis in 2003 and 2002 , respectively . on a pro forma basis , other operating expenses decreased by 35 % in 2004 and by 19 % in 2003. the decrease in 2004 is primarily a result of the disposal of the newport beach property in march 2003 and the rowayton , connecticut property in may 2003. expenses related to the newport beach and rowayton properties are included in the pro forma results for 2003 when the company still owned these properties . the decrease in 2003 is primarily a result of the disposal of the newport beach property in march 2003 and the norwalk property in april 2002. selling , general and administrative expenses selling , general and administrative expenses ( which includes legal and audit fees and other general expenses ) were $ 496 in 2004 , and $ 1,007 and $ 182 on a pro forma basis in 2003 and 2002 , respectively . these expenses decreased by 51 % in 2004 and increased by 453 % in 2003. the decrease in 2004 is primarily a result of decreased state taxes and taxes paid on behalf of our owners , higher legal and audit fees in the prior year when the company first began reporting under the securities exchange act of 1934 , offset by an increase in the provision for doubtful accounts . the increase in 2003 is primarily a result of higher legal and audit fees in 2003 , related to the company 's first year of reporting under the securities exchange act of 1934 , increased taxes paid on behalf of our owners , offset by a decrease in the provision for doubtful accounts in 2003. gain on the sales of property gain on the sales of property ( which includes gains on the sales of land and buildings ) totaled $ 1,119 in 2004 , and $ 50,519 and $ 10,899 on a pro forma basis in 2003 and 2002 , respectively . the decrease in 2004 from the pro forma 2003 results was primarily due to the recognition of the gains on the sales of the newport beach and rowayton properties , in 2003. this decrease was partially offset by the recognition of the remaining deferred gains from the sales of the newport beach and norwalk properties resulting from the change to the cost method of accounting for our investment in hewitt associates in 2004. the increase in the 2003 pro forma gain on the sales of property from 2002 is a result of the recognition of the gains on the sales of the newport beach and rowayton properties in 2003 , offset by the recognition of the gain on the sale of the norwalk property in 2002. other expenses , net other expenses , net ( which primarily includes interest expense , interest income and income from equity investments ) totaled $ 12,063 in 2004 and $ 14,184 and $ 18,826 on a pro forma basis in 2003 and 2002 , respectively . in 2004 , the decrease is primarily the result of equity earnings from the company 's investment in hewitt associates for the first four months of 2004 when the company applied the equity method . on a pro forma basis , the company 's accounting for the hewitt associates ' investment is on the cost method for all pro forma periods and therefore , there are no equity earnings from hewitt associates recorded in pro forma 2003 other expenses , net . additionally , interest expense decreased in 2004 as a result of the buildings sold in 2003 and was partially offset by decreased interest income resulting from less cash on hand and lower interest rates throughout 2004 as compared to 2003. the 14 decrease in pro forma other expenses , net in 2003 is primarily a result of a decrease in interest expense related to the buildings sold in 2003 and 2002 , and a decrease in interest income as a result of lower interest rates in 2003 compared to 2002. quarterly results the following tables set forth the unaudited quarterly financial data for the periods indicated . story_separator_special_tag the information for each of these periods has been prepared on the same basis as the audited consolidated financial statements and , in our opinion , reflects all adjustments consisting only of normal recurring adjustments necessary to present fairly our financial results . due to significant events and transactions affecting comparability between periods , please see additional footnotes below . operating results for previous periods do not necessarily indicate results that may be achieved in any future period . amounts are in thousands . replace_table_token_6_th ( 1 ) on july 1 , 2003 , fore holdings distributed the shares of hewitt associates , inc. class b common stock it previously held to its owners , with the exception of certain owners resident outside the united states who continue to hold their shares through fore holdings . the distribution reduced fore holdings ' ownership 15 interest in hewitt associates to approximately 2 % . accordingly , the company no longer consolidates the results of hewitt associates . the company accounted for the remaining investment in hewitt associates using the equity method of accounting through january 28 , 2004 , when the shareholders of hewitt associates elected a majority of independent directors to its board , upon which time the company began accounting for the remaining investment in hewitt associates using the cost method of accounting . as a result , the company 's consolidated statements of operations for 2004 and the fourth quarter of 2003 do not include the consolidated results of operations for hewitt associates ; however , results for the nine months ending june 30 , 2003 do include the consolidated results of hewitt associates . seasonality and inflation due to the company recognizing rental revenues on a straight-line basis and relatively fixed operating expense , there is limited seasonality in the 2004 results . during 2003 and 2002 , hewitt associates ' hr services revenue and income varied over the fiscal year . within the outsourcing segment , hewitt associates generally experiences a seasonal increase in its fourth and first fiscal quarter revenues because its clients ' benefit enrollment processes typically occur during the fall . in contrast , within the consulting segment , hewitt associates typically experiences a seasonal peak in the third and fourth fiscal quarters which reflects its clients ' business needs for these services . we believe inflation has had little effect on our results of operations during the past three years . liquidity and capital resources we have historically funded our growth and working capital requirements with internally generated funds , credit facilities , credit tenant notes and term notes . hewitt associates ' transition to a corporate structure in may 2002 , and its initial public offering in june 2002 , provided access to new forms of debt and equity financing to fund new investments and acquisitions as well as to meet ongoing and future capital resource needs . subsequent to the distribution and subsequent de-consolidation of hewitt associates , fore holdings has met working capital requirements with internally generated funds and funds from sales of real estate . the table below summarizes the historical cash flows of fore holdings ( and hewitt associates through july 1 , 2003 ) for the periods presented : replace_table_token_7_th ( 1 ) does not include any hewitt associates operations . ( 2 ) includes only 9 months of hewitt associates operations . for the years ended september 30 , 2004 , 2003 and 2002 , cash provided by operating activities was $ 6,543 , $ 195,415 and $ 367,022 , respectively . the decreases in cash flows provided by operating activities in 2004 and 2003 were primarily due to the july 1 , 2003 distribution and de-consolidation of hewitt associates . after deconsolidating hewitt 's associates from the company 's results in late 2003 , the company did not generate the same level of earnings nor cash flows from operations in 2004 as when hewitt associates was fully consolidated . in 2003 , the decrease in cash provided from operating activities was primarily due to the shorter period that hewitt associates was consolidated within the company 's results ( nine months of 2003 as compared to the entire 2002 fiscal year ) as well as the inclusion of compensation and related expenses related to fore holdings owners and corporate income taxes , both stemming from hewitt associates ' transition to a corporate structure on may 31 , 2002 , for nine months of 2003 as compared to four months of such expenses in 2002. prior to may 31 , 2002 , the distributions to fore 16 holdings ' owners were paid out of cash flows from financing activities as capital distributions , and hewitt associates did not pay corporate income taxes when it operated as a limited liability company . for the years ended september 30 , 2004 , 2003 and 2002 , cash provided by investing activities was $ 1,987 and cash used in investing activities was 63,335 and 93,802 , respectively . the increase in cash provided by investing activities was primarily due to the distribution and subsequent de-consolidation of hewitt associates . prior to the de-consolidation , there was a significant level of spending by hewitt associates on property and equipment and short-term investments in 2003 and 2002. after de-consolidating hewitt associates from the company 's results in late 2003 , the company did not acquire new property or investments in 2004. in 2003 , the decrease in cash used in investing activities was primarily due to the shorter period that hewitt associates was consolidated within the company 's results ( nine months of 2003 as compared to the entire 2002 fiscal year ) resulting in lower spending on property and equipment and short-term investments by hewitt associates in 2003 than 2002. the decrease in cash used in investing activities in 2003 was also due to an increase in proceeds from
| ( 4 ) compensation expense of $ 35 million and $ 28 million for the years ended september 30 , 2003 and 2002 , respectively , related to the amortization of hewitt associates ' initial public offering restricted stock awards . ( 5 ) income before taxes , minority interest and owner distributions is not comparable to income after taxes and minority interest and before owner distributions . due to hewitt associates ' limited liability company form prior to may 31 , 2002 , ( i ) compensation and related expenses did not include compensation expense related to our owners since these individuals received distributions of income rather than compensation , and ( ii ) hewitt associates incurred no income tax . as a result of the distribution and subsequent de-consolidation of hewitt associates , the results of operations for the years ended september 30 , 2004 , 2003 and 2002 are not comparable . the results for the year ended september 30 , 2004 do not include the consolidated operating results of hewitt associates , however , the results for the year ended september 30 , 2003 include nine months of the consolidated operating results of hewitt associates and the results for the year ended september 30 , 2002 include the consolidated operating results for the entire year . for a meaningful comparison , the following table presents the historical results of fore holdings for the year ended september 30 , 2004 compared with the unaudited pro forma results for the years ended september 30 , 2003 and 2002 , as if the distribution and application of the cost method had occurred at the beginning of fiscal 2002. we also refer you to note 3 to the consolidated financial statements for additional information . the information for each of years ended september 30 , 2004 , 2003 and 2002 is derived from audited consolidated financial statements . in our opinion , information for the year ended september 30 , 2004 and the unaudited pro forma results for the years ended september 30 , 2003 and 2002 contain all adjustments , consisting only of normal recurring adjustments
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the canadian government enacted the canada emergency wage subsidy ( “ cews ” ) in 2020 to provide a wage subsidy to employers that suffered reductions in revenue resulting from the covid-19 pandemic . we met the eligibility criteria to receive the wage subsidy in the second , third and fourth quarters of 2020. the wage subsidy is included in `` costs of services provided , before reimbursements ” or “ selling , general , and administrative expenses ” on the consolidated statements of operations , depending on the location of the employees , and is recorded as a reduction of compensation expense . in 2020 , we recognized $ 13.8 million as a reduction of compensation expense as a result of this subsidy . during 2020 , we recognized a pretax gain on disposal totaling $ 13.8 million related to the sale of the lloyd warwick international ( “ lwi ” ) business in our crawford specialty solutions reporting unit , net of a loss on the disposal of crawford compliance . the gain on disposal is presented in the consolidated statements of operations as a separate item `` ( gain ) loss on disposition of businesses , net . '' see note 3 , “ business acquisitions and dispositions ” of our accompanying consolidated financial statements included in item 8 of this annual report on form 10-k for further discussion about these transactions . on october 1 , 2020 , we acquired most of the remaining 85 % equity interests in crawford carvallo and its subsidiaries . crawford carvallo is a leading provider of loss adjusting , claims management solutions and legal services in chile . the company held a 15 % interest in crawford carvallo prior to this acquisition . the purchase price includes an initial cash payment of $ 11.6 million and a maximum of $ 11.7 million payable over the next six years based on achieving certain ebitda performance goals as set forth in the purchase agreement . the acquisition was funded primarily through additional borrowings under the company 's credit facility . the operations of crawford carvallo did not have a material impact on our consolidated results of operations during 2020 . 16 we recognized a pretax non-cash goodwill impairment in 2020 totaling $ 17.7 million related to our crawford claims solutions reporting unit . this expense was partially offset by a $ 1.7 million credit in noncontrolling interest expense . in 2019 , we recognized a non-cash goodwill impairment totaling $ 17.5 million , also related to our crawford claims solutions segment . this charge was partially offset by a $ 2 . 2 million reduction in income tax expense and $ 2.2 million credit in noncontrolling interest expense . there was no goodwill impairment in 2018. see the `` critical accounting policies '' in item 7 and note 4 , `` goodwill and intangible assets '' of our accompanying consolidated financial statements for further discussion about goodwill impairments . we recognized pretax restructuring and other costs totaling $ 8.1 million in 2020 , related primarily to severance and other termination costs in an effort to consolidate and streamline various functions of our workforce . the restructuring and other costs are comprised of $ 9.4 million severance expense and related payroll taxes , $ 2.5 million asset impairment and lease termination costs , partially offset by $ 1.1 million gain from fair value remeasurement of cost method and equity method investments , $ 1.2 million liquidation dividends from a cost method investment , and $ 1.4 million gain from sale of ip addresses . this pretax expense is presented in the consolidated statements of operations as a separate charge `` restructuring and other costs , net . '' see note 16 , “ restructuring and other costs , net ” of our accompanying consolidated financial statements for further discussion about these transactions . in 2019 we recognized $ 12.6 million for an arbitration settlement related to additional payments awarded to former executives of our former subsidiary garden city group related to their departure in 2015. there are no other potential claimants related to this matter . this pretax expense is presented in the consolidated statements of operations as a separate charge `` arbitration and claim settlements . '' in 2018 , we recognized a pretax loss on disposal of our subsidiary garden city group business totaling $ 20.3 million . the loss on disposal is presented in the consolidated statements of operations as a separate charge `` ( gain ) loss on disposition of businesses , net . '' segment operating earnings we believe that a discussion and analysis of the segment operating earnings of our three operating segments is helpful in understanding the results of our operations . operating earnings is our segment measure of profitability presented in conformity with the financial accounting standards board 's ( `` fasb '' ) accounting standards codification ( `` asc '' ) topic 280 `` segment reporting . '' operating earnings is the primary financial performance measure used by our senior management and codm to evaluate the financial performance of our operating segments and make resource allocation and certain compensation decisions . we believe operating earnings is a measure that is useful to others in that it allows them to evaluate segment operating performance using the same criteria used by our senior management and codm . segment operating earnings represent segment earnings , including the direct and indirect costs of certain administrative functions required to operate our business , but excludes unallocated corporate and shared costs and credits , net corporate interest expense , stock option expense , amortization of customer-relationship intangible assets , goodwill and intangible asset impairments , restructuring and other costs , ( gain ) loss on disposition of businesses , arbitration and claim settlements , income taxes , and net income or loss attributable to noncontrolling interests and redeemable noncontrolling interests . administrative functions such as finance , human resources , information technology , quality and compliance , exist in both a centralized shared-service arrangement and within certain operations . story_separator_special_tag each of these functions are managed by centralized management and we allocate the costs of those services to the segments as indirect costs based on usage . segment gross profit is defined as revenues , less direct costs , which exclude indirect centralized administrative support costs allocated to the business . income taxes , net corporate interest expense , stock option expense , and amortization of customer-relationship intangible assets are recurring components of our net income , but they are not considered part of our segment operating earnings because they are managed on a corporate-wide basis . income taxes are calculated for the company on a consolidated basis based on statutory rates in effect in the various jurisdictions in which we provide services , and vary significantly by jurisdiction . net corporate interest expense results from capital structure decisions made by senior management and the board of directors , affecting the company as a whole . stock option expense represents the non-cash costs generally related to stock options and employee stock purchase plan expenses which are not allocated to our operating segments . amortization expense is a non-cash expense for finite-lived customer-relationship and trade name intangible assets acquired in business combinations . none of these costs relate directly to the performance of our services or operating activities and , therefore , are excluded from segment operating earnings in order to better assess the results of each segment 's operating activities on a consistent basis . 17 unallocated corporate and shared costs and credits include expenses and credits related to our chief executive officer and board of directors , certain provisions for bad debt allowances or subsequent recoveries such as those related to bankrupt clients , defined benefit pension costs or credits for our frozen u.s. pension plan , certain unallocated professional fees , and certain self-insurance costs and recoveries that are not allocated to our individual operating segments . restructuring and other costs , as well as ( gain ) loss on disposition of businesses , goodwill and intangible asset impairments , and arbitration and claim settlements arise from time to time from events ( such as internal restructurings , losses on subleases , establishment of new operations , and asset impairments ) that are not allocated to any particular segment since they historically have not regularly impacted our performance and are not expected to impact our future performance on a regular basis . additional discussion and analysis of our income taxes , net corporate interest expense , stock option expense , amortization of customer-relationship intangible assets , unallocated corporate and shared costs , goodwill and intangible asset impairments , restructuring and other costs , ( gain ) loss on disposition of businesses , and arbitration and claim settlements follows the discussion and analysis of the results of operations of our three operating segments . segment revenues in the normal course of business , our operating segments incur certain out-of-pocket expenses that are thereafter reimbursed by our clients . under gaap , these out-of-pocket expenses and associated reimbursements are required to be included when reporting expenses and revenues , respectively , in our consolidated results of operations as the company is considered the principal in these transactions . in the discussion and analysis of results of operations which follows , we do not include a gross up of expenses and revenues for these pass-through reimbursed expenses . the amounts of reimbursed expenses and related revenues offset each other in our results of operations with no impact to our net income or operating earnings . a reconciliation of revenues before reimbursements to consolidated revenues determined in accordance with gaap is self-evident from the face of the accompanying statements of operations . unless noted in the following discussion and analysis , revenue amounts exclude reimbursements for out-of-pocket expenses . our segment results are impacted by changes in foreign exchange rates . we believe that a non-gaap discussion and analysis of segment revenues before reimbursements by major region , based on actual exchange rates and using a constant exchange rate , is helpful in understanding the results of our segment operations . segment expenses our discussion and analysis of segment operating expenses is comprised of two components : `` direct compensation , fringe benefits & non-employee labor '' and `` expenses other than direct compensation , fringe benefits & non-employee labor . '' `` direct compensation , fringe benefits & non-employee labor '' includes direct compensation , payroll taxes , and benefits provided to the employees of each segment , as well as payments to outsourced service providers that augment our staff in each segment . as a service company , these costs represent our most significant and variable operating expenses . costs of administrative functions , including direct compensation , payroll taxes , and benefits , are managed centrally and considered indirect costs . the allocated centralized indirect administrative support costs of our shared-services infrastructure are allocated to each segment based on usage and reflected within `` expenses other than direct compensation , fringe benefits & non-employee labor '' of each segment . in addition to allocated corporate and shared costs , `` expenses other than direct compensation , fringe benefits & non-employee labor '' includes travel and entertainment , office rent and occupancy costs , automobile expenses , office operating expenses , data processing costs , cost of risk , professional fees , and amortization and depreciation expense other than amortization of customer-relationship intangible assets . in addition , we believe that a non-gaap discussion and analysis of segment gross profit is helpful in understanding the results of our segment operations , excluding indirect centralized administrative support costs . our discussion and analysis of segment gross profit includes the revenues and direct expenses of each segment . unless noted in the following discussion and analysis , revenue amounts exclude reimbursements for out-of-pocket expenses and expense amounts exclude reimbursed out-of-pocket expenses . 18 operating results for our segments reconciled to income before income taxes and net income attributable to shareholders of crawford & company are as shown in the following table .
| changes in foreign exchange rates decreased our segment revenues by $ 5.8 million , or approximately 0.6 % , for 2020 compared with 2019. excluding the change in foreign exchange rates , consolidated revenues before reimbursements decreased $ 17.5 million , or 1.7 % compared with 2019. replace_table_token_3_th revenues from the crawford claims solutions segment increased in 2020 due to an increase in weather related cases resulting from the hurricane activity in the u.s. , and revenues from new client growth , partially offset by the economic impact of covid-19 . revenues from the crawford tpa solutions segment decreased for the year primarily due to a decrease in the u.s. and canada as a result of the economic impact of covid-19 . revenues from the crawford specialty solutions segment decreased primarily due to the impact of covid-19 and the sale of lwi in our global technical services service line . the net impact of acquisitions and dispositions in 2020 resulted in a net $ 3.7 million decrease in revenues , compared with 2019. we estimate that covid-19 negatively impacted our revenues in the range of $ 45.0 to $ 55.0 million in the year ended december 31 , 2020 as compared with the 2019 period . we expect the ongoing global economic slowdown resulting from covid-19 could have a material impact to our results of operations , financial condition , and cash flows in one or more future quarters . overall , there was a decrease in cases received of 2.4 % for 2020 compared with 2019 , due to the negative economic impact of covid-19 . as a result of the economic contraction from the covid-19 pandemic , cases received in future quarters could be materially negatively impacted , unless offset by the impact of cases received from new clients or weather related activity . cases received are presented below by segment : replace_table_token_4_th segment operating earnings ( a measure of segment operating performance used by our management that is defined and discussed in more detail below ) increased in our crawford claims solutions and crawford specialty solutions operating segments , partially offset by a decrease in our crawford tpa solutions . 15 although operating earnings is the primary financial performance measure used by our senior management and codm to evaluate the financial performance of our operating segments and make resource allocation and certain compensation decisions , we believe that a
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such events or changes may include a significant decrease in market value , a significant change in the business climate in a particular market , a current expectation that more-likely-than-not a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life , or a current-period operating or cash flow loss combined with historical losses or projected future losses . when evaluating potential impairment of long-lived assets held and used , we first compare the carrying amount of the asset group to the asset group 's estimated future undiscounted cash flows . if the estimated future undiscounted cash flows are less than the carrying amount of the asset group , we then compare the carrying amount of the asset group to the asset group 's estimated fair value to determine if impairment exists . the fair value measurements for our long-lived assets held and used were based on level 3 inputs , which considered information obtained from third-party real estate valuation sources . see note 17 of the notes to consolidated financial statements for more information about our fair value measurements . we recognize an impairment loss if the amount of the asset group 's carrying amount exceeds the asset group 's estimated fair value . if we recognize an impairment loss , the adjusted carrying amount of the asset group becomes its new cost basis . for a depreciable long-lived asset , the new cost basis will be depreciated over the remaining useful life of that asset . during 2014 , there were no significant impairment charges recorded for the carrying value of long-lived assets held and used in continuing operations . when property and equipment is identified as held for sale , we reclassify the held for sale assets to other current assets and cease recording depreciation . we measure each long-lived asset or disposal group at the lower of its carrying amount or fair value less cost to sell and recognize a loss for any initial adjustment of the long-lived asset 's or disposal group 's carrying amount to fair value less cost to sell in the period the “ held for sale ” criteria are met . we periodically evaluate the carrying value of assets held for sale to determine if , based on market conditions , the values of these assets should be adjusted . any subsequent change in the fair value less cost to sell ( increase or decrease ) of each asset held for sale is reported as an adjustment to its carrying amount , except that the adjusted carrying amount can not exceed the carrying amount of the long-lived asset or disposal group at the time it was initially classified as held for sale . such valuations include estimations of fair values and incremental direct costs to transact a sale . the fair value measurements for our long-lived assets held for sale were based on level 3 inputs , which considered information obtained from third-party real estate valuation sources , or , in certain cases , pending agreements to sell the related assets . we had assets held for sale in continuing operations of $ 64.7 million at december 31 , 2014 , and $ 59.8 million at december 31 , 2013 . we recorded impairment charges of $ 1.1 million in 2014 associated with assets held for sale in continuing operations . 24 we had assets held for sale in discontinued operations of $ 23.2 million at december 31 , 2014 , and $ 34.5 million at december 31 , 2013 . during 2014 , there were no significant impairment charges associated with assets held for sale in discontinued operations . our impairment loss calculations contain uncertainties because they require us to make assumptions and to apply judgment to estimate future undiscounted cash flows and asset fair values , including forecasting useful lives of the assets . although we believe our property and equipment and assets held for sale are appropriately valued , the assumptions and estimates used may change and we may be required to record impairment charges to reduce the value of these assets . chargeback reserve revenue on finance and insurance products represents commissions earned by us for : ( i ) loans and leases placed with financial institutions in connection with customer vehicle purchases financed , ( ii ) vehicle service contracts sold , and ( iii ) other protection products sold . we primarily sell these products on a straight commission basis ; however we also participate in future underwriting profit on certain extended service contracts pursuant to retrospective commission arrangements , which are recognized as earned . we may be charged back for commissions related to financing , vehicle service contracts , or other protection products in the event of early termination , default , or prepayment of the contracts by customers ( “ chargebacks ” ) . however , our exposure to loss generally is limited to the commissions that we receive . these commissions are recorded at the time of the sale of the vehicles , net of an estimated liability for chargebacks . we estimate our liability for chargebacks on an individual product basis using our historical chargeback experience , based primarily on cancellation data we receive from third parties that sell and administer these products . our estimated liability for chargebacks totaled $ 84.9 million at december 31 , 2014 , and $ 67.6 million at december 31 , 2013 . chargebacks are influenced by the volume of vehicle sales in recent years and increases or decreases in early termination rates resulting from cancellation of vehicle service contracts and other protection products , defaults , refinancings , payoffs before maturity , and other factors . while we consider these factors in the estimation of our chargeback liability , actual events may differ from our estimates , which could result in a change in our estimated liability for chargebacks . story_separator_special_tag the increase in our liability for chargebacks is largely attributable to an increase in sales of vehicle service contracts in recent years , which have higher cancellation rates compared to other products , as well as an overall increase in the cancellation rate of finance and insurance products . our actual chargeback experience has not been materially different from our recorded estimates . a 10 % change in our estimated cancellation rates would have changed our estimated liability for chargebacks at december 31 , 2014 , by approximately $ 8.5 million . see note 19 of the notes to consolidated financial statements for further information regarding chargeback liabilities . self insurance reserves under our self insurance programs , we retain various levels of aggregate loss limits , per claim deductibles , and claims-handling expenses as part of our various insurance programs , including property and casualty , employee medical benefits , automobile , and workers ' compensation . costs in excess of this retained risk per claim may be insured under various contracts with third-party insurance carriers . we review our claim and loss history on a periodic basis to assist in assessing our future liability . the ultimate costs of these retained insurance risks are estimated by management and by third-party actuarial evaluation of historical claims experience , adjusted for current trends and changes in claims-handling procedures . our results could be materially impacted by claims and other expenses related to our self insurance programs if future occurrences and claims differ from these assumptions and historical trends . self insurance reserves totaled $ 71.4 million at december 31 , 2014 , and $ 66.3 million at december 31 , 2013 . we believe our actual loss experience has not been materially different from our recorded estimates . revenue recognition revenue consists of the sales of new and used vehicles , sales of parts and services , commissions from finance and insurance products , and sales of other products . we recognize revenue in the period in which products are sold or services are provided . we recognize vehicle and finance and insurance revenue when a sales contract has been executed , the vehicle has been delivered , and payment has been received or financing has been arranged . rebates , holdbacks , floorplan assistance , and certain other incentives received from manufacturers are recorded as a reduction of the cost of the vehicle 25 and recognized into income upon the sale of the vehicle or when earned under a specific manufacturer program , whichever is later . see note 1 of the notes to consolidated financial statements for further information regarding revenue recognition . income taxes estimates and judgments are used in the calculation of certain tax liabilities and in the determination of the recoverability of certain deferred tax assets . in assessing the realizability of deferred tax assets , we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized . we regularly evaluate the recoverability of our deferred tax assets and provide valuation allowances to offset portions of deferred tax assets due to uncertainty surrounding the future realization of such deferred tax assets . valuation allowances are based on historical taxable income , projected future taxable income , the expected timing of the reversals of existing temporary differences , and the implementation of tax-planning strategies . we adjust the valuation allowance in the period we determine it is more likely than not that deferred tax assets will or will not be realized . if a change in circumstances results in a change in our ability to realize our deferred tax assets , our tax provision would be adjusted in the period when the change in circumstances occurs . accounting for our income taxes also requires significant judgment in the evaluation of our uncertain tax positions and in the calculation of our provision for income taxes . accounting standards prescribe a two-step approach to recognizing and measuring uncertain tax positions . the first step is to evaluate available evidence to determine if it appears more likely than not that an uncertain tax position will be sustained on an audit by a taxing authority , based solely on the technical merits of the tax position . the second step is to measure the tax benefit as the largest amount that is more than 50 % likely of being realized upon settling the uncertain tax position . although we believe we have adequately reserved for our uncertain tax positions , the ultimate outcome of these tax matters may differ from our expectations . we adjust our reserves in light of changing facts and circumstances , such as the completion of a tax audit , expiration of a statute of limitations , the refinement of an estimate , and interest accruals associated with uncertain tax positions until they are resolved . to the extent that the final tax outcome of these matters is different than the amounts recorded , such differences will impact the provision for income taxes in the period in which such determination is made . our future effective tax rates could be affected by changes in our deferred tax assets or liabilities , the valuation of our uncertain tax positions , or by changes in tax laws , regulations , accounting principles , or interpretations thereof . other additionally , estimates have been made by us in the accompanying consolidated financial statements including allowances for doubtful accounts , accruals related to certain legal proceedings , and certain assumptions related to determining stock-based compensation .
| additionally , after several years of decline , the number of recent-model-year vehicles in operation has begun to grow due to increases in the annual rate of new vehicle sales in the united states since 2009. the growth in that portion of our service base , together with our customer retention efforts , has benefited the customer-pay service and warranty components of our parts and service business , and we believe that it will continue to benefit those components for the next several years . while the number of older vehicles in operation is expected to decline over the next few years , we believe that overall our parts and service business will benefit from the mix shift in our service base toward newer vehicles . inventory management our new and used vehicle inventories are stated at the lower of cost or market in our consolidated balance sheets . we monitor our vehicle inventory levels closely based on current economic conditions and seasonal sales trends . we have generally not experienced losses on the sale of new vehicle inventory , in part due to incentives provided by manufacturers to promote sales of new vehicles and our inventory management practices . we had 67,424 units in new vehicle inventory at december 31 , 2014 , and 72,095 units at december 31 , 2013 . we recondition the majority of used vehicles acquired for retail sale in our parts and service departments and capitalize the related costs to the used vehicle inventory . used vehicles that are not sold on a retail basis are generally liquidated at wholesale auctions . we record estimated losses on used vehicle inventory . our used vehicle inventory balance was net of cumulative write-downs of $ 3.3 million at december 31 , 2014 , and $ 1.8 million at december 31 , 2013 . parts , accessories , and other inventory are carried at the lower of
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the current covid-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees , patients , communities and business operations , as well as contributing to significant volatility and negative pressure on the u.s. economy and in financial markets . efforts to contain the spread of the covid-19 pandemic have intensified and the united states , europe and asia have implemented severe travel restrictions , social distancing requirements , stay-at-home orders and have delayed the commencement of non-covid-19-related clinical trials , among other restrictions . while we are currently continuing the clinical trials we have underway , we expect that covid-19 precautions may directly or indirectly impact the timeline for some of our clinical trials . to date , we have been able to continue to enroll our patients in first-in-human clinical trials for rly-1971 and rly-4008 , and we currently do not anticipate any interruptions in clinical enrollment . however , we are continuing to assess the potential impact of the covid-19 pandemic on our current and future business and operations , including our expenses and clinical trials , as well as on our industry and the healthcare system . since our inception , we have incurred significant operating losses on an aggregate basis . our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our current or future product candidates . our net losses were $ 52.4 million and $ 75.3 million for the years ended december 31 , 2020 and 2019 , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 404.2 million . these losses have resulted primarily from costs incurred in connection with research and development activities , licensing and patent investment and general and administrative costs associated with our operations . we expect to continue to incur significant expenses , including the costs of operating as a public company , and generate increasing operating losses for at least the next several years . we anticipate that our expenses will increase substantially if and as we : conduct our current and future clinical trials of rly-4008 , additional preclinical research and development of our rly-pi3k1047 program , and other early-stage programs ; initiate and continue research and preclinical and clinical development of our other product candidates ; seek to identify additional product candidates ; pursue marketing approvals for any of our product candidates that successfully complete clinical trials , if any ; establish a sales , marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval ; require the manufacture of larger quantities of our product candidates for clinical development and potentially commercialization ; obtain , maintain , expand and protect our intellectual property portfolio ; acquire or in-license other drugs and technologies ; hire and retain additional clinical , regulatory , quality and scientific personnel ; build out new facilities or expand existing facilities to support our ongoing development activity ; and add operational , financial and management information systems and personnel , including personnel to support our drug development , any future commercialization efforts and our operations as a public company . 122 in addition , if we obtain marketing approval for any of our lead product candidates , we expect to incur significant commercialization expenses related to product manufacturing , marketing , sales and distribution . as a result , we will need additional financing to support our continuing operations . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through a combination of public or private equity or debt financings or other sources , which may include collaborations with third parties . 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 , scale back or discontinue the development or commercialization of one or more of our product candidates . 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 revenue from 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 may be forced to reduce or terminate our operations . we believe our cash , cash equivalents and investments of $ 678.1 million as of december 31 , 2020 , together with the $ 75.0 million upfront payment received in january 2021 in connection with the genentech agreement , will enable us to fund our operating expenses and capital expenditure requirements into 2024. we have based this estimate on assumptions that may prove to be wrong , and we could exhaust our available capital resources sooner than we expect . we will need to raise additional capital in the future to continue developing the drugs in our pipeline and to commercialize any approved drug . we may seek to obtain additional financing in the future through the issuance of our common stock , through other equity or debt financings or through collaborations or partnerships with other companies . we may not be able to raise additional capital on terms acceptable to us , or at all , and any failure to raise capital as and when needed could compromise our ability to execute on our business plan . see “ —liquidity and capital resources. ” components of our results of operations revenue for the year ended december 31 , 2020 , our revenue consists solely of amounts related to the genentech agreement . story_separator_special_tag we recognize our revenue as the performance obligations are satisfied under the agreement . operating expenses our operating expenses since inception have consisted solely of research and development costs and general and administrative costs . research and development expenses research and development expenses include : salaries , benefits and other employee related costs , including stock-based compensation expense , for personnel engaged in research and development functions ; costs of outside consultants , including their fees , stock-based compensation and related travel expenses ; expenses incurred under agreements with contract research organizations , or cros , contract manufacturing organizations , or cmos , and other vendors that conduct our clinical trials and preclinical activities ; costs of acquiring , developing and manufacturing clinical trial materials and lab supplies ; costs related to compliance with regulatory requirements ; and facility costs , depreciation and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and other supplies . 123 we expense research and development costs as the services are performed or the goods are received . we recognize costs for certain development activities , such as clinical trials , based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment , clinical site activations or information provided to us by our vendors and our clinical investigative sites . payments for these activities are based on the terms of the individual agreements , which may differ from the pattern of costs incurred , and are reflected in our financial statements as prepaid expenses or accrued research and development expenses . we began tracking external development costs by program on january 1 , 2020 for programs that have entered clinical trials . we do not allocate internal costs , facilities costs or other overhead costs to specific programs . the following summarizes our costs based on their status in development : year ended december 31 , 2020 external costs for programs in clinical trials $ 7,447 external costs for programs in discovery and pre-clinical studies 42,431 external costs for platform research and other research and development activities 11,544 employee related expenses 38,440 total research and development expenses $ 99,862 our most advanced development programs , rly-1971 and rly-4008 , are enrolling patients in first-in-human clinical trials . programs in discovery and pre-clinical stages include our rly-p13k1047 program as well as other earlier stage programs . costs incurred for these programs include costs incurred to support our discovery research and translational science efforts up to the initiation of first-in-human clinical development . platform research and other research and development activities include costs that are not specifically allocated to active product candidates , including facilities costs , depreciation expense and other costs . employee related expenses includes salary , wages , stock-based compensation and other costs related to our personnel , which are not allocated to specific programs or activities . we can not determine with certainty the duration and costs of future clinical trials and future development costs , if , when or to what extent we will generate revenue from the commercialization and sale of any our product candidates for which we obtain marketing approval or our other research and development costs . we may never succeed in obtaining marketing approval for any of our product candidates . the duration , costs and timing of clinical trials and development of our product candidates will depend on a variety of factors , including : the scope , rate of progress , expense and results of our preclinical development activities , any future clinical trials of rly-4008 , our rly-pi3k1047 program or other product candidates and other research and development activities that we may conduct ; uncertainties in clinical trial design and patient enrollment or drop out or discontinuation rates ; establishing an appropriate safety and efficacy profile with ind-enabling studies ; the initiation and completion of future clinical trial results ; the timing , receipt and terms of any approvals from applicable regulatory authorities including the u.s. food and drug administration , or fda , and non-u.s. regulators ; significant and changing government regulation and regulatory guidance ; potential additional studies requested by regulatory agencies ; establishing clinical and commercial manufacturing capabilities or making arrangements with third-party manufacturers in order to ensure that we or our third-party manufacturers are able to make product successfully ; 124 the impact of any business interruptions to our operations , including the timing and enrollment of patients in our planned clinical trials , or to those of our manufacturers , suppliers or other vendors resulting from the covid-19 pandemic or a similar public health crisis ; the expense of filing , prosecuting , defending and enforcing any patent claims and other intellectual property rights ; and maintaining a continued acceptable safety profile of our product candidates following approval , if any , of our product candidates . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect that our research and development expenses will continue to increase for the foreseeable future as we continue clinical trials of rly-4008 , the development of our rly-pi3k1047 program and to identify and develop additional product candidates . 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 another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate , or if we experience significant trial delays due to patient enrollment or other reasons , we would be required to expend significant additional financial resources and time on the completion of clinical development .
| 126 other income ( expense ) , net other income , net , was $ 3.4 million for the year ended december 31 , 2020 compared to $ 8.7 million for the year ended december 31 , 2019 due primarily to decreases in interest rates and lower investment amounts . liquidity and capital resources since our inception , we have not generated any revenue from product sales and have incurred significant operating losses . we have not yet commercialized any products and we do not expect to generate revenue from sales of any product candidates for several years , if ever . on july 20 , 2020 , we closed our ipo and issued 23,000,000 shares of common stock for net proceeds of $ 425.3 million . prior to our ipo , we received gross proceeds of $ 520.0 million from sales of our preferred stock and our issuance of convertible debt . as of december 31 , 2020 , we had cash , cash equivalents and investments of $ 678.1 million . in january 2021 , we received an upfront payment of $ 75.0 million from genentech pursuant to the genentech agreement . cash flows the following table summarizes our sources and uses of cash for each of the periods presented : replace_table_token_3_th operating activities . during the year ended december 31 , 2020 , operating activities used $ 102.5 million of cash , primarily resulting from our net loss of $ 52.4 million and cash used by changes in our operating assets and liabilities of $ 85.2 million , partially offset by non-cash charges of $ 35.1 million . net cash used by changes in our operating assets and liabilities of $ 85.2 million during the year ended december 31 , 2020 consisted of increases of $ 75.0 million in accounts receivable , $ 7.7 million in contract assets , and $ 4.7 million in prepaid expenses and other current assets , offset by an increase of $ 2.0 million in accrued expenses and other liabilities . the increase in accounts receivable and contract assets was due to the upfront payment received and revenue recognized in connection with the genentech agreement . the increase in prepaid expenses was primarily
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we believe these actions will provide the platform for which to return our business to its profitable growth over the long-term . however , in the near future , we continue to operate in a very challenging environment as new student demand continues to slow ; new students become more hesitant to take on debt given the uncertainty in the labor market ; we implement a number of program changes in response to the regulatory environment ; and our industry continues to remain in the forefront of negative publicity . all of these factors have negatively impacted our results of operations for 2012 , most notably affecting our domestic career education ground-based institutions , comprised of career schools and transitional schools , which collectively reported a thirty-eight percent decline in student population as compared to the prior year . as discussed previously , our design & technology and health education reporting segments , which are components of the career schools business unit , have experienced an elevated level of risk of exposure to goodwill impairment due to the current regulatory environment , reduced new student interest and changes to their business models . during 2012 , we recorded a goodwill impairment charge of $ 82.7 million related to these two reporting segments . in addition , in connection with our annual impairment testing of indefinite-lived intangible assets , we recorded trade name impairment charges of $ 12.1 million in the fourth quarter of 2012 , primarily related to our le cordon bleu and sanford brown trade names . as we continue through our transformation , the transitional schools are expected to continue to report operating losses as we work with students to complete their programs of study . we are estimating that the 2013 operating loss for transitional schools will be approximately $ 70 - $ 80 million , excluding the impact of remaining lease obligation charges and other unusual items . the steps we are taking to return the company to profitability are clear , however , it will take time to have a meaningful impact on our overall operating results . as such , the company will continue to closely monitor its financial condition , including available cash flows for operations . see liquidity , financial position , and capital resources below for a discussion of our cash balances and related liquidity considerations . on february 25 , 2013 , we received the necessary approvals from our institutional accreditor , hlc , for the pending sale of aiu london . pursuant to our previously signed purchase agreement , the transaction was contingent upon approval from hlc and notification to the department of education . as we have received the necessary approval from hlc , we expect this transaction to be completed during the first half of 2013 and expect to record a pretax charge of approximately $ 7.0 million within our consolidated statements of income and comprehensive income related to this transaction . a number of factors were considered when agreeing to this 66 sale , including the enrollment trends at the campus over the last several years and the opportunity the sale would present to faculty , staff and students . we believe this agreement provides aiu london faculty , staff and students a unique opportunity to affiliate with a dynamic british institution . consolidated results of operations the summary of selected financial data table below should be referenced in connection with a review of the following discussion of our results of operations for the years ended december 31 , 2012 , 2011 , and 2010. replace_table_token_11_th educational services and facilities expense includes costs directly attributable to the educational activities of our schools , including : ( 1 ) salaries and benefits of faculty , academic administrators , and student support personnel , and ( 2 ) costs of educational supplies and facilities , including rents on school leases , certain costs of establishing and maintaining computer laboratories , costs of student housing , and owned and leased facility costs . also included in educational services and facilities expense are costs of other goods and services provided by our schools , including costs of textbooks , laptop computers , restaurant services and contract training . general and administrative expense includes salaries and benefits of personnel in corporate and school administration , marketing , admissions , financial aid , accounting , human resources , legal and compliance . other expenses within this expense category include costs of advertising and production of marketing materials , occupancy of the corporate offices and bad debt expense . 67 year ended december 31 , 2012 as compared to the year ended december 31 , 2011 revenue the decline in revenue as compared to the prior year was a result of lower revenue across all of our domestic segments , most notably within transitional , culinary arts , health education and aiu . this decline was driven by 16 % fewer students enrolled within our domestic institutions as of the beginning of the year and 30 % fewer new student starts across our domestic institutions in 2012 as compared to 2011. we believe our domestic institutions continue to be impacted by external factors including economic conditions , negative publicity , extended student decision-making timelines and changes in regulatory requirements . these factors , coupled with initiatives such as capping enrollment in certain programs , implementing new entrance requirements and the decision to teach out certain programs and campuses resulted in the continued decline in new student interest , causing decreases in both student population and new student starts as compared to the prior year . international 's revenue increase of $ 2.7 million was negatively impacted by $ 10.6 million in unfavorable effects of foreign currency exchange rates . educational services and facilities expense the decrease in educational services and facilities expense as compared to the prior year is primarily driven by lower academic costs , most notably bookstore and faculty costs as story_separator_special_tag we believe these actions will provide the platform for which to return our business to its profitable growth over the long-term . however , in the near future , we continue to operate in a very challenging environment as new student demand continues to slow ; new students become more hesitant to take on debt given the uncertainty in the labor market ; we implement a number of program changes in response to the regulatory environment ; and our industry continues to remain in the forefront of negative publicity . all of these factors have negatively impacted our results of operations for 2012 , most notably affecting our domestic career education ground-based institutions , comprised of career schools and transitional schools , which collectively reported a thirty-eight percent decline in student population as compared to the prior year . as discussed previously , our design & technology and health education reporting segments , which are components of the career schools business unit , have experienced an elevated level of risk of exposure to goodwill impairment due to the current regulatory environment , reduced new student interest and changes to their business models . during 2012 , we recorded a goodwill impairment charge of $ 82.7 million related to these two reporting segments . in addition , in connection with our annual impairment testing of indefinite-lived intangible assets , we recorded trade name impairment charges of $ 12.1 million in the fourth quarter of 2012 , primarily related to our le cordon bleu and sanford brown trade names . as we continue through our transformation , the transitional schools are expected to continue to report operating losses as we work with students to complete their programs of study . we are estimating that the 2013 operating loss for transitional schools will be approximately $ 70 - $ 80 million , excluding the impact of remaining lease obligation charges and other unusual items . the steps we are taking to return the company to profitability are clear , however , it will take time to have a meaningful impact on our overall operating results . as such , the company will continue to closely monitor its financial condition , including available cash flows for operations . see liquidity , financial position , and capital resources below for a discussion of our cash balances and related liquidity considerations . on february 25 , 2013 , we received the necessary approvals from our institutional accreditor , hlc , for the pending sale of aiu london . pursuant to our previously signed purchase agreement , the transaction was contingent upon approval from hlc and notification to the department of education . as we have received the necessary approval from hlc , we expect this transaction to be completed during the first half of 2013 and expect to record a pretax charge of approximately $ 7.0 million within our consolidated statements of income and comprehensive income related to this transaction . a number of factors were considered when agreeing to this 66 sale , including the enrollment trends at the campus over the last several years and the opportunity the sale would present to faculty , staff and students . we believe this agreement provides aiu london faculty , staff and students a unique opportunity to affiliate with a dynamic british institution . consolidated results of operations the summary of selected financial data table below should be referenced in connection with a review of the following discussion of our results of operations for the years ended december 31 , 2012 , 2011 , and 2010. replace_table_token_11_th educational services and facilities expense includes costs directly attributable to the educational activities of our schools , including : ( 1 ) salaries and benefits of faculty , academic administrators , and student support personnel , and ( 2 ) costs of educational supplies and facilities , including rents on school leases , certain costs of establishing and maintaining computer laboratories , costs of student housing , and owned and leased facility costs . also included in educational services and facilities expense are costs of other goods and services provided by our schools , including costs of textbooks , laptop computers , restaurant services and contract training . general and administrative expense includes salaries and benefits of personnel in corporate and school administration , marketing , admissions , financial aid , accounting , human resources , legal and compliance . other expenses within this expense category include costs of advertising and production of marketing materials , occupancy of the corporate offices and bad debt expense . 67 year ended december 31 , 2012 as compared to the year ended december 31 , 2011 revenue the decline in revenue as compared to the prior year was a result of lower revenue across all of our domestic segments , most notably within transitional , culinary arts , health education and aiu . this decline was driven by 16 % fewer students enrolled within our domestic institutions as of the beginning of the year and 30 % fewer new student starts across our domestic institutions in 2012 as compared to 2011. we believe our domestic institutions continue to be impacted by external factors including economic conditions , negative publicity , extended student decision-making timelines and changes in regulatory requirements . these factors , coupled with initiatives such as capping enrollment in certain programs , implementing new entrance requirements and the decision to teach out certain programs and campuses resulted in the continued decline in new student interest , causing decreases in both student population and new student starts as compared to the prior year . international 's revenue increase of $ 2.7 million was negatively impacted by $ 10.6 million in unfavorable effects of foreign currency exchange rates . educational services and facilities expense the decrease in educational services and facilities expense as compared to the prior year is primarily driven by lower academic costs , most notably bookstore and faculty costs as
| a variety of factors contributed to this decrease in revenue , including the decline in new student interest as a result of external factors including negative publicity , economic conditions and the changing regulatory environment , and a lower student population at the beginning of the year . culinary arts also experienced a decrease in revenue-per-student due to a change in the student mix as more students participate in the certificate program versus the associate program . the current year operating loss of $ 169.8 million for career schools included $ 94.3 million of goodwill and asset impairment charges of which $ 82.7 million was recorded during the second quarter of 2012 as a result of our interim impairment test . the remaining $ 11.6 million related to impairments of $ 8.1 million and $ 3.5 million for our trade names within culinary arts and health education , respectively . these impairment charges , combined with the declines in revenue , drove a decrease in operating margins as compared to the prior year . the prior year operating loss of $ 96.8 million included $ 160.3 million of goodwill and asset impairment charges , primarily related to goodwill impairment charges of $ 73.7 million and $ 64.6 million within culinary arts and health education , respectively , as well as a $ 20.4 million trade name impairment charge within culinary arts . certain expenses , including academics and admissions expenses decreased as compared to the prior year , as we continue to reduce variable costs to correspond to the decline in student population . the decrease in bad debt expense as compared to the prior year was a result of the decrease in revenue as well as the discontinuation in prior years of offering extended payment programs . international . current year revenue increased $ 2.7 million as compared to the prior year . revenue was negatively impacted by $ 10.6 million of unfavorable foreign currency exchange rates . excluding the impact of unfavorable foreign currency exchange rates , revenue would have increased 10.5 % as compared to the prior year , as a result of the increased new student
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from may 16 , 2006 through december 31 , 2010 , we purchased eleven businesses ( each of our businesses is treated as a separate business segment ) and disposed of three , as follows : acquisitions on may 16 , 2006 , we made loans to and purchased a controlling interest in staffmark holdings , inc. , which we refer to as staffmark , for approximately $ 128 million . as of december 31 , 2010 , we own approximately 76.2 % of the common stock on a primary basis and 68.5 % on a fully diluted basis . on may 16 , 2006 , we made loans to and purchased a controlling interest in crosman for approximately $ 73 million representing at the time of purchase approximately 75.4 % of the outstanding common stock on both a primary and fully diluted basis . on may 16 , 2006 , we made loans to and purchased a controlling interest in advanced circuits for approximately $ 81 million . as of december 31 , 2010 , we own approximately 69.6 % of the common stock on a primary basis and 69.4 % fully diluted basis . on may 16 , 2006 , we made loans to and purchased a controlling interest in silvue for approximately $ 36 million , representing at the time of purchase approximately 72.3 % of the outstanding stock on both a primary and fully diluted basis . on august 1 , 2006 , we made loans to and purchased a controlling interest in tridien for approximately $ 31 million . as of december 31 , 2010 , we own approximately 73.9 % of the common stock on a primary basis and 61.8 % on a fully diluted basis . on february 28 , 2007 , we made loans to and purchased a controlling interest in aeroglide for approximately $ 58 million , representing at the time of purchase approximately 88.9 % of the outstanding stock on a primary basis and approximately 73.9 % on a fully diluted basis . on february 28 , 2007 , we made loans to and purchased a controlling interest in halo for approximately $ 62 million . as of december 31 , 2010 , we own approximately 88.7 % of the common stock on a primary basis and 72.8 % on a fully diluted basis . on august 28 , 2007 , we made loans to and purchased a controlling interest in american furniture for approximately $ 97 million . as of december 31 , 2010 , we own approximately 99.9 % of the common stock on a primary basis and 91.4 % on a fully diluted basis . 81 on january 4 , 2008 , we made loans to and purchased a controlling interest in fox for approximately $ 80.4 million . as of december 31 , 2010 , we own approximately 75.7 % of the common stock on a primary basis and 68.1 % on a fully diluted basis . on march 31 , 2010 , we made loans to and purchased a controlling interest in liberty safe for approximately $ 70.2 million . as of december 31 , 2010 we own approximately 96.2 % on a primary basis and 87.7 % on a fully diluted basis . on september 16 , 2010 , we made loans to and purchased a controlling interest in ergobaby for approximately $ 85.2 million . as of december 31 , 2010 , we own approximately 83.9 % on a primary basis and 79.9 % on a fully diluted basis . dispositions on january 5 , 2007 , we sold all of our interest in crosman , for approximately $ 143 million . we recorded a gain on the sale in the first quarter of 2007 of approximately $ 36 million . on june 24 , 2008 , we sold all of our interest in aeroglide , for approximately $ 95 million . we recorded a gain on the sale in the second quarter of 2008 of approximately $ 34 million . on june 25 , 2008 , we sold all of our interest in silvue , for approximately $ 95 million . we recorded a gain on the sale in the second quarter of 2008 of approximately $ 39 million . we are dependent on the earnings of , and cash receipts from , the businesses that we own in order to meet our corporate overhead and management fee expenses and to pay distributions . these earnings and distributions , net of any non controlling interest in these businesses , are available to : meet capital expenditure requirements , management fees and corporate overhead charges ; fund distributions from the businesses to the company ; and be distributed by the trust to shareholders . 2010 highlights acquisitions on march 11 , 2010 , our majority owned subsidiary advanced circuits , acquired circuit express , inc. ( circuit express ) , based in tempe , arizona for approximately $ 16.1 million . circuit express focuses on quick-turn manufacturing of prototype and low-volume quantities of rigid pcbs primarily for aerospace and defense related customers . we incurred approximately $ 0.3 million in transaction costs . on march 31 , 2010 , we purchased a controlling interest in liberty safe and security products , inc. ( liberty or liberty safe ) , with headquarters in payson , utah . liberty is a premier designer , manufacturer and marketer of home and gun safes in north america . liberty manufactures and sells a wide range of home and gun safes in a broad assortment of sizes , features and styles which are sold in various sporting goods , farm and fleet and home improvement retailers . we made loans to and purchased a controlling interest in liberty for approximately $ 70.2 million , representing approximately 88 % of the equity in liberty on a fully diluted basis . we incurred approximately $ 1.5 million in transaction costs . story_separator_special_tag on september 16 , 2010 , we purchased a controlling interest in ergo baby carrier , inc. ( ergobaby ) with headquarters in pukalani , hawaii . ergobaby is a premier designer , marketer and distributor of baby wearing products and accessories . ergobaby offers a broad range of wearable baby carriers and related products that are sold through more than 800 retailers and web shops in the united states and internationally in approximately 20 countries . we made loans to and purchased a controlling interest in ergobaby for approximately $ 85.2 million , representing approximately 84 % of the equity in ergobaby on a fully diluted basis . we incurred approximately $ 2.0 million in transaction costs . common stock offerings on april 13 , 2010 , we completed a public offering of 5,250,000 trust shares ( including the underwriters ' over-allotment completed april 23 , 2010 ) at an offering price of $ 15.10 per share . the net proceeds to us , after deducting underwriters ' discount and offering costs , totaled approximately $ 75.0 million . we used $ 70.0 million of the net proceeds to pay down our revolving credit facility . 82 on november 12 , 2010 , we completed a public offering of 4,850,000 trust shares ( including the underwriters ' over-allotment completed december 8 , 2010 ) at an offering price of $ 16.90 per share . the net proceeds to us , after deducting underwriters ' discount and offering costs , totaled approximately $ 78.0 million . we used $ 70.0 million of the net proceeds to pay down our revolving credit facility . impairment charge we test goodwill at interim dates if events or circumstances indicate that goodwill might be impaired at any of our reporting units . as a result , we conducted an interim test for impairment at american furniture based on results of operations which had deteriorated significantly during the second and third quarter of 2010. the domestic economy has undergone a significant period of economic uncertainty which has resulted in limited access to credit markets and lower consumer spending . the retail furniture market has been , and continues to be , severely impacted by these conditions , particularly as it relates to the housing market . retail furniture sales rely heavily on consumer spending for new furniture when they move into a new home . the uptick in sales and results of operations that we anticipated at the beginning of this year , which we believed would coincide with the overall modest economic rebound in 2010 has not occurred in the furniture industry and we do not at this time believe it will occur in the near future . accordingly , we adjusted our forecast for american furniture to reflect a revised outlook assuming continued pressure on sales and gross margins in the furniture industry . the revised forecast , which is used to populate a discounted cash flow analysis , led to the conclusion that it was more likely than not that the fair value of american furniture was below its carrying amount . based on the results of our interim impairment tests which is a two step process , we determined that the carrying value of american furniture 's goodwill exceeded its fair value by approximately $ 35.5 million . in addition , based on the results of the second step of the analysis we determined that the carrying value of american furniture 's trade name exceeded its fair value by approximately $ 3.3 million . as a result of these shortfalls , we recorded a $ 38.8 million impairment charge , which is reflected in our consolidated results of operations for the year ended december 31 , 2010 . 2010 distributions for the 2010 fiscal year we declared distributions to our shareholders totaling $ 1.36 per share . areas for focus in 2011 the areas of focus for 2011 , which are generally applicable to each of our businesses , include : taking advantage , where possible , of the recent economic downturn by growing market share in each of our market niche leading companies at the expense of less well capitalized competitors ; achieving sales growth , technological excellence and manufacturing capability through global expansion ; continuing to grow through disciplined , strategic acquisitions and rigorous integration processes ; continue to pursue expense reduction and cost savings through contraction in discretionary spending , and reductions in workforce and production levels in response to lower production volume ; and driving free cash flow through increased net income and effective working capital management enabling continued investment in our businesses , strategic acquisitions , and enabling us to return value to our shareholders . 83 results of operations we were formed on november 18 , 2005 and acquired our existing businesses ( segments ) as follows : may 16 , 2006 august 1 , 2006 february 28 , 2007 august 31 , 2007 january 4 , 2008 march 31 , 2010 september 16 , 2010 advanced circuits tridien halo american furniture fox liberty safe ergobaby staffmark fiscal 2010 , 2009 and 2008 each represent a full year of operating results included in our consolidated results of operations for six of our businesses . the remaining two businesses were acquired during fiscal 2010 ( see table above ) . as a result , we can not provide a meaningful comparison of our actual historical consolidated results of operations for the year ended december 31 , 2010 with the two prior years .
| gross profit as a percentage of net sales for the year ended december 31 , 2010 was 55.2 % compared to 57.1 % in 2009. the decrease in gross profit as a percentage of sales in 2010 is the result of lower margins earned on the circuit express product during the year and increases in lower margin assembly and long-lead time sales as a percentage of sales . selling , general and administrative expenses selling , general and administrative expenses increased approximately $ 10.0 million during the year ended december 31 , 2010 compared to the corresponding period in 2009. approximately $ 3.3 million of the increase is attributable to costs incurred at the circuit express operations . in addition to costs incurred directly at circuit express , salaries and wages increased $ 2.7 million and commissions increased $ 0.3 million in 2010 as compared to 2009. these increases are largely the result of supporting the operations associated with the significant increase in net sales in 2010 compared to 2009. lastly , non-cash stock compensation costs resulting from options issued to senior management totaling approximately $ 3.8 million were incurred and are included in general and administrative costs in 2010. no such costs were incurred in 2009 . 87 income from operations income from operations for the year ended december 31 , 2010 was $ 20.4 million compared to $ 16.3 million for the year ended december 31 , 2009 , an increase of $ 4.1 million . this increase primarily was the result of increased net sales and other factors described above . fiscal year ended december 31 , 2009 compared to fiscal year ended december 31 , 2008 net sales net sales for the year ended december 31 , 2009 were approximately $ 46.5 million compared to approximately $ 55.4 million for the year ended december 31 , 2008 , a decrease of approximately $ 8.9 million or 16.1 % . the decrease in net sales was due to decreased sales in quick-turn ( $ 2.1
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we continuously monitor the collectability of our accounts receivable from specific tenants , analyze historical bad debts , customer creditworthiness , current economic trends and changes in tenant payment terms when evaluating the adequacy of the allowance for bad debts . allowances are taken for those balances that we have reason to believe will be uncollectible . when tenants are in bankruptcy , we make estimates of the expected recovery of pre-petition and post-petition claims . the period to resolve these claims can exceed one year . management believes the allowance for doubtful accounts is adequate to absorb currently estimated bad debts . however , if we experience bad debts in excess of the allowance we have established , our operating income would be reduced . at december 31 , 2013 and 2012 , our accounts receivable were $ 9.6 million and $ 8.0 million respectively , net of allowances for doubtful accounts of $ 2.4 million and $ 2.6 million , respectively . in addition , many of our leases contain non-contingent rent escalations for which we recognize income on a straight-line basis over the non-cancelable lease term . this method results in rental income in the early years of a lease being higher than actual cash received , creating a straight-line rent receivable asset which is included in the “ other assets ” line item in our consolidated balance sheets . we review our unbilled straight-line rent receivable balance to determine the future collectability of revenue that will not be billed to or collected from tenants due to early lease terminations , lease modifications , bankruptcies and other factors . our evaluation is based on our assessment of tenant credit risk changes indicating that expected future straight-line rent may not be realized . depending on circumstances , we may provide a reserve against the previously recognized straight-line rent receivable asset for a portion , up to its full value , that we estimate may not be received . the balance of straight-line rent receivable at december 31 , 2013 and 2012 , net of allowances was $ 15.1 million and $ 14.8 million , respectively and is included in other assets on our consolidated balance sheets . to the extent any of the tenants under these leases become unable to pay their contractual cash rents , we may be required to write down the straight-line rent receivable from those tenants , which would reduce our operating income . real estate investment income producing real estate assets that we own directly are stated at cost less accumulated depreciation . depreciation is computed using the straight-line method . the estimated useful lives for computing depreciation are generally 10 – 40 years for buildings and improvements and 5 – 30 years for parking lot surfacing and equipment . we capitalize all capital improvement expenditures associated with replacements and improvements to real property that extend the property 's useful life and depreciate such improvements over their estimated useful lives ranging from 15 – 25 years . in addition , we capitalize tenant leasehold improvements and depreciate them over the useful life of the improvements or the term of the related tenant lease . we consider a number of different factors to evaluate whether we or the tenant is the owner of the tenant improvement for accounting purposes . these factors include : 1 ) whether the lease stipulates how and on what a tenant improvement allowance may be spent ; 2 ) whether the tenant or landlord retains legal title to the improvements ; 3 ) the uniqueness of the improvements ; 4 ) the expected economic life of the tenant improvements relative to the term of the lease ; and 5 ) who constructs or directs the construction of the improvements . we charge maintenance and repair costs that do not extend an asset 's life to expense as incurred . 26 sale of a real estate asset is recognized when it is determined that the sale has been consummated , the buyer 's initial and continuing investment is adequate , our receivable , if any , is not subject to future subordination , and the buyer has assumed the usual risks and rewards of ownership of the assets . development and redevelopment real estate also includes costs incurred in the development of new operating properties and the redevelopment of existing operating properties . these properties are carried at cost and no depreciation is recorded on these assets until the commencement of rental revenue or no later than one year from the completion of major construction . these costs include pre-development costs directly identifiable with the specific project , development and construction costs , interest , real estate taxes and insurance . interest is capitalized on land under development and buildings under construction based on the weighted average rate applicable to our borrowings outstanding during the period and the weighted average balance of qualified assets under development/redevelopment during the period . indirect project costs associated with development or construction of a real estate project are capitalized until the earlier of one year following substantial completion of construction or when the property becomes available for occupancy . the capitalized costs associated with development and redevelopment projects are depreciated over the useful life of the improvements . if we determine a development or redevelopment project is no longer probable , we expense all capitalized costs which are not recoverable . acquisitions acquisitions of properties are accounted for utilizing the acquisition method and , accordingly , the results of operations of an acquired property are included in our results of operations from the date of acquisition . estimates of fair values are based upon future cash flows and other valuation techniques in accordance with our fair value measurements policy , which are used to record the purchase price of acquired property among land , buildings on an “ as if vacant ” basis , tenant improvements , identifiable intangibles and any gain on purchase . story_separator_special_tag identifiable intangible assets and liabilities include the effect of above-and below-market leases , the value of having leases in place ( “ as-is ” versus “ as if vacant ” and absorption costs ) , and out-of-market assumed mortgages . initial valuations are subject to change until such information is finalized , no later than twelve months from the acquisition date . the impact of these estimates , including incorrect estimates in connection with acquisition values and estimated useful lives , could result in significant differences related to the purchased assets , liabilities and resulting gain on purchase , depreciation or amortization . the estimated fair value of acquired in-place leases are the costs we would have incurred to lease the properties to the occupancy level of the properties at the date of acquisition . such estimates include the fair value of leasing commissions , legal costs and other direct costs that would be incurred to lease the properties to such occupancy levels . additionally , we will evaluate the time period over which such occupancy levels would be achieved . such evaluation will include an estimate of the net market-based rental revenues and net operating costs ( primarily consisting of real estate taxes , insurance and cam ) that would be incurred during the lease-up period . acquired in-place leases as of the date of acquisition are amortized over the remaining lease term . acquired above-and below-market lease values are recorded based on the present value ( using an interest rate that reflects the risks associated with the lease acquired ) of the difference between the contractual amounts to be paid pursuant to the in-place leases and management 's estimate of fair market value lease rates for the corresponding in-place leases . the capitalized above-and below-market lease values are amortized as adjustments to rental revenue over the remaining terms of the respective leases , which may include periods covered by bargain renewal options , if any . should a tenant terminate its lease prior to expiration , the unamortized portion of the in-place lease value is charged to amortization expense and the unamortized portion of out-of-market lease value is charged to rental revenue . impairment we review our investment in real estate , including any related intangible assets , for impairment on a property-by-property basis whenever events or changes in circumstances indicate that the carrying value of the property may not be recoverable . these changes in circumstances include , but are not limited to , changes in occupancy , rental rates , tenant sales , net operating income , geographic location , real estate values and expected holding period . the viability of all projects under construction or development , including those owned by unconsolidated joint ventures , are regularly evaluated under applicable accounting requirements , including requirements relating to abandonment of assets or changes in use . to the extent a project , or individual components of the project , are no longer considered to have value , the related capitalized costs are charged against operations . 27 impairment provisions resulting from any event or change in circumstances , including changes in management 's intentions or management 's analysis of varying scenarios , could be material to our consolidated financial statements . we recognize an impairment of an investment in real estate when the estimated discounted or undiscounted cash flow is less than the net carrying value of the property . if it is determined that an investment in real estate is impaired , then the carrying value is reduced to the estimated fair value as determined by cash flow models and discount rates or comparable sales in accordance with our fair value measurement policy . refer to note 6 of the notes to the consolidated financial statements for further information . off balance sheet arrangements we have five equity investments in unconsolidated joint venture entities in which we own 30 % or less of the total ownership interest . because we can influence but not make significant decisions without our partner 's approval these investments are accounted for under the equity method of accounting . we provide leasing , development , asset and property management services to these joint ventures for which we are paid fees . entities identified as variable interest entities are consolidated if we are determined to be the primary beneficiary of the partially owned real estate joint venture . refer to note 7 of the notes to the consolidated financial statements for further information . we review our equity investments in unconsolidated entities for impairment on a venture-by-venture basis whenever events or changes in circumstances indicate that the carrying value of the equity investment may not be recoverable . in testing for impairment of these equity investments , we primarily use cash flow models , discount rates , and capitalization rates to estimate the fair value of properties held in joint ventures , and mark the debt of the joint ventures to market . considerable judgment by management is applied when determining whether an equity investment in an unconsolidated entity is impaired and , if so , the amount of the impairment . changes to assumptions regarding cash flows , discount rates , or capitalization rates could be material to our consolidated financial statements . fair value measurements certain financial instruments , estimates and transactions are required to be calculated , reported and or recorded at fair value . the estimated fair values of such financial items , including , debt instruments , impairments , acquisitions and derivatives , have been determined using a market-based measurement . this measurement is determined based on the assumptions that management believes market participants would use in pricing an asset or liability . as a basis for considering market participant assumptions in fair value measurements , gaap establishes three fair value levels , based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value .
| the increase was primarily due to : $ 1.8 million associated with an increase in compensation expense related to an increase in costs associated with our long-term incentive plans which are based on our stock price performance relative to a group of our peers ( see note 16 for additional information ) offset in part by higher capitalization of development and leasing salaries and related costs in 2013. salaries capitalized in 2013 and 2012 represented approximately 18 % of total salaries ; and $ 1.0 million in acquisition costs . other expense , net in 2013 increased $ 0.9 million from 2012 . in 2012 expenses were offset by insurance proceeds of $ 0.8 million related to a tenant fire . gain on sale of real estate was $ 4.3 million in 2013 primarily due to a $ 3.0 million gain on sale of land at our roseville towne center to wal-mart , an anchor tenant , and a net gain on the sale of multiple outparcels at several other properties . refer to note 4 of the notes to the consolidated financial statements for detail of the individual outparcel sales . in the comparable period in 2012 we had a gain of $ 0.1 million related to the sale on one outparcel . earnings from unconsolidated joint ventures in 2013 decreased $ 8.0 million from 2012 . the decrease was related to the acquisition of our partner 's 70 % interest in 12 shopping centers held in the ramco/lion venture lp . the sale resulted in a loss of $ 21.5 million to the joint venture of which our share was $ 6.4 million . interest expense in 2013 increased $ 3.2 million , or 12.3 % , from 2012 primarily due to the following : $ 1.1 million increase in mortgage interest related to the assumption of loans as part our 2013 acquisitions ; $ 3.4 million increase in
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however , our results of operations and business face challenges and uncertainties , including our ability to introduce new products that will appeal to a broad consumer base , our ability to service demand , the ability of our major retail customers to drive traffic and keep products in stock , our ability to continue to grow our customer base and competitive threats from other beauty companies . gross profit gross profit is our net sales less cost of sales . cost of sales reflects the aggregate costs to procure our products , including the amounts invoiced by our third-party contractors for finished goods as well as costs related to transportation to our distribution center , customs and duties . cost of sales also includes the effect of changes in the balance of reserves for excess and obsolete inventory and the write-off of inventory not previously reserved . gross margin measures our gross profit as a percentage of net sales . we have an extensive network of third-party manufacturers in china where we purchase substantially all of our finished goods . over the past three years , we have worked to evolve our supply chain to increase capacity and technical capabilities while maintaining or reducing overall costs as a percentage of sales . historically , we have improved our gross margin largely through changes in our product mix , pricing , purchasing efficiencies and cost reductions in our supply chain , and expect to continue leveraging our innovation and sourcing capabilities in future periods . other drivers of changes in gross margin include fluctuations in exchange rates , changes in customer mix , and changes in the balance of reserves for excess and obsolete inventory , among other things , which may offset the benefit of changes in pricing , product mix and cost reductions . selling , general and administrative our selling , general and administrative ( “ sg & a ” ) expenses primarily consist of personnel-related expenses , including salaries , bonuses , fringe benefits and stock-based compensation , warehousing and distribution costs , depreciation of property and equipment , amortization of retail product displays and amortization of intangible assets . see “ critical accounting policies and estimates—stock-based compensation ” below for more detail regarding stock-based compensation . in the near term , we expect sg & a expense to increase as we invest to support our growth initiatives , including investments in the e.l.f . brand and infrastructure as well as the expansion of our e.l.f . store and international footprints . over time , we expect our sg & a expenses to grow at a slower rate than our net sales growth as we leverage our past investments , including those made in 2015 and 2016 to support the reporting and compliance requirements associated with being a public company . interest expense , net interest expense primarily consists of cash interest and fees on our outstanding indebtedness . see “ financial condition , liquidity and capital resources ” below and a description of our indebtedness in note 8 to the notes to consolidated financial statements in item 15 of this annual report . 39 other income ( expense ) our purchases are largely in chinese renminbi ( “ rmb ” ) , and , as such , we are exposed to periodic fluctuations in that currency . while we do not have an active hedging program , we had a number of legacy exchange rate forward contracts that matured during the year ended december 31 , 2016. we did not apply hedge accounting , and therefore the periodic impact of these legacy hedging activities was calculated on a mark-to-market basis . other income ( expense ) is primarily a result of changes in the notional value of exchange rate forward contracts outstanding in prior periods , as well as fluctuations in the exchange rate in the rmb to the u.s. dollar . provision for income taxes the provision for income taxes represents federal , foreign , state and local income taxes . the effective rate differs from statutory rates due to the effect of state and local income taxes , tax rates in foreign jurisdictions and certain permanent tax adjustments . our effective tax rate will change from quarter to quarter based on recurring and nonrecurring factors including , but not limited to , the geographical mix of earnings , enacted tax legislation , state and local income taxes , the impact of permanent tax adjustments , tax audit settlements and the interaction of various tax strategies . on december 22 , 2017 , h.r.1 , informally known as the tax cuts and jobs act ( “ tax legislation ” ) was signed into law making significant changes to the internal revenue code . changes include , but are not limited to , a reduction of the u.s. corporate tax rate from 35 % to 21 % effective january 1 , 2018. the tax legislation also imposes a one-time transition tax on previously deferred foreign earnings . for fiscal 2018 , we have preliminarily analyzed the estimated impact of the tax legislation on our effective tax rate before discrete items ( e.g. , excess tax benefits or deficits related to stock-based compensation ) . based on available information , we believe our effective tax rate before discrete items will be approximately 30 % . this estimate depends on a variety of factors , including ( i ) our future results , ( ii ) forthcoming guidance expected to be issued by various regulatory bodies and other standard-setters and ( iii ) actions we may take as a result of the tax legislation . net income ( loss ) our net income ( loss ) for future periods will be affected by the various factors described above . recent transactions and basis of presentation on january 31 , 2014 , e.l.f . beauty , inc. ( the “ successor ” ) acquired 100 % of the outstanding shares of capital stock of e.l.f . cosmetics , inc. ( the “ predecessor , ” formerly known as j.a . story_separator_special_tag cosmetics us , inc. ) ( the “ acquisition ” ) . accordingly , the accompanying consolidated financial statements presented elsewhere in this annual report as of and for the years ended december 31 , 2014 , 2015 and 2016 reflect periods both prior and subsequent to the acquisition . the consolidated financial statements for december 31 , 2014 , 2015 and 2016 are presented separately for the predecessor period from january 1 , 2014 through january 31 , 2014 ( the “ predecessor 2014 period ” ) , the successor period from february 1 , 2014 through december 31 , 2014 ( the “ successor 2014 period ” ) , the year ended december 31 , 2015 and the year ended december 31 , 2016 , with the periods prior to the acquisition being labeled as predecessor and the periods subsequent to the acquisition labeled as successor . the financial position and results of the successor reflect the application of purchase accounting in accordance with financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) topic 805 , business combinations ( “ asc 805 ” ) . for the purpose of performing a comparison to the year ended december 31 , 2015 , the unaudited pro forma combined period , which corresponds to the year ended december 31 , 2014 , gives effect to the acquisition as if it had occurred on january 1 , 2014 ( the “ unaudited pro forma combined 2014 period ” ) . the unaudited pro forma combined 2014 period discussed herein has been prepared in accordance with article 11 of regulation s-x , does not purport to represent what our actual consolidated results of operations would have been had the acquisition actually occurred on january 1 , 2014 , nor is it necessarily indicative of future consolidated results of operations . the unaudited pro forma combined 2014 period is being discussed herein for informational purposes only and does not reflect any operating efficiencies or potential cost savings that may result from the consolidation of operations . in preparing the unaudited pro forma combined 2014 period , we combined the predecessor 2014 period and successor 2014 period and adjusted the historical results within these periods to give effect to pro forma events that are ( i ) directly attributable to the acquisition ; ( ii ) factually supportable ; and ( iii ) expected to have a continuing impact on the combined financial results . the pro forma adjustments made to give effect to the acquisition , as if it had occurred on january 1 , 2014 , are summarized in the table below : 40 replace_table_token_5_th ( a ) represents the exclusion of $ 1.3 million in non-recurring charges recorded in cost of sales from the fair value step-up on inventory related to the acquisition . ( b ) represents $ 0.7 million in incremental amortization expense within sg & a related to intangible assets recorded at the time of the acquisition . ( c ) represents the exclusion of non-recurring items that were directly related to the acquisition and did not have a continuing impact on the combined pro forma results , including $ 5.4 million in compensation expense recorded within sg & a associated with a change in control payment to a former employee and $ 3.1 million in transaction costs recorded within sg & a , including professional fees . ( d ) represents $ 0.9 million in incremental net interest expense related to new financing facilities . ( e ) represents $ 2.9 million in incremental tax expense based on statutory rates and associated with the pro forma adjustments . as the predecessor and successor have the same accounting policies , no conforming accounting policy adjustments were necessary . similarly , no reclassifications were necessary to conform the predecessor 's historical financial statements presentation to that of the successor . seasonality our results of operations are subject to seasonal fluctuations , with net sales in the third and fourth fiscal quarters typically being higher than in the first and second fiscal quarters . the higher net sales in our third and fourth fiscal quarters are largely attributable to the increased levels of purchasing by retailers for the holiday season , and adverse events that occur during the third or fourth quarter could have a disproportionate effect on our results of operations for the entire fiscal year . as a result of higher sales during the third and fourth quarters , we are required to make investments in working capital during the second and third quarters of the fiscal year . fluctuations throughout the year are also driven by the timing of product restocking or rearrangement by our major customers as well as our expansion into new customers . because a limited number of our retail customers account for a large percentage of our net sales , a change in the order pattern of one or more of our large retail customers could cause a significant fluctuation of our quarterly results or reduce our liquidity . 41 story_separator_special_tag style= '' line-height:120 % ; padding-bottom:16px ; text-indent:72px ; font-size:10pt ; '' > as of december 31 , 2017 , we held $ 10.1 million of cash and cash equivalents . in addition , as of december 31 , 2017 , we had borrowing capacity of $ 49.5 million under our revolving credit facility . our primary cash needs are for capital expenditures , retail product displays and working capital . capital expenditures typically vary depending on strategic initiatives selected for the fiscal year , including investments in infrastructure , expansion into new national retailer doors and expansion of our e.l.f . store base . we expect to fund ongoing capital expenditures from existing cash on hand , cash generated from operations and , if necessary , draws on our revolving credit facility . our primary working capital requirements are for product and product-related costs , payroll , rent , distribution costs and advertising and marketing .
| sg & a expenses as a percentage of net sales increased to 49 % for 42 the year ended december 31 , 2017 from 48 % in the year ended december 31 , 2016 . the increase was primarily a result of higher investments in sales and marketing , an increase in stock-based compensation expense , expenses related to the operations of additional e.l.f . stores , and higher information technology costs to support infrastructure improvements and business capabilities . these were partially offset by costs related to the move of our warehouse and distribution facility from new jersey to california in 2016 that were not repeated in the current year . other income ( expense ) , net other income ( expense ) changed $ 5.1 million to expense of $ 2.0 million in the year ended december 31 , 2017 from income of $ 3.0 million in the year ended december 31 , 2016 . the change was primarily related to the movement in the rmb and the impact of legacy exchange rate forward contracts in the year ended december 31 , 2016 . interest expense , net interest expense decreased $ 7.5 million , or 46 % , to $ 8.8 million in the year ended december 31 , 2017 , compared to $ 16.3 million in the year ended december 31 , 2016 . this decrease was due to the paydown of a portion of our debt with proceeds from our initial public offering in september 2016 , as well as the refinancing of our credit agreement in december 2016 , and subsequent amendment in august 2017 , resulting in lower interest rates . income taxes the provision for income taxes decreased from an expense of $ 4.5 million , or an effective tax rate of 46 % , for the year ended december 31 , 2016 to a benefit of $ 11.0 million , or an effective tax rate of ( 49 ) % , for the year ended december 31 , 2017 . the change in the provision for income taxes was driven primarily by a tax benefit of $ 11.6 million related to the re-measurement
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the agreements with these tenants include current partial payment in exchange for rent deferrals of varying terms with deferred amounts to be paid by the respective tenant back to us , for the period starting in july 2020 and ending in march 2021. two of these tenants have repaid their deferred rent balance in full as of december 31 , 2020. the other tenant was granted a second rent deferral in november 2020 in exchange for one year of additional lease term . the deferred rent will be repaid beginning may 2021 and through the tenant 's remaining lease term . we may pursue additional loan relief agreements in the future . we have received and may receive additional rent modification requests in future periods from our tenants . however , we are unable to quantify the outcomes of the negotiation of relief packages , the success of any tenant 's financial prospects or the amount of relief requests that we will ultimately receive or grant . we believe that we have a diverse tenant base , and specifically , we do not have significant exposure to tenants in the retail , hospitality , airlines , and oil and gas industries . these industries , among certain others , have generally been severely impacted by the covid-19 . additionally , our properties are located in 28 states , which we believe mitigates our exposure to economic issues , including as a result of covid-19 , in any one geographic market or area . we also have a cap on industry sector concentration to further diversify our portfolio and mitigate risk . we believe we currently have adequate liquidity in the near term , and we believe the availability on our credit facility is sufficient to cover all near term debt obligations and operating expenses and to continue our industrial growth strategy . we are in compliance with all of our debt covenants , and we amended our credit facility in 2019 to increase our borrowing capacity and extend its maturity date . in addition , on february 11 , 2021 , we added a new $ 65.0 million term loan component , inclusive of a $ 15.0 million delayed funding component . we have had numerous conversations with lenders and do not believe there will be a credit freeze in the near term . we continue to monitor our portfolio and intend to maintain a reasonably conservative liquidity position for the foreseeable future . we will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal , state or local authorities or that we determine are in the best interests of our personnel , tenants and stockholders . while we are unable to determine or predict the nature , duration or scope of the overall impact the covid-19 pandemic will have on our business , financial condition , liquidity , results of operations , funds from operations or prospects , we believe that it is important to share where we stand today , how our response to covid-19 is progressing and how our operations and financial condition may change as the fight against covid-19 progresses . other business environment considerations the short-term and long-term economic implications of the presidential election result are unknown at this time , inclusive of any subsequent shift in policy , new regulations or the long-term impact of tax reform in the u.s. finally , the continuing uncertainty surrounding the ability of the federal government to address its fiscal condition in both the near and long term , particularly with the ongoing discussions regarding additional fiscal stimulus as well as other geopolitical issues relating to the global economic slowdown has increased domestic and global instability . these developments could cause interest rates and borrowing costs to be volatile , which may adversely affect our ability to access both the equity and debt markets and could have an adverse impact on our tenants as well . all of our variable rate debt is based upon the one month libor rate , although libor is currently anticipated to be phased out during late 2021. libor is expected to transition to a new standard rate , sofr , which will incorporate repo data collected from multiple data sets . the intent is to adjust the sofr to minimize differences between the interest that a borrower would be paying using libor versus what it will be paying using sofr . we are currently monitoring the transition , as we can not assess whether sofr will become a standard rate for variable rate debt . any further changes or reforms to the determination or supervision of libor may result in a sudden or prolonged increase or decrease in reported libor , which could have an adverse impact on the market for libor-based debt , or the value of our portfolio of libor-indexed , floating-rate debt . we continue to focus on re-leasing vacant space , renewing upcoming lease expirations , re-financing upcoming loan maturities , and acquiring additional properties with associated long-term leases . currently , we only have two partially vacant buildings and four fully vacant buildings , with one of these fully vacant buildings classified as held for sale as of december 31 , 2020 . 37 our available vacant space as of december 31 , 2020 represents 4.7 % of our total square footage and the annual carrying costs on the vacant space , including real estate taxes and property operating expenses , are approximately $ 4.2 million . we continue to actively seek new tenants for these properties . our ability to make new investments is highly dependent upon our ability to procure financing . our principal sources of financing generally include the issuance of equity securities , long-term mortgage loans secured by properties , and borrowings under our credit facility . story_separator_special_tag while lenders ' credit standards have tightened , we continue to look to national and regional banks , insurance companies and non-bank lenders , in addition to the cmbs market , to issue mortgages to finance our real estate activities . in addition to obtaining funds through borrowing , we were active in the equity markets during 2020 by issuing shares of common stock and preferred stock under our atm programs , pursuant to our common stock sales agreement with the common stock sales agents , and the series e preferred stock sales agreement with the series e preferred stock sales agents , discussed in more detail below . we also began the offering our newly designated series f preferred stock and issued shares during the 3rd and 4th quarters of 2020. recent developments sale activity during the year ended december 31 , 2020 , we continued to execute our capital recycling program , whereby we sell non-core properties and redeploy proceeds to fund property acquisitions in our target secondary growth markets , as well as repay outstanding debt . we will continue to execute our capital recycling plan and sell non-core properties as reasonable disposition opportunities become available . during the year ended december 31 , 2020 , we sold six non-core properties , located in charlotte , north carolina ; maple heights , ohio ; champaign , illinois ; and austin , texas , which are summarized in the table below ( dollars in thousands ) : aggregate square footage sold sales price sales costs gain on sale of real estate , net 551,743 $ 37,532 $ 1,698 $ 8,096 acquisition activity during the year ended december 31 , 2020 , we acquired nine properties , which are summarized below ( dollars in thousands ) : aggregate square footage weighted average lease term aggregate purchase price capitalized acquisition expenses aggregate annualized gaap fixed lease payments aggregate debt issued 1,717,502 12.2 years $ 129,974 $ 814 $ 9,696 $ 52,578 on january 22 , 2021 , we purchased a 180,152 square foot industrial property in findlay , ohio for $ 11.1 million . this property is fully leased to one tenant on a 14.2 year lease . leasing activity during the year ended december 31 , 2020 , we executed 20 lease extensions and or modifications , which are summarized below ( dollars in thousands ) : aggregate square footage weighted average remaining lease term aggregate annualized gaap fixed lease payments aggregate tenant improvement aggregate leasing commissions 1,122,543 7.7 years ( 1 ) $ 11,266 $ 3,383 $ 1,354 ( 1 ) weighted average remaining lease term is weighted according to the annualized gaap rent earned by each lease . our leases have remaining terms ranging from 1.3 years to 12.0 years . 38 during the year ended december 31 , 2020 , we had two lease contractions , which are aggregated below ( dollars in thousands ) : aggregate square footage reduced aggregate termination fee aggregate deferred rent write off 63,664 $ 1,239 $ 239 financing activity during the year ended december 31 , 2020 , we repaid seven mortgages , collateralized by eight properties , which are summarized below ( dollars in thousands ) : aggregate fixed rate debt repaid weighted average interest rate on fixed rate debt repaid $ 18,109 5.19 % aggregate variable rate debt repaid weighted average interest rate on variable rate debt repaid $ 19,284 libor + 2.20 % during the year ended december 31 , 2020 , we issued six mortgages , collateralized by six properties , which are summarized below ( dollars in thousands ) : aggregate fixed rate debt issued weighted average interest rate on fixed rate debt $ 52,578 ( 1 ) 3.18 % ( 1 ) we issued an aggregate of $ 18.3 million of fixed rate debt in connection with our three property portfolio acquisition on january 27 , 2020 , with a maturity date of february 1 , 2030 and a rate of 3.625 % . we issued $ 17.5 million of floating rate debt swapped to fixed of 2.8 % in connection with our march 9 , 2020 property acquisition , with a maturity date of march 9 , 2030. we issued $ 10.3 million of fixed rate debt in connection with our december 18 , 2020 property acquisition , with a maturity date of january 1 , 2028 and a rate of 3.0 % . we issued $ 6.4 million of floating rate debt swapped to fixed of 3.25 % in connection with our december 21 , 2020 property acquisition , with a maturity date of december 23 , 2030. on january 22 , 2021 , we issued $ 5.5 million of floating rate debt swapped to a fixed rate of 3.24 % in connection with the industrial property acquisition on the same date , with a maturity date of february 15 , 2031. equity activity common stock atm program during the year ended december 31 , 2020 , we sold 2.7 million shares of common stock , raising $ 52.8 million in net proceeds under our at-the-market equity offering sales agreements with sales agents robert w. baird & co. incorporated ( “ baird ” ) , goldman sachs & co. llc ( “ goldman sachs ” ) , stifel , nicolaus & company , incorporated ( “ stifel ” ) , btig , llc , and fifth third securities , inc. ( “ fifth third ” ) , pursuant to which we may sell shares of our common stock in an aggregate offering price of up to $ 250.0 million ( the “ common stock atm program ” ) . as of december 31 , 2020 , we had a remaining capacity to sell up to $ 183.9 million of common stock under the common stock sales agreement . the proceeds from these issuances were used to acquire real estate , repay outstanding debt and for other general corporate purposes .
| lease revenues increased for acquired and disposed of properties for the year ended december 31 , 2020 , as compared to the year ended december 31 , 2019 , primarily as a result of our acquisition of nine properties during the year ended december 31 , 2020 , and the inclusion of a full year of lease revenues recorded in 2020 for 18 properties acquired during the year ended december 31 , 2019 , partially offset by a decrease in lease revenues from the six properties that we sold during the year ended december 31 , 2020. lease revenues decreased for properties with vacancy for the year ended december 31 , 2020 , as our occupancy percentage has decreased from december 31 , 2019 , due to 2020 lease expirations for certain properties that have not yet been re-leased . on january 1 , 2020 , we completed the integration of the accounting records of certain of our triple net leased third-party asset managed properties into our accounting system and paid property operating expenses out of our operating bank accounts . for periods prior to january 1 , 2020 , we recorded property operating expenses and offsetting lease revenues for these certain triple net leased properties on a net basis . beginning january 1 , 2020 , we now record the property operating expenses and offsetting lease revenues for these triple net leased properties on a gross basis , as we have amended our process whereby we are paying operating expenses on behalf of our tenants and receiving reimbursement , whereas , previously these tenants were paying these expenses directly with limited insight provided to us . see the table below for a reconciliation of lease revenue for the year ended december 31 , 2020 , and the comparable 2019 period . fixed rental payments consist of fixed rental charges that are contractually due to us , and variable rental payments consist of operating expense recoveries that we collect to pay for property operating expenses incurred at certain properties . lease revenues related to the december 31 , 2019 reporting
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additional details related to the corporation 's sblf related preferred stock redemptions are discussed in note 16. stockholders ' equity of the notes to consolidated financial statements included as item 8 of this annual report on form 10-k. the corporation was able to maintain all regulatory capital ratios in excess of the regulatory definition of “ well-capitalized ” as discussed in the “ capital ” section of management 's discussion and analysis of financial condition and results of operations included as item 7 of this annual report on form 10-k. 30 part ii : item 7. and item 7a . management 's discussion and analysis of financial condition and results of operations net interest income net interest income is the primary source of the corporation 's earnings . net interest margin is a function of net interest income and the level of average earning assets . the following table presents the corporation 's interest income , interest expense , and net interest income as a percent of average earning assets for the three-year period ending in 2013 . replace_table_token_26_th in 2013 , asset yields decreased 34 basis points on fully taxable equivalent basis ( fte ) and interest cost decreased 21 basis points , resulting in a 13 basis point decrease in the interest margin compared to 2012. an increase in earnings assets , primarily due to a larger loan portfolio as a result of the cfs bancorp transaction , as discussed in note 3 business combination , in the notes to consolidated financial statements included as item 8 of this annual report on form 10-k , resulted in a positive volume variance of $ 10,087,000 ( fte ) . in addition , a low interest rate environment produced a negative rate variance of $ 8,158,000 ( fte ) , resulting in a net increase of $ 1,929,000 in net interest income . in 2012 , asset yields decreased 25 basis points on a fully taxable equivalent basis ( fte ) and interest cost decreased 39 basis points , resulting in a 14 basis point increase in the interest margin compared to 2011. an increase in earning assets , primarily due to a larger loan portfolio as a result of the scb bank transaction , as discussed in note 2 purchase and assumption , in the notes to consolidated financial statements included as item 8 of this annual report on form 10-k , resulted in a positive volume variance of $ 7,754,000 ( fte ) . in addition , a low interest rate environment produced a positive rate variance of $ 1,227,000 ( fte ) , resulting in a net increase of $ 8,981,000 in net interest income . average earning assets include the average balance of securities classified as available for sale , computed based on the average of the historical amortized cost balances without the effects of the fair value adjustment . in addition , annualized amounts are computed utilizing a 30/360 day basis . non-interest income non-interest income decreased $ 9,493,000 or 14.8 percent in 2013 compared to 2012. the largest item contributing to the decrease was a gross purchase gain of $ 9,124,000 recognized in 2012 from the purchase of certain assets and assumption of certain liabilities of scb bank . details of this transaction are included within note 2. purchase and assumption of the notes to consolidated financial statements included as item 8 of this annual report on form 10-k. additionally , earnings on cash surrender value of life insurance decreased by $ 805,000 compared to 2012. this decrease was primarily driven by a death benefit of $ 576,000 received from bank owned life insurance during 2012. finally , gains on the sale of mortgage loans , gains on the sale of investment securities and tax credit fund income declined by $ 3.1 million , $ 1.9 million and $ 1.0 million , respectively , in 2013 when compared to 2012. offsetting these declines were significant increases in gains on sale of oreo , insurance commissions , customer service charges , fiduciary activities , and investment service commissions of $ 3.0 million , $ 917,000 , $ 813,000 , $ 703,000 and $ 463,000 , respectively , in 2013 when compared to 2012. the cfs acquisition , discussed in note 3. business combinations of the notes to consolidated financial statements included as item 8 of this annual report on form 10-k , resulted in $ 1.2 million of non-interest income during the last seven weeks of 2013. of this $ 1.2 million , the largest components were $ 581,000 of customer service charges and $ 325,000 of electronic interchange fees . non-interest expenses non-interest expenses increased $ 6,104,000 or 4.5 percent in 2013 compared to 2012. salaries and employee benefits increased by $ 6.0 million , with the largest factor being $ 2.5 million of non-recurring severance expenses related to the cfs acquisition . in addition , salaries and employee benefits increased by $ 2.1 million due to the addition of cfs employees since acquisition . additionally , professional and other outside services were $ 2.1 million higher in 2013 than 2012 due primarily to expenses associated with the acquisition and integration of cfs . the increases in salary and employee benefits and other expenses were offset by year over year declines in other real estate owned and credit-related expenses of $ 1.5 million and fdic assessment expense of $ 647,000. overall , the cfs acquisition , discussed in note 3. business combinations of the notes to consolidated financial statements included as item 8 of this annual report on form 10-k , resulted in $ 8.9 million of non-interest expense during 2013 . 31 part ii : item 7. and item 7a . story_separator_special_tag management 's discussion and analysis of financial condition and results of operations story_separator_special_tag interest margin compared to 2011. an increase in earning assets , primarily due to a larger loan portfolio as a result of the scb bank transaction , as discussed in note 2 purchase and assumption , in the notes to consolidated financial statements included as item 8 of this annual report on form 10-k , resulted in a positive volume variance of $ 7,754,000 ( fte ) . in addition , a low interest rate environment produced a positive rate variance of $ 1,227,000 ( fte ) , resulting in a net increase of $ 8,981,000 in net interest income . in 2011 , asset yields decreased 33 basis points on a fully taxable equivalent basis ( fte ) and interest cost decreased 44 basis points , resulting in an 11 basis point increase in the net interest margin compared to 2010. a decrease in earning assets , primarily due to a smaller loan portfolio and a decline in interest-bearing liabilities , produced a negative volume variance of $ 2,439,000 ( fte ) . furthermore , a declining interest rate environment produced a positive rate variance of $ 2,225,000 ( fte ) , resulting in a net decrease of $ 214,000 in net interest income . average earning assets include the average balance of securities classified as available for sale , computed based on the average of the historical amortized cost balances without the effects of the fair value adjustment . in addition , annualized amounts are computed utilizing a 30/360 day basis . non-interest income non-interest income increased $ 15,182,000 or 30.9 percent in 2012 compared to 2011. the largest item contributing to the increase was a gross purchase gain of $ 9,124,000 recognized from the purchase of certain assets and assumption of certain liabilities of scb bank . details of this transaction are included within note 2. purchase and assumption of the notes to consolidated financial statements included as item 8 of this annual report on form 10-k. additionally , significant increases were realized in gains on the sale of mortgage loans , earnings on cash surrender value of life insurance and interchange from electronic card transactions of $ 3,210,000 , $ 822,000 , and $ 810,000 respectively . non-interest expenses non-interest expenses increased $ 1,177,000 or 0.9 percent in 2012 compared to 2011. salaries and employee benefits increased by $ 4,663,000. base salaries were down $ 81,000 while commissions and incentives were up $ 2,861,000 over prior year . employees benefits were $ 1,752,000 higher in 2012 than 2011 primarily as a result of employee retirement plans and employee health insurance increases of $ 909,000 and 596,000 respectively . additionally , other expenses were $ 2,050,000 higher than 2011 due primarily to expenses associated with the integration of the shelbyville transaction . the increases in salary and employee benefits and other expenses was offset by year over year declines in other real estate owned and credit-related expenses of $ 2,436,000 , fdic expenses of $ 2,022,000 , and amortization of core deposit intangibles of $ 1,621,000. income tax expense income tax expense in 2012 was $ 15,867,000 on pre-tax income of $ 60,989,000 , or 26.0 percent . for the same period in 2011 , the income tax expense was $ 8,655,000 on pre-tax income of $ 33,907,000. additional details are discussed within the “ income taxes ” section of the management 's discussion and analysis of financial condition and results of operations included as item 7 of this annual report on form 10-k. capital to be categorized as well capitalized , the bank must maintain a minimum total capital to risk-weighted assets , tier i capital to risk-weighted assets and tier i capital to average assets of 10 percent , 6 percent and 5 percent , respectively . the corporation 's regulatory capital exceeded the regulatory “ well capitalized ” standard at december 31 , 2013 . see additional information on the corporation 's and bank 's capital ratios in note 18. regulatory capital , in the notes to consolidated financial statements included as item 8 of this annual report on form 10-k. tier i regulatory capital consists primarily of total stockholders ' equity and subordinated debentures issued to business trusts categorized as qualifying borrowings , less non-qualifying intangible assets and unrealized net securities gains or losses . the corporation 's tier i capital to average assets ratio was 10.20 percent and 11.03 percent at december 31 , 2013 and 2012 , respectively . at december 31 , 2013 , the corporation had a tier i risk-based capital ratio of 11.71 percent and total risk-based capital ratio of 14.54 percent , compared to 14.15 percent and 16.34 percent , respectively , at december 31 , 2012 . regulatory capital guidelines require a tier i risk-based capital ratio of at least 4 percent and a total risk-based capital ratio of at least 8 percent . on september 22 , 2011 , the corporation entered into a securities purchase agreement with the treasury , pursuant to which the corporation issued 90,782.94 shares of the corporation 's senior non-cumulative perpetual preferred stock , series b ( the “ series b preferred stock ” ) , having a liquidation amount per share equal to $ 1,000 , for a total purchase price of $ 90,782,940. the purchase agreement was entered into , and the series b preferred stock was issued , pursuant to the sblf program , a $ 30 billion fund established under the small business jobs act of 2010 , that encourages lending to small businesses by providing capital to qualified community banks with assets of less than $ 10 billion . on january 3 , 2013 , the corporation redeemed 22,695.94 shares of the series b preferred stock held by the treasury at an aggregate redemption price of $ 22,695,940 plus accrued but unpaid dividends . following the redemption , the treasury held 68,087 shares of the series b preferred stock representing a remaining liquidation amount of approximately $ 68 million .
| the details are discussed within note 16. stockholders ' equity of the notes to consolidated financial statements included as item 8 of this annual report on form 10-k. as of december 31 , 2012 , total assets equaled $ 4.3 billion , an increase of $ 131.7 million from december 31 , 2011. loans and investments , the corporation 's primary earning assets , totaled $ 3.8 billion , up slightly from the prior year 's total of $ 3.7 billion . while investments decreased $ 72.0 million , loans and loans held for sale increased $ 193.2 million . the bank acquired $ 93.8 million in loans as a result of the scb transaction . additional details of these changes are included within the “ earning assets ” section of management 's discussion and analysis of financial condition and results of operations included as item 7 of this annual report on form 10-k. the corporation 's allowance for loan losses totaled $ 69.4 million as of year end 2012. the allowance provides 129.9 percent coverage of all non-accrual loans and 2.37 percent of total loans . details of the allowance for loan and lease losses and non-performing loans are discussed within the “ loan quality ” and “ provision/allowance for loan losses ” sections of management 's discussion and analysis of financial condition and results of operations included as item 7 of this annual report on form 10-k. taxes , both current and deferred , decreased in 2012 by $ 5.6 million . this change is primarily driven from decreases in the deferred tax assets associated with the deductibility of the provision for loan losses and pensions and other employee benefits , the utilization of federal tax credit carryforwards , and the increase in the deferred tax liability associated with the gain on the fdic modified whole bank transaction . details of the change is discussed within the “ income tax ” section of management 's discussion and analysis of financial
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estimated lease costs for the renewed leases in 2018 averaged $ 3.46 per square foot per year for a weighted average lease term of 4.7 years , estimated lease costs for the renewed leases in 2017 averaged $ 2.16 per square foot per year for a weighted average lease term of 7.2 years and estimated lease costs for the renewed leases in 2016 averaged $ 4.04 per square foot per year for a weighted average lease term of 5.1 years . the company believes that vacancy rates at its commercial properties have begun to bottom by the end of 2018 as the majority of the known move-outs at its waterfront portfolio have already occurred , and commercial rental rates may increase in some of its markets in 2019. as of december 31 , 2018 , commercial leases which comprise approximately 9.9 and 5.6 percent of the company 's annualized base rent are scheduled to expire during the years ended december 31 , 2019 and 2020 , respectively . with the positive rental rate results the company has achieved in most of its markets recently , the company believes that rental rates on new leases will generally be , on average , not lower than rates currently being paid . if these recent leasing results do not prove to be sustaining in 2019 , the company may receive less revenue from the same space . during 2017 , moody 's downgraded its investment grade rating on the company 's senior unsecured debt to sub-investment grade and during 2018 , standard & poor 's lowered its investment grade rating on the company 's senior unsecured debt to sub-investment grade . amongst other things , such downgrade would have increased the interest rate on outstanding borrowings under the company 's current $ 600 million unsecured revolving credit facility ( which was amended in january 2017 ) from the london inter-bank offered rate ( libor ) plus 120 basis points to libor plus 155 basis points and the annual credit facility fee it pays would have increased from 25 to 30 basis points . additionally , any such downgrade would have increased the current interest rate on each of the company 's $ 350 million unsecured term loan and $ 325 million unsecured term loan from libor plus 140 basis points to libor plus 185 points . effective march 6 , 2018 , the company elected to utilize the leverage grid pricing available under the unsecured revolving credit facility and both unsecured term loans . this resulted in an interest rate of libor plus 130 basis points for the company 's unsecured revolving credit facility and 25 basis points for the facility fee and libor plus 155 basis points for both unsecured term loans at the company 's current total leverage ratio . in addition , a downgrade in its ratings to sub-investment grade would result in higher interest rates on senior unsecured debt that the company may issue in the future as compared to issuing such debt with investment grade ratings . the remaining portion of this management 's discussion and analysis of financial condition and results of operations should help the reader understand our : · recent transactions ; · critical accounting policies and estimates ; · results of operations for the year ended december 31 , 2018 as compared to the year ended december 31 , 2017 ; · results of operations for the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 ; and · liquidity and capital resources . recent transactions acquisitions : on february 6 , 2019 , the company completed the acquisition of a 271,988 square foot office property located in iselin , new jersey , for a purchase price of $ 61.5 million , which was funded using funds available with the company 's qualified intermediary and borrowings under the company 's unsecured revolving credit facility . on january 25 , 2019 , the company signed an agreement to acquire a 377-unit multi-family rental property located in jersey city , new jersey for approximately $ 264 million , subject to certain conditions . the acquisition is expected to be completed in the second quarter 2019 . 40 properties commencing initial operations : the following properties commenced initial operations during the year ended december 31 , 2018 ( dollars in thousands ) : replace_table_token_15_th ( a ) development costs as of december 31 , 2018 included approximately $ 4.4 in land costs . as of december 31 , 2018 , the company anticipates additional costs of approximately $ 1.1 million , which will be primarily funded from a construction loan . ( b ) development costs as of december 31 , 2018 included approximately $ 0.9 in land costs . ( c ) as of december 31 , 2018 , the company anticipates additional costs of approximately $ 0.7 million , which will be funded by the company . ( d ) as of december 31 , 2018 , the company anticipates additional costs of $ 1.2 million which will be funded by the company . ( e ) as of december 31 , 2018 , the company anticipates additional costs of $ 20.1 million which will be funded from a construction loan . consolidations : on august 2 , 2018 , the company , which held a 24.27 percent subordinated interest in the unconsolidated joint venture marbella tower urban renewal associates llc , a 412-unit multi-family operating property located in jersey city , new jersey , acquired its equity partner 's 50 percent interest for $ 65.6 million in cash . the property was subject to a mortgage loan that had a principal balance of $ 95 million . the cash portion of the acquisition was funded primarily through borrowings under the company 's unsecured revolving credit facility . story_separator_special_tag concurrently with the closing , the joint venture repaid the $ 95 million mortgage loan in full and obtained a new loan collateralized by the property in the amount of $ 131 million , which bears interest at 4.07 percent and matures in august 2026. the venture distributed $ 37.4 million of the loan proceeds , of which the company 's share was $ 30.4 million . as a result of the acquisition , the company increased its ownership of the property from a 24.27 percent subordinated interest to a 74.27 percent controlling interest . in accordance with asc 810 , consolidation , the company evaluated the acquisition and determined that the entity meets the criteria of a vie . as such , the company consolidated the asset upon acquisition and accordingly , remeasured its equity interests , as required by the fasb 's consolidation guidance , at fair value ( based upon the income approach using current rates and market cap rates and discount rates ) . as a result , the company recorded a gain on change of control of interests of $ 14.2 million ( a non-cash item ) in the year ended december 31 , 2018 , when the company accounted for the transaction as a vie that is not a business in accordance with asc 810-10-30-4. additional non-cash items included in the acquisition were the company 's carrying value of its interest in the joint venture of $ 14 million and the noncontrolling interest 's fair value of $ 29.8 million . see note 9 : mortgages , loans payable and other obligations . replace_table_token_16_th ( a ) in-place and below market leases are being amortized over a weighted-average term of 9.3 months . ( b ) noncontrolling interest balance reflects distribution of $ 7.0 million of loan proceeds at closing . 41 dispositions/rental property held for sale : the company disposed of the following office properties during the year ended december 31 , 2018 ( dollars in thousands ) : replace_table_token_17_th ( a ) the company recorded a valuation allowance of $ 0.7 million on this property during the year ended december 31 , 2017 . ( b ) the company recorded a valuation allowance of $ 0.6 million on these properties during the year ended december 31 , 2017. the disposition additionally included two land properties . ( c ) the company recorded a valuation allowance of $ 11 million on this property during the year ended december 31 , 2017. prior to closing , the company provided short term financing through a note receivable to an affiliate of the buyers of $ 2.8 million . the note was paid off in the second quarter of 2018 . ( d ) prior to closing , the company provided financing through a note receivable to an affiliate of the buyers of $ 4.0 million . the note was paid off in october 2018 . ( e ) represents the receipt by the company in the second quarter 2018 of variable contingent sales consideration , net of costs , of $ 1.5 million subsequent to disposition of the property sold in january 2017 . ( f ) the net sale proceeds were held by a qualified intermediary , which is noncash and recorded in deferred charges , goodwill and other assets as of december 31 , 2018. see note 5 : deferred charges , goodwill and other assets , net ) . the company disposed of the following developable land holding during the year ended december 31 , 2018 ( dollars in thousands ) : net net gain on disposition sales carrying disposition of date property address location proceeds value developable land 12/31/18 one lake street upper saddle river , new jersey ( a ) $ 46,036 $ 15,097 $ 30,939 totals $ 46,036 $ 15,097 $ 30,939 ( a ) the net sale proceeds were held by a qualified intermediary , which is noncash and recorded in deferred charges , goodwill and other assets as of december 31 , 2018. see note 5 : deferred charges , goodwill and other assets , net . the net carrying value includes $ 3 million of development costs funded at the closing . the company identified as held for sale six office properties totaling approximately 845,000 square feet and a 159 unit multi-family rental property as of december 31 , 2018. the properties are located in fort lee , newark , paramus , bridgewater , morris plains and rahway , new jersey . the total estimated sales proceeds , net of expected selling costs , from the sales are expected to be approximately $ 124 million . the company determined that the carrying value of four of the properties was not expected to be recovered from estimated net sales proceeds and accordingly recognized an unrealized loss allowance of $ 20.1 million during the year ended december 31 , 2018. in january 2019 , the company completed the disposition of three of these properties for sales proceeds of approximately $ 54.5 million . land impairments : the company owns two separate developable land parcels in conshohocken and bala cynwyd , pennsylvania , that were being considered for development into multi-family rental properties . during the fourth quarter 2018 , the company made the decision to pursue selling the land parcels rather than developing them . due to the shortening of the expected periods of ownership , the company determined that it was necessary to reduce the carrying values of the land parcels to their estimated fair values ( ascertained by broker opinions of value obtained during the marketing process ) and recorded total land impairments charges of $ 24.6 million at december 31 , 2018 unconsolidated joint venture activity : on january 31 , 2019 , the company , which held a 24.27 percent subordinated interest in the unconsolidated joint venture , marbella tower urban renewal associates south llc ( marbella ii ) , a 311-unit multi-family operating property located in jersey city , new jersey , acquired its equity partner 's 50 percent interest for $ 77.5 million in cash .
| base rents for the same-store properties decreased $ 20.9 million , or 4.2 percent , for 2018 as compared to 2017 , due primarily to a 650 basis point decrease in the average same store percent leased of the office portfolio from 89.4 percent in 2017 to 82.9 percent in 2018 , primarily from the company 's office properties located in jersey city , new jersey . escalations and recoveries . escalations and recoveries from tenants for the same-store properties decreased $ 4.4 million , or 7.5 percent , for 2018 over 2017 , due primarily to lower real estate tax expenses , as well as lower percent leased , in 2018 at its office properties in jersey city , new jersey , which resulted in lower recoveries in 2018 as compared to 2017. parking income . parking income for the same-store properties increased $ 0.9 million , or 4.5 percent for 2018 as compared to 2017 due primarily to an overall greater amount of parking usage in 2018. other income . other income for the same-store properties decreased $ 2.4 million , or 19.1 percent for 2018 as compared to 2017 due primarily to a decrease in lease breakage fees recognized in 2018 , as compared to 2017. real estate taxes . real estate taxes on the same-store properties decreased $ 6.8 million , or 8.4 percent , for 2018 as compared to 2017 due primarily to an increase in tax appeal proceeds received in 2018 as compared to 2017. real estate taxes , without the effect of net tax appeal proceeds , decreased $ 2.5 million , or 2.9 percent , for 2018 as compared to 2017 due primarily to lower tax assessment values for the company 's office properties in jersey city , new jersey in 2018. utilities . utilities for the same-store properties increased $ 1.4 million , or 3.2 percent , for 2018 as compared to 2017 , due primarily to increased electricity rates and usage in 2018 as compared to 2017. operating services . operating services for the same-store properties increased $ 1.1 million , or
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for loans that are classified as impaired , an allowance is established when the value of the impaired loan is lower than the carrying value of that loan . the specific component also includes an amount for the estimated impairment on commercial and consumer loans modified in a troubled debt restructuring ( tdr ) , whether on accrual or nonaccrual status . in conjunction with the changes in the current economic environment and as required by our formal agreement with the occ , we have revised and updated our allowance for loan losses policy . specifically , since december 31 , 2010 , we have modified our allowance methodology related to the commercial and consumer loan portfolios to use historical loss rates in determining the appropriate level of allowance needed . in addition , we have allocated the unallocated component of the allowance that existed at december 31 , 2010 into the commercial and consumer portfolio segments . while management uses available information to recognize losses on loans , future additions to the allowance may be necessary based on changes in local economic conditions . in addition , regulatory agencies , as an integral part of their examination process , periodically review our allowance for loan losses . such agencies may require us to recognize additions to the allowances based on their judgments about information available to them at the time of their examination . fair valuation of financial instruments we use fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures . additionally , we may be required to record other assets at fair value on a nonrecurring basis . these nonrecurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write-downs of individual assets . further , we include in the notes to the consolidated financial statements information about the extent to which fair value is used to measure assets and liabilities , the valuation methodologies used , and the related impact to income . additionally , for financial instruments not recorded at fair value , we disclose the estimate of their fair value . fair value is defined as the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date . accounting standards establish a three-level hierarchy for disclosure of assets and liabilities recorded at fair value . the classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used for measurement are observable or unobservable . observable inputs reflect market-derived or market-based information obtained from independent sources , while unobservable inputs reflect our estimates about market data . the three levels of inputs that are used to classify fair value measurements are as follows : · level 1 valuation is based upon quoted prices for identical instruments traded in active markets . level 1 instruments generally include securities traded on active exchange markets , such as the new york stock exchange , as well as securities that are traded by dealers or brokers in active over-the-counter markets . instruments we classify as level 1 are instruments that have been priced directly from dealer trading desks and represent actual prices at which such securities have traded within active markets . 39 · level 2 valuation is based upon quoted prices for similar instruments in active markets , quoted prices for identical or similar instruments in markets that are not active , and model-based valuation techniques , such as matrix pricing , for which all significant assumptions are observable in the market . instruments we classify as level 2 include securities that are valued based on pricing models that use relevant observable information generated by transactions that have occurred in the market place that involve similar securities . · level 3 valuation is generated from model-based techniques that use significant assumptions not observable in the market . these unobservable assumptions reflect the company 's estimates of assumptions market participants would use in pricing the asset or liability . valuation techniques include use of option pricing models , discounted cash flow models , and similar techniques . we attempt to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements . when available , we use quoted market prices to measure fair value . specifically , we use independent pricing services to obtain fair values based on quoted prices . quoted prices are subject to our internal price verification procedures . if market prices are not available , fair value measurement is based upon models that use primarily market-based or independently-sourced market parameters . most of our financial instruments use either of the foregoing methodologies , collectively level 1 and level 2 measurements , to determine fair value adjustments recorded to our financial statements . however , in certain cases , when market observable inputs for model-based valuation techniques may not be readily available , we are required to make judgments about assumptions market participants would use in estimating the fair value of the financial instrument . the degree of management judgment involved in determining the fair value of an instrument is dependent upon the availability of quoted market prices or observable market parameters . for instruments that trade actively and have quoted market prices or observable market parameters , there is minimal subjectivity involved in measuring fair value . when observable market prices and parameters are not fully available , management 's judgment is necessary to estimate fair value . in addition , changes in market conditions may reduce the availability of quoted prices or observable data . for example , reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable . when significant adjustments are required to available observable inputs , it may be appropriate to utilize an estimate based primarily on unobservable inputs . story_separator_special_tag when an active market for a security does not exist , the use of management estimates that incorporate current market participant expectations of future cash flows , and include appropriate risk premiums , is acceptable . significant judgment may be required to determine whether certain assets measured at fair value are included in level 2 or level 3. if fair value measurement is based upon recent observable market activity of such assets or comparable assets ( other than forced or distressed transactions ) that occur in sufficient volume and do not require significant adjustment using unobservable inputs , those assets are classified as level 2. if not , they are classified as level 3. making this assessment requires significant judgment . other-than-temporary impairment analysis our debt securities are classified as securities available for sale and reported at fair value . unrealized gains and losses , after applicable taxes , are reported in shareholders ' equity . we conduct other-than-temporary impairment ( otti ) analysis on a quarterly basis or more often if a potential loss-triggering event occurs . the initial indicator of otti for debt securities is a decline in market value below the amount recorded for an investment and the severity and duration of the decline . for a debt security for which there has been a decline in the fair value below amortized cost basis , we recognize otti if we ( 1 ) have the intent to sell the security , ( 2 ) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis , or ( 3 ) we do not expect to recover the entire amortized cost basis of the security . other real estate owned real estate acquired through foreclosure is initially recorded at the lower of cost or estimated fair value . subsequent to the date of acquisition , it is carried at the lower of cost or fair value , adjusted for net selling costs . fair values of real estate owned are reviewed regularly and writedowns are recorded when it is determined that 40 the carrying value of real estate exceeds the fair value less estimated costs to sell . costs relating to the development and improvement of such property are capitalized , whereas those costs relating to holding the property are expensed . income taxes the financial statements have been prepared on the accrual basis . when income and expenses are recognized in different periods for financial reporting purposes versus for the purposes of computing income taxes currently payable , deferred taxes are provided on such temporary differences . deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been recognized in the consolidated financial statements or tax returns . deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled . the company believes that its income tax filing positions taken or expected to be taken on its tax returns will more likely than not be sustained upon audit by the taxing authorities and does not anticipate any adjustments that will result in a material adverse impact on the company 's financial condition , results of operations , or cash flow . therefore , no reserves for uncertain income tax positions have been recorded pursuant to fin 48. overview we were incorporated in march 1999 to organize and serve as the holding company for greenville first bank , n.a . on july 2 , 2007 , we changed the name of our company and bank to southern first bancshares , inc. and southern first bank , n.a. , respectively . our primary reason for the name change was related to our expansion into the columbia , south carolina market . since we opened our bank in january 2000 , we have experienced consistent growth in total assets , loans , deposits , and shareholders ' equity . our business model continues to be client-focused , utilizing relationship teams to provide our clients with a specific banker contact and support team responsible for all of their banking needs . the purpose of this structure is to provide a consistent and superior level of professional service , and we believe it provides us with a distinct competitive advantage . we consider exceptional client service to be a critical part of our culture , which we refer to as `` clientfirst . '' like most community banks , we derive the majority of our income from interest received on our loans and investments . our primary source of funds for making these loans and investments is our deposits , on which we pay interest . consequently , one of the key measures of our success is our amount of net interest income , or the difference between the income on our interest-earning assets , such as loans and investments , and the expense on our interest-bearing liabilities , such as deposits and borrowings . another key measure is the difference between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities , which is called our net interest spread . there are risks inherent in all loans , so we maintain an allowance for loan losses to absorb probable losses on existing loans that may become uncollectible . we maintain this allowance by charging a provision for loan losses against our operating earnings for each period . we have included a detailed discussion of this process , as well as several tables describing our allowance for loan losses . in addition to earning interest on our loans and investments , we earn income through fees and other charges to our clients . we have also included a discussion of the various components of this noninterest income , as well as of our noninterest expense .
| while we do not expect our loan yields to change significantly in the near future , we do anticipate our future deposit costs to continue to decrease as we have approximately $ 105.7 million of retail cds scheduled to mature and reprice in the next six months combined with maturities of $ 30.8 million of wholesale cds which we do not anticipate replacing . the increase in the 2010 net interest margin over 2009 related to both the increased level of interest-earning assets and rate reduction on our interest-bearing liabilities . interest income for the years ended december 31 , 2011 , 2010 , and 2009 was $ 35.1 million , $ 35.5 million , and $ 36.2 million , respectively . during 2011 , 93.6 % of our interest income related to interest on loans , 6.1 % related to interest on investments , and 0.3 % from interest on federal funds sold . comparatively , during 2010 and 2009 , loan interest income comprised 91.7 % and 87.7 % of interest income , respectively , investment interest comprised 8.1 % and 12.2 % , respectively , and interest on federal funds sold equated to 0.2 % and 0.1 % , respectively , of interest income . the high percentage of interest income from loans relates to our strategy to maintain a significant portion of our assets in higher earning loans compared to lower yielding investments . average loans represented 81.8 % , 82.9 % and 83.4 % of average interest-earning assets for the years ended december 31 , 2011 , 2010 and 2009 , respectively . included in interest income on loans for the years ended december 31 , 2011 , 2010 and 2009 was $ 458,000 , $ 452,000 and $ 599,000 , respectively , related to the net amortization of loan fees and capitalized loan origination costs . interest expense for the years ended december 31 , 2011 , 2010 , and 2009 , was $ 11.9 million , $ 15.3 million , and $ 16.9 million , respectively . the 22.6 % decrease in interest expense during 2011 relates
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our utilization ratio decreased by 1 % for the fiscal year 2014 as compared with the same period in 2013. in view of the trend of a decrease in the bromine concentration of the brine water being extracted at our production facilities , and in order to reduce the leakage rate and attempt to recover the annual production capacity of bromine and crude salt to a higher level in the future , we are carrying out large scale enhancements to replace all the eroded protective shells within a four year timeframe , which commenced in the second quarter of 2011. the company carried out third phase enhancement projects at a cost of approximately $ 6.4 million for part of its transmission channels and ducts in factories no . 10 and no . 11. the company expects to carry out enhancement projects for its remaining transmission channels and ducts in factories no . 10 to no . 11 in 2015 , which will cost approximately $ 10 million . the company expects such enhancement expenditures to be funded by the company 's cash on hand . the company also estimated that the amount of ordinary repair and maintenance expense will be approximately $ 1.0 million in 2015. bromine segment for the fiscal year 2014 , the cost of net revenue for our bromine segment was $ 43,356,606 , a decrease of $ 1,185,629 ( or 4 % ) compared to $ 45,172,235 for the fiscal year 2013. the most significant components of our cost of net revenue for the bromine segment were cost of raw materials and finished goods consumed of $ 17,390,927 ( or 40 % ) , depreciation and amortization of manufacturing plant and machinery of $ 17,362,450 ( or 40 % ) and electricity of $ 3,420,683 ( or 8 % ) for fiscal year 2014. the most significant components of our cost of net revenue for the bromine segment were cost of raw materials and finished goods consumed of $ 20,759,875 ( or 46 % ) , depreciation and amortization of manufacturing plant and machinery of $ 16,472,169 ( or 37 % ) and electricity of $ 3,225,340 ( or 7 % ) for fiscal year 2013 , a similar cost structure as compared with the same in 2014. the decrease in net cost of net revenue was attributable mainly to the decrease in purchase price of raw material , which was partially offset by the increase in depreciation and amortization of manufacturing plant and machinery due to the enhancement projects carried out for our extraction wells and transmission channels and ducts which commenced in august 2014 and completed in september 2014. the depreciation of these enhancement projects commenced in october 2014. replace_table_token_20_th 39 crude salt segment for the fiscal year 2014 , the cost of net revenue for our crude salt segment was $ 9,124,596 , representing a decrease of $ 403,314 , or 4 % , over the same period in 2013. the decrease in cost was mainly due to the decrease in the allocation of common costs shared between crude salt segment and bromine segment , which decreased from 11.7 % for the fourth quarter of 2013 to 9.2 % for the same period in 2014 , which in turn resulted in a decrease in the depreciation and amortization of manufacturing plant and machinery allocated to crude salt segment . we distribute the total costs shared among bromine and crude salt by reference to the average selling price and production volume of respective segment . the significant costs were depreciation and amortization of $ 6,352,513 ( or 70 % ) , resource tax calculated based on the crude salt sold of $ 1,039,095 ( or 12 % ) and electricity of $ 619,572 ( or 7 % ) for the fiscal year 2014. the significant costs were depreciation and amortization of $ 6,637,155 ( or 70 % ) , resource tax calculated based on the crude salt sold of $ 1,102,260 ( or 12 % ) and electricity of $ 699,333 ( or 7 % ) for the fiscal year 2013. the table below represents the major production cost components of crude salt per ton for respective periods : replace_table_token_21_th chemical products segment for the fiscal year 2014 , the cost of net revenue for our chemical products segment was $ 29,256,408 , representing a decrease of $ 252,583 , or 1 % , over the same period in 2013.the significant costs were costs of raw material and finished goods consumed of $ 24,713,251 ( or 84 % ) and $ 25,395,868 ( or 86 % ) and depreciation and amortization of manufacturing plant and machinery of $ 2,839,734 ( or 10 % ) and $ 2,819,911 ( or 10 % ) for each of the fiscal years 2014 and 2013 , respectively . as the components of our cost of net revenue are fixed levels of depreciation and amortization of our manufacturing plant and machinery , the rate of decrease for the cost of net revenue for our chemical products segment was less than that of net revenue . gross profit . gross profit was $ 31,922,721 , or 28 % , of net revenue for fiscal year 2014 as compared to $ 34,182,647 , or 29 % , of net revenue for fiscal year 2013. the decrease in gross profit percentage was primarily attributable to a drop in the margin percentage in our crude salt segment , which was offset by an increase in the margin percentage of the chemical products segment . replace_table_token_22_th 40 bromine segment for the fiscal year 2014 , the gross profit margin for our bromine segment was 25 % , as the same to 25 % for the fiscal year 2013. as mentioned in the net revenue discussion above , due to the prc government 's macro-economic tightening policy to slow down the economy , our selling price in the fiscal year2014 was affected . story_separator_special_tag we cut the average selling price of bromine from $ 3,002 per tonne for the fiscal year2013 to $ 2,886 per tonne for the same period in 2014 , a decrease of 4 % , in order to compete with other bromine manufacturers . since the purchase price of raw material also decreased , the gross profit margin for our bromine remained stable . we expect that the average selling price and gross profit margin of bromine will remain at current levels towards the first quarter of 2015 should the prc government 's macro-economic tightening policy remain in place . crude salt segment for the fiscal year 2014 , the gross profit margin for our crude salt segment was 15 % as compared to 31 % for the same period in 2013. this 16 % is mainly attributable to the selling price decreased from $ 40.45 per tonne for the fiscal year 2013 to $ 31.43 per tonne for the same period in 2014 , a decrease of 22 % , due to the macro-economic tightening policy imposed by the prc government , which has affected our customers ' industries chemical products segment the gross profit margin for our chemical products segment for the fiscal year 2014 was 35 % as compared to 33 % for the same period in 2013 , an increase of 2 % . this increase in gross profit margin was mainly a result of the increase in the sales volume for our oil and gas exploration additives . as sales of oil and gas exploration additives contributed to more than 57 % of our total chemical products segment 's net revenue , the increase in demand increased the gross profit margin of our chemical products segment . research and development costs the total research and development costs incurred for the fiscal years 2014 and 2013 were $ 134,292 and $ 140,445 , respectively , a decrease of 33 % . research and development costs for the fiscal year 2014 and 2013 represented raw materials used by syci for testing the manufacturing routine . exploration costs to explore natural brine resources in sichuan province , schc incurred exploration costs in the amount of $ 7,034,153 for the fiscal year 2011. these costs consisted of the drilling of exploratory wells and associated facilities in order to confirm and measure the brine water resources in the province . we charged the exploration costs to the income statement as incurred . we completed the drilling of the first exploratory well in december 2011 and announced in mid-january 2012 that we have discovered underground brine water resources in daying county , and provided preliminary concentration results after the testing by a third-party independent testing expert . according to the third-party independent testing report , the bromine concentration in the underground brine water resources is 1.53 grams per liter , which is approximately six to seven times higher than the average bromine concentration from its brine water resources at our bromine factories in shouguang city . in september 2014 , the company started deeper drilling exploration for new resource under its existing well and performed an exploration analysis on the resources from different levels . the company incurred a total of $ 488,880 in exploration costs during 2014. on january 30 , 2015 , the company announced that it found natural gas resources under its bromine well in the sichuan area . the company is optimistic about this opportunity and will hire a third party to conduct a survey of the geological structure and complexity analysis and the economics of the natural gas under this well . the company is in the final stage of discussion with the expert company to finalize the service agreement . write-off/impairment on property , plant and equipment . write-off on property , plant and equipment for the fiscal year 2014 and 2013 were $ 673,705 and $ 27,964. write-off on property , plant and equipment of $ 673,705 for the fiscal year 2014 represented the write-off of certain protective shells to transmission pipelines and ducts replaced during the third phase enhancement project that started in august 2014. general and administrative expenses . general and administrative expenses were $ 7,161,047 for the fiscal year 2014 , a decrease of $ 1,402,235 ( or 16 % ) as compared to $ 8,563,282 for the same period in 2013. the decrease was primarily due to ( i ) the unrealized exchange loss in relation to the translation difference of inter-company balances in usd and rmb for the fiscal year 2013 in the amount of $ 774,405 , as compared to the unrealized exchange gain for the same period in 2014 in the amount of $ 92,412 ( ii ) a non-cash expense related to stock options granted to employees decreased from $ 544,900 for the fiscal year 2013 to $ 346,100 for the same period of 2014 ( iii ) schc incurred in the amount of $ 382,814 of depreciation of property , plant and equipment for factory no . 3 , whose operations were temporarily suspended due to relocation in fiscal year 2013 , offset by an amount of $ 196,260 of depreciation of property , plant and equipment for factory no . 10 and 11 , whose operations were temporarily suspended in the third quarter of fiscal year 2014 due to enhancement projects carried out for our transmission channels and ducts in fiscal year 2014 compared to previous year in which the depreciation was classified as cost of goods sold . gain on relocation of factory . gain on relocation of factory was $ 2,501,336 for the fiscal year 2013. in late september 2013 , the transportation bureau of dongying city and other local government agencies requested the requisition of land where the original factory no . 3 was located for railway construction . 41 other operating income .
| the average selling price remained relatively stable at around $ 2,900 per tonne from the third quarter of 2013 to the fourth quarter of 2014. we expect the average selling price of bromine to remain at current levels through the first quarter of 2015 should the prc government 's macro-economic tightening policy remain in place . the table below shows the changes in the average selling price and changes in the sales volume of bromine for the fiscal year 2014 from the same period in 2013. fiscal year decrease in net revenue of bromine as a result of : 2014 vs. 2013 decrease in average selling price $ ( 2,326,721 ) decrease in sales volume $ ( 212,341 ) total effect on net revenue of bromine $ ( 2,539,062 ) crude salt segment the decrease in net revenue from our crude salt segment was due to the decrease in the selling price of crude salt . the average selling price of crude salt decreased from $ 40.45 per tonne for the fiscal year 2013 to $ 31.43 per tonne for the same period in 2014 , a decrease of 22 % . the decrease in the selling price was mainly due to the macro-economic tightening policy imposed by the prc government to slow down the economy , which has affected our customers ' industries . we noted a downward trend in the average selling price of crude salt since the fourth quarter of 2013. the average selling price decreased 24 % from the fourth quarter of 2013 to the fourth quarter of 2014. we expect the average selling price of crude salt to remain at current levels through the first quarter of 2015. the table below shows the changes in the average selling price and changes in the sales volume of crude salt for the fiscal year 2014 from the same period in 2013. fiscal year increase/ ( decrease ) in net revenue of crude salt as a result of : 2014 vs. 2013 decrease in average selling price $ ( 3,080,434 ) increase in sales volume $ 42,532 total effect on net revenue of crude salt $ ( 3,037,902 )
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due to an improvement in the aging of our receivables and the resolution of certain customer bankruptcies , we were able to reduce our bad debt allowance in fiscal year 2012. our policy is to maintain reserve balances for bankruptcies until the bankruptcies are actually settled . inventories . inventories are stated at the lower of average cost , including any applicable duty and freight charges , or market . we account for estimated obsolescence or unmarketable inventory equal to the difference between the average cost of inventory and the estimated market value based upon assumptions about future demand , market conditions and available liquidation channels . if actual future demand or market conditions are less favorable than those projected by management , or if liquidation channels are not readily available , additional inventory valuation reductions may be required . we assess our off-price sales on an ongoing basis and update our estimates accordingly . revenue from sales of our products that are subject to inventory consignment agreements is recognized when title and risk of loss transfers , delivery has occurred , the price to the buyer is determinable and collectability is reasonably assured . inventory held at consignment locations is included in our finished goods inventory . long-lived asset impairment . we test for asset impairment of property , plant and equipment and other long-lived assets whenever events or conditions indicate that the carrying value of an asset might not be recoverable based on expected undiscounted cash flows related to the asset . we apply accounting standards codification ( `` asc '' ) 360 , property , plant and equipment ( `` asc 360 '' ) , in order to determine whether or not an asset is impaired . in evaluating long-lived assets for recoverability , we use our best estimate of future cash flows expected to result from the use of the asset and its eventual disposition . when undiscounted cash flows estimated to be generated through the operations of our company-owned retail stores are less than the carrying value of the underlying assets , impairment losses are recorded in selling and distribution expenses . in addition , impairment losses resulting from 46 property , plant and equipment in our corporate costs area are recorded in general and administrative expenses . should actual results or market conditions differ from those anticipated , additional losses may be recorded . we recorded impairment losses of $ 1.2 million , $ 1.0 million and $ 5.6 million in fiscal years 2012 , 2011 and 2010 , respectively . impairment of goodwill and trade names . we evaluate goodwill for impairment annually as of the end of the fiscal year by comparing the fair value of the reporting unit to its recorded value . additionally , if events or conditions were to indicate the carrying value of a reporting unit may not be recoverable , we would evaluate goodwill for impairment at that time . we have three reporting units for which we evaluate goodwill for impairment , north america wholesale , europe wholesale and asia pacific wholesale . the fair value of each reporting unit is estimated using market comparable information . if the estimated fair value of a reporting unit exceeds its carrying value , no impairment charge is recorded . as of december 29 , 2012 , the fair value of each of these reporting units substantially exceeded its carrying value . judgments and assumptions are inherent in our estimate of future cash flows used to determine the estimate of the reporting unit 's fair value . the most significant assumptions associated with the fair value calculations include net sales growth rates and discount rates . if the actual future sales results do not meet the assumed growth rates , future impairments of goodwill may be incurred . we evaluate trade names by comparing the fair value of the asset to its recorded value annually as of the end of the fiscal year and whenever events or conditions indicate that the carrying value of the trade name may not be recoverable . the fair value of the asset is estimated using discounted cash flow methodologies . the michele trade name represented approximately 22 % and 98 % of our total trade name balances at the end of fiscal years 2012 and 2011 , respectively . the skagen trade name represented approximately 77 % of our total trade name balance at the end of fiscal year 2012. we performed the required annual impairment test and recorded no impairment charges in fiscal years 2012 and 2011. we recorded impairment charges of $ 1.8 million in fiscal year 2010 related to the zodiac and oyzterbay trade names . as of december 29 , 2012 , the fair values of the michele and skagen trade names exceeded their carrying values by approximately 40 % and 24 % , respectively . due to the inherent uncertainties involved in making the estimates and assumptions used in the fair value analysis , actual results may differ which could alter the fair value of the trade names and possibly cause impairment charges to occur in future periods . income taxes . we record valuation allowances against our deferred tax assets , when necessary , in accordance with asc 740 , income taxes ( `` asc 740 '' ) . realization of deferred tax assets ( such as net operating loss carry-forwards ) is dependent on future taxable earnings and is therefore uncertain . at least quarterly , we assess the likelihood that our deferred tax asset balance will be recovered from future taxable income . to the extent we believe that recovery is not likely , we establish a valuation allowance against our deferred tax asset , increasing our income tax expense in the period such determination is made . in addition , we have not recorded u.s. income tax expense for foreign earnings that we have determined to be indefinitely reinvested outside the u.s .. on an interim basis , we estimate what our effective tax rate will be for the full fiscal year . story_separator_special_tag the estimated annual effective tax rate is then applied to the year-to-date pre-tax income excluding unusual or infrequently occurring items , to determine the year-to-date tax expense . the income tax effects of infrequent or unusual items are recognized in the interim period in which they occur . as the fiscal year progresses , we continually refine our estimate based upon actual events and earnings by jurisdiction during the year . this continual estimation process periodically results in a change to our expected effective tax rate for the fiscal year . when this occurs , we adjust the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision equals the expected annual rate excluding the impact of infrequent or unusual items . 47 our continuing practice is to recognize interest and penalties related to income tax matters in income tax expense . as required under applicable accounting rules , we accrue an amount for our estimate of additional income tax liability which we believe we are more likely than not to incur as a result of the ultimate resolution of tax audits ( `` uncertain tax positions '' ) . we review and update the estimates used in the accrual for uncertain tax positions as more definitive information becomes available from taxing authorities , upon completion of tax audits , upon expiration of statutes of limitation , or upon occurrence of other events . the results of operations and financial position for future periods could be impacted by changes in assumptions or resolutions of tax audits . warranty costs . our fossil watch products sold in the u.s. are covered by a limited warranty against defects in materials or workmanship for a period of 11 years from the date of purchase . relic watch products sold in the u.s. are covered by a comparable 12 year limited warranty , while all other watch brands sold in the u.s. are covered by a comparable two year limited warranty . skagen branded watches are covered by a lifetime warranty against defects due to faulty material or workmanship , subject to normal conditions of use . generally , all of our watch products sold in canada , europe and asia are covered by a comparable two year limited warranty . we determine our warranty liability using historical warranty repair experience . as changes occur in sales volumes and warranty experience , the warranty accrual is adjusted as necessary . the year-end warranty liability for fiscal years 2012 , 2011 and 2010 was $ 13.4 million , $ 11.0 million and $ 8.5 million , respectively . hedge accounting . we operate in foreign countries , which exposes us to market risk associated with foreign currency exchange rate fluctuations . we have entered into certain foreign currency forward contracts ( `` forward contracts '' ) to hedge the risk of foreign currency rate fluctuations . we have elected to apply the hedge accounting rules as required by asc 815 , derivatives and hedging , for these hedges . our objective is to hedge the variability in forecasted cash flows due to the foreign currency risks primarily associated with certain anticipated inventory purchases . changes in the fair value of forward contracts designated as cash flow hedges are recorded as a component of accumulated other comprehensive income within stockholders ' equity , and are recognized in other income ( expense ) -net in the period which approximates the time the hedged inventory is sold . litigation reserves . estimated amounts for claims that are probable and can be reasonably estimated are recorded as liabilities in our consolidated balance sheet . the likelihood of a material change in these estimated reserves would be dependent on new claims that may arise , changes in the circumstances used to estimate amounts for prior period claims and favorable or unfavorable final settlements of prior period claims . as additional information becomes available , we assess the potential liability related to new claims and existing claims and revise estimates as appropriate . as new claims arise or circumstances change relative to prior claim assessments , revisions in estimates of the potential liability could materially impact our consolidated results of operations and financial position . stock-based compensation . we account for stock-based compensation in accordance with the provisions of asc 718 , compensationstock compensation ( `` asc 718 '' ) . we utilize the black-scholes model to determine the fair value of stock options and stock appreciation rights on the date of grant . the model requires us to make assumptions concerning ( i ) the length of time employees will retain their vested stock options before exercising them ( `` expected term '' ) , ( ii ) the volatility of our common stock price over the expected term , and ( iii ) the number of stock options that will be forfeited . changes in these assumptions can materially affect the estimate of fair value of stock-based compensation and , consequently , the related expense amounts recognized on our consolidated statements of comprehensive income . recently issued accounting standards in july 2012 , the financial accounting standards board ( `` fasb '' ) issued accounting standards update ( `` asu '' ) 2012-02. the amendments in this update permit an entity to make a qualitative 48 assessment to determine if it is more likely than not that an indefinite-lived intangible asset other than goodwill is impaired . if an entity concludes that it is more likely than not that the fair value of an indefinite-lived intangible asset other than goodwill is less than its carrying amount , it is required to perform the quantitative impairment test for that asset . this asu aligns the guidance of impairment testing for indefinite-lived intangible assets other than goodwill with that in asu 2011-08 , intangiblesgoodwill and other ( topic 350 ) : testing goodwill for impairment ( `` asu 2011-08 '' ) .
| our leather category sales increased 4.2 % , or $ 18.2 million , primarily due to square footage growth in our direct to consumer segment . sales gains from our watch and leather businesses were partially offset by a 32.2 % , or $ 15.2 million , decrease in sunglass sales , and a 1.2 % , or $ 2.2 million , decrease in our jewelry business . sunglass and jewelry sales were negatively impacted throughout the year as a result of repositioning and market changes impacting fossil branded products in these categories . global jewelry sales benefitted from the continued roll-out of the michael kors jewelry line which launched in fiscal year 2011. we believe our diverse global distribution network , including owned distribution in 21 countries , combined with our design and marketing capabilities , will allow us to continue to take shelf space from lesser known local and regional brands as we continue to increase brand awareness through the growth of our retail stores and introduction of new websites in many of the countries in which we operate . we also believe that investments we have made in certain emerging markets will allow us to experience higher levels of growth in our international wholesale segments in comparison to our north america wholesale segment . north america wholesale net sales . net sales in the north america wholesale segment increased 12.2 % , or $ 118.2 million , during fiscal year 2012. this sales growth was primarily attributable to a 17.7 % , or $ 127.2 million , increase in watch sales , and $ 37.5 million of sales related to skagen branded products . sales from our jewelry business also favorably impacted fiscal year 2012 , increasing 36.1 % , or $ 10.1 million , primarily a result of the continued roll-out of the michael kors jewelry line launched in the last half of fiscal year 2011. these increases were partially offset by sales volume declines in our leathers products of 4.8 % , or
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as part of this deterioration , there was substantial uncertainty in the capital markets and access to financing was reduced . due to these conditions , our customers reduced or curtailed their drilling programs , which resulted in a decrease in demand for our services , as evidenced by the decline in our monthly average number of rigs operating from a high of 283 in october 2008 to a low of 60 in june 2009. our monthly average number of rigs operating has subsequently increased from the mid-year low of 60 in 2009 to 233 in december 2011 and our profitability has improved . we are also highly impacted by operational risks , competition , the availability of excess equipment , labor issues and various other factors that could materially adversely affect our business , financial condition , cash flows and results of operations . please see risk factors in item 1a of this report . critical accounting policies in addition to established accounting policies , our consolidated financial statements are impacted by certain estimates and assumptions made by management . the following is a discussion of our critical accounting policies pertaining to property and equipment , goodwill , revenue recognition , the use of estimates and oil and natural gas properties , . property and equipment property and equipment , including betterments which extend the useful life of the asset , are stated at cost . maintenance and repairs are charged to expense when incurred . we provide for the depreciation of our property and equipment using the straight-line method over the estimated useful lives . our method of depreciation does not change when equipment becomes idle ; we continue to depreciate idled equipment on a straight-line basis . no provision for salvage value is considered in determining depreciation of our property and equipment . we review our long-lived assets , including property and equipment , for impairment whenever events or changes in circumstances ( triggering events ) indicate that the carrying values of certain assets may not be recovered over their estimated remaining useful lives . in connection with this review , assets are grouped at the lowest level at which identifiable cash flows are largely independent of other asset groupings . the cyclical nature of our industry has resulted in fluctuations in rig utilization over periods of time . management believes that the contract drilling industry will continue to be cyclical and rig utilization will continue to fluctuate . based on management 's expectations of future trends , we estimate future cash flows over the life of the respective assets or asset groupings in our assessment of impairment . these estimates of cash flows are based on historical cyclical trends in the industry as well as management 's expectations regarding the continuation of these trends in the future . provisions for asset impairment are charged against income when estimated future cash flows , on an undiscounted basis , are less than the asset 's net book value . any provision for impairment is measured based on discounted cash flows . 26 on a periodic basis , we evaluate our fleet of drilling rigs for marketability based on the condition of inactive rigs , expenditures that would be necessary to bring them to working condition and the expected demand for drilling services by rig type ( such as drilling conventional vertical wells versus drilling longer horizontal wells using high capacity rigs ) . in connection with our ongoing planning process , we evaluated our then-current fleet of marketable drilling rigs in 2011 , 2010 and 2009 and identified 53 , four and 23 rigs , during each of those years respectively , that we determined were impaired and would no longer be marketed as rigs based on our assessment of estimated expenditures to bring these rigs into condition to operate in the current environment , as well as our assessment of future demand and the suitability of the identified rigs in light of this expected demand . the components comprising these rigs were evaluated , and those components with continuing utility to our other marketed rigs were transferred to other rigs or to our yards to be used as spare equipment . the fair value of the remaining components of these rigs was estimated to be zero as there was no future cash flow expected and the associated net book value of $ 15.7 million in 2011 , $ 4.2 million in 2010 and $ 10.5 million in 2009 was expensed in our consolidated statements of operations as an impairment charge . in late 2008 , oil and natural gas prices decreased significantly , and we experienced a significant decrease in the number of our rigs operating . a continued decrease in the operating levels in our contract drilling segment through the first half of 2009 was deemed by us to be a triggering event that required us to perform an assessment with respect to impairment of long-lived assets , including property and equipment , in our contract drilling segment in 2009. with respect to these long-lived assets , we estimated future cash flows over the expected life of the long-lived assets , which were comprised primarily of drilling rigs and related equipment ( excluding the rigs which had been removed from our marketable fleet ) , and determined that , on an undiscounted basis , expected cash flows exceeded the carrying value of the long-lived assets at that time . based on this assessment , no further impairment was indicated in 2009. in light of the favorable trends in rig utilization and revenue per operating day experienced by us and our peers in 2010 and 2011 , we concluded that no triggering events occurred in 2010 or 2011 with respect to our contract drilling segment as a whole which would indicate that the carrying amounts of long-lived assets in that segment may not be recoverable ( excluding the rigs which had been removed from our marketable fleet ) . story_separator_special_tag we concluded that no triggering event occurred with respect to our pressure pumping segment in 2011 , 2010 or 2009. impairment considerations related to our oil and natural gas segment are discussed below . goodwill goodwill is considered to have an indefinite useful economic life and is not amortized . we assess impairment of our goodwill annually as of december 31 , or on an interim basis if events or circumstances indicate that the fair value of goodwill may have decreased below its carrying value . goodwill impairment testing is performed at the level of our reporting units . our reporting units have been determined to be the same as our operating segments . we currently have goodwill in our contract drilling and pressure pumping operating segments . in connection with our annual impairment assessment of goodwill as of december 31 , 2010 , we first compared the fair value of the reporting units with their carrying value . in completing this first step of our analysis , we estimated our enterprise value based on our market capitalization as determined by reference to the closing price of our common stock during the fifteen days before and after year end . we allocated this enterprise value to our reporting units and determined that the fair values of our reporting units were in excess of their carrying value . the fair value of our reporting units as of december 31 , 2010 exceeded the carrying value in all cases such that no impairment was indicated . if the carrying value had exceeded the fair value , we would have measured any impairment of goodwill in that reporting unit by allocating the fair value to the identifiable assets and liabilities of the reporting unit based on their respective fair values . any excess unallocated fair value would equal the implied fair value of goodwill , and if that amount was below the carrying value of goodwill , an impairment charge would have been recognized . in september 2011 , the financial accounting standards board ( fasb ) issued an accounting standards update which provides entities with the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount . if , after assessing the totality of events or circumstances , an entity determines it is more likely than not that the fair value of a reporting unit is greater than its carrying amount , then 27 performing the two-step impairment test described above is unnecessary . the provisions of this accounting standards update are effective for goodwill impairment tests performed for fiscal years beginning after december 15 , 2011 , however , early adoption is permitted . we elected to adopt the provisions of the new goodwill impairment accounting standard issued in september 2011 in connection with our annual impairment assessment of goodwill as of december 31 , 2011 and determined based on an assessment of qualitative factors that it was more likely than not that the fair values of our reporting units were greater than their carrying amount and further testing was not necessary . in making our determination , we considered the continued demand experienced during 2011 for our services in the contract drilling and pressure pumping businesses . we also considered the level of commodity prices for crude oil and natural gas , which influence our overall level of business activity in these operating segments . additionally , current year operating results and forecasted operating results for the coming year were also taken into account . our overall market capitalization and the large amount of calculated excess of the fair values of our reporting units over their carrying values and lack of significant changes in the key assumptions from our 2010 quantitative step 1 assessment of goodwill were also considered . we have undertaken extensive efforts in the past several years to upgrade our fleet of equipment and believe that we are well positioned from a competitive standpoint to satisfy demand for high technology drilling of unconventional horizontal wells , which should help mitigate decreases in demand for drilling conventional vertical wells that may result from recent decreases in natural gas prices . in the event that market conditions weaken , we may be required to record an impairment of goodwill in our contract drilling or pressure pumping reporting units in the future , and such impairment could be material . revenue recognition revenues from daywork drilling and pressure pumping activities are recognized as services are performed . we follow the percentage-of-completion method of accounting for footage contract drilling arrangements . under the percentage-of-completion method , management estimates are relied upon in the determination of the total estimated expenses to be incurred drilling the well . due to the nature of turnkey contract drilling arrangements and the risks therein , we follow the completed-contract method of accounting for such arrangements . under this method , revenues and expenses related to a well-in-progress are deferred and recognized in the period the well is completed . provisions for losses on incomplete or in-process wells are made when estimated total expenses are expected to exceed total revenues . we recognize as revenue reimbursements received from third parties for out-of-pocket expenses and account for those out-of-pocket expenses as direct costs . except for two wells drilled under footage contacts in 2009 , all of the wells we drilled in 2011 , 2010 and 2009 were drilled under daywork contracts . use of estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from such estimates .
| capital expenditures were incurred in 2011 and 2010 to build new drilling rigs , to modify and upgrade our drilling rigs and to acquire additional related equipment such as top drives , drill pipe , drill collars , engines , fluid circulating systems , rig hoisting systems and safety enhancement equipment . depreciation expense increased as a result of capital expenditures . depreciation and impairment expense included approximately $ 15.7 million in 2011 and approximately $ 4.2 million in 2010 of impairment charges related to drilling equipment on drilling rigs that were removed from our marketable fleet . we removed 53 rigs from our marketable fleet in 2011 and removed four rigs from our marketable fleet in 2010. replace_table_token_14_th contributing to the increases in revenues , direct operating costs , selling , general and administrative expenses and depreciation and amortization was our acquisition of a pressure pumping business on october 1 , 2010 , which significantly expanded the size of our fleet of pressure pumping equipment and the markets in which we provide pressure pumping services . this acquisition was accounted for as a business combination and the results of operations of the acquired business are included in our pressure pumping segment results from the date of acquisition . the acquired business contributed revenue of $ 456 million and operating income of $ 106 million to our operating results during the year ended december 31 , 2011 compared to revenue of $ 84.7 million and operating income of $ 22.8 million during the year ended december 31 , 2010. our customers have increased their activities in the development of unconventional reservoirs resulting in an increase in larger multi-stage fracturing jobs associated therewith . we have added additional equipment through construction and acquisition to meet this demand and expand our area of operations . as a result , we have experienced an increase in the number of these larger multi-stage fracturing jobs as a proportion of the total fracturing jobs we performed . average revenue per fracturing job increased as a result of this increase in the number of larger multi-stage fracturing jobs in 2011 as compared to 2010 , as well as increased pricing . average revenue per other job increased as
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the properties and improved land parcels were acquired from unrelated third parties using existing cash on hand , net proceeds from dispositions , net proceeds from the issuance of common stock , and proceeds from borrowings on our revolving credit facility . the following table sets forth the industrial properties and improved land parcels we acquired during 2018 : replace_table_token_9_th 1 excludes intangible liabilities and mortgage premiums , if any . the total aggregate investment was approximately $ 227.1 million , including $ 2.9 million in closing costs and acquisition costs . 2 stabilized cap rates are calculated , at the time of acquisition , as annualized cash basis net operating income for the property stabilized to market occupancy ( generally 95 % ) divided by the total acquisition cost for the property . total acquisition cost basis for the property includes the initial purchase price , the effects of marking assumed debt to market , buyer 's due diligence and closing costs , estimated near-term capital expenditures and leasing costs necessary to achieve stabilization . we define cash basis net operating income for the property as net operating income excluding straight-line rents and amortization of lease intangibles . these stabilized cap rates are subject to risks , uncertainties , and assumptions and are not guarantees of future performance , which may be affected by known and unknown risks , trends , uncertainties , and factors that are beyond our control , including risks related to our ability to meet our estimated forecasts related to stabilized cap rates and those risk factors contained in this annual report on form 10-k. 3 represents an improved land parcel containing approximately 3.5 acres . 4 also includes an improved land parcel containing approximately 1.2 acres . 5 also includes an improved land parcel containing approximately 0.2 acres . 6 represents an improved land parcel containing approximately 12.7 acres that is under redevelopment and upon completion is expected to contain an approximately 220,000 square foot industrial building . the total expected investment will be approximately $ 33.9 million . 33 7 represents an improved land parcel containing approximately 2.3 acres . redevelopment activity as of december 31 , 2018 , we have five properties under redevelopment that will contain approximately 0.7 million square feet upon completion with a total expected investment of approximately $ 136.3 million , including redevelopment costs , capitalized interest and other costs of approximately $ 49.9 million as follows : replace_table_token_10_th 1 total expected investment for the property includes the initial purchase price , buyer 's due diligence and closing costs , estimated near-term redevelopment expenditures , capitalized interest and leasing costs necessary to achieve stabilization . 2 estimated stabilized cap rates are calculated as annualized cash basis net operating income for the property stabilized to market occupancy ( generally 95 % ) divided by the total acquisition cost for the property . we define cash basis net operating income for the property as net operating income excluding straight-line rents and amortization of lease intangibles . these estimated stabilized cap rates are subject to risks , uncertainties , and assumptions and are not guarantees of future performance , which may be affected by known and unknown risks , trends , uncertainties , and factors that are beyond our control , including risks related to our ability to meet our estimated forecasts related to stabilized cap rates and those risk factors contained in this annual report on form 10-k. during 2018 , we completed redevelopment of our woodside property in queens , new york . we executed a ten-year lease with a leading e-commerce firm stabilizing the approximately 83,000 square foot redevelopment property . the total expected investment was approximately $ 32.1 million with an estimated stabilized cap rate of 6.3 % . disposition activity during the year ended december 31 , 2018 , we sold four properties for an aggregate sales price of approximately $ 82.1 million , resulting in a total gain of approximately $ 28.6 million . we sold one property located in the washington , d.c. market for a sales price of approximately $ 20.3 million , resulting in a gain of approximately $ 3.3 million , two properties located in the miami market for an aggregate sales price of approximately $ 28.6 million , resulting in an aggregate gain of approximately $ 13.1 million , and one property located in the los angeles market for a sales price of approximately $ 33.2 million , resulting in a gain of approximately $ 12.2 million . the following summarizes the condensed results of operations of the properties sold during the year ended december 31 , 2018 for the years ended december 31 , 2018 , 2017 and 2016 ( in thousands ) : replace_table_token_11_th 34 atm program we have an at-the-market equity offering program ( the “ $ 250 million atm program ” ) pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $ 250.0 million in amounts and at times as we determine from time to time . prior to the implementation of the $ 250 million atm program , we had a $ 200.0 million atm program ( the “ $ 200 million atm program ” ) which was substantially utilized as of june 30 , 2018 and which is no longer active , and a $ 150.0 million atm program , which was fully utilized as of june 30 , 2017. we intend to use the net proceeds from the offering of the shares under the $ 250 million atm program , if any , for general corporate purposes , which may include future acquisitions and repayment of indebtedness , including borrowings under our revolving credit facility . story_separator_special_tag during 2018 , we issued an aggregate of 5,492,707 shares of common stock at a weighted average offering price of $ 38.04 per share under the $ 250 million atm program and the $ 200 million atm program , resulting in net proceeds of approximately $ 205.9 million and paying total compensation to the applicable sales agents of approximately $ 3.0 million . as of december 31 , 2018 , we had shares of common stock having an aggregate offering price of up to $ 129.9 million available for issuance under the $ 250 million atm program . senior secured loan on may 7 , 2018 , we made a senior secured loan of $ 55.0 million with a two -year term that bears interest at a fixed annual interest rate of 8.0 % and matures in may 2020 ( the “ senior secured loan ” ) . the senior secured loan is secured by a portfolio of nine improved land parcels primarily located in newark and kearny , new jersey . one of the properties securing the senior secured loan may be put to us as partial repayment of the senior secured loan . this property , and two of the other properties , may be called by us as partial or full repayment of the senior secured loan at previously agreed upon values . in addition , per the terms of the senior secured loan , the borrower may repay the loan at any time with either cash or deeds in lieu , with the deeds subject to our approval . as of december 31 , 2018 , the borrower has offered repayment with deeds in lieu on two of the three option properties for an aggregate purchase price of approximately $ 39.1 million . as of february 6 , 2019 , we have one outstanding contract to acquire one of the option properties for approximately $ 25.0 million and one non-binding letter of intent to acquire one of the option properties for approximately $ 14.1 million . there is no assurance that we will acquire the properties under contract because the proposed acquisitions are subject to the completion of satisfactory due diligence and various closing conditions , and with respect to the property under non-binding letter of intent , our entry into a purchase and sale agreement . as of december 31 , 2018 , there was approximately $ 54.5 million , net of deferred loan fees of approximately $ 0.5 million , outstanding on the senior secured loan and approximately $ 0.4 million of interest receivable outstanding on the senior secured loan . share repurchase program on october 31 , 2018 , our board of directors approved an extension of the share repurchase program authorizing us to repurchase up to 3,000,000 shares ( previously 2,000,000 shares ) of our outstanding common stock from time to time through december 31 , 2020 . purchases made pursuant to the program , if any , will be made in either the open market or in privately negotiated transactions as permitted by federal securities laws and other legal requirements . the timing , manner , price and amount of any repurchases will be determined by us in our discretion and will be subject to economic and market conditions , stock price , applicable legal requirements and other factors . the program may be suspended or discontinued at any time . as of december 31 , 2018 , we have not repurchased any shares of stock pursuant to our share repurchase authorization . dividend and distribution activity the following table sets forth the cash dividends paid or payable per share during the year ended december 31 , 2018 : replace_table_token_12_th 35 recent developments contractual commitments as of february 6 , 2019 , we have two outstanding contracts with third-party sellers to acquire two industrial properties and one non-binding letter of intent with a third party seller to acquire one industrial property as further described under the heading “ contractual obligations ” in this annual report on form 10-k. there is no assurance that we will acquire the properties under contract because the proposed acquisitions are subject to the completion of satisfactory due diligence and various closing conditions , and with respect to the property under non-binding letter of intent , our entry into a purchase and sale agreement . outlook current operating conditions in our six markets are excellent , the best we have seen since our initial public offering . we believe that on average , the rental rates we are likely to achieve on new or renewed leases for our 2019 expirations will be above the rates currently being paid for the same space . however , new speculative development continues . this new development will slow potential rent growth from what it would be without such new development . macroeconomic conditions , while uncertain and impossible to accurately predict , appear less favorable to us than last year . we see attractive acquisition opportunities today ; however , our acquisition volume will be dependent on both the quality and pricing of the opportunity set and the price of our stock relative to our net asset value ( nav ) . those conditions , not knowable in advance , will determine our results . we entered 2019 with our balance sheet well positioned for potential growth . over the intermediate term of the next three to four years , although there can be no assurance , we expect to grow our portfolio to approximately $ 4.0 billion of assets up from approximately $ 2.6 billion as of december 31 , 2018 as measured by our total market capitalization . we expect , although there can be no assurance , that this will utilize approximately $ 3.0 billion of equity up from approximately $ 2.1 billion as of december 31 , 2018. we expect this to enhance our operating efficiency , increase our shareholder liquidity and maintain our investment grade credit rating .
| % of our total square feet owned and six improved land parcels consisting of approximately 23.0 acres . as of december 31 , 2018 , the non-same store properties , which we acquired or sold during 2017 and 2018 , were held for sale or in redevelopment as of december 31 , 2018 , consisted of 49 buildings aggregating approximately 2.4 million square feet , ten improved land parcels consisting of approximately 32.2 acres and five properties under redevelopment expected to contain approximately 0.7 million square feet upon completion . as of december 31 , 2018 and 2017 , our consolidated same store pool occupancy was approximately 99.1 % and 98.1 % , respectively . our future financial condition and results of operations , including rental revenues , straight-line rents and amortization of lease intangibles , may be impacted by the acquisitions of additional properties , and expenses may vary materially from historical results . 37 comparison of the year ended december 31 , 2018 , to the year ended december 31 , 2017 : replace_table_token_13_th 1 includes 2017 and 2018 acquisitions and dispositions , ten improved land parcels , five properties under redevelopment and one completed redevelopment property with a gross book value of approximately $ 29.3 million as of december 31 , 2018 . 2 includes straight-line rents and amortization of lease intangibles . see “ non-gaap financial measures ” in this annual report on form 10-k for a reconciliation of net operating income and same store net operating income from net income and a discussion of why we believe net operating income and same store net operating income are useful supplemental measures of our operating performance . revenues . total revenues increased approximately $ 19.2 million for the year ended december 31 , 2018 compared to the prior year due primarily to property acquisitions during 2017 and 2018 , increased revenue on new and renewed leases and lease termination income of approximately $ 0.7 million . same
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fixed-price contracts generally offer higher profit margin opportunities but can involve greater financial risk because we bear the impact of cost overruns in return for the full benefit of any cost savings . cost of services cost of services primarily includes direct costs incurred to provide services and solutions to our customers . the most significant portion of these costs are direct labor costs , including salaries and wages , plus associated fringe benefits of our employees directly serving customers , in addition to the related management , facilities and infrastructure costs . cost of services also includes other direct costs , such as the costs of subcontractors and outside consultants and third-party materials , including hardware or software that we purchase and provide to the customer as part of an integrated solution . 17 changes in the mix of services and equipment provided under our contracts can result in variability in the proportion that cost of services bears to revenues . as we typically earn higher profits on our own labor services , we expect the ratio of cost of services as a percentage of revenues to decline when our labor services mix increases relative to subcontracted labor or third-party materials . conversely , as subcontracted labor or third-party material purchases for customers increases relative to our own labor services , we expect the ratio of cost of services as a percentage of revenues to increase . general and administrative expenses general and administrative expenses include the salaries and wages , plus associated fringe benefits of our employees not performing work directly for customers , and associated facilities costs . among the functions covered by these costs are business development , bid and proposal , contracts administration , finance and accounting , legal , corporate governance and executive and senior management . in addition , we included stock-based compensation , as well as depreciation and amortization expenses related to the general and administrative function . depreciation and amortization expenses include the depreciation of computers , furniture and other equipment , the amortization of third-party software used internally , leasehold improvements and intangible assets . intangible assets include customer relationships and contract backlogs acquired in business combinations , and are amortized over their estimated useful lives . interest expense interest expense is primarily related to interest expense incurred or accrued under our outstanding borrowings on our debt and deferred financing charges . interest income interest income is primarily from cash on hand and late invoice payments by the government . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 2018 was primarily due to timing of receivable collections and an increase in operating income . cash used in investing activities our cash used in investing activities consists primarily of business combinations , purchases of property and equipment and investments in capitalized software for internal use . for the years ended december 31 , 2019 and 2018 , our net cash used in investing activities were $ 214.9 million and $ 44.3 million , respectively . for the year ended december 31 , 2019 , our net cash used in investing activities were primarily due to the acquisitions of kforce government solutions and h2m group and the purchase of equipment to support managed it service contracts , infrastructure and capitalized software for internal use . for the year ended december 31 , 2018 , our net cash used in investing activities were primarily due to capital expenditures . cash flows used in financing activities for the years ended december 31 , 2019 and 2018 , our net cash used in financing activities were $ 2.9 million and $ 53.3 million , respectively . for the year ended december 31 , 2019 , our net cash used in financing activities were primarily due to dividends paid , offset by net borrowings under our revolving credit facility to fund our acquisitions this year and proceeds from the exercise of stock options . for the year ended december 31 , 2018 , our net cash used in financing activities were primarily due to repayment of borrowings and payments of dividends , which were partially offset by proceeds from the exercise of stock options . revolving credit facility we maintain a credit agreement with a syndicate of lenders led by bank of america , n.a. , as sole administrative agent . the credit agreement provides for a $ 500 million revolving credit facility , with a $ 75 million letter of credit sublimit and a $ 30 million swing line loan sublimit . the credit agreement also includes an accordion feature that permits us to arrange with the lenders for the provision of additional commitments . the maturity date is august 17 , 2022 . borrowings under our credit agreement are collateralized by substantially all the assets of us and our material subsidiaries ( as defined in the credit agreement ) and bear interest at one of the following variable rates as selected by us at the time of borrowing : a london interbank offer rate ( libor ) based rate plus market spreads ( 1.25 % to 2.25 % based on our consolidated total leverage ratio ) or bank of america 's base rate plus market spreads ( 0.25 % to 1.25 % based on our consolidated total leverage ratio ) . the terms of the credit agreement permit prepayment and termination of the loan commitments at any time , subject to certain conditions . the credit agreement requires us to comply with specified financial covenants , including the maintenance of certain consolidated leverage ratios and a certain consolidated coverage ratio . the credit agreement also contains various covenants , including affirmative covenants with respect to certain reporting requirements and maintaining certain business activities , and negative covenants that , among other things , may limit or impose restrictions on our ability to incur liens , incur additional indebtedness , make investments , make acquisitions and undertake certain other actions . story_separator_special_tag as of , and during the fiscal years ending december 31 , 2019 and 2018 , we were in compliance with our financial covenants under the credit agreement . there was $ 36.5 million and $ 7.5 million outstanding on our revolving credit facility at december 31 , 2019 and 2018 , respectively . 20 capital resources we believe the capital resources available to us from cash on hand , our remaining capacity under our revolving credit facility , and cash from our operations are adequate to fund our anticipated cash requirements for at least the next year . we anticipate financing our external growth from acquisitions and our longer-term internal growth through one or more of the following sources : cash from operations ; use of our revolving credit facility ; and additional borrowings of debt or issuance of equity . cash management to the extent possible , we invest our available cash in short-term , investment grade securities in accordance with our investment policy . under our investment policy , we manage our investments in accordance with the priorities of maintaining the safety of our principal , maintaining the liquidity of our investments , maximizing the yield on our investments and investing our cash to the fullest extent possible . our investment policy provides that no investment security can have a final maturity that exceeds six months and that the weighted average maturity of the portfolio can not exceed 60 days . cash and cash equivalents include cash on hand , amounts due from banks and short-term investments with maturity dates of three months or less at the date of purchase . dividend during the years ended december 31 , 2019 and 2018 , we declared and paid quarterly dividends in the amount of $ 0.27 and $ 0.25 per share on both classes of common stock . on february 19 , 2020 , we declared a quarterly cash dividend in the amount of $ 0.32 p er share , to be paid on march 20 , 2020 . while we expect to continue the regular cash dividend program , any future dividends declared will be at the discretion of our board of directors and will depend , among other factors , upon our results of operations , financial condition and cash requirements , as well as such other factors our board of directors deems relevant . off-balance sheet arrangements in the ordinary course of business , we use letters of credit to satisfy certain contractual terms with our customers . as of december 31 , 2019 , $ 5.8 million in letters of credit were issued but undrawn . we have an outstanding performance bond in connection with a contract between mantech mena , llc and jadwalean international operations and management company to fulfill technical support requirements for the royal saudi air force . this performance bond is guaranteed by a letter of credit in the amount of $ 5.7 million . critical accounting estimates and policies critical accounting policies are defined as those that are reflective of significant judgments and uncertainties , and potentially result in materially different results under different assumptions and conditions . application of these policies is particularly important to the portrayal of our financial condition and results of operations . the discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles ( gaap ) . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amount of assets , liabilities , revenues and expenses . actual results may differ from these estimates under different assumptions or conditions . our significant accounting policies , including the critical policies listed below , are more fully described in the notes to our consolidated financial statements included in this report . revenue recognition and cost estimation we account for a contract when both we and the customer approve and commit ; our rights and those of the customer are identified , payment terms are identified ; the contract has commercial substance ; and collectability of consideration is probable . at contract inception , we identify the distinct goods or services promised in the contract , referred to as performance obligations . then we determine the transaction price for the contract ; the consideration to which we can expect in exchange for the promised goods or services in the contract . the transaction price can be a fixed or variable amount . it is common for our contracts to contain award fees , incentive fees or other provisions that can either increase or decrease the transaction price . these variable amounts generally are awarded upon achievement of certain performance metrics , program milestones or cost targets and can be based upon customer discretion . we estimate variable consideration at the most likely amount to which we expect to be entitled . we include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved . our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and historical , current and forecasted information that is reasonably available to us . the transaction price is allocated to each distinct performance obligation using our best estimate of the standalone selling price for each distinct good or service promised in the contract . the primary method used to estimate standalone selling price is the expected cost plus 21 a margin approach , under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service promised . revenue is recognized when , or as , the performance obligation is satisfied . we recognize revenue over time when there is a continuous transfer of control to our customer . for our u.s.
| these increases were partially offset by lower amortization on acquired intangibles and the reclassification of certain allocable expenses from general and administrative expenses to cost of services related to a change in disclosed cost accounting practices with the defense contract management agency . as a percentage of revenues , general and administrative expenses increased for the year ended december 31 , 2019 as compared to the same period in 2018 . in 2020 , we expect general and administrative expenses as a percentage of revenues to be comparable to 2019 . provision for income taxes our effective tax rate is affected by recurring items , such as the relative amount of income we earn in various taxing jurisdictions and their tax rates . it is also affected by discrete items that may occur in any given year , but are not consistent from year-to-year . our effective income tax rate was 16 % and 26 % for the years ended december 31 , 2019 and 2018 , respectively . the reduction in our effective tax rate is due to an increase in research and development credits we claimed on previously filed tax returns and will be claimed on our 2019 tax return . the increase in research and development credits is the result of a project we completed during the fourth quarter of 2019 to improve the method by which we identify expenditures that qualify for the research and development tax credit . we recognized $ 9.4 million in research and development credits related to tax years 2015-2018 and $ 2.5 million related to the 2019 tax year . while we expect this method to provide continued benefits in 2020 , we expect our effective tax rate to increase in relation to 2019 due to the research and development credits to be recognized being limited to a single tax year . for additional information concerning the research and development tax credit , see note 13 to our consolidated financial statements in item 8. year ended december 31 , 2018 compared to year ended december 31 , 2017 to review the comparison of our results of operations for the fiscal
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our scientific team has evaluated the data from the onestep clinical trials but has found no clear signal that locilex® would be a strong product candidate for other possible clinical indications . accordingly , we have explored strategic alternatives with our professional advisors and on december 22 , 2016 , we announced our entry into a merger agreement with plx pharma , pursuant to which , among other things , subject to the satisfaction or waiver of the conditions set forth in the merger agreement , a wholly-owned subsidiary of ours will be merged with and into plx pharma , with plx pharma continuing as the surviving corporation and a wholly-owned subsidiary of ours . immediately following the effective time of the proposed merger , existing plx pharma stockholders are expected to own approximately 76.75 % of the capital stock of the combined company , and existing dipexium stockholders are expected to own approximately 23.25 % of the capital stock of the combined company , in each case , subject to certain adjustments set forth in the merger agreement related to our cash on a determination date which approaches the closing of the proposed merger . we expect to consummate the proposed merger in the second quarter of 2017. we continue to believe that locilex ® has advantages compared to systemic antibiotics and that it may have potential to be approved in a different clinical indication although our medical and scientific team has yet to identify any such indication since the clinical trial data was released on october 25 , 2016. we believe that the key attributes of locilex ® are : ( i ) it has not generated resistant bacteria systemically ; ( ii ) it has not generated cross resistance with other antibiotics ; ( iii ) it has demonstrated activity against a broad spectrum of pathogens , including difficult to treat gram negative , and anaerobic bacteria ; ( iv ) it has not been systemically absorbed ; ( v ) it has not caused any significant safety or tolerability issues in over 1,500 patients treated , including the recently completed onestep-1 and onestep-2 phase 3 clinical trials ; and ( vi ) it has demonstrated significant success treating multi-drug resistant bacteria in several laboratory tests and clinical trials performed to date . these attributes lead us to believe that locilex ® could be repositioned to target a different clinical indication despite its failure to achieve any of the primary or secondary endpoints in the onestep phase 3 clinical trials in mild infections of diabetic foot ulcers . if pursued , a restart of clinical trials in a yet-to-be-identified clinical indication would involve significant risk , resources and time to design and complete a clinical development program that may very well begin with phase 1 clinical trials . plan of operation our primary objective is to close the proposed merger with plx pharma in the second quarter of calendar 2017 and operate our business in the ordinary course until the closing is completed . we will rely on our strong management team and board of directors to execute our strategy . opportunities , challenges and risks we are a late-stage pharmaceutical company and have never generated revenue . currently we do not have a stable recurring source of revenues sufficient to cover our operating costs . we incurred net losses of $ 21.3 million and $ 18.7 million for the years ended december 31 , 2016 and 2015 , respectively . 32 our business and ability to execute our business strategy are subject to a number of risks and challenges : whether our proposed merger with plx pharma may be fully realized or takes longer to realize than expected ; whether the businesses may be combined successfully or in a timely and cost-efficient manner ; whether the transaction will close due to , among other things , the need to obtain shareholder approval ; and whether the dilution to dipexium stockholders in the proposed merger may be greater than expected ; whether our previous findings from clinical studies and assessments of locilex ® in mild infections of diabetic foot ulcers are predictive of potential future clinical trial results in other clinical indications should any be identified as promising ; our ability to protect our intellectual property ; risks and uncertainties associated with our research and development activities , including our clinical trials ; our dependence on locilex® as our only product ; our ability to raise capital when needed ; the terms of future licensing arrangements , and whether we can enter into such arrangements at all ; risks associated with the timing and receipt of licensing and milestone revenues , if any ; our ability to maintain or protect the validity of our patents and other intellectual property , including in connection with pending or future litigation against us ; our ability to secure registration for our current and future patent applications ; our ability to extend our licensed composition of matter patent no . 5,912,231 under the hatch-waxman act with the cooperation of scripps ; our ability to continue as a going concern ; our expectations regarding minimizing our development risk ; our ability to establish new relationships and maintain current relationships ; and our ability to attract and retain key personnel . story_separator_special_tag margin : 0 ; text-indent : 0.5in '' > net cash provided by investing activities for the year ended december 31 , 2016 was $ 27.0 million , which was attributable to the company 's net investments and maturities of united states treasury bills . net cash used in investing activities for the year ended december 31 , 2015 was $ 27.0 million , which was attributable to the company 's net investments and maturities of united states treasury bills . story_separator_special_tag net cash provided by financing activities net cash provided by financing activities for the year ended december 31 , 2015 was $ 19.7 million , which was attributable to the net proceeds from the company 's june 2015 public offering . contractual obligations in january 2016 , the company entered into a lease for office space commencing in march 2016. the term of the lease is for five years and five months with total minimum lease payments of approximately $ 1.28 million . recent accounting pronouncements in january 2017 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update ( “ asu ” ) no . 2017-01 , business combinations ( topic 805 ) : clarifying the definition of a business , in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions ( or disposals ) of assets or businesses . the amendments of this asu are effective for fiscal years beginning after december 15 , 2017 , and interim periods within those fiscal years . the adoption of this guidance is not expected to have a material impact on our financial statements . in august 2016 , the fasb issued asu no . 2016-15 , statement of cash flows ( topic 230 ) : classification of certain cash receipts and cash payments , in an effort to reduce the diversity of how certain cash receipts and cash payments are presented and classified in the statement of cash flows . the amendments of this asu are effective for fiscal years beginning after december 15 , 2017 , and interim periods within those fiscal years . early adoption is permitted . the company is currently assessing the potential impact this asu will have on the financial statements and related disclosures . in march 2016 , the fasb issued asu no . 2016-09 , compensation-stock compensation ( topic 718 ) : improvements to employee share-based payment accounting , in an effort to simplify accounting for certain aspects of income tax accounting and accounting for forfeitures . the amendments of this asu are effective for fiscal years beginning after december 15 , 2016 , and interim periods within those fiscal years . early adoption is permitted . the company is currently assessing the potential impact this asu will have on the financial statements and related disclosures . in february 2016 , the fasb issued asu no . 2016-02 , leases ( topic 842 ) , which includes amendments that require lessees to recognize a lease liability for all long-term leases ( lease terms more than 12 months ) , at the commencement date . the lease liability is a lessee 's obligation to make lease payments arising from a lease , measured on a discounted basis . the amendments also require lessees to recognize a right-of-use asset for all long-term leases . the right-of-use asset is an asset that represents the lessee 's right to use , or control the use of , a specified asset for the lease term . for leases with a term of 12 months or less , a lessee is permitted to make an accounting policy election by class of underlying asset to not recognize lease assets and lease liabilities . if a lessee makes this election , it should recognize lease expense for such leases generally on a straight-line basis over the lease term . the amendments in this asu require qualitative disclosures along with specific quantitative disclosures . the amendments in this asu are effective for fiscal years beginning after december 15 , 2018 , and interim periods within those fiscal years . early application is permitted . lessees ( for capital and operating leases ) and lessors ( for sales-type , direct financing , and operating leases ) , must apply a modified retrospective transition approach for leases existing at , or entered into after , the beginning of the earliest comparative period presented in the financial statements . the modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented . the company is currently evaluating the provisions of this asu . in november 2015 , the fasb issued asu no . 2015-17 , income taxes ( topic 740 ) , which requires that all deferred income tax assets and liabilities be presented as noncurrent in the balance sheet . the pronouncement is effective for financial statements issued for annual periods beginning after december 15 , 2018 with early application permitted . the adoption of this guidance is not expected to have a material impact on our financial statements . 35 in august 2014 , the fasb issued asu 2014-15 , presentation of financial statements—going concern , which requires management of an entity to evaluate whether there are conditions or events , considered in the aggregate , that raise substantial doubt about the entity 's ability to continue as a going concern within one year after the date that the financial statements are issued or available to be issued . this update is effective for annual periods ending after december 15 , 2016. the adoption of this standard did not have a material impact on our financial statements . critical accounting policies and estimates basis of presentation on april 5 , 2012 , the jobs act was signed into law . the jobs act contains provisions that , among other things , reduce certain reporting requirements for qualifying public companies .
| gross proceeds raised by us in the offering were approximately $ 38.0 million , and net proceeds to us were approximately $ 34.5 million . on june 30 , 2015 , we completed a stock offering issuing 1,702,000 shares of common stock at a price of $ 12.50 per share , resulting in gross proceeds of $ 21.3 million and net proceeds of $ 19.7 million after deducting underwriting discounts of $ 1.3 million and offering costs of approximately $ 0.3 million . assuming the merger is completed during the first half of 2017 , dipexium expects its cash as of december 31 , 2016 to meet its liquidity requirements through at least its anticipated close of the merger , including the closing condition under the merger agreement to have at least $ 12.0 million of “ cash , ” as defined in the merger agreement , available upon the closing of the merger . if the merger is not completed , dipexium will need to reevaluate its strategic alternatives , which may include continuing to operate its business as an independent , stand-alone company , a sale of the company , liquidation of the company or other strategic transaction . dipexium 's liquidity position will be dependent upon the strategic alternative selected ; however , assuming dipexium does not enter into another strategic transaction , dipexium expects its cash as of december 31 , 2016 will be sufficient to meet its liquidity requirements for at least the next 12 months . additional financing would be required should dipexium decide to commence a new clinical program for locilex® in a new , yet-to-be-identified clinical indication . cash needs to pursue a new clinical indication can not reasonably be estimated until a promising new indication for locilex® to target is identified , if ever . as of december 31 , 2016 , we had working capital of approximately $ 14.9 million , consisting primarily of $ 16.7 million of cash and short-term investments , offset by $ 2.1 million of accounts payable and accrued expenses . the
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payments to us under these agreements may include non-refundable license fees , option fees , exercise fees , payments for research activities , payments for the manufacture of preclinical or clinical materials , payments based upon the achievement of certain milestones and royalties on product sales . we follow the provisions of asc topic 605-25 , `` revenue recognitionmultiple-element arrangements , '' and asu no . 2010-17 , `` revenue recognitionmilestone method , '' in accounting for these agreements . effective july 1 , 2010 , we adopted asu no . 2009-13 , `` multiple-deliverable revenue arrangements '' , which amends asc topic 605-25. in order to account for these agreements , we must 42 identify the deliverables included within the agreement and evaluate which deliverables represent separate units of accounting based on whether certain criteria are met , including whether the delivered element has standalone value to the collaborator . the consideration received is allocated among the separate units of accounting , and the applicable revenue recognition criteria are applied to each of the separate units . at june 30 , 2011 , we had the following three types of agreements with the parties identified below : exclusive development and commercialization licenses to use our tap technology and or certain other intellectual property to develop compounds to a single target antigen ( exclusive licenses ) : amgen ( two single-target licenses ) bayer healthcare ( one single-target license ) biotest ( one single-target license ) roche , through its genentech unit ( five single target licenses ) sanofi ( license to multiple individual targets ) option/research agreement for a defined period of time to secure development and commercialization licenses to use our tap technology to develop anticancer compounds to a limited number of targets on established terms ( broad option agreement ) : amgen sanofi novartis non-exclusive license to our humanization technology : sanofi there are no performance , cancellation , termination or refund provisions in any of our arrangements that contain material financial consequences to us . exclusive licenses the deliverables under an exclusive license agreement generally include the exclusive license to our tap technology , and may also include deliverables related to rights to future technological improvements , research activities to be performed on behalf of the collaborative partner and the manufacture of preclinical or clinical materials for the collaborative partner . generally , exclusive license agreements contain non-refundable terms for payments and , depending on the terms of the agreement , provide that we will ( i ) at the collaborator 's request , provide research services which are reimbursed at a contractually determined rate , ( ii ) at the collaborator 's request , manufacture and provide to them preclinical and clinical materials which are reimbursed at our cost , or , in some cases , cost plus a margin , ( iii ) earn payments upon the achievement of certain milestones and ( iv ) earn royalty payments , generally until the later of the last applicable patent expiration or 10 to 12 years after product launch . royalty rates may vary over the royalty term depending on our intellectual property rights . we may provide technical assistance and share any technology improvements with our collaborators during the term of the collaboration agreements . we do not directly control when any collaborator will request research or manufacturing services , achieve milestones or become liable for royalty payments . as a result , we can not predict when we will recognize revenues in connection with any of the foregoing . 43 in determining the units of accounting , management evaluates whether the exclusive license has standalone value , from the undelivered elements , to the collaborative partner based on the consideration of the relevant facts and circumstances for each arrangement . factors considered in this determination include the research capabilities of the partner and the availability of tap technology research expertise in the general marketplace . if we can conclude that the license has stand alone value and therefore will be accounted for as a separate unit of accounting , we then determine the estimated selling prices of the license and all other units of accounting based on market conditions , similar arrangements entered into by third parties , and entity-specific factors such as the terms of our previous collaborative agreements , recent preclinical and clinical testing results of therapeutic products that use our tap technology , our pricing practices and pricing objectives , the likelihood that technological improvements will be made , the likelihood that technological improvements made will be used by our collaborators and the nature of the research services to be performed on behalf of our collaborators and market rates for similar services . upfront payments on single-target licenses are deferred if facts and circumstances dictate that the license does not have standalone value . the determination of the length of the period over which to defer revenue is subject to judgment and estimation and can have an impact on the amount of revenue recognized in a given period . our employees are generally available to assist our collaborators during the development of their products . we generally estimate this development phase to begin at the inception of the collaboration agreement and conclude at the end of non-pivotal phase ii testing . we believe this period of involvement is , depending on the nature of the license , on average six and one-half years . quarterly , we reassess our periods of substantial involvement over which we amortize our upfront license fees and make adjustments as appropriate . in the event a collaborator elects to discontinue development of a specific product candidate under a single target license , but retains its right to use our technology to develop an alternative product candidate to the same target or a target substitute , we would cease amortization of any remaining portion of the upfront fee until there is substantial preclinical activity on another product candidate and its remaining period of substantial involvement can be estimated . story_separator_special_tag in the event that a single target license were to be terminated , we would recognize as revenue any portion of the upfront fee that had not previously been recorded as revenue , but was classified as deferred revenue , at the date of such termination . upfront payments on single-target licenses may be recognized upon delivery of the license if facts and circumstances dictate that the license has standalone value from the undelivered elements , which generally include rights to future technological improvements , research services and the manufacture of preclinical and clinical materials . we recognize revenue related to research services that represent separate units of accounting as they are performed , as long as there is persuasive evidence of an arrangement , the fee is fixed or determinable , and collection of the related receivable is probable . we recognize revenue related to the rights to future technological improvements over the estimated period that the rights will be in force . we may also produce preclinical and clinical materials for our collaborators . we are reimbursed for our direct costs and a portion of our overhead costs to produce clinical materials . we recognize revenue on preclinical and clinical materials when the materials have passed all quality testing required for collaborator acceptance and title and risk of loss have transferred to the collaborator . we may also produce research material for potential collaborators under material transfer agreements . additionally , we perform research activities , including developing antibody specific conjugation processes , on behalf of our collaborators and potential collaborators during the early evaluation and preclinical testing stages of drug development . generally , we are reimbursed for certain of our direct and overhead costs of producing these materials or providing these services . we record the amounts received for the preclinical materials produced or services performed as a component of research and development support revenue . we also develop conjugation processes for materials for 44 later stage testing and commercialization for certain collaborators . we are reimbursed for certain of our direct and overhead costs and may receive milestone payments for developing these processes which are recorded as a component of research and development support revenue . our license agreements have milestone fees which generally meet the criteria of asu no . 2010-17 `` revenue recognitionmilestone method , '' and accordingly , revenue is recognized when such milestones are achieved . broad option agreements the accounting for broad option agreements is dependent on the nature of the option granted to the collaborative partner . for broad option agreements where the option to secure a development and commercialization license to our tap technology is considered substantive , we defer upfront payments received from these agreements and recognize this revenue over the period during which the collaborator could elect to take an option for a development and commercialization license . these periods are specific to each collaboration agreement . if a collaborator takes an option to acquire a development and commercialization license under these agreements , any substantive option fee is deferred and recognized over the life of the option , generally 12 to 18 months . if a collaborator exercises an option and we grant a single target development and commercialization license to the collaborator , we account for any license fee as we would an upfront payment on a single target license , as discussed above . upon exercise of an option to acquire a development and commercialization license , we would recognize any remaining deferred option fee or exercise fee as we would an upfront payment on a single target license as discussed above . in the event a broad option/research agreement were to be terminated , we would recognize as revenue any portion of the upfront fee that had not previously been recorded as revenue , but was classified as deferred revenue , at the date of such termination . we recognize revenue related to research activities as they are performed , as long as there is persuasive evidence of an arrangement , the fee is fixed or determinable , and collection of the related receivable is probable . for broad option agreements where the option to secure a development and commercialization license to our tap technology is not considered substantive , we account for any fees received as we would an upfront payment on a single target license , as discussed above . we do not directly control when any collaborator will exercise its options for development and commercialization licenses . as a result , we can not predict when we will recognize revenues in connection with any of the foregoing . non-exclusive license we received up-front payments related to the non-exclusive license of our humanization technology and have deferred these payments , and are recognizing the revenue over the term of the agreement . inventory we review our estimates of the net realizable value of our inventory at each reporting period . our estimate of the net realizable value of our inventory is subject to judgment and estimation . the actual net realizable value of our inventory could vary significantly from our estimates . we consider quantities of raw materials in excess of twelve-month projected usage that are not supported by firm , fixed collaborator orders and projections at the time of the assessment to be excess . during fiscal years 2011 and 2010 , we obtained additional quantities of dmx from our supplier which amounted to more material than would be required by our collaborators over the next twelve months and as a result , we recorded $ 1.7 million and $ 900,000 , respectively , of charges to research and development expense related to raw material inventory identified as excess .
| total revenue recognized from research and development support from each of our collaborative partners in the years ended june 30 , 2011 , 2010 and 2009 is included in the following table ( in thousands ) : replace_table_token_4_th revenue from license and milestone fees for the year ended june 30 , 2011 increased approximately $ 695,000 to $ 6.4 million from $ 5.7 million in the year ended june 30 , 2010. revenue from license and milestone fees for the year ended june 30 , 2009 was $ 15.1 million . included in license and milestone fees for the year ended june 30 , 2011 were a $ 1.0 million milestone payment related to the initiation of phase i clinical testing of sar566658 by sanofi and a $ 2.0 million milestone payment related to the ind filing of bay 94-9343 by bayer healthcare . included in license and milestone fees for the year ended june 30 , 2010 were $ 1 million and $ 500,000 of preclinical milestones earned pursuant to our agreements with bayer healthcare and sanofi , respectively , as well as a $ 1 million milestone related to the initiation of phase i clinical testing of sar650984 by sanofi . included in license and milestone fees for the year ended june 30 , 2009 was a $ 6.5 million milestone related to the initiation of phase iii clinical testing of trastuzumab emtansine , or t-dm1 , by roche , a $ 4 million milestone related to the initiation of phase ii clinical testing of ave1642 by sanofi and a $ 500,000 milestone related to the initiation of phase i clinical testing of bt-062 by biotest . also during the year ended june 30 , 2009 , millennium pharmaceuticals and boehringer ingelheim agreed to terminate their licenses with us that were no longer being used to develop products and as a result , we recognized as license and milestone fees $ 361,000 and $ 486,000 , respectively , of upfront fees previously deferred . the amount of license and milestone fees we earn is directly related to the number of our collaborators and potential collaborators , the resources our collaborators allocate to the advancement of the product candidates , the number of clinical trials our
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as part of the acquisition , new residential purchased ditech 's forward fannie mae , ginnie mae and non-agency msrs , with an aggregate unpaid principal balance of approximately $ 61.9 billion as of october 1 , 2019 , the servicer advance receivables relating to such msrs and other assets core to the forward origination and servicing businesses . additionally , we assumed certain ditech leases and other contracts , and added approximately 1,100 ditech employees to support the increase in volume to our existing origination and servicing operations . we believe that the acquisition of these select assets , operations and the addition of employees from ditech are complementary to our existing portfolio and business , accelerate the growth of our servicing and origination operations , and benefit our long-term strategy and shareholders . capital activities in july 2018 , we entered into a distribution agreement to sell shares of our common stock , par value $ 0.01 per share ( the “ atm shares ” ) , having an aggregate offering price of up to $ 500.0 million , from time to time , through an “ at-the-market ” equity offering program ( the “ atm program ” ) . during the year ended december 31 , 2018 , we sold 0.5 million atm shares for aggregate proceeds of $ 9.1 million . on august 1 , 2019 , the distribution agreement was amended to , among other things , ( i ) add additional sales agents under the atm program , and ( ii ) restore the aggregate offering price under the atm program to the original amount of $ 500.0 million . during the year ended december 31 , 2019 , we did not sell any atm shares . in february 2019 , we raised approximately $ 752.1 million of gross proceeds through an underwritten common stock offering . the net proceeds were for investments and general corporate purposes . in july 2019 , we raised approximately $ 155.3 million of gross proceeds in an underwritten public offering of 7.50 % series a fixed-to-floating rate cumulative redeemable preferred stock ( “ preferred series a ” ) . the net proceeds were for investments and general corporate purposes . in august 2019 , we raised approximately $ 282.5 million of gross proceeds in an underwritten public offering of 7.125 % series b fixed-to-floating rate cumulative redeemable preferred stock ( “ preferred series b ” ) . the net proceeds were for investments and general corporate purposes . in august 2019 , we announced a share repurchase program authorizing the repurchase of up to $ 200.0 million of our common shares from time to time in the open market or in privately negotiated transactions through december 31 , 2020. the amount and timing of the purchases will depend on a number of factors including the price and availability of our shares , trading volume , capital availability , our performance and general economic and market conditions . the share repurchase program may be suspended or discontinued at any time . no share repurchases have been made as of the filing of this report . repurchases may impact our financial results , including fees paid to our manager . during the year ended december 31 , 2019 , we declared an aggregate common stock dividend of $ 2.00 per common share , and declared aggregate preferred dividends of $ 1.16 per share of preferred series a and $ 0.89 per share of preferred series b , respectively . 69 market considerations some key macroeconomic factors that affect our business include , but are not limited to , changes in mortgage rates , interest rates , housing data , prepayment speeds , employment rates and credit spreads . the year ended december 31 , 2019 was generally marked by a declining interest rate environment as the federal open market committee ( “ fomc ” ) cut rates 3 times ( bringing the target rate to 1.50 % -1.75 % in october 2019 from 2.25 % -2.50 % as of year-end 2018 ) . heading into 2020 , the fomc has indicated that it will be in a holding pattern for the foreseeable future . with a dovish fomc , nominal rates moved lower throughout the year , with the 10-year treasury declining dramatically , from 2.68 % as of december 31 , 2018 to 1.92 % as of december 31 , 2019 , fluctuating throughout the year and hitting a low of 1.42 % on september 3 , 2019. given the move lower in rates , mortgage rates also declined during the year , moving 62 bps from 4.418 % as of december 31 , 2018 to 3.802 % as of december 31 , 2019. during 2019 , mortgage rates hit a low of 3.524 % on september 4 , 2019. replace_table_token_7_th lower mortgage rates ( the lowest since 2016 ) resulted in an increase in origination and refinancing activity across the market in 2019. broadly , total originations in 2019 grew 30 % over 2018 , with refinance originations growing to 48 % of total originations from 44 % in 2018. the mba refi index ended the year at 1,859.0 as of december 2019 , up from 729.9 as of december 2018 , peaking in august 2019 at 2,754.7. rising originations would generally be expected to benefit our origination platform through increased gains on sales of originated loans , considering loan sales result in new msr creation to off-set the run-off that may arise as prepayments increase . lower mortgage rates are generally associated with a rise in prepayment rates for residential mortgage loans since they decrease the cost of borrowing for homeowners . rising prepayment rates would generally be expected to decrease the value of our interests in excess msrs , msrs and servicer advance investments , which include the right to a portion of the related msrs , because the duration of the cash flows we are entitled to receive declines , resulting in a reduction of current cash flows . story_separator_special_tag rising prepayment rates also have a positive impact on the value of investments purchased at a significant discount as the recovery of the discount accelerates . mortgage rates are expected to remain steady into 2020 and total originations in 2020 are forecasted to be $ 1.9 trillion , slightly below forecast total originations in 2019. while expectations for purchase originations are expected to remain stable in 2020 , refinance originations are expected to decrease to $ 0.6 trillion from $ 0.8 trillion ( mortgage bankers association ) . changes in interest rates will also directly impact our costs of borrowing either immediately ( floating rate debt ) or upon refinancing ( fixed rate debt ) and may also be associated with changes in credit spreads and or the discount rates used in valuing investments . changes in interest rates during the year also directly impacted our borrowing costs either immediately ( floating rate debt ) or upon refinancing ( fixed rate debt ) . given the lower rate environment and declining libor values , we were able to improve and lower our financing costs during 2019. lower yields on fixed income assets can increase the difficulty in sourcing new accretive investments . in 2019 , this trend of lower yields drove fixed income prices higher but also increased the value of certain of our existing investments . trends in consumer credit and health of the consumer impact our bond and loan portfolios as improvement in consumer health generally results in fewer delinquencies and thereby stronger portfolio performance . during 2019 , the u.s. unemployment rate continued to move lower , hitting its lowest level in 50 years , signaling a general improvement in the u.s. economy . in our view , an improvement in the economy , as demonstrated through such measure , 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 . low rates and healthy consumer balance sheets supported the housing market in 2019 . the case shiller home price index decreased from 227 as of the fourth quarter of 2018 to 219 as of the third quarter of 2019 . the total number of mortgaged residential properties with negative equity stood at 2.0 million , or 3.7 percent of mortgaged homes , as of the fourth quarter of 2019 , down from 2.2 million , or 4.1 percent , as of the fourth quarter of 2018 . this trend generally helps to support the values of our residential mortgage loans , consumer loans and rmbs . the improvement in credit during the year , 70 coupled with the decline in rates and delinquencies , benefited new residential 's portfolio of call rights . as a result , new residential exercised call rights on 140 securitizations in 2019 with collateral of $ 4.5 billion in upb . corporate credit spreads , which generally have an impact on the value of yield driven financial instruments ( e.g. , rmbs and loan portfolios ) , tightened during 2019. high yield index tightened by over 100bps and investment grade index by over 40bps driven by lower broader market volatility . while a useful market proxy , corporate credit spreads are not necessarily indicative or directly correlated to mortgage credit spreads . our portfolio our portfolio is currently composed of servicing and origination , including our subsidiary operating entities , 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 , 2019 . replace_table_token_8_th operating investments origination our origination business operates through the lending division of newrez . as a lender , newrez provides refinance opportunities to eligible existing servicing customers , primarily through its direct-to-consumer channel and also originates or purchases loans from brokers or originators through retail , wholesale and correspondent channels . we originate or purchase residential mortgage loans conforming to the underwriting standards of the agencies , government-insured residential mortgage loans which are insured by the fha , va and usda , and non-conforming loans through our smart loan series . newrez 's smart loan series is a non-qm loan product that provides a variety of options for highly qualified borrowers who fall outside the specific requirements of agency mortgage loans . newrez generates revenue through sales of residential mortgage loans , including , but not limited to , gain on loans originated and sold , the settlement of mortgage loan origination derivative instruments and the value of msrs retained on transfer of the loans . profit margins per loan vary by channel , with correspondent typically being the lowest and retail being the highest . newrez sells conforming loans to the gses and non-qm to another subsidiary of new residential . newrez relies on warehouse financing to fund loans at origination through the sale date . newrez sells newly originated agency msrs to nrm under a flow agreement and may , from time to time , sell the excess msr to another subsidiary of new residential . these transactions are recorded at fair value with gains or losses recognized on sale in the origination segment . subsequent to sale , these assets are included in msr investments and the risks and rewards related to these assets are recognized in our msr related investments segment . for the year ended december 31 , 2019 , newrez increased loan origination volume to $ 22.3 billion , up from $ 7.2 billion in the year prior including $ 3.2 billion originated in the period prior to the date of acquisition . the continued lower interest rate 71 environment , increased refinancings by borrowers , the integration of the ditech origination platform into newrez , and increased market share helped drive the growth in our origination . the charts below provide selected operating statistics for our origination segment : replace_table_token_9_th replace_table_token_10_th ( a ) includes results from july 3 , 2018 , the date of acquisition .
| interest expense interest expense increased by $ 327.3 million primarily attributable to increases of ( i ) $ 213.0 million of interest expense on repurchase agreements financings on real estate securities in which we made additional levered investments subsequent to december 31 , 2018 , ( ii ) $ 77.4 million on residential mortgage loans due to an increase in the underlying principal balance of the portfolio levered with repurchase agreements , ( iii ) $ 31.9 million and $ 0.8 million from additional financing obtained driven by growth in the origination and servicing businesses , respectively , and ( iv ) $ 14.2 million of interest expense on msrs , excess msrs , and related servicer advances financing obtained subsequent to december 31 , 2018. the increases were partially offset by ( v ) a $ 10.0 million decrease in interest expense on the consumer loan securitization notes due to a decrease in the principal balance outstanding and refinancing . other than temporary impairment ( otti ) on securities the other-than-temporary impairment on securities decreased by $ 4.8 million primarily resulting from a decline in fair values on a smaller portion of our non-agency rmbs , which we purchased with existing credit impairment , below their amortized cost basis as of december 31 , 2019 . valuation and loss provision ( reversal ) on loans and real estate owned the $ 50.2 million decrease in the valuation and loss provision ( reversal ) on loans and real estate owned resulted from , ( i ) $ 17.6 million less provision due to a reduction in net charge-offs on the consumer loan companies attributable to lower unpaid principal balance , ( ii ) $ 30.8 million reversal of impairment on certain loans related to changes in interest rates and improved performance , and ( iii ) $ 4.1 million less impairment on certain reos with an increase in home prices during the year ended december 31 , 2019. the decrease was partially offset by ( iv ) $ 2.3 million less in reversals of reserves related to certain ginnie mae ebo servicer advance receivables , during the year ended december 31 , 2019 . servicing revenue , net the component of servicing revenue , net related to changes in valuation inputs and assumptions related to the following : replace_table_token_23_th servicing revenue , net decreased $ 143.4 million during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 . specifically , ( i ) a $ 273.1 million
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behalf of customers while their payment transactions are clearing . our subscription revenue is primarily based on a fixed monthly or annual rate per user charged to our customers . our transaction revenue is comprised of transaction fees on a fixed or variable rate per transaction . transactions primarily include check issuance , ach origination , cross-border payments , virtual card issuance , and creation of invoices . much of our revenue comes from repeat transactions , which are an important contributor to our recurring revenue . we also generate revenue from interest earned on funds held in trust on behalf of customers while payment transactions are clearing . when we process payment transactions , the funds flow through our bank accounts and we have a balance of funds held for customers that is a function of the volume and the type of payments processed . interest is earned from interest-bearing deposit accounts , certificates of deposit , money market funds , commercial paper , and u.s. treasury securities . we hold these funds from the day they are withdrawn from a payer 's account to the day the funds are credited to the receiver . this revenue can fluctuate depending on the amount of customer funds held , as well as our yield on customer funds invested , which is influenced by market interest rates and our investments . we are authorized to hold customer funds and process payments through our bank accounts because we are a licensed money transmitter in all required u.s. states . this allows us to provide advanced treasury services and protect our customers from potential fraud . our business model we efficiently reach smbs through our proven direct and indirect go-to-market strategies . we acquire customers directly through digital marketing and inside sales . we also acquire customers indirectly by partnering with leading companies that are trusted by our current and prospective customers , including accounting firms , financial institutions , and software companies . 54 our revenue is visible and predictable from our existing customers . for fiscal 2020 , over 85 % of our subscription and transaction revenue , which we also refer to as core revenue , came from customers who were acquired prior to the start of the fiscal year . we expand within our existing customer base by adding more users , increasing transactions per customer , launching additional products , and through pricing and packaging our services . we make it easy for smbs to try our platform through our risk-free trial program . should an smb choose to become a customer after the trial period , it can take several months to adapt their financial operations to fully leverage our platform . even with a transition period , however , we believe our customer retention is strong . excluding those from our financial institution partners , over 82 % of customers as of june 30 , 2019 were still customers as of june 30 , 2020. net dollar-based retention rate net dollar-based retention rate is an important indicator of customer satisfaction and usage of our platform , as well as potential revenue for future periods . we calculate our net dollar-based retention rate at the end of each fiscal year . we calculate our net dollar-based retention rate by starting with the revenue billed to customers in the last quarter of the prior fiscal year ( prior period revenue ) . we then calculate the revenue billed to these same customers in the last quarter of the current fiscal year ( current period revenue ) , excluding interest earned on customer funds held in trust . current period revenue includes any upsells and is net of contraction or attrition , but excludes revenue from new customers and excludes interest earned on customer funds held in trust . we then repeat the calculation of prior period revenue and current period revenue with respect to each of the preceding three quarters , and aggregate the four prior period revenues ( the aggregate prior period revenue ) and the four current period revenues ( the aggregate current period revenue ) . our net dollar-based retention rate equals the aggregate current period revenue divided by aggregate prior period revenue . our net dollar-based retention rate was 121 % , 110 % and 106 % during fiscal 2020 , 2019 and 2018 , respectively . these consecutive increases are primarily attributable to increases in the number of users , more transactions per customer , and selling additional products to those customers . customer acquisition efficiency our efficient direct and indirect go-to-market strategy , combined with our recurring revenue model , results in our short payback period . we define “ payback period ” as the number of quarters it takes for the cumulative non-gaap gross profit we earn from customers acquired during a given quarter to exceed our total sales and marketing spend in that same quarter . for customers acquired during fiscal 2019 , the average payback period was approximately five quarters . key factors affecting our performance acquiring new customers sustaining our growth requires continued adoption of our platform by new customers . we will continue to invest in our efficient go-to-market strategy as we further penetrate our addressable markets . our financial performance will depend in large part on the overall demand for our platform , particularly demand from smbs , as well as the impact caused by the covid-19 pandemic . as of june 30 , 2020 , we had over 98,000 customers across a wide variety of industries and geographies in the united states . 55 expanding our relationship with existing customers our revenue grows as we address the evolving needs of our customers and as our customers increase usage of our platform . as they realize the benefits of our solution , our customers often increase the number of users on our platform . we also experience growth from customers when we introduce new products and services that are adopted by our customers . story_separator_special_tag our ability to monetize our payments-related services is an important part of our business model . today , we charge fixed and variable transaction fees for payment transactions initiated , and our revenue and payment volume generally grow as customers process more transactions on our platform . our ability to influence customers to process more transactions on our platform will have a direct impact on our transaction fee revenue . as payment volume grows , we experience growth in the level of funds held for customers and we also earn interest revenue on these funds while payment transactions are clearing . our interest earned on customer funds is positively correlated with our interest earnings rate and with customer fund balances . our interest earnings rate is a function of the market interest rate environment and the mix of our investments across interest bearing accounts , government money market funds , and highly liquid , investment-grade fixed income marketable securities . the fund balances are a function of the amount of money transmitted by our customers and the mix of payment types , with some payment types averaging more days in transit than others . investing in sales and marketing we will continue to drive awareness and generate demand to acquire new customers and develop new accounting firm and strategic partner relationships ; however , we will adjust our sales and marketing spend level as needed in response to changes in the economic environment . we will continue to expand efforts to market our platform directly to businesses through online digital marketing , referral programs and other programs . our investment in supporting accounting firms and strategic partners has been significant . we support these accounting firms and strategic partners through education and training initiatives like hosting webinars and developing sell-sheet case studies . in late march 2020 , we implemented a short-term initiative to help new customers negatively impacted by the covid-19 pandemic by offering them a free subscription to our platform for three months , in addition to our standard 30-day risk-free trial . such initiative did not have a significant impact to our total subscription fees during fiscal 2020. investing in our platform we intend to increase our investment in our platform to maintain our position as a leading provider of smb back-office financial software . to drive adoption and increase penetration within our base , we will continue to introduce new products and features . we believe that investment in research and development will contribute to our long-term growth but may also negatively impact our short-term profitability . we will continue to leverage emerging technologies and invest in the development of more features that meet and anticipate smb needs . as a result , we expect our expenses related to research and development to increase . these efforts will require us to invest significant financial and other resources . 56 key business metrics we regularly review several metrics , including the metrics presented in the table below , to measure our performance , identify trends affecting our business , prepare financial projections , and make strategic decisions . we believe that these key business metrics provide meaningful supplemental information for management and investors in assessing our historical and future operating performance . the calculation of the key metrics and other measures discussed below may differ from other similarly-titled metrics used by other companies , securities analysts or investors . replace_table_token_4_th ( 1 ) number of customers as of june 30 , 2018 includes approximately 5,000 customers from a strategic partner that did not renew its contract during fiscal 2019. excluding these customers , our customer growth would have been 31 % during fiscal 2019. number of customers for the purposes of measuring our key business metrics , we define customers as entities that are either billed directly by us or for which we bill our strategic partners during a particular period . customers who are using our platform during a trial period are not counted as new customers during that period . if an organization has multiple entities billed separately for the use of our platform , each entity is counted as a customer . the number of customers in the table above represents the total number of customers at the end of our fiscal quarter . total payment volume to grow revenue from customers we must deliver a product experience that helps them automate their back-office financial operations . the more they use the product and rely upon our features to automate their operations , the more transactions they process on our platform . this metric provides an important indication of the value of transactions that customers are completing on the platform and is an indicator of our ability to generate revenue from our customers . we define total payment volume ( tpv ) as the value of customer transactions that we process on our platform during a particular period . our calculation of tpv includes payments that are subsequently reversed . such payments comprised approximately 1 % of tpv during fiscal 2020. transactions processed we define transactions processed as the number of customer payment transactions , such as checks , ach items , wire transfers and virtual cards , initiated and processed through our platform during a particular period . 57 non-gaap financial measures to supplement our consolidated financial statements , which are prepared and presented in accordance with gaap , we use certain non-gaap financial measures , as described below , to understand and evaluate our core operating performance . these non-gaap financial measures , which may be different than similarly-titled measures used by other companies , are presented to enhance investors ' overall understanding of our financial performance and should not be considered a substitute for , or superior to , the financial information prepared and presented in accordance with gaap .
| the decrease was due to the decrease in the yield we earned from investing customer funds , partially offset by the increase in the balance of customer funds held while payment transactions clear . the average rate of return earned on customer funds held was 1.55 % during fiscal 2020 , a decrease of 51 basis points from fiscal 2019. the decrease in yield was due primarily to the u.s. federal reserve 's action to cut the federal funds rate during the second half of calendar year 2019 and again in march 2020 in response to the covid-19 pandemic . the average daily effective federal funds rate decreased by 95 basis points during fiscal 2020 from fiscal 2019. t he balance of customer funds held while payment transactions clear increased during fiscal 2020 over fiscal 2019. the average daily balance of customer funds in transit increased to approximately $ 1.4 billion during fiscal 2020 from approximately $ 1.1 billion during fiscal 2019 , an increase of 25 % . fund balances increased due to growth in tpv . our tpv increased to approximately $ 96.5 billion during fiscal 2020 from approximately $ 71.3 billion during fiscal 2019 , an increase of 35 % . cost of revenue , gross profit , and gross margin cost of revenue , gross profit , and gross margin during fiscal 2020 and 2019 were as follows ( amounts in thousands ) : replace_table_token_12_th cost of revenue increased to $ 39.1 million during fiscal 2020 from $ 29.9 million during fiscal 2019 , an increase of $ 9.2 million or 31 % . the increase was due primarily to a $ 4.8 million increase in direct costs associated with the processing of our customers ' payment transactions , use of software applications and equipment , bank fees for funds held for customers , and data hosting services , which were driven by the increase in the number of customers , increased adoption of new product offerings , and an increase in the volume of transactions . the increase was also due to a $ 2.4 million
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we also intend to expand medical education and market awareness initiatives , including , in advance of reduce-it results being known , pilot testing of new promotional initiatives for potential broader applications following reduce-it results . in february 2015 , we entered into an exclusive agreement with eddingpharm ( asia ) macao commercial offshore limited , or eddingpharm , to develop and commercialize vascepa capsules in mainland china , hong kong , macau and taiwan , or the china territory . in march 2016 , we entered into an agreement with biologix fzco , or biologix , to register and commercialize vascepa in countries within the middle east and north africa . in september 2017 , we entered into an agreement with hls therapeutics inc. , or hls , to register , commercialize and distribute vascepa in canada . we continue to assess other partnership opportunities for licensing vascepa to partners outside of the united states . triglycerides are the main constituent of body fat in humans . hypertriglyceridemia refers to a condition in which patients have high levels of triglycerides in the bloodstream . it is estimated that over 70 million adults in the united states have elevated triglyceride levels ( tg ≥ 150 mg/dl ) , approximately 40 million adults in the united states have high triglyceride levels ( tg ≥ 200 mg/dl ) , and approximately 3 to 4 million adults in the united states have severely high triglyceride levels ( tg ≥ 500 mg/dl ) , commonly known as very high triglyceride levels . many patients with high triglyceride levels also have diabetes and other lipid level abnormalities such as high cholesterol . the patient condition of having more than one lipid level abnormality is referred to as mixed dyslipidemia . according to the american heart association scientific statement on triglycerides and cardiovascular disease ( 2011 ) , triglycerides provide important information as a marker associated with the risk for heart disease and stroke , especially when an individual also has low high-density lipoprotein cholesterol , or hdl-c ( often referred to as “ good ” cholesterol ) , and elevated levels of ldl-c ( often referred to as “ bad ” cholesterol ) . guidelines for the management of very high triglyceride levels suggest that reducing triglyceride levels is the primary goal in patients to reduce the risk of acute pancreatitis . the effect of vascepa on cardiovascular mortality and morbidity , or the risk for pancreatitis , in patients with hypertriglyceridemia has not been determined . we are currently focused on completing the ongoing reduce-it ( reduction of cardiovascular events with epa—intervention trial ) cardiovascular outcomes study of vascepa , which we started in december 2011. reduce-it , a multinational , prospective , randomized , double-blind , placebo-controlled study , is the first prospective cardiovascular outcomes study of any drug in a population of patients who , despite stable statin therapy , have elevated triglyceride levels . based on the results of reduce-it , we plan to seek additional indicated uses for vascepa . in reduce-it , cardiovascular event rates for patients on stable statin therapy plus 4 grams per day of vascepa will be compared to cardiovascular event rates for patients on stable statin therapy plus placebo . in 2016 , we completed patient enrollment and randomization of 8,175 individual patients into the reduce-it study , exceeding the 8,000 patients targeted for the trial . the reduce-it study is designed to be completed after reaching 1,612 aggregate primary cardiovascular events . based on projected event rates , we estimate the onset of the target aggregate number of primary cardiovascular events to be reached near the end of the first quarter of 2018 with study results then expected to be available and made public before the end of the third quarter of 2018 , followed by publication of the results . between reaching the estimated onset of the target 1,612 aggregate primary cardiovascular events and study data being unblinded and disclosed , vital data will be collected from all remaining living patients in the study and data in the study will be rolled-up for evaluation by the independent data monitoring committee , or dmc , and creation of a final study report . we have instructed clinical sites to schedule patients enrolled in the study for their final site visits commencing march 1 , 2018. the reduce-it study , since its inception in 2011 , has been conducted under a special protocol assessment , or spa , agreement with the fda . this spa , as amended , provides for periodic safety reviews by the study 's dmc . in addition , the spa , as amended , provided for interim efficacy and safety analyses by the study 's dmc at approximately 60 % and at approximately 80 % of the target aggregate number of primary cardiovascular events . the periodic safety reviews and interim efficacy and safety analyses were conducted confidentially by the study 's dmc . we remain blinded to all data from the study . until the study is completed or the study is halted due to a patient safety concern ( not expected ) , amarin personnel will remain blinded to the efficacy and safety data from the reduce-it study . since patient enrollment commenced in 2011 , over 33,000 patient years of study experience have been accumulated in the reduce-it study . following each periodic review of safety data to date , which have occurred quarterly since 2013 , and following each of two interim efficacy and safety analyses , the dmc has communicated to us that we should continue the study as planned . the p-value used to assess the primary endpoint in reduce-it at completion , assuming 1,612 aggregate primary cardiovascular events , is p < 0.0436 . in january 2018 , we announced that more than 90 % of the 1,612 targeted aggregate number of primary cardiovascular events have been reported and documented . story_separator_special_tag 63 our scientific rationale for the reduce-it study is supported by ( i ) epidemiological data that suggests elevated triglyceride levels correlate with increased cardiovascular disease risk , ( ii ) genetic data that suggests triglyceride and or triglyceride-rich lipoproteins ( as well as low-density lipoprotein cholesterol ( ldl cholesterol ) , known as bad cholesterol ) are independently in the causal pathway for cardiovascular disease and ( iii ) clinical data that suggest substantial triglyceride reduction in patients with elevated baseline triglyceride levels correlates with reduced cardiovascular risk . our scientific rationale for the reduce-it study is also supported by research on the putative cardioprotective effects of epa as presented in scientific literature . it is possible that the effects of epa may be due not to a single mode of action , such as triglyceride lowering , but rather to multiple mechanisms working together . studies in the scientific literature explore potentially beneficial effects of epa on multiple atherosclerosis processes , including endothelial function , oxidative stress , foam cell formation , inflammation/cytokines , plaque formation/progression , platelet aggregation , thrombus formation , and plaque rupture . the reduce-it study is needed to determine the clinical benefit , if any , of epa therapy in statin-treated patients with elevated triglyceride levels . in the successful phase 3 marine and anchor clinical trials , vascepa was studied at a daily dose of 2 grams and 4 grams . we sought approval of vascepa at the more efficacious 4-gram dose for use in each patient population . these trials demonstrated favorable results in their respective patient populations , particularly with the 4-gram dose of vascepa , in reducing triglyceride levels without increasing ldl-c levels in the marine trial and with a statistically significant decrease in ldl-c levels in the anchor trial , in each case , relative to placebo . these trials also showed favorable results , particularly with the 4-gram dose of vascepa , in other important lipid and inflammation biomarkers , including apolipoprotein b ( apo b ) , non-high-density lipoprotein cholesterol ( non-hdl-c ) , total-cholesterol ( tc ) , very low-density lipoprotein cholesterol ( vldl-c ) , lipoprotein-associated phospholipase a2 ( lp-pla2 ) , and high sensitivity c-reactive protein ( hs-crp ) . in these trials , the most commonly reported adverse reaction ( incidence > 2 % and greater than placebo ) in vascepa-treated patients was arthralgia ( joint pain ) ( 2.3 % for vascepa vs. 1.0 % for placebo ) . in april 2015 , we received a complete response letter , or crl , from the fda in response to our supplemental new drug application , or snda , that sought approval of vascepa for use in patients with mixed dyslipidemia , based on the successful anchor study . the crl followed an october 2013 rescission by the fda of a special protocol assessment , or spa , agreement and three failed attempts by us to appeal that rescission at fda . the fda has acknowledged the success of the anchor study , which met all primary and secondary endpoints . however , fda determined that there were insufficient data to conclude that drug-induced changes in serum triglycerides could be recognized by the fda as a valid surrogate for reducing cardiovascular risk in the anchor population for the purpose of regulatory approval of a drug targeted at a triglyceride-lowering indication in this population . the fda has acknowledged that the standard of proof required by the fda for approval of a new drug indication is higher than that generally used to inform patient treatment guidelines and that used by physicians in clinical practice . the fda did not determine that the drug-induced effects of vascepa , which go beyond triglyceride-lowering , would not actually reduce cardiovascular risk in this population and the fda has encouraged us to complete the reduce-it outcomes study . based on our communications with the fda , we expect that final positive results from the reduce-it outcomes study will be required for label expansion for vascepa . in may 2015 , we and a group of independent physicians filed a lawsuit in federal court to permit us to promote to healthcare professionals the use of vascepa in patients with mixed dyslipidemia so long as the promotion is truthful and non-misleading . this use reflects recognized medical practice but is not covered by current fda-approved labeling for the drug . historically , fda has considered promotion of drug uses not covered by fda-approved labeling to be illegal off-label promotion , even if such promotion is truthful and non-misleading . in august 2015 , we were granted preliminary relief in the form of a declaratory judgment in this lawsuit . the court declaration permits us to promote to healthcare professionals the fda-reviewed and agreed effects of vascepa demonstrated in the anchor clinical trial and presentation of the current state of scientific research related to the potential of vascepa to reduce the risk of cardiovascular disease including through use of peer-reviewed scientific publications of available data . in august 2015 , we began to communicate promotional information beyond the marine indication to healthcare professionals in the united states as permitted by this court declaration and in march 2016 , the parties obtained court approval of negotiated settlement terms under which the fda and the u.s. government agreed to be bound by the court 's conclusions from the august 2015 declaration that we may engage in truthful and non-misleading speech promoting the off-label use of vascepa and that certain statements and disclosures that we proposed to make to healthcare professionals were truthful and non-misleading . while we believe we are now permitted under applicable law to more broadly promote vascepa , the fda-approved labeling for vascepa did not change as a result of this litigation and settlement , and neither government nor other third-party coverage or reimbursement to pay for the off-label use of vascepa promoted under the court declaration was required .
| during the years ended december 31 , 2017 and 2016 , our net product revenue included an adjustment for co-pay mitigation rebates provided by us to commercially insured patients . such rebates are intended to offset the differential for patients of vascepa not covered by commercial insurers at the time of launch on tier 2 for formulary purposes , resulting in higher co-pay amounts for such patients . our cost for these co-payment mitigation rebates during the years ended december 31 , 2017 and 2016 was up to $ 70 per 30-day prescription filled and , beginning in march 2017 , included up to $ 140 per 90-day prescription filled . since launch , certain third-party payors have added vascepa to their tier 2 coverage , which results in lower co-payments for patients covered by these third-party payors . in connection with such tier 2 coverage , we have agreed to pay customary rebates to these third-party payors on the resale of vascepa to patients covered by these third-party payors . as is typical for the pharmaceutical industry , the majority of vascepa sales are to major commercial wholesalers which then resell vascepa to retail pharmacies . licensing revenue . licensing revenue during the years ended december 31 , 2017 and 2016 was $ 1.3 million and $ 1.1 million , respectively , an increase of $ 0.2 million , or 14 % . licensing revenue relates to the amortization of a $ 15.0 million up-front payment received in february 2015 and a $ 1.0 million milestone payment achieved in march 2016 , both associated with a vascepa licensing agreement for the china territory . licensing revenue also includes amortization of a $ 5.0 million up-front amount associated with a vascepa licensing agreement for canada , which was reached in september 2017. the up-front and milestone payments are being recognized over the estimated period in which we are required to provide regulatory and development support and clinical and commercial supply under the agreements . the amount of licensing revenue recorded may be variable from period to period
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other operating income ( expense ) following is a summary of other operating income ( expense ) for 2011 and 2010 : replace_table_token_20_th selling , general and administrative expenses in 2011 increased $ 72.3 million over the same periods in 2010. these increases primarily were due to additional selling , general and administrative expenses of $ 14.9 million related to our montreal office and service activities related to our bloom lake operations , which we acquired in may 2011 , and $ 29.1 million of higher employee compensation in 2011 . 2011 also was impacted by $ 27.0 million of higher technology and office-related costs and higher outside services costs , primarily comprised of legal and information technology consulting . the increases to selling , general and administrative expenses were offset slightly by a $ 4.5 million decrease in our partner profit-sharing expenses incurred during 2011. the increase in exploration costs of $ 46.8 million for year ended december 31 , 2011 over the prior year primarily was due to increases in costs at our global exploration group and our ferroalloys operating segment . our global exploration group had cost increases of $ 28.3 million in 2011 related to our involvement in exploration activities , as the group focuses on identifying mineral resources for future development or projects that are intended to add significant value to existing operations . the increases at our ferroalloys operating segment primarily were comprised of increases in environmental and engineering costs and other pre-feasibility costs in 2011 of $ 22.5 million . upon performing our annual goodwill impairment test in the fourth quarter of 2011 , a goodwill impairment charge of $ 27.8 million was recorded for our clcc reporting unit within the north american coal operating segment . the fair value was determined using a combination of a discounted cash flow model and valuations of comparable businesses . the impairment charge for the clcc reporting unit was driven by our overall outlook on coal pricing in light of economic conditions , increases in our anticipated costs to bring the lower war eagle mine into production and increases in our anticipated sustaining capital cost for the lives of the clcc mines that currently are operating . during the year ended december 31 , 2011 , we incurred acquisition costs related to our acquisition of consolidated thompson of $ 25.4 million . the acquisition costs primarily were comprised of investment banker fees and legal fees incurred throughout the negotiation and completion of the acquisition . miscellaneous net income increased $ 88.6 million for the year ended december 31 , 2011 over 2010. the increase primarily was attributable to the $ 20.0 million gain we recognized on foreign currency remeasurement of monetary assets and liabilities in our australian and canadian operations during 2011 as compared to the $ 39.1 million loss recognized in 2010. additionally , we recognized incremental income of $ 16.1 million during 2011 from the sale of certain assets , including those assets related to our ownership of cliffs erie . we also recognized $ 13.7 million of insurance recoveries net of casualty losses related to the tornado damage at our oak grove mine in april 2011 . 56 other income ( expense ) following is a summary of other income ( expense ) for 2011 and 2010 : replace_table_token_21_th as a result of acquiring the remaining ownership interests in freewest and wabush during the first quarter of 2010 , our 2010 results were impacted by realized gains of $ 38.6 million primarily related to the increase in fair value of our previous ownership interest in each investment held prior to the business acquisition . the fair value of our previous 12.4 percent interest in freewest was $ 27.4 million on january 27 , 2010 , the date of acquisition , resulting in a gain of $ 13.6 million being recognized in 2010. the fair value of our previous 26.8 percent equity interest in wabush was $ 38.0 million on february 1 , 2010 , resulting in a gain of $ 25.0 million also being recognized in 2010. refer to note 4 acquisitions and other investments for further information . the favorable changes in the fair value of our foreign-currency exchange contracts held as economic hedges during 2011 in the statements of consolidated operations primarily were a result of hedging a portion of the purchase price for the acquisition of consolidated thompson through canadian dollar foreign-currency exchange forward contracts and an option contract . the favorable changes in fair value of these canadian dollar foreign currency exchange forward contracts and option contract for the year ended december 31 , 2011 were a result of net realized gains of $ 93.1 million realized upon the maturity of the related contracts during the second quarter of 2011. in addition , favorable changes in the fair value of our australian dollar foreign currency contracts resulted in net realized gains of $ 43.0 million for the year ended december 31 , 2011 , based upon the maturity of $ 215 million of outstanding contracts during the period . of these gains , $ 34.9 million were recognized in previous periods as mark-to-market adjustments as part of the changes in fair value of these instruments . favorable changes in the fair value of our outstanding australian dollar foreign-currency contracts resulted in mark-to-market adjustments of $ 0.7 million for the year ended december 31 , 2011 , based upon the australian to u.s. dollar spot rate of 1.02 as of december 31 , 2011. the spot rate as of the end of 2011 remained flat when compared to the australian to u.s. dollar spot rate of 1.02 as of december 31 , 2010. the following table represents our australian dollar foreign currency exchange contract position for contracts held as economic hedges as of december 31 , 2011 : replace_table_token_22_th ( 1 ) includes collar options . 57 refer to note 3 derivative instruments and hedging activities for further information . story_separator_special_tag the increase in interest expense in 2011 compared with 2010 is attributable to higher debt levels to support acquisition activity . this included the recognition of a full year of interest expense in 2011 related to the $ 1 billion public offering of senior notes that was completed in september 2010 consisting of two tranches : a $ 500 million 10-year tranche at a 4.80 percent fixed interest rate and a $ 500 million 30-year tranche at a 6.25 percent fixed interest rate . we completed an additional $ 1 billion public offering of senior notes during the first half of 2011 consisting of two tranches : a $ 700 million 10-year tranche at a 4.875 percent fixed interest rate and a $ 300 million 30-year tranche at a 6.25 percent fixed interest rate . these 2011 public offerings were completed in march and april 2011 , respectively . during the second quarter of 2011 , we borrowed $ 1.25 billion under the five-year term loan and we terminated the bridge credit facility that we entered into to provide a portion of the financing for the acquisition of consolidated thompson . the termination of the bridge credit facility resulted in the realization of $ 38.3 million of debt issuance cost related to the bridge credit facility during 2011. in august 2011 , we entered into a five-year unsecured amended and restated multicurrency credit agreement that resulted in , among other things , a $ 1.75 billion revolving credit facility that was used to pay down $ 250 million of the term loan . the weighted average annual interest rate under the revolving credit facility and the term loan was 1.84 percent and 1.40 percent , respectively , from each of the respective borrowing dates through december 31 , 2011. all amounts outstanding under the revolving credit facility were repaid in full on december 12 , 2011. see note 7 debt and credit facilities for further information . income taxes our tax rate is affected by recurring items , such as depletion and tax rates in foreign jurisdictions and the relative amount of income we earn in our various jurisdictions with tax rates that differ from the u.s. statutory rate . it is also affected by discrete items that may occur in any given year , but are not consistent from year to year . the following represents a summary of our tax provision and corresponding effective rates for the years ended december 31 , 2011 and 2010 : replace_table_token_23_th a reconciliation of the statutory tax rate to the effective tax rate for the years ended december 31 , 2011 and 2010 is as follows : replace_table_token_24_th 58 our tax provision for the years ended december 31 , 2011 and 2010 was $ 420.1 million , for an 18.7 percent effective tax rate , and $ 293.5 million , for a 22.5 percent effective tax rate , respectively . the difference in the effective tax rate for 2011 compared with 2010 is primarily a result of the inclusion of the remeasurement of foreign deferred tax assets and liabilities related to the consolidated thompson acquisition , the non-taxable income related to our noncontrolling interest in partnerships , income not subject to tax and the change in the valuation allowance relating to ordinary losses of certain foreign operations for which utilization is currently uncertain . discrete items as of december 31 , 2011 relate to foreign exchange remeasurement , prior year adjustments related to the filing of the 2010 tax returns in multiple jurisdictions , audit closures , statute expiration and interest related to unrecognized tax benefits . discrete items for 2010 related to expenses resulting from the ppaca and the reconciliation act that were signed into law in march 2010 , expenses related to prior year u.s. and foreign income tax provisions recognized in 2010 and interest related to unrecognized tax benefits . as mentioned above , the ppaca and the reconciliation act were signed into law in 2010. as a result of these two acts , tax benefits available to employers that receive the medicare part d subsidy are reduced beginning in years ending after december 31 , 2012. the income tax effect related to the acts for year ended 2010 was an increase to expense , recorded discretely , of $ 16.1 million , representing approximately 1.2 percent of the effective tax rate . the amount recorded was related to the postretirement prescription drug benefits computed after the elimination of the deduction for the medicare part d subsidy beginning in taxable years ending after december 31 , 2012. the valuation allowance of $ 223.9 million as of december 31 , 2011 reflects an increase of $ 51.2 million from december 31 , 2010. this primarily relates to ordinary losses of certain foreign operations for which utilization is uncertain . see note 12 income taxes for further information . equity income ( loss ) from ventures equity income ( loss ) from ventures primarily is comprised of our share of the results from amapá and ausquest , for which we have a 30 percent ownership interest in each . the equity income ( loss ) from ventures for the year ended december 31 , 2011 of $ 9.7 million compares to equity income ( loss ) from ventures for year ended december 31 , 2010 of $ 13.5 million . the equity income for 2011 primarily is comprised of our share of the operating results of our equity method investment in amapá , which consisted of operating income of $ 32.4 million for year ended december 31 , 2011 , compared with operating income of $ 17.2 million for 2010. amapá 's equity income increased during 2011 due to increased sales volume and higher pricing . this equity income was offset partially by the impairment taken on our investment in ausquest of $ 19.1 million during 2011 related to the decline in the fair value of our ownership interest , which was determined to be other than temporary .
| global crude steel production , the primary driver of our business , was up approximately five percent from 2010. this included increases of approximately nine and seven percent in china and the u.s. , respectively , which are the two largest markets for the company . china produced approximately 683 million metric tons of crude steel in 2011 , representing approximately 46 percent of global production . the world price of iron ore is influenced heavily by international demand ; and rising spot market prices for iron ore has reflected this trend . our consolidated revenues for 2011 increased to $ 6.8 billion , with net income from continuing operations per diluted share of $ 11.61. this compares with revenues of $ 4.7 billion and net income from continuing operations per diluted share of $ 7.51 in 2010. based upon the recent shift in the industry toward shorter-term pricing arrangements linked to the spot market and away from the annual international benchmark pricing mechanism historically referenced in our customer supply agreements , pricing has continued to increase during 2011 compared to 2010. we have finalized short-term pricing arrangements with our asia pacific iron ore customers and we have reached final pricing settlements with the majority of our u.s. iron ore customers for the 2011 contract year . however , in some cases we are still working to revise components of the pricing calculations referenced within our supply agreements to incorporate new pricing mechanisms as a result of the changes to historical benchmark pricing . in addition , in april 2011 , we reached a negotiated settlement with arcelormittal usa with respect to our previously disclosed arbitrations and litigation resulting in additional revenue recorded in 2011. revenues during 2011 were also impacted by higher iron ore sales volumes in eastern canada and higher metallurgical and thermal coal sales volumes in the u.s. that were made available through our acquisition of consolidated thompson and clcc during the second quarter of
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refer to note 8 , `` borrowings and lines of credit '' in item 8 of this form 10-k for additional information . other charges the company recorded pre-tax environmental charges for the environmental remediation at a former chromium manufacturing plant and associated sites in new jersey of $ 136 million and $ 89 million in 2014 and 2013 , respectively . other charges in 2015 and 2013 were lower than 2014 due to the timing and amount of these pre-tax environmental charges . other income in 2014 , ppg recorded a $ 22 million pre-tax gain on the divestiture of a flat glass production facility and a $ 94 million pre-tax gain on ppg 's share of the gain recognized from the sale of an equity affiliate 's business . other income in 2015 and 2013 was lower than 2014 due to the absence of these benefits . further , in 2015 other income was reduced by an equity affiliate debt refinancing transaction charge of $ 11 million . effective tax rate and earnings per share december 31 , percent change ( $ in millions , except percentages ) 2015 2014 2013 2015 vs. 2014 2014 vs. 2013 income tax expense $ 456 $ 259 $ 253 76.1 % 2.4 % effective tax rate 24.2 % 18.3 % 20.6 % 5.9 % ( 2.3 ) % adjusted effective tax rate , ongoing operations * 24.5 % 23.9 % 23.1 % 0.6 % 0.8 % earnings per diluted share , continuing operations $ 5.14 $ 4.05 $ 3.27 26.9 % 23.9 % adjusted earnings per diluted share * $ 5.69 $ 4.88 $ 3.83 16.6 % 27.4 % * see the regulation g reconciliation . the effective tax rate for the year-ended december 31 , 2015 was affected by a shift in ppg 's global mix of earnings toward jurisdictions with higher statutory tax rates , due in part to recent acquisitions , including comex . earnings per diluted share for the year ended december 31 , 2015 grew consecutively from 2014 and 2013. the company benefited from the 11.5 million shares of stock repurchased in 2013 , the 7.6 million shares of stock repurchased during 2014 and the 7.0 million shares repurchased in 2015. in addition , about 21.6 million shares were added to treasury stock as a result of the january 2013 exchange transaction that was part of the separation of ppg 's former commodity chemicals business . on april 16 , 2015 , the ppg board of directors approved a 2-for-1 split of the company 's common stock for all shareholders . the record date for the split was the close of business on may 11 , 2015 , and the additional shares were distributed on june 12 , 2015. each shareholder as of the date of record received one additional share of common stock for each share held . historical per share and share data ( except for shares on the balance sheet ) in this form 10-k give retroactive effect to the stock split . these reclassifications had no impact on our previously reported net income , total assets , cash flows or shareholders ' equity . 20 2015 ppg annual report and form 10-k regulation g reconciliation - results from operations ppg industries believes investors ' understanding of the company 's operating performance is enhanced by the disclosure of net income , earnings per diluted share and the effective tax rate adjusted for nonrecurring charges . ppg 's management considers this information useful in providing insight into the company 's ongoing operating performance because it excludes the impact of items that can not reasonably be expected to recur on a quarterly basis . net income and earnings per diluted share adjusted for these items are not recognized financial measures determined in accordance with u.s. generally accepted accounting principles ( gaap ) and should not be considered a substitute for net income or earnings per diluted share or other financial measures as computed in accordance with u.s. gaap . in addition , adjusted net income , earnings per diluted share and the effective tax rate may not be comparable to similarly titled measures as reported by other companies . income before income taxes is reconciled to adjusted income before income taxes , the effective tax rate from continuing operations is reconciled to the adjusted effective tax rate from continuing operations and net income ( attributable to ppg ) and earnings per share – assuming dilution ( attributable to ppg ) are reconciled to adjusted net income ( attributable to ppg ) and adjusted earnings per share – assuming dilution below : replace_table_token_7_th replace_table_token_8_th replace_table_token_9_th ( 1 ) transaction-related costs include advisory , legal , accounting , valuation , and other professional or consulting fees incurred to effect significant acquisitions , as well as similar fees and other costs to effect disposals not classified as discontinued operations . these costs also include the flow-through cost of sales of the step up to fair value of inventory acquired in acquisitions . these costs also include certain nonrecurring severance costs and charges associated with the company 's business portfolio transformation . 2015 ppg annual report and form 10-k 21 performance of reportable business segments performance coatings replace_table_token_10_th 2015 vs. 2014 performance coatings net sales increased ( 1 % ) due to the following : ● net sales from acquisitions ( 9 % ) , largely comex ● selling prices were modestly higher partially offset by : ● unfavorable foreign currency translation of approximately $ 700 million ( 8 % ) ● lower sales volumes ( 1 % ) architectural coatings - emea sales volumes declined 1 % . demand was inconsistent throughout the region with modest growth continuing in certain countries , including the u.k. , while several other countries experienced lower demand , including france . protective and marine coatings net sales volumes were slightly higher year-over-year . sales for the business increased due to acquisition-related sales synergies from the comex acquisition offset by unfavorable foreign currency translation . story_separator_special_tag organic sales growth continued in aerospace coatings , aided by increased end-use market demand , but moderated versus the prior period reflecting the strong growth the business has delivered the past several years . automotive refinish coatings sales volume growth was higher , with solid growth trends in the u.s. and canada . excluding the impacts of acquisitions and currency , architectural coatings - americas and asia pacific net sales were lower versus 2014. the year-over-year sales comparison was negatively impacted in the u.s. and canada by several new ppg product pipeline fills at major customers in the previous year , as well as customer inventory management by most u.s. and canadian retail customers and independent dealers at the end of a modest paint season . organic sales growth in the recently acquired comex architectural coatings business was a high-single-digit percentage , but was partially mitigated by unfavorable foreign currency translation caused by the impact of a weaker mexican peso versus the u.s. dollar . segment income increased $ 97 million ( 8 % ) primarily due to acquisitions , lower manufacturing costs and modestly higher selling prices , partially offset by unfavorable foreign currency translation and lower sales volumes . 2014 vs. 2013 performance coatings net sales increased ( 10 % ) due to the following : ● net sales from acquisitions ( 8 % ) , which included the 2013 acquisition of a north american architectural coatings business and comex ● selling prices increased modestly ● sales volumes , excluding acquisitions , advanced nearly 2 % across all major regions partially offset by : ● unfavorable currency translation of $ 60 million architectural coatings-emea sales volumes improved by low-single digit percentages year-over-year aided by partial demand recovery in some regions and in comparison to strengthening prior year levels . sales volume improvement occurred early in the year , aided by favorable weather conditions , which was partially offset by lower year-over-year sales volumes late in the year . the protective and marine coatings business experienced modest sales improvement , driven primarily by sales volume increases in the north american and european protective markets . marine new-build sales volumes were negative early in the year , but positive late in the year . the aerospace coatings and automotive refinish businesses both delivered slightly higher sales volumes year-over-year in each major region . demand trends in the overall aerospace industry continued to remain favorable globally . automotive refinish coatings sales growth was supported by higher emerging region activity and solid growth in the developed regions , including benefits from the expansion of the vehicle parc in asia , higher north american demand and a partial demand recovery in europe . excluding the impacts of acquisitions and currency , architectural coatings , america and asia pacific , net sales were up modestly year over year . segment income increased $ 162 million ( 16 % ) primarily due to the increase in organic net sales and acquisitions , including the further realization of cost synergies , partially offset by cost inflation . looking ahead in the first quarter of 2016 , we expect recently completed acquisitions to add $ 25 million to $ 30 million to net sales . we also expect sales volume growth to continue in the architectural coatings - emea business in the first quarter of 2016 ; although , we expect results to vary by country . in addition , the protective and marine coatings business is expected to deliver modest year-over-year volume growth in the first quarter 2016. for the aerospace coatings business , we anticipate sales volume performance to be in line with industry rates as customer order patterns return to normal levels . in our architectural coatings americas and asia pacific business , we are implementing various initiatives in our north american `` do it yourself '' business , consistent with ppg 's multi-year rebranding strategy announced in 2015. these initiatives include investments in new product labeling and improved store displays , along with associated growth-oriented initiatives , which will result in incremental costs of approximately $ 15 million . additionally , based on current exchange rates , we expect foreign currency translation on segment sales and income to be less unfavorable sequentially versus the fourth quarter of 2015 and year-over-year as the euro and other major currencies weakened during 2015 . 22 2015 ppg annual report and form 10-k industrial coatings replace_table_token_11_th 2015 vs. 2014 industrial coatings segment net sales decreased ( 1 % ) due to the following : ● unfavorable foreign currency translation of nearly $ 400 million ( 8 % ) ● lower sales prices ( 1 % ) partially offset by : ● net sales from acquired businesses ( 4 % ) ● higher sales volumes ( 3 % ) , with growth in all regions , led by asia-pacific and emea ppg 's global automotive oem coatings business achieved sales volume growth in all regions , with an aggregate business unit growth rate of a high-mid-single-digit percentage year-over-year in comparison with the global auto industry production growth rate of approximately 2 % . ppg sales volume growth was led by strong european and asian demand . ppg continues to benefit from the adoption of new technologies and ongoing focus on customer service and customer process improvement initiatives . sales volumes declined modestly in ppg 's general industrial coatings and specialty coatings and materials businesses in comparison to strong volume growth in the prior year period . demand was mixed across various end-use markets and regions . global packaging coatings sales volumes were up a high-mid-single-digit percentage , aided by new product introductions and continued emerging region growth . segment income increased $ 34 million ( 4 % ) primarily due to lower manufacturing costs , higher sales volumes and acquisitions , partially offset by unfavorable foreign currency translation .
| 2015 ppg annual report and form 10-k 27 defined benefit pension plan contributions replace_table_token_16_th we did not have a mandatory contribution to our u.s. defined benefit pension plans in 2015 , 2014 or 2013 , and we do not expect to be required to make contributions to our u.s. defined benefit pension plans in 2016. some contributions to our non-u.s. defined benefit pension plans were required by local funding requirements . we expect to make mandatory contributions to our non-u.s. plans in the range of $ 35 million to $ 40 million in 2016. we may also make voluntary contributions to our u.s. pension plans in 2016 and beyond . cash used for investing activities - continuing operations total capital spending , including acquisitions replace_table_token_17_th ( 1 ) includes modernization and productivity improvements , expansion of existing businesses and environmental control projects ( 2 ) excluding cash acquired , capital spending , business acquisitions totaled $ 440 million , $ 2,183 million and $ 997 million in 2015 , 2014 and 2013 , respectively . spending related to modernization and productivity improvements , expansion of existing businesses and environmental control projects is expected to be in the range of 3.0 % to 3.5 % of sales during 2016. a primary focus for the company in 2016 will continue to be prudent cash deployment focused on profitable income growth , including pursuing opportunities for additional strategic acquisitions . in 2015 , the company spent $ 320 million , net of cash acquired , to make several strategic bolt-on business acquisitions with a total purchase price of $ 440 million . ppg also acquired approximately $ 40 million of third party debt . in november 2014 , the company acquired comex , an architectural coatings company with headquarters in mexico city , mexico . in 2014 , ppg also completed the acquisition of several smaller companies . the total cost of the 2014 acquisitions , including acquired debt repaid , was $ 2,427 million , net of cash acquired . in march 2014 , ppg received $ 1.735 billion in cash proceeds for the sale
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however , if our future cash flows from operations less capital expenditures were to drop significantly below our current expectations ( approximately 70 % below our expectations for custom marine and 80 % below our expectations for livorsi marine ) , it is reasonably likely we would conclude an impairment was present . at december 31 , 2012 the net asset carrying values of custom marine and livorsi marine were $ 3.4 million and $ 2.8 million , respectively . no other long-lived assets in our other business units were tested for impairment during 2012 because there were no circumstances indicating an impairment might exist . goodwill we perform a goodwill impairment test annually in the third quarter of each year . goodwill is also evaluated for impairment at other times whenever an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value . the estimated fair values of compx 's two reporting units , as well as the estimated fair value -42- of our ewi insurance brokerage subsidiary , are determined using level 3 inputs of a discounted cash flow technique since level 1 or level 2 inputs of market prices are not available at the reporting unit level . if the fair value is less than the book value , the asset is written down to the estimated fair value . considerable management judgment is necessary to evaluate the impact of operating changes and to estimate future cash flows . assumptions used in our impairment evaluations , such as forecasted growth rates and our cost of capital , are consistent with our internal projections and operating plans . in that regard , we recognized a goodwill impairment of approximately $ 6.4 million attributable to ewi in the fourth quarter of 2012. see note 8 to the consolidated financial statements . benefit plans we maintain various defined benefit pension plans and postretirement benefits other than pensions ( opeb ) . the amounts recognized as defined benefit pension and opeb expenses and the reported amounts of pension asset and accrued pension and opeb costs are actuarially determined based on several assumptions , including discount rates , expected rates of returns on plan assets and expected health care trend rates . variances from these actuarially assumed rates will result in increases or decreases , as applicable , in the recognized pension and opeb obligations , pension and opeb expenses and funding requirements . these assumptions are more fully described below under the heading assumptions on defined benefit pension plans and opeb plans. income taxes we recognize deferred taxes for future tax effects of temporary differences between financial and income tax reporting . while we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance , it is possible that in the future we may change our estimate of the amount of the deferred income tax assets that would more-likely-than-not be realized in the future resulting in an adjustment to the deferred income tax asset valuation allowance that would either increase or decrease , as applicable , reported net income in the period the change in estimate was made . we record a reserve for uncertain tax positions in accordance with the provisions of asc topic 740 , income taxes , for tax positions where we believe it is more-likely-than-not our position will not prevail with the applicable tax authorities . it is possible that we may change our assessment regarding the probability that our tax positions will prevail that would require an adjustment to the amount of our reserve for uncertain tax positions that could either increase or decrease , as applicable , reported net income in the period the change in assessment was made . see note 15 to our consolidated financial statements . accruals we record accruals for environmental , legal and other contingencies and commitments when estimated future expenditures associated with such contingencies become probable , and the amounts can be reasonably estimated . however , new information may become available , or circumstances ( such as applicable laws and regulations ) may change , thereby resulting in an increase or decrease in the amount required to be accrued for such matters ( and therefore a decrease or increase in reported net income in the period of such change ) . -43- assets held for sale at december 31 , 2012 our assets held for sale consisted of the river grove facility and land in neenah , wisconsin . these two properties ( primarily land , building and building improvements ) were formerly used in compx 's operations . until the fourth quarter of 2012 , a facility in byron center , michigan was also included in assets held for sale . in september 2012 , we obtained updated independent appraisals of the byron center and river grove facilities . based on these appraisals , we recognized write-downs in the third quarter of 2012 of $ .2 million on the byron center facility and $ .2 million on the river grove facility to reduce the carrying value of the assets to their estimated fair value less cost to sell . the appraisals represent a level 2 input as defined by asc 820-10-35. we sold the byron center facility in december 2012 for net proceeds of $ 3.6 million , which was less than the carrying amount of the assets and we therefore recognized a loss on the sale of the facility of approximately $ .8 million during the fourth quarter of 2012. in the fourth quarter of 2012 , we entered into an agreement to sell the river grove facility . story_separator_special_tag the transaction closed during the first quarter of 2013. the net proceeds from the sale approximate the carrying value of the assets as of december 31 , 2012. the valuation of the river grove facility as of december 31 , 2012 is based on a sales contract with a third party which represents a level 2 input as defined by asc 820-10-35. the write-downs on assets held for sale together with the loss on the sale of the byron center facility as of december 31 , 2012 totaled $ 1.2 million . income from operations of compx and kronos is impacted by certain of these significant judgments and estimates , as summarized below : chemicals ( kronos ) allowance for doubtful accounts , impairment of equity method investments , long-lived assets , defined benefit pension and opeb plans , loss accruals and income taxes , and component products ( compx ) impairment of goodwill and long-lived assets , loss accruals and income taxes . in addition , general corporate and other items are impacted by the significant judgments and estimates for impairment of marketable securities and equity method investments , defined benefit pension and opeb plans , deferred income tax asset valuation allowances and loss accruals . -44- loss from operations attributable to continuing operations the following table shows the components of our loss from operations attributable to continuing operations . replace_table_token_6_th the following table shows the components of our income before income taxes attributable to continuing operations exclusive of our income from operations . replace_table_token_7_th n.m.not meaningful compx international inc. replace_table_token_8_th -45- net sales net sales increased approximately $ 3.4 million in 2012 principally due to growth in customer demand within both of compx 's businesses resulting from somewhat improved economic conditions in north america . additionally , the marine components business experienced a $ .1 million increase in sales to the ski/wakeboard boat market . relative changes in selling prices did not have a material impact on net sales comparisons . net sales increased approximately $ 3.7 million in 2011 as compared to 2010 principally due to improved sales in the security products business . the security products business experienced a significant increase in sales to customers in the leisure transportation industry as well as improved customer order rates across most markets as a result of some improvement in the economy and new specific customer projects . net sales growth for marine components was not significant from 2010 to 2011. cost of sales and gross margin cost of sales and gross margin both increased from 2011 to 2012 primarily due to increased sales volumes . gross margin and income from operations percentages decreased in 2012 compared to 2011 by 1 % primarily due to higher self-insured medical costs of $ .9 million in 2012. cost of sales increased from 2010 to 2011 primarily due to increased sales volumes . as a percentage of sales , gross margin increased in 2011 from the prior year . the gross margin percentage was positively impacted by the increased leverage of fixed costs from higher sales and lower self-insured medical costs . operating costs and expenses operating costs and expenses consists primarily of sales and administrative related personnel costs , sales commissions and advertising expenses directly related to product sales and administrative costs relating to business unit and corporate management activities , as well as gains and losses on property , plant and equipment . operating costs and expenses increased in 2012 as compared to 2011 as a result of increased administrative support costs relating to the higher sales and higher maintenance costs relating to the assets held for sale . as a percentage of net sales , operating costs and expenses were comparable at 21 % in 2011 and 2010. write-down and loss on disposal of assets held for sale we recorded write-downs on assets held for sale of $ 1.2 million ( including a $ .8 million loss on disposal of asset held for sale ) , $ 1.1 million and $ .5 million in 2012 , 2011 and 2010 , respectively , relating to certain facilities held for sale that are no longer in use . see note 9 to our consolidated financial statements . income from operations as a percentage of net sales , compx 's income from operations decreased by 1 % in 2012 compared to 2011 and was primarily impacted by the factors impacting cost of sales , gross margin and operating costs discussed above . as a percentage of net sales , income from operations was comparable in 2011 and 2010. general compx 's profitability primarily depends on our ability to utilize our production capacity effectively , which is affected by , among other things , the demand for our products and our ability to control our manufacturing costs , primarily comprising labor costs and materials . the materials used in our products consist of purchased components and raw materials some of which are subject to fluctuations in the commodity markets -46- such as zinc , brass and stainless steel . total material costs represented approximately 44 % of our cost of sales in 2012 , with commodity related raw materials accounting for approximately 10 % of our cost of sales . worldwide commodity raw material costs began increasing in the second half of 2010 and continued increasing throughout 2011 , although during 2012 they were mostly stable . we occasionally enter into short-term commodity related raw material supply arrangements to mitigate the impact of future increases in commodity related raw material costs . these arrangements generally provide for stated unit prices based upon specified purchase volumes , which helps us to stabilize commodity related raw material purchase prices to a certain extent . we enter into such arrangements for zinc and brass . we expect commodity related raw material prices to increase in 2013 in conjunction with higher demand as a result of the expected growth in the world wide economy .
| impairment related to our acquisition of ewi of $ 6.4 million in 2012 , a pre-tax gain on the sale of the shares of the titanium metals corporation ( timet ) common stock we owned in 2012 of $ 16.6 million , and a real-estate litigation settlement gain of $ 15.0 million recognized in 2012 related to the settlement of condemnation proceedings on real property we formerly owned . -39- as more fully discussed below , the increase in our earnings per share attributable to continuing operations from 2010 to 2011 is primarily due to the net effects of : higher equity in earnings of kronos in 2011 due to kronos ' higher income from operations , higher income from operations from components products in 2011 , a pre-tax gain of $ 78.9 million ( $ 51.0 million , net of taxes ) on our reduction in ownership interest in kronos from 36 % to 30 % in november 2010 as a result of kronos ' secondary stock offering , an income tax benefit recognized by kronos in the first quarter of 2010 related to a european court ruling that resulted in the favorable resolution of certain german income tax issues , higher environmental remediation and related expense in 2011 of $ 11.0 million , a litigation settlement expense in 2010 as discussed in note 19 to our consolidated financial statements , and higher insurance recoveries in 2010 of $ 1.9 million primarily related to the litigation settlement expense partially offset by an insurance recovery settlement in 2011 for certain past lead defense costs . our 2012 income from continuing operations attributable to nl stockholders includes the following : a charge of $ .02 per share included in our equity in kronos related to kronos ' charge for the early extinguishment of its remaining 6.5 % senior notes due 2013 consisting of a call premium , interest from the indenture discharge date to the redemption date and the write-off of
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we are currently assessing what we believe would be the optimal path for potential approval of defibrotide in the united states . finally , we are conducting ongoing trials involving asparec tm ( mpeg-r-crisantaspase ) , a pegylated recombinant erwinia asparaginase for the treatment of patients with all with e. coli asparaginase hypersensitivity , and leukotac tm ( inolimomab ) , an anti-cd25 monoclonal antibody for the treatment of steroid-refractory acute graft versus host disease , or gvhd . our development pipeline projects also include line extensions for existing products and the generation of additional clinical data for existing products . we plan to conduct a clinical trial to further evaluate the use of erwinaze in young adults age 18 to 39 with all who are hypersensitive to e. coli- derived asparaginase . for 2014 and beyond , we expect that our research and development expenses will increase substantially from historical levels , particularly as we initiate our various planned clinical trials and development work . in addition , through the gentium acquisition we acquired a manufacturing facility that produces active pharmaceutical ingredients , including defibrotide , the drug substance in defitelio , and in february 2014 we announced we commenced construction of a manufacturing and development facility in ireland . the gentium acquisition was carried out pursuant to a tender offer agreement that we entered into with a wholly-owned subsidiary of ours , as purchaser , and gentium . on december 23 , 2013 , we launched a tender offer for all of gentium 's ordinary shares and american depositary shares , or adss , at a purchase price of $ 57.00 per share , net to the holders in cash , without interest on the purchase price , less any required withholding taxes . the initial tender offer period expired on january 22 , 2014 , and we accepted and purchased all of the gentium ordinary shares and adss properly tendered at that time , which represented approximately 69 % of the then fully diluted number of gentium ordinary shares and adss . following the expiration of the tender offer , and in accordance with the terms of the tender offer agreement , we commenced a subsequent offering period of the tender offer to acquire all remaining untendered ordinary shares and adss . the subsequent offering period expired on february 20 , 2014 and we accepted and purchased an additional approximately 29 % of the fully diluted gentium ordinary shares and adss properly tendered during the subsequent offering period , resulting in total purchases pursuant to the tender offer of approximately 98 % of the fully diluted number of gentium ordinary shares and adss as of february 21 , 2014. the acquisition cost of the total number of gentium ordinary shares and adss we purchased pursuant to the tender offer was approximately $ 993 million . we intend to cause gentium to seek the voluntary delisting of gentium adss from the nasdaq stock market , or nasdaq , and the deregistration of gentium ordinary shares and adss under the securities and exchange act of 1934 , as amended , or the exchange act . we expect that there will not be an active trading market for outstanding adss following the delisting . in june 2012 , we entered into a credit agreement that provided for $ 475.0 million principal amount of term loans and a $ 100.0 million revolving credit facility . the proceeds from the term loans were used to partially finance the eusa acquisition . in june 2013 , we amended the credit agreement to provide for $ 557.2 million principal amount of term loans and a new revolving credit facility of $ 200.0 million that replaced the $ 100 million revolving credit facility . we used a portion of the proceeds from the new term loans to refinance in full the $ 457.2 million principal amount of term loans outstanding under the credit agreement prior to the amendment . in january 2014 , in connection with the gentium acquisition , we further amended the credit agreement to provide for a tranche of incremental term loans in the aggregate principal amount of $ 350.0 million , a tranche of term loans that refinanced the approximately $ 554.4 million principal amount of term loans outstanding prior to this amendment , and a $ 425.0 million revolving credit facility that replaced the $ 200.0 million revolving credit facility . we used the proceeds from the incremental term loans and $ 300.0 million of loans under the revolving credit facility , together with cash on hand , to purchase the gentium ordinary shares and adss properly tendered pursuant to the tender offer . in 2013 , we initiated purchases under a share repurchase program for up to $ 200 million of our ordinary shares . we spent a total of $ 136.5 million , including commission , to repurchase our ordinary shares under this program in 2013. we suspended our share repurchase program in november 2013 to preserve cash for future business development opportunities , and subject to market conditions and alternative uses of cash , we plan to resume the program in 2014. over the past two years , we have made targeted investments to strengthen our capabilities and enhance and diversify our commercial and development portfolio . we intend to continue to leverage our commercial , medical and scientific experience to seek to maximize the potential of our existing and potential products . our investments have allowed us to build a scalable infrastructure to support future growth and to continue to create shareholder value . story_separator_special_tag we anticipate that we will continue to face a number of challenges and risks to our business and our ability to execute our strategy in 2014. for example , while we now have a more diversified product portfolio than in the past , our financial results remain significantly influenced by sales of xyrem , which accounted for 65.8 % of our net product sales for 2013. as a result , we continue to place a high priority on seeking to maintain and increase sales of xyrem in its 76 approved indications , while remaining focused on ensuring the safe and effective use of the product . we are also focusing on the lifecycle management of xyrem , including seeking to enhance and enforce our intellectual property rights . our ability to maintain or increase xyrem product sales is subject to a number of risks and uncertainties , including those discussed in part i , item 1a of this annual report on form 10-k. in particular , there are three abbreviated new drug applications , or andas , submitted to the fda by third parties seeking to market generic versions of xyrem . we initiated lawsuits against all three third parties , and the litigation proceedings are ongoing . we can not predict the timing or outcome of these proceedings . although no trial date for the consolidated case with the first anda filer , roxane laboratories , inc. , or roxane , has been scheduled , we anticipate that trial in that case could occur as early as late in the fourth quarter of 2014. we expect that the approval of an anda that results in the launch of a generic version of xyrem would have a material adverse effect on our business , financial condition , results of operations and growth prospects . in addition , we are continuing our efforts on various regulatory matters , including working with the fda on updated documents that we have submitted to the fda on our risk management and controlled distribution system for xyrem , which we refer to as the xyrem risk management program . we are engaged in ongoing communications with the fda with respect to our risk evaluation and mitigation strategies , or rems , documents for xyrem , but we have not reached agreement on certain significant terms . for example , we disagree with the fda 's current position that , as part of the current rems process , the xyrem deemed rems should be modified to enable the distribution of xyrem through more than one pharmacy , or potentially through retail pharmacies and wholesalers , as well as with certain modifications proposed by the fda that would , in the fda 's view , make the rems more consistent with the fda 's current practices for rems documents . the fda has notified us that it would exercise its claimed authority to modify our rems and that it would finalize the rems as modified by the fda unless we initiate dispute resolution procedures with respect to the modification of the xyrem deemed rems . given these circumstances , we will initiate dispute resolution procedures with the fda by the end of february 2014. we can not predict whether , or on what terms , we will reach agreement with the fda on final rems documents for xyrem , whether we will initiate additional dispute resolution proceedings with the fda or other legal proceedings prior to finalizing the rems documents , or the outcome or timing of any such proceedings . we expect that final rems documents for xyrem will include modifications to , and or requirements that are not currently implemented in , the xyrem risk management program . any such modifications or additional requirements could potentially make it more difficult or expensive for us to distribute xyrem , make it easier for future generic competitors , and or negatively affect sales of xyrem . in january 2014 , the fda held an initial meeting with us and current xyrem anda applicants to facilitate the development of a single shared system rems for xyrem ( sodium oxybate ) . we also expect to face pressure to license or share our xyrem risk management program , which is the subject of multiple issued patents , or elements of it , with generic competitors . we can not predict the outcome or impact on our business of any future action that we may take with respect to the development of a single shared system rems for xyrem ( sodium oxybate ) , licensing or sharing our rems , or the fda 's response to a certification that a third party had been unable to obtain a license . our financial results are increasingly influenced by sales of our second largest product , erwinaze/erwinase , which have continued to grow . sales of erwinaze/erwinase accounted for 20.1 % of our net product sales in 2013. we seek to maintain and increase sales of erwinaze , as well as to make erwinaze more widely available , through ongoing research and development activities . however , our ability to successfully and sustainably grow sales of erwinaze is subject to a number of risks and uncertainties , including those discussed in part i , item 1a of this annual report on form 10-k. in particular , a key challenge to our ability to maintain the current sales level and continue to increase sales is our need to assure sufficient supply of erwinaze on a timely basis . we have limited inventory of erwinaze , and , during 2013 , our supply of erwinaze was nearly completely absorbed by demand for the product . in the past , we have experienced a disruption of supply of erwinase in the european market due to manufacturing challenges , including shortages related to the failure of a batch to meet certain specifications in 2013 , and we may experience similar or other manufacturing challenges in the future .
| the sales volume increases in both periods were driven by an increase in the average number of patients on xyrem and by a greater number of xyrem patients who refilled their xyrem prescriptions on schedule and who remained on therapy , which we believe resulted from our efforts to increase physician knowledge about xyrem and to improve patient support services . recently , we have seen higher growth in sales volume from new or previously infrequent physician prescribers who treat narcolepsy . the sales volume increase in the 2012 period was also impacted by the deployment of a dedicated xyrem sales force to increase physician awareness of narcolepsy and its diagnosis . we acquired erwinaze/erwinase in the eusa acquisition in june 2012. erwinaze/erwinase product sales increased in 2013 compared to 2012 primarily due to the inclusion of product sales for the full reporting period in 2013. on a pro forma basis , erwinaze/erwinase product sales increased by 32 % in 2013 compared to 2012 , primarily due to an increase in sales volume and to a lesser extent , a price increase in january 2013. the sales volume increase was driven primarily by a growth in new treatment sites prescribing erwinaze as well as existing treatment sites identifying additional all patients with hypersensitivity to e. coli -derived asparaginase . prialt product sales increased by 3 % in 2013 compared to 2012. psychiatry product sales decreased in 2013 compared to 2012 due to the launch of a generic version of luvox cr ® ( fluvoxamine maleate ) in 2013 and , to a lesser extent , the continued impact of the sale of the authorized generic product for fazaclo ld . psychiatry product sales increased in 2012 compared to 2011 , primarily due to the acquisition of fazaclo ld and fazaclo hd in january 2012 and , to a lesser extent , an increase in luvox cr product sales . luvox cr product sales increased in 2012 compared to 2011 due to price increases , partially offset by a decrease in sales volumes of 3 % . we expect total product sales will increase in 2014 over 2013 , primarily due to growth in sales of xyrem and erwinaze/erwinase and the inclusion of product sales resulting from the gentium acquisition , partially offset by decreases in sales of certain other products . royalties
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· atc 's earnings for 2015 reflected a charge representing its estimate of its refund liability covering 2015 , 2014 , and a portion of 2013 associated with the return on equity complaint filed with ferc . see `` other matters '' below for additional information concerning atc . · the increase in all other income primarily results from a decrease in voluntary contributions . during 2016 , the following events occurred : 2016 rates : in july 2015 , the pscw approved mge 's request to extend the current accounting treatment for transmission related costs through 2016 , conditioned upon mge not filing a base rate case for 2016. this accounting treatment allows mge to reflect any differential between transmission costs reflected in rates and actual costs incurred in its next rate case filing . 2016 annual fuel proceeding : in august 2015 , the pscw approved a $ 0.00256/kwh fuel credit that began on september 1 , 2015 , and continued throughout 2016. the fuel credit established a mechanism to return $ 10.9 million of fuel savings to electric customers as a bill credit . mge returned $ 8.3 million of electric fuel-related savings to customers through bill credits during the year ended december 31 , 2016. in january 2016 , the pscw lowered mge 's 2016 fuel rules monitored costs by $ 14.8 million as a result of continued lower projected fuel costs in 2016. also , in march 2016 , mge filed its 2015 fuel plan reconciliation application showing an overcollection of 2015 fuel rules monitored costs . in july 2016 , the pscw issued a final 28 order stating that mge shall refund the additional fuel savings incurred during 2015 and 2016 for a total of $ 15.7 million to its retail electric customers over a one-month period . in september 2016 , mge returned $ 15.5 million to customers through bill credits . as of december 31 , 2016 , mge has deferred $ 5.6 million of 2016 fuel savings that were in excess of the fuel savings included within the fuel credits referenced above . these costs will be subject to the pscw 's annual review of 2016 fuel costs , expected to be completed in 2017. loss of industrial customer : in november 2015 , a large industrial customer announced its intention to relocate its operations out of state and to close its manufacturing facilities within our service territory . that closure is expected to occur in early 2017. for the years ended december 31 , 2016 and 2015 , this customer contributed approximately $ 3.4 million and $ 3.8 million , respectively , of pre-tax earnings . our rate case filing for 2017 addressed the effects of the closure . atc return on equity : several parties have filed complaints with the ferc seeking to reduce the base return on equity ( roe ) used by miso transmission owners , including atc . in june 2016 , an administrative law judge issued an initial decision regarding a second filed complaint for the period february 2015 through may 2015 that would reduce the transmission owners ' base roe to 9.7 % . atc recorded an estimated refund liability with respect to the administrative law judge 's order , which was reflected within our share of atc earnings . on september 28 , 2016 , ferc issued an order on the first complaint , for the period november 2013 through february 2015 , reducing the base roe to 10.32 % . this base roe also became effective september 28 , 2016 , and will apply to future periods until ferc rules in the second complaint , at which time the base roe ordered by ferc in the second complaint will prospectively become the authorized base roe . see `` other matters '' below for additional information concerning atc . during 2017 , several items may affect us , including : 2017 rate case filing : on december 15 , 2016 , the pscw authorized mge to decrease 2017 rates for retail electric customers by 0.8 % or $ 3.3 million and to increase rates for retail gas customers by 1.9 % or $ 3.1 million . the decrease in retail electric rates reflects declining fuel and purchased power costs . the increase in retail gas rates covers costs associated with mge 's natural gas system infrastructure improvements . the authorized return on common stock equity for 2017 is 9.8 % on 57.2 % common equity . the pscw also approved mge 's request to extend the current accounting treatment for transmission related costs through 2018. atc return on equity : several parties have filed complaints with the ferc seeking to reduce the roe used by miso transmission owners , including atc . any change to atc 's roe could result in lower equity earnings and distributions from atc in the future . we derived approximately 6.8 % and 6.4 % of our net income for the years ended december 31 , 2016 and 2015 , respectively , from our investment in atc . see `` other matters '' below for additional information concerning atc . environmental initiatives : there are proposed legislation , rules , and initiatives involving matters related to air emissions , water effluent , hazardous materials , and greenhouse gases , all of which affect generation plant capital expenditures and operating costs as well as future operational planning . at present , it is unclear how the changes in the presidential and epa administration may affect pending or new legislative or rulemaking proposals or regulatory initiatives . story_separator_special_tag such legislation and rulemaking could significantly affect the costs of owning and operating fossil-fueled generating plants , such as columbia and the elm road units , from which we derive approximately 43 % of our electric generating capacity as of december 31 , 2016. we would expect to seek and receive recovery of any such costs in rates ; however , it is difficult to estimate the amount of such costs due to the uncertainty as to the timing and form of the legislation and rules , and the scope and time of the recovery of costs in rates , which may lag the incurrence of those costs . epa 's clean power plan : in october 2015 , the epa finalized its clean power plan ( cpp ) rule with an effective date of december 2015 , setting guidelines and approval criteria for states to use in developing plans to control ghg emissions from existing fossil fuel-fired electric generating units ( egus ) and systems . implementation of the rule is expected to have a direct impact on existing coal and natural gas fired generating units , including possible changes in dispatch and additional operating costs . given the pending legal proceedings , the nature and timing of any final requirements is subject to uncertainty . if the rule remains substantially in its present form , it is expected to have a material impact on mge . 29 future generation : during the first quarter of 2016 , mge entered into an agreement with wpl under which mge may acquire up to 50 mw of capacity in a gas-fired generating plant to be constructed by wpl at its riverside energy center in beloit , wisconsin , during the five-year period following the in-service date of the plant . the plant is expected to be completed by early 2020. mge and wpl have negotiated an amendment to the existing columbia joint operating agreement , effective january 1 , 2017 , under which mge will reduce its obligation to pay certain capital expenditures ( other than scr-related expenditures ) at columbia prior to the expected in-service date of the riverside gas-fired generating plant in exchange for a proportional reduction in mge 's ownership in columbia . on january 1 of each year , beginning in 2017 and ending june 1 , 2020 , the ownership percentage will be adjusted , through a partial sale , based on the amount of capital expenditures foregone . during 2016 , mge accrued $ 14.8 million of 2016 capital expenditures that mge has forgone as part of the ownership transfer agreement with wpl . as of december 31 , 2016 , mge classified $ 14.8 million of columbia assets as held-for-sale on the consolidated balance sheets . in january 2017 , mge reduced its ownership interest in columbia from 22.0 % to 20.4 % through the partial sale of plant assets to wpl . by june 2020 , mge 's ownership in columbia is forecasted to be approximately 19 % . saratoga wind farm : on february 21 , 2017 , mge filed with the pscw a letter notifying the commission of mge 's intent to seek approval to construct , own and operate a 66mw wind farm , consisting of 33 turbines , located near saratoga , iowa . mge anticipates filing its formal application with the pscw in march . if approved , construction of the project is expected to begin in early 2018 , with an estimated capital cost of $ 107 million . financing plans : in january 2017 , mge issued $ 40 million of new long-term unsecured debt carrying an interest rate of 3.76 % per annum over its 35-year term . the proceeds of this debt financing were used to refinance the maturing $ 30 million medium-term notes and , assist with the financing of additional capital expenditures . the covenants of this debt are substantially consistent with mge 's existing unsecured long-term debt . in accordance with applicable accounting guidance , mge has classified the $ 30 million of maturing medium-term notes as long-term debt on the consolidated balance sheets for 2016. mge also plans to issue an additional $ 30 million of new long-term debt during 2017 to cover capital expenditures and other corporate obligations . the following discussion is based on the business segments as discussed in footnote 20 of the notes to consolidated financial statements . results of operations year ended december 31 , 2016 , versus the year ended december 31 , 2015 electric utility operations - mge energy and mge electric sales and revenues the following table compares mge 's electric revenues and electric kwh sales by customer class for each of the years indicated : replace_table_token_10_th 30 electric operating revenues decreased $ 3.5 million or 0.9 % during 2016 , due to the following : ( in millions ) deferral of fuel savings/fuel credit $ ( 21.5 ) volume 6.7 adjustments to revenues 4.9 sales to the market 4.0 other 2.4 total $ ( 3.5 ) in july 2015 , the pscw authorized mge to freeze 2016 rates at 2015 levels for retail electric customers . · deferral of fuel savings/fuel credit . during 2016 , customers received a fuel credit on their bill related to the fuel savings of $ 21.1 million , which decreased electric revenues when compared to 2015. this amount was partially offset by the 2016 deferred fuel rules monitored costs . in january 2016 , the pscw lowered mge 's 2016 fuel rules monitored costs as a result of continued lower projected fuel costs in 2016 . · volume . during 2016 , there was a 5.4 % increase in total residential sales volumes compared to the same period in the prior year driven by increased customer demand due , at least in part , to more favorable weather conditions , as evidenced by the higher number of cooling degree days . · adjustments to revenue .
| generating units are dispatched by miso based on cost considerations as well as reliability of the system . sales to the market typically occur when mge has more generation and purchases online than are needed for its own system demand . the excess electricity is then sold to others in the market . for 2015 , market volumes increased compared to 2014 , reflecting increased opportunities for sales . in addition , market settlement resulted in lower revenue per kwh for 2015 , reflecting lower market prices . the revenue generated from these sales is included in fuel rules monitored costs . see fuel rules discussion in footnote 16.b . of the notes to consolidated financial statements . electric fuel and purchased power electric fuel and purchased power costs reflect an increase in internal generation volumes during 2015 partially offset by a decrease in the volume of purchased power when compared to 2014. adjustments related to the regulatory recovery for fuel costs , known as fuel rules , increased purchased power expense . these items are explained below . fuel for electric generation the expense for fuel for internal electric generation increased $ 11.0 million during 2015 compared to 2014 due to the following : ( in millions ) increase in per-unit cost $ 5.8 increase in volume 5.2 total $ 11.0 this increase in expense reflects a 13.6 % increase in per-unit cost of internal electric generation primarily at columbia and a 10.7 % increase in internal generated volume delivered to the system . 35 purchased power purchased power expense increased $ 8.0 million during 2015 compared to 2014 due to the following : ( in millions ) decrease in volume $ ( 11.0 ) decrease in per-unit cost ( 2.8 ) change in fuel rule adjustments , net of recoveries 21.8 total $ 8.0 the decrease in expense ( before fuel rules adjustments ) reflects a 3.8 % decrease in the per-unit cost of purchased power and a 12.8 % decrease in the volume of power purchased from
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our adjusted results include realized net periodic interest rate swap settlement amounts but exclude the impact of unrealized forward fair value gains and losses . our financial debt covenants are also based on our non-gaap adjusted results , as the forward fair value gains and losses related to our interest rate swaps do not affect our cash flows , liquidity or ability to service our debt . covid-19 the covid-19 pandemic rapidly evolved from a global public health crisis into a global economic crisis , as containment measures were implemented to curb the spread of the virus . while the covid-19 pandemic has negatively impacted financial markets , overall economic conditions and certain industry sectors , to date , we have been able to navigate the challenges of the pandemic reasonably well . in response to the covid-19 pandemic , we have been working diligently to protect the health and safety of our employees while also fulfilling our commitment to meet the needs of our members . we have adhered to guidelines established by the centers for disease control and prevention and the who and orders issued by state and local governments where we operate . as the spread of the virus accelerated in the u.s. in mid-march , we implemented an emergency remote work policy , which reduced the number of employees working on site at our headquarters located in northern virginia to a minimal level of operationally critical staff . in mid-june , following the announcement by the governor of phased reopening dates and guidelines for virginia , we implemented a return-to-work policy that included staggering staff , physical distancing measures , face covering requirements and an enhanced cleaning program to maintain the well-being of our employees as well as comply with virginia 's reopening guidelines . to date , our business resiliency plans and technology systems have effectively supported both remote and on-site operations . in response to the covid-19 crisis , the u.s. federal government has deployed a full range of emergency monetary tools to ensure the financial system continues to function . in addition , the administration and congress have passed various fiscal measures to provide emergency relief to individuals and certain groups impacted by the covid-19 crisis , such as the coronavirus aid , relief , and economic security act ( “ cares act ” ) relief bill of $ 2.2 trillion that was signed into law on march 27 , 2020 , to provide emergency assistance and health care response for individuals , families , and businesses affected by the pandemic . among the numerous provisions contained in the cares act was the creation of a $ 349 billion paycheck protection program , subsequently increased to $ 659 billion under the paycheck protection program and health care enhancement act ( “ enhancement act ” ) on april 24 , 2020 , that provides federal government loan forgiveness for small business administration section 7 ( a ) loans for small businesses , which includes our members or our members ' customers , to pay up to eight weeks of basic expenses , including utilities such as electric and telephone bills . as extended , small businesses may now apply for such loans until august 8 , 2020. the cares act also added $ 45 billion for the disaster relief fund administered by the federal emergency management agency ( “ fema ” ) that our members may rely on to restore power after storms and emergencies . in addition , the cares act includes funds totaling $ 900 million for the low-income home energy assistance program , which may assist low-income and moderate-income consumers located in our members ' territories in paying their utility bills . congress continues to consider stimulus programs designed to provide relief and bolster the economy , including , but not limited to , further extensions , modifications , and increased funding of the programs discussed herein . as owners and operators of critical infrastructure , electric utility cooperatives are an integral part of the u.s. electric utility industry . it is imperative that they are able to deliver safe , reliable and affordable services to meet the essential energy needs of their customers . in fulfilling their service obligations , our electric cooperatives generally must maintain robust , flexible business-continuity and emergency preparedness plans that enable them to respond promptly and effectively to natural disasters , emergencies and other unexpected crises , such as the current covid-19 pandemic . while the government mandated stay-at-home orders and closure of non-essential businesses in mid-march resulted in a reduction in commercial and industrial electric loads , residential loads generally increased . most of our electric cooperative borrowers derive a larger share of their revenues from residential customers than commercial and industrial customers , which helped mitigate the overall negative impact of declines in revenues from commercial and industrial customers . in limited cases where borrowers have a larger concentration of commercial and industrial customers , the borrowers have experienced a net decrease in revenues and a minor increase in customer receivables . however , to date , the covid-19 27 pandemic has not had a material adverse impact on the operations and financial performance of the substantial majority of our borrowers . our electric utility cooperative members , which have a strong track record in preparing for and responding to emergencies , thus far , have been able to manage the challenges and pressures presented by the covid-19 pandemic . we have been working with our members not only as a lender , but also by offering a full range of products , services , tools and training designed to help cooperatives continue to deliver uninterrupted , essential utility services to their customers and successfully manage the ongoing challenges of the covid-19 pandemic . financial performance reported results we reported a net loss of $ 589 million for the fiscal year ended may 31 , 2020 ( “ fiscal year 2020 ” ) , which resulted in a tier of 0.28 . story_separator_special_tag in comparison , we reported a net loss of $ 151 million and a tier of 0.82 for the fiscal year ended may 31 , 2019 ( “ fiscal year 2019 ” ) . the significant variance between our reported results for the current fiscal year and the prior fiscal year was attributable to mark-to-market changes in the fair value of our derivative instruments resulting from interest rate changes , the establishment of an asset-specific allowance related to a power supply borrower and a non-cash impairment charge related to internal-use software . our debt-to-equity ratio increased to 42.40 as of may 31 , 2020 , from 19.80 as of may 31 , 2019 , primarily due to a reduction in equity resulting from our reported net loss of $ 589 million for fiscal year 2020 and patronage capital retirement of $ 63 million in the second quarter of fiscal year 2020 . the increase in our reported net loss of $ 438 million in fiscal year 2020 was primarily driven by an increase in derivative losses of $ 427 million . we recorded derivative losses of $ 790 million in fiscal year 2020 , due to a decrease in the fair value of our pay-fixed swaps resulting from sharp declines in interest rates across the entire swap curve . in comparison , we reported derivative losses of $ 363 million in fiscal year 2019 , due to a decrease in the fair value of our pay-fixed swaps resulting from a decline in medium- and longer-term interest rates during the second half of fiscal year 2019 . net interest income , which accounted for 93 % and 95 % of total revenue for fiscal years 2020 and 2019 , respectively , increased $ 31 million , or 10 % , attributable to the combined impact of an increase in our average interest-earning assets of $ 1,018 million , or 4 % , and an increase in the net interest yield of 7 basis points , or 6 % , to 1.21 % . the increase in the net interest yield was due to a reduction in our average cost of funds of 17 basis points to 3.19 % , which was partially offset by a decrease in the average yield on interest-earning assets of 11 basis points to 4.20 % . the decrease in our average cost of funds reflected the impact of the maturity of higher cost debt during fiscal year 2019 and the replacement of this debt with lower-cost funding , combined with a decrease in the average cost of our short-term and variable-rate funding resulting from a steep decline in short-term interest rates during fiscal year 2020 . the federal open market committee ( “ fomc ” ) reduced the benchmark federal funds rate over this period by 225 basis points , including a 150 basis point cut in march 2020 to a near zero target range as part of a series of measures implemented to ease the economic impact of the covid-19 crisis . the 3-month libor decreased by 216 basis points over the last 12 months to 0.34 % the decrease in the average yield on interest-earning assets was primarily attributable to a decrease in the average yield on our long-term fixed-rate loan portfolio , as the maturity and pay-off of loan advances at higher rates were replaced with new loan advances at lower rates due to the decline in interest rates . other factors contributing to the increase in the current fiscal year net loss compared with the prior fiscal year include an unfavorable shift in the provision for loan losses of $ 37 million and a non-cash impairment charge of $ 31 million . we recorded a provision for loan losses of $ 36 million for fiscal year 2020 , compared with a benefit for loan losses of $ 1 million for fiscal year 2019 . the unfavorable shift in the provision for loan losses was primarily due to the establishment of an asset-specific allowance of $ 34 million in the fourth quarter of fiscal year 2020 for a loan to a cfc power supply borrower with an outstanding balance of $ 168 million as of may 31 , 2020 . we provide additional information on this loan below under “ executive summary—credit quality. ” the non-cash impairment charge of $ 31 million also was recorded in the fourth quarter of fiscal year 2020 , due to management 's decision to abandon a project to develop an internal-use loan origination and servicing platform . adjusted non-gaap results our adjusted net income totaled $ 145 million and our adjusted tier was 1.17 for fiscal year 2020 , compared with adjusted net income of $ 169 million and adjusted tier of 1.19 for fiscal year 2019 . while our adjusted debt-to-equity ratio increased 28 to 5.85 as of may 31 , 2020 , from 5.73 as of may 31 , 2019 , primarily attributable to an increase in debt to fund loan growth , it remained below our targeted threshold of 6.00-to-1 . the decrease in adjusted net income of $ 24 million in fiscal year 2020 from fiscal year 2019 was primarily attributable to the unfavorable shift in the provision for loan losses of $ 37 million due to the establishment of the asset-specific allowance of $ 34 million for the loan of $ 168 million to a cfc power supply borrower and the non-cash impairment charge resulting from the abandonment of the internal-use software project of $ 31 million recorded in the fourth quarter of fiscal year 2020 , which were partially offset by an increase in adjusted net interest income of $ 18 million , or 7 % , and higher fee income and unrealized gains on investment securities . the increase in adjusted net interest income of 7 % reflected the combined impact of the increase in average interest-earning assets of 4 % and an increase in the adjusted net interest yield of 3 basis points , or 3 % , to 1.00 % .
| we provide reconciliations of our non-gaap adjusted measures to the most comparable gaap measures under “ non-gaap financial measures. ” 35 table 1 : average balances , interest income/interest expense and average yield/cost replace_table_token_7_th 36 ( 1 ) interest income on long-term , fixed-rate loans includes loan conversion fees , which are generally deferred and recognized as interest income using the effective interest method . ( 2 ) troubled debt restructuring ( “ tdr ” ) loans . ( 3 ) consists of late payment fees and net amortization of deferred loan fees and loan origination costs . ( 4 ) net interest spread represents the difference between the average yield on total average interest-earning assets and the average cost of total average interest-bearing liabilities . adjusted net interest spread represents the difference between the average yield on total average interest-earning assets and the adjusted average cost of total average interest-bearing liabilities . ( 5 ) includes other liabilities and equity . ( 6 ) net interest yield is calculated based on net interest income for the period divided by total average interest-earning assets for the period . ( 7 ) represents the impact of net accrued periodic interest rate swap settlements during the period . this amount is added to interest expense to derive non-gaap adjusted interest expense . the average ( benefit ) /cost associated with derivatives is calculated based on net accrued periodic interest rate swap settlements during the period divided by the average outstanding notional amount of derivatives during the period . the average outstanding notional amount of interest rate swaps was $ 10,180 million , $ 10,968 million and $ 10,816 million for fiscal years 2020 , 2019 and 2018 , respectively . ( 8 ) adjusted interest expense consists of interest expense plus net accrued periodic interest rate swap cash settlements expense during the period . net accrued periodic derivative cash settlements are reported on our consolidated statements of operations as a component of derivative gains
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in addition to safety and pharmacokinetic assessments , the time-action pharmacology of ab101 ( onset , peak , and end of action ) is being evaluated using several measures of glycemic response , including the hyperinsulinemic euglycemic clamp technique , continuous glucose monitoring , and background insulin use . we remain focused on ensuring we have sufficient capital to fund our ongoing operations . we have raised approximately $ 13 million in calendar year 2017 from individual investors in the us as well as pharmaceutical companies and funds in the republic of korea . the company is targeting another total raise of at least $ 15 million , which we expect will allow us to sustain operations through the end of calendar year 2018. in addition to funding additional clinical studies of ab101 , the incremental funding will allow us to advance our pipeline and cover general and administrative expenses . the company has also been actively conducting animal studies to screen potential new product candidates as we seek to evolve our drug pipeline . prior to the end of calendar year 2017 , the company expects to achieve proof of concept in animals for at least one potential pipeline drug candidate which will support advancing that candidate into ind-enabling studies in 2018 . 27 nonetheless , no assurance can be given that the company will be successful in its efforts in raising additional capital . further , if the company is unsuccessful , the lack of funding will materially and adversely impact the company 's business and prospects . in particular , our ability to raise additional capital is substantially dependent upon results from the study and in the event that such results fail to meet or exceed expectations , we may not be abe to attract additional capital to support the continuation of the program or overall operations . significant accounting policies and estimates our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period . on an on-going basis , management evaluates its estimates and judgments , including those related to the useful lives of depreciable assets , the fair value of share-based payments and warrants , fair value of derivative instruments , income tax valuation allowances , the probability and potential magnitude of contingent liabilities , going concern analysis and the impairment of long-lived assets . management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstance , 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 . the methods , estimates , and judgments used by us in applying these most critical accounting policies have a significant impact on the results we report in our consolidated financial statements . patents costs of establishing patents consisting of legal fees paid to third parties and related costs are currently expensed as incurred . we will continue this practice unless we can demonstrate that such costs add economic value to our business , in which case we will capitalize such costs as part of intangible assets . the primary consideration in making this determination is whether or not we can demonstrate that such costs have , in fact , increased the economic value of our intellectual property . the $ 68,000 value of the patents acquired in connection with the asset acquisition from prp is being amortized over the remaining patent lives of approximately eight years . research and development research and development costs are expensed as incurred . these costs consist primarily of expenses for personnel engaged in the design and development of product candidates , the scientific research necessary to produce commercially viable applications of our proprietary drugs , early stage clinical testing of product candidates , and development equipment and supplies , facilities costs and other related overhead . stock-based compensation we account for stock-based payments by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant . we determine the estimated grant date fair value of options using the black-scholes option pricing model and recognize compensation costs ratably over the vesting period using the straight-line method . common stock issued in exchange for services is recorded at fair value of the common stock at the date which we became obligated to issue the shares . the value of the shares is expensed over the requisite service period . 28 derivatives we account for our liability warrants by recording the fair value of the warrant derivative liability . the fair value of the warrants is calculated using the black-scholes pricing model . we recorded the derivative expense at the inception of each instrument reflecting the difference between the fair value and the cash received . changes in the fair value in subsequent periods were recorded to derivative gains or losses for the period . income taxes we use the asset and liability method of accounting for income taxes . under this method , we recognize deferred assets and liabilities based on the differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years . we establish a valuation allowance for all deferred tax assets for which there is uncertainty regarding realization . story_separator_special_tag and continuing research and development of our product pipeline through the calendar year end 2018. we are currently evaluating raising additional capital to fund our current and future operations . 30 going concern the continuation of story_separator_special_tag in addition to safety and pharmacokinetic assessments , the time-action pharmacology of ab101 ( onset , peak , and end of action ) is being evaluated using several measures of glycemic response , including the hyperinsulinemic euglycemic clamp technique , continuous glucose monitoring , and background insulin use . we remain focused on ensuring we have sufficient capital to fund our ongoing operations . we have raised approximately $ 13 million in calendar year 2017 from individual investors in the us as well as pharmaceutical companies and funds in the republic of korea . the company is targeting another total raise of at least $ 15 million , which we expect will allow us to sustain operations through the end of calendar year 2018. in addition to funding additional clinical studies of ab101 , the incremental funding will allow us to advance our pipeline and cover general and administrative expenses . the company has also been actively conducting animal studies to screen potential new product candidates as we seek to evolve our drug pipeline . prior to the end of calendar year 2017 , the company expects to achieve proof of concept in animals for at least one potential pipeline drug candidate which will support advancing that candidate into ind-enabling studies in 2018 . 27 nonetheless , no assurance can be given that the company will be successful in its efforts in raising additional capital . further , if the company is unsuccessful , the lack of funding will materially and adversely impact the company 's business and prospects . in particular , our ability to raise additional capital is substantially dependent upon results from the study and in the event that such results fail to meet or exceed expectations , we may not be abe to attract additional capital to support the continuation of the program or overall operations . significant accounting policies and estimates our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period . on an on-going basis , management evaluates its estimates and judgments , including those related to the useful lives of depreciable assets , the fair value of share-based payments and warrants , fair value of derivative instruments , income tax valuation allowances , the probability and potential magnitude of contingent liabilities , going concern analysis and the impairment of long-lived assets . management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstance , 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 . the methods , estimates , and judgments used by us in applying these most critical accounting policies have a significant impact on the results we report in our consolidated financial statements . patents costs of establishing patents consisting of legal fees paid to third parties and related costs are currently expensed as incurred . we will continue this practice unless we can demonstrate that such costs add economic value to our business , in which case we will capitalize such costs as part of intangible assets . the primary consideration in making this determination is whether or not we can demonstrate that such costs have , in fact , increased the economic value of our intellectual property . the $ 68,000 value of the patents acquired in connection with the asset acquisition from prp is being amortized over the remaining patent lives of approximately eight years . research and development research and development costs are expensed as incurred . these costs consist primarily of expenses for personnel engaged in the design and development of product candidates , the scientific research necessary to produce commercially viable applications of our proprietary drugs , early stage clinical testing of product candidates , and development equipment and supplies , facilities costs and other related overhead . stock-based compensation we account for stock-based payments by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant . we determine the estimated grant date fair value of options using the black-scholes option pricing model and recognize compensation costs ratably over the vesting period using the straight-line method . common stock issued in exchange for services is recorded at fair value of the common stock at the date which we became obligated to issue the shares . the value of the shares is expensed over the requisite service period . 28 derivatives we account for our liability warrants by recording the fair value of the warrant derivative liability . the fair value of the warrants is calculated using the black-scholes pricing model . we recorded the derivative expense at the inception of each instrument reflecting the difference between the fair value and the cash received . changes in the fair value in subsequent periods were recorded to derivative gains or losses for the period . income taxes we use the asset and liability method of accounting for income taxes . under this method , we recognize deferred assets and liabilities based on the differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years . we establish a valuation allowance for all deferred tax assets for which there is uncertainty regarding realization . story_separator_special_tag and continuing research and development of our product pipeline through the calendar year end 2018. we are currently evaluating raising additional capital to fund our current and future operations . 30 going concern the continuation of
| due to the time required to conduct clinical trials and obtain regulatory approval for any of our product candidates , we anticipate it will be some time before we generate substantial revenues , if ever . we expect to generate operating losses for the foreseeable future , therefore we are continuing to evaluate raising additional capital in the near future to maintain the current operating plan . we can not assure you that we will secure such financing or that it will be adequate to execute our business strategy . even if we obtain this financing , it may be costly and may require us to agree to covenants or other provisions that will favor new investors over our existing stockholders . 29 net cash used in operating activities during the year ended june 30 , 2017 , our operating activities used approximately $ 13.3 million in cash . the use of cash was $ 7.1 million lower than the net loss due to non-cash charges for stock-based compensation , derivative expenses , amortization and depreciation as well as other non-cash activities . net cash used in operating activities also included a $ 68,762 increase in other assets , a $ 86,293 increase in deferred lease asset and cash provided by a $ 112,347 increase in accounts payable and accrued expenses and a $ 109,856 decrease in the deferred lease liability . during the year ended june 30 , 2016 , our operating activities used approximately $ 10.5 million in cash . the use of cash was $ 4.6 million lower than the net loss due to non-cash charges for stock-based compensation , derivative expenses , amortization and depreciation as well as other non-cash activities . net cash used in operating activities also included a $ 42,083 increase in other assets and cash provided by a $ 26,370 increase in accounts payable and accrued expenses and a $ 105,484 decrease in the deferred lease liability . net cash used in investing activities net cash used in investing activities
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although we do not rely on imported recycled paper , the pricing of which tends to be more volatile than domestic recycled paper , our experience suggests that the pricing of domestic recycled paper bears some correlation to the pricing of imported recycled paper . the average unit purchase costs ( net of applicable value added tax ) of recycled scrap binding margin was rmb 2,415/tonne ( approximately $ 358/tonne ) in 2017 , as compared to rmb 1,566/tonne ( approximately $ 235/tonne ) in 2016 . 31 the pricing trends of our major raw materials for the 24-month period from january 2016 to december 2017 are shown below : electricity and gas are our two main energy sources . in order to reduce carbon emissions , we have been required to reduce coal consumption by the local government . after replacing some of the coal burning boilers with gas boilers , we started using natural gas in december 2016 and liquefied gas in february 2017 , which accounted for approximately 4 % of total sales in 2017. electricity and coal accounted for approximately 7 % and 3 % of total sales in 2017 , respectively , compared to 8 % and 4 % of total sales in 2016. as all the coal boilers were replaced in september 2017 , we wo n't be using coal in the future . the monthly energy cost ( electricity , coal and gas ) as a percentage of total monthly sales of our main paper products for the 24 months ended december 31 , 2017 are summarized as follows : gross profit gross profit for december 31 , 2017 was $ 19,955,951 ( 17.05 % of the total revenue ) , representing a decrease of $ 5,575,932 , or 21.84 % , from the gross profit of $ 25,531,883 ( 18.95 % of the total revenue ) for the year ended december 31 , 2016. the decrease was mainly due to ( i ) the decrease in quantities sold and ( ii ) the increase of material purchase price of cmp , partially offset by the increase of asp of regular cmp . corrugating medium paper , offset printing paper and tissue paper products gross profit for offset printing paper , cmp and tissue paper products for the year ended december 31 , 2017 was $ 19,955,951 , a decrease of $ 5,962,075 , or 23.00 % , from the gross profit of $ 25,918,026 for the year ended december 31 , 2016. the decrease was mainly the result of the factors discussed above . 32 the overall gross profit margin for offset printing paper , cmp and tissue paper products decreased by 2.28 percentage points , from 19.33 % for the year ended december 31 , 2016 , to 17.05 % for the year ended december 31 , 2017. gross profit margin for regular cmp for the year ended december 31 , 2017 was 16.94 % , or 0.20 percentage points lower , as compared to gross profit margin of 17.14 % for the year ended december 31 , 2016. gross profit margin for light-weight cmp for the year ended december 31 , 2017 was 18.92 % , or 6.55 percentage points lower , as compared to gross profit margin of 25.47 % for the year ended december 31 , 2016. gross profit margin for offset printing paper was 17.32 % for the year ended december 31 , 2017 , a decrease of 5.41 percentage points , as compared to 22.73 % for the year ended december 31 , 2016. gross profit margin for tissue paper products for the year ended december 31 , 2017 was 6.45 % , a decrease of 5.35 percentage points , as compared to 11.80 % for the year ended december 31 , 2016. monthly gross profit margins for our corrugating medium paper and offset printing paper for the 24-month period ended december 31 , 2017 are as follows : digital photo paper profit for digital photo paper for the year ended december 31 , 2017 was $ nil , compared with a loss of $ 386,143 for the year ended december 31 , 2016. in june 2016 , we suspended the production of digital photo paper due to low market demand for our products and now are upgrading the production line to produce more competitive photo paper products . we expect to resume our digital photo paper production in the near future . selling , general and administrative expenses selling , general and administrative expenses for the year ended december 31 , 2017 were $ 11,307,395 , a decrease of $ 1,094,463 , or 8.82 % from $ 12,401,858 for the year ended december 31 , 2016. the expenses were higher in 2016 because the company issued 1,133,916 shares of common stock , valued at $ 1,417,395 , pursuant to the company 's compensatory incentive plans in january 2016. income from operations operating income for the year ended december 31 , 2017 was $ 4,680,267 , a decrease of $ 8,271,452 , or 63.86 % , from $ 12,951,719 for the year ended december 31 , 2016. the decrease in operating income was primarily due to the decrease in gross profit and loss from impairment of fixed assets and disposal of coal burning boilers , partially offset by the decrease in selling , general and administrative expenses . other income and expenses interest expense for the year ended december 31 , 2017 decreased by $ 187,377 , from $ 2,621,147 in the year ended december 31 , 2016 , to $ 2,433,770. the company had short-term and long-term interest-bearing loans and related party loans that aggregated $ 25,466,009 as of december 31 , 2017 , as compared to $ 28,766,346 as of december 31 , 2016. the interest incurred during the year ended december 31 , 2017 and 2016 , were $ nil and $ 53,535 ( a portion of interest related to the sale-leaseback arrangement with cnftfl ) , respectively , and were capitalized as soft-cost of construction-in-progress . story_separator_special_tag 33 net income as a result of the above , net income was $ 1,659,788 for the year ended december 31 , 2017 , representing a decrease of $ 5,653,188 , or 77.30 % , from $ 7,312,976 for year ended december 31 , 2016. accounts receivable net accounts receivable decreased by $ 2,050,754 , or 52.66 % , to $ 1,843,682 as of december 31 , 2017 , as compared with $ 3,894,436 as of december 31 , 2016. we usually collect accounts receivable within 30 days of delivery and completion of sales . inventories inventories consist of raw materials ( accounting for 88.37 % of total value of inventory as of december 31 , 2017 ) and finished goods . as of december 31 , 2017 , the recorded value of inventory increased by 50.46 % to $ 8,474,165 from $ 5,632,030 as of december 31 , 2016. as of december 31 , 2017 , the inventory of recycled paper board , which is the main raw material for the production of cmp , was $ 6,337,374 , approximately $ 2,999,725 , or 89.88 % , higher than the balance as of december 31 , 2016. the increase was mainly due to the increase of unit cost of recycled paper board in 2017. we made additional purchases of paper board as a hedge against further increases in cost . a summary of changes in major inventory items is as follows : replace_table_token_8_th accounts payable and notes payable accounts payable and notes payable was $ 6,544,342 as of december 31 , 2017 , an increase of 3,822,072 , or 140.40 % , from $ 2,722,270 as of december 31 , 2016. accounts payable was $ 422,705 and $ 559,952 as of december 31 , 2017 and december 31 , 2016 , respectively . we have been relying on the bank acceptance notes issued under our credit facilities with bank of hebei and bank of cangzhou to make the majority of our raw materials payments to our vendors . our notes payable to bank of cangzhou and bank of hebei were $ 6,121,637 and $ 2,162,318 as of december 31 , 2017 and december 31 , 2016 , respectively . we have paid off bank acceptance notes of $ 2,295,614 in february 2017. we also acquired additional bank acceptance notes of $ 6,121,637 from bank of cangzhou in january 2017 , which we paid off in january 2018. liquidity and capital resources overview as of december 31 , 2017 , we had a net working capital deficit of $ 1,770,736 , a decrease of $ 4,337,533 , from the net working capital deficit of $ 6,108,269 at december 31 , 2016. total current assets as of december 31 , 2017 amounted to $ 19,986,797. substantially all cash and cash equivalents are cash deposits in bank accounts . restricted cash of $ 6,121,637 was included in our current assets as of december 31 , 2017. restricted cash is deposited at the bank of cangzhou for purpose of securing the bank acceptance notes from the bank . the acceptance notes were due and paid off in january 2018. current liabilities as of december 31 , 2017 totaled $ 21,757,533 , an increase of $ 1,171,942 , from the december 31 , 2016 balance of $ 20,585,591. we use bank acceptance notes , which are typically 6-to-12 month notes , to guarantee the payments to our vendors . notes payable was $ 6,121,637 as of december 31 , 2017 , representing an increase of $ 3,959,319 , or 183.11 % , from $ 2,162,318 as of december 31 , 2016. most of our current short-term bank loans are either revolving or term loans . we expect to renew these loans with the banks on similar terms at or before maturity . all of our short-term loans ( with the exception of the notes payable , which carry no interest but require a deposit equal to a portion of the credit facilities at the issuing banks ) have interest-only monthly payments , with a balloon payment for the entire principal amount upon maturity of the loan . the long term loans from the credit union require monthly and quarterly interest payments , with one large balloon payment upon maturity . 34 from time to time , we investigate financing opportunities with banks and other financial institutions and investors both inside and outside of china , and we may seek long-term financings to pay off liabilities with shorter terms . we may seek additional funds through public and private financing , including equity and debt offering . as of the date of this report , we have not entered into any material binding agreement for additional long-term financing . there can be no assurance that we will be able to secure such financing either from banks or through debt or equity investments from investors . if we are unable to obtain sufficient outside financing , whether short-term or long-term , or generate sufficient operating cash flow internally , the progress of our construction or renovation projects may slow down or may otherwise be negatively affected . we may also have to curtail the scope of our capital expenditure projects or shelve some components of such projects , such as , delaying the installation of pm9 until additional capital resources are available . financing with sale-leaseback the company entered into a sale-leaseback arrangement ( the “ lease financing agreement ” ) with cnftfl on june 16 , 2013 , for a total financing proceeds in the amount of rmb 150 million ( approximately us $ 23 million ) . pursuant to the lease financing agreement , orient paper hb sold some equipment to cnftfl for rmb 150 million ( approximately us $ 23 million ) . concurrent with the sale of equipment , orient paper hb leases back all of the equipment sold to cnftfl for a lease term of three years .
| as a result , the production volume of regular cmp , light-weight cmp and offset printing paper and sales of these products decreased in 2017 as compared to 2016. the changes in revenue and quantity sold for the year ended december 31 , 2017 and 2016 are summarized as follows : replace_table_token_4_th 28 monthly revenue ( excluding revenue of digital photo paper and tissue paper products ) for the 24 months ended december 31 , 2017 , are summarized below : the average selling price , or asp , for our major products for the years ended december 31 , 2017 and 2016 are summarized as follows : replace_table_token_5_th the following is a chart showing the month-by-month asps ( excluding the asps of digital photo paper and tissue paper products ) for the 24 month period ended december 31 , 2017 : 29 corrugating medium paper revenue from cmp amounted to $ 95,979,065 ( 82.02 % of the total offset printing paper , cmp and tissue paper products revenues ) for the year ended december 31 , 2017 , representing an increase of $ 1,353,824 , or 1.43 % , from $ 94,625,241 during 2016. we sold 207,089 tonnes of cmp in the year ended december 31 , 2017 as compared to 278,223 tonnes in the year ended december 31 , 2016 , representing a 25.57 % decrease in quantity sold . asp for regular cmp increased from $ 338/tonne in 2016 to $ 464/tonne in 2017 , representing a 37.28 % increase . asp in rmb for regular cmp in 2016 and 2017 was rmb2,249 and rmb3,125 , respectively , representing a 38.95 % increase . the quantity of regular cmp sold decreased by 56,983 tonnes , from 230,382 tonnes in 2016 to 173,399 tonnes in 2017. asp for light-weight cmp increased from $ 350/tonne in 2016 to $ 463/tonne in 2017 , representing a $ 32.29 % increase . asp in rmb for light-weight cmp in 2016 and 2017 was rmb2,327 and rmb3,122 , respectively , representing a 34.16 % increase . the quantity of light-weight cmp sold decreased by 14,151 tonnes , from 47,841 tonnes in 2016 , to 33,690 tonnes in 2017. our production was suspended in september and october 2017 due to boiler replacement . our production volume was also restricted temporarily by the government due to environmental concerns . the government has been
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the increase in interest-bearing demand deposits is primarily due to normal fluctuations in the balances of operating accounts of public entities , such as counties , cities and school corporations . time deposits have decreased as some customers are unwilling to lock into long-term commitments while interest rates are at their current low levels . federal home loan bank borrowings decreased $ 7.3 million from $ 12.4 million at december 31 , 2011 to $ 5.1 million at december 31 , 2012. no new advances were drawn during the year while principal payments on advances totaled $ 7.3 million during 2012. retail repurchase agreements , which represent overnight borrowings from business and local municipal deposit customers , increased from $ 9.1 million at december 31 , 2011 to $ 14.1 million at december 31 , 2012 , primarily due to normal balance fluctuations . total stockholders ' equity attributable to the company increased from $ 50.9 million at december 31 , 2011 to $ 52.8 million at december 31 , 2012. this increase is primarily the result of retained net income of $ 1.8 million and an increase in net unrealized gains on available for sale securities of $ 92,000 , partially offset by treasury stock purchases of $ 14,000. during 2012 the company repurchased 692 shares of its stock at a weighted average price of $ 20.81 per share . as of december 31 , 2012 , the company had repurchased 50,885 shares of the 240,467 shares authorized by the board of directors under the current stock repurchase program which was announced in august 2008 and 379,419 shares since the original repurchase program began in 2001 . 43 off-balance-sheet arrangements the company is a party to financial instruments with off-balance-sheet risk including commitments to extend credit under existing lines of credit and commitments to originate loans . these instruments involve , to varying degrees , elements of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements . off-balance-sheet financial instruments whose contract amounts represent credit and interest rate risk are summarized as follows : replace_table_token_21_th the company does not have any special purpose entities , derivative financial instruments or other forms of off-balance-sheet financing arrangements . commitments to originate new loans or to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract . most equity line commitments are for a term of five to 10 years and commercial lines of credit are generally renewable on an annual basis . commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee . since many of the commitments are expected to expire without being drawn upon , the total commitment amounts do not necessarily represent future cash requirements . the company evaluates each customer 's creditworthiness on a case-by-case basis . the amounts of collateral obtained , if deemed necessary by the company upon extension of credit , are based on management 's credit evaluation of the borrower . contractual obligations the following table summarizes information regarding the company 's contractual obligations as of december 31 , 2012 : replace_table_token_22_th 44 liquidity and capital resources liquidity refers to the ability of a financial institution to generate sufficient cash flow to fund current loan demand , meet deposit withdrawals and pay operating expenses . the bank 's primary sources of funds are new deposits , proceeds from loan repayments and prepayments and proceeds from the maturity of securities . the bank may also borrow from the federal home loan bank of indianapolis . while loan repayments and maturities of securities are predictable sources of funds , deposit flows and mortgage prepayments are greatly influenced by market interest rates , general economic conditions and competition . at december 31 , 2012 , the bank had cash and interest-bearing deposits with banks of $ 23.2 million and securities available for sale with a fair value of $ 123.0 million . if the bank requires funds beyond its ability to generate them internally , it has additional borrowing capacity with the federal home loan bank of indianapolis and collateral eligible for repurchase agreements . the bank must maintain an adequate level of liquidity to ensure the availability of sufficient funds to support loan growth and deposit withdrawals , to satisfy financial commitments and to take advantage of investment opportunities . at december 31 , 2012 , the bank had total commitments to extend credit of $ 49.7 million . see note 16 in the accompanying notes to consolidated financial statements . at december 31 , 2012 , the bank had certificates of deposit scheduled to mature within one year of $ 53.4 million . historically , the bank has been able to retain a significant amount of its deposits as they mature . the company is a separate legal entity from the bank and must provide for its own liquidity . in addition to its operating expenses , the company requires funds to pay any dividends to its shareholders and to repurchase any shares of its common stock . the company 's primary source of income is dividends received from the bank . the amount of dividends the bank may declare and pay to the company in any calendar year , without the receipt of prior approval from the occ but with prior notice to the occ , can not exceed net income for that year to date plus retained net income ( as defined ) for the preceding two calendar years . at december 31 , 2012 , the company ( on an unconsolidated basis ) had liquid assets of $ 239,000. the bank is required to maintain specific amounts of capital pursuant to occ regulations . as of december 31 , 2012 the bank was in compliance with all regulatory capital requirements which were effective as of such date with tangible capital to adjusted total assets story_separator_special_tag the increase in interest-bearing demand deposits is primarily due to normal fluctuations in the balances of operating accounts of public entities , such as counties , cities and school corporations . time deposits have decreased as some customers are unwilling to lock into long-term commitments while interest rates are at their current low levels . federal home loan bank borrowings decreased $ 7.3 million from $ 12.4 million at december 31 , 2011 to $ 5.1 million at december 31 , 2012. no new advances were drawn during the year while principal payments on advances totaled $ 7.3 million during 2012. retail repurchase agreements , which represent overnight borrowings from business and local municipal deposit customers , increased from $ 9.1 million at december 31 , 2011 to $ 14.1 million at december 31 , 2012 , primarily due to normal balance fluctuations . total stockholders ' equity attributable to the company increased from $ 50.9 million at december 31 , 2011 to $ 52.8 million at december 31 , 2012. this increase is primarily the result of retained net income of $ 1.8 million and an increase in net unrealized gains on available for sale securities of $ 92,000 , partially offset by treasury stock purchases of $ 14,000. during 2012 the company repurchased 692 shares of its stock at a weighted average price of $ 20.81 per share . as of december 31 , 2012 , the company had repurchased 50,885 shares of the 240,467 shares authorized by the board of directors under the current stock repurchase program which was announced in august 2008 and 379,419 shares since the original repurchase program began in 2001 . 43 off-balance-sheet arrangements the company is a party to financial instruments with off-balance-sheet risk including commitments to extend credit under existing lines of credit and commitments to originate loans . these instruments involve , to varying degrees , elements of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements . off-balance-sheet financial instruments whose contract amounts represent credit and interest rate risk are summarized as follows : replace_table_token_21_th the company does not have any special purpose entities , derivative financial instruments or other forms of off-balance-sheet financing arrangements . commitments to originate new loans or to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract . most equity line commitments are for a term of five to 10 years and commercial lines of credit are generally renewable on an annual basis . commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee . since many of the commitments are expected to expire without being drawn upon , the total commitment amounts do not necessarily represent future cash requirements . the company evaluates each customer 's creditworthiness on a case-by-case basis . the amounts of collateral obtained , if deemed necessary by the company upon extension of credit , are based on management 's credit evaluation of the borrower . contractual obligations the following table summarizes information regarding the company 's contractual obligations as of december 31 , 2012 : replace_table_token_22_th 44 liquidity and capital resources liquidity refers to the ability of a financial institution to generate sufficient cash flow to fund current loan demand , meet deposit withdrawals and pay operating expenses . the bank 's primary sources of funds are new deposits , proceeds from loan repayments and prepayments and proceeds from the maturity of securities . the bank may also borrow from the federal home loan bank of indianapolis . while loan repayments and maturities of securities are predictable sources of funds , deposit flows and mortgage prepayments are greatly influenced by market interest rates , general economic conditions and competition . at december 31 , 2012 , the bank had cash and interest-bearing deposits with banks of $ 23.2 million and securities available for sale with a fair value of $ 123.0 million . if the bank requires funds beyond its ability to generate them internally , it has additional borrowing capacity with the federal home loan bank of indianapolis and collateral eligible for repurchase agreements . the bank must maintain an adequate level of liquidity to ensure the availability of sufficient funds to support loan growth and deposit withdrawals , to satisfy financial commitments and to take advantage of investment opportunities . at december 31 , 2012 , the bank had total commitments to extend credit of $ 49.7 million . see note 16 in the accompanying notes to consolidated financial statements . at december 31 , 2012 , the bank had certificates of deposit scheduled to mature within one year of $ 53.4 million . historically , the bank has been able to retain a significant amount of its deposits as they mature . the company is a separate legal entity from the bank and must provide for its own liquidity . in addition to its operating expenses , the company requires funds to pay any dividends to its shareholders and to repurchase any shares of its common stock . the company 's primary source of income is dividends received from the bank . the amount of dividends the bank may declare and pay to the company in any calendar year , without the receipt of prior approval from the occ but with prior notice to the occ , can not exceed net income for that year to date plus retained net income ( as defined ) for the preceding two calendar years . at december 31 , 2012 , the company ( on an unconsolidated basis ) had liquid assets of $ 239,000. the bank is required to maintain specific amounts of capital pursuant to occ regulations . as of december 31 , 2012 the bank was in compliance with all regulatory capital requirements which were effective as of such date with tangible capital to adjusted total assets
| return on average assets and return on average equity return on average assets for 2012 was 0.86 % compared to 0.90 % for 2012 , and return on average equity for 2012 was 7.54 % compared to 8.04 % for 2011. excluding the net effect of the voluntary early retirement program would increase the return on average assets for 2012 to 0.94 % and the return on average equity to 8.20 % , resulting in increases of 4.4 % and 2.0 % , respectively . efficiency ratio the company 's efficiency ratio ( defined as noninterest expenses divided by net interest income plus noninterest income ) was 66.4 % for 2012 compared to 64.2 % for 2011. excluding the expense associated with the voluntary early retirement program , the efficiency ratio would have been 63.7 % for 2012 which compares very favorably to our peers . asset quality net loan charge-offs decreased from $ 2.1 million for 2011 to $ 971,000 for 2012. in addition , total nonperforming assets ( consisting of nonperforming loans and foreclosed real estate ) decreased from $ 8.4 million , or 1.92 % of total assets at december 31 , 2011 to $ 8.2 million , or 1.78 % of total assets at december 31 , 2012. the allowance for loan losses was 1.64 % of total loans and 60.16 % of nonperforming loans at december 31 , 2012 compared to 1.47 % of total loans and 53.86 % at december 31 , 2011. shareholder return total shareholder return , including the increase in the company 's stock price from $ 18.53 at december 31 , 2011 to $ 19.47 at december 31 , 2012 and dividends of $ 0.76 per share , was 9.2 % for 2012. management 's discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of the company and the bank . the information contained in this section should be read in conjunction with the consolidated financial statements and the accompanying notes to consolidated financial statements included elsewhere in this report . 36 operating strategy the company is the parent company of an independent community-oriented financial institution that delivers quality customer service and offers a wide range of deposit , loan and investment products to its customers . the commitment to customer needs , the focus on providing consistent customer service , and community service and support are the keys to the bank 's past and future success .
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to date , we have financed our operations primarily through the private placements of convertible preferred stock and the issuance of common stock upon the completion of our ipo . we completed our ipo in june 2020 and received net proceeds of approximately $ 160.6 million after deducting underwriting discounts and commissions and offering costs , net of offering costs of $ 0.2 million paid in 2019. we expect our expenses will increase significantly in connection with our ongoing activities , as we : ▪ advance product candidates through preclinical studies and clinical trials ; ▪ pursue regulatory approval of product candidates ; ▪ continue to invest in our technology platform ; ▪ seek marketing approvals for any product candidates that successfully complete clinical trials ; ▪ implement operational , financial and management information systems ; ▪ hire additional personnel ; ▪ buildout and expand our in-house manufacturing capabilities ; ▪ continue to operate as a public company ; ▪ expand our pipeline of product candidates ; ▪ obtain , maintain , expand , and protect our intellectual property portfolio ; and ▪ establish a sales , marketing , and distribution infrastructure to commercialize any product candidate for which we may obtain marketing approval and related commercial manufacturing build-out . as a result , we will require substantial additional capital to develop our product candidates and fund operations for the foreseeable future . until such time as we can generate sufficient revenue from product sales , if ever , we expect to finance our operations through a combination of public or private equity offerings , debt financings , collaborations and licensing arrangements . we may be unable to raise additional funds or to enter into such agreements or arrangements on favorable terms , or at all . our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business , results of operations or financial condition , and could force us to delay , reduce or eliminate our drug development or future commercialization efforts . we may also be required to grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves . the amount and timing of our future funding requirements will depend on many factors including the pace and results of our development efforts . we can not assure you that we will ever be profitable or generate positive cash flow from operating activities . based on our current operating plan , we believe that our existing cash , cash equivalents , and investments will be sufficient to fund our planned operations through at least the next 12 months . we have based this projection on assumptions that may be inaccurate and as a result , we may utilize our capital resources sooner than we expect . 96 covid-19 as a result of the covid-19 pandemic , we could experience disruptions that severely impact our business . for example , the covid-19 pandemic could result in delays to our clinical trials and preclinical studies for numerous reasons including difficulties in enrolling patients or healthy volunteers , diversion of healthcare resources away from the conduct of clinical trials , delays in receiving regulatory authorities to initiate clinical trials , and delays in receiving supplies to conduct clinical trials and preclinical studies . as of december 31 , 2020 , we were not aware of any contingencies and no estimates were recorded on our financial statements . in addition , future developments from the covid-19 pandemic are highly uncertain and can not be predicted . components of results of operations revenue we have not generated any revenue from product sales or otherwise and do not expect to generate any revenue for the foreseeable future . operating expenses we classify operating expenses into two main categories : ( i ) research and development expenses and ( ii ) general and administrative expenses . research and development expenses our research and development expenses consist primarily of external and internal expenses incurred in connection with our research activities and development programs . these expenses include , but are not limited to : external expenses , consisting of : ▪ clinical trials—expenses associated with cros for managing and conducting clinical trials and sample analysis ; ▪ materials—expenses associated with laboratory supplies and other materials ; ▪ preclinical studies—expenses associated with preclinical studies performed by vendors ; ▪ contract manufacturing—expenses associated with manufacturing clinical trial materials including under agreements with cdmos and other vendors ; and ▪ other research and development—expenses associated with consulting and other external expenses . internal expenses , consisting of : ▪ personnel—personnel expenses including salaries , bonuses , benefits , and stock-based compensation expense ; and ▪ equipment , depreciation , and facility—expenses associated with service and repair of equipment , equipment depreciation , and allocated facility costs for research and development occupied space . to date , the vast majority of these expenses have been incurred to advance our most advanced product candidate , amt-101 . we expect that significant additional spending will be required to progress amt-101 through the remainder of the clinical development phases . these expenses will primarily consist of expenses for the administration of clinical studies as well as manufacturing costs for clinical material supply . in addition , we have incurred minimal expenses in connection with our second product candidate , amt-126 , including expenses for internal animal studies and preclinical studies performed at contract research organizations . we expect that significant additional spending will be required as we progress amt-126 through clinical trials . we have also incurred minimal expenses to expand our development pipeline and for general discovery research . we expect 97 spending for these early-stage research and development activities to increase for the foreseeable future . we deploy our personnel , equipment , and facility resources across all our research and development activities . research and development expenses are recognized as they are incurred . story_separator_special_tag if deposits are required by external vendors , the non-current portion of the deposit is included as a prepaid expense until the related services are provided . at this time , we can not reasonably estimate or know the nature , timing , and estimated costs of the efforts that will be necessary to complete the development of , and obtain regulatory approval for , any of our product candidates . we expect our research and development expenses to increase significantly in the foreseeable future as we continue to invest in research and development activities related to developing our product candidates , as our product candidates advance into later stages of development , as we begin to conduct larger clinical trials , as we seek regulatory approvals for any product candidates that successfully complete clinical trials , and incur expenses associated with hiring additional personnel to support our research and development efforts . the process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming , the successful development of our product candidates is highly uncertain , and we may never succeed in achieving regulatory approval for any of our product candidates . general and administrative expenses general and administrative expenses consist primarily of personnel-related costs ( including salaries , bonuses , benefits , and stock-based compensation expense ) for personnel in executive , finance , accounting , corporate development , and other administrative functions . general and administrative expenses also include legal fees , professional fees paid for accounting , auditing , consulting , tax , and investor relations services , insurance costs , and facility costs not otherwise included in research and development expenses , and public company expenses such as costs associated with compliance with the rules and regulations of the sec and those of the nasdaq stock market . we expect that our general and administrative expenses will continue to increase significantly in the foreseeable future as additional administrative personnel and services are required to manage these functions of a public company and as our pipeline of product candidates expands . interest income , net and other expense , net interest income , net and other expense , net primarily consists of interest income earned on our cash , cash equivalents , and investments , realized gain and loss on investments , interest expense from capital lease obligations , and net losses on foreign currency transactions related to third-party contracts with foreign-based vendors . results of operations comparisons of the years ended december 31 , 2020 and 2019 replace_table_token_1_th 98 research and development expenses research and development expenses were $ 53.9 million for the year ended december 31 , 2020 , compared to $ 24.3 million for the year ended december 31 , 2019. the overall increase in research and development expenses was primarily related to higher expenses associated with clinical trials , preclinical studies , materials , compensation , contract manufacturing and facilities related expenses . in particular , clinical , preclinical and materials expenses increased primarily due to progressing our most advanced product candidate , amt-101 , through the completion of phase 1 studies , initiating amt-101 phase 2 studies , and progressing amt-126 through the initiation of amt-126 phase 1 studies . the following table sets forth the primary external and internal research and development expenses for the periods presented below ( in thousands ) . replace_table_token_2_th general and administrative expenses general and administrative expenses were $ 12.7 million for the year ended december 31 , 2020 compared to $ 4.0 million for the year ended december 31 , 2019. the increase in general and administrative expenses was primarily related to an increase of $ 3.4 million in personnel and administrative costs due to an increase in headcount and an increase of $ 4.9 million in professional fees . interest income , net interest income , net was comparable for the year ended december 31 , 2020 and the year ended december 31 , 2019. other income , net other income , net was $ 0.1 million for the year ended december 31 , 2020 , compared to less than $ 0.1 million for the year ended december 31 , 2019. for both fiscal 2019 and fiscal 2020 , other income , net primarily consists of realized gains on foreign currency transactions . liquidity and capital resources we believe that our existing cash , cash equivalents , and investments as of december 31 , 2020 will be sufficient to fund our current operating plan through at least the next 12 months . since the date of our incorporation , we have not generated any revenue from product sales and have incurred significant operating losses and negative cash flows from operations . we anticipate that we will continue to incur net losses for the foreseeable future . our operations have been financed primarily by net proceeds from sales of our convertible preferred stock and common stock through our ipo . as of december 31 , 2020 , we had an accumulated deficit of $ 139.4 million . as of december 31 , 2020 , we had cash , cash equivalents , and investments of $ 129.9 million . 99 future funding requirements to date , we have not generated any revenue . we do not expect to generate any meaningful revenue unless and until we obtain regulatory approval and commercialize any of our product candidates , and we do not know when , or if at all , that will occur . we will continue to require additional capital to develop our product candidates and fund operations for the foreseeable future . our primary uses of cash are to fund our operations , which consist primarily of research and development expenses related to our programs , and to a lesser extent , general and administrative expenses . we expect our expenses to continue to increase in connection with our ongoing activities as we continue to advance our product candidates . in addition , we expect to incur additional costs associated with operating as a public company .
| cash used in investing activities for the year ended december 31 , 2020 , cash used in investing activities was $ 109.3 million related primarily to the purchase of investments of $ 188.2 million , the purchase of property and equipment of $ 5.3 million , offset by the sales and maturities of investments of $ 84.2 million . for the year ended december 31 , 2019 , cash used in investing activities was $ 22.1 million related primarily to the purchase of investments of $ 20.6 million , the purchase of property and equipment of $ 2.1 million , offset by the sales and maturities of investments of $ 0.6 million . cash provided by or used in financing activities for the year ended december 31 , 2020 , cash provided by financing activities was $ 161.3 million , consisting primarily of net proceeds of $ 160.8 million received from the issuance of common stock in our ipo and proceeds received from the stock option exercises of $ 0.6 million , offset by principal payments for the capital lease of $ 0.1 million . for the year ended december 31 , 2019 , cash provided by financing activities was $ 41.6 million , consisting primarily of net proceeds received from the issuance of convertible preferred stock . 101 contractual obligations and commitments the following table summarizes our contractual obligations and commitments as of december 31 , 2020 ( in thousands ) : replace_table_token_4_th ( 1 ) payments due for our headquarters and manufacturing facility ( 2 ) payments due for certain laboratory equipment total minimum future lease payments of approximately $ 47.2 million for a lease that has not commenced as of december 31 , 2020 is not included in the table above or in the lease liability in financial statements , as we do not yet have control of the underlying asset . the lease is expected to commence in october 2021 with a base lease term of eight years . off-balance sheet arrangements we have not engaged in any off-balance sheet arrangements , as
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the increased headcount has resulted in higher cash and stock-based employee-related expenses across most of our income statement expense categories when compared to the same periods in 2013 , and we expect this trend to continue . cost of license revenues our cost of license revenues principally consists of the cost of fulfillment of our software , royalty costs in connection with technology licensed from third-party providers and amortization of intangible assets and capitalized software . the cost of fulfillment of our software includes it development efforts , personnel costs and related overhead associated with the physical and electronic delivery of our software products . replace_table_token_7_th cost of license revenues decreased in 2014 compared to 2013 primarily due to a decrease of $ 34 in amortization of capitalized software development costs , which was partially offset by an increase of $ 17 in amortization of intangible assets . 45 cost of license revenues decreased in 2013 compared to 2012 primarily due to a decrease of $ 37 in amortization of capitalized software and a decrease of $ 11 in it development costs . these decreases were partially offset by an increase of $ 18 in intangible amortization expense . no amortization expenses was recorded during the year ended december 31 , 2014 as all previously capitalized software development costs had been fully amortized as of december 31 , 2013 . we do not expect significant amortization of capitalized software development costs in future years . cost of services revenues our cost of services revenues primarily includes the costs of personnel and related overhead to deliver technical support for our products and to provide our professional services . additionally , our costs of services revenues include costs related to our it development efforts and depreciation on equipment supporting our service offerings . as we continue to invest in and grow business from our saas and professional services offerings , we expect our total costs of services revenues to continue to increase . replace_table_token_8_th cost of services revenues increased in 2014 compared to 2013 primarily driven by the investment and growth in our saas and professional services offerings , which led to higher costs . the increase includes growth in cash-based employee-related expenses of $ 124 due to incremental growth in headcount , both organic and through acquisitions , and an increase in technical support costs of $ 21. additionally , increases of $ 25 in equipment and depreciation costs also contributed to the increases in cost of services revenues . the increase in 2014 was partially offset by a decrease of $ 10 in operating expenses related to pivotal . cost of services revenues increased in 2013 compared to 2012 primarily due to an increase of $ 39 in cash-based employee-related expenses and an increase of $ 27 in costs we incurred to provide technical support . these increases were generally proportional to the increases in services revenues for the same comparable period . equipment and depreciation costs also contributed to the increase in cost of services revenues . the increases were partially offset by a decrease of $ 32 of operating expenses related to pivotal . research and development expenses our research and development expenses include the personnel and related overhead associated with the development of our product software and service offerings . replace_table_token_9_th research and development expenses increased in 2014 compared to 2013. the increases were primarily due to growth in cash-based employee-related expenses of $ 125 and increases in stock-based compensation of $ 17 , driven by incremental growth in headcount , both organic and through acquisitions . equipment and depreciation expenses increased by $ 27 in 2014. the increase in 2014 was partially offset by a decrease of $ 15 in research and development expenses related to pivotal . research and development expenses increased in 2013 compared to 2012 primarily due to growth in cash-based employee-related expenses of $ 85 , which was primarily driven by planned incremental growth in headcount . additionally , contractor costs , stock-based compensation expense and equipment and depreciation expenses also increased by $ 48 during 2013 compared to the prior year . the increases in expenses were partially offset by a decrease of $ 59 of research and development expenses related to pivotal . 46 sales and marketing expenses our sales and marketing expenses include personnel costs , sales commissions and related overhead associated with the sale and marketing of our license and services offerings , as well as the cost of product launches . sales commissions are generally earned and expensed when a firm order is received from the customer . sales and marketing expenses also include the net impact from the expenses incurred and fees generated by certain marketing initiatives , such as our annual vmworld u.s. and vmworld europe conferences . replace_table_token_10_th sales and marketing expenses increased in 2014 compared to 2013 primarily driven by growth in cash-based employee-related expenses of $ 240 and an increase in stock-based compensation expense of $ 29 due to incremental growth in headcount , both organic and through acquisitions . costs incurred for travel and marketing programs also increased by $ 48 in 2014 compared 2013. the increase in expenses in 2014 was partially offset by a decrease of $ 10 in sales and marketing expenses related to pivotal . sales and marketing expenses increased in 2013 compared to 2012 primarily due to growth in cash-based employee-related expenses of $ 174 , including , incremental growth in headcount and by higher commission expense due to increased sales volumes . to a lesser extent , costs incurred for marketing programs also contributed to the increase of expense in 2013 , compared to prior year . the increases in expenses in 2013 were partially offset by a decrease of $ 44 of sales and marketing expenses related to pivotal . general and administrative expenses our general and administrative expenses include personnel and related overhead costs to support the overall business . story_separator_special_tag these expenses include the costs associated with our finance , human resources , it infrastructure and legal , as well as expenses related to corporate costs and initiatives . replace_table_token_11_th general and administrative expenses increased in 2014 compared to 2013. we have made and will continue to make installment payments to certain key employees of airwatch subject to the achievement of specified future employment conditions . we recognized compensation expense of $ 141 in 2014 relating to these installment payments . other cash-based employee-related expenses increased by $ 52 in 2014 due to incremental growth in headcount , both organic and through acquisitions . costs of $ 11 related to certain litigation and other contingencies , and amounts for it development costs and stock-based compensation expense further contributed to the increase in expenses in 2014 compared to 2013. general and administrative expenses increased in 2013 compared to 2012 due to incremental growth in headcount resulting in an increase of $ 19 in cash-based employee-related expenses . the increase in 2013 compared to 2012 was also due to an increase in charitable donations , stock-based compensation expense and contractor expenses . 47 realignment charges replace_table_token_12_th during the second half of 2014 , we eliminated approximately 180 positions across all major functional groups and geographies to streamline our operations . as a result of these actions , $ 16 of realignment charges was recognized in 2014 on the consolidated statements of income , which consisted of workforce reduction charges . as of december 31 , 2014 , $ 8 remained in accrued expenses and other on the consolidated balance sheets and is expected to be paid during 2015. realignment charges in 2013 were incurred in connection with the realignment plan we initiated in january 2013. the plan included the elimination of approximately 710 positions and personnel across all major functional groups and geographies . the total cash and non-cash charges for workforce reductions of $ 54 and costs primarily associated with asset impairments of $ 14 were recorded on the consolidated statements of income in 2013. the realignment plan was completed by the end of december 31 , 2013. interest expense with emc interest expense with emc of $ 24 in 2014 , representing an increase of $ 21 compared to 2013 primarily as a result of the additional debt that we obtained from emc in connection with the airwatch acquisition and the change of interest rate from 90-day libor plus 55 basis points to a fixed rate of 1.75 % . refer to “ our relationship with emc ” discussion below for further information . other income ( expense ) , net replace_table_token_13_th other income ( expense ) , net in 2013 was primarily due to the recognition of a pre-tax gain of $ 44 as a result of exiting certain lines of business under our business realignment plan . partially offsetting this gain was an other-than-temporary impairment charge of $ 13 that we recognized in connection with a strategic investment . income tax provision our annual effective income tax rate was 15.5 % , 11.6 % and 16.5 % for 2014 , 2013 , and 2012 , respectively . our effective rate in 2014 is higher than 2013 primarily due to the fact that the 2013 effective tax rate includes the benefit of the federal research tax credit for both 2013 and 2012 , whereas the 2014 effective tax rate only includes the benefit of the federal research tax credit for 2014. our annual effective tax rate in 2012 does not include any benefit from the federal research tax credit . our rate of taxation in foreign jurisdictions is lower than our u.s. tax rate . our foreign earnings are primarily earned by our subsidiaries organized in ireland , and as such , our annual effective tax rate can be significantly impacted by the mix of our earnings in the u.s. and foreign jurisdictions . during october 2014 , ireland announced revisions to its tax regulations that will require income earned by our subsidiaries organized in ireland to be taxed at higher rates . we will be impacted by the changes in tax regulations in ireland beginning in 2021. all income earned abroad , except for previously taxed income for u.s. tax purposes , is considered indefinitely reinvested in our non-u.s. operations and no provision for u.s. taxes has been provided with respect to such income . as of december 31 , 2014 and 2013 , the undistributed earnings of our non-u.s. subsidiaries were approximately $ 3,594 and $ 2,830 , respectively . our intent is to indefinitely reinvest our non-u.s. funds in our foreign operations , and our current plans do not demonstrate a need to repatriate them to fund our u.s. operations . at this time , it is not practicable to estimate the amount of tax that may be payable if we were to repatriate these earnings . we are included in the emc consolidated group for u.s. federal income tax purposes , and expect to continue to be included in such consolidated group for periods in which emc owns at least 80 % of the total voting power and value of our combined outstanding class a and class b common stock as calculated for u.s. federal income tax purposes . the percentage of voting power and value calculated for u.s. federal income tax purposes may differ from the percentage of outstanding shares 48 beneficially owned by emc due to the greater voting power of our class b common stock as compared to our class a common stock and other factors . each member of a consolidated group during any part of a consolidated return year is jointly and severally liable for tax on the consolidated return of such year and for any subsequently determined deficiency thereon .
| saas revenues are included in both license and software maintenance revenues , and while the amounts have not been material for all periods presented , we expect these revenues and those from our hybrid cloud offerings to form an increasing percentage of our revenues in future periods . the anticipated revenue growth of our hybrid cloud and saas revenues are expected to adversely impact the growth rate of our license revenues in 2015 as we will recognize less revenue up-front than we would otherwise recognize as part of a multi-year license arrangement . additionally , changes in foreign currency are also expected to have an impact on our license revenues . refer to our foreign currency discussion below for further information . our revenues for 2013 increased due to overall increased global sales volumes in all major geographies , slightly offset by the disposition of certain business lines under our realignment plan and the contribution to pivotal . license revenues related to pivotal and all dispositions under our realignment plan were $ 18 in 2013 as compared to $ 56 in 2012. services revenues in 2014 and 2013 , software maintenance revenues benefited from renewals , multi-year software maintenance contracts sold in previous periods , and additional maintenance contracts sold in conjunction with new software license sales . in each period presented , customers bought , on average , more than 24 months of support and maintenance with each new license purchased , which we believe demonstrates our customers ' commitment to our sddc strategy . in 2013 , our services revenue growth rate was negatively impacted by the contribution to pivotal and the disposition of other net assets under our realignment plan . service revenues related to pivotal and all dispositions under our realignment plan were $ 37 in 2013 as compared to $ 143 in 2012. in 2014 and 2013 , professional services revenues increased as growth in our license sales and increased complexity of our product suite led to additional demand for our professional services . as we continue to invest in our partners and expand our ecosystem of third-party professionals with expertise in our solutions to independently provide professional services to our customers ,
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a failure to renew or execute new leases as current leases expire or to execute new leases with rental terms at or above the terms of in-place leases may be affected by several factors such as : ( 1 ) the local economic climate , which may be adversely impacted by business layoffs or downsizing , industry slowdowns , changing demographics and other factors ; and ( 2 ) local real estate conditions , such as oversupply of the company 's product types or competition within the market . of the company 's core office markets , most continue to show signs of rental rate improvement , while the lease percentage has declined or stabilized . the percentage leased in the company 's stabilized core operating commercial properties included in its consolidated properties aggregating 10.3 million , 14.1 million and 14.7 million square feet at december 31 , 2019 , 2018 and 2017 , respectively , was 80.7 percent leased at december 31 , 2019 , as compared to 83.2 percent leased at december 31 , 2018 and 87.6 percent leased at december 31 , 2017 ( after adjusting for properties identified as non-core at the time ) . percentage leased includes all leases in effect as of the period end date , some of which have commencement dates in the future and leases that expire at the period end date . leases that expired as of december 31 , 2019 , 2018 and 2017 aggregate 31,982 , 10,108 and 343,217 square feet , respectively , or 0.3 , 0.1 and 2.3 percentage of the net rentable square footage , respectively . rental rates ( including escalations ) on the company 's commercial space that was renewed ( based on first rents payable ) during the year ended december 31 , 2019 ( on 229,429 square feet of renewals ) increased an average of 16.9 percent compared to rates that were in effect under the prior leases , as compared to a 21.7 percent increase during 2018 ( on 950,548 square feet of renewals ) and a 1.7 percent increase in 2017 ( on 1,680,687 square feet of renewals ) . estimated lease costs for the renewed leases in 2019 averaged $ 4.34 per square foot per year for a weighted average lease term of 3.9 years , estimated lease costs for the renewed leases in 2018 averaged $ 3.46 per square foot per year for a weighted average lease term of 4.7 years and estimated lease costs for the renewed leases in 2017 averaged $ 2.16 per square foot per year for a weighted average lease term of 7.2 years . the company believes that vacancy rates at its commercial properties have begun to bottom by the end of 2019 as the majority of the known move-outs at its waterfront portfolio have already occurred , and commercial rental rates may increase in some of its markets in 2020. as of december 31 , 2019 , commercial leases which comprise approximately 5.9 and 10.1 percent of the company 's annualized base rent are scheduled to expire during the years ended december 31 , 2020 and 2021 , respectively . with the positive rental rate results the company has achieved in most of its markets recently , the company believes that rental rates on new leases will generally be , on average , not lower than rates currently being paid . if these recent leasing results do not prove to be sustaining in 2020 , the company may receive less revenue from the same space . during 2017 , moody 's downgraded its investment grade rating on the company 's senior unsecured debt to sub-investment grade and during 2018 , standard & poor 's lowered its investment grade rating on the company 's senior unsecured debt to sub-investment grade . amongst other things , such downgrade would have increased the interest rate on outstanding borrowings under the company 's current $ 600 million unsecured revolving credit facility ( which was amended in january 2017 ) from the london inter-bank offered rate ( “ libor ” ) plus 120 basis points to libor plus 155 basis points and the annual credit facility fee it pays would have increased from 25 to 30 basis points . additionally , any such downgrade would have increased the current interest rate on each of the company 's 2016 term loan and 2017 term loan from libor plus 140 basis points to libor plus 185 points . effective march 6 , 2018 , the company elected to utilize the leverage grid pricing available under the unsecured revolving credit facility and both unsecured term loans . this resulted in an interest rate of libor plus 130 basis points for the company 's unsecured revolving credit facility and 25 basis points for the facility fee and libor plus 155 basis points for both unsecured term loans at the company 's then total leverage ratio . in addition , a downgrade in its ratings to sub-investment grade would result in higher interest rates on senior unsecured debt that the company may issue in the future as compared to issuing such debt with investment grade ratings . the remaining portion of this management 's discussion and analysis of financial condition and results of operations should help the reader understand our : recent transactions ; critical accounting policies and estimates ; results of operations for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 ; results of operations for the year ended december 31 , 2018 as compared to the year ended december 31 , 2017 ; and liquidity and capital resources . 39 recent transactions acquisitions the company acquired the following rental properties ( which were determined to be asset acquisitions in accordance with asu 2017-01 ) during the year ended december 31 , 2019 ( dollars in thousands ) : replace_table_token_13_th ( a ) this acquisition was funded using funds available with the company 's qualified intermediary from prior property sales proceeds and through borrowing under the company 's unsecured revolving credit facility . story_separator_special_tag ( b ) this acquisition was funded through borrowings under the company 's unsecured revolving credit facility and a new $ 232 million mortgage loan collateralized by the property . on may 10 , 2019 , the company completed the acquisition of developable land parcels for future development ( “ 107 morgan ” ) located in jersey city , new jersey for approximately $ 67.2 million . the 107 morgan acquisition was funded using funds available with the company 's qualified intermediary from prior property sales proceeds , and through borrowing under the company 's unsecured revolving credit facility . the company 's mortgage receivable of $ 46.1 million with the seller was repaid in full to the company at closing . consolidations on january 31 , 2019 , the company , which held a 24.27 percent subordinated interest in the unconsolidated joint venture , marbella tower urban renewal associates south llc , a 311-unit multi-family operating property located in jersey city , new jersey , acquired its equity partner 's 50 percent preferred controlling interest for $ 77.5 million in cash . the property was subject to a mortgage loan that had a principal balance of $ 74.7 million . the acquisition was funded primarily using available cash . concurrently with the closing , the joint venture repaid in full the property 's $ 74.7 million mortgage loan and obtained a new loan collateralized by the property in the amount of $ 117 million , which bears interest at 4.2 percent and matures in august 2026. the company received $ 43.3 million in distribution from the loan proceeds which was used to acquire the equity partner 's 50 percent interest . as the result of the acquisition , the company increased its ownership of the property from a 24.27 percent subordinated interest to a 74.27 percent controlling interest . in accordance with asc 810 , consolidation , the company evaluated the acquisition and determined that the entity meets the criteria of a vie . as such , the company consolidated the asset upon acquisition and accordingly , remeasured its equity interests , as required by the fasb 's consolidation guidance , at fair value ( based upon the income approach using current rental rates and market cap rates and discount rates ) . as a result , the company recorded a gain on change of control of interests of $ 13.8 million ( a non-cash item ) in the year ended december 31 , 2019 , in which the company accounted for the transaction as a vie that is not a business in accordance with asc 810-10-30-4. additional non-cash items included in the acquisition were the company 's carrying value of its interest in the joint venture of $ 15.3 million and the noncontrolling interest 's fair value of $ 13.7 million . see note 9 : mortgages , loans payable and other obligations – to the financial statements . marbella ii land and leasehold interests $ 36,595 buildings and improvements and other assets , net 153,974 in-place lease values ( a ) 4,611 less : below market lease values ( a ) ( 80 ) 195,100 less : debt ( 117,000 ) net assets 78,100 less : noncontrolling interests ( 13,722 ) net assets recorded upon consolidation $ 64,378 ( a ) in-place and below market lease values are being amortized over a weighted-average term of 6.2 months . 40 properties commencing initial operations the following property commenced initial operations during the year ended december 31 , 2019 ( dollars in thousands ) : # of total in service property apartment units/ development date property location type rooms costs incurred 07/09/19 autograph collection by marriott ( phase ii ) weehawken , nj hotel 208 $ 105,477 totals 208 $ 105,477 real estate held for sale/discontinued operations/dispositions the company identified 35 office properties ( comprised of 12 disposal groups ) totaling 6.1 million square feet ( see note 7 : discontinued operations – to the financial statements ) , a retail pad leased to others and several developable land parcels as held for sale as of december 31 , 2019. the total estimated sales proceeds , net of expected selling costs , from the sales of all the assets held for sale are expected to be approximately $ 1.2 billion . the company determined that the carrying value of 21 of the properties ( comprised of six disposal groups ) and several land parcels held for sale was not expected to be recovered from estimated net sales proceeds , and accordingly , during the year ended december 31 , 2019 , recognized an unrealized loss allowance of $ 174.1 million for the properties ( $ 137.9 million of which are from discontinued operations ) , and land and other impairments of $ 32.4 million . the company disposed of the following rental properties during the year ended december 31 , 2019 ( dollars in thousands ) : replace_table_token_14_th ( a ) the company recorded a valuation allowance of $ 9.3 million on this property during the year ended december 31 , 2018 . ( b ) the company recorded a valuation allowance of $ 6.3 million on this property during the year ended december 31 , 2018 . ( c ) the company recorded a valuation allowance of $ 3.6 million on this property during the year ended december 31 , 2018 . ( d ) as part of the consideration from the buyer , who sis a noncontrolling interest unitholder of the operating partnership , 301,638 common units were redeemed by the company at fair market value of $ 6.6 million as purchase consideration received for two of the properties disposed of in this transaction , which was a non-cash portion of this sales transaction . the company used the net cash received at closing to repay approximately $ 119.9 million of borrowings under the unsecured revolving credit facility and to repay $ 90 million of its $ 350 million unsecured term loan .
| revenue from leases for the same-store properties decreased $ 6.3 million , or 2.0 percent , for 2019 as compared to 2018 , due primarily to a 610 basis point decrease in the average same store percent leased of the office portfolio from 82.2 percent in 2018 to 76.1 percent in 2019. parking income . parking income for the same-store properties decreased $ 1.7 million , or 7.6 percent for 2019 as compared to 2018 due primarily to less tenant usage in 2019 due to higher vacancies , as well as catch-up billings in 2018 for third party fees not recurring in 2019. hotel income . the company recognized hotel income of $ 9.8 million in 2019 from hotel properties , which commenced operations at the end of 2018 and mid 2019. other income . other income for the same-store properties decreased $ 0.5 million , or 5.9 percent for 2019 as compared to 2018 due primarily to a decrease in lease breakage fees recognized in 2019 , as compared to 2018. real estate taxes . real estate taxes on the same-store properties decreased $ 0.2 million , or 0.4 percent , for 2019 as compared to 2018 due primarily to lower tax assessment values for the company 's office properties in 2019 as compared to 2018. utilities . utilities for the same-store properties decreased $ 1.1 million , or 4.7 percent , for 2019 as compared to 2018 , due primarily to lower electricity rates in 2019 as compared to 2018. operating services . operating services for the same-store properties were relatively unchanged for 2019 as compared to 2018. increases in operations and maintenance costs were offset by a decrease in salaries and related expenses for 2019 as compared to 2018. real estate services revenue . real estate services revenue ( primarily reimbursement of property personnel costs ) decreased $ 3.2 million , or 18.8 percent , for 2019 as compared to 2018 , due primarily to decreased third party development and property management activity in multi-family services in 2019 as compared to 2018. real estate services expenses . real estate services expenses decreased $ 2.0 million , or 11.2 percent ,
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in addition to the factors specifically noted in the forward-looking statements , other important factors , risks and uncertainties that could result in those differences include , but are not limited to , those discussed under item 1a to part i “ risk factors ” in this annual report . the forward-looking statements are made as of the date of this annual report , and we assume no obligation to update the forward-looking statements , or to update the reasons why actual results could differ from those projected in the forward-looking statements . investors should consult all of the information set forth in this report and the other information set forth from time to time in our reports filed with the securities and exchange commission pursuant to the securities act of 1933 and the securities exchange act of 1934 , including our reports on forms 10-q and 8-k. the following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in item 8 of this annual report . 43 overview rafael holdings , inc. , ( “ rafael holdings ” or the “ company ” ) , a delaware corporation , owns interests in pre-clinical and clinical stage pharmaceutical companies and commercial real estate assets . the assets are operated as two separate lines of business . the pharmaceutical holdings include preferred and common equity interests and a warrant to purchase additional equity interests in rafael pharmaceuticals , inc. , or rafael pharmaceuticals , which is a clinical stage , oncology-focused , pharmaceutical company committed to the development and commercialization of therapies that exploit the metabolic differences between normal cells and cancer cells , and a majority equity interest in lipomedix pharmaceuticals ltd. , or lipomedix , a clinical stage oncological pharmaceutical company based in israel . in addition , in 2019 , we established the barer institute ( `` barer '' ) , a wholly-owned early stage venture focused on developing a pipeline of therapeutic compounds , including compounds to regulate cancer metabolism . the venture is pursuing collaborative research agreements with leading scientists from top academic institutions . in addition , we have recently initiated efforts to develop other early stage pharmaceutical ventures . the commercial real estate holdings consist of a building at 520 broad street in newark , new jersey that serves as headquarters for the company and certain affiliated entities , and an associated 800-car public garage , an office/data center building in piscataway , new jersey and a portion of a building in israel . business update - covid-19 in december 2019 , a new coronavirus , now known as covid-19 , which has proved to be highly contagious , emerged in wuhan , china and since has spread around the globe . we actively monitor the outbreak and its potential impact on our operations and those of our holdings . although our operations are mainly in the united states , we have assets outside of the united states , and some of our pharmaceutical holdings conduct operations , manufacturing and clinical trial activities in europe and asia . the impacts on the operations and specifically the ongoing clinical trials of our pharmaceutical holdings have been actively managed by respective pharmaceutical management teams who have worked closely with the appropriate regulatory agencies to continue clinical trial activities with as minimal impact as possible including receiving waivers for certain clinical trial activities from the respective regulatory agencies to continue the studies . we have granted a rent concession to two of our retail tenants during the month of april . additionally , one tenant has not paid rent in june and july 2020 due to the new jersey state gym closures ; however , we do not believe this is recurring and believe that the rental revenues will materially continue as the tenant has resumed paying original contractual rent payments upon the state of new jersey lifting of closures . there is a general degree of uncertainty in the national commercial real estate market based on the covid-19 pandemic and as a result there is a potential impact to the value of our real estate portfolio . we have implemented a number of measures to protect the health and safety of our workforce including a mandatory work-from-home policy for our workforce who can perform their jobs from home as well as restrictions on business travel and workplace and in-person meetings . due to both known and unknown risks , including quarantines , closures and other restrictions resulting from the outbreak , operations and those of our holdings may be adversely impacted . additionally , as there is an evolving nature to the covid-19 situation , we can not reasonably assess or predict at this time the full extent of the negative impact that the covid-19 pandemic may have on our business , financial condition , results of operations and cash flows . the impact will depend on future developments such as the ultimate duration and the severity of the spread of the covid-19 pandemic in the u.s. and globally , the effectiveness of federal , state , local and foreign government actions on mitigation and spread of covid-19 , the pandemic 's impact on the u.s. and global economies , changes in our customers ' behavior emanating from the pandemic and how quickly we can resume our normal operations , among others . for all these reasons , we may incur expenses or delays relating to such events outside of our control , which could have a material adverse impact on our business . story_separator_special_tag roman , times , serif ; margin : 0pt 0 ; text-align : justify '' > as of july 31 , 2020 , we had cash and cash equivalents of $ 6.2 million . story_separator_special_tag we expect our cash from operations in the next 12 months and the balance of cash and cash equivalents that we held as of july 31 , 2020 , in addition to the subsequent $ 3.7 million obtained from the sale of our office building in piscataway , new jersey in august 2020 , and the $ 2.0 million received from the partial liquidation of our investments - hedge funds in october 2020 to be sufficient to meet our currently anticipated working capital , research and development , and capital expenditure requirements during the next 12 months from the issuance of these consolidated financial statements . 46 replace_table_token_3_th operating activities our cash flows from operations varies from year to year , depending on our operating results and the timing of operating cash receipts and payments , specifically payments of trade accounts payable . the increase in cash used in operating activities for the year ended july 31 , 2020 as compared to the year ended july 31 , 2019 was primarily related to the increased net loss offset by noncash expense and income items . investing activities cash used in investing activities for the year ended july 31 , 2020 was related to the initial payments of $ 0.5 million towards the acquisition of a 33.333 % membership interest in altira for a product-in-development , and $ 0.5 million related to building improvements made to our real estate holdings . cash used in investing activities for the year ended july 31 , 2019 related to the exercise of a portion of the warrant to purchase a 51 % equity interest in rafael pharmaceuticals for approximately $ 55.9 million , offset by the net proceeds from the sale of marketable securities of approximately $ 25.0 million . financing activities cash used in financing activities for the year ended july 31 , 2020 was related to payments for taxes related to shares withheld for employee taxes , offset by proceeds from exercise of options . the decrease in cash flows from financing activities from the year ended july 31 , 2019 was due primarily to the proceeds from issuance of convertible notes and proceeds from shares during the prior fiscal year . we do not anticipate paying dividends on our common stock until we achieve sustainable profitability and retain certain minimum cash reserves . the payment of dividends in any specific period will be at the sole discretion of our board of directors . trends and uncertainties – covid-19 in december 2019 , a novel strain of coronavirus ( “ covid-19 ” ) emerged and has subsequently expanded to a pandemic resulting in significant risks and disruptions to the health and welfare of the global population and economy . for the period ended april 30 , 2020 , covid-19 has not had a material impact on our operations , and we anticipate that our existing balances of cash and cash equivalents and cash flows expected to be generated from our operations will be sufficient to satisfy our operating requirements for at least the next twelve months . we actively monitor the outbreak and its potential impact on our operations and those of our holdings . although our operations are mainly in the united states , we have assets outside of the united states , and some of our pharmaceutical holdings conduct operations , manufacturing and clinical trial activities in europe and asia . the impacts on the operations and specifically the ongoing clinical trials of our pharmaceutical holdings have been actively managed by respective pharmaceutical management teams who have worked closely with the appropriate regulatory agencies to continue clinical trial activities with as minimal impact as possible including receiving waivers for certain clinical trial activities from the respective regulatory agencies to continue the studies . we have granted a rent concession to two of our retail tenants during the month of april . additionally , one tenant has not paid rent in june and july 2020 due to the new jersey state gym closures ; however , we do not believe this is recurring and believe that the rental revenues will materially continue as the tenant has resumed paying original contractual rent payments . there is a general degree of uncertainty in the national commercial real estate market based on the covid-19 pandemic and as a result there is a potential impact to the value of our real estate portfolio . 47 we have implemented a number of measures to protect the health and safety of our workforce including a mandatory work-from-home policy for our workforce who can perform their jobs from home as well as restrictions on business travel and workplace and in-person meetings . due to both known and unknown risks , including quarantines , closures and other restrictions resulting from the outbreak , operations and those of our holdings may be adversely impacted . additionally , as there is an evolving nature to the covid-19 situation , we can not reasonably assess or predict at this time the full extent of the negative impact that the covid-19 pandemic may have on our business , financial condition , results of operations and cash flows . the impact will depend on future developments such as the ultimate duration and the severity of the spread of the covid-19 pandemic in the u.s. and globally , the effectiveness of federal , state , local and foreign government actions on mitigation and spread of covid-19 , the pandemic 's impact on the u.s. and global economies , changes in our customers ' behavior emanating from the pandemic and how quickly we can resume our normal operations , among others . for all these reasons , we may incur expenses or delays relating to such events outside of our control , which could have a material adverse impact on our business . critical accounting policies and estimates our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the united
| depreciation expenses increased in the fiscal year ended july 31 , 2020 compared to the prior fiscal year due to increased fixed assets in place from building improvements . replace_table_token_1_th 45 consolidated operations our consolidated income and expense line items below income from operations were as follows : replace_table_token_2_th interest ( expense ) income , net . interest ( expense ) income , net decreased in the year ended july 31 , 2020 due to a reduction in cash and marketable securities in connection with the partial exercise of the warrant in fiscal 2019 as well as the decrease in interest ( expense ) income related to the conversion of the convertible note in january 2019. interest income ( expense ) for the year ended july 31 , 2020 totaled approximately $ 52 thousand of interest income and ( $ 84 ) thousand of interest expense , respectively . interest income ( expense ) for the year ended july 31 , 2019 totaled approximately $ 1.13 million of interest income and ( $ 661 ) thousand of interest expense , respectively . net ( loss ) gain resulting from foreign exchange transactions . net ( loss ) gain resulting from foreign exchange transactions are comprised entirely from changes in movements in new israeli shekels relative to the u.s. dollar . gain on sales of marketable securities . the company liquidated all marketable securities in january 2019 in connection with the partial exercise of the warrant . impairment of investments - other pharmaceuticals . the company recorded an impairment loss of $ 0.8 million related to the company 's investment using the measurement alternative for the year ended july 31 , 2020. unrealized gain on investments - hedge fund s. the company recorded unrealized gains of approximately $ 2.4 million for the year ended july 31 , 2020 . ( provision for ) benefit from income taxes . during the year ended july 31 , 2020 , there was a provision for income taxes for $ 29 thousand .
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these grade assignments are performed independent of each other and a consensus is reached by credit administration and the loan review officer . specific allowances are established in cases where management has identified significant conditions or circumstances related to an individual credit that indicate the loan is impaired . considerations with respect to specific allocations for these individual credits include , but are not limited to , the following : ( a ) does the customer 's cash flow or net worth appear insufficient to repay the loan ; ( b ) is there adequate collateral to repay the loan ; ( c ) has the loan been criticized in a regulatory examination ; ( d ) is the loan impaired ; ( e ) are there other reasons where the ultimate collectability of the loan is in question ; or ( f ) are there unique loan characteristics that require special monitoring . allocations are also applied to categories of loans considered not to be individually impaired , but for which the rate of loss is expected to be consistent with or greater than historical averages . such allocations are based on past loss experience and information about specific borrower situations and estimated collateral values . in addition , general allocations are made for other pools of loans , including non-classified loans . these general pooled loan allocations are performed for portfolio segments of commercial and industrial , commercial real estate and multi-family , agri-business and agricultural , other commercial , consumer 1-4 family mortgage and other consumer loans , and loans within certain industry categories believed to present unique risk of loss . general allocations of the allowance are primarily made based on a three-year historical average for loan losses for these portfolios , subjectively adjusted for economic factors and portfolio trends . due to the imprecise nature of estimating the allowance for loan losses , the company 's allowance for loan losses includes an unallocated component . the unallocated component of the allowance for loan losses incorporates the company 's judgmental determination of inherent losses that may not be fully reflected in other allocations , including factors such as the level of classified credits , economic uncertainties , industry trends impacting specific portfolio segments , broad portfolio quality trends and trends in the composition of the company 's large commercial loan portfolio and related large dollar exposures to individual borrowers . valuation and other-than-temporary impairment of investment securities the fair values of securities available for sale are determined on a recurring basis by obtaining quoted prices on nationally recognized securities exchanges or pricing models , which utilize significant observable inputs such as matrix pricing . this is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities ' relationship to other benchmark quoted securities . different judgments and assumptions used in pricing could result in different estimates of value . the fair value of certain securities is determined using unobservable inputs , primarily observable inputs of similar securities . at the end of each reporting period , securities held in the investment portfolio are evaluated on an individual security level for other-than-temporary impairment in accordance with current accounting guidance . impairment is other-than-temporary if the decline in the fair value of the security is below its amortized cost and it is probable that all amounts due according to the contractual terms of a debt security will not be received . significant judgments are required in determining impairment , which includes making assumptions regarding the estimated prepayments , loss assumptions and the change in interest rates . we consider the following factors when determining other-than-temporary impairment for a security or investment : · the length of time and the extent to which the market value has been less than amortized cost ; · the financial condition and near-term prospects of the issuer ; · the underlying fundamentals of the relevant market and the outlook for such market for the near future ; and · our intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery in market value . the assessment of whether a decline exists that is other-than-temporary , involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time . if , in management 's judgment , other-than-temporary impairment exists , the cost basis of the security will be written down to the computed net present value , and the unrealized loss will be transferred from accumulated other comprehensive loss as an immediate reduction of current earnings ( as if the loss had been realized in the period of other-than-temporary impairment ) . 25 story_separator_special_tag line-height : 11.4pt '' > long-term borrowings and subordinated debentures interest expense was reduced by interest capitalized on construction in process for 2015 and 2014 . 27 the following table shows fluctuations in 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. net interest income – rate/volume analysis ( fully tax equivalent basis , dollars in thousands ) replace_table_token_7_th ( 1 ) the earning assets and interest bearing liabilities used to calculate interest differentials are based on average daily balances for 2016 , 2015 and 2014. the changes in net interest income are created by changes in interest rates and changes in the volumes of loans , investments , deposits and borrowings . in the table above , changes attributable to volume are computed using the change in volume from the prior year multiplied by the previous year 's rate , and changes attributable to rate are computed using the change in rate from the prior year multiplied by the previous year 's volume . story_separator_special_tag the change in interest or expense due to both rate and volume has been allocated between factors in proportion to the relationship of the absolute dollar amounts of the change in each . ( 2 ) tax exempt income was converted to a fully taxable equivalent basis at a 35 percent tax rate for 2016 , 2015 and 2014. the tax equivalent rate for tax exempt loans and tax exempt securities acquired after january 1 , 1983 included the tefra adjustment applicable to nondeductible interest expense . growth in the commercial loan portfolio accounted for most of the growth in loans , as well as total earning assets , during both 2016 and 2015 and positively impacted total interest income . management believes that the growth in the loan portfolio will likely continue in a measured , but prudent , fashion as a result of our continued strategic focus on commercial and industrial lending , as well as commercial real estate lending . in addition , management believes its organic growth strategy of continued expansion in its current geographic footprint and in indianapolis will provide continued loan growth opportunities . growth in loans of $ 340.1 million was funded through an increase in interest bearing deposits . interest bearing deposit accounts represented primarily by public funds increased $ 274.8 million . in addition , demand deposits increased $ 114.4 million in 2016. the increase in the company 's yields on average earning assets during 2016 resulted from increases in market rates overall , including increases in loan portfolio yields during 2016. market rates were impacted by two federal reserve bank increases in the federal funds rate , which occurred in december of 2016 and 2015. yields on commercial loans increased in 2016 , as a result of higher , market interest rates . during 2016 management continued to focus on growing the commercial portfolio in a prudent and responsible manner . the cost of funds was also impacted by the rising rate environment during 2016 , with the largest impact in public fund interest bearing checking and time deposit accounts . provision for loan losses due to the increase in the loan portfolio the company recorded a provision for loan loss expense of $ 1.2 million in 2016 , compared to no provision in either 2015 or 2014. the allowance for loan losses at december 31 , 2016 was $ 43.7 million , which represented 1.26 % of the loan portfolio , versus an allowance for loan losses of $ 43.6 million at the end of 2015 , which represented 1.42 % of the loan portfolio . the allowance for loan losses was $ 46.3 million at the end of 2014 , which represented 1.67 % of the loan portfolio . the provision in 2016 was attributable to the increasing size of the loan portfolio with consideration to the decline in 28 nonperforming loans and net charge-offs . the lack of a provision in 2015 and 2014 was attributable to a number of factors but was primarily a result of improvement in key loan quality metrics , including a decrease in net charge-offs , strong reserve coverage of nonperforming loans , a decrease in historical loss percentages , stabilization in economic conditions in the company 's markets and general signs of improvement in borrower performance and future prospects . in addition , management gave consideration to changes in the allocation for specific watch list credits in determining the appropriate level of the loan loss provision . management 's overall view on current credit quality was also a factor in the determination of the provision for loan losses . the company 's management continues to monitor the adequacy of the provision based on loan levels , asset quality , economic conditions and other factors that may influence the assessment of the collectability of loans . noninterest income the following table presents changes in the components of noninterest income for the years ended december 31. replace_table_token_8_th noninterest income was $ 32.9 million in 2016 versus $ 31.5 million in 2015 , an increase of $ 1.4 million , or 4.4 % . the increase was primarily driven by a $ 1.4 million increase in service charges on deposit accounts driven by growth in fees from business accounts . in addition , mortgage banking income increased due to higher volumes of loans sold in the secondary market resulting from the continued low interest rate environment . noninterest income was negatively impacted by decreases in other income due to lower rents on operating leases as well as a write-down to a property formerly used as a lake city bank branch that was subsequently sold . in addition , investment brokerage fees declined due to lower production volumes as well as changes to the product mix designed to provide a more consistent revenue stream . noninterest income was $ 31.5 million in 2015 versus $ 30.1 million in 2014 , an increase of $ 1.4 million , or 4.7 % . the increase was primarily driven by a $ 1.1 million increase in service charges on deposit accounts driven by higher service charges on business accounts . in addition , loan , insurance and service fees increased due to increased fees resulting from higher loan volumes . mortgage banking income increased due to higher volumes driven by the continued low interest rate environment . noninterest income was negatively impacted by a $ 1.9 million decrease in investment brokerage fees due to lower production volumes as well as changes to the product mix designed to provide a more consistent revenue stream . 29 noninterest expense the following table presents changes in the components of noninterest expense for the years ended december 31. replace_table_token_9_th noninterest expense was $ 73.0 million in 2016 versus $ 68.2 million in 2015 , an increase of $ 4.8 million , or 7.0 % . salaries and employee benefits increased by $ 3.0 million primarily due to higher performance incentive-based compensation costs , normal merit increases and staff additions .
| the net interest margin decreased to 3.18 % in 2016 versus 3.19 % in 2015 , due to an increase in interest bearing liabilities , which more than offset an increase in earning asset yields during 2016. net income was $ 46.4 million in 2015 , an increase of $ 2.6 million , or 5.9 % , versus net income of $ 43.8 million in 2014. net interest income increased $ 3.6 million , or 3.5 % , to $ 105.9 million versus $ 102.3 million in 2014. net interest income increased primarily due to a 7.7 % increase in average earning assets , driven by an increase of 8.9 % in the commercial loan portfolio , which reflects our continuing strategic focus on commercial lending . the net interest margin decreased to 3.19 % in 2015 versus 3.32 % in 2014. the lower margin resulted from the continued low interest rate environment as well as competitive factors in the company 's markets including more aggressive pricing of new loan opportunities and renewed loans . 26 net interest income 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. three year average balance sheet and net interest analysis replace_table_token_6_th ( 1 ) tax exempt income was converted to a fully taxable equivalent basis at a 35 percent tax rate for 2016 , 2015 and 2014. the tax equivalent rate for tax exempt loans and tax exempt securities acquired after january 1 , 1983 included the tax equity and fiscal responsibility act of 1982 ( `` tefra '' ) adjustment applicable to nondeductible interest expenses . taxable equivalent basis adjustments were $ 2.2 million , $ 2.0 million and $ 1.9 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively . ( 2 ) loan fees , which are immaterial in relation to total taxable loan interest income for the years ended december 31 , 2016 , 2015 and
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in the following tables , we have presented certain financial measures and ratios identified as non-gaap such as sales excluding 53 rd week , earnings before interest and taxes ( “ ebit ” ) , adjusted ebit , adjusted ebit margin , adjusted income before income taxes , adjusted net income , adjusted net income margin , adjusted diluted earnings per share , return on invested capital ( “ roic ” ) , free cash flow , and net debt capitalization . we present these non-gaap measures because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by excluding items that are not indicative of our core business or which affect comparability . in addition , these non-gaap measures are useful in assessing our progress in achieving our long-term financial objectives . additionally , we present certain amounts as excluding the effects of foreign currency fluctuations , which are also considered non-gaap measures . throughout the following discussions , where amounts are expressed as excluding the effects of foreign currency fluctuations , such changes are determined by translating all amounts in both years using the prior-year average foreign exchange rates . presenting amounts on a constant currency basis is useful to investors because it enables them to better understand the changes in our businesses that are not related to currency movements . fiscal year 2017 represented the fifty-three weeks ended february 3 , 2018. accordingly , certain non-gaap results have also been adjusted to exclude the effects of the 53 rd week to assist in comparability . we estimate the tax effect of the non-gaap adjustments by applying a marginal rate to each of the respective items . the income tax items represent the discrete amount that affected the period . the non-gaap financial information is provided in addition to , and not as an alternative to , our reported results prepared in accordance with gaap . presented below is a reconciliation of gaap and non-gaap results discussed throughout this annual report on form 10-k. please see the non-gaap reconciliations for free cash flow and net debt capitalization in the “ liquidity and capital resources ” section . reconciliation : replace_table_token_5_th 2019 form 10-k page 18 2019 form 10-k page 19 replace_table_token_6_th notes on non-gaap adjustments : ( 1 ) impairment and other charges for 2019 includes impairment charges related to certain of our footaction stores , certain underperforming stores , a vacant store that was previously subleased , the closure of our six:02 stores ( $ 50 million , or $ 38 million after-tax ) , the impairment related to two of our minority investments ( $ 11 million , or $ 8 million after-tax ) , and pension-related charges ( $ 4 million , or $ 3 million after-tax ) . the 2018 amount represented pension-related litigation charges ( $ 18 million , or $ 13 million after-tax ) and impairment charges associated with our six:02 , runners point , and sidestep businesses ( $ 19 million , or $ 18 million after-tax ) . the 2017 amount represented pension-related litigation charges ( $ 178 million , or $ 111 million after-tax ) , impairment charges associated with our six:02 , runners point , and sidestep businesses ( $ 20 million , or $ 14 million after-tax ) , and costs associated with the reorganization and the reduction of division and corporate staff ( $ 13 million , or $ 8 million after-tax ) . ( 2 ) other income , net represented a gain recorded in connection with acquisition of a canadian distribution center lease and related assets . the tax expense related to this transaction was largely offset by the release of a valuation allowance . ( 3 ) on december 22 , 2017 , the united states enacted tax reform legislation that included a broad range of business tax provisions . during the fourth quarter of 2017 , we recognized a $ 99 million provisional charge for the mandatory deemed repatriation of foreign sourced net earnings and a corresponding change in our permanent reinvestment assertion under asc 740-30. during 2018 , we reduced the provisional amounts by $ 28 million . this adjustment represented a $ 21 million reduction in the deemed repatriation tax and a $ 7 million benefit related to irs accounting method changes and timing difference adjustments . in 2019 , we recorded a charge for $ 2 million , which reflected an adjustment to u.s. tax on foreign income . we exclude the discrete u.s. tax reform effect from our adjusted diluted eps as it does not reflect our ongoing tax obligations under u.s. tax reform . ( 4 ) we recognized a tax benefit of $ 2 million and a tax expense of $ 4 million during the fourth quarters of 2019 and 2018 , respectively , in connection with tax law changes in the netherlands . during 2017 we recorded a charge of $ 2 million in connection with tax rate reductions in france to write down the value of deferred tax assets . ( 5 ) during the second quarter of 2018 , the u.s. treasury issued a notice that delayed the effective date of regulations under internal revenue code section 987 the effective date was further delayed by a notice issued in the fourth quarter of 2019. these regulations changed our method for determining the tax effects of foreign currency translation gains and losses for our foreign businesses that are operated as branches and are reported in a currency other than the currency of their parent . as a result of the delay in the effective date , we updated our calculations for the effect of these regulations , which resulted in an increase to deferred tax assets and a corresponding reduction in our income tax provision in the amount of $ 1 million in 2018. the 2019 tax effects were not significant . ( 6 ) valuation allowances were established against deferred tax assets associated with certain foreign tax losses . story_separator_special_tag 2019 form 10-k page 20 return on invested capital roic is presented below and represents a non-gaap measure . we believe roic is a meaningful measure because it quantifies how efficiently we generated operating income relative to the capital we have invested in the business . roic , subject to certain adjustments , is also used as a measure in executive long-term incentive compensation . the closest u.s. gaap measure to roic is return on assets ( “ roa ” ) and is also presented below . roa is calculated as net income in the fiscal year divided by the two-year average of total assets . roa decreased to 9.4 percent as compared with 13.9 percent in the prior year . this decrease primarily reflected the adoption of the new lease standard , which resulted in the recognition of right-of-use assets in the current year . excluding the effect of the addition of right-of-use assets , roa would have declined by 80 basis points . prior to the adoption of the new lease standard , we adjusted our results to reflect our operating leases as if they qualified for capital lease treatment or as if the property were purchased . this prior year presentation does not reflect the requirements of the new lease standard . with the adoption of this standard , leases are now recorded on the consolidated balance sheet , and therefore , certain adjustments are no longer required . our roic increased to 12.5 percent in 2019 , as compared to 12.0 percent as calculated in the prior year . the overall increase in roic reflected a decrease in a verage invested capital compared with the prior year and a higher adjusted return after taxes . replace_table_token_7_th ( 1 ) represents net income of $ 491 million , $ 541 million , and $ 284 million divided by average total assets of $ 5,205 million , $ 3,891 million , and $ 3,901 million for 2019 , 2018 , and 2017 , respectively . calculation of roic : replace_table_token_8_th ( 1 ) for 2018 and 2017 , the determination of the capitalized operating leases and the adjustments to income were calculated on a lease-by-lease basis and represented the best estimate of the asset base that would be recorded for operating leases as if they had been classified as capital or as if the property were purchased . no such adjustments are required for 2019 since leases are accounted for on the consolidated balance sheet after the adoption of the new leasing standard . ( 2 ) represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as finance leases . calculated using the discount rate for each lease and recorded as a component of rent expense . operating lease interest is added back to adjusted net operating profit in the roic calculation to control for differences in capital structure between us and our competitors . ( 3 ) the adjusted income tax expense represents the marginal tax rate applied to adjusted net operating profit for each of the periods presented . ( 4 ) for 2019 , the amount represents the average total assets for 2019 and 2018 , excluding the 2019 right-of-use assets of $ 2,899 million for comparability to prior periods . ( 5 ) for 2019 , the amount represents the average of the right-of-use assets as of february 1 , 2020 and february 3 , 2019 ( the date of the adoption of the new lease standard ) of $ 2,899 million and $ 3,148 million , respectively . 2019 form 10-k page 21 story_separator_special_tag within men 's , our branded apparel sales , which represented the largest portion of our apparel sales , improved and was offset by declines in sales of private-label and licensed apparel . the declines represented a concerted effort to focus our assortment on more premium offerings . gross margin replace_table_token_12_th gross margin is calculated as sales minus cost of sales . cost of sales includes : the cost of merchandise , freight , distribution costs including related depreciation expense , shipping and handling , occupancy and buyers ' compensation . occupancy costs include rent ( including fixed common area maintenance charges and other fixed non-lease components ) , real estate taxes , general maintenance , and utilities . overall , the gross margin rate remained consistent with the prior year at 31.8 percent . within this , the merchandise margin rate declined reflecting , in part , higher freight costs due to a higher penetration of sales from our direct-to-customer channel as well as lower gross margin related to our apparel business due to a more promotional marketplace . the change in the gross margin rate also reflected an improvement in the occupancy and buyers ' compensation rate of 30 basis points due to increased sales and continued focus on rent reductions . selling , general and administrative expenses ( sg & a ) replace_table_token_13_th sg & a increased by $ 36 million or 2.2 percent in 2019 , as compared with the prior year . as a percentage of sales , the sg & a rate increased by 30 basis points as compared with 2018. the overall increase represented an increase in costs incurred in connection with our ongoing investment in various technology and infrastructure projects , partially offset by lower incentive compensation expense of $ 18 million . excluding the effect of foreign currency fluctuations , sg & a increased by $ 57 million and 3.5 percent as compared with the prior year . 2019 form 10-k page 24 depreciation and amortization replace_table_token_14_th depreciation and amortization increased by $ 1 million in 2019 as compared with 2018. the effect of foreign currency fluctuations on depreciation and amortization for the current year was not significant . division profit division profit was $ 738 million or 9.2 percent , as a percentage of sales .
| the overall increase reflected an increase in costs incurred in connection with our ongoing investment in various technology and infrastructure projects , partially offset by lower incentive compensation expense . ● net income was $ 491 million , or $ 4.50 diluted earnings per share , which represented a decrease from the prior-year period . this decrease reflected higher sg & a and impairment charges as compared to the prior year . adjusted net income was $ 538 million , or $ 4.93 diluted earnings per share , an increase of 4.7 percent from the corresponding prior-year period non-gaap amount . ● net income margin decreased to 6.1 percent as compared with 6.8 percent in the prior year . our adjusted net income margin decreased to 6.7 percent in 2019 as compared to 6.9 percent in the prior year . 2019 form 10-k page 22 highlights of our financial position for the period ended february 1 , 2020 include : ● we ended the year in a strong financial position . at year end , we had $ 785 million of cash and cash equivalents , net of debt . cash and cash equivalents at february 1 , 2020 were $ 907 million . ● net cash provided by operating activities was $ 696 million as compared with $ 781 million last year . while this a decline , it still represents a demonstrated ability to generate significant cash . ● cash capital expenditures during 2019 totaled $ 187 million and were primarily directed to the remodeling or relocation of 148 stores , the build-out of 67 new stores , as well as other technology and infrastructure projects . ● we made minority investments of $ 50 million during 2019. these investments are part of our broader strategic initiatives aimed at strengthening and diversifying our role within the sneaker community . additionally , we expect that these strategic investments allow us to better adapt to the dynamically evolving consumer and retail landscape by strengthening
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( g ) see note 4 - nonrecurring fair value measurements for a discussion of the impairment charge related to the investment in mountain valley pipeline . nee segregates into two categories unrealized mark-to-market gains and losses and timing impacts related to derivative transactions . the first category , referred to as non-qualifying hedges , represents certain energy derivative , interest rate derivative and foreign currency transactions entered into as economic hedges , which do not meet the requirements for hedge accounting , or for which hedge accounting treatment is not elected or has been discontinued . changes in the fair value of those transactions are marked to market and reported in the consolidated statements of income , resulting in earnings volatility because the economic offset to certain of the positions are generally not marked to market . as a consequence , nee 's net income reflects only the movement in one part of economically-linked transactions . for example , a gain ( loss ) in the non-qualifying hedge category for certain energy derivatives 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 . for this reason , nee 's management views results expressed excluding the impact of the non-qualifying hedges as a meaningful measure of current period performance . the second category , referred to as trading activities , which is included in adjusted earnings , represents the net unrealized effect of actively traded positions entered into to take advantage of expected market price movements and all other commodity hedging activities . at fpl , substantially all changes in the fair value of energy derivative transactions are deferred as a regulatory asset or liability until the contracts are settled , and , upon settlement , any gains or losses are passed through the fuel clause . see note 3 . 2020 summary net income attributable to nee for 2020 was lower than 2019 by $ 850 million , or $ 0.46 per share , assuming dilution , due to lower results at neer , partly offset by higher results at fpl , gulf power and corporate and other . fpl 's increase in net income in 2020 was primarily driven by continued investments in plant in service and other property . 35 neer 's results decreased in 2020 primarily driven by an impairment charge related to its investment in mountain valley pipeline , unfavorable non-qualifying hedge activity , the absence of nep investment gains recorded upon the sale of ownership interests to nep in june 2019 and unfavorable changes in the fair value of equity securities in neer 's nuclear decommissioning funds compared to 2019 , partly offset by the gain recognized on the sale of the spain projects and higher earnings on new investments and existing generation assets . in 2020 , neer added approximately 2,299 mw of new wind generating capacity , 1,412 mw of wind repowering generating capacity and 625 mw of solar generating capacity in the u.s. and increased its backlog of contracted renewable development projects . gulf power 's increase in net income in 2020 is primarily related to lower operating expenses - net . corporate and other 's results in 2020 increased primarily due to lower net losses associated with non-qualifying hedge activity . nee and its subsidiaries require funds to support and grow their businesses . these funds are primarily provided by cash flows from operations , borrowings or issuances of short- and long-term debt , proceeds from differential membership investors , sales of assets to nep or third parties and , from time to time , issuances of equity securities . see liquidity and capital resources - liquidity . results of operations net income attributable to nee for 2020 was $ 2.92 billion compared to $ 3.77 billion in 2019. in 2020 , net income attributable to nee decreased primarily due to lower story_separator_special_tag style= '' text-align : justify '' > fpl 's retail base revenues for 2020 and 2019 reflect the 2016 rate agreement . in december 2016 , the fpsc issued a final order approving the 2016 rate agreement which became effective january 2017 and will remain in effect until new base rates are approved by the fpsc . the 2016 rate agreement establishes fpl 's allowed regulatory roe at 10.55 % , with a range of 9.60 % to 11.60 % , and allowed for retail rate base increases in 2017 , 2018 , and upon commencement of commercial operations at the okeechobee clean energy center and certain solar projects . in january 2021 , fpl filed a formal notification with the fpsc indicating its intent to initiate a base rate proceeding . see item 1. business - fpl - fpl regulation - fpl electric rate regulation - base rates for additional information on the 2016 rate agreement and details of fpl 's formal notification . the increase in retail base revenues in 2020 primarily reflects additional revenues of approximately $ 64 million related to retail base rate adjustments associated with the addition of new solar generation and the okeechobee clean energy center which achieved commercial operation at the end of the first quarter of 2019. in 2020 , retail base revenues were also impacted by an increase of 1.5 % in the average number of customer accounts . although the weather in 2020 was favorable when compared to 2019 , usage per retail customer remained flat . see note 1 - rate regulation . cost recovery clauses revenues from fuel and other cost recovery clauses and pass-through costs , such as franchise fees , revenue taxes and storm-related surcharges , are largely a pass-through of costs . such revenues also include a return on investment allowed to be recovered through the cost recovery clauses on certain assets , primarily related to certain solar and environmental projects and the unamortized balance of the regulatory asset associated with fpl 's acquisition of certain generation facilities . story_separator_special_tag see item 1. business - fpl - fpl regulation - fpl electric rate regulation - cost recovery clauses . underrecovery or overrecovery of cost recovery clause and other pass-through costs ( deferred clause and franchise expenses and revenues ) can significantly affect nee 's and fpl 's operating cash flows . the 2020 net underrecovery impacting nee 's and fpl 's operating cash flows was approximately $ 110 million . fuel cost recovery revenues decreased in 2020 primarily as a result of lower fuel and energy prices , including the flow back of lower expected fuel costs to retail customers . storm-related revenues decreased in 2020 primarily as a result of the conclusion of the storm-recovery bond surcharge in the third quarter of 2019. in 2020 and 2019 , cost recovery clauses contributed approximately $ 111 million and $ 117 million , respectively , to fpl 's net income . other items impacting fpl 's consolidated statements of income fuel , purchase power and interchange expense fuel , purchased power and interchange expense decreased $ 640 million in 2020 primarily related to lower fuel and energy prices . 37 depreciation and amortization expense the major components of fpl 's depreciation and amortization expense are as follows : replace_table_token_9_th depreciation expense decreased $ 278 million during 2020 primarily reflecting a lower reversal of reserve amortization in 2020 compared to 2019 and lower storm-recovery cost amortization primarily as a result of the final payment of the storm-recovery bonds in the third quarter of 2019. the decreases in depreciation and amortization expense during 2020 were partly offset by increased depreciation related to higher plant in service balances . reserve amortization , or reversal of such amortization , reflects adjustments to accrued asset removal costs provided under the 2016 rate agreement in order to achieve the targeted regulatory roe . reserve amortization is recorded as a reduction to ( or when reversed as an increase to ) accrued asset removal costs which is reflected in noncurrent regulatory liabilities on the consolidated balance sheets . at december 31 , 2020 , approximately $ 894 million remains in accrued asset removal costs related to reserve amortization . income taxes during 2020 , income taxes increased $ 169 million , primarily related to the absence of a 2019 income tax adjustment recorded pursuant to the fpsc 's order in connection with its review of impacts associated with tax reform , as well as higher income before income taxes in 2020. see note 5. neer : results of operations neer owns , develops , constructs , manages and operates electric generation facilities in wholesale energy markets primarily in the u.s. , as well as in canada . neer also provides full energy and capacity requirements services , engages in power and fuel marketing and trading activities , owns and operates rate-regulated transmission facilities and transmission lines and invests in natural gas , natural gas liquids and oil production and pipeline infrastructure assets . neer 's net income less net loss attributable to noncontrolling interests for 2020 and 2019 was $ 531 million and $ 1,807 million , respectively , resulting in a de crease in 2020 of $ 1,276 million . the primary drivers , on an after-tax basis , of the change are in the following table . replace_table_token_10_th ( a ) reflects after-tax project contributions , including the net effect of deferred income taxes and other benefits associated with ptcs and itcs for wind and solar projects , as applicable ( see note 1 - income taxes and - sales of differential membership interests and note 5 ) , but excludes allocation of interest expense or corporate general and administrative expenses . results from projects and pipelines are included in new investments during the first twelve months of operation or ownership . project results are included in existing assets and pipeline results are included in gas infrastructure beginning with the thirteenth month of operation or ownership . ( b ) excludes allocation of interest expense and corporate general and administrative expenses . ( c ) includes differential membership interest costs . excludes unrealized mark-to-market gains and losses related to interest rate derivative contracts , which are included in change in non-qualifying hedge activity . ( d ) see overview - adjusted earnings for additional information . 38 the discussion below describes changes in certain line items set forth in nee 's consolidated statements of income as they relate to neer . operating revenues operating revenues for 2020 decreased $ 593 million primarily due to : the impact of non-qualifying commodity hedges ( approximately $ 244 million of losses during 2020 compared to $ 342 million of gains for 2019 ) , and lower revenues from existing generation assets of $ 260 million primarily related to lower nuclear revenues , due primarily to the closure of duane arnold in august 2020 and a refueling outage at the seabrook nuclear facility , as well as the sale of the spain projects , partly offset by , revenues from new investments of $ 145 million , and higher revenues of $ 129 million from neet primarily related to the acquisition of trans bay in 2019. operating expenses - net operating expenses - net for 2020 increased $ 88 million primarily due to increases of $ 156 million in o & m expenses primarily associated with new investments and acquisitions , partly offset by lower fuel costs of $ 89 million . gains on disposal of businesses/assets - net in 2020 , gains on disposal of businesses/assets - net primarily related to the sale of the spain projects in the first quarter of 2020 ; in 2019 , the amount was primarily related to the sale of ownership interests in wind and solar projects to nep . see note 1 - disposal of businesses/assets .
| nee 's effective income tax rates for the years ended december 31 , 2020 and 2019 were approximately 2 % and 12 % , respectively . the rates for both years reflect the impact of ptcs and itcs and , in 2020 , also reflect the impact of lower pretax income and the gain on sale of the spain solar projects which was not taxable for federal nor state income tax purposes . see note 5. on january 1 , 2021 , fpl and gulf power merged , with fpl as the surviving entity . however , fpl will continue to be regulated as two separate ratemaking entities in the former service areas of fpl and gulf power until the fpsc approves consolidation of the fpl and gulf power rates and tariffs . fpl and gulf power will continue to be separate operating segments of nee as well as fpl , through 2021. see note 6 - merger of fpl and gulf power . nee and fpl are closely monitoring the global outbreak of covid-19 and are taking steps intended to mitigate the potential risks to nee and fpl posed by covid-19 . see note 15 - coronavirus pandemic . fpl : results of operations fpl obtains its operating revenues primarily from the sale of electricity to retail customers at rates established by the fpsc through b ase rates and cost recovery clause mechanisms . fpl 's net income for 2020 and 2019 was $ 2,650 million and $ 2,334 million , respectively , representing an increase of $ 316 million . the increase was primarily driven by higher earnings from investments in plant in service and other property . such investments grew fpl 's average retail rate base by approximately $ 3.9 billion in 2020 and reflect , among other things , solar generation additions and ongoing transmission and distribution additions . 36 fpl 's service area was impacted by hurricane dorian in 2019 and by hurricane isaias and tropical storm eta in 2020. fpl
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( 3 ) smartphones are included in the cellular phone end market , tablets are included in the computing/storage/peripherals end market and other mobile devices such as e-readers are included in the other end market . ( 4 ) amounts includes 211 days of activity of viasystems , which we acquired on may 31 , 2015. we derive revenues primarily from the sale of pcbs and custom electronic assemblies using customer-supplied engineering and design plans . we recognize revenues when persuasive evidence of a sales arrangement exists , the sales terms are fixed or determinable , title and risk of loss have transferred , and collectability is reasonably assured generally when products are shipped to the customer . net sales consist of gross sales less an allowance for returns , which typically have been less than 3 % of gross sales . we provide our customers a limited right of return for defective pcbs and backplane assemblies . we record an estimate for sales returns and allowances at the time of sale based on historical results . purchase orders may be cancelled prior to shipment . we generally charge customers a fee , based on the percentage completed , if an order is cancelled once it has entered production . cost of goods sold consists of materials , labor , outside services , and overhead expenses incurred in the manufacture and testing of our products . shipping and handling fees and related freight costs and supplies associated with shipping products are also included as a component of cost of goods sold . many factors affect our gross margin , including capacity utilization , product mix , production volume , and yield . we generally do not participate in any significant long-term contracts with suppliers , and we believe there are a number of potential suppliers for the raw materials we use . selling and marketing expenses consist primarily of salaries , labor related benefits , and commissions paid to our internal sales force , independent sales representatives , and our sales support staff , as well as costs associated with marketing materials and trade shows . 42 general and administrative costs primarily include the salaries for executive , finance , accounting , information technology , facilities and human resources personnel , as well as insurance expenses , expenses for accounting and legal assistance , incentive compensation expense , and gains or losses on the sale or disposal of property , plant and equipment . critical accounting policies and estimates our consolidated financial statements included in this report 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 assumptions that affect the reported amounts of assets , liabilities , net sales and expenses , and related disclosure of contingent assets and liabilities . a critical accounting policy is defined as one that is both material to the presentation of our consolidated financial statements and requires us to make judgments that could have a material effect on our financial condition or results of operations . these policies require us to make assumptions about matters that are highly uncertain at the time of the estimate . different estimates we could reasonably have used , or changes in the estimates that are reasonably likely to occur , or could have a material effect on our financial condition or results of operations . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . management has discussed the development , selection and disclosure of these estimates with the audit committee of our board of directors . actual results may differ from these estimates under different assumptions or conditions . our critical accounting policies include asset valuation related to bad debts and inventory ; sales returns and allowances ; impairment of long-lived assets , including goodwill and intangible assets ; derivative instruments and hedging activities ; realizability of deferred tax assets ; and determining self-insurance reserves . allowance for doubtful accounts we provide customary credit terms to our customers and generally do not require collateral . we perform ongoing credit evaluations of the financial condition of our customers and maintain an allowance for doubtful accounts based upon historical collections experience and judgments as to expected collectability of accounts . our actual bad debts may differ from our estimates . inventories in assessing the realizability of inventories , we are required to make judgments as to future demand requirements and compare these with current and committed inventory levels . when the market value of inventory is less than the carrying value , the inventory cost is written down to its estimated net realizable value , thereby establishing a new cost basis . our inventory requirements may change based on our projected customer demand , market conditions , technological and product life cycle changes , longer or shorter than expected usage periods , and other factors that could affect the valuation of our inventories . we maintain certain finished goods inventories near certain key customer locations in accordance with agreements with those customers . although this inventory is typically supported by valid purchase orders , should these customers ultimately not purchase these inventories , our results of operations and financial condition would be adversely affected . sales returns and allowances we derive revenues primarily from the sale of pcbs and custom electronic assemblies using customer-supplied engineering and design plans . we recognize revenue when persuasive evidence of a sales arrangement exists , the sales terms are fixed or determinable , title and risk of loss have transferred , and collectability is reasonably assured generally when products are shipped to the customer . we provide our customers a limited right of return for defective pcbs and backplane assemblies . story_separator_special_tag we accrue an estimate for sales returns and allowances at the time of sale using our judgment based on historical results and anticipated returns as a result of current period sales . to the extent actual experience varies from our historical experience , revisions to these allowances may be required . 43 long-lived assets we have significant long-lived tangible and intangible assets consisting of property , plant and equipment , definite-lived intangibles , and goodwill . we review these assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable . in addition , we perform an impairment test related to goodwill at least annually . as necessary , we make judgments regarding future cash flow forecasts in the assessment of impairment . during the fourth quarter of each year , and when events and circumstances warrant an evaluation , we perform an impairment assessment of goodwill , which may require the use of a fair-value based analysis . we first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount . if we conclude that it is more likely than not that the fair value of a reporting units is less than its carrying amount , we conduct a two-step quantitative goodwill impairment test . we determine the fair value of our reporting units based on discounted cash flows and market approach analyses as considered necessary . we consider factors such as the state of the economy and reduced expectations for future cash flows coupled with a decline in our market capitalization for a sustained period as indicators for potential goodwill impairment . if the reporting unit 's carrying amount exceeds its estimated fair value , a second step must be performed to measure the amount of the goodwill impairment loss , if any . the second step compares the implied fair value of the reporting unit 's goodwill , determined in the same manner as the amount of goodwill recognized in a business combination , with the carrying amount of such goodwill . if the carrying amount of the reporting unit 's goodwill exceeds the implied fair value of that goodwill , an impairment loss is recognized in an amount equal to that excess . we periodically evaluate whether events and circumstances have occurred , such that the potential for reduced expectations for future cash flows coupled with a further decline in the market price of our stock and market capitalization may indicate that the remaining balance of goodwill and definite-lived intangible assets may not be recoverable . if factors indicate that assets are impaired , we would be required to reduce the carrying value of our goodwill and definite-lived intangible assets which may result in an impairment charge . we also assess other long-lived assets , specifically definite-lived intangibles and property , plant and equipment , for potential impairment given similar impairment indicators . when indicators of impairment exist related to our long-lived tangible assets and definite-lived intangible assets , we use an estimate of the undiscounted net cash flows and comparison to like-kind assets , as appropriate , in measuring whether the carrying amount of the assets is recoverable . measurement of the amount of impairment , if any , is based upon the difference between the asset 's carrying value and estimated fair value . fair value is determined through various valuation techniques , including cost-based , market and income approaches as considered necessary , which involve judgments related to future cash flows and the application of the appropriate valuation model . during the years ended 2014 and 2013 we recorded impairment charges to reduce the carrying value of certain long-lived assets in the pcb operating segment . see note 4 to our consolidated financial statements . assets held for sale we classify assets to be sold as assets held for sale when ( i ) we have approved and commit to a plan to sell the asset , ( ii ) the asset is available for immediate sale in its present condition , ( iii ) an active program to locate a buyer and other actions required to sell the asset have been initiated , ( iv ) the sale of the asset is probable , ( v ) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value , and ( vi ) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn . assets classified as held for sale are recorded at the lower of the carrying amount or fair value less the cost to sell . assets held for use if a decision to dispose of an asset or a business is made and the held for sale criteria are not met , it is considered held for use . assets of the business are evaluated for recoverability in the following order : ( i ) assets other than goodwill , property and intangibles ; ( ii ) property and intangibles subject to amortization ; and ( iii ) goodwill . in evaluating the recoverability of property and intangible assets subject to amortization , in a held for use business , the carrying value is first compared to the sum of the undiscounted cash flows expected to result from the use and eventual disposition . if the carrying value exceeds the undiscounted expected cash flows , then a fair value analysis is performed . an impairment charge is recognized if the carrying value exceeds the fair value . 44 derivative instruments and hedging activities as a matter of policy , we use derivatives for risk management purposes , and we do not use derivatives for speculative purposes . derivatives are typically entered into as hedges of changes in interest rates , currency exchange rates , and other risks .
| these changes , including the sales from viasystems , resulted in a 110 % increase in pcb shipments from the year ended december 29 , 2014. in addition , the average pcb selling price decreased 25 % , which was driven by a product mix shift resulting from the acquisition . net sales for the e-m solutions operating segment , excluding inter-segment sales , increased $ 82.1 million , from $ 76.2 million for the year ended december 29 , 2014 to $ 158.3 million for the year ended december 28 , 2015. this increase is due to the acquisition of viasystems , which accounted for $ 82.0 million in e-m solutions sales for the year ended december 28 , 2015. total net sales decreased $ 42.5 million , or 3.1 % , from $ 1,368.2 million for the year ended december 30 , 2013 to $ 1,325.7 million for the year ended december 29 , 2014. net sales for the pcb operating segment , excluding inter-segment sales , decreased $ 53.5 million , or 4.1 % , from $ 1,303.0 million for the year ended december 30 , 2013 to $ 1,249.5 million for the year ended december 29 , 2014. this decrease was primarily due to the absence of net sales resulting from the sale of a controlling equity interest in a subsidiary in the second quarter of 2013 , combined with lower demand in our computing/storage/peripherals and cellular phone end markets in the first and second quarters of 2014. this decrease was partially offset by higher demand in our cellular phone end market in the second half of 2014. the overall decline in demand resulted in a 12 % decrease in pcb shipments from the year december 30 , 2013 , and was partially offset by a 9 % increase in the average pcb selling price , which was driven by product mix shift . net sales for the e-m solutions operating segment , excluding inter-segment sales , increased $ 11.0 million , or 16.9 % ,
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the merger is expected to close prior to the end of the third quarter of 2021. at the effective time of the merger , each issued and outstanding share of common stock , without par value , of protective ( other than each share of protective 's common stock that is owned by protective as treasury stock or by any subsidiary of protective and each share of protective 's common stock owned by progressive , merger sub or any other subsidiary of progressive immediately prior to the effective time of the merger ) will be automatically canceled and converted into the right to receive $ 23.30 in cash , without interest , for a total transaction value of approximately $ 338 million . the merger agreement contains various customary representations and warranties from each of protective , progressive and merger sub . protective has also agreed to various customary covenants , including but not limited to conducting its business in the ordinary course and not engaging in certain types of transactions during the period between the execution of the merger agreement and the closing of the merger . however , the merger agreement permits protective to continue to pay regular quarterly dividends not to exceed $ 0.10 per share of its common stock . the consummation of the merger is subject to certain conditions , including approval of the merger by protective 's class a shareholders , legal and regulatory approvals including from the indiana department of insurance and the expiration of the applicable waiting period under the hart-scott-rodino antitrust improvements act of 1976 , as amended , as well as other customary closing conditions . for additional information regarding the risks associated with the merger , please see part i , item 1a , `` risk factors , '' of this annual report on form 10-k. voting and support agreement on february 14 , 2021 , protective also entered into a voting and support agreement ( the “ voting agreement ” ) with progressive and certain of protective 's shareholders . the voting agreement requires that the protective shareholders party to the voting agreement : ( i ) appear at the meeting of the holders of protective 's class a common stock to consider resolutions to approve the merger agreement and the merger or otherwise cause their shares of protective 's common stock to be counted as present for purposes of calculating a quorum , and ( ii ) vote their shares ( a ) in favor of the adoption of the merger agreement , the merger and the other transactions contemplated thereby and any action reasonably requested by progressive or the board in furtherance of the foregoing , ( b ) against any action or agreement that would result in a material breach of any covenant , representation or warranty or other obligation or agreement of protective contained in the merger agreement and ( c ) against any takeover proposal or superior proposal ( provided , that if the board changes its recommendation with respect to the merger , any shares of class a common stock owned by such shareholders in excess of approximately 35 % of the outstanding shares of class a common stock will be voted in the same proportion as those shares of class a common stock voted by the holders of protective 's class a common stock that are not party to the voting agreement ) . 29 expected credit losses standard ( cecl ) adoption on january 1 , 2020 , we adopted the provisions of asu no . 2016-13 , financial instruments - credit losses ( topic 326 ) : measurement of credit losses on financial instruments , or asu 2016-13. asu 2016-13 introduced a current expected credit loss ( `` cecl '' ) model for measuring expected credit losses for certain types of financial instruments held at the reporting date requiring significant judgment in application based on historical experience , current conditions and reasonable supportable forecasts , but is not prescriptive about certain aspects of estimating expected losses . we adopted the guidance using a modified retrospective approach as of january 1 , 2020 and recognized a cumulative effect adjustment of $ 15.5 million ( $ 12.3 million net of tax ) , to the opening balance of retained earnings . the adjustment was primarily related to estimating credit losses on our accounts receivable balances , reinsurance recoverable balances and commercial mortgage loans at the date of adoption with $ 15.0 million ( $ 11.9 million , net of tax ) attributed to our ongoing litigation with personnel staffing group ( `` psg '' ) discussed in note t , `` litigation , commitments and contingencies , '' to the consolidated financial statements in part ii , item 8 of this annual report on form 10-k. during the third quarter of 2020 , we performed an update to our cecl allowance calculation related to the psg matter and recorded an additional allowance of $ 1.5 million ( $ 1.2 million , net of tax ) . no additional allowance was recorded in the fourth quarter of 2020. this allowance is included within other operating expenses in the consolidated statement of operations for the year ended december 31 , 2020. the updated guidance in asu 2016-13 also amended the previous other-than-temporary impairment ( `` otti '' ) model for available-for-sale fixed income securities by requiring the recognition of impairments relating to credit losses through an allowance account and limiting the amount of credit loss to the difference between a security 's amortized cost basis and its fair value . in addition , the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists . we adopted the guidance related to available-for-sale fixed income securities on january 1 , 2020 using a prospective transition approach for available-for-sale fixed income securities that were purchased with credit deterioration or had recognized an otti write-down prior to the effective date . story_separator_special_tag the effect of the prospective transition approach was to maintain the same amortized cost basis before and after the effective date . for those securities in an unrealized loss position where we intended to sell as of december 31 , 2020 , we recorded a write down to earnings of $ 1.8 million during the year ended december 31 , 2020. we also analyzed securities in an unrealized loss position for credit losses and recorded an allowance for credit losses of $ 1.0 million as of december 31 , 2020. we reviewed our remaining fixed income securities in an unrealized loss position as of december 31 , 2020 and determined the losses were primarily the result of non-credit factors , such as the increase in market volatility due to the disruption in global financial markets as a result of the novel coronavirus ( `` covid-19 '' ) pandemic and responses to it . we currently do not intend to sell nor do we expect to be required to sell these securities before recovery of their amortized cost . covid-19 impacts beginning in march 2020 and continuing through the date of this annual report on form 10-k , the global pandemic associated with covid-19 and related economic conditions have impacted the global economy and our results of operations . for the year ended december 31 , 2020 , net premiums earned within our commercial automobile products , specifically public transportation , were negatively impacted due to a reduction in miles driven , which is the basis for premiums we receive , as well as an overall reduction in public transportation units insured . the declines in public transportation persisted throughout the year and have continued into 2021 , but we saw a recovery in the third and fourth quarters within other commercial automobile products that has continued through the date of this annual report on form 10-k. however , losses and loss expenses incurred during the same period reflected favorable impacts within all commercial automobile products as a result of declines in accident frequency due to lower traffic density . in addition to these impacts on our underwriting loss , as defined below , we incurred net realized and unrealized losses on investments of $ 9.2 million for the year ended december 31 , 2020 , primarily due to investment losses realized as a result of the significant declines in the global financial markets experienced during the first and second quarters due to the covid-19 pandemic . as of december 31 , 2020 , both our fixed income and equity security investments have recovered to a net gain position . additionally , insurance departments throughout the country have issued bulletins and regulations urging or requiring insurers to extend grace periods for the payment of policy premiums and to refrain from canceling or non-renewing policies for the non-payment of policy premiums for policyholders adversely affected by covid-19 ; however , we have not seen a material decrease or slowdown in premium collection to date . our liquidity and capital resources were not materially impacted by covid-19 and related economic conditions during 2020. for further discussion regarding the potential impacts of covid-19 and related economic conditions on our results , see part i , item 1a , `` risk factors , '' of this annual report on form 10-k. 30 liquidity and capital resources the primary sources of our liquidity are ( 1 ) funds generated from insurance operations , including net investment income , ( 2 ) proceeds from the sale of investments , and ( 3 ) proceeds from maturing investments . we generally experience positive cash flows from operations . premiums are collected on insurance policies in advance of the disbursement of funds for payment of claims . operating costs of our property/casualty insurance subsidiaries , other than loss and loss expense payments and commissions paid to related agency companies , average less than one-third of net premiums earned on a consolidated basis and the remaining amount is available for investment for varying periods of time depending on the type of insurance coverage provided and the timing of the claim payments . because losses are often settled in periods subsequent to when they are incurred , operating cash flows may , at times , become negative as loss settlements on claim reserves established in prior years exceed current revenues . our cash flow relating to premiums is significantly affected by reinsurance programs in effect , whereby we cede both premium and risk to other insurance and reinsurance companies . these programs vary significantly among products and certain contracts call for reinsurance payment patterns , which do not coincide with the collection of premiums by us from our insureds . on august 31 , 2017 , our board of directors authorized the reinstatement of our share repurchase program for up to 2,464,209 shares of our class a or class b common stock . the repurchases may be made in the open market or through privately negotiated transactions , from time-to-time , and in accordance with applicable laws , rules and regulations . the share repurchase program may be amended , suspended or discontinued at any time and does not commit us to repurchase any shares of our common stock . we have funded , and intend to continue to fund , the share repurchase program from cash on hand . the actual number and value of the shares to be purchased will depend on the performance of our stock price , market volume and other market conditions . during the year ended december 31 , 2020 , we paid $ 1.8 million to repurchase 126,764 shares of class b common stock under the share repurchase program . no share repurchases have been made since march 20 , 2020. additionally , in connection with the merger agreement with progressive discussed above , we are prohibited from repurchasing any of our class a or class b common stock under the share repurchase program . for several years , our investment philosophy has emphasized the purchase of short-term bonds with high quality and liquidity .
| losses and loss expenses incurred during 2020 decreased $ 29.5 million ( 8.5 % ) to $ 319.0 million compared to $ 348.5 million in 2019 , while the loss ratio decreased to 71.6 % for 2020 compared to 77.9 % for 2019. the loss ratio is calculated as the percentage of losses and loss expenses incurred to net premiums earned . the lower losses and loss expenses and lower loss ratio for 2020 reflected the results of our underwriting actions , including non-renewal of unprofitable business as well as significant rate increases in commercial automobile . additionally , losses and loss expenses incurred reflected favorable impacts from covid-19 within all commercial automobile products as a result of declines in accident frequency due to lower traffic density . commercial automobile products covered by our reinsurance treaties from july 3 , 2013 through july 2 , 2019 are subject to an unlimited aggregate stop-loss provision . currently each of these treaty years is reserved at or above the attachment level of these treaties . for every $ 100 of additional loss , we are only responsible for our $ 25 retention under these reinsurance treaties . commercial automobile products covered by our reinsurance treaty from july 3 , 2019 through july 2 , 2020 are also subject to an unlimited aggregate stop-loss provision . once the aggregate stop-loss level is reached , for every $ 100 of additional loss , we are responsible for our $ 65 retention under this reinsurance treaty . this increase in our retention compared to recent years reflects the combination of 1 ) a decreased need for stop-loss reinsurance protection resulting from a significant decrease in our commercial automobile average policy loss limits , 2 ) a higher cost for this coverage and 3 ) our confidence in profitability improvements given the limits reductions and rate increases on our commercial automobile products . in 2020 , due to continued rate achievement in commercial automobile , improvements in our mix of business and reductions to our
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as expected , these court proceedings weighed heavily on corenergy 's share price and ability and willingness to access the financial markets in order to fund accretive acquisition to further grow our company . we believe that many investors priced the risk of either our gigs lease , or our pinedale lease , being rejected or renegotiated at a lower rate into our valuation , pressuring our share price for much of the year . since the announcement of the pinedale lgs lease assumption on november 11 , 2016 , which involved the only one of the company 's tenants to enter bankruptcy , corenergy shares have rebounded by 29 percent to a closing price of $ 35.90 on january 31 , 2017. on december 30 , 2016 , the parent company of the tenant of gigs announced its emergence from bankruptcy . evidence of an increasingly positive outlook for energy companies is found in the higher number of rigs coming online . the baker hughes rig counts are an important business barometer for the drilling industry and its suppliers . the active rig count acts as a leading indicator of demand for products used in drilling , completing , producing and processing hydrocarbons . when drilling rigs are active , they consume products and services produced by the oil service industry . the baker hughes rig count on january 27 , 2017 was 712 in the united states , approximately 80 percent of which were oil . this number is up from the 404 rigs counted on may 20 and may 27 , 2016 , the recent low point , but still significantly below the 1,811 rigs online in the first week of 2015. as a result of the significant decline in commodity prices , even those energy companies which did not enter into bankruptcy were required to assess both their operating and financial costs . many companies which were able to survive the downturn in the market emerged with stronger balance sheets and a new outlook on capital spending . while the markets were largely shut off to energy companies in 2015 , 2016 saw an increase in deals and capital raising by industry participants . according to pricewaterhousecoopers , there were 99 follow-on equity offerings and four initial public offerings of energy companies , raising nearly $ 36 billion in 2016. over the same period , 157 investment grade and convertible offerings accessed the debt markets , as well as 48 high yield offerings . nearly 60 percent of these debt offerings and half of the equity offerings ( including all of the ipos ) occurred in the second half of the year . the number of mergers and acquisitions also increased in 2016 , with 198 deals valued at approximately $ 196 billion being consummated ( up from 179 deals for roughly the same value in 2015 ) . the structure and benefits of the master limited partnerships have been at the forefront of many investors and research analysts ' questions and reports . in particular , the value of the incentive distribution rights ( idrs ) , paid to the general partner of many mlps , 43 index to financial statements glossary of defined terms has caused concern as companies and investors analyze balance sheets and capital sources . the market has seen a number of these energy companies take action through restructuring their distributions and payout structure and by merging their limited and general partnerships . we believe this will continue to be a major factor in assessing the attractiveness of the mlp vehicle in the future . corenergy believes that our business offers companies an alternative source of capital and we remain in discussions with companies who do not expect to file bankruptcy , but have needs for capital to exploit potential oil and gas reserves . our team continues to assess these opportunities for assets which fit our underwriting criteria and will provide a long-term benefit to current shareholders through growth and diversification . the transition to the new administration following the 2016 election cycle has caused questions from the market on potential policy effects to the energy and infrastructure market , international trade and the overall economy . campaign rhetoric and initial actions of the new administration suggest policies could benefit the energy and infrastructure markets , but uncertainty continues as environmentalist groups continue to pressure the government to maintain stricter regulatory requirements . while we are not anticipating them to have a large direct effect on reits , uncertainty remains around what tax law changes may be proposed by the new administration . as with other companies invested primarily in real property and related infrastructure , our share price can be positively or negatively affected by the decisions , or market perception of the decisions , of the federal reserve to raise , maintain , or lower interest rates . during its last meeting in 2016 on december 13 and 14 , the federal reserve chose to raise the target federal funds rate to 0.50 to 0.75 percent , from 0.25 to 0.50 percent , only the second increase in the past decade . the federal reserve 's long term inflation objective remained at two percent , partly impacted by earlier declines in energy prices and prices of non-energy imports . in the most recent federal reserve meeting on february 1 , 2017 , interest rates remained unchanged . nonetheless , the federal reserve may increase interest rates in upcoming quarters , which in turn could have a slightly adverse effect on our share price . on september 1 , 2016 , real estate became a separate sector in the global industry classification standard ( `` gics '' ) . analysts and news sources expect that this will benefit real estate companies , which in the u.s. consist primarily of reits , as capital will flow into the sector in order to maintain balanced portfolios . additionally , market exposure and understanding of reit structures and their reporting standards are expected to increase as a result of the new gics categorization . story_separator_special_tag furthermore , factors which had influenced volatility in the financial sector , but did not necessarily apply to reits , will no longer have an effect on reits since they are no longer grouped with other financial companies . we believe that the corenergy share price was positively impacted by this change , particularly as a result of the increased holdings of corr shares by passive index funds which occurred throughout 2016. we anticipate that this could mitigate some share price volatility in the future . basis of presentation the consolidated financial statements include corenergy infrastructure trust , inc. , as of december 31 , 2016 , and its direct and indirect wholly-owned subsidiaries . all significant intercompany accounts and transactions have been eliminated in consolidation . story_separator_special_tag 33,671,841 general and administrative ( 12,270,380 ) ( 9,745,704 ) ( 7,872,753 ) non-controlling interest attributable to adjusted ebitda items ( 3,776,365 ) ( 3,851,973 ) ( 3,815,585 ) adjusted ebitda $ 67,768,945 $ 51,283,331 $ 21,983,503 ( 1 ) mogas and omega revenues have been combined and are presented net of omega 's natural gas and propane costs subsequent to the new contract with the dod executed on january 28 , 2016 , effective february 1 , 2016. in accordance with gaap , omega 's historical sales revenue and cost of sales prior to february 1 , 2016 , are presented separately , on a gross basis and are included in the transportation and distribution lines in this table . lease revenue , security distributions , financing revenue , and operating results our operating performance was derived primarily from leases of real property assets , distributions from our remaining portfolio of equity investments , financing revenue from our loan agreements , and the operating results of our subsidiaries . total lease revenue , security distributions , financing revenue , and operating results generated by our investments for the year ended december 31 , 2016 was approximately $ 83.8 million , compared to $ 64.9 million and $ 33.7 million for the years ended december 31 , 2015 and 2014 , respectively . for the year ended december 31 , 2016 , lease revenue increased $ 19.9 million over the prior-year period . the increase was driven primarily by an increase of $ 20.3 million related to our gigs asset which was acquired in june 2015. the 2016 period includes a full year of lease revenue related to the gigs lease ( $ 40.6 million ) compared with lease revenues from the second half of 2015 in the prior-year period ( $ 20.3 million ) . additionally , base rents for the portland terminal facility increased $ 176 thousand versus the prior-year period related to completion of the planned construction projects in november 2015. these increases were partially offset by a $ 638 thousand decline in lease revenues due to the termination of the pnm lease agreement on april 1 , 2015. lease revenues for the year ended december 31 , 2015 , increased $ 19.9 million compared to lease revenues in 2014. this increase is primarily due to the $ 20.3 million increase in lease revenues associated with the acquisition of gigs in june 2015. in addition , base rents for the portland terminal facility increased $ 1.0 million versus the prior-year period , primarily due to a $ 755 thousand increase in base rents related to completion of the planned construction projects at the portland terminal facility . increases in lease revenue for the period also included a $ 341 thousand increase due to annual cpi escalations pursuant to the pinedale lease agreement . these increases were partially offset by a $ 1.9 million decline in lease revenues due to the termination of the pnm lease agreement on april 1 , 2015. cash distributions received from our equity securities for the years ended december 31 , 2016 and 2015 were approximately $ 1.0 million per year as compared to approximately $ 1.9 million for the year ended december 31 , 2014. the approximately $ 900 thousand decrease in 2016 and 2015 as compared to 2014 was a direct result of the sale of our investment in vantacore during the fourth quarter of 2014. the absence of vantacore 's $ 1.1 million of distributions received in 2014 was offset by increased cash distributions received from our investment in lightfoot in the 2015 and 2016 periods . the company anticipates 2017 cash distributions from our equity securities will be approximately $ 1.0 million . historically , financing revenues have been derived from our loans to bbws and swd . for the year ended december 31 , 2016 , financing revenues declined $ 1.5 million as compared to the prior-year period . $ 981 thousand of this decline was attributable to the loans to bbws which were placed on a non-accrual status during the third quarter of 2015. no financing revenue was recognized on the bbws loans during 2016. in addition , $ 501 thousand of the decline was attributable to the loans to swd which became delinquent during the first quarter of 2016 , at which time the company recorded a loan loss reserve and placed the four wood loan on non-accrual basis . financing revenues for the year ended december 31 , 2015 , increased $ 620 thousand compared to the prior-year period . the increase was primarily attributable to $ 664 thousand of revenue earned on the loan agreements with swd 45 index to financial statements glossary of defined terms enterprises executed december 2014 partially offset by a $ 94 thousand decline in revenue on the bbws loans versus the prior-year period . see note 4 , financing notes receivable , for additional information on the black bison and four wood financing notes . for the years ended december 31 , 2016 , 2015 and 2014 , the operations of our subsidiaries , mogas and omega , contributed $ 14.6 million , $ 14.1 million and $ 2.4 million , respectively , to net operations ( excluding depreciation and amortization ) .
| results of operations we believe the lease revenue , security distributions , financing revenue , and operating results overview presented below provides investors with information that will assist them in analyzing the operating performance of our leased assets , financing notes receivable , other equity securities , and operating entities . as it pertains to other equity securities , the company believes that net distributions received are indicative of the operating performance of the assets . accordingly , we have included them in ebitda , resulting in an adjusted ebitda metric . the following is a comparison of lease revenues , security distributions , financing revenue , operating results , and expenses for the calendar years ended december 31 , 2016 , 2015 and 2014 : 44 index to financial statements glossary of defined terms for the years ended december 31 , 2016 2015 2014 lease revenue , security distributions , financing revenue , and operating results leases : lease revenue $ 67,994,130 $ 48,086,072 $ 28,223,765 other equity securities : net cash distributions received 1,028,452 1,021,010 1,955,018 financing : financing revenue 162,344 1,697,550 1,077,813 operations : transportation and distribution revenue ( 1 ) 21,094,112 21,505,313 11,006,995 transportation and distribution expense ( 6,463,348 ) ( 7,428,937 ) ( 8,591,750 ) net operations ( excluding depreciation , amortization , and aro accretion ) 14,630,764 14,076,376 2,415,245 total lease revenue , security distributions , financing revenue , and operating results $ 83,815,690 $ 64,881,008 $
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mb-5 fractionator and related infrastructure 125 mbbl/d ngl fractionator in mont belvieu , texas , and related infrastructure , which includes additional ngl storage in mont belvieu $ 750 paused ( c ) fully contracted with long-term contracts oneok west texas ngl pipeline expansion increasing mainline capacity by 40 mbbl/d $ 145 paused ( c ) supported by long-term dedicated production from third-party processing plants expected to produce up to 45 mbbl/d mid-continent fractionation facility expansions 65 mbbl/d of expansions at our mid-continent ngl facilities $ 150 paused ( c ) ( a ) - excludes capitalized interest/afudc . ( b ) - projects listed exclude our suspended capital-growth projects , which include the demicks lake iii natural gas processing plant , the fourth expansion of the oneok west texas ngl pipeline system and a reduction in the scope of the expansion of the elk creek pipeline . ( c ) - given the current environment , we paused the majority of construction activities on these projects and do not expect to complete construction by the original target completion date . ( d ) - we completed 75 mbbl/d in december 2019 and completed the remaining 50 mbbl/d in march 2020 . ( e ) - we completed expansions to increase mainline capacity by approximately 45 mbbl/d in the first quarter 2020 and completed the remaining portion of this project in the second quarter 2020 , which was delayed due to weather . 37 ethane production - ethane production fluctuates over short-term periods driven by ethane economics , and as a result , volumes can also fluctuate period to period . ethane volumes under long-term contracts delivered to our ngl system averaged 375 mbbl/d in 2020 , compared with 385 mbbl/d in 2019 , but increased by approximately 30 mbbl/d in the second half of 2020 , compared with the second quarter 2020 , due primarily to improved ethane economics . we expect ethane production to continue to fluctuate throughout 2021. debt issuances and repayments - in may 2020 , we completed an underwritten public offering of $ 1.5 billion senior unsecured notes consisting of $ 600 million , 5.85 % senior notes due 2026 ; $ 600 million , 6.35 % senior notes due 2031 ; and $ 300 million , 7.15 % senior notes due 2051. the net proceeds , after deducting underwriting discounts , commissions and offering expenses , were $ 1.48 billion . a portion of the proceeds was used to repay the outstanding borrowings under our $ 1.5 billion term loan agreement . the remainder was used for general corporate purposes . in march 2020 , we completed an underwritten public offering of $ 1.75 billion senior unsecured notes consisting of $ 400 million , 2.2 % senior notes due 2025 ; $ 850 million , 3.1 % senior notes due 2030 ; and $ 500 million , 4.5 % senior notes due 2050. the net proceeds , after deducting underwriting discounts , commissions and offering expenses , were $ 1.73 billion . a portion of the proceeds was used to pay all outstanding amounts under our commercial paper program . the remainder was used for general corporate purposes , which included repayment of other existing indebtedness and funding capital expenditures . in 2020 , we repurchased in the open market outstanding principal of certain of our senior notes in the amount of $ 224.4 million for an aggregate repurchase price of $ 199.6 million with cash on hand . in connection with these open market repurchases , we recognized $ 22.3 million of net gains on extinguishment of debt . equity issuances - in june 2020 , we completed an underwritten public offering of 29.9 million shares of our common stock at a public offering price of $ 32.00 per share , generating net proceeds , after deducting underwriting discounts , commissions and offering expenses , of $ 937.0 million . a portion of the proceeds was , and we anticipate the remainder will be , used for general corporate purposes , including repayment of existing indebtedness and funding capital expenditures . dividends - during 2020 , we paid dividends totaling $ 3.74 per share , an increase of 6 % from the $ 3.53 per share paid in 2019. in february 2021 , we maintained and paid a quarterly dividend of $ 0.935 per share ( $ 3.74 per share on an annualized basis ) , which is consistent with the same quarter in the prior year . impairments - due to historic events as a result of covid-19 impacting supply , demand and commodity prices , in 2020 we evaluated our goodwill , certain long-lived asset groups and equity investments for impairment . based on the results , we recorded the following impairment charges : natural gas gathering and processing - in 2020 , we recorded $ 382.2 million of noncash impairment charges related primarily to certain long-lived asset groups that were not recoverable , $ 153.4 million of noncash impairment charges related to goodwill and $ 30.5 million of noncash impairment charges related to our 10.2 % investment in venice energy services company . natural gas liquids - in 2020 , we recorded $ 71.6 million of noncash impairment charges related primarily to certain inactive assets as our expectation for future use of the assets changed and $ 7.2 million of noncash impairment charges related to our 50 % investment in chisholm pipeline company . for additional information on our impairment charges , see notes a , d , e and m of the notes to consolidated financial statements in this annual report . financial results and operating information how we evaluate our operations management uses a variety of financial and operating metrics to analyze our performance . our consolidated financial metrics include : ( 1 ) operating income ; ( 2 ) net income ; ( 3 ) diluted eps ; and ( 4 ) the following non-gaap financial measures : adjusted ebitda and distributable cash flow . story_separator_special_tag we evaluate segment operating results using adjusted ebitda and our operating metrics , which include various volume and rate statistics that are relevant for the respective segment . these operating metrics allow investors to analyze the various components of segment financial results in terms of volumes and rate/price . management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results . for additional information on our operating metrics , see the respective segment subsections of this “ financial results and operating information ” section . 38 non-gaap financial measures - adjusted ebitda , distributable cash flow and dividend coverage ratio are non-gaap measures of our financial performance . adjusted ebitda is defined as net income adjusted for interest expense , depreciation and amortization , noncash impairment charges , income taxes , allowance for equity funds used during construction , noncash compensation expense and certain other noncash items . distributable cash flow is defined as adjusted ebitda , computed as described above , less interest expense , maintenance capital expenditures and equity earnings from investments , excluding noncash impairment charges , adjusted for net cash distributions received from unconsolidated affiliates and certain other items . dividend coverage ratio is defined as distributable cash flow to common shareholders divided by the dividends paid in the period . we believe these non-gaap financial measures are useful to investors because they and similar measures are used by many companies in our industry as a measurement of financial performance and are commonly employed by financial analysts and others to evaluate our financial performance and to compare financial performance among companies in our industry . adjusted ebitda , distributable cash flow and dividend coverage ratio should not be considered alternatives to net income , eps or any other measure of financial performance presented in accordance with gaap . additionally , these calculations may not be comparable with similarly titled measures of other companies . consolidated operations story_separator_special_tag roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > changes in commodity prices and sales volumes affect both revenue and cost of sales and fuel , and , therefore , the impact is largely offset between these line items . 2020 vs. 2019 - adjusted ebitda decreased $ 52.7 million , primarily as a result of the following : a decrease of $ 47.6 million due primarily to lower realized prices impacting our fee with pop contracts ; and 40 a decrease of $ 42.6 million due primarily to natural production declines in the mid-continent region ; offset partially by a decrease of $ 32.8 million in operating costs due primarily to lower materials and supplies expenses due to reduced asset utilization , lower employee-related costs and outside services . the year ended december 31 , 2020 , includes $ 382.2 million of noncash impairment charges related primarily to certain long-lived asset groups in the powder river basin , western oklahoma and kansas that were not recoverable , a $ 153.4 million noncash impairment charge related to goodwill and a $ 30.5 million noncash impairment charge related to our 10.2 % investment in venice energy services company . for additional information on our impairment charges , see notes a , d , e and m of the notes to consolidated financial statements in this annual report . capital expenditures decreased due primarily to capital-growth projects completed in 2019 and early 2020 , as well as several paused capital-growth projects in 2020. replace_table_token_5_th ( a ) - includes volumes for consolidated entities only . ( b ) - includes volumes at company-owned and third-party facilities . 2020 vs. 2019 - our natural gas gathered and natural gas processed volumes decreased due primarily to natural production declines in the mid-continent region . in the williston basin , we saw significant declines in volumes in the second quarter 2020 due to production curtailments from some of our crude oil and natural gas producers . by the end of the third quarter 2020 , curtailed volumes returned . our average fee rate decreased due primarily to production curtailments in the second quarter 2020 on producer contracts with higher fees and lower pop components in the williston basin . as these curtailed volumes returned to our system , the williston basin 's contribution to our average fee rate increased in the second half of 2020. commodity price risk - see discussion regarding our commodity price risk under “ commodity price risk ” in item 7a , quantitative and qualitative disclosures about market risk . natural gas liquids growth projects - our natural gas liquids segment invests in projects to transport , fractionate , store and deliver to market centers ngl supply from shale and other resource development areas . our growth strategy is focused around connecting diversified supply basins from the rocky mountain region through the mid-continent region and the permian basin with ngl product demand from the petrochemical and refining industries and ngl export demand in the gulf coast . see “ growth projects ” in the “ recent developments ” section for discussion of our capital-growth projects . in 2020 , we connected two third-party natural gas processing plants in the permian basin and two third-party natural gas processing plants in the rocky mountain region to our ngl system . in addition , one affiliate and two third-party natural gas processing plants in the rocky mountain region and one third-party natural gas processing plant in the mid-continent region connected to our system were expanded . for a discussion of our capital expenditure financing , see “ capital expenditures ” in the “ liquidity and capital resources ” section . 41 selected financial results and operating information - the following tables set forth certain selected financial results and operating information for our natural gas liquids segment for the periods indicated : replace_table_token_6_th see reconciliation of net income to adjusted ebitda in the “ non-gaap measures ” section .
| net income and diluted eps decreased due primarily to the items discussed above and higher interest expense related to an increase in our debt balance and lower capitalized interest and noncash impairment charges related to equity investments in our natural gas gathering and processing and natural gas liquids segments , offset partially by net gains on extinguishment of debt related to open market repurchases . diluted eps was also impacted by our equity issuance in june 2020. capital expenditures decreased due primarily to our previously completed capital-growth projects as well as our paused and suspended capital-growth projects related to weakened commodity prices and economic disruption caused by covid-19 . additional information regarding our financial results and operating information is provided in the discussions for each of our segments and in non-gaap measures . selected financial results and operating information for the year ended december 31 , 2019 vs. 2018 - the consolidated and segment financial results and operating information for the year ended december 31 , 2019 , compared with the year ended december 31 , 2018 , are included in part ii , item 7 , management 's discussion and analysis of financial condition and results of operations of our 2019 annual report on form 10-k , which is available via the sec 's website at www.sec.gov and our website at www.oneok.com . natural gas gathering and processing growth projects - our natural gas gathering and processing segment has invested in growth projects in ngl-rich areas in the williston basin . see “ growth projects ” in the “ recent developments ” section for discussion of our capital-growth projects . see “ capital expenditures ” in “ liquidity and capital resources ” for additional detail of our projected capital expenditures . selected financial results and operating information - the following tables set forth certain selected financial results and operating information for our natural gas gathering and processing segment for the periods indicated : replace_table_token_4_th see reconciliation of net income to adjusted ebitda in the
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