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recently , covid-19 vaccinations have begun to be administered and while we expect that administration of vaccines will assist in easing the number of covid-19 cases , the pace at which this is likely to occur is difficult to predict . although covid-19 has not had a material adverse impact on our financial results during 2020 , we believe that developments related to the covid-19 pandemic may potentially have a material adverse impact on our future financial results . recent legislation , including the coronavirus aid , relief , and economic security act ( the “ cares act ” ) and the paycheck protection program and health care enhancement act ( “ ppphce act ” ) , has provided grant funding to hospitals and other healthcare providers to assist them during the covid-19 pandemic . there is a high degree of uncertainty surrounding the implementation of the cares act and the ppphce act , and the federal government may consider additional stimulus and relief efforts , but we are unable to predict whether additional stimulus measures will be enacted or their impact . there can be no assurance as to the total amount of financial and other types of assistance our tenants will receive under the cares act and the ppphce act , and it is difficult to predict the impact of such legislation on our tenants ' operations or how they will affect operations of our tenants ' competitors . moreover , we are unable to assess the extent to which anticipated negative impacts on our tenants ( and , in turn , us ) arising from the covid-19 pandemic will be offset by amounts or benefits received or to be received under the cares act and the ppphce act . a substantial portion of our revenues are dependent upon one operator , uhs , which comprised approximately 33 % , 31 % and 30 % of our consolidated revenues for the years ended december 31 , 2020 , 2019 and 2018 , respectively . we can not assure you that subsidiaries of uhs will renew the leases on our three acute care hospitals ( two of which are scheduled to expire in december , 2021 and one of which is scheduled to expire in december , 2026 ) and two feds at existing lease rates or fair market value lease rates . in addition , if subsidiaries of uhs exercise their options to purchase the respective leased hospital facilities and feds upon expiration of the lease terms or otherwise , our future revenues and results of operations could decrease if we were unable to earn a favorable rate of return on the sale proceeds received , as compared to the rental revenue currently earned pursuant to these leases . please see note 4 to the consolidated financial statements – lease accounting , for additional information related to a potential transaction with a wholly-owned subsidiary of uhs in connection with southwest healthcare system , inland valley campus . in certain of our markets , the general real estate market has been unfavorably impacted by increased competition/capacity and decreases in occupancy and rental rates which may adversely impact our operating results and the underlying value of our properties . a number of legislative initiatives have recently been passed into law that may result in major changes in the health care delivery system on a national or state level to the operators of our facilities , including uhs . no assurances can be given that the implementation of these new laws will not have a material adverse effect on the business , financial condition or results of operations of our operators . the potential indirect impact of the tax cuts and jobs act of 2017 , signed into law on december 22 , 2017 , which makes significant changes to corporate and individual tax rates and calculation of taxes , which could potentially impact our tenants and jurisdictions , both positively and negatively , in which we do business , as well as the overall investment thesis for reits . a subsidiary of uhs is our advisor and our officers are all employees of a wholly-owned subsidiary of uhs , which may create the potential for conflicts of interest . lost revenues resulting from the exercise of purchase options , lease expirations and renewals and other transactions ( see note 4 to the consolidated financial statements – lease accounting for additional disclosure related to lease expirations and subsequent vacancies that occurred during the second and third quarters of 2019 on two hospital facilities . our ability to continue to obtain capital on acceptable terms , including borrowed funds , to fund future growth of our business . the outcome and effects of known and unknown litigation , government investigations , and liabilities and other claims asserted against us , uhs or the other operators of our facilities . uhs and its subsidiaries are subject to legal actions , 34 purported shareholder class actions and shareholder derivative cases , governmental investigations and regulatory actions and the effects of adverse publicity relating to such matters . since uhs comprised approximately 3 3 % of our consolidated revenues during the year ended dec ember 3 1 , 2020 , and since a subsidiary of uhs is our advisor , you are encouraged to obtain and review the disclosures contained in the legal proceedings section of universal health services , inc. 's forms 10-q and 10-k , as publicly filed with the securities and exchange commission . those filings are the sole responsibility of uhs and are not incorporated by reference herein . failure of uhs or the other operators of our hospital facilities to comply with governmental regulations related to the medicare and medicaid licensing and certification requirements could have a material adverse impact on our future revenues and the underlying value of the property . story_separator_special_tag the potential unfavorable impact on our business of the deterioration in national , regional and local economic and business conditions , including a further worsening of credit and or capital market conditions , which may adversely affect our ability to obtain capital which may be required to fund the future growth of our business and refinance existing debt with near term maturities . a continuation in the deterioration in general economic conditions which has resulted in increases in the number of people unemployed and or insured and likely increase the number of individuals without health insurance ; as a result , the operators of our facilities may experience declines in patient volumes which could result in decreased occupancy rates at our medical office buildings . a continuation of the worsening of the economic and employment conditions in the united states will likely materially affect the business of our operators , including uhs , which will likely unfavorably impact our future bonus rentals ( on the uhs hospital facilities ) and may potentially have a negative impact on the future lease renewal terms and the underlying value of the hospital properties . real estate market factors , including without limitation , the supply and demand of office space and market rental rates , changes in interest rates as well as an increase in the development of medical office condominiums in certain markets . the impact of property values and results of operations of severe weather conditions , including the effects of hurricanes . government regulations , including changes in the reimbursement levels under the medicare and medicaid programs . the issues facing the health care industry that affect the operators of our facilities , including uhs , such as : changes in , or the ability to comply with , existing laws and government regulations ; unfavorable changes in the levels and terms of reimbursement by third party payors or government programs , including medicare ( including , but not limited to , the potential unfavorable impact of future reductions to medicare reimbursements and medicaid reimbursements ( most states have reported significant budget deficits that have , in the past , resulted in the reduction of medicaid funding to the operators of our facilities , including uhs ) ; demographic changes ; the ability to enter into managed care provider agreements on acceptable terms ; an increase in uninsured and self-pay patients which unfavorably impacts the collectability of patient accounts ; decreasing in-patient admission trends ; technological and pharmaceutical improvements that may increase the cost of providing , or reduce the demand for , health care , and ; the ability to attract and retain qualified medical personnel , including physicians . pending limits for most federal agencies and programs aimed at reducing budget deficits by $ 917 billion between 2012 and 2021 , according to a report released by the congressional budget office . among its other provisions , the law resulted in across-the-board cuts to discretionary , national defense and medicare spending on march 1 , 2013 , including medicare payment reductions of up to 2 % per fiscal year with a uniform percentage reduction across all medicare programs . the bipartisan budget act of 2015 , enacted on november 2 , 2015 , continued these 2 % reductions to medicare reimbursement . the cares act suspended payment reductions between may 1 and december 31 , 2020 , in exchange for extended cuts through 2030. the caa extended the suspension of payment reductions until march 31 , 2021. we can not predict whether congress will restructure the implemented medicare payment reductions or what other federal budget deficit reduction initiatives may be proposed by congress going forward . we also can not predict the effect these enactments will have on the operators of our properties ( including uhs ) , and thus , our business . an increasing number of legislative initiatives have been passed into law that may result in major changes in the health care delivery system on a national or state level . legislation has already been enacted that has eliminated the penalty for failing to maintain health coverage that was part of the original patient protection and affordable care act and healthcare and education reconciliation act of 2010 ( collectively referred to as the “ legislation ” ) . president biden is expected to undertake executive actions that will strengthen the legislation and may reverse the policies of the prior administration . the trump administration had directed the issuance of final rules ( i ) enabling the formation of association health plans that would be exempt from certain legislation requirements such as the provision of essential health benefits ; ( ii ) expanding the availability of short-term , limited duration health insurance , ( iii ) eliminating cost-sharing reduction 35 payments to insurers that would otherwise offset deductibles and other out-of-pocket expenses for health plan enrollees at or below 250 percent of the federal poverty level ; ( i v ) relaxing requirements for state innovation waivers that could reduce enrollment in the individual and small group markets and lead to additional enrollment in short-term , limited duration insurance and association health plans ; ( v ) incentiviz ing the use of health reimbursement arrangements by employers to permit employees to purchase health insurance in the individual market , and ; ( vi ) directing the issuance of federal rulemaking by executive agencies to increase transparency of healthcare price and quality information . the uncertainty resulting from these executive branch policies has led to reduced exchange enrollment in 2018 and 2019 and is expected to further worsen the individual and small group market risk pools in future years . it is also anticipated that these policies , to the extent that they remain as implemented , may create additional cost and reimbursement pressures on hospitals , including ours .
| total revenues increased $ 847,000 , or 1.1 % , during 2020 as compared to 2019. the increase was due to : ( i ) an aggregate net increase of $ 1.71 million experienced at various properties ; ( ii ) a $ 565,000 increase in the bonus rentals ; ( iii ) a $ 311,000 increase resulting from an mob that was acquired during the fourth quarter of 2019 , partially offset by ; ( iv ) a $ 1.74 million decrease resulting from the revenues recorded during 2019 in connection with two hospital facilities that had lease expirations and vacancies in june and september of 2019 ( see note 4 to the consolidated financial statements , lease accounting ) . included in our other operating expenses are expenses related to the consolidated medical office buildings and two vacant hospital facilities ( as discussed herein ) , which totaled $ 19.8 million and $ 19.1 million for the years ended december 31 , 2020 and 2019 , respectively . our operating expenses for 2020 and 2019 include expenses associated with the lease expirations at two of our hospital facilities , which are currently vacant , of approximately $ 677,000 and $ 370,000 in the aggregate for the years ended december 31 , 2020 and 2019 , respectively . a large portion of the expenses associated with our consolidated medical office buildings is passed on directly to the tenants either directly as tenant reimbursements of common area maintenance expenses of included in base rental amounts . tenant reimbursements for operating expenses are accrued as revenue in the same period the related expenses are incurred and are included as tenant reimbursement revenue in our consolidated statements of income . funds from operations ( “ ffo ” ) is a widely recognized measure of performance for real estate investment trusts ( “ reits ” ) . we believe that ffo and ffo per diluted share , which are non-gaap financial measures , are helpful to our investors as measures of our operating performance . we compute ffo , as reflected on the attached supplemental schedules , in accordance with standards established by the national association of real estate investment trusts ( “ nareit ” ) , which may not be comparable to ffo reported by other reits that do not compute ffo in accordance with the nareit definition , or that interpret the nareit definition differently than we interpret the definition . ffo adjusts for the effects of gains , such as gains on transactions during the periods presented . to the extent a reit recognizes a gain or loss with respect to the sale of incidental assets , such as the sale of land peripheral to operating
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cloud.com 's cloudstack tm and cloudportal tm product lines help providers of all types deploy and manage simple , cost-effective cloud services that are scalable , secure , and open by design . in august 2011 , we acquired ringcube , a privately-held company that specializes in user personalization technology for virtual desktops . in october 2011 , we acquired novel labs , inc. , or sharefile , a privately-held market leading provider of secure data sharing and collaboration . the sharefile product line makes it easy for businesses of all sizes to securely store , sync and share business documents and files , both inside and outside the company . sharefile 's centralized cloud storage capability also allows users to share files across multiple devices and access them from any location . in november 2011 , we acquired app-dna , a privately-held leader in application migration and management . app-dna 's technology adds a significant component to our desktop transformation model , which is aimed at helping customers speed deployments of desktop virtualization enterprise-wide . the app-dna apptitude product enables organizations to quickly and intelligently assess their application portfolio and migration plans . online services division our online services division is focused on developing and marketing web-based access , support and collaboration products . these products are primarily marketed via the web to large enterprises , medium and small businesses , prosumers and individuals . our online services division 's web collaboration products offer secure and cost-effective solutions that allow users to host and actively participate in online meetings , webinars and training sessions remotely and reduce costs associated with business travel . our remote access solution offers a secure , simple and cost efficient way for users to access their desktops remotely , and our remote support solutions offer secure , on-demand support over the internet . in addition , we continue to grow our online services division by increasing our addressable market geographically and offering products that appeal to a wider range of customers . to accelerate the european expansion of our online services division , in february 2011 , we acquired netviewer ag , or netviewer , a privately held european software as a service , or saas , vendor in collaboration and it services . netviewer is part of our online services division and is expected to further enable the extension of our saas leadership in europe . story_separator_special_tag the acquisition were approximately $ 2.9 million , all of which we expensed during the year ended december 31 , 2011 , and are included in general and administrative expense in our consolidated statements of income included in this annual report on form 10-k for the year ended december 31 , 2011. in addition , in connection with the acquisition we assumed non-vested stock units , which were converted into the right to receive up to 288,742 shares of our common stock and certain stock options which are exercisable for 183,780 shares of our common stock , for which the vesting period reset fully upon the closing of the transaction . ringcube in august 2011 , we acquired all of the issued and outstanding securities of ringcube . ringcube became part of our enterprise division and the acquisition further solidifies our position in desktop virtualization . the total consideration for this transaction was approximately $ 32.2 million , net of $ 0.5 million of cash acquired , and was paid in cash . transaction costs associated with the acquisition were approximately $ 0.6 million , all of which we expensed during the year ended december 31 , 2011 , and are included in general and administrative expense in our consolidated statements of income included in this annual report on form 10-k for the year ended december 31 , 2011. in addition , in connection with the ringcube acquisition , we assumed non-vested stock units which were converted into the right to receive up to 58,439 shares of our common stock , for which the vesting period reset fully upon the closing of the transaction . sharefile in october 2011 , we acquired all of the issued and outstanding securities of sharefile . sharefile became part of our enterprise division . the total consideration for this transaction was approximately $ 54.5 million , net of $ 1.7 million of cash acquired , and was paid in cash . transaction costs associated with the acquisition were approximately $ 0.7 million , all of which we expensed during the year ended december 31 , 2011 and are included in general and administrative expense in our consolidated statements of income included in this annual report on form 10-k for the year ended december 31 , 2011. in addition , in connection with the acquisition we assumed non-vested stock units , which were converted into the right to receive up to 180,697 shares of our common stock and assumed certain stock options which are exercisable for 390,775 shares of our common stock , for which the vesting period reset fully upon the closing of the transaction . app-dna in november 2011 , we acquired all of the issued and outstanding securities of app-dna . app-dna became part of our enterprise division . the total consideration for this transaction was approximately $ 91.3 million , net of $ 3.2 million of cash acquired , and was paid in cash . transaction costs associated with the acquisition were approximately $ 1.3 million , all of which we expensed during the year ended december 31 , 2011 , and are included in general and administrative expense in our 33 consolidated statements of income included in this annual report on form 10-k for the year ended december 31 , 2011. in addition , in connection with the acquisition we assumed non-vested stock units , which were converted into the right to receive up to 114,487 shares of our common stock , for which the vesting period reset fully upon the closing of the transaction . story_separator_special_tag other acquisition during the first quarter of 2011 , we acquired certain assets of a wholly-owned subsidiary of a privately-held company for total cash consideration of approximately $ 10.5 million . we accounted for this acquisition as a business combination in accordance with the authoritative guidance and it became part of our enterprise division , thereby expanding our solutions portfolio for service providers and developing unique integrations with our application delivery solutions . we have included the effects of all of the companies acquired in 2011 in our results of operations prospectively from the date of each acquisition . purchase of non-controlling interest kaviza inc. in may 2011 , we acquired all of the non-controlling interest of kaviza inc. , or kaviza , a provider of virtual desktop infrastructure solutions , for $ 17.2 million . in addition , we also deposited an additional $ 3.0 million to be held in escrow . as a result of this transaction , we have obtained a 100 % interest in this subsidiary . in accordance with the authoritative guidance , the excess of the proceeds paid over the carrying amount of the non-controlling interest of kaviza has been reflected as a reduction of additional paid-in capital . in addition , in connection with the purchase of the non-controlling interest of kaviza , we assumed non-vested stock units which were converted into the right to receive up to 88,687 shares of our common stock and assumed certain stock options which are exercisable for 33,301 shares of our common stock , with existing vesting schedules . 2010 acquisitions in september 2010 , we acquired all of the issued and outstanding securities of vmlogix inc. , or vmlogix , a privately held provider of virtualization management software for private and public cloud computing systems . vmlogix became part of our enterprise division . the total consideration for this transaction was approximately $ 13.2 million , comprised of approximately $ 10.4 million in cash , net of cash acquired , and approximately $ 2.8 million related to vmlogix liabilities settled in conjunction with the acquisition . the sources of funds for this transaction consisted of available cash . we also assumed stock options for which the vesting period reset fully upon the closing of the transaction . when these stock options vest , they will be exercisable for up to 47,784 shares of our common stock . during the first quarter of 2010 , we acquired two privately-held companies for a total cash consideration of approximately $ 9.2 million , net of cash acquired and was paid in cash . we have included the effects of all of the companies acquired in 2010 in our results of operations prospectively from the date of each acquisition . critical accounting policies and estimates our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent liabilities . we base these estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances , and these estimates form the basis for our judgments concerning the carrying values of assets and liabilities that are not readily apparent from other sources . we periodically evaluate these estimates and judgments based on available information and experience . actual results could differ from our estimates under different assumptions and conditions . if actual results significantly differ from our estimates , our financial condition and results of operations could be materially impacted . we believe that the accounting policies described below are critical to understanding our business , results of operations and financial condition because they involve more significant judgments and estimates used in the preparation of our consolidated financial statements . an accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made , and if different estimates that could have been used , or changes in the accounting estimates that are reasonably likely to occur periodically , could materially impact our consolidated financial statements . we have discussed the development , selection and application of our critical accounting policies with the audit committee of our board of directors and our independent auditors , and our audit committee has reviewed our disclosure relating to our critical accounting policies and estimates in this “ management 's discussion and analysis of financial condition and results of operations. ” 34 note 2 to our consolidated financial statements included in this annual report on form 10-k for the year ended december 31 , 2011 describes the significant accounting policies and methods used in the preparation of our consolidated financial statements . revenue recognition we recognize revenue when it is earned and when all of the following criteria are met : persuasive evidence of the arrangement exists ; delivery has occurred or the service has been provided and we have no remaining obligations ; the fee is fixed or determinable ; and collectability is probable . we define these four criteria as follows : persuasive evidence of the arrangement exists . we primarily sell our software products via electronic or paper licenses and typically require a purchase order from the distributor , reseller or end-user ( depending on the arrangement ) who have previously negotiated a master distribution or resale agreement and an executed product license agreement from the end-user . for appliance sales , our customary practice is to require a purchase order from distributors and resellers who have previously negotiated a master packaged product distribution or resale agreement . we typically recognize revenue upon shipment for our appliance sales . for technical support , product training and consulting services , we require a purchase order and an executed agreement .
| in addition , consistent with the growth we are experiencing in our business , we also currently target that total operating expenses will increase when comparing the first quarter of 2012 to the first quarter of 2011 , as well as when comparing the 2012 fiscal year to the 2011 fiscal year . our business is subject to seasonal fluctuations . historically , our net revenues have fluctuated quarterly and have generally been the highest in the fourth quarter of our fiscal year due to corporate calendar year-end spending trends . this seasonal factor also typically results in net revenue during the fourth quarter of any year being typically higher than the revenue for the first quarter of the subsequent year . 2011 acquisitions netviewer ag in february 2011 , we acquired all of the issued and outstanding securities of netviewer , which we refer to as the netviewer acquisition , a privately held european saas vendor in collaboration and it services . netviewer became part of our online services division and the acquisition enables the extension of our online services business in europe . the total consideration for this transaction was approximately $ 107.5 million , net of $ 6.3 million of cash acquired , and was paid in cash . in addition , in connection with the acquisition , we assumed non-vested stock units , which were converted into the right to receive up to 99,100 shares of our common stock , for which the vesting period reset fully upon the closing of the transaction . transaction costs associated with the acquisition were approximately $ 3.1 million , of which we expensed $ 1.1 million and $ 2.0 million during the years ended december 31 , 2011 and 2010 , respectively , and are included in general and administrative expense in our consolidated statements of income included in this annual report on form 10-k for the year ended december 31 , 2011. cloud.com in july 2011 , we acquired all of the issued and outstanding securities of cloud.com . cloud.com became part of our enterprise division and the acquisition further establishes us as a leader in infrastructure
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in our environmental health segment , sales of environmental , food and consumer safety and testing products grew in fiscal year 2011 as increased regulations in environmental and food safety markets continue to drive strong demand for our analytical instrumentation and follow-on consumables . we saw continued strength in our inorganic analysis solutions , such as our recently launched nexion ® mass spectrometer , as trace metals identification remains a critical component of contaminant detection for environmental , as well as food and consumer safety , applications . we also had continued growth in our molecular spectroscopy offering utilized primarily for materials analysis , chemical processing and semi-conductor applications in the industrial markets . we believe these trends will continue as emerging contaminant testing protocols and corresponding regulations are developed , resulting in continued demand for highly efficient , analytically sensitive and information rich testing 28 solutions . our laboratory services business continued to grow during fiscal year 2011 by adding new customers to our onesource multivendor service offering , as well as continued growth of our comprehensive service offering with our key customers . our laboratory services business offers services designed to enable our customers to increase efficiencies and production time , while reducing maintenance costs , all of which continue to be critical for our customers . we also completed our strategic acquisition of cambridgesoft corporation ( `` cambridgesoft '' ) , a provider of scientific databases and professional services . this acquisition is intended to expand our software offerings to provide customers with solutions that help them create , analyze and communicate scientific data while improving the speed , quality , efficiency and predictability of their research and development investments . our consolidated gross margins decrease d 39 basis points in fiscal year 2011 , as compared to fiscal year 2010 , due to the fiscal year 2011 mark-to-market charge for our postretirement benefit plans , changes in product mix with growth in sales of lower gross margin product offerings and increased freight costs , partially offset by increased sales volume and cost containment and productivity initiatives . our consolidated operating margin decrease d 450 basis points in fiscal year 2011 , as compared to fiscal year 2010 , primarily as a result of the fiscal year 2011 mark-to-market charge for our postretirement benefit plans , increased costs related to acquisitions , increased sales and marketing expenses , particularly in emerging territories , increased freight costs , and growth investments in research and development , partially offset by cost containment and productivity initiatives . we believe we are well positioned to continue to take advantage of the stable spending trends in our end markets and to promote our efficiencies in markets where current conditions may increase demand for certain services . overall , we believe that our strategic focus on human health and environmental health coupled with our breadth of end markets , deep portfolio of technologies and applications , leading market positions , global scale and financial strength will provide us with a strong foundation for continued growth . consolidated results of continuing operations revenue 2011 compared to 2010 . revenue for fiscal year 2011 was $ 1,921.3 million , as compared to $ 1,704.3 million for fiscal year 2010 , an increase of $ 216.9 million , or 13 % , which includes an approximate 4 % increase in revenue attributable to acquisitions and an approximate 3 % increase in revenue attributable to changes in foreign exchange rates . the analysis in the remainder of this paragraph compares segment revenue for fiscal year 2011 as compared to fiscal year 2010 and includes the effect of foreign exchange rate fluctuations and acquisitions . the total increase in revenue reflects a $ 90.9 million , or 11 % , increase in our human health segment revenue , due to an increase in diagnostics market revenue of $ 52.5 million and an increase in research market revenue of $ 38.4 million . our environmental health segment revenue increase d $ 126.1 million , or 14 % , due to increase s in environmental and industrial markets revenue of $ 75.9 million , and an increase in laboratory services market revenue of $ 50.1 million . as a result of adjustments to deferred revenue related to certain acquisitions required by business combination rules , we did not recognize $ 30.8 million of revenue primarily related to our informatics business in our environmental health segment for fiscal year 2011 and $ 0.7 million for fiscal year 2010 that otherwise would have been recorded by the acquired businesses during each of the respective periods . 2010 compared to 2009 . revenue for fiscal year 2010 was $ 1,704.3 million , as compared to $ 1,550.8 million for fiscal year 2009 , an increase of $ 153.6 million , or 10 % , which includes an approximate 2 % increase in revenue attributable to acquisitions and no net impact from changes in foreign exchange rates . the analysis in the remainder of this paragraph compares segment revenue for fiscal year 2010 as compared to fiscal year 2009 and includes the effect of foreign exchange rate fluctuations and acquisitions . the total increase in revenue reflects a $ 64.7 million , or 9 % , increase in our human health segment revenue , due to an increase in diagnostics market revenue of $ 54.5 million and an increase in research market revenue of $ 10.2 million . our environmental health segment revenue increased $ 88.9 million , or 11 % , due to increases in environmental and industrial markets revenue of $ 47.5 million , and an increase in laboratory services market revenue of $ 41.4 million . as a result of adjustments to deferred revenue related to certain acquisitions required by business combination rules , we did not recognize $ 0.7 million of revenue for both fiscal years 2010 and 2009 that otherwise would have been recorded by the acquired businesses during each of the respective periods . cost of revenue 2011 compared to 2010 . story_separator_special_tag cost of revenue for fiscal year 2011 was $ 1,070.7 million , as compared to $ 943.1 million for fiscal year 2010 , an increase of approximately $ 127.6 million , or 14 % . as a percentage of revenue , cost of revenue increase d to 55.7 % in fiscal year 2011 from 55.3 % in fiscal year 2010 , resulting in a decrease in gross margin of approximately 39 basis points to 44.3 % in fiscal year 2011 from 44.7 % in fiscal year 2010 . amortization of intangible assets increase d and was $ 53.4 million for fiscal year 2011 , as compared to $ 42.5 million for fiscal year 2010 . the mark-to-market adjustment for postretirement benefit plans was a loss of $ 4.2 million for fiscal year 2011 , as compared to a loss of $ 0.1 million for fiscal year 29 2010 . stock-based compensation expense increased and was $ 1.1 million for fiscal year 2011 , as compared to $ 0.9 million for fiscal year 2010 . the amortization of purchase accounting adjustments to record the inventory from certain acquisitions added an expense of approximately $ 4.1 million for fiscal year 2011 . in addition to the above , the decrease in gross margin was primarily the result of changes in product mix with growth in sales of lower gross margin product offerings and increased freight costs , partially offset by increased sales volume , productivity improvements and cost containment initiatives . 2010 compared to 2009 . cost of revenue for fiscal year 2010 was $ 943.1 million , as compared to $ 849.5 million for fiscal year 2009 , an increase of approximately $ 93.6 million , or 11 % . as a percentage of revenue , cost of revenue increase d to 55.3 % in fiscal year 2010 from 54.8 % in fiscal year 2009 , resulting in a decrease in gross margin of approximately 55 basis points to 44.7 % in fiscal year 2010 from 45.2 % in fiscal year 2009. amortization of intangible assets increased and was $ 42.5 million for fiscal year 2010 , as compared to $ 36.3 million for fiscal year 2009. the mark-to-market adjustment for postretirement benefit plans was a loss of $ 0.1 million for fiscal year 2010 , as compared to a loss of $ 0.8 million for fiscal year 2009 . stock-based compensation expense decreased and was $ 0.9 million for fiscal year 2010 , as compared to $ 1.2 million for fiscal year 2009. the amortization of purchase accounting adjustments to record the inventory from certain acquisitions completed in fiscal year 2009 added an expense of approximately $ 1.1 million for fiscal year 2009. in addition to the above , the decrease in gross margin was primarily the result of changes in product mix , with growth in sales in fiscal year 2010 primarily of lower gross margin product offerings , partially offset by increased sales volume , productivity improvements and cost containment initiatives . selling , general and administrative expenses 2011 compared to 2010 . selling , general and administrative expenses for fiscal year 2011 were $ 627.2 million , as compared to $ 489.9 million for fiscal year 2010 , an increase of approximately $ 137.3 million , or 28 % . as a percentage of revenue , selling , general and administrative expenses increase d and were 32.6 % in fiscal year 2011 , compared to 28.7 % in fiscal year 2010 . amortization of intangible assets increased and was $ 25.9 million for fiscal year 2011 , as compared to $ 16.6 million for fiscal year 2010 . the mark-to-market adjustment for postretirement benefit plans was a loss of $ 62.9 million for fiscal year 2011 , as compared to a loss of $ 0.2 million for fiscal year 2010 . stock-based compensation expense increased and was $ 13.8 million for fiscal year 2011 , as compared to $ 11.2 million for fiscal year 2010 . the gain on the sale of a facility in boston , massachusetts that was damaged in a fire in march 2005 was $ 3.4 million for fiscal year 2010 . acquisition related costs for integration , contingent consideration and other acquisition costs related to certain acquisitions added an expense of $ 11.0 million for fiscal year 2011 and $ 2.8 million for fiscal year 2010 . in addition to the above , the increase in selling , general and administrative expenses was primarily the result of costs related to acquisitions and increased sales and marketing expenses , particularly in emerging territories , partially offset by cost containment and productivity initiatives . 2010 compared to 2009 . selling , general and administrative expenses for fiscal year 2010 were $ 489.9 million , as compared to $ 476.8 million for fiscal year 2009 , an increase of approximately $ 13.1 million , or 3 % . as a percentage of revenue , selling , general and administrative expenses decrease d and were 28.7 % in fiscal year 2010 , compared to 30.7 % in fiscal year 2009. amortization of intangible assets increased and was $ 16.6 million for fiscal year 2010 , as compared to $ 15.8 million for fiscal year 2009. the mark-to-market adjustment for postretirement benefit plans was a loss of $ 0.2 million for fiscal year 2010 , as compared to a loss of $ 5.1 million for fiscal year 2009 . stock-based compensation expense was $ 11.2 million for both fiscal years 2010 and 2009 .
| in addition , we paid $ 10.5 million for debt issuance costs and we settled $ 0.1 million in contingent consideration recorded at the acquisition date fair value for acquisitions completed subsequent to fiscal year 2008 during both fiscal years 2011 and 2010 . fiscal year 2010 operating activities . net cash provided by continuing operations was $ 167.2 million for fiscal year 2010 , as compared to net cash provided by continuing operations of $ 127.8 million for fiscal year 2009 , an increase of $ 39.4 million . the increase in cash provided by operating activities for fiscal year 2010 was a result of income from continuing operations of $ 138.9 million , depreciation and amortization of $ 89.2 million , stock based compensation expense of $ 12.4 million , restructuring and contract termination charges , net of $ 19.0 million and the expense related to our postretirement benefit plans , including the mark-to-market charge in the fourth quarter of fiscal year 2010 , of $ 3.8 million . these amounts were partially offset by pre-tax gains of $ 28.9 million related to the required re-measurement to fair value of our previously held equity interest in the icpms joint venture and asset dispositions , and a net increase in working capital of $ 32.8 million . contributing to the net increase in working capital for fiscal year 2010 , excluding the effect of foreign exchange rate fluctuations , was an increase in accounts receivable of $ 38.1 million and an increase in inventory of $ 22.5 million , partially offset by an increase in accounts payable of $ 27.8 million . the increase in accounts receivable was a result of higher sales volume during the fourth quarter of fiscal year 2010. the increase in inventory overall was primarily a result of new products within our environmental health and human health segments to improve responsiveness to customer requirements . the increase in accounts payable was primarily a result of the timing of disbursements during the fourth quarter of fiscal year 2010. changes in accrued expenses , other
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these boys and young men are looking to maintain what function they have in their arms and hands , and capricor 's previous study of a single intracoronary dose of cap-1002 provided preliminary evidence of efficacy that cap-1002 may be able to help dmd patients retain , or slow the loss of , upper limb function . in june 2017 , we had a meeting with the fda to discuss potential clinical endpoints that could be used for registration strategies for cap-1002 in the dmd indication . the minutes of the meeting indicated the fda 's willingness to accept capricor 's proposal to use the pul test as the basis for the primary efficacy endpoint for clinical studies in support of a biologics license application , or bla . the primary efficacy endpoint will be the relative change in patients ' abilities to perform manual tasks that relate to activities of daily living and are important to their quality of life . these abilities will be measured through a validated test for skeletal muscle function in dmd called the performance of the upper limb , or pul , test . the pul test is an outcomes instrument that was specifically designed to assess upper limb function in ambulant and non-ambulant patients with dmd . hope-2 will focus on the mid-level dimension of the pul – or the ability to use muscles from the elbow to the fingers , which are essential for operating wheelchairs and performing other daily functions . hope-2 will measure the change from the beginning of the trial , or baseline , to month 12. in hope-2 , we also include additional secondary and exploratory endpoints which include cardiac function , pulmonary function testing , quality of life and additional measures . start-up activities for our hope-2 trial commenced in q1 2018. an interim analysis is planned to assess futility . the 12-month results are anticipated to be available in the first half of 2020. the timing of both analyses will be dependent on enrollment rates and various other factors . phase i/ii hope-duchenne clinical trial we have completed the randomized , controlled , multi-center phase i/ii hope-duchenne clinical trial , which was designed to evaluate the safety and exploratory efficacy of cap-1002 in patients with cardiomyopathy associated with duchenne muscular dystrophy , or dmd . twenty-five patients were randomized in a 1:1 ratio to receive either cap-1002 on top of usual care or usual care only . in patients receiving cap-1002 , 25 million cells were infused into each of their three main coronary arteries for a total dose of 75 million cells . it was a one-time treatment , and the last patient was infused in september 2016. patients were observed over the course of 12 months . efficacy was evaluated according to several exploratory outcome measures . this study is being funded in part through a grant award from the california institute for regenerative medicine , or cirm . we commenced the hope-duchenne trial in february 2016 and completed enrollment in september 2016. in april 2017 , we reported positive top-line results from a pre-specified six-month interim analysis of this study , which showed that cap-1002 was generally safe and well-tolerated over the initial six-month follow-up period . the six-month results were presented at the 22nd annual international congress of the world muscle society in october 2017. in exploratory efficacy analyses , observed changes from baseline to month 6 significantly differed by treatment group for systolic thickening of the inferior wall of the heart as measured by mri ( p=0.03 ) . in a post-hoc analysis of function of the mid- and distal-level upper limb in which a responder was defined as a patient who demonstrated a 10 % improvement from baseline in score on the pul test , cap-1002 patients were more likely to be responders than patients in usual care ( p=0.045 ) at week 6. in addition , numerical results in some other cardiac and skeletal muscle measures , including cardiac scar ( p=0.09 ) , were consistent with a treatment effect although differences between treatment groups were not statistically significant . the observed clinical results appear to generally corroborate a large body of pre-clinical data from studies in dmd animal models . 58 we reported our 12-month data at a late-breaking science session of the american heart association scientific sessions 2017. as shoulder function had already been lost in most of the hope participants , investigators used the combined mid-distal pul subscales to assess changes in skeletal muscle function and found significant improvement in those treated with cap-1002 in a ( defined post-hoc ) . among the lower-functioning patients , defined as patients with a baseline mid-distal pul score < 55 out of 58 , investigators reported sustained or improved motor function at 12 months in 8 of 9 ( 89 % ) patients treated with cap-1002 as compared to none ( 0 % ) of the usual care participants ( p=0.007 ) . to assess cardiac structure and function , investigators used magnetic resonance imaging , or mri . they found significant improvements in systolic thickening of the left ventricular wall among those patients treated with cap-1002 . systolic wall thickening is the component of myocardial contraction ultimately responsible for ejection of blood from the left ventricle . preservation or enhancement of systolic wall thickening may potentially be the result of the reversal of fibrosis . in the inferior wall , they recorded a mean ( sd ) 31.2 % ( 47.0 % ) increase in thickening six months after treatment and a mean 25.8 % ( 46.7 % ) increase in thickening 12 months after treatment . in comparison , the usual care group showed a mean 8.8 % ( 27.7 % ) decrease at six months and a mean 1.6 % ( 37.9 % ) increase at 12 months in the systolic thickening of the inferior wall . story_separator_special_tag the difference between the groups in absolute change from baseline to six months achieved statistical significance ( p=0.04 ) and trended in favor of cap-1002 treatment group ( p=0.09 ) from baseline to 12 months . investigators also found that scarring of the heart muscle among those treated with cap-1002 decreased relative to the control group . progressive cardiac scarring eventually impairs the heart 's pumping ability and is currently the leading cause of death in duchenne muscular dystrophy . at the 12-month follow-up , those treated with cap-1002 had a mean ( sd ) 7.1 % ( 10.3 % ) reduction in scar size , in contrast to a mean 4.8 % ( 22.3 % ) increase in scar size in the usual care group , a difference that achieved statistical significance using non-parametric analysis to account for outliers ( p=0.03 ) . cap-1002 was generally safe and well-tolerated in the hope-duchenne trial . there was no significant difference in the incidence of treatment-emergent adverse events in either group . there were no early study discontinuations due to adverse events . those patients who did not receive cap-1002 during the hope-duchenne trial may be eligible to receive cap-1002 as part of the open label now that all participants have completed the controlled portion of the trial . regulatory designations for cap-1002 for the treatment of dmd in april 2015 , the fda granted orphan drug designation to cap-1002 for the treatment of dmd . orphan drug designation is granted by the fda 's office of orphan drug products to drugs intended to treat a rare disease or condition affecting fewer than 200,000 people in the united states or a disease or condition that affects more than 200,000 people in the united states and for which there is no reasonable expectation that the cost of developing and making available in the united states a drug for this type of disease or condition will be recovered from sales in the united states for that drug . this designation confers special incentives to the drug developer , including tax credits on the clinical development costs and prescription drug user fee waivers and may allow for a seven-year period of market exclusivity in the united states upon fda approval . in july 2017 , the fda granted rare pediatric disease designation to cap-1002 for the treatment of dmd . the fda defines a `` rare pediatric disease '' as a serious or life-threatening disease affecting individuals primarily aged from birth to 18 years and that affects fewer than 200,000 individuals in the united states . under the fda 's rare pediatric disease priority review voucher program , upon the approval of a qualifying new drug application , or nda , or bla for the treatment of a rare pediatric disease , the sponsor of such application would be eligible for a rare pediatric disease priority review voucher that can be used to obtain priority review for a subsequent nda or bla . the priority review voucher may be sold or transferred an unlimited number of times . in february 2018 , we were notified by the fda office of tissues and advanced therapies , that we were granted the regenerative medicine advanced therapy , or rmat , designation for cap-1002 for the treatment of dmd . the fda grants the rmat designation to regenerative medicine therapies intended to treat a serious condition and for which preliminary clinical evidence indicates a potential to address unmet medical needs for that condition . the rmat designation makes therapies eligible for the same actions to expedite the development and review of a marketing application that are available to drugs that receive breakthrough therapy designation – including increased meeting opportunities , early interactions to discuss any potential surrogate or intermediate endpoints and the potential to support accelerated approval . cap-1002 is one of the few therapies currently in development to help non-ambulant patients with duchenne muscular dystrophy . to receive the rmat designation , we submitted data from the hope-duchenne trial . 59 cap-1002 for the treatment of cardiac conditions phase i/ii allstar clinical trial the phase i portion of the allstar trial was a 14-patient , open-label , dose-escalation study that was conducted to evaluate the clinical safety of cap-1002 in patients who had experienced a large heart attack and who had residual cardiac dysfunction . each patient received a single infusion of cap-1002 into the coronary artery most closely associated with the location of their mi , at a dose level of either 12.5 million or 25 million cells . the primary safety endpoints focused on the potential adverse effects of cap-1002 delivery , including potential immunologic consequences of infusing cells that had originated from an unrelated donor . event rates observed for each of the four pre-specified safety endpoints ( acute myocarditis possibly attributable to cap-1002 ; death due to ventricular tachycardia or ventricular fibrillation ; sudden death ; and major adverse cardiac events ) were 0 % over one and 12 months following cap-1002 infusion . this phase i study was funded in large part by a grant received from the national institutes of health , or nih . capricor began enrollment of the phase ii allstar study in the first quarter of 2014. this randomized , double-blind , placebo-controlled trial was designed to determine if treatment with cap-1002 can reduce scar size in patients who have suffered an mi and other endpoints . at the time of randomization , patients were stratified into one of two cohorts according to the time since the occurrence of their mi ( either 30 to 90 days after the mi , or greater than 90 days up to one-year after the mi ) . following infusion , patients were to be followed for periodic evaluations over the course of one year . patients were randomized in a 2:1 ratio to receive an infusion of cap-1002 ( 25 million cells ) or placebo , respectively , into the coronary artery most closely associated with the region of their mi .
| wuxi owns and operates a cgmp compliant manufacturing facility with space and resources necessary to manufacture customer 's products . the agreement allows us to begin our technology transfer process in anticipation of potential commercial scale manufacturing and or later stage clinical trials . our strategy for further development of cap-1002 will depend to a large degree on the outcome of our upcoming hope-2 trial . cap-2003 – we expect to spend approximately $ 2.0 million to $ 4.0 million during 2018 on pre-clinical and other research expenses related to the cap-2003 program , a portion of which will be offset by our grant awards from the nih and dod . capricor is currently engaged in pre-clinical testing of cap-2003 to explore its therapeutic potential , including studies that would potentially enable an ind . we have received a grant for up to approximately $ 4.2 million from the nih to study cap-2003 for hlhs as well as a grant from the dod for up to approximately $ 2.4 million to be used towards the development of a scalable , commercially-ready process to manufacture cap-2003 . products not under active development cap-1001 – in 2011 , csmc , in collaboration with jhu , completed the phase i caduceus trial . this study enrolled 25 patients who had suffered a heart attack within a mean of 65 days . seventeen patients received cap-1001 and eight received standard of care . twelve months after the study had completed , no measurable adverse effects occurred in the 17 patients who were treated with cap-1001 . 16 of the 17 treated patients showed a mean reduction of approximately 45 % in scar mass and an increase in viable heart muscle one-year post heart attack . the eight patients in the control group had no significant change in scar size . at present , there is no plan for a clinical trial of cap-1001 . csps – csps are at the pre-clinical stage of development . at present , there is no plan
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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 of approximately one year each , 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 first and second option segments of the contract during which we may receive up to a total of $ 5.3 million and $ 17.0 million in expense reimbursement and fees , respectively . the first option segment is expected to end on march 31 , 2015 and the second option segment is scheduled to end on november 30 , 2015. as of december 31 , 2014 , we had recognized revenue in aggregate of $ 36.7 million with respect to the base performance segment and first and second extension periods . in july 2012 , we entered into a collaboration and licensing agreement with merck , sharp & dohme corporation ( merck ) . the agreement provided for various types of payments , including a $ 17.5 million non-refundable upfront license fee , contingent event-based milestone payments and future royalties on net product sales . we recognized the upfront license fee payment from merck as revenue for the year ended december 31 , 2012 , as our remaining performance obligations under the contract were not considered substantive . we did not recognize any revenue under this agreement for the years ended december 31 , 2013 and 2014. the license agreement with merck was terminated in may 2014. on december 17 , 2014 , the company 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 . 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 , as our performance obligations were not completed as of december 31 , 2014 . 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 . 51 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 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 , 2014 , we have incurred approximately $ 199.0 million in research and development expenses , of which $ 165.6 million relates to our development of brincidofovir . we plan to increase our research and development expenses for the foreseeable future as we continue development of brincidofovir for the prevention of cmv infection in hct recipients , for the treatment of adv infections , for the prevention of cmv in kidney transplant recipients and for other indications , and to advance the development of our other product candidates , subject to the availability of additional funding . 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 . story_separator_special_tag replace_table_token_3_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 ; 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 52 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 . brincidofovir the majority of our research and development resources are currently focused on our phase 3 trial of brincidofovir for prevention of cmv in hct recipients , suppress , our phase 3 trial of brincidofovir as a treatment for adv , advise , and our other planned clinical and preclinical studies and other work needed to provide sufficient data supporting the safety , tolerability and efficacy of brincidofovir for approval in the united states and equivalent health authority approval outside the united states . we have incurred and expect to continue to incur significant expense in connection with these efforts , including expenses related to : manufacturing to produce , test and package our drug substance and drug product for brincidofovir ; and initiation , enrollment , and conduct of suppress ; initiation , enrollment , and conduct of advise ; and initiation , enrollment , and conduct of a kidney transplant trial . in addition , pursuant to our contract with barda , we are evaluating brincidofovir for the treatment of smallpox . during the base performance segment of the contract , we incurred significant expense in connection with the development of orthopox virus animal models , the demonstration of efficacy and pharmacokinetics of brincidofovir in the animal models , the conduct of an open label clinical safety study for subjects with dna viral infections , and the manufacture and process validation of bulk drug substance and brincidofovir 100 mg tablets . during the first option segment of the contract , we performed additional animal testing of brincidofovir . in september 2014 , we initiated performance under the second option segment of the contract with barda and performed additional animal testing of brincidofovir . general and administrative expenses general and administrative expenses consist primarily of salaries and related costs for employees in executive , finance , marketing , investor relations , information technology , legal , human resources and administrative support functions , including share-based compensation expenses and benefits . other significant general and administrative expenses include the pre-launch activities for brincidofovir , accounting and legal services , cost of various consultants , director and officer liability insurance , occupancy costs and information systems . we expect that our general and administrative expenses will continue to increase due to the potential commercialization of our product candidates . we believe that these increases will likely include increased costs for director and officer liability insurance , costs related to the hiring of additional personnel and increased fees for outside consultants , lawyers and accountants . interest income ( expense ) , net interest income consists of interest earned on our cash , cash equivalents , short-term investments and long-term investments . interest expense consists primarily of interest accrued or paid on amounts outstanding under our loan and security agreement ( lsa ) with silicon valley bank ( svb ) and midcap financial sbic , lp ( midcap ) . in january 2012 , we borrowed $ 3.0 million under the lsa , and in september 2012 , we borrowed an additional $ 12.0 million . as of december 31 , 2014 , the balance of the loan was $ 4.3 million . revaluation of warrants in conjunction with various financing transactions , we issued warrants to purchase shares of our preferred and common stock . the underlying security of the warrants related to the series f financing and to our term loan was redeemable at the option of the security holder . as a result , these warrants were classified as a liability and were marked-to-market at each reporting date . the fair value estimates of these warrants were determined using a black-scholes option-pricing model and are based , in part , on subjective assumptions . non-cash changes in the fair value of the warrant liability were recorded as fair value adjustments to warrant liability . the final revaluation of the warrants occurred just prior to our april 2013 initial public offering of common stock ( ipo ) . upon the ipo these warrants converted into warrants for common stock and therefore no longer require revaluation .
| general and administrative expenses for the year ended december 31 , 2014 , our general and administrative expenses increased to $ 17.5 million compared to $ 8.3 million for the year ended december 31 , 2013 . the increase of $ 9.2 million , or 110.5 % , was related to the following : an increase of $ 4.7 million in compensation costs , consisting of an increase in cash compensation expense of $ 1.9 million primarily related to the addition of 6 new employees in 2014 , a $ 0.6 million one-time severance charge in 2014 for the former ceo , and an increase in non-cash share-based compensation of $ 2.2 million ; an increase of $ 3.2 million of commercialization expenses in preparation of the launch of brincidofovir ; and an increase of $ 0.6 million of external service costs and $ 0.5 million of insurance and taxes attributable to the growth of business . 60 interest expense , net for the year ended december 31 , 2014 , our net interest expense decreased to $ 0.4 million compared to $ 1.2 million for the year ended december 31 , 2013 . the decrease of $ 0.8 million , or 63.9 % , was attributable to a $ 0.6 million decrease in interest expense as we continued to make principal payments on our existing debt with no additional borrowing in 2014 and a $ 0.2 million increase in interest income related to the increased cash and investment balances we held in 2014. fair value of warrant adjustment our outstanding series f preferred warrants were deemed to be derivative instruments that required liability classification and mark-to-market accounting . as such , the applicable fair value of the warrants was determined using a two-stage , contingent claims model , resulting in the recognition of additional expenses of $ 6.6 million for the year ended december 31 , 2013 . this expense was primarily due to the increased likelihood of the
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the results of firstbest 's operations will be included in the our first quarter of fiscal year 2017 results of operations . sales of these new products are expected to grow following an investment to integrate them with our core transactional systems , educate our sales force in their attributes and train si partners in their implementation . as a result , revenue in connection with any sales of these products are expected to be minimal in fiscal year 2017. in addition , if we are unable to establish vsoe , revenue recognized in connection with such sales will be delayed . we partner with leading sis to assist in the implementation of our products in a manner that increases efficiency and scale while reducing customer implementation costs . our extensive relationships with sis and industry partners have strengthened and expanded in line with the interest in and adoption of our products . we encourage our partners to co-market , pursue joint sales initiatives and drive broader adoption of our technology , helping us grow our business more efficiently and focus our engineering resources on continued innovation . our track record of success with customers and their implementations are central to our strategy . we continue to focus and invest time and resources in increasing the number of qualified consultants employed by our si partners , develop relationships with new sis in existing and new markets , and ensure that all partners are ready to assist with implementing our products . we face a number of risks in the execution of our strategy including risks related to expanding to new markets , managing lengthy sales cycles , competing effectively in the global market , relying on sales to a relatively small number of large customers , developing new or acquiring existing products successfully , and increasing the overall adoption of our products . in response to these and other risks we might face , we continue to invest in many areas of our business . our investments in sales and marketing align with our goal of winning new customers in both existing and new markets , and enable us to maintain a persistent , consultative relationship with our existing customers . our investments in product development are designed to meet the evolving needs of our customers . seasonality we have historically experienced seasonal variations in our revenues as a result of increased customer orders in our second and fourth fiscal quarters . we generally see increased orders in our second fiscal quarter , which is the quarter ended january 31 , due to customer buying patterns . we also see increased orders in our fourth fiscal quarter , which is the quarter ended july 31 , due to efforts by our sales team to achieve annual incentives . this seasonal pattern , however , may be absent in any given year . for example , in fiscal year 2016 , we had higher licensing orders in the third fiscal quarter than in the second fiscal quarter . our maintenance revenues are not impacted by these seasonal trends . our services revenues are also subject to seasonal fluctuations , though to a lesser degree than our license revenues . our services revenues are impacted by the number of billable days in a given fiscal quarter . the quarter ended january 31 usually has fewer billable days due to the impact of the thanksgiving , christmas and new year 's holidays . the quarter ended july 31 usually also has fewer billable days due to the impact of vacation times taken by our professional staff . because we pay our services professionals the same amounts throughout the year , our gross margins on our services revenues are lower in these quarters . key business metrics we use certain key metrics to evaluate and manage our business , including rolling four-quarter recurring revenues from term licenses and total maintenance . in addition , we present select gaap and non-gaap financial metrics that we use internally to manage the business and that we believe are useful for investors . these metrics include adjusted ebitda and operating cash flows . four-quarter recurring revenues we measure four-quarter recurring revenues by adding the total term license revenues and total maintenance revenues recognized under gaap in the preceding four quarters ended in the stated period . this metric excludes perpetual license 28 revenues , revenues from perpetual buyout rights and services revenues . this metric allows us to better understand the trends in our recurring revenues because it typically reduces the variations in any particular quarter caused by seasonality , the effects of the annual invoicing of our term licenses and certain effects of contractual provisions that may accelerate or delay revenue recognition in some cases . this metric applies revenue recognition rules under gaap and does not substitute individually tailored revenue recognition and measurement methods . our four-quarter recurring revenues for each of the nine periods presented were : replace_table_token_5_th adjusted ebitda we believe adjusted ebitda , a non-gaap financial measure , is useful in evaluating our operating performance compared to that of other companies in our industry , as this metric generally eliminates the effects of certain items that may vary for different companies for reasons unrelated to overall operating performance . we believe that : adjusted ebitda provides investors and other users of our financial information consistency and comparability with our past financial performance , facilitates period-to-period comparisons of operations and facilitates comparisons with other companies , many of which use similar non-gaap financial measures to supplement their gaap results ; it is useful to exclude non-cash charges , such as depreciation and amortization and stock-based compensation because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and these expenses can vary significantly between periods ; and it is also useful to exclude the effect of income taxes , interest income and other income or expenses because the amount of such items may not directly correlate to the underlying performance of story_separator_special_tag our business operations . we use adjusted ebitda in conjunction with traditional gaap measures as part of our overall assessment of our performance , including the preparation of our annual operating budget and quarterly forecasts , to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance . 29 adjusted ebitda should not be considered as a substitute for other measures of financial performance reported in accordance with gaap . there are limitations to using non-gaap financial measures , including that other companies may calculate these measures differently than we do . we compensate for the inherent limitations associated with using adjusted ebitda through disclosure of these limitations , presentation of our financial statements in accordance with gaap and reconciliation of adjusted ebitda to the most directly comparable gaap measure , net income . the following provides a reconciliation of net income to adjusted ebitda : replace_table_token_6_th operating cash flows we monitor our cash flows from operating activities , or operating cash flows , as a key measure of our overall business performance , which enables us to analyze our financial performance without the effects of certain non-cash items such as depreciation and amortization and stock-based compensation expenses . additionally , operating cash flows takes into account the impact of changes in deferred revenues , which reflects the receipt of cash payment for products before they are recognized as revenues . our operating cash flows are significantly impacted by timing of invoicing and collections of accounts receivable , annual bonus payment , as well as payments of payroll and other taxes . as a result , our operating cash flows fluctuate significantly . operating cash flows were $ 99.9 million , $ 63.7 million and $ 75.5 million for fiscal years 2016 , 2015 and 2014 , respectively . for a further discussion of our operating cash flows , see “ liquidity and capital resources—cash flows from operating activities. ” critical accounting policies and estimates our consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the united states . the preparation of our consolidated financial statements requires our management to make estimates , assumptions , and judgments that affect the reported amounts of assets and liabilities and disclosures for contingent assets and liabilities as of the date of the financial statements , and the reported amounts of revenues and expenses during the applicable periods . we believe that of our significant accounting policies , which are described in note 1 “ the company and a summary of significant accounting policies ” to our consolidated financial statements , the following accounting policies require significant judgments , assumptions , and estimates used in the preparation of the consolidated financial statements and actual results could differ materially from the amounts reported based on these policies . to the extent there are material differences between our estimates and the actual results , our future consolidated results of operations may be affected . revenue recognition we enter into arrangements to deliver multiple products or services ( multiple-elements ) . we apply software revenue recognition rules and allocate the total revenues among elements based on vendor-specific objective evidence ( “ vsoe ” ) of fair value of each element . this requires us to make judgments and estimates in determining the fair value of each element when we apply the revenue recognition rules as described in note 1 of the notes to our consolidated financial statements . revisions of estimates may result in increases or decreases to revenues as reflected in our consolidated financial statements in the periods in which they are first identified and revised . revenues are derived from three sources : ( i ) license fees , related to term ( or time-based ) licenses , perpetual software licenses , and other ; ( ii ) maintenance fees , related to email and phone support , bug fixes and unspecified software updates and upgrades released when , and if available during the maintenance term ; and 30 ( iii ) services fees , related to professional services related to implementation of our software , reimbursable travel and training . vsoe of fair value does not exist for our software licenses ; therefore , we allocate revenues to software licenses using the residual method . under the residual method , the amount recognized for license fees is the difference between the total fixed and determinable fees and the vsoe of fair value for the undelivered elements under the arrangement . the vsoe of fair value for elements of an arrangement is based upon the normal pricing and discounting practices for those elements when sold separately . vsoe of fair value for maintenance is established using the stated maintenance renewal rate in the customer 's contract . for term licenses with duration of one year or less , no vsoe of fair value for maintenance exists . vsoe of fair value for services is established if a substantial majority of historical stand-alone selling prices for a service fall within a reasonably narrow price range . if the undelivered elements are all service elements and vsoe of fair value does not exist for one or more service element , the total arrangement fee is recognized ratably over the longest service period starting at software delivery , assuming all the related services have been made available to the customer . we sell some of our software licenses on a subscription basis . the related revenues are recognized ratably over the contract term . while this is currently not a significant part of our business , we expect it to grow as we introduce new or acquired products . in certain professional service offerings sold as fixed fee arrangements , we recognize revenues on a proportional performance basis as performance obligations are completed by using the ratio of labor hours to date as an input measure compared to total estimated labor hours for the consulting services .
| 44 liquidity and capital resources as of july 31 , 2016 , 2015 and 2014 , we had $ 223.6 million , $ 212.4 million and $ 148.1 million of cash and cash equivalents , respectively , and working capital of $ 588.6 million , $ 557.2 million and $ 421.0 million , respectively . cash flows provided by operating activities were $ 99.9 million , $ 63.7 million and $ 75.5 million during the years ended july 31 , 2016 , 2015 and 2014 , respectively . we had capital expenditures of $ 7.1 million , $ 6.3 million and $ 5.0 million for the years ended july 31 , 2016 , 2015 and 2014 , respectively . our capital expenditures consisted of purchases of property and equipment , primarily consisting of computer hardware , software and leasehold improvements . as of july 31 , 2016 , approximately $ 26.5 million of our cash and cash equivalents were domiciled in foreign tax jurisdictions . while we have no plans to repatriate these funds to the united states in the short term , if we choose to do so , we would be required to accrue and pay additional taxes on any portion of the repatriation where no united states income tax had been previously provided . our cash flows from operations are significantly impacted by timing of invoicing and collections of accounts receivable , annual bonus payment , as well as payments of payroll and other taxes . we expect that we will continue to generate positive cash flows from operations on an annual basis , although this may fluctuate significantly on a quarterly basis . in particular , we typically use more cash during the first fiscal quarter ended october 31 , as we generally pay cash bonuses to our employees for the prior fiscal year during that period and pay seasonally higher sales commissions from increased orders in our fourth fiscal quarter . we believe that our existing cash and cash equivalents and sources of liquidity will be sufficient to fund our operations for at least the next 12 months . our future capital requirements will depend
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the remaining difference between the investment 's fair value and the present value of future expected cash flows is recognized in other comprehensive income . equity investments : some of the factors considered in evaluating whether a decline in fair value for an equity investment is other-than-temporary include : ( 1 ) our ability and intent to retain the investment for a period of time sufficient to allow for an anticipated recovery in value ; ( 2 ) the recoverability of cost ; ( 3 ) the length of time and extent to which the fair value has been less than cost ; and ( 4 ) the financial condition and near-term and long-term prospects for the issuer , including the relevant industry conditions and trends , and implications of rating agency actions and offering prices . when it is determined that an equity investment is other-than-temporarily impaired , the security is written down to fair value , and the amount of the impairment is included in earnings as a realized investment loss . the fair value then becomes the new cost basis of the investment , and any subsequent recoveries in fair value are recognized at disposition . we recognize a realized loss when impairment is deemed to be other-than-temporary even if a decision to sell an equity investment has not been made . when we decide to sell a temporarily impaired available-for-sale equity investment and we do not expect the fair value of the equity investment to fully recover prior to the expected time of sale , the investment is deemed to be other-than-temporarily impaired in the period in which the decision to sell is made . 36 fair values of financial instruments . accounting standards codification ( “ asc ” ) 820 defines fair value , establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value measurements . asc 820 , among other things , requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value . in addition , asc 820 precludes the use of block discounts when measuring the fair value of instruments traded in an active market , which were previously applied to large holdings of publicly traded equity securities . we determine the fair value of our financial instruments based on the fair value hierarchy established in asc 820. in accordance with asc 820 , we utilize the following fair value hierarchy : · level 1 : quoted prices in active markets for identical assets ; · level 2 : inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets , inputs of identical assets for less active markets , and inputs that are observable for the asset or liability , either directly or indirectly , for substantially the full term of the instrument ; and · level 3 : inputs to the valuation methodology that are unobservable for the asset or liability . this hierarchy requires the use of observable market data when available . under asc 820 , we determine fair value based on the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date . it is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements , in accordance with the fair value hierarchy described above . fair value measurements for assets and liabilities where there exists limited or no observable market data are calculated based upon our pricing policy , the economic and competitive environment , the characteristics of the asset or liability and other factors as appropriate . these estimated fair values may not be realized upon actual sale or immediate settlement of the asset or liability . where quoted prices are available on active exchanges for identical instruments , investment securities are classified within level 1 of the valuation hierarchy . level 1 investment securities include common stock , preferred stock and the equity warrant classified as other investments . level 2 investment securities include corporate bonds , collateralized corporate bank loans , municipal bonds , u.s. treasury securities , other obligations of the u.s. government and mortgage-backed securities for which quoted prices are not available on active exchanges for identical instruments . we use a third party pricing service to determine fair values for each level 2 investment security in all asset classes . since quoted prices in active markets for identical assets are not available , these prices are determined using observable market information such as quotes from less active markets and or quoted prices of securities with similar characteristics , among other things . we have reviewed the processes used by the pricing service and have determined that they result in fair values consistent with the requirements of asc 820 for level 2 investment securities . we have not adjusted any prices received from third-party pricing sources . in cases where there is limited activity or less transparency around inputs to the valuation , investment securities are classified within level 3 of the valuation hierarchy . level 3 investments are valued based on the best available data in order to approximate fair value . this data may be internally developed and consider risk premiums that a market participant would require . investment securities classified within level 3 include other less liquid investment securities . deferred policy acquisition costs . policy acquisition costs ( mainly commission , underwriting and marketing expenses ) that vary with and are primarily related to the successful acquisition of new and renewal insurance contracts are deferred and charged to operations over periods in which the related premiums are earned . ceding commissions from reinsurers , which include expense allowances , are deferred and recognized over the period premiums are earned for the underlying policies reinsured . the method followed in computing deferred policy acquisition costs limits the amount of such deferred costs to their estimated realizable value . story_separator_special_tag a premium deficiency exists if the sum of expected claim costs and claim adjustment expenses , unamortized acquisition costs , and maintenance costs exceeds related unearned premiums and expected investment income on those unearned premiums , as computed on a product line basis . we routinely evaluate the realizability of deferred policy acquisition costs . at december 31 , 2017 and 2016 , there was no premium deficiency related to deferred policy acquisition costs . 37 goodwill . goodwill is tested for impairment at the reporting unit level ( operating unit or one level below an operating unit ) on an annual basis ( october 1 ) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value . for purposes of evaluating goodwill for impairment , we have determined that our reporting units are the same as our operating units except for the specialty commercial operating unit for which reporting units are at the component level ( “ one level below ” ) . our consolidated balance sheet as of december 31 , 2017 includes goodwill of acquired businesses of $ 44.7 million that is assigned to our operating units as follows : standard commercial p & c operating unit - $ 2.1 million ; contract binding operating unit - $ 19.9 million ; specialty commercial operating unit - $ 17.4 million ( comprised of $ 7.7 million for the primary/excess and umbrella component and $ 9.7 million for the general aviation and satellite component ) ; and specialty personal lines operating unit - $ 5.3 million . this amount has been recorded as a result of prior business acquisitions accounted for under the acquisition method of accounting . under asc 350 , “ intangibles - goodwill and other , ” goodwill is tested for impairment annually . we completed our last annual test for impairment on the first day of the fourth quarter of 2017 and determined that there was no impairment . a significant amount of judgment is required in performing goodwill impairment tests . such tests include estimating the fair value of our reporting units . as required by asc 350 , we compare the estimated fair value of each reporting unit with its carrying amount , including goodwill . under asc 350 , fair value refers to the amount for which the entire reporting unit may be bought or sold . the determination of fair value was based on an income approach utilizing discounted cash flows . the valuation methodology utilized is subject to key judgments and assumptions . estimates of fair value are inherently uncertain and represent management 's reasonable expectation regarding future developments . these estimates and the judgments and assumptions upon which the estimates are based will , in all likelihood , differ in some respects from actual future results . declines in estimated fair value could result in goodwill impairments in future periods which could materially adversely affect our results of operations or financial position . the income approach to determining fair value computed the projections of the cash flows that the reporting unit is expected to generate converted into a present value equivalent through discounting . significant assumptions in the income approach model include income projections , discount rates and terminal growth values . the income projections reflect an improved premium rate environment across most of our lines of business that continued throughout 2017. the income projections also include loss and lae assumptions which reflect recent historical claim trends and the movement towards a more favorable pricing environment . the income projections also include assumptions for expense growth and investment yields which are based on business plans for each of our operating units . the discount rate was based on a risk free rate plus a beta adjusted equity risk premium and specific company risk premium . the assumptions were based on historical experience ( including factors such as prior year loss reserve development ) , expectations of future performance ( including premium growth rates , premium rate increases and loss costs ) , expected market conditions and other factors requiring judgment and estimates . while we believe the assumptions used in these models were reasonable , the inherent uncertainty in predicting future performance and market conditions may change over time and influence the outcome of future testing . the fair values of each of our operating units were in excess of their respective carrying values , including goodwill , as a result of our annual test for impairment during the fourth quarter 2017. however , an 8 % decline in the fair value of our standard commercial p & c operating unit , a 5 % decline in the fair value of our contract binding operating unit , a 6 % decline in the fair value of our specialty personal lines operating unit , a 69 % decline in the fair value of our excess and umbrella component or a 23 % decline in the fair value of our general aviation and satellite component would have caused the carrying value of the respective reporting unit to be in excess of its fair value , resulting in the need to perform the second step of impairment testing prescribed by asc 350 , which could have resulted in an impairment to our goodwill . the market capitalization of hallmark 's common stock has been below book value during 2017. we consider our market capitalization in assessing the reasonableness of the fair values estimated for our operating units in connection with our goodwill impairment testing . we believe the limited daily trading volume of hallmark shares has resulted in a decrease in our market capitalization that is not representative of a long-term decrease in value . the valuation analysis discussed above supports our view that goodwill was not impaired at october 1 , 2017. through december 31 , 2017 , there were no indicators of impairment .
| during the twelve months ended december 31 , 2017 , we recorded unfavorable prior year net loss reserve development of $ 40.1 million as compared to $ 7.6 million of unfavorable prior year net loss reserve development for the same period of 2016. the unfavorable prior year reserve development during the twelve months ended december 31 , 2017 was primarily driven by the continued emergence of increased frequency and severity trends in our primary commercial auto lines of business within our contract binding operating unit , which was representative of industry trends . these trends had an amplified impact on our consolidated result because this is the largest line of retained business in our portfolio . we incurred an aggregate of $ 7.8 million of net catastrophe losses during the year ended december 31 , 2017 as compared to $ 11.0 million for the same period the prior year . operating expenses during the year ended december 31 , 2017 were unchanged from the same period during 2016 mostly as a result of a $ 1.8 million payment to settle the earn-out related to the previous acquisition of tbic during the second quarter of 2016 and lower production related expenses due primarily to increased ceding commissions in our specialty commercial segment , partially offset by increased salary and related expenses and other operating expenses driven by our investment in technology for the year ended december 31 , 2017 as compared to the same periods during 2016. we reported a net loss of $ 11.6 million for the year ended december 31 , 2017 , as compared to net income of $ 6.5 million for the year ended december 31 , 2016. on a diluted per share basis , net loss was $ 0.63 per share for fiscal 2017 as compared to net income of $ 0.34 per share for fiscal 2016. net loss for the year ended december 31 , 2017 included a charge of $ 1.3 million from the revaluation of deferred tax balances from
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using current exchange rates , we expect to recognize approximately $ 14 million in additional costs , most of which will be incurred in 2013. annual savings are estimated to be approximately 9 million ( approximately $ 12 million using current exchange rates ) beginning in late 2013. during 2009 , the company announced a plan to consolidate two french dispensing closure manufacturing facilities and several sales offices in north america and europe and has subsequently expanded the program to include additional headcount reductions . during 2012 , 2011 and 2010 , we recognized ( $ 0.2 ) million , ( $ 0.1 ) million and $ 0.1 million , respectively , of restructuring expenses due to the settlement of several reserve balances . the total costs associated with this consolidation/severance programs were $ 7.4 million . the plan has been substantially completed , subject to the settlement of remaining immaterial reserve balances . operating income operating income decreased approximately $ 28.2 million or 10 % to $ 258.9 million in 2012. excluding changes in foreign currency rates , operating income decreased by approximately $ 10.8 million in 2012 compared to the same period a year ago . stelmi contributed a $ 4.6 million operating loss in 2012 and costs related to our eoo plan contributed $ 4.9 million . excluding stelmi , the eoo plan and the changes in foreign currency rates , operating income decreased by approximately $ 1.4 million in 2012 compared to the same period a year ago due to the higher cost of sales percentage and the incremental depreciation related to our capital investments . operating income as a percentage of sales decreased to 11.1 % in 2012 compared to 12.3 % in 2011 also due to the higher percentage of cost of sales and depreciation cost compared to prior year as discussed above . in 2011 , operating income increased approximately $ 19.1 million or 7 % to a record $ 287.1 million in 2011 on the strong increases in sales volumes at each segment . operating income as a percentage of sales decreased to 12.3 % in 2011 compared to 12.9 % in 2010 mainly due to the higher percentage of cost of sales and sg & a cost compared to prior year as discussed above . net other expenses net other expenses in 2012 increased to $ 17.5 million compared to $ 12.2 million in 2011. this increase is mainly due to $ 2.7 million of lower interest income and $ 1.7 million higher interest expense related to converting part of our short-term borrowing to long-term in order to lock in the historically low interest rates . in 2011 , net other expenses decreased to $ 12.2 million compared to $ 13.6 million in 2010 due primarily to lower foreign currency losses of $ 2.1 million . a $ 2.9 million increase in interest expense was mostly offset by an increase in interest income of $ 2.5 million . effective tax rate the reported effective tax rate on net income for 2012 and 2011 was 32.7 % and 33.2 % , respectively . the lower tax rate for 2012 is primarily the mix of earnings and lower tax expense associated with earnings repatriated to the u.s. during 2012. these benefits were partially offset by tax increases resulting from law changes enacted in 2012 in france . the reported effective tax rate on net income for 2011 and 2010 was 33.2 % and 31.8 % , respectively . the higher tax rate for 2011 is primarily due to a 5 % income tax surcharge enacted in france . net income attributable to aptargroup , inc. we reported net income of $ 162.6 million in 2012 compared to $ 183.7 million reported in 2011 and $ 173.5 million reported in 2010. beauty + home segment replace_table_token_5_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 15 to the consolidated financial statements in item 8 . 17 /atr 2012 form 10-k net sales decreased approximately 4 % in 2012 to $ 1.45 billion compared to $ 1.52 billion in 2011. the strengthening u.s. dollar compared to the euro negatively impacted sales by 6 % . excluding changes in exchange rates , sales increased 2 % from the prior year . sales of our products , excluding foreign currency changes , to the beauty market increased approximately 1 % while sales to the personal care market increased approximately 3 % in 2012 compared to 2011 mainly due to sales growth in asia and latin america . sales of our home care products , excluding foreign currency changes , decreased approximately 5 % due to lower tooling sales compared to the prior year . in 2011 , net sales increased approximately 10 % to $ 1.5 billion compared to $ 1.4 billion in 2010. the weakening u.s. dollar compared to the euro positively impacted sales by 4 % while the impact from acquisitions was not significant . excluding changes in exchange rates , sales increased 6 % from the prior year , of which 1 % came from increased tooling sales . sales of our products , excluding foreign currency changes , to the beauty , personal care and home care markets increased approximately 6 % , 4 % and 10 % , respectively , in 2011 compared to 2010. we experienced increased demand in the beauty and personal care markets in europe , latin america and asia , which offset some softness in the u.s. while a smaller part of our business , demand from the home care markets increased in all regions . story_separator_special_tag segment income for 2012 decreased approximately 6 % to $ 123.5 million from $ 130.8 million reported in 2011. the decrease in segment income in 2012 compared to 2011 was primarily due to foreign currency changes and lower sales volumes in europe . sales growth in asia and latin america helped to offset some of this decrease . in 2011 , segment income decreased approximately 1 % to $ 130.8 million from $ 132.2 million reported in 2010. acquisitions did not materially impact segment income during the year . profitability decreased primarily due to increased raw material costs , underutilized capacity , increased legal and consulting fees , and higher tooling sales which typically carry lower margins than normal product sales . pharma segment replace_table_token_6_th net sales to the pharma segment increased 6 % in 2012 to $ 588.7 million compared to $ 553.9 million in 2011. stelmi sales were $ 56.8 million and represented 10 % of the increase . the strengthening u.s. dollar compared to the euro negatively impacted sales by 5 % . excluding acquisitions and changes in exchange rates , sales increased 1 % in 2012 compared to the same period of the prior year . sales excluding acquisitions and foreign currency changes to the prescription market increased 3 % while sales to the consumer health care market decreased 2 % . the growth in sales to the prescription market is primarily due to an increase in sales of our nasal pumps to the allergy/rhinitis market . the decrease in sales of our products to the consumer health care market is due primarily to slowing sales of our customers in eastern europe and russia and also last year was an all-time record for sales of our products to the consumer health care market . in 2011 , net sales to the pharma segment increased 16 % to $ 553.9 million compared to $ 476.2 million in 2010. the weakening u.s. dollar compared to the euro positively impacted sales by 6 % . excluding changes in exchange rates , sales increased 10 % in 2011 compared to the same period of the prior year . sales excluding foreign currency changes to the prescription market and consumer health care markets increased 5 % and 23 % , respectively . sales to the prescription market increased primarily due to the strength of our nasal allergy pumps sold in the u.s. market to pharmaceutical companies offering generic allergy formulations . for consumer health care , we experienced increased demand in eastern europe for over the counter symptomatic relief treatments such as nasal decongestant . segment income decreased 14 % to $ 141.9 million in 2012 compared to $ 164.4 million in 2011. this decrease is due to stelmi fair value and other acquisition adjustments along with stelmi transaction costs of $ 5.9 million and the negative impact of changes in exchange rates . these expenses are offset somewhat by the increased profits from higher prescription sales during 2012. in 2011 , segment income increased 22 % to $ 164.4 million compared to $ 134.5 million in 2010. segment income grew faster than sales primarily due to product mix which included increased nasal pump sales to the generic allergy market compared to the prior year . 18 /atr 2012 form 10-k food + beverage segment replace_table_token_7_th net sales to the food + beverage segment increased by approximately 8 % in 2012 to $ 288.4 million compared to $ 266.9 million in 2011. the strengthening u.s. dollar compared to the euro negatively impacted sales by approximately 3 % . sales , excluding changes in foreign currency rates , increased 11 % . sales excluding foreign currency changes to the food market were flat while the beverage markets increased approximately 32 % . demand for our beverage dispensing closures increased from 2011 due to growth of functional drinks in asia as well as growth of water flavoring products and new juice projects in north america . in 2011 , net sales to the food + beverage segment increased by approximately 21 % to $ 266.9 million compared to $ 220.4 million in 2010. the weakening u.s. dollar compared to the euro positively impacted sales by approximately 3 % . therefore sales , excluding changes in foreign currency rates , increased 18 % . tooling sales represented 6 % of this increase . sales of our products excluding foreign currency changes to the food market increased 4 % while sales of our products to the beverage markets increased approximately 66 % ( of which 23 % relates to increased tooling sales ) . demand for our food dispensing closures increased due to stronger demand in the u.s. and europe . demand for our dispensing closures to the beverage market increased due to sales of our dispensing closures used on bottled water in asia and the water flavoring products in the u.s. segment income increased 9 % to $ 30.4 million in 2012 compared to $ 27.8 million in 2011. increased volumes and better product mix helped to offset increases in selling , research and development , and administrative costs of approximately $ 2.1 million and lincolnton start-up costs of approximately $ 3.5 million . in 2011 , segment income was flat at $ 27.8 million compared to 2010. segment income growth in 2011 was restrained by higher input costs , including raw materials , higher personnel costs related to this new segment , as well as start-up costs associated with our new lincolnton facility . corporate & other in addition to our three operating business segments , aptargroup assigns certain costs to `` corporate & other , '' which is presented separately in note 15. corporate & other primarily includes certain corporate compensation and information system costs which are not allocated directly to our operating segments . corporate & other expense decreased to $ 33.8 million for 2012 compared to $ 36.6 million in the prior year . corporate & other includes a lifo adjustment as the segments report on a fifo basis for consistency .
| the following table sets forth , for the periods indicated , net sales by geographic location : replace_table_token_4_th cost of sales ( exclusive of depreciation shown below ) our cost of sales as a percentage of net sales increased in 2012 to 68.2 % compared to 67.1 % in 2011. excluding stelmi , 2012 cost of sales represented 68.1 % of net sales : the following factors negatively impacted our cost of sales percentage in 2012 : increased raw material costs . raw material costs , primarily the cost of plastic resin , increased in 2012 compared to 2011. while the majority of resin cost increases are passed along to our customers in our selling prices , we typically experience a lag in the timing of passing on these cost increases . other material costs also increased such as the cost of aluminum , steel and rubber . mix of products sold . excluding acquisitions and foreign currency , our pharma segment sales represented a slightly lower percentage of our overall sales . this negatively impacts our cost of sales percentage as margins on our pharmaceutical products typically are higher than the overall company average . lincolnton start-up costs . start-up activities associated with our new facility in lincolnton , north carolina have led to under-absorption of costs . for the year , we have recognized $ 3.5 million of under-absorption in our results . 15 /atr 2012 form 10-k the following factor positively impacted our cost of sales percentage in 2012 : strengthening of the u.s. dollar . we are a net importer from europe into the u.s. of products produced in europe with costs denominated in euros . as a result , when the u.s. dollar or other currencies strengthen against the euro , products produced in europe ( with costs denominated in euros ) and sold in currencies that are stronger compared to the euro , have a positive impact on cost of sales as a percentage of net sales . in 2011 , our cost of sales as a percentage of net sales increased to 67.1 % compared to 66.4 % in 2010. the following factor positively impacted our cost of sales percentage in 2011 : mix of products sold . compared to the prior year , our pharma segment sales represented a higher percentage of our overall sales . this positively impacts our cost of sales percentage as margins on our pharmaceutical products typically are higher than the
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the company focuses on relationship banking , providing each customer with a number of services and becoming familiar with and addressing customer needs in a proactive , personalized fashion . the bank currently has a total of eighteen branch offices , including seven in montgomery county , maryland , five in washington , d.c. and six in northern virginia . the company offers a broad range of commercial banking services to its business and professional clients as well as full service consumer banking services to individuals living and or working primarily in the bank 's market area . the company emphasizes providing commercial banking services to sole proprietors , small and medium-sized businesses , non-profit organizations and associations , and investors living and working in and near the primary service area . these services include the usual deposit functions of commercial banks , including business and personal checking accounts , `` now '' accounts and money market and savings accounts , business , construction , and commercial loans , residential mortgages and consumer loans , and cash management services . the bank is also active in the origination and sale of residential mortgage loans and the origination of sba loans . the residential mortgage loans are originated for sale to third-party investors , generally large mortgage and banking companies , under best efforts delivery commitments by the investors to purchase the loans subject to compliance with pre-established investor criteria . the company generally sells the guaranteed portion of the sba loans in a transaction apart from the loan origination generating noninterest income from the gains on sale , as well as servicing income on the portion participated . bethesda leasing , llc , a subsidiary of the bank , holds title to and manages other real estate owned ( `` oreo '' ) assets . eagle insurance services , llc , a subsidiary of the bank , offers access to insurance products and services through a referral program with a third party insurance broker . additionally , the bank offers investment advisory services through a referral program with a third party . ecv , a subsidiary of the company , provides subordinated financing for the acquisition , development and or construction of real estate projects . ecv lending involves higher levels of risk , together with commensurate expected returns . throughout 2013 , economic conditions in both the u.s. economy and worldwide were quite mixed as monthly reports fluctuated from generally good to weak with sub-par economic growth being a persistent theme . actual gdp growth in 2013 in the u.s. was below expectations . u.s. unemployment levels were lower at year-end 2013 but were impacted significantly by a much lower job participation level , which weighed heavily on federal reserve monetary policy . the first half of 2013 witnessed significant levels of residential mortgage refinancing , but as market interest rates began a steady rise beginning in late may 2013 , the volume of residential lending subsided dramatically for the remainder of the year . overall , real 39 estate values were stable to increasing in 2013 as job creation was fairly anemic and personal income levels rising only slightly , if at all . additionally , significant continued political gridlock in washington d.c. politics over concerns of public debt and deficits , tax policy and spending levels persisted in 2013 , which resulted in a partial government shutdown and added a heighted level of business uncertainty to everyday economic activity . such uncertainty kept private investment weak throughout 2013 and average liquidity very high . as we moved through 2013 , average interest rates increased in each quarter of 2013 , in part due to the market 's sense of certainly over the federal reserve 's starting to decrease the quantitative easing programs involving large purchases of u.s. treasury and mortgage backed securities . the first steps to reduce quantitative easing actually occurred in january 2014. these open market purchases served in part to keep residential mortgage interest rates at historical lows during 2013 , in the hope that more homeowners might benefit from refinancing existing home mortgages . even considering the partial federal government shutdown during 2013 and pressure to reduce federal spending , the company 's primary market , the washington , d.c. metropolitan area , has been relatively less impacted by recessionary type forces than other parts of the country , due in part to the significant economic impact of the federal government , a highly educated work force and a diverse economy . during 2013 , the company enhanced its marketplace positioning by remaining proactive in growing client relationships , expanding its branch presence in the northern virginia area by opening its alexandria office in march , and by the continued addition of experienced lending and sales personnel . the company has had the financial resources and has remained committed to meeting the credit needs of its community , resulting in substantial growth in its loan portfolio during 2013. furthermore , the company 's capital position was enhanced in 2013 by very strong and consistent earnings . the company believes its strategies of remaining growth oriented and seeking quality lending and deposit relationships during the difficult economic times of the past few years have proven successful and is evidenced in its financial and performance ratios . additionally , the company believes such focus and strategy of relationship building has fostered future growth opportunities . operating in this less than ideal economic environment , the company was able to produce good growth in deposits and loans in 2013 , grow its net interest spread earnings substantially , maintain a solid position regarding asset quality and further leverage its cost of operations due to its seasoned and professional staff . the company increased net income in each quarter of 2013 , continuing a trend of consecutive quarters of increasing net earnings dating to the first quarter of 2009. critical accounting policies the company 's consolidated financial statements are prepared in accordance with gaap and follow general practices within the banking industry . story_separator_special_tag application of these principles requires management to make estimates , assumptions , and judgments that affect the amounts reported in the financial statements and accompanying notes . these estimates , assumptions and judgments are based on information available as of the date of the consolidated financial statements ; accordingly , as this information changes , the consolidated financial statements could reflect different estimates , assumptions , and judgments . certain policies inherently have a greater reliance on the use of estimates , assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported . estimates , assumptions , and judgments are necessary when assets and liabilities are required to be recorded at fair value , when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or a valuation reserve to be established , or when an asset or liability needs to be recorded contingent upon a future event . carrying assets and liabilities at fair value inherently results in more financial statement volatility . the fair values and the information used to record valuation adjustments for investment securities available-for-sale are based either on quoted market prices or are provided by other third-party sources , when available . the company 's investment portfolio is categorized as available-for-sale with unrealized 40 gains and losses net of income tax being a component of shareholders ' equity and accumulated other comprehensive income . the allowance for credit losses is an estimate of the losses that may be sustained in our loan portfolio . the allowance is based on two principles of accounting : ( a ) asc topic 450 , `` contingencies , '' which requires that losses be accrued when they are probable of occurring and are estimable and ( b ) asc topic 310 , `` receivables , '' which requires that losses be accrued when it is probable that the company will not collect all principal and interest payments according to the contractual terms of the loan . the loss , if any , can be determined by the difference between the loan balance and the value of collateral , the present value of expected future cash flows , or values observable in the secondary markets . three components comprise our allowance for credit losses : a specific allowance , a formula allowance and a nonspecific or environmental factors allowance . each component is determined based on estimates that can and do change when actual events occur . the specific allowance allocates a reserve to identified impaired loans . impaired loans are assigned specific reserves based on an impairment analysis . under asc topic 310 , `` receivables , '' a loan for which reserves are individually allocated may show deficiencies in the borrower 's overall financial condition , payment record , support available from financial guarantors and for the fair market value of collateral . when a loan is identified as impaired , a specific reserve is established based on the company 's assessment of the loss that may be associated with the individual loan . the formula allowance is used to estimate the loss on internally risk rated loans , exclusive of those identified as requiring specific reserves . the portfolio of unimpaired loans is stratified by loan type and risk assessment . allowance factors relate to the type of loan and level of the internal risk rating , with loans exhibiting higher risk and loss experience receiving a higher allowance factor . the environmental allowance is also used to estimate the loss associated with pools of non-classified loans . these non-classified loans are also stratified by loan type , and environmental allowance factors are assigned by management based upon a number of conditions , including delinquencies , loss history , changes in lending policy and procedures , changes in business and economic conditions , changes in the nature and volume of the portfolio , management expertise , concentrations within the portfolio , quality of internal and external loan review systems , competition , and legal and regulatory requirements . the allowance captures losses inherent in the loan portfolio , which have not yet been recognized . allowance factors and the overall size of the allowance may change from period to period based upon management 's assessment of the above described factors , the relative weights given to each factor , and portfolio composition . management has significant discretion in making the judgments inherent in the determination of the provision and allowance for credit losses , including in connection with the valuation of collateral , a borrower 's prospects of repayment , and in establishing allowance factors on the formula and environmental components of the allowance . the establishment of allowance factors involves a continuing evaluation , based on management 's ongoing assessment of the global factors discussed above and their impact on the portfolio . the allowance factors may change from period to period , resulting in an increase or decrease in the amount of the provision or allowance , based upon the same volume and classification of loans . changes in allowance factors can have a direct impact on the amount of the provision , and a related after tax effect on net income . errors in management 's perception and assessment of the global factors and their impact on the portfolio could result in the allowance not being adequate to cover losses in the portfolio , and may result in additional provisions or charge-offs . alternatively , errors in management 's perception and assessment of the global factors and their impact on the portfolio could result in the allowance being in excess of amounts necessary to cover losses in the portfolio , and may result in lower provisions in the future . for additional information regarding the provision for credit losses , refer to the discussion under the caption `` provision for credit losses '' below .
| contributing to the growth in roaa and roae was solid growth in net interest income and a favorable net interest margin . for the three months ended december 31 , 2013 , the company reported an annualized roaa of 1.33 % as compared to 1.25 % for the three months ended december 31 , 2012. the annualized roae for the quarter ended december 31 , 2013 was 14.07 % , as compared to 13.95 % for the quarter ended december 31 , 2012. the higher roaa and roae ratios for fourth quarter of 2013 as compared to 2012 was due primarily to a combination of higher net interest margin , improved credit quality resulting in lower provision expense , and strong cost management . the company 's earnings are largely dependent on net interest income , the difference between interest income and interest expense , which represented 85 % and 86 % of total revenue ( defined as net interest income plus noninterest income ) for the full year in 2013 and 2012 , respectively . for the twelve months ended december 31 , 2013 , the net interest margin , net interest income as a percentage of earning assets , was 4.30 % as compared to 4.32 % , for the twelve months ended december 31 , 2012. for the year of 2013 , the company was able to maintain a strong net interest margin due to disciplined loan pricing practices , and has been able to reduce its cost of funds , while maintaining a favorable deposit mix , largely resulting from ongoing efforts to increase and expand client relationships . the slightly lower net interest margin for the year ended december 31 , 2013 as compared to the 2012 was due to a lower mix of average noninterest deposits , as the net interest spread was higher in 2013 ( 4.11 % ) versus 2012 ( 4.05 % ) . for the year 2013 as compared to 2012 , average loan yields declined by 17 basis points ( from 5.68 % to 5.51 % ) , average investment yields increased by 18 basis points ( from 2.06 % to 42 2.24 % ) , and average earning
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after a comprehensive review of strategic alternatives , on january 15 , 2020 , we entered into the merger agreement with biontech , pursuant to which , if all of the conditions to closing are satisfied or waived , we will become a wholly-owned subsidiary 79 of biontech . the merger agreement was unanimously approved by the members of our board and the board resolved to recommend approval of the merger agreement to our shareholders . the closing of the merger is subject to approval of our shareholders and the satisfaction of customary closing conditions . certain of our stockholders who collectively own approximately 36 % of the outstanding shares of our common stock have entered into voting agreements , pursuant to which they have agreed , among other things , and subject to the terms and conditions of the agreements , to vote in favor of the merger . subject to the terms of the merger agreement , at effective time each share of our common stock issued and outstanding immediately prior to the effective time shall automatically be canceled and converted ( without interest but subject to any withholding required under applicable law ) into the right to receive 0.063 of an american depositary share of biontech , or parent ads , with each parent ads representing one ordinary share of biontech . the transaction is expected to close in the second quarter of 2020. refer to note 18 , subsequent events , to our consolidated financial statements appearing elsewhere in this annual report on form 10-k. to date , we have devoted substantially all of our resources to organizing and staffing our company , business planning , raising capital , acquiring and discovering product candidates , securing related intellectual property rights and conducting research and development activities related to our product candidates . on june 29 , 2018 , we completed our ipo in which we issued and sold 6,250,000 shares of our common stock at a public offering price of $ 16.00 per share in exchange for net proceeds of $ 89.9 million after deducting underwriting discounts , commissions and other offering costs . upon the completion of the ipo , all shares of redeemable convertible preferred stock then outstanding converted into an aggregate of 18,644,462 shares of common stock . from inception through december 31 , 2019 , we have funded our operations primarily through an aggregate of $ 89.9 million of net proceeds from our ipo , as well as an aggregate of $ 161.1 million of net proceeds from sales of our preferred stock and convertible debt . to date , we have not generated any revenue from product sales and do not expect to do so for several years , if at all . due to our significant research and development expenditures , we have generated substantial operating losses in each period since inception , including net losses of $ 79.8 million and $ 76.9 million in the years ended december 31 , 2019 and 2018 , respectively . as of december 31 , 2019 , we had an accumulated deficit of $ 253.5 million . we expect to incur substantial additional losses in the foreseeable future as we expand our research and development activities . we expect to continue to incur substantial expenses in connection with our ongoing activities if , and as , we : initiate or continue clinical trials of our product candidates ; advance our development programs into and through preclinical and clinical development ; seek regulatory approvals for any product candidates that successfully complete clinical trials ; hire additional clinical , quality assurance and scientific personnel ; expand our operational , financial and management systems and increase personnel , including personnel to support our clinical development , manufacturing and commercialization efforts and our operations as a public company ; maintain , expand and protect our intellectual property portfolio ; establish a sales , marketing , medical affairs and distribution infrastructure to commercialize any products for which we may obtain marketing approval and intend to commercialize on our own or jointly with third parties ; and acquire or in-license other product candidates and technologies . as a result , we will need substantial additional funding to support our continuing operations and pursue our growth strategy . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through the pursuit of a strategic transaction , sale of equity , debt financings or other capital sources , including collaborations with other companies . we may be unable to raise additional funds or enter into such other agreements or arrangements , including a strategic transaction , 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 and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions . because of the numerous risks and uncertainties associated with product development , we are unable to predict the timing or amount of expenses or the timing of when or if we will be able to achieve or maintain profitability . even if we are able to generate product sales , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations . as of december 31 , 2019 , we had cash and cash equivalents of $ 29.4 million . story_separator_special_tag we believe that , based on our current operating plan , our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements 80 into the third quarter of 2020. 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 . see `` —liquidity and capital resources . '' to finance our operations beyond that point we will need to raise additional capital , which can not be assured . we have concluded that this circumstance raises substantial doubt about our ability to continue as a going concern . refer to note 1 , nature of business , to our consolidated financial statements appearing elsewhere in this annual report on form 10‑k for additional information on our assessment . components of results of operations revenue we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products for several years , if at all . if our development efforts for our current or future product candidates are successful and result in marketing approval or collaboration or license agreements with third parties , we may generate revenue in the future from a combination of product sales or payments from collaboration or license agreements that we may enter into with third parties . operating expenses research and development expenses research and development expenses represent costs incurred by us for the discovery , development and manufacture of our product candidates and include : expenses incurred under agreements with third parties , including cros , cmos and suppliers ; license fees to acquire and maintain in-process technology and data ; costs related to the development of our platforms , including costs related to recon and neo-stim ; personnel-related costs , including salaries , benefits and non-cash stock-based compensation expense , for personnel engaged in research and development functions ; costs of outside consultants , including their fees , related travel expenses and stock-based compensation expense ; the costs of laboratory supplies and acquiring , developing and manufacturing preclinical study and clinical trial materials ; costs related to compliance with regulatory requirements ; and facility-related expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and general support services . we expense research and development costs as incurred . we recognize costs for certain development activities , such as clinical trials and manufacturing costs , based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment or other information provided to us by our vendors . payments for these activities are based on the terms of the individual agreements , which may differ from the pattern of costs incurred , and are reflected in our financial statements as prepaid or accrued external research and development expenses . nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses . these amounts are recognized as an expense as the goods are delivered or the related services are performed , or until it is no longer expected that the goods will be delivered or the services rendered . we use our employee and infrastructure resources across our multiple research and development programs directed toward developing our personal and shared approaches , as well as identifying and developing product candidates . we track outsourced development and manufacturing costs , including external clinical and regulatory costs , by development product candidates , but we do not allocate costs such as personnel costs or other internal costs to specific development of product candidates . these external and unallocated research and development expenses are summarized in the table below : replace_table_token_1_th 81 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 our product candidates . we are also unable to predict when , if ever , material net cash inflows will commence from sales of our products , if approved . this is due to the numerous risks and uncertainties associated with developing our product candidates , including the uncertainty related to : the addition and retention of key research and development personnel ; successful and timely enrollment in and completion of our current or future clinical trials ; costs associated with the preclinical development and clinical trials for our early discovery product candidates ; maintaining agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing , if our product candidates are approved ; receipt of marketing approvals from applicable regulatory authorities ; commercializing products , if and when approved , whether alone or in collaboration with others ; the terms and timing of any collaboration , license or other arrangement , including the terms and timing of any milestone payments thereunder ; obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our products if and when approved ; and continued acceptable safety profiles of our products following approval . a change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs , timing and viability associated with the development of that product candidate . research and development activities account for a significant portion of our operating expenses . we expect to maintain our research and development expenses over the next several years as we continue to implement our business strategy , which includes advancing clinical development of neo-ptc-01 and progressing neo-stc-01 into clinical development , expanding our research and development efforts , seeking regulatory approvals for any product candidates that successfully complete clinical trials , accessing and developing additional product candidates and maintaining personnel to support our research and development efforts .
| general and administrative general and administrative expenses increased by $ 3.1 million from $ 18.3 million for the year ended december 31 , 2018 to $ 21.4 million for the year ended december 31 , 2019 due primarily to the following increases : $ 2.2 million for personnel-related costs due to increased headcount , including $ 1.4 million of increased stock-based compensation expense ; $ 0.9 million for other general and administrative costs primarily due to the increased costs of being a public company , as well as additional insurance and tax related expenditures ; and $ 0.5 million for professional fee expenses , primarily associated with the company 's pursuit of strategic alternatives . these increases were partially offset by $ 0.5 million for decreased expenses related to the timing of expenditures associated with protecting the company 's owned and in-licensed intellectual property . 83 other income ( expense ) , net other income decreased by $ 0.4 million from $ 1.8 million for the year ended december 31 , 2018 to $ 1.4 million for the year ended december 31 , 2019 primarily as a result of decreased interest income on our cash , cash equivalents and marketable securities . liquidity and capital resources sources of liquidity since our inception , we have incurred significant losses in each period and on an aggregate basis . we have not yet commercialized any of our product candidates , which are in various phases of preclinical and clinical development , and we do not expect to generate revenue from sales of any products for several years , if at all . we have funded our operations through december 31 , 2019 primarily with aggregate net proceeds of $ 89.9 million from our ipo , as well as an aggregate of $ 161.1 million of net proceeds from sales of our preferred stock and convertible debt . as of december 31 , 2019 , we had cash and cash equivalents of $ 29.4 million . on july 1 , 2019 , we filed a registration statement on form s-3 ( file no . 333-232487 ) with the sec , which was declared effective on july 8 , 2019 , or the shelf registration statement , in relation to the registration of common
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we intend to provide our financial advisors with access to a wide range of financial products , including mutual funds , fixed and variable annuities , alternative investments , equity and fixed income securities , and other products . we expect that each of our independent broker-dealer subsidiaries will be able to determine independently which of the products they will offer and their financial advisors will be able to select which of our products to recommend to their clients . wholesale distribution our wholesale distribution platform is the leading multi-product distributor of direct investment program offerings to independent broker-dealers and the retail financial advisor community . leveraging the expertise of our affiliate , american realty capital , the leading sponsor of real estate direct investment programs , we have developed substantial distribution capabilities through a selling group of approximately 260 brokerage firms with approximately 900 active selling agreements supporting approximately 80,000 financial advisors . from inception through december 31 , 2013 , our wholesale distribution platform has distributed 24 offerings with total equity capital raised of approximately $ 14.8 billion , of which we are currently distributing eight offerings seeking to raise a total of $ 22.7 billion of equity . the offerings are direct investment programs registered with the sec , consisting primarily of non-traded reits . the offerings are sector-specific and consist of net lease real estate , healthcare , grocery anchored retail , real estate debt , oil and gas , anchored core retail , small mid-market lending , global sale-leaseback , new york office and retail , a closed-end real estate securities fund , an open-end real estate securities fund and a non-traded business development company fund . substantially all of our offerings relate to direct investment programs sponsored or managed by our affiliate , american realty capital . 43 rcs capital corporation and subsidiaries december 31 , 2013 for 2013 , we had a 41.2 % market share of non-traded reits measured by equity capital raised , according to stanger . revenues for our product distribution platform grew from $ 1.4 million in 2008 to $ 803.0 million in 2013 . meanwhile , the non-traded reit industry has itself grown rapidly , with total annual sales increasing from $ 9.6 billion in 2008 to $ 19.6 billion in 2013 , according to stanger . investment banking , capital markets and transaction management services our investment banking , capital markets and transaction management services platform provides comprehensive strategic advisory services focused on the direct investment programs , particularly non-traded reits . these strategic advisory services include merger and acquisitions advisory , capital markets activities , registration management , and other transaction support services that capture value across the direct investment program lifecycle . we have demonstrated particular expertise in the real estate sector by our status as the second largest advisor of real estate merger and acquisitions transactions in 2012 and 2013 , executing deals with $ 4.1 billion and $ 10.3 billion in transaction value , respectively , according to snl financial . to date , these services have been provided primarily to clients that were sponsored or managed by american realty capital . due to the specialized nature of the direct investment program industry , we believe we are particularly well suited to advise funds and direct investment programs that are distributed by realty capital securities . investment management our investment management platform , which will primarily involve fund-of-funds investments , will provide investment advisory , distribution and other services to the hatteras family of funds . hatteras had approximately $ 2.3 billion in assets under management and a product portfolio that included seven open-end mutual funds , closed-end funds and variable product funds as of december 31 , 2013. a broker-dealer subsidiary of hatteras will act as distributor for the funds and a subsidiary of hatteras will serve as manager and advisor for all of the hatteras funds and perform all investment management services pursuant to contracts with the funds . these funds will be available through unaffiliated third-party financial institutions , our independent retail advice platform and hatteras ' existing internal distribution channel . critical accounting policies and estimates set forth below is a summary of the critical accounting policies and significant accounting estimates that management believes are important to the preparation of our consolidated financial statements or are essential to understanding of our financial position and results of operations . these significant accounting policies and estimates include : revenue and expense recognition for selling commissions and dealer manager fees and the related expenses we believe that revenue and expense recognition for selling commissions and dealer manager fees and the related expenses is a critical accounting policy in the preparation of our financial statements as well as to an understanding of our financial position and results of operations . realty capital securities receives selling commissions and dealer manager fees from related party and non-related party issuers for its wholesale distribution efforts . the commission and dealer manager fee rates are established jointly in a single contract negotiated with each individual issuer . realty capital securities generally receives commissions of up to 7.0 % of gross offering proceeds for funds raised through the participating independent broker-dealer channel , all of which are redistributed as third-party commissions , in accordance with industry practices . commission percentages are generally established in the issuers ' offering documents leaving realty capital securities no discretion as to the payment of third-party commissions . commission revenues and related expenses are recorded on a trade date basis as securities transactions occur . realty capital securities , serving as a dealer manager , receives fees and compensation in connection with the wholesale distribution of non-traded securities . realty capital securities contracts directly with independent broker-dealers and registered investment advisors to solicit share subscriptions . the non-traded securities are offered on a “ best efforts ” basis and realty capital securities is not obligated to underwrite or purchase any shares for its own account . story_separator_special_tag realty capital securities generally receives up to 3.0 % of the gross proceeds from the sale of common stock as a dealer manager fee and also receives fees from the sale of common stock through registered investment advisors . realty capital securities has sole discretion as to reallowance of dealer manager fees to participating broker-dealers , based on such factors as the volume of shares sold and marketing support incurred by respective participating broker-dealers as compared to those of other participating broker-dealers . dealer manager fees and reallowances are recorded on a trade date basis as securities transactions occur . 44 rcs capital corporation and subsidiaries december 31 , 2013 we analyze our contractual arrangements to determine whether to report revenue on a gross basis or a net basis . the analysis considers multiple indicators regarding the services provided to their customers and the services received from suppliers . the goal of the analysis is to determine which entity is the primary obligor in the arrangement . after weighing many indicators , including our position as the exclusive distributor or dealer manager primarily responsible for the distribution of its customers ' shares , its discretion in supplier selection , that our suppliers bear no credit risk and that the commission and dealer manager fee rates are established jointly in a single contract , we concluded that the gross basis of accounting for its commission and fee revenues is appropriate . during the year ended december 31 , 2013 , we modified our approach with respect to revenues derived from the sale of securities purchased through fee-based advisors , by reducing the fees charged on sales of related party offerings via the registered investment advisor ( `` ria '' ) channel . this modified business practice does not constitute a change in accounting policy . during the year ended december 31 , 2013 and 2012 , equity capital raised for related party offerings via rias were $ 720.2 million and $ 291.1 million , respectively . investment banking advisory services realty capital securities receives fees and compensation for providing investment banking and related advisory services . such fees are charged based on agreements entered into with related party and non-related party public issuers of securities on a negotiated basis . income from certain investment banking agreements has been deferred and is recognized over the life of the offering . services revenue our operating subsidiaries receive fees for providing transaction management , marketing support , due diligence advice , events , training and education , conference management and other services . such fees are charged at hourly billing rates for the services provided , based on agreements entered into with related party issuers of securities on a negotiated basis . such fees are billed and recorded monthly based on services rendered . transfer agency revenue anst receives fees for providing transfer agency and related services . such fees are charged based on agreements entered into with related party issuers of securities on a negotiated basis . certain fees are billed and recorded monthly based on account activity , such as new account establishment fees and call fees . other fees , such as account maintenance fees , are billed and recorded ratably . reimbursable expenses our operating subsidiaries include all reimbursable expenses in gross revenue because our operating subsidiaries are the primary obligor , have discretion in selecting a supplier , and bear the credit risk of paying the supplier prior to receiving reimbursement from the customer . internal commissions , payroll and benefits expenses included in internal commissions , payroll and benefits in the consolidated statements of income is performance-based compensation . the determination of performance-based compensation involves a high degree of judgment by management and takes into account our actual operating performance , conditions in our industry and other macroeconomic factors . it is possible that revisions to our estimate of performance-based compensation could affect our results of operations in any reporting period . income taxes we are subject to the income tax laws of the u.s. and those state and local jurisdictions in which we conduct business . these laws can be complex and subject to interpretation . to prepare the consolidated financial statements we may make assumptions or use judgment when interpreting these income tax laws which could impact the provision for income taxes as well as the deferred tax assets and liabilities . our provision for income taxes includes current and deferred taxes . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax basis . we recognize deferred income tax assets if , in management 's judgment , it is more likely than not that they will be realized . a valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized . this determination is based upon a review of all available evidence , both positive and negative , including our earnings history , the timing , character and amount of future earnings potential , the reversal of taxable temporary differences and the tax planning strategies available . as of december 31 , 2013 , we did not record a valuation allowance against our deferred income tax asset . 45 rcs capital corporation and subsidiaries december 31 , 2013 we have a tax receivable agreement with rcap holdings . this agreement requires us to pay rcap holdings if certain reductions in tax liabilities occur . due to the uncertainty surrounding these taxable events , management must use assumptions and estimates in determining if a liability is necessary . see “ tax receivable agreement ” and note 11 of our consolidated financial statements included elsewhere in this annual report on form 10-k for more information . it is possible that changes in our assumptions regarding these taxable events could affect our results of operations in any reporting period .
| the increase primarily reflected higher selling expenses in our wholesale broker-dealer business which increased in tandem with corresponding revenues . the increased selling expenses were primarily from higher commission expenses and third-party reallowance expenses from distributing related party products for the year ended december 31 , 2013 , which increased $ 239.2 million and $ 40.6 million , respectively , as compared to the year ended december 31 , 2012 . expenses also increased as a result of the operational set-up of our transaction management , investment banking and capital markets and transfer agent businesses , which commenced operations in 2013. management fees were $ 6.0 million higher for the year ended december 31 , 2013 compared to the year ended december 31 , 2012 reflecting the management agreement entered into in connection with the our initial public offering . for the year ended december 31 , 2013 , professional fees increased $ 3.0 million , or 193 % , to $ 4.6 million compared to $ 1.6 million for the year ended december 31 , 2012 . the increase reflected higher acquisition related expenses . we may incur higher professional fees , interest expense and intangible asset amortization in connection with announced acquisitions . comparison of year ended december 31 , 2012 to year ended december 31 , 2011 the following table provides an overview of our consolidated results of operations ( dollars in thousands ) : replace_table_token_5_th total revenues increased $ 112.8 million , or 65 % , to $ 287.5 million for the year ended december 31 , 2012 , compared to total revenues of $ 174.7 million for 2011 . the increase in total revenues was primarily due to increases in commissions and dealer manager fees generated from distributing related party products as well as investment banking revenues earned within this new business unit , partially offset by decreases in commissions and dealer manager fees generated from non-related party products . in 2012 , commissions generated from
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we capitalize coffee brewing equipment and depreciate it over a three or five year period , depending on the assessment of its useful life and report the depreciation expense in cost of goods sold . investments our investments consist of money market instruments , marketable debt and equity securities , various derivative instruments , primarily exchange traded treasury and green coffee futures and options . investments are held for trading purposes and stated at fair value . the cost of investments sold is determined on the specific identification method . dividend and interest income is accrued as earned . derivative instruments we routinely purchase exchange traded coffee contracts to enable us to lock in green coffee prices within a pre-established range , and hold a mix of futures contracts and options to help hedge against volatility in green coffee prices . the fair value of derivative instruments is based upon broker quotes . beginning april 1 , 2013 , we implemented procedures following the guidelines of accounting standards codification ( `` asc '' ) 815 , `` derivatives and hedging , '' to enable us to account for certain coffee-related derivatives as accounting hedges in order to minimize the volatility created in our quarterly results from utilizing these derivative contracts and to improve comparability between reporting periods . as a result , in the fourth quarter of fiscal 2013 , a portion of the gains and losses from re-valuing the coffee-related derivative contracts to their market prices is being recorded in accumulated other comprehensive income ( loss ) on our consolidated balance sheet and subsequently reclassified to cost of goods sold in the period or periods when the hedged transaction affects earnings . at june 30 , 2013 , approximately 89 % of our outstanding coffee-related derivatives were designated as cash flow hedges . at june 30 , 2012 , no derivative instruments were designated as accounting hedges . changes in fair value of all derivative instruments designated as cash flow hedges are recorded in other comprehensive income ( loss ) ( `` oci '' ) . the portion of open hedging contracts that are not 100 % effective as cash flow hedges and those that are not designated as accounting hedges are marked to period-end market price and unrealized gains or losses based on whether the period-end market price was higher or lower than the price we locked-in are recognized in our results of operations . the company had $ 8.1 million and $ 1.6 million , respectively , in restricted cash representing cash held on deposit in margin accounts for coffee-related derivative instruments at june 30 , 2013 and 2012 which is classified as a current asset . changes in commodity prices could have a significant impact on cash deposit requirements under our broker and counterparty agreements . allowance for doubtful accounts we maintain an allowance for estimated losses resulting from the inability of our customers to meet their obligations . due to improved collection of our outstanding receivables , in fiscal 2013 and 2012 , we decreased the allowance for doubtful accounts by $ 0.8 million and $ 1.0 million , respectively . inventories inventories are valued at the lower of cost or market . we account for coffee , tea and culinary products on a lifo basis , and coffee brewing equipment manufactured on a first in , first out ( `` fifo '' ) basis . we regularly evaluate our inventories to determine whether market conditions are correctly reflected in the recorded carrying value . at the end of each quarter , we record the expected effect of the liquidation of lifo inventory quantities , if any , and record the actual impact at fiscal year-end . an actual valuation of inventory under the lifo method is made only at the end of each fiscal year based on the inventory levels and costs at that time . if inventory quantities decline at the end of the fiscal year compared to the beginning of the fiscal year , the reduction results in the liquidation of lifo inventory quantities carried at the cost prevailing in prior years . this lifo inventory liquidation may result in a decrease or increase in cost of goods sold depending on whether the cost prevailing in prior years was lower or higher , respectively , than the current year cost . in fiscal 2013 , 2012 and 2011 , the beneficial effect of this 21 liquidation of lifo inventory quantities reduced cost of goods sold and net loss in the amounts of $ 1.1 million , $ 14.2 million and $ 1.1 million , respectively . in fiscal 2013 , as a result of optimizing and simplifying our product portfolio and discontinuing over 800 sku 's , we established a reserve for slow-moving and obsolete inventory in the amount of $ 0.7 million . impairment of goodwill and indefinite-lived intangible assets we perform our annual impairment test of goodwill and or other indefinite-lived intangible assets as of june 30 of each fiscal year . goodwill and other indefinite-lived intangible assets are not amortized but instead are reviewed for impairment annually and on an interim basis if events or changes in circumstances between annual tests indicate that an asset might be impaired . testing for impairment of goodwill is a two-step process . the first step requires us to compare the fair value of our reporting units to the carrying value of the net assets of the respective reporting units , including goodwill . if the fair value of a reporting unit is less than its carrying value , goodwill of the reporting unit is potentially impaired and we then complete step two to measure the impairment loss , if any . the second step requires the calculation of the implied fair value of goodwill , which is the residual fair value remaining after deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit . story_separator_special_tag if the implied fair value of goodwill is less than the carrying amount of goodwill , an impairment loss is recognized equal to the difference . indefinite-lived intangible assets are tested for impairment by comparing their fair values to their carrying values . in our annual test of impairment in the fourth quarter of fiscal 2012 , we identified indicators of impairment including a decline in market capitalization and continuing losses from operations . we performed impairment tests to determine the recoverability of the carrying values of the assets or if impairment should be measured . we were required to make estimates of the fair value of our intangible assets , and all assets of cbi , the reporting unit . as a result of these impairment tests , we determined that our trademarks acquired in connection with the cbi acquisition were impaired and that the carrying value of all of the assets of cbi excluding goodwill exceeded their estimated fair values resulting in an implied fair value of zero for cbi 's goodwill . accordingly , in the fourth quarter of fiscal 2012 , we recorded total impairment charges of $ 5.6 million including $ 5.1 million in impairment losses on goodwill , which is included in operating expenses . as of june 30 , 2012 , goodwill was written down to zero . in our annual test of impairment in the fourth quarter of fiscal 2013 , we determined that the book value of a certain trademark acquired in connection with the dsd coffee business acquisition was higher than the present value of the estimated future cash flows and concluded that the trademark was impaired . as a result , we recorded an impairment charge of $ 0.1 million to earnings in the fourth quarter of fiscal 2013. long-lived assets , excluding goodwill and indefinite-lived intangible assets we review the recoverability of our long-lived assets whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable . long-lived assets evaluated for impairment are grouped with other assets to the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities . the estimated future cash flows are based upon , among other things , assumptions about expected future operating performance , and may differ from actual cash flows . if the sum of the projected undiscounted cash flows ( excluding interest ) is less than the carrying value of the assets , the assets will be written down to the estimated fair value in the period in which the determination is made . in our annual test of impairment as of the end of fiscal 2011 , we determined that definite-lived intangible assets consisting of the customer relationships acquired , and the distribution agreement and co-pack agreement entered into , in connection with the dsd coffee business acquisition were impaired . as a result , in fiscal 2011 we recorded an impairment charge of $ 7.8 million in operating expenses . self-insurance we are self-insured for california workers ' compensation insurance subject to specific retention levels and use historical analysis to determine and record the estimates of expected future expenses resulting from workers ' compensation claims . the estimated outstanding losses are the accrued cost of unpaid claims valued as of june 30 , 2013 . the estimated outstanding losses , including allocated loss adjustment expenses ( “ alae ” ) , include case reserves , the development of known claims and incurred but not reported claims . alae are the direct expenses for settling specific claims . the amounts reflect per occurrence and annual aggregate limits maintained by the company . the analysis does not include estimating a provision for unallocated loss adjustment expenses . in fiscal 2013 , we increased our estimate of expected future expenses resulting from workers ' compensation claims by $ 1.3 million . management believes that the amount recorded at june 30 , 2013 is adequate to cover all known claims at 22 june 30 , 2013 . if the actual costs of such claims and related expenses exceed the amount estimated , additional reserves may be required which could have a material negative effect on operating results . if our estimate were off by as much as 15 % , the reserve could be under or overstated by approximately $ 1.0 million as of june 30 , 2013 . in may 2011 , we did not meet the minimum credit rating criteria for participation in the alternative security program for california self-insurers . as a result , we were required to post a $ 5.9 million letter of credit as a security deposit to the state of california department of industrial relations self-insurance plans . as of june 30 , 2013 , this letter of credit continues to serve as a security deposit and has been reduced to $ 5.4 million . estimated company liability resulting from our general liability and automobile liability policies , within our deductible limits , is accounted for by specific identification . large losses have historically been infrequent , and the lag between incurred but not reported claims has historically been short . once a potential loss has been identified , the case is monitored by our risk manager to try and determine a likely outcome . lawsuits arising from injury that are expected to reach our deductible are not reserved until we have consulted with legal counsel , become aware of the likely amount of loss and determined when payment is expected . the estimated liability related to our self-insured group medical insurance is recorded on an incurred but not reported basis , within deductible limits , based on actual claims and the average lag time between the date insurance claims are filed and the date those claims are paid .
| as a result , beginning in the fourth quarter of fiscal 2013 , a portion of the gains and losses from re-valuing the coffee-related derivative contracts to their market prices is being recorded in accumulated other comprehensive income ( loss ) on our consolidated balance sheet and reclassified to cost of goods sold when the hedged transaction affects earnings . to address the increase in freight and fuel expense , the energy surcharge instituted in fiscal 2011 and 2012 continued in fiscal 2013. in fiscal 2013 , we invested in additional sales and marketing training and product re-branding . we also launched the artisan collection by farmer brothers , our premium line of coffees , and the new farmer brothers teas . during fiscal 2013 , we completed the integration of certain key functions including marketing , green coffee management , national sales and human resources at our portland and torrance facilities . we also continued to improve our real-estate asset management by divesting underutilized properties . operations net sales in fiscal 2013 increased $ 14.6 million , or 2.9 % , to $ 510.0 million from $ 495.4 million in fiscal 2012 , primarily due to increases in sales of our coffee and tea products . cost of goods sold in fiscal 2013 decreased $ 3.7 million , or 1.1 % , to $ 318.8 million , or 62.5 % of net sales , from $ 322.5 million , or 65.1 % of net sales , in fiscal 2012. the decrease in cost of goods sold as a percentage of net sales in fiscal 2013 is primarily due to a 30.8 % decrease in the average cost of green coffee purchased and a reduction in inventory , which resulted in the liquidation of lifo inventory quantities carried at lower costs prevailing in prior years . the beneficial effect of this liquidation of lifo inventory quantities reduced cost of goods sold by $ 1.1 million compared to $ 14.2 million in the prior fiscal year . gross profit in fiscal 2013 increased $ 18.2 million , or 10.5 % , to $ 191.1 million from $ 172.9 million in fiscal 2012. gross margin increased to 37.5 % in fiscal 2013
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associate productivity – a decline in associate productivity , primarily for our services personnel , as a large amount of work is typically done at client sites , which is being impacted by travel restrictions and our clients ' focus on the pandemic . our clients ' focus on the pandemic has also led to pauses on existing projects and postponed start dates for others , which translates into lower professional services revenues and a lower operating margin percentage . we are mitigating this by doing more work remotely than we have in the past , but we can not fully offset the negative impact . travel – associate travel restrictions reduce client-related travel , which reduces reimbursed travel revenues and lowers our costs of revenue as a percent of revenues . such restrictions also reduce non-reimbursable travel , which lowers operating expenses . cash collections – a delay in client cash collections due to covid-19 's impact on national reimbursement processes , and client focus on managing their own organizations ' liquidity during this time . this translates to lower cash flows from operating activities , and a higher days sales outstanding metric . lower cash flows from operating activities may impact how we execute under our capital allocation strategy . capital expenditures – a decline in capital spending as certain capital projects are delayed . we believe the impact of covid-19 on our results of operations for the first quarter of 2020 was limited , with the largest impact in the areas of reduced bookings and lower technology resale revenue , due to the mid-march 2020 timing of when we implemented changes to our business practices in response to covid-19 , and the nature of the industry in which we operate . we believe the impact of covid-19 on our results of operations for the second through fourth quarters of 2020 was much greater than in the first quarter of 2020 as the pandemic and practices we implemented in mid-march 2020 were ongoing for the full period , with the largest impact in the areas of reduced bookings and lower licensed software , technology resale , professional services , and reimbursed travel revenues . we expect a negative financial impact to continue into 2021. however , the impact will be difficult to quantify as there are many factors outside of our control , so any forward looking statements that we make regarding our projections of future financial performance ; new solutions and services ; capital allocation plans ; cost optimization and operational improvement initiatives ; and the expected benefits of our acquisitions , divestitures or other collaborations will all be subject to increased risks , as discussed further below and in part i , item 1a of this annual report on form 10-k. additionally , we may make further modifications to our operations or business plans that have a negative financial impact as required by government authorities , our clients or as we determine are in the best interests of our associates , clients and business partners . while we expect covid-19 to have an impact on our results of operations , cash flows , and financial position in the near-term , we believe the nature of our products and services offerings will continue to be in demand , regardless of this pandemic . however , the covid-19 pandemic and related restrictive measures have created significant economic uncertainty and the duration and magnitude of the impact of the pandemic is unknown at this time ; therefore , there can be no assurance that the ultimate impact of the pandemic will not adversely affect our future operational and financial performance . operational improvement initiatives throughout 2020 , the company has continued to focus on leveraging the impact of our new operating structure , which was rolled out in the first quarter of 2019 , and identifying additional efficiencies in our business . we continue to be focused on reducing operating expenses and generating other efficiencies that are expected to provide longer-term operating margin expansion . we are continuing our portfolio management , which includes ongoing evaluation of our offerings , 27 exiting certain low-margin businesses , and being more selective as we consider new business opportunities . to assist in these efforts , we engaged an outside consulting firm to conduct a review of our operations and cost structure . as part of our portfolio management , we closed on the sale of certain of our business operations , primarily conducted in germany and spain , in july 2020 , and the sale of certain of our revenue cycle outsourcing business operations in august 2020. we expect to continue to evaluate and complete divestiture transactions that are strategic to our operational improvement initiatives . we continue to be focused on ongoing identification of opportunities to operate more efficiently and on achieving the efficiencies without impacting the quality of our solutions and services and commitments to our clients . in the near term , we expect to incur expenses in connection with these efforts . such expenses may include , but are not limited to , consultant and other professional services fees , employee separation costs , contract termination costs , and other such related expenses . we recognized $ 168 million and $ 221 million of expenses related to these efforts in 2020 and 2019 , respectively , which are included in operating expenses in our consolidated statements of operations . we expect to incur additional expenses in connection with these initiatives in 2021 , which may be material . story_separator_special_tag style= '' text-align : justify '' > costs of revenue costs of revenue as a percent of revenues were 17 % in 2020 , compared to 19 % in 2019. the lower costs of revenue as a percent of revenues was primarily driven by lower reimbursed travel revenue , which carries a 100 % cost of revenue ; a lower mix of technology resale revenue , which carries a high cost of revenue ; and reduced utilization of third-party resources associated with professional services and support and maintenance revenue . story_separator_special_tag costs of revenue include the cost of reimbursed travel expense , sales commissions , third-party consulting services and subscription content and computer hardware , devices and sublicensed software purchased from manufacturers for delivery to clients . it also includes the cost of hardware maintenance and sublicensed software support subcontracted to the manufacturers . such costs , as a percent of revenues , typically have varied as the mix of revenue ( software , hardware , devices , maintenance , support , and services ) carrying different margin rates changes from period to period . costs of revenue does not include the costs of our client service personnel who are responsible for delivering our service offerings . such costs are included in sales and client service expense . operating expenses total operating expenses decreased 4 % to $ 3.88 billion in 2020 , compared to $ 4.02 billion in 2019. sales and client service expenses as a percent of revenues were 47 % in both 2020 and 2019. these expenses decreased 3 % to $ 2.58 billion in 2020 , from $ 2.68 billion in 2019. sales and client service expenses include salaries and benefits of sales , marketing , support , and services personnel , depreciation and other expenses associated with our managed services business , communications expenses , unreimbursed travel expenses , expense for share-based payments , and trade show and advertising costs . the decrease in sales and client service expenses was primarily driven by a $ 41 million reduction in associate travel costs ; a $ 30 million reduction in charges incurred in connection with the termination of certain revenue cycle outsourcing contracts , discussed above ; and the impact of 2019 including a $ 30 million charge in connection with a client dispute . the divestiture transactions , as further discussed in note ( 9 ) of the notes , also contributed to the reduction in expenses . these reductions were partially offset by a $ 21 million pre-tax charge recorded in 2020 to provide an allowance against certain non-current receivables from a former client . 30 software development expenses as a percent of revenues were 14 % in 2020 , compared to 13 % in 2019. expenditures for software development include ongoing development and enhancement of the cerner millennium and healtheintent platforms , with a focus on supporting key initiatives to enhance physician experience , revenue cycle , population health management , and health network solutions . in addition , 2020 includes an increase in costs incurred in connection with our efforts to modernize our platforms , with a focus on development of a software as a service platform . a summary of our total software development expense in 2020 and 2019 is as follows : replace_table_token_3_th general and administrative expenses as a percent of revenues were 9 % in both 2020 and 2019. these expenses decreased 6 % to $ 492 million in 2020 , from $ 521 million in 2019. general and administrative expenses include salaries and benefits for corporate , financial and administrative staffs , utilities , communications expenses , professional fees , depreciation and amortization , transaction gains or losses on foreign currency , expense for share-based payments , certain organizational restructuring and other expense . the decrease in general and administrative expenses includes the impact of 2019 including a $ 7 million charge to settle disputes with a former vendor . the divestiture transactions , as further discussed in note ( 9 ) of the notes , also contributed to the reduction in expenses . in 2020 , general and administrative expenses include $ 137 million of expenses incurred in connection with our operational improvement initiatives , discussed above , compared to $ 149 million in the same period of 2019. we expect to incur additional expenses in connection with these efforts in future periods , which may be material . amortization of acquisition-related intangibles as a percent of revenues was 1 % in 2020 , compared to 2 % in 2019. these expenses decreased 37 % to $ 56 million in 2020 , from $ 88 million in 2019. amortization of acquisition-related intangibles includes the amortization of customer relationships , acquired technology , trade names , and non-compete agreements recorded in connection with our business acquisitions . the decrease in amortization of acquisition-related intangibles is primarily due to the impact of certain intangible assets from the health services acquisition in february 2015 becoming fully amortized in the first quarter of 2020. the divestiture transactions , as further discussed in note ( 9 ) of the notes , also contributed to the reduction in expenses . gain on sale of businesses in 2020 , we recognized a $ 221 million gain on sale of businesses . refer to note ( 9 ) of the notes for further information regarding divestiture transactions that closed during the third quarter of 2020. we expect to continue to evaluate and complete divestiture transactions that are strategic to our operational improvement initiatives discussed above . non-operating items other income , net was $ 77 million in 2020 , compared to $ 54 million in 2019. the 2020 period includes a $ 76 million gain recognized on the disposition of one of our equity investments . the 2019 period includes a $ 14 million unrealized gain recognized on that same equity investment ; and a $ 16 million gain recognized on the disposition of another one of our equity investments . the remaining difference is primarily attributable to increased interest expense in 2020 , from the $ 600 million of revolving credit loans we borrowed under our credit agreement in may 2019 , and the $ 300 million of series 2020-a notes we issued in march 2020. refer to note ( 13 ) of the notes for further information regarding the components of other income , net .
| the 2020 period includes a $ 142 million reduction in revenues due to the termination of certain revenue cycle outsourcing contracts effective in the fourth quarter of 2019. the 2020 period includes a $ 43 million reduction in revenues due to the sale of certain of our business operations primarily conducted in germany and spain , as further discussed in note ( 9 ) of the notes . we expect the disposition of such operations to reduce future international segment revenues by approximately $ 83 million on an annualized basis . the 2020 period includes a $ 39 million reduction in revenues due to the sale of certain of our revenue cycle outsourcing business operations , as further discussed in note ( 9 ) of the notes . we expect the disposition of such operations to reduce future domestic segment revenues by approximately $ 77 million on an annualized basis . these declines are partially offset by increased implementation activity within our federal business , inclusive of ongoing projects with the u.s. department of defense and the u.s. department of veterans affairs . in 2020 , 18 % of our total revenues were attributable to our relationships ( as the prime contractor or a subcontractor ) with u.s. government agencies , compared to 13 % in 2019. refer to note ( 2 ) of the notes for further information regarding revenues disaggregated by our business models . backlog , which reflects contracted revenue that has not yet been recognized as revenue , was $ 13.04 billion at the end of 2020 , compared to $ 13.71 billion at the end of 2019. this decline in backlog is primarily attributable to the divestiture 29 transactions discussed above , along with the impact of the ongoing covid-19 pandemic on our bookings during 2020 , as further discussed above . we expect to recognize 30 % of our backlog as revenue over the next 12 months . we believe that backlog may not necessarily be a comprehensive indicator of future revenue as certain of our arrangements may be canceled ( or conversely renewed ) at our clients ' option ; thus contract consideration related to such cancellable periods has been excluded from
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fiscal 2013 other expense included the recognition of $ 7.0 million non-cash charged for the increase in the fair value of warrants related to the july 3 , 2012 private placement offering . fiscal 2012 other income included a gain on disposition of supplies and equipment of $ 0.4 million compared to $ 5,000 for fiscal 2013. this increase was a result of closing our research laboratory facilities in july 2012. for fiscal 2013 we recognized $ 43,000 of investment income compared to $ 32,000 of investment income for fiscal 2012. income tax benefit – income tax benefits of $ 1.8 million in fiscal 2013 and $ 1.1 million in fiscal 2012 related to the sale of new jersey state net operating loss carryforwards . the amount of such losses and tax credits that we are able to sell depends on annual pools and allocations established by the state of new jersey . liquidity and capital resources since inception , we have incurred net operating losses , primarily related to spending on our research and development programs . we have financed our net operating losses primarily through equity financings and amounts received under collaborative agreements . 27 our product candidates are at various stages of development and will require significant further research , development and testing and some may never be successfully developed or commercialized . we may experience uncertainties , delays , difficulties and expenses commonly experienced by early stage biopharmaceutical companies , which may include unanticipated problems and additional costs relating to : ● the development and testing of products in animals and humans ; ● product approval or clearance ; ● regulatory compliance ; ● good manufacturing practices ( gmps ) ; ● intellectual property rights ; ● product introduction ; ● marketing , sales and competition ; and ● obtaining sufficient capital . failure to enter into or successfully perform under collaboration agreements and obtain timely regulatory approval for our product candidates and indications would impact our ability to increase revenues and could make it more difficult to attract investment capital for funding our operations . any of these possibilities could materially and adversely affect our operations and require us to curtail or cease certain programs . during fiscal 2014 , we used $ 12.2 million of cash for our operating activities , compared to $ 13.6 million used in fiscal 2013 and $ 15.5 million used in fiscal 2012. lower net cash outflows from operations in fiscal 2014 compared to fiscal 2013 were primarily the result of the receipt of a $ 1.0 million , non-refundable option fee , relating to a license , co-development and commercialization agreement with gedeon richter on bremelanotide for the treatment of fsd in europe and selected other countries . lower net cash outflows from operations in fiscal 2013 compared to fiscal 2012 were primarily the result of decreased costs relating to our phase 2b clinical trial evaluating the efficacy and safety of bremelanotide for the treatment of fsd . our periodic accounts receivable balances will continue to be highly dependent on the timing of receipts from collaboration partners and the division of development responsibilities between us and our collaboration partners . during fiscal 2014 , net cash provided by investing activities was $ 5.2 million , which consisted of $ 5.2 million of proceeds from the maturity of short-term investments offset by $ 6,000 used for capital expenditures . during fiscal 2013 , net cash used in investing activities was $ 5.3 million , consisting of $ 6.0 million used for the purchase of short-term investments and $ 60,000 used for capital expenditures offset by the maturity of $ 750,000 of short-term investments and $ 5,000 in proceeds from the sale of equipment . during fiscal 2012 , cash provided by investing activities consisted mainly of $ 0.5 million from the sale of supplies and equipment . during fiscal 2014 , cash used in financing activities of $ 19,000 consisted of the payment of withholding taxes related to restricted stock units of $ 36,000 and payments on capital lease obligation of $ 20,000 offset by $ 37,500 of proceeds from the exercise of common stock warrants . during fiscal 2013 , cash provided by financing activities of $ 34.3 million consisted primarily of the net proceeds from the completion of our private placement on july 3 , 2012 offset by payments on capital lease obligations of $ 22,000 and payment of withholding taxes related to restricted stock units of $ 87,000. the private placement consisted of the sale of 3,873,000 shares of our common stock , series a 2012 warrants to purchase up to 31,988,151 shares of our common stock , and series b 2012 warrants to purchase up to 35,488,380 shares of our common stock . aggregate gross proceeds to us were $ 35.0 million , with net proceeds , after deducting offering expenses , of $ 34.4 million . during fiscal 2012 , net cash used in financing activities was $ 35,000 , consisting entirely of payments on capital lease obligations . we have incurred cumulative negative cash flows from operations since our inception , and have expended , and expect to continue to expend in the future , substantial funds to complete our planned product development efforts . as of june 30 , 2014 , our cash and cash equivalents were $ 12.2 million and our current liabilities were $ 1.8 million , net of unearned revenue of $ 1.0 million . in september 2014 we received $ 8.8 million pursuant to our license , co-development and commercialization agreement with gedeon richter on bremelanotide for fsd in europe and selected countries . we intend to utilize existing capital resources , including approximately $ 8.8 million received on execution of our agreement with gedeon richter , for general corporate purposes and working capital , including preparing for the phase 3 clinical trial program with bremelanotide for fsd , preclinical development of our peptide mc1r program , preclinical story_separator_special_tag fiscal 2013 other expense included the recognition of $ 7.0 million non-cash charged for the increase in the fair value of warrants related to the july 3 , 2012 private placement offering . fiscal 2012 other income included a gain on disposition of supplies and equipment of $ 0.4 million compared to $ 5,000 for fiscal 2013. this increase was a result of closing our research laboratory facilities in july 2012. for fiscal 2013 we recognized $ 43,000 of investment income compared to $ 32,000 of investment income for fiscal 2012. income tax benefit – income tax benefits of $ 1.8 million in fiscal 2013 and $ 1.1 million in fiscal 2012 related to the sale of new jersey state net operating loss carryforwards . the amount of such losses and tax credits that we are able to sell depends on annual pools and allocations established by the state of new jersey . liquidity and capital resources since inception , we have incurred net operating losses , primarily related to spending on our research and development programs . we have financed our net operating losses primarily through equity financings and amounts received under collaborative agreements . 27 our product candidates are at various stages of development and will require significant further research , development and testing and some may never be successfully developed or commercialized . we may experience uncertainties , delays , difficulties and expenses commonly experienced by early stage biopharmaceutical companies , which may include unanticipated problems and additional costs relating to : ● the development and testing of products in animals and humans ; ● product approval or clearance ; ● regulatory compliance ; ● good manufacturing practices ( gmps ) ; ● intellectual property rights ; ● product introduction ; ● marketing , sales and competition ; and ● obtaining sufficient capital . failure to enter into or successfully perform under collaboration agreements and obtain timely regulatory approval for our product candidates and indications would impact our ability to increase revenues and could make it more difficult to attract investment capital for funding our operations . any of these possibilities could materially and adversely affect our operations and require us to curtail or cease certain programs . during fiscal 2014 , we used $ 12.2 million of cash for our operating activities , compared to $ 13.6 million used in fiscal 2013 and $ 15.5 million used in fiscal 2012. lower net cash outflows from operations in fiscal 2014 compared to fiscal 2013 were primarily the result of the receipt of a $ 1.0 million , non-refundable option fee , relating to a license , co-development and commercialization agreement with gedeon richter on bremelanotide for the treatment of fsd in europe and selected other countries . lower net cash outflows from operations in fiscal 2013 compared to fiscal 2012 were primarily the result of decreased costs relating to our phase 2b clinical trial evaluating the efficacy and safety of bremelanotide for the treatment of fsd . our periodic accounts receivable balances will continue to be highly dependent on the timing of receipts from collaboration partners and the division of development responsibilities between us and our collaboration partners . during fiscal 2014 , net cash provided by investing activities was $ 5.2 million , which consisted of $ 5.2 million of proceeds from the maturity of short-term investments offset by $ 6,000 used for capital expenditures . during fiscal 2013 , net cash used in investing activities was $ 5.3 million , consisting of $ 6.0 million used for the purchase of short-term investments and $ 60,000 used for capital expenditures offset by the maturity of $ 750,000 of short-term investments and $ 5,000 in proceeds from the sale of equipment . during fiscal 2012 , cash provided by investing activities consisted mainly of $ 0.5 million from the sale of supplies and equipment . during fiscal 2014 , cash used in financing activities of $ 19,000 consisted of the payment of withholding taxes related to restricted stock units of $ 36,000 and payments on capital lease obligation of $ 20,000 offset by $ 37,500 of proceeds from the exercise of common stock warrants . during fiscal 2013 , cash provided by financing activities of $ 34.3 million consisted primarily of the net proceeds from the completion of our private placement on july 3 , 2012 offset by payments on capital lease obligations of $ 22,000 and payment of withholding taxes related to restricted stock units of $ 87,000. the private placement consisted of the sale of 3,873,000 shares of our common stock , series a 2012 warrants to purchase up to 31,988,151 shares of our common stock , and series b 2012 warrants to purchase up to 35,488,380 shares of our common stock . aggregate gross proceeds to us were $ 35.0 million , with net proceeds , after deducting offering expenses , of $ 34.4 million . during fiscal 2012 , net cash used in financing activities was $ 35,000 , consisting entirely of payments on capital lease obligations . we have incurred cumulative negative cash flows from operations since our inception , and have expended , and expect to continue to expend in the future , substantial funds to complete our planned product development efforts . as of june 30 , 2014 , our cash and cash equivalents were $ 12.2 million and our current liabilities were $ 1.8 million , net of unearned revenue of $ 1.0 million . in september 2014 we received $ 8.8 million pursuant to our license , co-development and commercialization agreement with gedeon richter on bremelanotide for fsd in europe and selected countries . we intend to utilize existing capital resources , including approximately $ 8.8 million received on execution of our agreement with gedeon richter , for general corporate purposes and working capital , including preparing for the phase 3 clinical trial program with bremelanotide for fsd , preclinical development of our peptide mc1r program , preclinical
| due to various risk factors described in this annual report , including the difficulty in currently estimating the costs and timing of future phase 1 clinical trials and larger-scale phase 2 and phase 3 clinical trials for any product under development , we can not predict with reasonable certainty when , if ever , a program will advance to the next stage of development or be successfully completed , or when , if ever , related net cash inflows will be generated . see item 1a - risk factors . 26 general and administrative – general and administrative expenses were $ 5.0 million for fiscal 2014 compared to $ 5.1 million for fiscal 2013. these expenses mainly consist of compensation and related costs . other income ( expense ) – other income ( expense ) was $ 13,000 and $ ( 7.0 ) million for fiscal 2014 and fiscal 2013 , respectively . for fiscal 2014 , we recognized $ 19,000 of investment income compared to $ 43,000 of investment income for fiscal 2013. fiscal 2013 included the recognition of a $ 7.0 million non-cash charge for the increase in the fair value of warrants related to the july 3 , 2012 private placement offering . income tax benefit – income tax benefits of $ 1.8 million in fiscal 2014 and fiscal 2013 , respectively , relate to the sale of new jersey state net operating loss carryforwards . the amount of such losses and tax credits that we are able to sell depends on annual pools and allocations established by the state of new jersey . year ended june 30 , 2013 compared to the year ended june 30 , 2012 : revenue – for the fiscal year ended june 30 , 2013 ( fiscal 2013 ) , we recognized $ 10,000 in revenue , compared to $ 74,000 for the fiscal year ended june 30 , 2012 ( fiscal 2012 ) , pursuant to our license agreement with astrazeneca . revenue consisted entirely of reimbursement of development costs and per-employee compensation , earned at the contractual rate . research and development
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in march 2015 , the company acquired substantially all of the assets of cpi binani , inc. , a wholly owned subsidiary of binani industries limited , located in winona , minnesota ( `` cpi '' ) , which expanded the company 's process capabilities to include d-lft and diversified the customer base . in january 2018 , the company acquired substantially all the assets of horizon plastics , which has manufacturing operations in cobourg , ontario and escobedo , mexico . this acquisition expanded the company 's customer base , geographic footprint , and process capabilities to include structural foam and structural web molding . business overview general the company 's business and operating results are directly affected by changes in overall customer demand , operational costs and performance and leverage of our fixed cost and selling , general and administrative ( `` sg & a '' ) infrastructure . product sales fluctuate in response to several factors including many that are beyond the company 's control , such as general economic conditions , interest rates , government regulations , consumer spending , labor availability , and our customers ' production rates and inventory levels . product sales consist of demand from customers in many different markets with different levels of cyclicality and seasonality . the north american truck market , which is highly cyclical , accounted for 56 % and 68 % of the company 's product revenue for the years ended december 31 , 2018 and 2017 , respectively . operating performance is dependent on the company 's ability to manage changes in input costs for items such as raw materials , labor , and overhead operating costs . performance is also affected by manufacturing efficiencies , including items such as on time delivery , quality , scrap , and productivity . market factors of supply and demand can impact operating costs . in periods of rapid increases or decreases in customer demand , the company is required to ramp operations activity up or down quickly which may impact manufacturing efficiencies more than in periods of steady demand . operating performance is also dependent on the company 's ability to effectively launch new customer programs , which are typically extremely complex in nature . the start of production of a new program is the result of a process of developing new molds and assembly equipment , validation testing , manufacturing process design , development and testing , along with training and often hiring employees . meeting the targeted levels of manufacturing efficiency for new programs usually occurs over time as the company gains experience with new tools and processes . therefore , during a new program launch period , start-up costs and inefficiencies can affect operating results . story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; font-size:10pt ; '' > net income for 2017 was $ 5,459,000 or $ 0.71 per basic and $ 0.70 per diluted share , compared with net income of $ 7,411,000 or $ 0.97 per basic and diluted share for 2016. comprehensive income totaled $ 4,953,000 in 2017 , compared to $ 7,180,000 in 2016. the decrease was primarily related to lower net income of $ 1,952,000 and a change in net actuarial adjustments of $ 737,000 for other post-retirement benefit obligations . in 2017 the company recorded a net actuarial loss of $ 417,000 , which was primarily driven by a change in discount rate , compared to recording an actuarial gain of $ 320,000 in 2016 , which was primarily associated with a change in census and mortality . liquidity and capital resources cash flow the company 's primary sources of funds have been cash generated from operating activities and borrowings from third parties . primary cash requirements are for operating expenses , capital expenditures , repayments of debt , and acquisitions . cash used in operating activities totaled $ 6,528,000 for the year ended december 31 , 2018 . net loss of $ 4,782,000 negatively impacted operating cash flows . non-cash deductions of depreciation and amortization , and goodwill impairment charge included in net income amounted to $ 9,384,000 and $ 2,403,000 , respectively . increased working capital resulted in cash used in operating activities of $ 13,312,000 . changes in working capital primarily related to increases in accounts receivable and inventory , due to an increase in sales volume . cash used in investing activities totaled $ 68,806,000 for the year ended december 31 , 2018 , primarily related to the acquisition of horizon plastics totaling $ 63,005,000. the company also invested $ 5,801,000 related to purchases of property , plant and equipment for new programs , equipment improvements , and capacity expansion at the company 's production facilities . the company anticipates spending approximately $ 12,000,000 during 2019 on property , plant and equipment purchases for all of the company 's operations . the company anticipates using cash from operations and its revolving line of credit to finance this capital investment . at december 31 , 2018 , purchase commitments for capital expenditures in progress were approximately $ 3,461,000 . cash provided by financing activities totaled $ 50,445,000 for the year ended december 31 , 2018 . cash activity primarily consisted of new term loan borrowings of $ 45,000,000 and net borrowings on revolving loans of $ 17,375,000 , offset by the payoff of a previous term loan of $ 6,750,000 , net scheduled repayments of principal on outstanding term loans of $ 3,375,000 , payment of cash dividends of $ 792,000 and payment of deferred loan costs of $ 763,000. at december 31 , 2018 , the company had cash on hand of $ 1,891,000 and an available revolving line of credit of $ 22,625,000. if a material adverse change in the financial position of the company should occur , or if actual sales or expenses are substantially different than what has been forecasted , the company 's liquidity and ability to obtain further financing to fund future operating and capital requirements could be negatively impacted . story_separator_special_tag debt and credit facilities on january 16 , 2018 , the company entered into an a/r credit agreement with keybank national association as administrative agent and various financial institutions party thereto as lenders ( the `` lenders '' ) . pursuant to the terms of the a/r credit agreement ( i ) the company may borrow revolving loans in the aggregate principal amount of up to $ 40,000,000 ( the “ us revolving loans ” ) from the lenders and term loans in the aggregate principal amount of up to $ 32,000,000 from the lenders , ( ii ) the company 's wholly-owned subsidiary , horizon plastics international , inc. , ( the `` subsidiary '' ) may borrow revolving loans in an aggregate principal amount of up to $ 10,000,000 from the lenders ( which revolving loans shall reduce the availability of the us revolving loans to the company on a dollar-for-dollar basis ) and term loans in an aggregate principal amount of up to $ 13,000,000 from the lenders , ( iii ) the company obtained a letter of credit commitment of $ 250,000 , of which $ 160,000 has been issued and ( iv ) the company repaid the outstanding term loan balance of $ 6,750,000. the credit agreement is secured by a guarantee of each u.s. and canadian subsidiary of the company , and by a lien on substantially all of the present and future assets of the company and its u.s. and canadian subsidiaries , except that only 65 % of the stock issued by corecomposites de mexico , s. de r.l . de c.v. has been pledged . concurrent with the closing of the a/r credit agreement the company borrowed the $ 32,000,000 term loan and $ 2,000,000 from the us revolving loan and the subsidiary borrowed the $ 13,000,000 term loan and $ 2,500,000 from revolving loans to provide $ 49,500,000 of funding for the acquisition of horizon plastics . 27 on march 14 , 2019 , the company entered into the first amendment ( “ first amendment ” ) to the a/r credit agreement with the lenders . pursuant to the terms of the first amendment , the company and lenders agreed to modify certain terms of the a/r credit agreement . these modifications included ( 1 ) implementation of an availability block on the u.s. revolving loans reducing availability from $ 40,000,000 to $ 32,500,000 , ( 2 ) modification to the definition of ebitda to add back certain one-time expenses , ( 3 ) waiver of non-compliance with the leverage covenant as of december 31 , 2018 and modification of the leverage ratio definition and covenant to eliminate testing of the leverage ratio until december 31 , 2019 , ( 4 ) waiver of non-compliance with the fixed charge covenant as of december 31 , 2018 and modification of the fixed charge coverage ratio definition and covenant requirement , ( 5 ) implementation of a capital expenditure spend limit of $ 7,500,000 during the first six months of 2019 and $ 12,500,000 for the full year 2019 , ( 6 ) an increase of the applicable interest margin spread for existing term and revolving loans , and ( 7 ) an increase in the commitment fees on any unused u.s. revolving loans . bank covenants the company is required to meet certain financial covenants included in the amended a/r credit agreement with respect to leverage ratios , fixed charge ratios , and capital expenditures , as well as other customary affirmative and negative covenants . as of december 31 , 2018 , the company was not in compliance with its financial covenants associated with the loans made under the a/r credit agreement , but on march 14 , 2019 entered into the first amendment to the a/r credit agreement which waived the non-compliance as of december 31 , 2018 and established new covenant levels . while management believes it will be able to meet its future covenants as established in the first amendment , the ability to meet these covenants relies on certain operational and financial improvements consistent with our planned turn around and expected timetable . should these improvements not materialize in the time frame planned , it could impact our ability to meet future covenants . shelf registration on november 14 , 2017 the company filed a universal shelf registration statement on form s-3 ( the “ registration statement ” ) with the sec in accordance with the securities act of 1933 , as amended , which became effective on november 20 , 2017. the registration statement registered common stock , preferred stock , debt securities , warrants , depositary shares , rights , units , and any combination of the foregoing , for a maximum aggregate offering price of up to $ 50 million , which may be sold from time to time . the terms of any securities offered under the registration statement and intended use of proceeds will be established at the times of the offerings and will be described in prospectus supplements filed with the sec at the times of the offerings . the registration statement has a three year term . contractual obligations and off-balance sheet transactions the company has the following minimum commitments under contractual obligations , including purchase obligations , as defined by the sec . a “ purchase obligation ” is defined as an agreement to purchase goods or services that is enforceable and legally binding on the company and that specifies all significant terms , including : fixed or minimum quantities to be purchased ; fixed , minimum , or variable price provisions ; and the approximate timing of the transaction . other long-term liabilities are defined as long-term liabilities that are reflected on the company 's balance sheet under accounting principles generally accepted in the united states . based on this definition , the table below includes only those contracts which include fixed or minimum obligations . it does not include normal purchases , which are made in the ordinary course of business .
| 25 2018 compared to 2017 net sales for 2018 totaled $ 269,485,000 , which was an increase from the $ 161,673,000 reported for 2017 . included in total sales were tooling project sales of $ 13,268,000 for 2018 and $ 13,050,000 for 2017 . tooling project sales result primarily from customer approval and acceptance of molds and assembly equipment specific to their products as well as other non-production services . these sales are sporadic in nature and fluctuate in regard to scope and related revenue on a period-to-period basis . total product sales for 2018 , excluding tooling project sales , totaled $ 256,217,000 , representing a 72 % increase from the $ 148,623,000 reported for 2017 . the increase in product sales is primarily the result of new sales from the acquisition of horizon plastics totaling $ 62,603,000 and higher demand from truck customers of $ 44,991,000. gross margin was approximately 10.1 % of sales in 2018 and 15.2 % in 2017 . the gross margin decrease , as a percent of sales , was due to unfavorable product mix and production inefficiencies of 8.1 % , net changes in selling price and material costs of 1.1 % and unfavorable sales returns of 0.6 % , offset by higher leverage of fixed costs of 2.5 % and favorable impact of 2.0 % from the horizon plastic acquisition . selling , general and administrative expense ( “ sg & a ” ) totaled $ 27,838,000 in 2018 , compared to $ 16,690,000 in 2017 . the increase in sg & a expense primarily resulted from additional ongoing sg & a costs of $ 3,681,000 related to horizon plastics , higher professional and outside services of $ 2,292,000 , higher intangible amortization of $ 1,819,000 , higher labor and benefit costs of $ 994,000 , one-time severance costs of $ 858,000 and one-time acquisition fees of $ 693,000. goodwill impairment totaled $ 2,403,000 in 2018 , based on the company 's annual goodwill impairment assessment for the
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at the nearby 250 livingston street property , the company entered into a lease renewal with the city of new york in december 2016 for a portion of the office space that provided for an 86 % increase in rent per square foot and a 35 % increase in rentable square feet through a remeasurement ; both city of new york leases at the property expire in august 2020. at the flatbush gardens residential apartment complex , the company increased average rent per square foot from $ 20.63 at december 31 , 2015 , to $ 21.24 at december 31 , 2016 and $ 22.47 at december 31 , 2017. at the tribeca house property , the company increased average residential rent per square foot from $ 65.50 at december 31 , 2015 , to $ 68.05 at december 31 , 2016 and $ 69.18 at december 31 , 2017. at the aspen property , the company increased average residential rent per square foot from $ 30.72 at acquisition in june 2016 , to $ 33.05 at december 31 , 2016 and $ 35.07 at december 31 , 2017. the company did not have any significant retail lease renewals during this time period . throughout 201 7 , 2016 and 2015 , we continued to benefit from relatively low interest rates . our weighted average interest rate as of december 31 , 2017 , was approximately 4.6 % per annum . although interest rates have recently increased in conjunction with an improving economy , they continue to be at relatively low levels vs. historical norms . 47 factors that may influence future results of operations we derive approximately 73 % of our revenues from rents received from residents in our apartment rental properties and the remainder from commercial and retail rental customers . we believe that we have expertise in operating , renovating and repositioning our properties . as we grow , we will likely add personnel as necessary to provide outstanding customer service to our residents in order to maintain or increase occupancy levels at our apartment communities and to preserve the ability to increase rents . this is likely to result in an increase in our operating and general and administrative expenses over time . a majority of the leases at our apartment communities are for approximately one-year terms , which generally enables us to seek increased rents upon renewal of existing leases or commencement of new leases . this may offset the potential adverse effect of inflation or deflation on rental revenue , although residents may leave without penalty at the end of their lease terms for any reason . our ability to seek increased rents at our flatbush gardens property is limited , however , as a result of the rent stabilization laws and regulations of new york city . these regulations generally limit rental increases we can charge at our flatbush gardens property upon lease renewal for our legacy tenants ; effective october 1 , 2017 , such increases are 1.25 % for a one-year lease and 2 % for a two-year lease . the regulations also limit the maximum rent we can charge at our flatbush gardens property on new leases , although , on average , such maximum rent is approximately 30 % above our actual average rental rates for such leases . at our aspen property , the residential units are subject to regulation established by the hdc , under which there are no rental restrictions on approximately 55 % of the units and low- and middle-income restrictions on approximately 45 % of the units . there are no such rent stabilization restrictions at the tribeca house properties , the 250 livingston street property , the 107 columbia heights property and the 10 west 65 th street property . we also incur costs on turnover of residents when one resident moves out and we prepare the apartment for a new resident . the costs include the costs of repainting and repairing apartment units , replacing obsolete or damaged appliances and re-leasing th e units . while we budget for turnover and the costs associated therewith , our turnover cost may be affected by certain factors we can not control . excessive turnover and failure to properly manage turnover cost may adversely affect our operations and could adversely affect our financial condition , results of operations , cash flows and ability to pay distributions on , and the market price of , our common stock . we seek earnings growth primarily through increasing rents and occupancy at existing properties , and acquiring additional apartment communities in markets complementing our existing portfolio locations . our apartment and commercial properties are concentr ated in six neighborhoods within the boroughs of manhattan and brooklyn in new york city which makes us susceptible to adverse developments in these markets . as a result , we are particularly affected by the local economic conditions in these markets , including , but not limited to , changes in supply of or demand for apartment units in our markets , competition for real property investments in our markets , changes in government rules , regulations and fiscal policies , including those governing real estate usage and tax , and any environmental risks related to the presence of hazardous or toxic substances or materials at or in the vicinity of our properties , which could negatively affect our overall performance . we may be unable to accurately predict future changes in national , regional or local economic , demographic or real estate market conditions . for example , continued volatility and uncertainty in the global , national , regional and local economies could make it more difficult for us to lease apartment , commercial and retail space and may require us to lease our apartment , commercial and retail space at lower rental rates than projected and may lead to an increase in resident defaults . story_separator_special_tag in addition , these conditions may also lead to a decline in the value of our properties and make it more difficult for us to dispose of these properties at competitive prices . these conditions , or others we can not predict , could adversely affect our financial condition , results of operations , cash flows and ability to pay distributions on , and the market price of , our common stock . as a public company with shares listed on a u.s. exchange , we incur general and administrative expenses , including legal , accounting and other expenses , related to corporate governance , public reporting and compliance with various provisions of the sarbanes-oxley act , related regulations of the sec , including compliance with the reporting requirements of the exchange act , and the requirements of the national securities exchange on which our stock is listed . 48 significant accounting policies the accompanying consolidated and combined financial statements include the accounts and operations of the company and its predecessor . the entities that comprised the pr edecessor have been combined on the basis that , for the periods presented , such entities were under common control . basis of consolidation and combination the consolidated and combined financial statements of the company and its predecessor included elsewh ere herein are prepared in accordance with generally accepted accounting principles in the united states ( “ gaap ” ) . the effect of all significant intercompany balances and transactions has been eliminated . the consolidated and combined financial statements include the accounts of all entities in which the company and its predecessor has a controlling interest . all significant intercompany transactions and balances are eliminated in consolidation/combination . use of estimates the preparation of financial stat ements in conformity with gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . management adjusts such estimates when facts and circumstances dictate . the most significant estimates made include the recoverability of accounts receivable , allocation of property purchase price to tangible and intangible assets acquired and liabilities assumed , and the useful lives of long-lived assets . actual results could materially differ from these estimates . investment in real estate real estate assets held for investment are carried at historic al cost and consist of land , buildings and improvements , furniture , fixtures and equipment and real estate under development . expenditures for ordinary repair and maintenance costs are charged to expense as incurred . expenditures for improvements , renovations , and replacements of real estate assets are capitalized and depreciated over their estimated useful lives if the expenditures qualify as betterment or the life of the related asset will be substantially extended beyond the original life expectancy . upo n the adoption of asu 2017-01 , `` business combinations – clarifying the definition of a business , ” the company evaluates each acquisition of real estate or in-substance real estate to determine if the integrated set of assets and activities acquired meets the definition of a business and needs to be accounted for as a business combination . if either of the following criteria is met , the integrated set of assets and activities acquired would not qualify as a business : substantially all of the fair value of the gross assets acquired is concentrated in either a single identifiable asset or a group of similar identifiable assets; or the integrated set of assets and activities is lacking , at a minimum , an input and a substantive process that together significantly contribute to the ability to create outputs ( i.e. , revenue generated before and after the transaction ) . an acquired process is considered substantive if : the process includes an organized workforce ( or includes an acquired contract that provides access to an organized workforce ) that is skilled , knowledgeable and experienced in performing the process; the process can not be replaced without significant cost , effort or delay; or the process is considered unique or scarce . generally , the company expects that acquisitions of real estate or in-substance real estate will not meet the revised definition of a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets ( i.e. , land , buildings and related intangible assets ) or because the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that can not be replaced without significant cost , effort or delay . 49 upon acquisit ion of real estate , the company assesses the fair values of acquired tangible and intangible assets including land , buildings , tenant improvements , above and below-market leases , in-place leases and any other identified intangible assets and assumed liabilities . the company allocates the purchase price to the assets acquired and liabilities assumed based on their fair values . in estimating fair value of tangible and intangible assets acquired , the company assesses and considers fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates , estimates of replacement costs , net of depreciation , and available market information . the fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant .
| garage and other income for same properties increased from $ 3,216 for the year ended december 31 , 2016 , to $ 3,249 for the year ended december 31 , 2017 , primarily due to resident fees at tribeca house and flatbush gardens and higher damage fees at tribeca house mostly offset by the effect of a july 2017 change to monthly billing for air conditioning at flatbush gardens . property operations expense . property operating expenses for same properties include property-level costs including compensation costs for property-level personnel , repairs and maintenance , supplies , utilities and landscaping . property operating expenses increased from $ 24,855 for the year ended december 31 , 2016 , to $ 25,830 for the year ended december 31 , 2017 , primarily due to higher collection and payroll expense ( including workers ' compensation audit costs ) at flatbush gardens , generally higher utilities costs due to colder weather partially offset by generally lower repairs and maintenance expenses and lower payroll and commissions at tribeca house . real estate taxes and insurance expenses for same properties increased from $ 17,401 for the year ended december 31 , 2016 , to $ 19,750 for the year ended december 31 , 2017 , primarily due to increased taxes at our flatbush gardens and tribeca house properties as a result of higher assessments . general and ad ministrative expense . general and administrative expense for same properties increased from $ 8,243 for the year ended december 31 , 2016 , to $ 9,535 for the year ended december 31 , 2017 , primarily due to higher staffing levels , an increase in non-cash ltip amortization of $ 586,000 and higher public company costs . depreciation and amortization . depreciation and amortization expense for same properties increased from $ 13,822 for the year ended december 31 , 2016 , to $ 15,106 for the year ended december 31 , 2017 , due to additions to fixed assets . 52 interest expense , net . interest expense , net , for same properties decreased from $ 36,704 for the year ended december 31 , 2016 , to $ 32,471
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under the 1940 act , we have the ability to borrow funds and issue debt securities or preferred stock that are referred to as senior securities , subject to certain restrictions including an overall limitation on the amount of outstanding debt , or leverage , relative to equity of 1:1. because of the nature and size of our portfolio investments , we periodically borrow funds to make qualifying investments in order to maintain our qualification as a ric . during 2016 and 2015 , we borrowed such funds by accessing a margin account with a securities brokerage firm . we invest the proceeds of these margin loans in high-quality securities such as u.s. treasury securities until they are repaid . we refer to these high-quality investments as “ restricted assets ” because they are not generally available for investment in portfolio companies under the terms of borrowing . if , in the future , we can not borrow funds to make such qualifying investments at the end of any future quarter , we may not qualify as a ric and would become subject to corporate-level income tax on our net investment income and realized capital gains , if any . in addition , our distributions to stockholders would be taxable as ordinary dividends to the extent paid from earnings and profits . see “ federal income tax considerations. ” distributions . so long as we remain a bdc , we will continue to pay out net investment income and or realized capital gains , if any , on an annual basis as required under the 1940 act . 23 possible share repurchase . as a closed-end bdc , our shares of common stock are not redeemable at the option of stockholders , and our shares currently trade at a discount to their net asset value . our board has determined that it would be in the best interests of our stockholders to reduce or eliminate this market value discount . accordingly , we have been authorized to , and may from time to time , repurchase shares of our outstanding common stock ( including by means of tender offers or privately negotiated transactions ) in an effort to reduce or eliminate this market discount or to increase the net asset value of our shares . we are not required to undertake , and we have not previously undertaken , any such share repurchases , nor do we further anticipate taking any such action in 2017 . 2016 equity incentive plan on june 13 , 2016 , our shareholders approved the adoption of our incentive plan . on january 10 , 2017 , the sec issued an order approving the incentive plan and certain awards intended to be made thereunder . the incentive plan is intended to promote the interests of the fund by encouraging officers , employees , and directors of the fund and its affiliates to acquire or increase their equity interest in the fund and to provide a means whereby they may develop a proprietary interest in the development and financial success of the fund , to encourage them to remain with and devote their best efforts to the business of the fund , thereby advancing the interests of the fund and its stockholders . the incentive plan is also intended to enhance the ability of the fund and its affiliates to attract and retain the services of individuals who are essential for the growth and profitability of the fund . the incentive plan permits the award of restricted stock as well as common stock purchase options . the maximum number of shares of common stock that are subject to awards granted under the incentive plan is 2,434,728 shares . the term of the incentive plan will expire on june 13 , 2026. no awards have yet been granted under the incentive plan and , consequently , no compensation expense has been recorded for the year ended december 31 , 2016. critical accounting policies and estimates we follow the accounting and reporting guidance in fasb accounting standards codification topic 946 “ financial services – investment companies . ” our financial statements are based on the selection and application of significant accounting policies , which require management to make significant estimates and assumptions . we believe that the following are some of the more critical judgment areas in the application of our accounting policies that currently affect our financial condition and results of operations . valuation of investments for most of our investments , market quotations are not available . with respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value , our board has approved a multi-step valuation process each quarter , as described below : 1. each portfolio company or investment is reviewed by our investment professionals ; 2. with respect to investments with a fair value exceeding $ 2.5 million that have been held for more than one year , we engage independent valuation firms to assist our investment professionals . these independent valuation firms conduct independent valuations and make their own independent assessments ; 3. our management produces a report that summarized each of our portfolio investments and recommends a fair value of each such investment as of the date of the report ; 4. the audit committee of our board reviews and discusses the preliminary valuation of our portfolio investments as recommended by management in their report and any reports or recommendations of the independent valuation firms , and then approves and recommends the fair values of our investments so determined to our board for final approval ; and 5. the board discusses valuations and determines the fair value of each portfolio investment in good faith based on the input of our management , the respective independent valuation firm , as applicable , and the audit committee . story_separator_special_tag during the first twelve months after an investment is made , we rely on the original investment amount to determine the fair value unless significant developments have occurred during this twelve month period which would indicate a material effect on the portfolio company ( such as results of operations or changes in general market conditions ) . 24 investments are valued utilizing a yield analysis , enterprise value ( “ ev ” ) analysis , net asset value analysis , liquidation analysis , discounted cash flow analysis , or a combination of methods , as appropriate . the yield analysis uses loan spreads and other relevant information implied by market data involving identical or comparable assets or liabilities . under the ev analysis , the ev of a portfolio company is first determined and allocated over the portfolio company 's securities in order of their preference relative to one another ( i.e. , “ waterfall ” allocation ) . to determine the ev , we typically use a market multiples approach that considers relevant and applicable market trading data of guideline public companies , transaction metrics from precedent m & a transactions and or a discounted cash flow analysis . the net asset value analysis is used to derive a value of an underlying investment ( such as real estate property ) by dividing a relevant earnings stream by an appropriate capitalization rate . for this purpose , we consider capitalization rates for similar properties as may be obtained from guideline public companies and or relevant transactions . the liquidation analysis is intended to approximate the net recovery value of an investment based on , among other things , assumptions regarding liquidation proceeds based on a hypothetical liquidation of a portfolio company 's assets . the discounted cash flow analysis uses valuation techniques to convert future cash flows or earnings to a range of fair values from which a single estimate may be derived utilizing an appropriate discount rate . the measurement is based on the net present value indicated by current market expectations about those future amounts . in applying these methodologies , additional factors that we consider in fair value pricing our investments may include , as we deem relevant : security covenants , call protection provisions , and information rights ; the nature and realizable value of any collateral ; the portfolio company 's ability to make payments ; the principal markets in which the portfolio company does business ; publicly available financial ratios of peer companies ; the principal market ; and enterprise values , among other factors . also , any failure by a portfolio company to achieve its business plan or obtain and maintain its financing arrangements could result in increased volatility and result in a significant and rapid change in its value . our general intent is to hold our loans to maturity when appraising our privately held debt investments . as such , we believe that the fair value will not exceed the cost of the investment . however , in addition to the previously described analysis involving allocation of value to the debt instrument , we perform a yield analysis assuming a hypothetical current sale of the security to determine if a debt security has been impaired . the yield analysis considers changes in interest rates and changes in leverage levels of the portfolio company as compared to the market interest rates and leverage levels . assuming the credit quality of the portfolio company remains stable , the fund will use the value determined by the yield analysis as the fair value for that security if less than the cost of the investment . we will record unrealized depreciation on investments when we determine that the fair value of a security is less than its cost basis , and will record unrealized appreciation when we determine that the fair value is greater than its cost basis . because of the inherent uncertainty of the valuation of portfolio securities which do not have readily ascertainable market values , amounting to $ 25.6 million and $ 16.2 million as of december 31 , 2016 and 2015 , respectively , our fair value determinations may materially differ from the values that would have been used had a ready market existed for the securities . as of december 31 , 2016 and december 31 , 2015 , one of our portfolio investments , mvc , was publicly listed on the nyse with 468,608 common shares and 428,662 common shares , respectively . we adjust our net asset value for the changes in the value of our publicly held securities , if applicable , and material changes in the value of private securities , generally determined on a quarterly basis or as announced in a press release , and report those amounts to lipper analytical services , inc. our net asset value appears in various publications , including barron 's and the wall street journal . federal income taxes so long as we maintain our status as a bdc , we intend to comply with the requirements of the code necessary for us to qualify as a ric . so long as we comply with these requirements , we generally will not be subject to corporate-level federal income taxes on otherwise taxable income ( including net realized capital gains ) distributed to stockholders . therefore , we did not record a provision for federal income taxes in our financial statements . as of december 31 , 2016 , we had a capital loss carry forward of $ 31.3 million which may be used to offset future capital gains . we may borrow money from time to time to maintain our status as a ric under the code . see “ overview – financing activities ” above . 25 interest income recognition we record interest income , adjusted for amortization of premium and accretion of discount , on an accrual basis to the extent that we expect to collect such amounts . we stop accruing interest on investments when we determine that interest is no longer collectible .
| on may 14 , 2014 , we sold to mvc 2,112,000 newly-issued shares of our common stock in exchange for 395,839 shares of mvc ( see “ significant events−plan of reorganization ” above ) . during the year ended december 31 , 2014 , we also received 9,129 shares of mvc in the form of dividend payments . the following table includes significant investment activity during the year ended december 31 , 2014 ( in thousands ) : replace_table_token_5_th realized gains and losses on sales of portfolio securities year ended december 31 , 2016 during 2016 , we realized capital losses of $ 13 thousand as a result of disposition of temporary cash investments . year ended december 31 , 2015 during 2015 , we realized capital losses of $ 2.5 million , including the following significant transactions : portfolio company industry type transaction type realized gain ( loss ) spectrum management , llc business products and services control disposition $ ( 2,850 ) orco property group s. a. real estate non-affiliate disposition 372 various others disposition ( 5 ) $ ( 2,483 ) 31 year ended december 31 , 2014 during 2014 , we realized capital gains of $ 0.7 million , including the following significant transactions : portfolio company industry type transaction type realized gain ( loss ) orco property group s. a. real estate non-affiliate disposition $ ( 63 ) mvc capital , inc. financial services non-affiliate share exchange 724 various others disposition ( 1 ) $ 660 changes in unrealized appreciation/depreciation of portfolio securities year ended december 31 , 2016 during 2016 , we recorded an increase of $ 7.9 million in net unrealized appreciation , from $ 2.4 million at december 31 , 2015 to $ 10.3 million at december 31 , 2016 , in our portfolio securities . such increase resulted primarily from the following changes : ( i ) increase in the fair value of our shareholding in mvc of $ 0.5 million due to an increase in the mvc share price during 2016 and the receipt of dividend payments in the form of additional shares of mvc ; ( ii ) increase in fair value of our shareholding in palletone , inc. ( “ palletone ” ) of
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i n december 2015 , the first patient was dosed in pro 2 tect , and the first patient was dosed in inno 2 vate in august 2016. as of december 31 , 2017 , w e expect the remaining exter nal aggregate contract research organization , or cro , costs of pro 2 tect and inno 2 vate to be in the range of $ 420.0 million to $ 450.0 million . we anticipate reporting top-line clinical data for the pro 2 tect and inno 2 vate studies in 2019 , subject to the accrual of mace events . subject to marketing approvals , we plan to launch vadadustat for the treatment of anemia due to ckd in 2020. in may 2017 , we initiated a phase 2 study of vadadustat in patients with anemia due to ckd who are on dialysis and do not adequately respond to injectable esa , or hyporesponders , called fo 2 rward . hyporesponders represent approximately 10-15 % of subjects with anemia due to dd-ckd , yet they account for 30-40 % of total injectable esa use . these patients have demonstrated a persis tently higher risk of mortality than non-hyporesponders , and represent a high unmet need . we believe that , given its differentiated mechanism of action , vadadustat may provide a treatment option for these patients . we are changing the study design to include a broader dialysis population in addition to hyporesponders , and a larger sample size . this study will replace the former fo 2 rward study . the revised fo 2 rward study includes once-daily and three-times weekly dosing and is designed to generate data to inform esa-switching protocols . we expect that we will initiate this study in q2 2018 , with top-line results expected in late 2018 or early 2019. we had planned to initiate a phase 3 dosing study , called trilo 2 gy , early in 2018 to evaluate three-times weekly dosing of vadadustat patients receiving hemodialysis . instead , we are replacing this study with a new study design that includes once-daily and three-times weekly dosing and an esa control , as well as a larger sample size . this study will be designed to generate data to inform switching from epogen ® ( epoetin alfa ) , aranesp ® ( darbepoetin alfa ) and mircera ® ( methoxy peg-epoetin beta ) . we expect to initiate this study in late 2018 or early 2019 , with top-line results expected in early 2020. if vadadustat is approved by the united states food and drug administration , or fda , we plan to establish our own commercial organization in the united states while leveraging our collaboration with otsuka pharmaceutical co. ltd. , or otsuka , and its well-established commercial organization in the united states . we also granted otsuka exclusive rights to commercialize vadadustat in europe , china and certain other markets , subject to marketing approvals . in japan and certain other countries in asia , we granted mitsubishi tanabe pharma corporation , or mtpc , exclusive rights to commercialize vadadustat , subject to marketing approvals . in may 2017 , we entered into an exclusive license agreement with vifor ( international ) ltd. , or vifor pharma , to sell vadadustat solely to fresenius kidney care group llc , or fkc , dialysis clinics in the united states subject to approval by the fda and inclusion of vadadustat in a bundled reimbursement model . during the term of the license agreement , vifor pharma may not sell to fkc or its affiliates any hif product that competes with vadadustat in the united states . in addition to vadadustat , we are developing a hif-based portfolio of product candidates that target serious diseases of high unmet need . our portfolio includes product candidates developed internally as well as in-licensed product candidates , such as akb-5169 . in february 2017 , we signed an exclusive agreement with janssen pharmaceutica nv , or janssen , a subsidiary of johnson & johnson , for access to an extensive library of well-characterized hif pathway compounds with potential applications across multiple therapeutic areas . the lead compound , akb-5169 , is a differentiated preclinical compound in development as an oral treatment for inflammatory bowel disease , or ibd . we intend to complete further preclinical development of this compound , and we are targeting submitting an investigational new drug application , or ind , to the fda in 2018. since our inception in 2007 , we have devoted the largest portion of our resources to our development efforts relating to vadadustat , including preparing for and conducting clinical studies of vadadustat , providing general and administrative support for these operations and protecting our intellectual property . we do not have any products approved for sale and have not generated any revenue from product sales . we have funded our operations primarily through equity offerings and strategic collaborations . we have never been profitable and have incurred net losses in each year since inception . our net losses were $ 76.9 million , $ 135.7 million and $ 60.7 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . substantially all of our net losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations . 60 we expect to continue to incur significant operating expenses and increased operating losses for at least the next several years . story_separator_special_tag we expect our expenses will increase substantially in connectio n with our ongoing activities , as we : conduct our development program of vadadustat for the treatment of anemia due to ckd , including pro 2 tect , inno 2 vate , fo 2 rward and trilo 2 gy , and develop plans for the preclinical and clinical development of any other potential product candidates ; seek marketing approvals for our product candidates that successfully complete clinical studies and maintain such marketing approvals , including complying with any post-marketing regulatory requirements ; have our product candidates manufactured for clinical trials and for commercial sale ; establish a sales , marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval ; initiate additional preclinical , clinical or other studies for vadadustat and any other product candidates ; seek to discover and develop additional product candidates ; engage in transactions , including strategic transactions , merger , collaboration , acquisition and licensing arrangements , pursuant to which we would market and develop commercial products , or develop other product candidates and technologies ; make royalty , milestone or other payments under our license agreement with janssen and any future in-license agreements ; maintain , protect and expand our intellectual property portfolio ; attract and retain skilled personnel ; continue to create additional infrastructure and expend additional resources to support our operations as a public company , including any additional infrastructure and resources necessary to support a transition from our status as an emerging growth company ; and experience any delays or encounter issues with any of the above . we do not expect to generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for one or more of our product candidates , which we expect will take a number of years and is subject to significant uncertainty . we have no manufacturing facilities , and all of our manufacturing activities are contracted out to third parties . additionally , we currently utilize cros to carry out our clinical development activities , and we do not yet have a sales organization . if we obtain marketing approval for any of our product candidates , we expect to incur significant commercialization expenses related to product sales , marketing , manufacturing and distribution . if and until we can generate a sufficient amount of revenue from product sales , we expect to finance future cash needs through public or private equity or debt offerings , payments from our collaborators , strategic transactions , or a combination of these approaches . if we are unable to raise additional capital in sufficient amounts when needed or on terms acceptable to us , we may have to significantly delay , scale back or discontinue the development or commercialization of one or more of our product candidates . any of these events could significantly harm our business , financial condition and prospects . through 2017 , we raised approximately $ 373.1 million of net proceeds from the sale of equity including $ 292.6 million from various underwritten public offerings , $ 30.5 million from an at-the-market offering , or atm , pursuant to sales agreements with cantor fitzgerald & co and $ 50.0 million from the sale of 3,571,429 shares of common stock to vifor pharma . at inception of our collaboration agreements with otsuka and mtpc , they committed to approximately $ 573.0 million or more in cost-share funding , of which we generally continue to receive on a quarterly prepaid basis , and license payments . of these commitments , we received approximately $ 272.0 million at the onset of the collaboration agreements . financial overview in the quarter ended june 30 , 2017 , we identified and corrected an immaterial error in the amount of research and development expenses related to our global phase 3 clinical program of vadadustat . this adjustment also affected the amount of revenue recognized pursuant to our license and collaboration agreements with otsuka . the adjustments impacted our results of operations in each quarter of 2016 and the first quarter of 2017. we concluded the effect of these adjustments was not material to our consolidated financial statements for any prior period . 61 revenue to date , we have not generated any revenue from the sales of products . our revenues have been derived from collaboration revenues , which include license and milestone revenues and cost-sharing revenue , generated through collaboration and license agreements with partners for the development and commercialization of vadadustat . cost-sharing revenue represents amounts reimbursed by our collaboration partners for expenses incurred by us for research and development activities and , potentially , co-promotion activities , under our collaboration agreements . the company recognizes revenue in accordance with asc topic 605 , revenue recognition , or asc 605. accordingly , revenue is recognized for each unit of accounting when all of the following criteria are met : persuasive evidence of an arrangement exists ; delivery has occurred or services have been rendered ; the seller 's price to the buyer is fixed or determinable ; and collectability is reasonably assured . with regards to the mtpc and otsuka collaboration agreements , the company recognizes revenue related to amounts allocated to the license unit of accounting on a proportional performance basis as the underlying services are performed . amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue . amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified in current liabilities . amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue , net of current portion . for additional information on our revenue recognition policy related to multiple-element arrangements , see the section titled “ summary of significant accounting policies – revenue recognition.
| we expect to incur a total of approximately $ 21.4 million for the phase 2 studies in japan of which mtpc has already paid $ 20.0 million and mtpc will reimburse us for the remaining costs once incurred . the increase in headcount , consulting and facility related costs relates to additional resources required to support our expanding research and development programs . we expect our research and development expenses to significantly increase in future periods in support of our global phase 3 program and other studies for vadadustat , development of akb-5169 and any future product candidates . general and administrative expenses . general and administrative expenses were $ 27.0 million for the year ended december 31 , 2017 , compared to $ 22.2 million for the year ended december 31 , 2016. the increase of $ 4.8 million was primarily due to an increase in costs to support our research and development programs , including headcount and compensation-related costs and associated facility-related costs . we expect our general and administrative expenses to increase in future periods to support our continued research and development and potential commercialization of vadadustat and other product candidates . other income , net . other income , net , was $ 3.0 million for the year ended december 31 , 2017 , compared to $ 0.7 million for the year ended december 31 , 2016. other income , net for the year ended december 31 , 2017 , was primarily comprised of interest income caused by higher average investment balances during 2017. other income , net for the year ended december 31 , 2016 consisted of interest income of $ 0.9 million offset by expenses related to the write-off of capitalized software . comparison of the years ended december 31 , 2016 and 2015 replace_table_token_6_th collaboration revenue . collaboration revenue was $ 1.5 million for the year ended december 31 , 2016 under our otsuka u.s. agreement . 68 research and development expenses . research and development expenses were $ 115.8 million for the year ended december
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we intend to allocate resources consistent with our strategy ; more specifically , consistent with our product portfolio , geographic region and end market diversification objectives . we periodically evaluate our long-term strategy in response to significant changes in our business environment and other factors . although our long-term strategy 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 . strategic footprint we review our manufacturing footprint in the normal course to , among other considerations , provide a competitive landed cost to our customers . in november 2015 , the company announced a restructuring and cost reduction plan , which was expected to lower operating costs by $ 8 million to $ 12 million annually when fully implemented at the end of 2017. the plan is substantially complete as of december 31 , 2017 , and the company believes the estimated savings were achieved . at the time of the november 2015 announcement , the company estimated pre-tax costs of $ 11 million to $ 16 million . the actual restructuring costs , consisting of employee-related separation costs and other costs associated with the transfer of production and subsequent closure of facilities , offset by gains on the sale of long-lived assets , totaled $ 6 million . recently issued accounting pronouncements recently issued accounting pronouncements described in note 2 of the “ notes to consolidated financial statements ” is incorporated in this section by reference . 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_7_th 33 year ended december 31 , 2017 compared to year ended december 31 , 2016 c onsolidated r esults revenues . on a consolidated basis , revenues increased $ 93.1 million , or 14.1 % , to $ 755.2 million for the year ended december 31 , 2017 compared to $ 662.1 million for the year ended december 31 , 2016 . the increase in revenues primarily resulted from increased heavy-duty truck production volumes in north america and an improvement in the global construction equipment markets . more specifically , the increase resulted from : a $ 41.6 million , or 15 % , increase in oem north american md/hd truck revenues ; a $ 40.9 million , or 32 % , increase in construction equipment revenues ; a $ 4.6 million , or 4 % , increase in aftermarket revenues ; and a $ 6.0 million , or 4 % , increase in other revenues . 2017 revenues were favorably impacted by foreign currency exchange translation of $ 0.5 million , which is reflected in the change in revenue above . gross profit . gross profit increased $ 5.4 million , or 6.2 % , to $ 92.6 million for the year ended december 31 , 2017 from $ 87.2 million for the year ended december 31 , 2016 . 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 $ 87.8 million , or 15.3 % , resulting from an increase in raw material and purchased component costs of $ 60.6 million , wages and benefits of $ 11.8 million and overhead expenses of $ 15.4 million . the increase in gross profit is primarily attributable to an increase in sales volume partially offset by rising commodity prices , tighter labor markets and costs associated with the sharp acceleration in north american truck build . as part of the company 's restructuring efforts , on july 19 , 2016 , the company announced plans to transfer all wire harness production from the manufacturing facility in monona , iowa to the facility in agua prieta , mexico . on may 24 , 2017 , the company elected to maintain production capability in the monona , iowa facility as a result of a shortage of labor in our north american wire harness business . additionally , the company established a new facility in mexico with better access to labor . the labor shortage and footprint adjustment in our north american wire harness business are collectively referred to as the `` na footprint adjustment '' . the na footprint adjustment adversely impacted cost of revenue by approximately $ 10 million in 2017. additionally , 2017 results included $ 1.9 million in charges relating to facility restructuring and other related costs compared to $ 3.4 million in the prior year period . as a percentage of revenues , gross profit was 12.3 % for the year ended december 31 , 2017 compared to 13.2 % for the year ended december 31 , 2016 . 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 expenses decreased $ 0.7 million , or 1.2 % , to $ 59.8 million for the year ended december 31 , 2017 from $ 60.5 million for the year ended december 31 , 2016 . the decrease in selling , general and administrative expenses , notwithstanding the increase in revenue , reflects a continuing focus on cost discipline , partially offset by $ 2.4 million of litigation settlement costs for the year ended december 31 , 2017. in addition , the year ended december 31 , 2016 included a $ 0.6 million impairment of an asset held for sale . other income . story_separator_special_tag other income increased $ 0.6 million , or 75.4 % , to $ 1.3 million for the year ended december 31 , 2017 from $ 0.8 million for the year ended december 31 , 2016 . the increase in other income is due to favorable foreign exchange on non-operating activity . interest expense . interest expense associated with our long-term debt , was approximately $ 19.1 million and $ 19.3 million in the years ended december 31 , 2017 and 2016 , respectively . included in interest expense for the year ended december 31 , 2017 is a non-cash write-off of deferred financing fees of $ 1.6 million and a prepayment charge for interest paid of $ 1.5 million paid to bondholders during the 30-day notification period associated with the redemption of the 7.875 % notes completed during the second quarter of 2017. these expenses were offset by lower interest expense resulting from less outstanding debt . provision for income taxes . our provision for income taxes was $ 15.4 million for the year ended december 31 , 2017 compared to $ 49 thousand for the year ended december 31 , 2016 . results for the year ended december 31 , 2017 were unfavorably impacted by an estimated $ 11.2 million attributable to the passage of the u.s. tax reform . this includes a $ 7.2 million provision for the decrease in value of our net deferred tax assets due to a reduction of the u.s. corporate tax rate from 35 % to 21 % effective january 1 , 2018 , and a $ 4.0 million provision related to the deemed repatriation of accumulated untaxed earnings of certain foreign subsidiaries . 34 our provision for income taxes , excluding the impact of the u.s. tax reform , would have been $ 4.2 million for the year ended december 31 , 2017 compared to $ 49 thousand for the year ended december 31 , 2016. this increase primarily resulted from a year over year increase of pre-tax earnings , a change in the mix of income between our u.s. and non-u.s. locations and tax valuation allowances we continue to carry against net deferred tax assets in certain foreign jurisdictions , primarily luxembourg and united kingdom . for additional information regarding the income tax provision refer to note 8 of our consolidated financial statements in item 8 in this annual report on form 10-k. net ( loss ) income attributable to cvg stockholders . net loss attributable to cvg stockholders was $ 1.7 million for the year ended december 31 , 2017 compared to net income of $ 6.8 million in the prior year period . s egment r esults global truck and bus segment results the table below sets forth certain gtb segment operating data expressed as a percentage of revenues for the periods indicated ( dollars are in thousands ) : replace_table_token_8_th revenues . gtb segment revenues increased $ 41.5 million , or 10.0 % , to $ 457.8 million for the year ended december 31 , 2017 from $ 416.3 million for the year ended december 31 , 2016 . the increase in gtb segment revenues is primarily a result of : a $ 33.0 million , or 13 % , increase in oem md/hd truck revenues ; a $ 7.7 million , or 10 % , increase in aftermarket revenues ; and a $ 0.8 million , or 1 % , increase in revenues from other markets . gtb segment 2017 revenues were favorably impacted by foreign currency exchange translation of $ 1.1 million , which is reflected in the changes in revenue above . gross profit . gtb segment gross profit increased $ 8.0 million , or 14.6 % , to $ 62.7 million for the year ended december 31 , 2017 from $ 54.7 million for the year ended december 31 , 2016 . cost of revenues increased $ 33.5 million , or 9.3 % , as a result of an increase in raw material and purchased component costs of $ 29.0 million , wages and benefits of $ 4.2 million and overhead expenses of $ 0.3 million . the increase in gross profit was primarily the result of the increase in sales volume partially offset by rising commodity prices , tightening labor markets and costs associated with the sharp acceleration in north american truck build . additionally , 2017 results included $ 0.8 million in charges relating to facility restructuring and other related costs compared to $ 2.7 million in prior year period . as a percentage of revenues , gross profit for the year ended december 31 , 2017 was 13.7 % compared to 13.1 % for the year ended december 31 , 2016 . selling , general and administrative expenses . gtb segment selling , general and administrative expenses decreased , notwithstanding the increase in revenues , $ 1.1 million , or 4.9 % , to $ 21.5 million for the year ended december 31 , 2017 from 22.6 million for the year ended december 31 , 2016 reflecting a focus on cost discipline . global construction and agriculture segment results the table below sets forth certain gca segment operating data expressed as a percentage of revenues for the periods indicated ( dollars are in thousands ) : replace_table_token_9_th 35 revenues . gca segment revenues increased $ 55.7 million , or 21.9 % , to $ 309.7 million for the year ended december 31 , 2017 from $ 254.0 million for the year ended december 31 , 2016 . the increase in gca segment revenue is primarily a result of : a $ 38.1 million , or 31 % , increase in oem construction equipment revenues ; a $ 8.6 million , or 50 % , increase in oem truck revenues ; a $ 4.5 million , or 12 % , increase in oem automotive revenues ; and a $ 4.5 million , or 6 % , increase in revenues from other markets .
| cost of revenues decreased $ 139.6 million , or 19.5 % , resulting from a decrease in raw material and purchased component costs of $ 107.1 million , wages and benefits of $ 10.3 million and overhead expenses of $ 22.2 million . the decrease in gross profit primarily resulted from the decrease in sales volume . additionally , 2016 results included $ 3.4 million in charges relating to facility restructuring costs compared to $ 2.1 million in the prior year period . as a percentage of revenues , gross profit was 13.2 % for the year ended december 31 , 2016 compared to 13.4 % for the year ended december 31 , 2015 . selling , general and administrative expenses . selling , general and administrative expenses decreased $ 10.9 million , or 15.3 % , to $ 60.5 million for the year ended december 31 , 2016 from $ 71.5 million for the year ended december 31 , 2015 . the decrease in selling , general and administrative expenses was primarily a result of a reduction in force and executive realignment of approximately $ 6.0 million in overhead and employee-related expenditures , a reduction in outside services and other cost-cutting measures of $ 3.0 million , driven by a decline in volume , and favorable foreign currency exchange translation of $ 0.7 million . additionally , 2016 results included $ 0.6 million in charges relating to impairment of an asset held for sale . 36 other ( income ) expense . other ( income ) expense increased $ 0.6 million , or 405.9 % , to $ 0.8 million for the year ended december 31 , 2016 from $ 0.2 million for the year ended december 31 , 2015 . the increase in other ( income ) expense is due to proceeds from an insurance settlement . interest expense . interest , associated with our long-term debt , and other expense was approximately $ 19.3 million and $ 21.4 million in the years ended december 31 , 2016 and 2015 , respectively . the decline reflects
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the company has since then replaced the entire senior management team , significantly reduced non-critical expenses , minimized the amount of inventory the company was purchasing , dramatically changed the composition of our 25 board of directors , as well as adding very selectively to the executive team by hiring tod nestor as president and chief financial officer at the beginning of july 2019. the cost savings efforts undertaken included the company implementing phased actions to reduce costs to minimize cash usage . our initial actions included the elimination of certain positions , restructuring of the sales organization and incentive plan , flattening of the senior management team , additional operational streamlining , management compensation reductions , and outsourcing of certain functions including certain elements of supply chain and marketing . in connection with these actions , we recorded severance and related benefits charges of $ 0.1 million during the three months ended march 31 , 2019 and $ 0.1 million during the second quarter of 2019. these additional restructuring charges primarily related to severance and related benefits charges as a result of eliminating three positions during the first quarter of 2019 and nine positions during the second quarter of 2019 , as well as costs associated with closing our offices in san jose , california and taipei , taiwan in the second quarter of 2019. with quarterly sales for the company leveling off at its low point in the third quarter of 2019 at $ 2.9 million , we began to see the impact for our relaunch efforts and restructuring of our sales organization in the fourth quarter achieving sales of $ 3.5 million , or a quarter-over-quarter growth rate of 21.1 % . in addition , losses were mitigated through the better cost management and a sharp focus on better managing pricing and inventory decisions for the last half of 2019. despite progress in these areas in the last three quarters of 2019 , the company 's results reflect continued challenges due to long and unpredictable sales cycles , unexpected delays in customer retrofit budgets and project starts , continuing aggressive price competition , the challenge of reducing losses in the near term , and an intensely competitive industry going through constant change . the substantial doubt about our ability to continue as a going concern continued to exist as of december 31 , 2019. during the beginning of 2020 we continued to see continued benefits from the relaunch efforts undertaken in the last three quarters of 2019. it is our belief that the continued momentum of the efforts undertaken in 2019 , along with the launch of new and innovative products will continue to result in improved sales and bottom-line performance for the company , barring significant economic and business impacts from the corona-virus outbreak . meanwhile , the company continues to seek additional external funding alternatives and sources and has not yet achieved but continues to strive to achieve profitability . we plan to achieve profitability through growing our sales by continuing to execute on our direct sales strategy , complemented by our marketing outreach campaigns , channel partnerships , and new sales from an e-commerce platform , which we plan to launch in the first half of 2020 , as well as continuing to apply rigorous and economical discipline in our organization , business processes and policies , supply chain and organizational structure . we are monitoring the potential impact of the corona-virus outbreak . this includes evaluating the impact on our customers , suppliers , and logistics providers as well as evaluating governmental actions being taken to curtail the spread of the virus . the significance of the impact on us is yet uncertain ; however , a material adverse effect on our customers , suppliers , or logistics providers could significantly impact our operating results . we also plan to continue to actively follow , assess and analyze the development of the corona-virus outbreak spread and stand ready to adjust our organizational structure , strategies , plans and processes to respond to the impacts from the virus spread in the timeliest manner . 26 story_separator_special_tag an impairment loss of $ 0.9 million to adjust the carrying value of the equipment and software to its estimated net realizable value . due to the specialized nature of this equipment we were not able to find a buyer for this equipment in 2017. as a result , we re-evaluated the carrying value of the equipment and software compared to its fair value and recorded an additional impairment loss of $ 0.2 million as of december 31 , 2017. we completed the sale of this equipment in the first quarter of 2018. please refer to note 6 , “ property and equipment , ” included in item 8 of this annual report for further information . restructuring in the first quarter of 2017 , we announced a restructuring initiative including closing our offices in rochester , minnesota , new york , new york , and arlington , virginia and impacted 20 employees , primarily located in these offices . during the second quarter of 2017 , we fully exited the new york and arlington facilities and eliminated an additional 17 production and administrative positions in our solon location . during 2017 , we recorded restructuring charges totaling approximately $ 1.7 million consisting of approximately $ 0.8 million in severance and related benefits , approximately $ 0.7 million in facilities costs related to the termination of the rochester lease obligations and the remaining lease obligations for the former new york and arlington offices , and $ 0.2 million in other restructuring costs primarily related to fixed asset and prepaid expenses write-offs . during 2018 , we recorded restructuring charges totaling approximately $ 0.2 million , related to the revision of our initial estimates of the costs and offsetting sublease income and accretion expense for the remaining lease obligation for our former new york , new york and arlington , virginia offices . story_separator_special_tag during 2019 , we recorded restructuring charges totaling approximately $ 0.2 million for the accretion expense for the remaining lease obligation for our former new york , new york and arlington , virginia offices . the lease on our arlington , virginia office ended september 30 , 2019. as of december 31 , 2019 , we estimated that we would receive a total of approximately $ 0.4 million in sublease payments to offset our remaining lease obligations of $ 0.5 million , which extend until june 2021. we expect to incur insignificant additional costs over the remaining life of our lease obligations . please refer to note 3 , “ restructuring , ” included in item 8 of this annual report for further information . other expenses interest expense we incurred $ 317 thousand in interest expense in 2019 , primarily related to interest on borrowings and non-cash amortization of fees related to the revolving credit facility we entered into during december 2018 and under the iliad note purchase agreement we entered into during november 2019. we incurred $ 8 thousand in interest expense in 2018 , primarily related to borrowings under the revolving credit facility . we incurred $ 2 thousand in interest expense in 2017 related to an insurance premium financing agreement . other expenses , net we recognized other expenses , net of $ 91 thousand in 2019 , compared to other expenses , net of $ 7 thousand in 2018 and other expenses , net of $ 99 thousand in 2017 . other expenses , net in 2019 primarily consisted of $ 80 thousand of collateral management fees related to the revolving credit facility we entered into during december 2018 and a net loss on the sale and disposal of fixed assets of $ 24 thousand , partially offset by various refunds of $ 12 thousand . other expenses , net in 2018 primarily consisted of the non-cash amortization of fees related to the revolving credit facility of $ 9 thousand and a net loss on the sale and disposal of fixed assets of $ 2 thousand , partially offset by a net gain on foreign exchange of $ 4 thousand . other expenses in 2017 primarily consisted of losses on the disposal of fixed assets partially offset by interest income on our cash balances . 29 income taxes for the years ended december 31 , 2019 , 2018 and 2017 , our effective tax rate was ( 0.1 ) % , ( 0.1 ) % , and 1.0 % , respectively . in 2019 , our effective tax rate was lower than the statutory rate due to an increase in the valuation allowance as a result of the $ 8.3 million additional federal net operating loss we recognized for the year . in 2018 , our effective tax rate was lower than the statutory rate due to an increase in the valuation allowance as a result of the $ 8.7 million additional federal net operating loss we recognized for the year . in 2017 , our effective tax rate was lower than the statutory rate due to the remeasurement of our deferred tax assets resulting from the tax cuts and jobs act of 2017 ( the “ act ” ) and a decrease in the valuation allowance . on december 22 , 2017 , the act was signed into law making significant changes to the internal revenue code . changes include , but are not limited to , a corporate tax rate decrease from 35 % to 21 % effective for tax years beginning after december 31 , 2017 , repeal of the corporate alternative minimum tax , elimination of certain deductions , and changes to the carryforward period and utilization of net operating losses generated after december 31 , 2017. we have calculated the impact of the act in our year end income tax provision in accordance with our understanding of the act and guidance available as of the date of this filing . as a result of the act , we have recorded $ 0.1 million as additional income tax benefit in the fourth quarter of 2017 , the period in which the legislation was enacted . this amount related to the release of the valuation allowance on our alternative minimum tax credit carry forward , which is expected to be fully refunded by 2021. we remeasured our deferred tax assets and liabilities , based on the rates at which they are expected to reverse in the future . the impact of the remeasurement was $ 5.9 million of additional tax expense , which was offset by a $ 5.9 million valuation allowance reduction resulting in no net impact to the financial statements . the u.s. treasury department , the internal revenue service , and other standard-setting bodies could interpret or issue guidance on how provisions of the act will be applied or otherwise administered that is different from our interpretation . we may make adjustments to amounts that we have recorded that may materially impact our provision for income taxes in the period in which the adjustments are made . deferred income tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred income tax assets will not be realized . in considering the need for a valuation allowance , we assess all evidence , both positive and negative , available to determine whether all or some portion of the deferred tax assets will not be realized . such evidence includes , but is not limited to , recent earnings history , projections of future income or loss , reversal patterns of existing taxable and deductible temporary differences , and tax planning strategies . we have recorded a full valuation allowance against our deferred tax assets at december 31 , 2019 and 2018 , respectively . we had no net deferred liabilities at december 31 , 2019 or 2018. we will continue to evaluate the need for a valuation allowance on a quarterly basis .
| million in 2019 , compared to $ 3.4 million in 2018 . the decline in gross profit was primarily driven by a decline in mmm sales , due to two of our products pending evaluation by dla , during which time the u.s. navy was not allowed to purchase and also due to federal government funding restrictions . our 2019 gross profit as a percent of net sales of 15.5 % decreased from our 2018 gross profit as a percent of net sales of 18.8 % , particularly due to increases in purchase prices , customs duty and chinese tariffs , which were partly offset by a benefit of cost of warranty and repair , whereby other cost of sales elements remained relatively flat as compared to 2018. gross profit was $ 3.4 million in 2018 , compared to $ 5 million in 2017. the decline in gross profit was principally driven by lower sales volumes year-over-year , reflecting fluctuations in the timing , pace and size of commercial projects . our 2018 gross profit as a percent of net sales of 18.8 % decreased from our 2017 gross profit as a percent of net sales of 24.3 % . this decrease is attributable to higher unfavorable manufacturing variances and absorption in 2018 as compared to 2017 , and the impact of selling large volumes of a low gross margin linear tube for military applications in the first quarter of 2018 , prior to achieving cost reductions and improved margins on the product by the end of 2018. additionally , the gross profit percentage in 2017 benefited from the reduction in our excess inventory reserves , as we implemented a strategic initiative to sell certain excess inventory in 2017 that had been written down in prior years . operating expenses product development product development expenses include salaries , including stock-based compensation and related benefits , contractor and consulting fees , legal fees , supplies and materials , as well as overhead
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their customers - building owners and developers - value the distinctive look , energy efficiency , and hurricane and blast protection features of our window and curtainwall systems . these benefits can contribute to higher lease rates , lower operating costs due to the energy efficiency of our value-added glass , a more comfortable environment for building occupants , and protection for buildings and occupants from hurricanes and blasts . our architectural services segment provides services to fabricate and install glass window and curtainwall systems on newly constructed commercial buildings as well as providing large scale retrofit services for the window and curtainwall systems on existing commercial buildings . we collaborate closely with our customers , the general contractors , to complete installation projects on time and on budget in order to minimize costly job-site labor overruns . we look at several market indicators , such as office space vacancy rates , architectural billing statistics , employment and other economic indicators , to gain insight into the commercial construction market . one of our primary indicators is u.s. non-residential construction market activity as documented by mcgraw-hill construction ( mcgraw-hill ) , a leading independent provider of construction industry analysis , forecasts and trends . we utilize the information for the building types that we typically serve ( office towers , hotels , retail centers , education facilities and dormitories , health care facilities , government buildings and high-end multi-family buildings ) and adjust this information ( which is based on construction starts ) to align with our fiscal year and the lag that is required to account for when our products and services typically are initiated in a construction project - approximately eight 18 months after project start . from the mcgraw-hill data , our u.s. markets had a compound annual growth rate of negative 5 percent over our past three fiscal years , while our combined architectural segments ' domestic compound annual growth rate was negative 2 percent over that same period . our overall strategy in these segments is to grow faster than our commercial construction markets through new products , new geographies and new markets , while remaining focused on distinctive solutions for enclosing commercial buildings . we draw upon our leading brands , energy-efficient products and reputation for high quality and service in pursuit of our strategies . each of our operating segments has the ability to grow through geographic or product line expansion , and we regularly evaluate acquisition opportunities in complementary markets . finally , we aspire to lead our markets in the development of practical , energy-efficient products for “ green ” buildings for new construction and renovation . we have introduced products and services designed to meet the growing demand for green building materials . these products have included new energy-efficient glass coatings , thermally enhanced aluminum framing systems , and systems with a high percentage of recycled content . during fiscal 2011 , we began to restore pricing of our architectural glass segment 's products to better reflect the value our products deliver to the marketplace , and have seen the benefits of those price increases during fiscal 2013. in addition , we have been and continue to take measures to keep our cost structure in line with revenue , including continuing to focus on productivity while maintaining and upgrading our capacity to gain market share . we acquired glassec , a leading architectural glass fabricator in brazil , in november 2010 , establishing an architectural glass footprint in a developing and fast-growing market where we can provide technical and operational excellence . we have been successful in winning and profitably executing installation and storefront work in new domestic metropolitan markets . we are focusing on renovation of window and curtainwall systems where all sectors are increasing their interest in upgrading the façades and improving the energy efficiency of their buildings . during fiscal 2013 , we made capital investments for growth , to improve productivity , and for new products and capabilities . during fiscal 2014 , we will make investments for growth , productivity and product development capabilities , including a new state-of-the-art coater in our architectural glass segment . lso segment our basic strategy in this segment is to convert the custom picture framing market from clear uncoated glass and acrylic products to value-added products that protect art from uv damage while minimizing reflection from the glass , so that viewers see the art rather than the glass . we estimate that over 60 percent of the u.s. picture framing market has converted to value-added glass . although we are finding it more difficult to convert the remaining market , we continue to see conversion in the u.s. market . we offer a variety of products with varying levels of reflection control and promote the benefits to consumers with point-of-purchase displays and other promotional materials . over the past four years , we have entered the global fine art market , which includes museums and private art collections . this market appreciates the conservation and anti-reflective properties of our products , primarily our acrylic products . acrylic is a preferred material in the fine art market because the product is light weight , which allows for art that is much larger and for which weight is an important consideration . we have developed several acrylic products to support this market . in fiscal 2012 , we began selling our custom picture framing glass and acrylic in europe where , historically , we have had very little presence . we have had success in entering new international markets during fiscal 2013. we believe our products and distribution networks will enable us to grow at a faster pace internationally than in the united states . story_separator_special_tag percent from fiscal 2012. revenues were down 13 percentage points attributable to volume decreases , partially offset by a 9 percentage point increase in net sales from improved pricing . story_separator_special_tag the volume declines were largely due to a planned decline in export sales as we focus on more profitable domestic projects , as well as the impact of exchange rates on our brazilian business . for fiscal 2013 , the segment incurred an operating loss of $ 4.4 million , with an operating margin of negative 1.6 percent , compared to an operating loss of $ 19.6 million and a negative operating margin of 7.0 percent in fiscal 2012. the fiscal 2013 improvement was primarily due to the improved pricing noted above , a better mix of business , and improved operating performance and management of fixed costs . fiscal 2012 compared to fiscal 2011. fiscal 2012 net sales increased $ 44.9 million , or 19.3 percent , from fiscal 2011 , primarily due to the addition of glassecviracon , which accounted for approximately 13 percentage points of the increase . improved pricing drove another approximately 10 percentage points of the increase , with a partial offset due to a slight decline in volume . for fiscal 2012 , the segment incurred an operating loss of $ 19.6 million , with an operating margin of negative 7.0 percent , compared to an operating loss of $ 49.1 million and a negative operating margin of 21.1 percent in fiscal 2011. the improvement was primarily due to improved pricing , a reduction in costs incurred to resolve product quality concerns and other cost reductions . architectural framing systems replace_table_token_9_th fiscal 2013 compared to fiscal 2012. fiscal 2013 net sales increased $ 16.2 million , or 9.3 percent , over fiscal 2012. volume growth was driven by the storefront and window businesses , including share gains in target markets and domestic geographic expansion . fiscal 2013 operating income was $ 14.6 million , with an operating margin of 7.6 percent , compared to $ 10.4 million and an operating margin of 5.9 percent in fiscal 2012. the fiscal 2013 improvement was primarily due to leverage on net sales growth in the segment , as well as better operating performance throughout the segment . fiscal 2012 compared to fiscal 2011. fiscal 2012 net sales increased $ 42.6 million , or 32.2 percent , over fiscal 2011. volume growth and increased market share in the storefront and window businesses drove the year-on-year improvement . fiscal 2012 operating income was $ 10.4 million , with an operating margin of 5.9 percent , compared to $ 0.2 million and an operating margin of 0.1 percent in fiscal 2011. the improved operating results were primarily due to leverage on net sales growth . architectural services replace_table_token_10_th fiscal 2013 compared to fiscal 2012. fiscal 2013 net sales increased $ 36.8 million , or 24.6 percent , over fiscal 2012. revenue growth due to expansion of our domestic footprint accounted for the majority of the increase , or approximately 15 percentage 21 points . the remaining 9 percentage points of the increase were due to increased volume serviced from our remaining domestic regions . for fiscal 2013 , the segment incurred an operating loss of $ 1.0 million , with an operating margin of negative 0.5 percent , compared to an operating loss of $ 2.9 million and a negative operating margin of 1.9 percent in fiscal 2012. the fiscal 2013 improvement was primarily due to the leverage on the net sales growth discussed above and positive project execution . these items were partially offset by costs incurred in the current fiscal year to start the domestic geographic expansion . in fiscal 2013 the segment was still working off projects that were bid at lower margins , but began to see higher-margin projects positively impact its results . fiscal 2012 compared to fiscal 2011. fiscal 2012 net sales were down $ 3.1 million , a 2.0 percent decline from fiscal 2011 , due to weak market conditions . in fiscal 2012 , the segment incurred an operating loss of $ 2.9 million , with a negative operating margin of 1.9 percent , compared to operating income of $ 11.3 million and an operating margin of 7.4 percent in fiscal 2011. the decrease was due to reduced volume and lower margin work in this business , as it was working on projects that were bid at lower margins , while retaining key resources in preparation for market recovery and geographic expansion . large-scale optical technologies ( lso ) replace_table_token_11_th fiscal 2013 compared to fiscal 2012. lso revenues were relatively flat to fiscal 2012 , increasing 1.8 percent in fiscal 2013. operating income as a percent of sales increased to 26.3 percent in fiscal 2013 from 25.0 percent in fiscal 2012 , with an increase of $ 1.4 million in operating income . a strong mix of value-added picture framing product sales in fiscal 2013 was somewhat offset by lower volume partially due to one less week in the current year . the segment also continued to experience strong operating performance , which contributed to the improved margins in the year . fiscal 2012 compared to fiscal 2011. lso revenues increased $ 3.1 million , or 4.1 percent , in fiscal 2012 to $ 78.5 million from $ 75.4 million in fiscal 2011 with an increase in sales to independent framers . the extra week in fiscal 2012 had a positive impact of 2 percentage points on sales . lso segment operating income as a percent of sales decreased to 25.0 percent in fiscal 2012 from 27.2 percent in fiscal 2011 and operating income was down $ 0.9 million . although we maintained a strong mix of value-added picture framing product sales in fiscal 2012 , margins were negatively impacted by spending on sales , marketing and new market development initiatives , including international expansion . consolidated backlog at march 2 , 2013 , our consolidated backlog was $ 298.3 million , up 25 percent over the march 3 , 2012 levels . we expect 85 percent of our total march 2 , 2013 backlog to be recognized in fiscal 2014 revenue .
| in addition , we benefited from completing higher margin work and positive project execution in the architectural services segment . selling , general and administrative ( sg & a ) expenses decreased as a percent of sales to 16.9 percent in fiscal 2013 from 17.1 percent in fiscal 2012 , while spending was up $ 5.0 million . the increase in spending was primarily due to increased expense for incentive compensation programs , as company operating performance improved . this was partially offset by a decrease in costs related to the chief executive officer ( ceo ) transition that were included in fiscal 2012 sg & a expenses . fiscal 2013 income tax expense returned to normal levels as compared to fiscal 2012 , which included tax benefits from credits and deductions on a low base of earnings and the impact of statute of limitation expirations for prior fiscal years . fiscal 2012 compared to fiscal 2011 consolidated gross profit was up 3.4 percentage points in fiscal 2012 due to higher pricing in the architectural glass segment and the margin impact from revenue growth in the architectural framing systems segment , partially offset by lower margin work in the architectural services segment . fiscal 2012 also benefited from a reduction in costs incurred to resolve product quality concerns within the architectural glass segment . sg & a expenses decreased as a percent of sales to 17.1 percent in fiscal 2012 from 17.9 percent in fiscal 2011 , while spending was up $ 9.2 million . approximately half of the increase in spending related to the impact of the addition of the glassecviracon business . transition costs related to our retiring ceo and hiring our new ceo , increased commissions as a result of increased sales , and increased promotional costs in our lso segment also contributed to the increase in spending . fiscal 2012 income tax expense on pre-tax income was more than offset by tax benefits from credits and deductions
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consequently , cib marine 's allowance for loan losses was materially understated in previously issued consolidated financial statements for the fiscal quarters ended march 31 and june 30 , 2003 and the years ended december 31 , 2002 and 2001. these consolidated financial statements were restated in the 2003 form 10-k. during 2004 , cib marine took action to remediate these internal control deficiencies . see item 9a-controls and procedures in part ii of this form 10-k for further information . other investments investments in limited partnerships and other equity investments which are not readily marketable are accounted for using the equity method when cib marine 's ownership is at least 3 % in a limited partnership and 20 % in a corporation , but less than 51 % . investments not accounted for under the equity method are accounted for using the cost method . all other investments are periodically evaluated for impairments . if an investment is impaired , a loss is recognized . to determine whether an investment is impaired , cib marine looks to various indicators including recent transactions , if any , and the investee 's financial condition . during 2004 , cib marine recognized $ 0.7 million of impairment losses on other investments . if different assumptions or conditions were to prevail , the carrying value of these investments may need to be further reduced and a loss recorded . at december 31 , 2004 and 2003 , other investments totaled $ 3.3 million and $ 9.6 million , respectively , all of which are illiquid . assets of companies held for sale or disposal companies , and or the operations of companies , which have met the accounting criteria of held for sale or disposal are carried at the lower of cost or fair market value less estimated selling costs . the valuations of such businesses are allocated to the assets and liabilities of the businesses . the asset groups are then periodically evaluated for impairment as required under financial accounting standards board ( fasb ) statement no . 144 , based upon the estimated undiscounted cash flows of the asset group . if the estimated undiscounted cash flows of the asset group are not sufficient to recover the carrying value of the asset group , then the fair value of the asset group is determined using a discounted cash flow approach . if the fair value of the asset group is less than the carrying amount , a loss is recognized . should future estimated cash flows be reduced or if applicable discount rates increase , then the carrying value of the asset groups may need to be reduced and a loss recorded . at december 31 , 2004 and 2003 , cib marine had two companies classified as held for sale/disposal , micr , which had a carrying value of $ 1.8 million and $ 4.0 million at december 31 , 2004 and 2003 , respectively and cib construction which had a carrying value of $ 2.6 million and $ 7.7 million for the respective years . additionally , at december 31 , 2004 the remaining net liabilities of mortgage services , inc were included in assets/liabilities of companies held for sale/disposal . in the third quarter of 2004 , cib marine sold substantially all the assets and operations of msi . cib marine is in the process of winding down the remaining affairs of this company and has incurred certain liabilities with respect to the 27 operations of the mortgage company . these liabilities totaling $ 1.8 million at december 31 , 2004 include repurchase obligations relative to certain mortgage loans as a result of external fraud and or documentation issues , and certain reporting penalties . income taxes cib marine recognizes expense for federal and state income taxes currently payable as well as for deferred federal and state taxes for estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the consolidated balance sheets , as well as loss carryforwards and tax credit carryforwards . realization of deferred tax assets is dependent upon cib marine generating sufficient taxable income in either the carryforward or carryback periods to cover net operating losses generated by the reversal of temporary differences . a valuation allowance is provided by way of a charge to income tax expense if it is determined that it is not more likely than not that some portion or all of the deferred tax asset will be realized . if different assumptions and conditions were to prevail , the valuation allowance may not be adequate to absorb unrealized deferred taxes and the amount of income taxes payable may need to be adjusted by way of a charge or credit to expense . furthermore , income tax returns are subject to audit by the irs , state taxing authorities , and foreign government taxing authorities . income tax expense for current and prior periods is subject to adjustment based upon the outcome of such audits . cib marine believes it has adequately accrued for all probable income taxes payable and provided valuation allowances for deferred tax assets where it has been determined to be not more likely than not that such assets are realizable . accrual of income taxes payable and valuation allowances against deferred tax assets are estimates subject to change based upon the outcome of future events . cib marine has entered into tax allocation agreements with its subsidiary entities included in the consolidated us federal and unitary and combined state income tax returns , including us operations of companies held for sale or disposal . these agreements govern the timing and amount of income tax payments required by the various entities . story_separator_special_tag due to the significant losses incurred in 2004 and the expectation of additional losses in 2005 and 2006 , management has determined that it is not more likely than not that the entire net deferred tax asset of $ 72.9 million at december 31 , 2004 , which includes the entire net deferred tax asset of companies held for sale or disposal of $ 8.8 million , will be realized . therefore , a valuation allowance of $ 72.8 million has been established , including $ 8.7 million for companies held for sale or disposal . introduction the following is a discussion and analysis of cib marine 's consolidated financial condition as of december 31 , 2004 and 2003 , and its changes in financial condition and results of operations for the three years ended december 31 , 2004 , 2003 and 2002. references in the discussion below to cib marine include cib marine 's subsidiaries unless otherwise specified . this discussion and analysis should be read in conjunction with the consolidated financial statements and notes contained in item 8 of this form 10k . overview cib marine had a net loss of $ 17.3 million in 2004 , a net loss of $ 137.6 million in 2003 and net income of $ 8.8 million in 2002. total assets at december 31 , 2004 were $ 1.4 billion , representing a 56.5 % decrease from total assets of $ 3.2 billion at december 31 , 2003. in 2003 , cib marine commenced a comprehensive review of the adequacy of its allowance for loan losses . this review resulted from regular examinations at certain of cib marine 's subsidiary banks by banking regulators and a deterioration in the credit quality of the loan portfolio , including a significant increase in nonperforming loans . external resources were employed to assist in the review of the loan portfolio and to investigate other loan related matters . as a result of cib marine 's review process , cib marine increased its allowance for loan losses in 2003 and also recognized an impairment loss of all goodwill relating to certain of its bank subsidiaries . these losses , and the related tax effects , significantly contributed to the net losses for 2003. in order to improve the financial strength of cib marine , including its liquidity and capital , cib marine directed its focus beginning in 2003 to improving the credit quality of its loan portfolio and enhancing its lending , credit and management culture . during 2004 , cib marine explored a number of alternatives to improve capital and strengthen the organization . on november 30 , 2004 , cib marine sold cib chicago to an unrelated banking organization at a gain of $ 15.6 million . a portion of the proceeds were used to pay off cib marine 's outstanding balance on its line of credit and infuse capital into central illinois bank , allowing the bank to meet its regulatory capital requirements . as a result of this sale , cib marine 's total assets at december 31 , 2004 were significantly less than total assets at december 31 , 2003 which included approximately $ 1.5 billion in assets at cib chicago . during 2004 , cib marine also sold msi and commercial finance at a combined net loss of approximately $ 0.5 million and commenced the wind down of certain other nonbank subsidiaries in order to more narrowly focus its resources on its core commercial and retail banking strategies . 28 story_separator_special_tag income replace_table_token_10_th ( 1 ) tax-equivalent basis of 35 % for 2003 and 2002. in the future , cib marine may not realize all of the tax benefits associated with these tax-exempt assets due to the substantial losses incurred in 2004. accordingly , 2004 is not presented on a tax-equivalent basis . cib marine continuing operations only : replace_table_token_11_th 31 replace_table_token_12_th ( 1 ) tax-equivalent basis of 35 % for 2003 and 2002. in the future , cib marine may not realize all of the tax benefits associated with these tax-exempt assets due to the substantial losses incurred in 2004 , and as of december 31 , 2004 no us federal or state loss carryback potential remains . accordingly , 2004 is not presented on a tax-equivalent basis . if 2004 had been shown on a tax-equivalent basis of 35 % , the net interest margin would have been 2.29 % . ( 2 ) loan balance totals include nonaccrual loans . ( 3 ) interest earned on loans includes amortized loan fees of $ 1.5 million , $ 4.7 million , and $ 3.2 million for the years ended december 31 , 2004 , 2003 and 2002 , respectively . ( 4 ) interest amounts include the effects of derivatives entered into for interest rate risk management and accounted for as fair value hedges . ( 5 ) net interest rate spread is the difference between the average rates on interest-earning assets and interest-bearing liabilities . ( 6 ) net interest margin is the ratio of net interest income , on a tax-equivalent basis , to average interest-earning assets . ( 7 ) excludes average loans of $ 1.6 million , $ 5.0 million and $ 6.2 million for 2004 , 2003 and 2002 , respectively , held by cib-chicago , which on a consolidated basis are classified as receivables from sale of stock . see note 13-stockholders ' equity in item 8 of this form 10-k for information on receivables from sale of stock . net interest income from continuing operations for 2004 as compared to the net interest income on a tax-equivalent basis for 2003 , decreased $ 18.7 million , or 36.4 % , from $ 51.4 million in 2003 to $ 32.7 million in 2004. the decrease was mainly due to a $ 223.4 million decline in the average balance of interest-earning assets and a 102 basis point decrease in the average yield on these assets .
| the decreases in the provision for credit losses in 2004 for both continuing and discontinued operations were due to an improvement in the overall quality of the credit portfolio resulting from actions cib marine took during the second half of 2003 and during 2004. cib marine 's net loss was $ 137.6 million for 2003 which is comprised of a $ 49.8 million net loss from continuing operations and a $ 87.8 million net loss from discontinued operations as compared to net income of $ 8.8 million in 2002 which is comprised of a $ 2.4 million net loss from continuing operations and a $ 11.2 million net income from discontinued operations . the $ 47.4 million increase in loss from continuing operations was driven by a $ 31.4 million increase in provision for credit losses , an $ 8.7 million increase in noninterest expense and a $ 6.1 million increase in income tax expense . the 2003 increase in noninterest expense was primarily due to $ 2.0 million of impairment losses on goodwill , a $ 3.2 million increase in losses related to the impairment and sale of equity investments and foreclosed properties , and a $ 3.9 million increase in compensation . the $ 99.0 million increase in loss from discontinued operations was driven by an $ 82.7 million increase in provision for credit losses , a $ 2.6 million decrease in net interest income and a $ 24.7 million increase in noninterest expense , net of noninterest income , partially offset by a $ 10.0 million decrease in income taxes . the net $ 24.7 million increase in noninterest expense , net of noninterest income was primarily due to $ 12.4 million impairment loss on goodwill and other intangibles , a $ 2.1 million loss on foreclosed properties , a $ 4.7 million impairment loss on assets held for disposal at december 31 , 2003 and a $ 2.8 million increase in collection and foreclosed property expenses . the increase in the provision for credit losses in 2003 for both continuing operations and discontinued operations was the result
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the covid-19 pandemic and the related governmental restrictions instituted to slow the spread of the virus continues to have a material adverse impact on the hospitality industry . as the virus spread and governments implemented restrictions to contain it , occupancy and revpar fell sharply . by the end of 2020 , we saw some improvements to revpar in the united states and in our portfolio compared to the extremely low levels in april 2020 , but the pace of recovery generally slowed in most regions in the fourth quarter of 2020 and into january 2021 due to sharp rises in covid-19 cases , which brought new or increased restrictions on business operations . as a result , we have experienced a significant reduction in bookings for hotel rooms during 2020 , which has negatively affected our occupancy levels and revpar and could materially and adversely affect the financial performance and value of our hotels . we expect that the slow pace state governments are lifting restrictions and the reduction in hotel demand as a result of the covid-19 pandemic will continue to keep our occupancy levels , adr and revpar below 2019 levels for at least the first quarter of 2021 , which will negatively impact cash flows from operations . each of our hotel properties have remained open from the onset of the pandemic . according to our hotel property str reports , in april 2020 , yoy change in revpar for our portfolio declined to a low of negative seventy-five percent ( 75 % ) , ranging from negative fifty-four percent ( 54 % ) to negative ninety-four percent ( 94.0 % ) per property . we saw improving demand at most of our hotel properties through 2020 , however , recovery has been uneven across the portfolio and a number of the markets in which our hotel properties are located continue to be subject to some level of restrictions on business operations . in december 2020 , the yoy change in revpar for our portfolio had improved to negative twenty-two percent ( 22 % ) , ranging from negative one percent ( 1 ) % to negative sixty-eight percent ( 68 ) % per property . the fluidity of this situation precludes any prediction as to the ultimate adverse impact of covid-19 on economic and market conditions , and , as a result , present material uncertainty and risk with respect to us and the performance of our investments . the full extent of the impact and effects of covid-19 will depend on future developments which are highly uncertain and can not be predicted with confidence , including , among other factors , the duration , severity and spread of the outbreak and potential for its recurrence , continued emergence of new strains of covid-19 , the distribution and efficacy of vaccines , along with related travel advisories , quarantines and restrictions , the recovery time of the disrupted industries , the impact of labor market interruptions , the impact of government interventions , and uncertainty with respect to the duration of the slowdown in leisure and business travel . even after travel advisories and restrictions are modified or lifted , demand for hotels may remain weak for a significant length of time , which may be a function of continued concerns over safety , unwillingness to travel , and decreased consumer spending due to economic conditions , including job losses . we can not predict if and when the demand for our hotel properties will return to pre-outbreak levels of occupancy and pricing . in addition , if in the future there is a pandemic , epidemic or outbreak of another highly infectious or contagious disease or other health concern affecting states or regions in which we operate , we and our properties may be subject to similar risks and uncertainties as posed by covid-19 . actions to preserve liquidity we have taken several measures intended to help maintain financial flexibility . the company has implemented expense reduction efforts at all properties , including reduced headcount , removed discretionary services , worked with vendors on pricing , negotiated property tax abatements , and reduced or deferred planned maintenance or discretionary capital expenditures as deemed appropriate . in april 2020 , we obtained loans totaling $ 0.8 million under the paycheck protection program ( the “ ppp ” ) to help pay for payroll costs , mortgage interest , rent or utility costs related to six of our hotel properties . we received full forgiveness of these loans subsequent to december 31 , 2020. see part ii . item 7 . “ management 's discussion and analysis of financial condition and results of operations – subsequent events ” . during 2020 , we entered into a new $ 5.0 million line of credit , of which the full $ 5.0 million was available as of the date of this filing . in addition , we amended the mortgage loans secured by two of our hotel properties to extend the maturity 43 date of such loans by six months and to defer the requirement to pay principal and interest until october 1 , 2020. we also entered into forbearance agreements in connection with mortgage loans secured by two of our hotel properties , pursuant to which the lenders agreed to forbear from exercising any available rights and remedies under such loans arising from the failure to make interest payments during the period beginning may 1 , 2020 through and including july 31 , 2020. we have further amended mortgage loans secured by two of our hotel properties to waive the required financial covenants through december 31 , 2020 , and to adjust certain financial covenants ; put into place certain liquidity requirements and restrictions on capital expenditures , related party payments , and cash distributions ; and extend certain pip completion deadlines with respect to two of the mortgage loans . story_separator_special_tag see item 7 “ management 's discussion and analysis of financial condition and results of operations – liquidity and capital resources – debt ” for more details regarding these measures . we have expanded our offering to include the offering of up to $ 30,000,000 of interval common stock , and the operating partnership commenced a private offering of up to $ 20,000,000 of series go lp units ( which may be increased to $ 30,000,000 in our sole discretion ) . see part ii . item 5 . “ market for registrant 's common equity , related stockholder matters and issuer purchases of equity securities – unregistered sales of equity securities ” for more details regarding capital raised during the period . to maintain cash reserves , we determined that it is in our best interests to declare distributions quarterly , if at all , beginning in the second quarter of 2020. further , the distributions declared for the second and third quarters of 2020 were declared and paid in stock , in part or in whole , pursuant to the drip . we are closely monitoring the impact of the covid-19 pandemic on our business and continue to assess the situation at our properties and operations on a daily basis . based on information currently available and our current projected operating cash flow needs and interest and debt repayments , we believe we have adequate cash for at least the next twelve months to fund our business operations , meet all of our financial commitments , and other obligations . however , we can not predict whether future developments related to the covid-19 pandemic will adversely affect our liquidity position . liquidity and capital resources overview we are dependent upon the net proceeds from our offering and the go unit offering to conduct our proposed operations . the offering will continue until the earlier of ( i ) the date when the maximum offering amount is sold , ( ii ) may 31 , 2022 , which may be extended by our board of directors in its sole discretion , or ( iii ) a decision by the company to terminate the offering . the go unit offering will continue until the earlier of ( i ) the sale of $ 20,000,000 in series go lp units ( which may be increased to $ 30,000,000 in the company 's sole discretion ) , ( ii ) june 14 , 2021 , which date may be extended until june 14 , 2022 in the sole discretion of the operating partnership or ( iii ) the operating partnership terminates the go unit offering at an earlier date in its sole discretion . in march 2021 , our board of directors extended the term of the go unit offering to june 14 , 2022. we intend to obtain the capital required to make real estate and real estate-related investments and conduct our operations from the proceeds of our offering and the go unit offering , from secured or unsecured financings from banks and other lenders and from any undistributed funds from our operations . as of december 31 , 2020 , we had raised approximately $ 75.3 million in gross offering proceeds from the sale of shares of our common stock in the offering and approximately $ 4.5 million in gross offering proceeds from the sale of shares of the series go lp units in our go unit offering . the pace of capital raised in our offering has slowed over the past several months compared to historical amounts since inception of the offering . however , the decrease in capital raise in our offering has been partially offset by capital raised through our go unit offering , which commenced in june 2020. if we are unable to raise substantial funds in the offering , we will make fewer investments resulting in less diversification in terms of the type , number and size of investments we make and the value of an investment in us will fluctuate more significantly with the performance of the specific assets we acquire . there may be a delay between the sale of shares of our common stock and units and our purchase of assets , which could result in a delay in the benefits to our stockholders , if any , of returns generated from our investment operations . further , we will have certain fixed operating expenses regardless of whether we are able to raise substantial funds in the offering and go unit offering . our inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income , reducing our net income and cash flow and limiting our ability to make distributions to our stockholders . 44 as of december 31 , 2020 , we owned seven properties . we acquired these investments with the proceeds from the sale of our common stock in the offering and debt financing . operating cash needs during the year ended december 31 , 2020 were met through cash flow generated by these real estate investments and with proceeds from our offering . our investments in real estate generate cash flow in the form of hotel room rentals and guest expenditures , which are reduced by operating expenditures , debt service payments and corporate general and administrative expenses . each of our current properties is owned and future properties will be owned by a direct special purpose entity subsidiary of the operating partnership , which leases the properties to direct special purpose entity subsidiaries of the master trs , referred to as “ trs lessees. ” the trs lessees are or will be required to make rent payments to the owners of the properties pursuant to the lease agreements relating to each property . such trs lessees ' ability to make rent payments to the owner subsidiaries and our liquidity , including our ability to make distributions to our stockholders , are dependent upon the trs lessees ability to generate cash flow from the operations of the hotel properties .
| revpar is equal to the total gross room revenue divided by the total number of available rooms for the period . comparison of the year ended december 31 , 2020 versus the year ended december 31 , 2019 revenue room revenues totaled $ 14.3 million and $ 8.5 for the years ended december 31 , 2020 and december 31 , 2019 , respectively . other revenue , which consists of revenues from other hotel services , was $ 218,145 and $ 114,628 for the years ended december 31 , 2020 and december 31 , 2019 , respectively . the increase in revenue is primarily due to a full year of operational income on hotel properties purchased during the year ended december 31 , 2019 , plus the addition of the lubbock fairfield property in january 2020 and the southaven property in february 2020. increases in room revenues overall were partially offset by cancellations and significant decreases in occupancy due to covid-19 starting in march 2020. for our portfolio of hotel properties owned during the period , occupancy , adr , and revpar were 57.86 % , $ 97.68 , and $ 56.51 , respectively , for the year ended december 31 , 2020 , compared to occupancy , adr , and revpar of 73.20 % , $ 112.92 , and $ 82.66 , respectively , for the period ended december 31 , 2019. decreases were the result of impacts to the travel industry from covid-19 starting in march 2020. we expect that room revenue , other revenue and total revenue will each increase in future periods as states and cities across the united states loosen restrictions and as a greater proportion of the population becomes vaccinated ; however , these increases could be offset by the emergence of vaccine-resistant variants of covid-19 or a lower than expected percentage of the population becoming vaccinated . we also expect increases as a result of owning our current hotel properties for a full operating period , as well as anticipated future acquisitions of
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our arm-mbs in their contractual adjustable-rate period primarily include mbs collateralized by hybrids for which the initial fixed-rate period has elapsed , such that the interest rate will typically adjust on an annual or semiannual basis . at december 31 , 2012 , we had $ 219.6 million of mbs with interest rates that reset monthly . premiums arise when we acquire mbs at a price in excess of the principal balance of the mortgages securing such mbs ( i.e. , par value ) . conversely , discounts arise when we acquire mbs at a price below the principal balance of the mortgages securing such mbs . premiums paid on our mbs are amortized against interest income and accretable purchase discounts on our mbs are accreted to interest income . purchase premiums on our mbs , which are primarily carried on our agency mbs , are amortized against interest income over the life of each security using the effective yield method , adjusted for actual prepayment activity . an increase in the prepayment rate , as measured by the cpr , will typically accelerate the amortization of purchase premiums , thereby reducing the yield/interest income earned on such assets . generally , if prepayments on our non-agency mbs are less than anticipated , we expect that the income recognized on such assets would be reduced and impairments could result . conditional prepayment rate ( or cpr ) levels are impacted by , among other things , conditions in the housing market , new regulations , government and private sector initiatives , interest rates , availability of credit to home borrowers , underwriting standards and the economy in general . in particular , cpr reflects the conditional repayment rate ( or crr ) , which measures voluntary prepayments of mortgages collateralizing a particular mbs , and the conditional default rate ( or cdr ) , which measures involuntary prepayments resulting from defaults . cprs on agency mbs and non-agency mbs may differ significantly . for the year ended december 31 , 2012 , our agency mbs portfolio experienced a weighted average cpr of 19.8 % , and our non-agency mbs portfolio ( including non-agency mbs underlying our linked transactions ) experienced a cpr of 15.0 % . over the last consecutive eight quarters , ending with december 31 , 2012 , the monthly fair value weighted average cpr on our mbs portfolio ranged from a high of 23.6 % experienced during the quarter ended march 31 , 2011 to a low of 15.2 % experienced during the quarter ended june 30 , 2011 , with an average cpr over such quarters of 17.7 % . when we purchase non-agency mbs at significant discounts to par value , we make certain assumptions with respect to each security . these assumptions include , but are not limited to , future interest rates , voluntary prepayment rates , default rates , mortgage modifications and loss severities . as part of our non-agency mbs surveillance process , we track and compare each security 's actual performance over time to the performance expected at the time of purchase or , if we have modified our original purchase assumptions , to our revised performance expectations . to the extent that actual performance of our non-agency mbs deviates materially from our expected performance parameters , we may revise our performance expectations , such that the amount of purchase discount designated as credit discount may be increased or decreased over time . nevertheless , credit losses greater than those anticipated or in excess of the recorded purchase discount could occur , which could materially adversely impact our operating results . 28 loans underlying agency arm-mbs generally reset based on the same benchmark index , while non-agency mbs may be collateralized by mortgage loans that reset based on various benchmark indices and may contain fixed-rate mortgages . the arms collateralizing our agency mbs are primarily comprised of hybrids ; which have interest rates that are typically fixed for three to ten years at origination and , thereafter , generally adjust annually to an increment over a specified interest rate index ; and , to a lesser extent , arms , which have interest rates that generally adjust annually ( although some may adjust more frequently ) to an increment over a specified interest rate index . because the expected yields on our non-agency mbs are significantly greater than the expected yields on non-credit sensitive assets , we believe that changes in non-agency mbs prices are generally not highly correlated to changes in market interest rates and are more significantly impacted by general economic conditions and housing specific performance . yields on non-agency mbs , unlike agency mbs , will exhibit sensitivity to changes in credit performance . the extent to which the yield on our non-agency mbs is impacted by the accretion of purchase discounts will vary over time , by security , based upon the amount of purchase discount , the actual credit performance and cprs experienced on each mbs . the amount by which our agency arm-mbs can reset is limited by the interim and lifetime caps on the underlying mortgages . the following table presents information about the interim and lifetime caps on our agency arm-mbs portfolio at december 31 , 2012 : lifetime interest rate caps on agency arms ( 1 ) replace_table_token_4_th interim interest rate caps on agency arms ( 2 ) replace_table_token_5_th ( 1 ) lifetime interest rate caps limit the amount interest rates can adjust upward from inception through maturity of a particular arm . ( 2 ) interim interest rate caps limit the amount interest rates on a particular arm can adjust during the next adjustment period . it is our business strategy to hold our mbs as long-term investments . on at least a quarterly basis , we assess our ability and intent to continue to hold each security and , as part of this process , we monitor our securities for other-than-temporary impairment . story_separator_special_tag a change in our ability and or intent to continue to hold any of our securities that are in an unrealized loss position , or a deterioration in the underlying characteristics of these securities , could result in our recognizing future impairment charges or a loss upon the sale of any such security . at december 31 , 2012 , we had net unrealized gains of $ 200.9 million on our agency mbs , comprised of gross unrealized gains of $ 202.4 million and gross unrealized losses of $ 1.5 million , and had net unrealized gains on our non-agency mbs of $ 623.9 million , comprised of gross unrealized gains of $ 630.2 million and gross unrealized losses of $ 6.3 million . at december 31 , 2012 , we did not intend to sell any of our mbs that were in an unrealized loss position , and we believe it is more likely than not that we will not be required to sell those mbs before recovery of their amortized cost basis , which may be at their maturity . ( see following discussion on recent market conditions and our strategy . ) we rely primarily on borrowings under repurchase agreements to finance our agency mbs and non-agency mbs . our mbs have longer-term contractual maturities than our borrowings under repurchase agreements . we have also engaged in resecuritization transactions with respect to our non-agency mbs , which provide access to non-recourse financing . even though the majority of our mbs have interest rates that adjust over time based on short-term changes in corresponding interest rate indices ( typically following an initial fixed-rate period for our hybrids ) , the interest rates we pay on our borrowings and securitized debt will typically change at a faster pace than the interest rates we earn on our mbs . in order to reduce this interest rate risk exposure , we may enter into derivative hedging instruments , which are currently comprised of swaps . our derivative hedging instruments are designated as cash-flow hedges against a portion of our current and forecasted libor-based repurchase agreements and securitized debt . our swaps do not extend the maturities of our repurchase agreements and or securitized debt ; they do , however , lock in a fixed rate of interest over their term for the notional amount of the swap corresponding to the hedged item . during 2012 , we entered into one new swap 29 with a notional amount of $ 100.0 million and a fixed-pay rate of 0.48 % and had swaps with an aggregate notional amount of $ 958.3 million and a weighted average fixed-pay rate of 3.87 % amortize and or expire . at december 31 , 2012 , we had swaps with an aggregate notional amount of $ 2.520 billion with a weighted average fixed-pay rate of 2.31 % and a weighted average variable interest rate of 0.22 % . recent market conditions and our strategy during 2012 , we continued to invest in both agency and non-agency mbs , as reflected by the increase in the size of our mbs portfolio at december 31 , 2012. during the year ended december 31 , 2012 , we acquired approximately ( i ) $ 2.246 billion of agency mbs at a weighted average purchase price of 104.9 % of par value and ( ii ) $ 1.351 billion of non-agency mbs at a weighted average purchase price of 76.1 % of par value . at december 31 , 2012 , our combined mbs portfolio was approximately $ 12.608 billion compared to $ 10.913 billion at december 31 , 2011. due to the interest rate environment in 2012 , yields on acquired assets were lower than in prior periods . at the end of 2012 , the average coupon on mortgages underlying our agency mbs was lower compared to the end of 2011 , due to acquisition of assets in the marketplace at generally lower coupons reflecting current market conditions and as a result of prepayments on higher yielding assets and resets on hybrid and arm-mbs within the portfolio . as a result , the coupon yield on our agency mbs portfolio declined 47 basis points to 3.58 % for 2012 from 4.05 % for 2011. in addition , the net agency mbs yield decreased to 2.83 % for 2012 , from 3.50 % for 2011. our non-agency mbs portfolio yielded 6.76 % for 2012 compared to 7.55 % for 2011. the decrease in the yield on our non-agency mbs portfolio is primarily due to the flattening ( downward movement in the later years ) of the forward yield curve , which causes us to lower the projected future coupons and therefore the expected yields on our hybrid non-agency mbs and the addition of newly acquired assets at yields less than our overall portfolio yield . our mbs portfolio acquisitions during 2012 reflected attractive investment opportunities and the continued availability of financing . we were able to selectively find relative value in the agency mbs market due , in part , to the positively-sloped u.s. treasury and libor yield curves and low funding costs . additionally , non-agency mbs were available in the marketplace at discounts to par value . we continue to believe that loss-adjusted returns on non-agency mbs represent attractive investment opportunities . the yields on our non-agency mbs that were purchased at a discount are generally positively impacted if prepayment rates on these securities exceed our prepayment assumptions . given rising multifamily rents , limited housing construction , capital flows into own-to-rent foreclosure purchases and demographic-driven u.s. household formation , there have been increasing signs of home price appreciation . however , we believe that we are appropriately factoring in the uncertainty regarding housing fundamentals into our cash flow projection and credit reserve analysis . a combination of both home price appreciation and mortgage amortization has led to a decrease in the loan-to-value ratio ( or ltv ) for many of the mortgages underlying our non-agency portfolio .
| for non-agency mbs , in addition to yield declines , spreads were also impacted to some extent by incrementally higher funding costs resulting from longer terms of financing . yields on agency mbs were impacted by the lower interest rate environment and higher cprs , while yields on non-agency mbs were primarily impacted by the addition of lower yielding assets and changes in expected future interest rates . interest income on our agency mbs for 2012 decreased $ 45.9 million , or 19.0 % to $ 196.1 million from $ 242.0 million for 2011. this change primarily reflects a decrease in the net yield on our agency mbs to 2.83 % for 2012 from 3.50 % for 2011 partially offset by an increase in the average amortized cost of our agency mbs portfolio to $ 6.926 billion for 2012 from $ 6.921 billion for 2011. during 2012 , our agency mbs portfolio experienced a 19.8 % cpr and we recognized $ 52.0 million of net premium amortization compared to a cpr of 19.0 % and $ 38.2 million of net premium amortization for 2011. at the end of 2012 , the average coupon on mortgages underlying our agency mbs was lower compared to the end of 2011 , due to acquisition of assets in the marketplace at generally lower coupons reflecting current market conditions and as a result of prepayments on higher yielding assets and resets on hybrid and arm-mbs within the portfolio . as a result , the coupon yield on our agency mbs portfolio declined 47 basis points to 3.58 % for 2012 from 4.05 % for 2011. at december 31 , 2012 , we had net purchase premiums on our agency mbs of $ 227.3 million , or 3.3 % of current par value , compared to net purchase premiums of $ 177.7 million and 2.6 % of par value at december 31 , 2011. interest income on our non-agency mbs ( which includes non-agency mbs transferred to consolidated vies ) increased $ 48.4
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we provide our bpo services in our gbs segment to customers under contracts that typically consist of a master services agreement or statement of work , which contains the terms and conditions of each program and service we offer . our agreements are usually short-term in nature , subject to early termination by our customers or us for any reason , typically with 30 to 90 days notice . revenue is recognized as services are performed and if collection is reasonably assured . in fiscal years 2012 and 2011 , no customer accounted for more than 10 % of our total revenue . in fiscal year 2010 , one customer accounted for 11 % of our total revenue . approximately 36 % , 35 % , and 38 % of our total revenue in fiscal years 2012 , 2011 , and 2010 , respectively , were derived from the sale of hp products and services . the market for it products and services is generally characterized by declining unit prices and short product life cycles . our overall business is also highly competitive on the basis of price . we set our sales price based on the market supply and demand characteristics for each particular product or bundle of products we distribute and services we provide . from time to time , we also participate in the incentive and rebate programs of our oem suppliers . these programs are important determinants of the final sales price we charge to our reseller customers . to mitigate the risk of declining prices and obsolescence of our distribution inventory , our oem suppliers generally offer us limited price protection and return rights for products that are marked down or discontinued by them . we carefully manage our inventory to maximize the benefit to us of these supplier provided protections . in our distribution services segment , we are highly dependent on the end-market demand for it and ce products and services . this end-market demand is influenced by many factors including the introduction of new it and ce products and software by oems , replacement cycles for existing it and ce products , overall economic growth and general business activity . a difficult and challenging economic environment may also lead to consolidation or decline in the it and ce industries and increased price-based competition . a significant portion of our cost of revenue is the purchase price we pay our oem suppliers for the products we sell , net of any rebates and purchase discounts received from our oem suppliers . cost of product distribution revenue also consists of provisions for inventory losses and write-downs , freight expenses associated with the receipt in and shipment out of our inventory , and royalties due to oem vendors . in addition , cost of revenue includes the cost of materials , labor and overhead for our contract assembly and bpo services . margins the distribution and contract assembly services industries in which we operate are characterized by low gross profit as a percentage of revenue , or gross margin , and low income from operations as a percentage of revenue , or operating margin . our gross margin has fluctuated annually due to changes in the mix of products and services we offer , customers we sell to , incentives and rebates received from our oem suppliers , competition , seasonality and replacement of less profitable business with investments in higher margin , more profitable lines and lower costs associated with increased efficiencies . increased competition arising from industry consolidation and low demand for it products may hinder our ability to maintain or improve our gross margin . generally , when our revenue becomes more concentrated on limited products or customers , our gross margin tends to decrease due to increased pricing pressure from oem suppliers or reseller customers . our operating margin from continuing operations has also fluctuated annually , based primarily on our ability to achieve economies of scale , the management of our operating expenses , changes in the relative mix of our distribution , contract assembly and bpo revenue , and the timing of our acquisitions and investments . economic and industry trends our revenue is highly dependent on the end-market demand for it and ce products . this end-market demand is influenced by many factors including the introduction of new it and ce products and software by oems , replacement cycles for existing it and ce products and overall economic growth and general business activity . a difficult and challenging economic environment may also lead to consolidation or decline in the it and ce distribution industry and increased price-based competition . the gbs industry is also extremely competitive . the customers ' performance measures are based on competitive pricing terms and quality of services . accordingly , we could be subject to pricing pressure and may experience a decline in our average selling prices for our services . during fiscal year 2010 , the economic environment was slow in recovering from the recession in the prior year . the economy stabilized and grew modestly during fiscal years 2011 and 2012. while we are susceptible to economic trends in the global economy , our distribution business is largely concentrated in the united states , canada and japan , so we will be most directly impacted by economic strength or weakness in these geographies . 26 seasonality our operating results are affected by the seasonality of the it and ce products industries . we have historically experienced higher sales in our fourth fiscal quarter due to patterns in the capital budgeting , federal government spending and purchasing cycles of our customers and end-users . these patterns may not be repeated in subsequent periods . deferred compensation plan we have a deferred compensation plan for a limited number of our directors and employees . we maintain a liability on our balance sheet for salary and bonus amounts deferred by participants and we accrue interest expense on uninvested amounts . story_separator_special_tag interest expense on the deferred amounts is classified in selling , general and administrative expenses on our consolidated statements of operations . the participant may designate one or more investments as the measure of investment return on the participant 's account . the equity securities are either classified as trading securities or cost-method securities . generally , the gains ( losses ) on the deferred compensation securities are recorded in other income ( expense ) , net and an equal amount is charged ( or credited if losses ) to selling , general and administrative expenses relating to compensation amounts which are payable to the plan participants . for the deferred compensation investments , we recorded a gain of $ 2.6 million , a loss of $ 1.1 million and a gain of $ 0.2 million , in fiscal years 2012 , 2011 and 2010 , respectively . critical accounting policies and estimates the discussions and analyses of our consolidated financial condition and results of operations are based on our consolidated financial statements , which have been prepared in conformity with generally accepted accounting principles in the united states . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of any contingent assets and liabilities at the financial statement date , and reported amounts of revenue and expenses during the reporting period . on an ongoing basis , we review and evaluate our estimates and assumptions , including those that relate to accounts receivable , vendor programs , inventories , goodwill and intangible assets , and income taxes . our estimates are based on our historical experience and a variety of other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making our judgment about the carrying values of assets and liabilities that are not readily available from other sources . actual results could differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies are affected by our judgment , estimates and or assumptions used in the preparation of our consolidated financial statements . revenue recognition . we generally recognize revenue on the sale of hardware and software products when they are shipped and on services when they are performed , if a purchase order exists , the sales price is fixed or determinable , collection of resulting accounts receivable is reasonably assured , risk of loss and title have transferred and product returns are reasonably estimable . provisions for sales returns are estimated based on historical data and are recorded concurrently with the recognition of revenue . these provisions are reviewed and adjusted periodically by us . revenue is reduced for early payment discounts and volume incentive rebates offered to customers . we recognize revenue on certain service contracts , post-contract software support services , and extended warranty contracts , where we are not the primary obligor , on a net basis . we provide services such as call center , renewals , maintenance and contract management services to our customers under contracts that typically consist of a master services agreement or statement of work , which contains the terms and conditions of each program and service offerings . typically the contracts are time-based or transactions or volume based . revenue is generally recognized over the term of the contract or when service has been rendered , the sales price is fixed or determinable and collection of the resulting accounts receivable is reasonably assured . our mexico operation primarily focuses on projects with the mexican government and other public agencies that are long-term in nature . under the agreements , we sell computers and equipment to contractors that provide services to the mexican government . we also sell computers , equipment and services directly to the mexican government . the payments are due on a monthly basis and contingent upon the satisfactory performance of certain services , fulfillment of certain obligations and meeting certain conditions . we recognize revenue and cost of revenue on a straight-line basis over the term of the contract as the contingencies are satisfied and payments become due . allowance for doubtful accounts . we provide allowances for doubtful accounts on our accounts receivable for estimated losses resulting from the inability of our customers to make payments for outstanding balances . in estimating the required allowance , we take into consideration the overall quality and aging of the accounts receivable , credit evaluations of customers ' financial condition and existence of credit insurance . we also evaluate the collectability of accounts receivable based on specific customer circumstances , current economic trends , historical experience with collections and value and adequacy of collateral received from customers . 27 oem supplier programs . we receive funds from oem suppliers for inventory price protection , product rebates , marketing and infrastructure reimbursement , and promotion programs . product rebates are recorded as a reduction of cost of revenue . marketing , infrastructure and promotion programs are recorded , net of direct costs , in selling , general and administrative expenses . any excess funds associated with these programs are recorded in cost of revenue . we accrue rebates based on the terms of the program and sales of qualifying products . some of these programs may extend over one or more quarterly reporting periods . certain oem supplier agreements provide a right for the suppliers to audit program claims on a periodic basis . amounts received or receivable from oem suppliers that are not yet earned are deferred on our balance sheet . actual rebates may vary based on volume or other sales achievement levels , which could result in an increase or reduction in the estimated amounts previously accrued . in addition , oem suppliers may seek to change the terms of some or all of these programs or cease them altogether . any such change could lower our gross margins on products we sell or revenue earned .
| the decrease in our software sales compared to the prior year is primarily due to lower sales from gaming software . overall , the demand for it products continued to be stable in north america while the demand for ce products was more challenging in north america and slower in japan . during fiscal year 2011 , our revenue in the distribution services segment increased compared to the prior year period due to our acquisition of infotec japan , stability in the market conditions in the united states and the full year impact of our 30 acquisition of jack of all games , which was completed at the end of our first fiscal quarter of 2010. this increase was offset by the sale of a portion of our contract assembly business in fiscal year 2010 and by transitioning of certain customer contracts from the traditional full service distribution relationship that had existed , to a fee-for-service basis starting in the fourth quarter of fiscal year 2011. during fiscal year 2011 , revenue from infotec japan was approximately $ 1.22 billion , or 12 % of our distribution revenue . compared to the prior year period , our sales in north america from peripherals increased 8 % , sales of it systems increased 8 % , sales of system components increased 10 % , sales of networking systems increased 19 % and sales of software increased 13 % . in our gbs segment , approximately 70 % of the increase in revenue in fiscal year 2012 as compared to fiscal year 2011 , was due to revenue generated from acquisitions that occurred in the fourth quarter of fiscal year 2011. in addition , we generated revenue from new customer accounts and increased revenue from our existing customer base . approximately 75 % of the increase in revenue in the fiscal year 2011 as compared to fiscal year 2010 , is revenue generated from our fiscal year 2011 acquisitions and the full year impact of our fiscal year 2010 fourth quarter acquisitions , offset
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the increase in amortization expense in 2017 as compared to 2016 was mainly due to the amortization of intangibles related to the company 's acquisitions and an increase in software amortization . other expenses or income , net other expenses , net , were $ 3.7 million in 2018 , compared to other income , net , of $ 0.7 million in 2017 and other expenses , net , of $ 7.8 million in 2016. the principal components of other expenses , net , in 2018 included $ 3.0 million of charges related to the usg segment restructuring activities , including the doble facility consolidations in norway , china , dubai and mexico ; and $ 0.8 million of charges within the filtration segment due to the exit of the low margin industrial/automotive market . the principal components of other income , net , in 2017 included $ 0.6 million from the sale of certain intellectual property and $ 0.4 million related to death benefit insurance proceeds from a former subsidiary . the principal components of other expenses , net , in 2016 included $ 4.9 million of restructuring costs related to the test segment facility consolidation and $ 2.2 million of costs related to the usg segment restructuring activities . the restructuring costs mainly related to severance and compensation benefits , professional fees and asset impairment charges related to abandoned assets . there were no other individually significant items included in other expenses ( income ) , net , in 2018 , 2017 or 2016 . 21 non-gaap financial measures the information reported herein includes the financial measures eps – as adjusted , which the company defines as eps excluding per-share restructuring charges related to the company 's restructuring actions in 2018 and the net recorded per-share tax benefit resulting from the implementation of u.s. tax reform in 2018 , defined purchase accounting inventory step-up charges and acquisition costs in 2017 and the restructuring charges related to the test and doble restructuring actions in 2016 ; ebit , which the company defines as earnings before interest and taxes , without adjustment for the defined purchase accounting inventory step-up charges , acquisition costs and restructuring charges ; and ebit margin , which the company defines as ebit expressed as a percentage of net sales . eps – as adjusted , ebit on a consolidated basis , and ebit margin on a consolidated basis are not recognized in accordance with u.s. generally accepted accounting principles ( gaap ) . however , the company believes that ebit and ebit margin provide investors and management with valuable information for assessing the company 's operating results . management evaluates the performance of its operating segments based on ebit and believes that ebit is useful to investors to demonstrate the operational profitability of the company 's business segments by excluding interest and taxes , which are generally accounted for across the entire company on a consolidated basis . ebit is also one of the measures management uses to determine resource allocations and incentive compensation . the company believes that the presentation of ebit , ebit margin and eps – as adjusted provides important supplemental information to investors by facilitating comparisons with other companies , many of which use similar non-gaap financial measures to supplement their gaap results . the use of non-gaap financial measures is not intended to replace any measures of performance determined in accordance with gaap . ebit replace_table_token_3_th the reconciliation of ebit to a gaap financial measure is as follows : replace_table_token_4_th filtration ebit increased $ 6.5 million in 2018 as compared to 2017 primarily due to the ebit contribution from mayday and crissair due to increased sales volumes , partially offset by a decrease at pti due to the decrease in sales volumes and the 2018 restructuring charges related to the exit of the low margin industrial/automotive market consisting primarily of severance and compensation benefits and asset impairment charges . ebit increased $ 7.0 million in 2017 as compared to 2016 mainly due to the ebit contribution from the westland and mayday acquisitions and an increase at vacco and pti due to increased sales volumes . ebit as a percent of net sales decreased in 2017 compared to 2016 mainly due to the purchase accounting inventory step-up charge at mayday of $ 1.9 million in 2017 and engineering and development cost growth on certain fixed price development contracts at vacco . test the $ 4.3 million increase in ebit in 2018 as compared to 2017 was primarily due to the increased sales volumes mainly from the segment 's u.s. operations . the $ 5.6 million increase in ebit in 2017 as compared to 2016 was primarily due to the $ 5.1 million of restructuring charges incurred in 2016 related to closing the test business operating facilities in germany and england , consisting mainly of employee severance and compensation benefits , professional fees , and asset impairment charges . 22 usg the $ 6.6 million increase in ebit in 2018 as compared to 2017 was mainly due to the higher sales volumes as well as the ebit contribution from the acquisitions of nrg , morgan schaffer and vanguard instruments . ebit in 2018 was negatively impacted by $ 3 million of charges recorded related to closing the doble facilities in norway , china , dubai and mexico , consisting mainly of employee severance and compensation benefits , professional fees , and asset impairment charges . the $ 5.5 million increase in ebit in 2017 as compared to 2016 was primarily due to higher sales volumes and additional contribution from new products and software solutions , as well as the ebit contribution from the 2017 acquisitions of nrg , morgan schaffer and vanguard instruments . ebit as a percent of net sales decreased in 2017 compared to 2016 mainly due to the purchase accounting inventory step-up charges at nrg , morgan schaffer and vanguard instruments totaling $ 1.9 million . story_separator_special_tag technical packaging ebit decreased $ 0.4 million in 2018 as compared to 2017 mainly due to product mix at teq and plastique including lower margin projects and higher material prices . ebit decreased $ 1.1 million in 2017 as compared to 2016 mainly due to higher sg & a expenses at plastique due to the full year being included in 2017. corporate corporate operating charges included in 2018 consolidated ebit increased to $ 37.0 million as compared to $ 32.1 million in 2017 due to an increase in professional fees and increased amortization of intangible assets on acquisitions . corporate operating charges included in 2017 consolidated ebit increased to $ 32.1 million as compared to $ 30.1 million in 2016 due to an increase in acquisition related expenses , mainly from increased amortization of intangible assets on acquisitions . the “ reconciliation to consolidated totals ( corporate ) ” in note 13 to the consolidated financial statements included herein represents corporate office operating charges . interest expense , net interest expense was $ 8.8 million in 2018 , $ 4.6 million in 2017 and $ 1.3 million in 2016. the increase in interest expense in 2018 as compared to 2017 was due to higher average outstanding borrowings ( $ 258.8 million compared to $ 211.3 million ) and higher average interest rates ( 3.0 % vs. 2.1 % ) as a result of the additional borrowings to fund the company 's recent acquisitions . the increase in interest expense in 2017 as compared to 2016 was due to higher average outstanding borrowings ( $ 211.3 million compared to $ 89.2 million ) and higher average interest rates ( 2.1 % vs. 1.6 % ) as a result of the additional borrowings to fund the company 's 2017 acquisitions ( mayday , morgan schaffer , nrg and vanguard instruments ) . income tax expense on december 22 , 2017 , president trump signed into law new tax legislation commonly referred to as the tax cut and jobs act ( the “ tcja ” ) . the tcja includes broad and complex changes to the u.s. tax code that impacted the company 's accounting and reporting for income taxes in 2018. these impacts primarily resulted from a reduction in the u.s. federal corporate income tax rate from 35 % to 21 % , effective january 1 , 2018 ; a remeasurement of u.s. deferred tax assets and liabilities ; and a one-time mandatory deemed repatriation tax on unremitted foreign earnings ( the “ transition tax ” ) , which may be paid over an eight-year period . the company also established a liability related to foreign withholding taxes in connection with the reversal of our indefinite reinvestment assertion related to foreign earnings subject to the transition tax . see note 7 , income taxes , to the consolidated financial statements of the company included in the financial information section of this annual report for further discussion related to the tcja . 23 the effective tax rates for 2018 , 2017 and 2016 were ( 4.7 ) % , 33.0 % and 32.9 % , respectively . the decrease in the 2018 effective tax rate as compared to 2017 was primarily due to the enactment of the tcja , which was signed into law on december 22 , 2017. the total impact of the tcja in 2018 was a net benefit of $ 24.4 million . the specific impacts of the tcja were primarily as follows : · the company 's 2018 federal statutory rate decreased from 35.0 % to 24.5 % which required an adjustment to the value of its deferred tax assets and liabilities . this adjustment of $ 30.6 million ( complete as of september 30 , 2018 ) favorably impacted the 2018 effective tax rate by 34.8 % . · the tcja subjected the company 's cumulative foreign earnings to $ 3.7 million ( provisional amount , refer to note 7 to the company 's consolidated financial statement included in this report ) of federal income tax which unfavorably impacted the 2018 effective tax rate by 4.2 % . in addition to the impacts from the tcja , the company recorded $ 2.4 million ( complete as of september 30 , 2018 ) for the income tax effects of the current and future repatriation of the cumulative earnings of its foreign subsidiaries which unfavorably impacted the 2018 effective tax rate by 2.8 % . · the company approved an additional $ 7.5 million pension contribution for the 2017 plan year during the second quarter of 2018 resulting in a favorable adjustment to the 2018 effective tax rate of 0.9 % . · an accounting method change was filed with the 2017 tax return which resulted in a favorable adjustment to the 2018 effective tax rate of 0.7 % . the increase in the 2017 effective tax rate as compared to 2016 was primarily due to normal tax fluctuations within the ordinary course of business . the company 's foreign subsidiaries had accumulated unremitted earnings of $ 3.5 million at september 30 , 2018. no deferred taxes have been provided on these accumulated unremitted earnings because these funds are not needed to meet the liquidity requirements of the company 's u.s. operations and it is the company 's intention to indefinitely reinvest these earnings in continuing international operations . in the event these foreign entities ' earnings were distributed , it is estimated that approximately $ 0.3 million of foreign tax withholding would be paid . the company does not expect that these taxes would be creditable against u.s. income tax , so they would correspondingly reduce the company 's net earnings . no significant portion of the company 's foreign subsidiaries ' earnings was taxed at a rate significantly less than the u.s. statutory tax rate . capital resources and liquidity the company 's overall financial position and liquidity are strong .
| the net sales increase of $ 22.0 million , or 13.7 % in 2018 as compared to 2017 was mainly due a $ 17.0 million increase in net sales from the segment 's u.s. operations and a $ 3.8 million increase in net sales from the segment 's asian operations both due to increased shipments of test and measurement chamber projects . the net sales decrease of $ 0.6 million in 2017 as compared to 2016 was mainly due to a $ 6.4 million decrease in net sales from the segment 's european operations due to the 2016 restructuring activities to close the test business operating facilities in germany and england , offset by a $ 7.5 million increase in net sales from its u.s. operations related to higher sales volumes of chamber projects . usg . the net sales increase of $ 51.6 million , or 31.8 % in 2018 as compared to 2017 was mainly due to the company 's acquisitions of nrg , morgan schaffer , and vanguard instruments , which contributed $ 21.2 million , $ 19.7 million and $ 11.9 million , respectively . the net sales increase of $ 34.6 million , or 27.1 % in 2017 as compared to 2016 was mainly driven by the company 's acquisitions of nrg and morgan schaffer , which contributed $ 16.2 million and $ 6.5 million , respectively ; and an $ 11.9 million increase in net sales at doble from new products and software solutions . technical packaging . the $ 5.0 million , or 6.0 % , increase in net sales in 2018 as compared to 2017 was mainly due to the $ 2.7 million increase in sales from plastique driven by fluctuations in currency and a $ 2.3 million increase in net sales from teq due to higher shipments to medical customers . 20 the $ 8.5 million , or 11.4 % , increase in net sales in 2017 as compared to 2016
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while we do not label these expenses as non-recurring , infrequent or unusual , management believes that it is helpful to adjust for these expenses when they do occur to allow for comparability of results between periods because each acquisition is ( and will be ) of varying size and complexity and may involve different types of expenses depending on the type of property being acquired and from whom . ffo , ffo per unit , affo , affo per unit and adjusted ebitda do not represent cash flow from operations as defined by u.s. gaap , should not be considered as an alternative to net income as defined by u.s. gaap and are not indicative of cash available to fund all cash flow needs . investors are also cautioned that ffo , ffo per unit , affo , affo per unit and adjusted ebitda as presented , may not be comparable to similarly titled measures reported by other reits due to the fact that not all real estate companies use the same definitions . the following table provides a reconciliation of our net income to ffo , affo and adjusted ebitda : replace_table_token_13_th 37 the following table provides a reconciliation of each segment 's net income to ffo , affo and adjusted ebitda : replace_table_token_14_th ( 1 ) other depreciation and other amortization includes both real estate and equipment depreciation and amortization of intangible assets from the trs . ( 2 ) net income , interest income and interest expense are net of intercompany interest eliminations of $ 10.9 million for the year ended december 31 , 2018 . the following table presents ffo and affo per diluted operating partnership unit : replace_table_token_15_th 38 liquidity and capital resources rental revenue is our primary source of cash from operations and is dependent on the tenant 's ability to pay rent . all of our indebtedness is held by the operating partnership and mgp does not guarantee any of the operating partnership 's indebtedness . mgp 's principal funding requirement is the payment of distributions on its class a shares , and its principal source of funding for these distributions is the distributions it receives from the operating partnership . mgp 's liquidity is therefore dependent upon the operating partnership 's ability to make sufficient distributions to it . the operating partnership 's primary uses of cash include payment of operating expenses , debt service and distributions to mgp . we believe that the operating partnership currently has sufficient liquidity to satisfy all of its commitments , including its distributions to mgp , the $ 246 million of indebtedness acquired in connection with the empire city transaction in january 2019 , which was immediately repaid at closing , and the $ 637.5 million the company will pay to mgm resorts in consideration for the park mgm lease transaction , and in turn , that we currently have sufficient liquidity to satisfy all our commitments in the form of $ 59.8 million in cash and cash equivalents held by the operating partnership as of december 31 , 2018 , expected cash flows from operations , $ 800.0 million of borrowing capacity under the operating partnership 's revolving credit facility as of december 31 , 2018 , the estimated proceeds received of $ 740.0 million , net of issuance costs , from the issuance of senior notes issued in january 2019 , as well as estimated net proceeds of $ 548.4 million from the public offering of class a shares in january 2019. see note 8 and note 11 to the accompanying financial statements for a description of our principal debt arrangements and additional details of the class a share offering , respectively . in addition , we expect to incur additional indebtedness in the future to finance acquisitions or for general corporate or other purposes . story_separator_special_tag following the year in which we failed to qualify to be taxed as a reit . real estate investments , property and equipment used in operations , and depreciation real estate costs related to the acquisition and improvement of our properties are capitalized and include expenditures that materially extend the useful lives of existing assets . property and equipment used in operations represents the fixed assets acquired in the northfield acquisition and was therefore recognized at fair value at the acquisition date . depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the assets . we consider the period of future benefit of an asset to determine its appropriate useful life . depreciation on our buildings , improvements and integral equipment is computed using the 41 straight-line method over an estimated useful life of 3 to 40 years . if we use a shorter or longer estimated useful life , it could have a material impact on our results of operations . we believe that 3 to 40 years is an appropriate estimate of useful life . impairment of real estate investments we continually monitor events and changes in circumstances that could indicate that the carrying amount of our real estate investments may not be recoverable or realized . in accordance with accounting standards governing the impairment or disposal of long-lived assets , the carrying value of long-lived assets , including land , buildings and improvements , land improvements , and equipment is evaluated whenever events or changes in circumstances indicate that a potential impairment has occurred relative to a given asset or assets . factors that could result in an impairment review include , but are not limited to , a current period cash flow loss combined with a history of cash flow losses , current cash flows that may be insufficient to recover the investment in a property over its remaining useful life , a projection that demonstrates continuing losses associated with the use of a long-lived asset , significant changes in the manner of use of the assets , or significant changes in business strategies . story_separator_special_tag while we do not label these expenses as non-recurring , infrequent or unusual , management believes that it is helpful to adjust for these expenses when they do occur to allow for comparability of results between periods because each acquisition is ( and will be ) of varying size and complexity and may involve different types of expenses depending on the type of property being acquired and from whom . ffo , ffo per unit , affo , affo per unit and adjusted ebitda do not represent cash flow from operations as defined by u.s. gaap , should not be considered as an alternative to net income as defined by u.s. gaap and are not indicative of cash available to fund all cash flow needs . investors are also cautioned that ffo , ffo per unit , affo , affo per unit and adjusted ebitda as presented , may not be comparable to similarly titled measures reported by other reits due to the fact that not all real estate companies use the same definitions . the following table provides a reconciliation of our net income to ffo , affo and adjusted ebitda : replace_table_token_13_th 37 the following table provides a reconciliation of each segment 's net income to ffo , affo and adjusted ebitda : replace_table_token_14_th ( 1 ) other depreciation and other amortization includes both real estate and equipment depreciation and amortization of intangible assets from the trs . ( 2 ) net income , interest income and interest expense are net of intercompany interest eliminations of $ 10.9 million for the year ended december 31 , 2018 . the following table presents ffo and affo per diluted operating partnership unit : replace_table_token_15_th 38 liquidity and capital resources rental revenue is our primary source of cash from operations and is dependent on the tenant 's ability to pay rent . all of our indebtedness is held by the operating partnership and mgp does not guarantee any of the operating partnership 's indebtedness . mgp 's principal funding requirement is the payment of distributions on its class a shares , and its principal source of funding for these distributions is the distributions it receives from the operating partnership . mgp 's liquidity is therefore dependent upon the operating partnership 's ability to make sufficient distributions to it . the operating partnership 's primary uses of cash include payment of operating expenses , debt service and distributions to mgp . we believe that the operating partnership currently has sufficient liquidity to satisfy all of its commitments , including its distributions to mgp , the $ 246 million of indebtedness acquired in connection with the empire city transaction in january 2019 , which was immediately repaid at closing , and the $ 637.5 million the company will pay to mgm resorts in consideration for the park mgm lease transaction , and in turn , that we currently have sufficient liquidity to satisfy all our commitments in the form of $ 59.8 million in cash and cash equivalents held by the operating partnership as of december 31 , 2018 , expected cash flows from operations , $ 800.0 million of borrowing capacity under the operating partnership 's revolving credit facility as of december 31 , 2018 , the estimated proceeds received of $ 740.0 million , net of issuance costs , from the issuance of senior notes issued in january 2019 , as well as estimated net proceeds of $ 548.4 million from the public offering of class a shares in january 2019. see note 8 and note 11 to the accompanying financial statements for a description of our principal debt arrangements and additional details of the class a share offering , respectively . in addition , we expect to incur additional indebtedness in the future to finance acquisitions or for general corporate or other purposes . story_separator_special_tag following the year in which we failed to qualify to be taxed as a reit . real estate investments , property and equipment used in operations , and depreciation real estate costs related to the acquisition and improvement of our properties are capitalized and include expenditures that materially extend the useful lives of existing assets . property and equipment used in operations represents the fixed assets acquired in the northfield acquisition and was therefore recognized at fair value at the acquisition date . depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the assets . we consider the period of future benefit of an asset to determine its appropriate useful life . depreciation on our buildings , improvements and integral equipment is computed using the 41 straight-line method over an estimated useful life of 3 to 40 years . if we use a shorter or longer estimated useful life , it could have a material impact on our results of operations . we believe that 3 to 40 years is an appropriate estimate of useful life . impairment of real estate investments we continually monitor events and changes in circumstances that could indicate that the carrying amount of our real estate investments may not be recoverable or realized . in accordance with accounting standards governing the impairment or disposal of long-lived assets , the carrying value of long-lived assets , including land , buildings and improvements , land improvements , and equipment is evaluated whenever events or changes in circumstances indicate that a potential impairment has occurred relative to a given asset or assets . factors that could result in an impairment review include , but are not limited to , a current period cash flow loss combined with a history of cash flow losses , current cash flows that may be insufficient to recover the investment in a property over its remaining useful life , a projection that demonstrates continuing losses associated with the use of a long-lived asset , significant changes in the manner of use of the assets , or significant changes in business strategies .
| the $ 573.1 million increase in use of cash for 2018 as compared to 2017 was primarily attributable to the northfield acquisition in july 2018. the $ 324.0 million increase in use of cash in 2017 as compared to 2016 was primarily attributable to the mgm national harbor transaction in october 2017. net cash provided by financing activities for the year ended december 31 , 2018 was $ 256.0 million , which was primarily attributable to net draws on our revolver of $ 550 million and our delayed draw on term loan a of $ 200 million , partially offset by repayments on our term loans of $ 22.3 million and our payment of $ 454.3 million of distributions and dividends . net cash used in financing activities for the year ended december 31 , 2017 was $ 120.4 million , which was primarily attributable to the $ 425.0 million repayment of assumed debt relating to the mgm national harbor transaction and $ 385.4 million in distributions and dividends paid , partially offset by the $ 350.0 million proceeds from the issuance of senior notes by the operating partnership and $ 404.7 million of proceeds from the issuance of class a shares . net cash provided by financing activities for the year ended december 31 , 2016 was $ 201.7 million , which was primarily attributable to net proceeds of $ 3.6 billion from the issuance of indebtedness by the operating partnership and net proceeds of $ 1.1 billion received from the issuance of class a shares , partially offset by $ 150.8 million in distributions and dividends paid as well as the $ 4.5 billion repayment of the bridge facilities that were assumed by the operating partnership in connection with the acquisition of the ipo properties and the borgata transaction . 39 dividends and distributions the following table presents the distributions declared and paid by the operating partnership and the distributions declared and paid by mgp . mgp pays its dividends with the receipt of its share of the operating partnership 's distributions . replace_table_token_16_th principal debt arrangements see note 8 to the accompanying combined and consolidated financial statements for information regarding our debt agreements as of december 31 , 2018 . capital expenditures see note 2 to the accompanying combined and consolidated financial statements for information regarding our capital expenditures , including non-normal tenant improvements as of december 31 , 2018 . inflation the master lease provides for certain increases in rent
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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 , 2011 : replace_table_token_22_th 42 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 , 2011 , the bank had cash and interest-bearing deposits with banks of $ 18.9 million and securities available for sale with a fair value of $ 111.4 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 , 2011 , the bank had total commitments to extend credit of $ 42.6 million . see note 16 in the accompanying notes to consolidated financial statements . at december 31 , 2011 , the bank had certificates of deposit scheduled to mature within one year of $ 50.1 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 , 2011 , the company ( on an unconsolidated basis ) had liquid assets of $ 278,000. the bank is required to maintain specific amounts of capital pursuant to occ regulations . as of december 31 , 2011 the bank was in compliance with all regulatory capital requirements which were effective as of such date with tangible , core and risk-based capital ratios of 10.1 % , 10.1 % and 17.1 % , respectively . see note 19 in the accompanying notes to consolidated financial statements . effect of inflation and changing prices the consolidated financial statements and related financial data presented in this report have been prepared in accordance with generally accepted accounting principles in the united states of america , which generally require the measurement of financial position and operating results in terms of historical dollars , without considering the changes in relative purchasing power of money over time due to inflation . the primary impact of inflation is reflected in the increased cost of the bank 's operations . unlike most industrial companies , virtually all the assets and liabilities of the financial institution are monetary in nature . as a result , interest rates generally have a more significant impact on the financial institutions performance than do general levels of inflation . interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services . market risk analysis qualitative aspects of market risk . the bank 's principal financial objective is to achieve long-term profitability while reducing its exposure to fluctuating market interest rates . the bank has sought to reduce the exposure of its earnings to changes in market interest rates by attempting to manage the mismatch between asset and liability maturities and interest rates . in order to reduce the exposure to interest rate fluctuations , the bank has developed strategies to manage its liquidity , shorten its effective maturities of certain interest-earning assets and decrease the interest rate sensitivity of its asset base . management has sought to decrease the average maturity of its assets by emphasizing the origination of short-term commercial and consumer loans , all of which are retained by the bank for its portfolio . the bank relies on retail deposits as its primary source of funds . management believes retail deposits , compared to brokered deposits , reduce the effects of interest rate fluctuations because they generally represent a more stable source of funds . 43 quantitative aspects of market risk . the bank does not maintain a trading account for any class of financial instrument nor does the bank engage in hedging activities or purchase high-risk derivative instruments . furthermore , the bank is not subject to foreign currency exchange rate risk or commodity price risk . the bank uses interest rate sensitivity analysis to measure its interest rate risk by computing changes in net portfolio value ( npv ) of story_separator_special_tag 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 , 2011 : replace_table_token_22_th 42 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 , 2011 , the bank had cash and interest-bearing deposits with banks of $ 18.9 million and securities available for sale with a fair value of $ 111.4 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 , 2011 , the bank had total commitments to extend credit of $ 42.6 million . see note 16 in the accompanying notes to consolidated financial statements . at december 31 , 2011 , the bank had certificates of deposit scheduled to mature within one year of $ 50.1 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 , 2011 , the company ( on an unconsolidated basis ) had liquid assets of $ 278,000. the bank is required to maintain specific amounts of capital pursuant to occ regulations . as of december 31 , 2011 the bank was in compliance with all regulatory capital requirements which were effective as of such date with tangible , core and risk-based capital ratios of 10.1 % , 10.1 % and 17.1 % , respectively . see note 19 in the accompanying notes to consolidated financial statements . effect of inflation and changing prices the consolidated financial statements and related financial data presented in this report have been prepared in accordance with generally accepted accounting principles in the united states of america , which generally require the measurement of financial position and operating results in terms of historical dollars , without considering the changes in relative purchasing power of money over time due to inflation . the primary impact of inflation is reflected in the increased cost of the bank 's operations . unlike most industrial companies , virtually all the assets and liabilities of the financial institution are monetary in nature . as a result , interest rates generally have a more significant impact on the financial institutions performance than do general levels of inflation . interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services . market risk analysis qualitative aspects of market risk . the bank 's principal financial objective is to achieve long-term profitability while reducing its exposure to fluctuating market interest rates . the bank has sought to reduce the exposure of its earnings to changes in market interest rates by attempting to manage the mismatch between asset and liability maturities and interest rates . in order to reduce the exposure to interest rate fluctuations , the bank has developed strategies to manage its liquidity , shorten its effective maturities of certain interest-earning assets and decrease the interest rate sensitivity of its asset base . management has sought to decrease the average maturity of its assets by emphasizing the origination of short-term commercial and consumer loans , all of which are retained by the bank for its portfolio . the bank relies on retail deposits as its primary source of funds . management believes retail deposits , compared to brokered deposits , reduce the effects of interest rate fluctuations because they generally represent a more stable source of funds . 43 quantitative aspects of market risk . the bank does not maintain a trading account for any class of financial instrument nor does the bank engage in hedging activities or purchase high-risk derivative instruments . furthermore , the bank is not subject to foreign currency exchange rate risk or commodity price risk . the bank uses interest rate sensitivity analysis to measure its interest rate risk by computing changes in net portfolio value ( npv ) of
| majority of the new commercial loans originated during 2011 were adjustable-rate loans and adjustable-rate loans now comprise 52 % of the total loan portfolio , compared to 50 % at the end of 2010. market interest rates remained at near historic lows throughout 2011 , so as loans and investment securities mature or pay down they are replaced with lower yielding new loan originations and investment purchases . 37 total interest expense decreased $ 1.7 million , from $ 5.5 million for 2010 to $ 3.8 million for 2011 , due to a decrease in the average cost of funds from 1.50 % for 2010 to 1.08 % for 2011 , and a decrease in the average balance of interest-bearing liabilities from $ 367.2 million for 2010 to $ 347.0 million for 2011. interest expense on deposits decreased 29.5 % from $ 4.4 million for 2010 to $ 3.1 million for 2011 as a result of a decrease in the average cost of interest-bearing deposits , which decreased from 1.32 % for 2010 to 0.96 % for 2011 and a decrease in the average balance of interest-bearing deposits from $ 336.0 million for 2010 to $ 323.3 million for 2011. both the decrease in the average cost of interest-bearing deposits and the average balance of interest-bearing deposits are primarily related to the maturity of higher rate time deposits that are either not renewed or are renewed at lower rates . interest expense on federal home loan bank advances decreased 42.1 % from $ 1.0 million for 2010 to $ 585,000 for 2011. the average cost of federal home loan bank advances decreased from 4.37 % for 2010 to 4.02 % for 2011 , and the average balance of federal home loan bank advances decreased from $ 23.1 million for 2010 to $ 14.6 million for 2011 , due to scheduled pay downs of advances . for further information , see average balance sheets
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average industry expectations for new vehicle sales volume for the year ending december 31 , 2012 are between 13.0 million and 14.0 million vehicles which , if realized , would be an increase of 2.4 % to 10.2 % from the industry volume for the year ended december 31 , 2011. changes in consumer confidence , availability of consumer financing or changes in the financial stability of the automotive manufacturers could cause 2012 industry results to vary . many factors such as brand and geographic concentrations have caused our past results to differ from the industry 's overall trend . use of estimates and critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates . critical accounting policies are those that are both most important to the portrayal of our financial position and results of operations and require the most subjective and complex judgments . the following is a discussion of what we believe are our critical accounting policies and estimates . see note 1 , description of business and summary of significant accounting policies , to the accompanying consolidated financial statements for additional discussion regarding our accounting policies . finance , insurance and service contracts we arrange financing for customers through various financial institutions and receive a commission from the lender either in a flat fee amount or in an amount equal to the difference between the actual interest rates charged to customers and the predetermined base rates set by the financing institution . we also receive commissions from the sale of various insurance contracts and non-recourse third party extended service contracts to customers . under these contracts , the applicable manufacturer or third party warranty company is directly liable for all warranties provided within the contract . in the event a customer terminates a financing , insurance or extended service contract prior to the original termination date , we may be required to return a portion of the commission revenue originally recorded to the third party provider ( chargebacks ) . the commission revenue for the sale of these products and services is recorded net of estimated chargebacks at the time of sale . our estimate of future chargebacks is established based on our historical chargeback rates , termination provisions of the applicable contracts and industry data . while chargeback rates vary depending on the type of contract sold , a 100 basis point change in the estimated chargeback rates used in determining our estimates of future chargebacks would have changed our estimated reserve for chargebacks at december 31 , 2011 by approximately $ 0.9 million . our estimate of chargebacks ( $ 11.1 million as of december 31 , 2011 ) is influenced by early contract termination events such as vehicle repossessions , refinancings and early pay-offs . if these factors negatively change , the resulting impact would affect our future estimate for chargebacks and could have a negative adverse impact on our operations , financial position and cash flows . our actual chargeback experience has not been materially different from our recorded estimates . goodwill and franchise assets in accordance with intangibles goodwill and other , in the asc , we test goodwill for impairment at least annually , or more frequently when events or circumstances indicate that impairment might have occurred . the asc also states that if an entity determines , based on an assessment of certain qualitative factors , that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount , then the first and second steps of the goodwill impairment test are unnecessary . as of december 31 , 2011 , we concluded based on qualitative factors that it was more likely than not that the fair value of our reporting unit was greater than its carrying value . accordingly , a step one evaluation was not required in conjunction with our annual impairment 34 evaluation in the year ended december 31 , 2011. see note 1 , description of business and summary of significant accounting policies , to the accompanying consolidated financial statements for further discussion . as a result of our impairment testing for the years ended december 31 , 2011 and 2010 , no goodwill impairment was required . the balance of our goodwill totaled approximately $ 468.5 million at december 31 , 2011. in accordance with intangibles goodwill and other , in the asc , we test franchise assets for impairment annually or more frequently if events or circumstances indicate possible impairment . we estimate the value of our franchise assets using a discounted cash flow model . the discounted cash flow model used contains inherent uncertainties , including significant estimates and assumptions related to growth rates , projected earnings and cost of capital . we are subject to financial risk to the extent that our franchise assets become impaired due to deterioration of the underlying businesses . the risk of a franchise asset impairment loss may increase to the extent the underlying businesses ' earnings or projected earnings decline . as a result of our impairment testing for the years ended december 31 , 2011 and 2010 , no franchise asset impairments were required . the balance of our franchise assets totaled approximately $ 64.8 million at december 31 , 2011. insurance reserves we have various high deductible retention and insurance programs that require us to make estimates in determining the ultimate liability we may incur for claims arising under these programs . we accrue for insurance reserves on a pro-rata basis throughout the year based on the expected year-end liability . story_separator_special_tag we estimate the ultimate liability under these programs is between $ 20.8 million and $ 23.0 million . as of december 31 , 2011 , we had $ 22.2 million reserved for such programs . changes in significant assumptions used in the development of the ultimate liability for these programs could have a material impact on the level of reserves , our operating results , financial position and cash flows . these significant assumptions would include the volume of claims , medical cost trends , claims handling and reporting patterns , historical claims experience , the effect of related court rulings and current or projected changes in state laws . from a sensitivity analysis perspective , it is difficult to quantify the effect of changes in any of these significant assumptions with the exception of the volume of claims . we believe a 10 % change in the volume of claims would have a proportional effect on our reserves . we believe our actual loss experience has not been materially different from our recorded estimates . lease exit accruals the majority of our dealership properties are leased under long-term operating lease arrangements . when leased properties are no longer utilized in operations , we record lease exit accruals . these situations could include the relocation of an existing facility or the sale of a dealership where the buyer will not be subleasing the property for either the remaining term of the lease or for an amount equal to our obligation under the lease , or in situations where a store is closed as a result of the associated franchise being terminated by the manufacturer and no other operations continue on the leased property . the lease exit accruals represent the present value of the lease payments , net of estimated sublease rentals , for the remaining life of the operating leases and other accruals necessary to satisfy lease commitments to the landlords . as of december 31 , 2011 , we had $ 39.1 million accrued for lease exit costs . a significant change in our assumptions regarding the time period necessary to obtain a subtenant or the amount of the anticipated sublease income could have a material effect on our accrual and , as a result , earnings . for example , assuming all other factors remain the same , a 50 % decrease in our estimated proceeds from subleases would change our lease exit accruals by approximately $ 1.0 million . in addition , based on the terms and conditions negotiated in the sale of dealerships in the future , additional accruals may be necessary if the purchaser of the dealership does not assume any associated lease , or we are unable to negotiate a sublease with the buyer of the dealership on terms that are identical to or better than those associated with the original lease . legal proceedings we are involved , and expect to continue to be involved , in numerous legal proceedings arising out of the conduct of our business , including litigation with customers , employment related lawsuits , contractual disputes 35 and actions brought by governmental authorities . as of december 31 , 2011 , we had accrued approximately $ 7.3 million in legal reserves . although we vigorously defend ourself in all legal and administrative proceedings , the outcomes of pending and future proceedings arising out of the conduct of our business , including litigation with customers , employment related lawsuits , contractual disputes , class actions , purported class actions and actions brought by governmental authorities , can not be predicted with certainty . an unfavorable resolution of one or more of these matters that are significant could exceed the amount of our legal reserve and have a material adverse effect on our business , financial condition , results of operations , cash flows or prospects . classification of dealerships in continuing and discontinued operations we classify the results from operations of our continuing and discontinued operations in our consolidated statements of income based on the provisions of presentation of financial statements in the asc . many of these provisions involve judgment in determining whether a dealership will be reported as continuing or discontinued operations . such judgments include whether a dealership will be sold or terminated , the period required to complete the disposition and the likelihood of changes to a plan for sale . if in future periods we determine that a dealership should be either reclassified from continuing operations to discontinued operations or from discontinued operations to continuing operations , previously reported consolidated statements of income will be reclassified in order to reflect that classification . at december 31 , 2011 , there were no dealerships classified as held for sale . income taxes as a matter of course , we are regularly audited by various taxing authorities and from time to time these audits result in proposed assessments where the ultimate resolution may result in us owing additional taxes . we believe that our tax positions comply , in all material respects , with applicable tax law and that we have adequately provided for any reasonably foreseeable outcome related to these matters . at december 31 , 2011 , there was approximately $ 18.6 million in reserves that we have provided for these matters ( including estimates related to possible interest and penalties ) included in accrued liabilities and other long-term liabilities in the accompanying consolidated balance sheets . from time to time , we engage in transactions in which the tax consequences may be subject to uncertainty . examples of such transactions include business acquisitions and disposals , including consideration paid or received in connection with such transactions . significant judgment is required in assessing and estimating the tax consequences of these transactions . we determine whether it is more-likely-than-not that a tax position will be sustained upon examination , including resolution of any related appeals or litigation processes , based on the technical merits of the position .
| of the $ 27.6 million recorded in discontinued operations in the year ending december 31 , 2009 , $ 11.4 million relates to lease exit accruals for our general motors dealerships which were terminated by the manufacturer in the fourth quarter ended december 31 , 2009. annually , we review franchise asset and property and equipment valuations . based on historical and projected operating losses for certain continuing operating dealerships , we determined that certain dealerships would not be able to recover recorded franchise asset and property and equipment asset balances and that we would not complete certain capital projects at these stores . as such , we partially or fully impaired the franchise asset , property and equipment asset values as well as costs for construction in progress for those stores . further , as a result of lowering the estimates of expected proceeds from the sale of certain dealerships held for sale based on market conditions , we recorded franchise asset , property and equipment and other asset impairment charges in discontinued operations . for the year ended december 31 , 2011 , we recorded $ 1.2 million of impairment related to property and equipment and construction in progress in continuing operations . see the table below for the amounts and classification of the charges recorded for the years ended december 31 , 2011 , 2010 and 2009. in accordance with intangibles goodwill and other , in the asc , we test goodwill for impairment at least annually , or more frequently when events or circumstances indicate that impairment might have occurred . for the year ended december 31 , 2009 , we recorded goodwill impairment charges due to the determination that a portion of the goodwill was not recoverable , based on estimated proceeds , while certain dealership operations were held for sale . for additional discussion of goodwill impairment testing , see note 1 , description of business and summary of significant accounting policies , to the accompanying consolidated financial statements . we entered into interest rate swap agreements to effectively convert a portion of our liborbased variable rate debt to a fixed rate , in order to reduce our exposure to market risks from fluctuations in interest rates . certain of our cash flow swaps do not meet the
| 12,808 |
based on our current production forecast for 2021 and assumed average nymex prices of $ 45.00 per bbl of crude oil and $ 2.50 per mcf of natural gas and an assumed average composite price of $ 12.00 per bbl for ngls , we expect 2021 cash flows from operations to exceed our capital investments in crude oil and natural gas properties . any excess cash flows from operations will be used towards reducing our indebtedness as well as returning capital to our shareholders . colorado political update certain interest groups in colorado opposed to oil and natural gas development generally , and hydraulic fracturing in particular , have historically advanced various alternatives for ballot initiatives which would result in significantly limiting or preventing oil and natural gas development in the state . senate bill 19-181 ( `` sb19-181 '' ) was enacted by the colorado legislature in 2019 to address concerns underlying the ballot initiatives . the cogcc conducted a series of rulemaking hearings pursuant to sb 19-181 during 2020 which resulted in updated regulatory and permitting requirements , including setbacks and siting requirements . the cogcc commissioners determined that locations with residential or high occupancy building units , schools or child care facilities within 2,000 feet would be subject to additional siting requirements , but also supported “ off ramps ” allowing oil and gas operators to site their drill pads as close as 500 feet from residential or high occupancy building units ( excluding schools and child care facilities ) in certain circumstances . the 2020 rulemaking hearings also resulted in the adoption of a number of other new regulatory requirements , including requirements regarding permitting , cumulative and surface impacts , asset transfers , venting and flaring , and remediation . however , third-party proposals which were presented to the cogcc prohibit or dramatically restrict oil and gas development were not adopted by the commissioners . governor polis has publicly stated his opposition to further ballot initiatives in 2022 while rulemaking under sb 19-181 is in process and has acknowledged the importance of regulatory certainty . it is nevertheless possible that future ballot initiatives will be proposed that would dramatically limit the areas of the state in which drilling would be permitted to occur . see part i , item1a . risk factors- relating to our business and the 42 industry-changes in laws and regulations applicable to us could increase our costs , impose additional operating restrictions or have other adverse effects on us . results of operations summary of operating results the following table presents selected information regarding our operating results : replace_table_token_16_th * percent change is not meaningful . ( 1 ) in march 2018 , we completed the disposition of our utica shale properties . 43 crude oil , natural gas and ngls sales crude oil , natural gas and ngls sales revenue for the year ended december 31 , 2020 decreased compared to the year ended december 31 , 2019 due to the following : replace_table_token_17_th crude oil , natural gas and ngls production the following table presents crude oil , natural gas and ngls production . replace_table_token_18_th * percent change is not meaningful . ( 1 ) in march 2018 , we completed the disposition of our utica shale properties . 44 net production volumes for oil , natural gas and ngls increased 38 % during 2020 compared to 2019. the overall production increase between periods was primarily due to producing properties acquired in the src acquisition , which added approximately 19.7 mmboe of incremental production in 2020 , and wells turned-in-line during 2020. these volume increases were partially offset by normal field production declines across our existing wells . the following table presents our crude oil , natural gas and ngls production ratio by operating region : replace_table_token_19_th ( 1 ) in march 2018 , we completed the disposition of our utica shale properties . midstream capacity our ability to market our production depends substantially on the availability , proximity and capacity of in-field gathering systems , compression and processing facilities , as well as transportation pipelines out of the basin , all of which are owned and operated by third parties . if adequate midstream facilities and services are not available on a timely basis and at acceptable costs , our production and results of operations could be adversely affected . in response to the substantial development drilling in our current areas of operation in recent years , third-party midstream providers have significantly expanded their midstream facilities and services . these third-party midstream facility expansions , in conjunction with the more recent slowdown in producer activity , have provided for improved and more stabilized line pressures and a production environment that is more favorable for producers , both currently and for the near term given anticipated producer activity levels . the ultimate timing and availability of adequate infrastructure remains out of our control . weather , regulatory developments and other factors also affect the adequacy of midstream infrastructure . like other producers , from time to time we enter into volume commitments with midstream providers in order to incentivize them to provide increased capacity to sufficiently meet our projected volume growth from our areas of operation . if our production falls below the level required under these agreements , we could be subject to transportation charges or aid in construction payments for commitment shortfalls . wattenberg field . beginning in the mid-fourth quarter of 2019 and continuing through the fourth quarter of 2020 , the combination of dcp midstream , lp 's ( `` dcp '' ) continued system expansions and the availability of both residue gas and ngl takeaway out of the basin allowed us to experience reduced line pressures for all of our operated areas of the wattenberg field . given current and forecasted activity levels in the basin , we anticipate that this expansion will provide ample processing capacity to accommodate our future operated production . story_separator_special_tag our production in the wattenberg field is significantly dependent on dcp 's gathering system , and this reliance increased considerably when we closed the src acquisition . we continue to work with our midstream service providers in an 45 effort to ensure all of the existing in-basin infrastructure is fully utilized and that all options for system expansion are evaluated and implemented to the extent possible to accommodate projected future volume growth from the field . as midstream infrastructure development and upstream capital discipline continues , we anticipate having the ability to move additional volumes on dcp 's system in the long-term . the successful and timely completion of incremental development projects depends on continued capital investment by midstream providers , which could be impacted during times of challenging market conditions . delaware basin . our production from the delaware basin was not materially affected by midstream or downstream capacity constraints during the year ended december 31 , 2020. similar to the wattenberg field , our crude oil netback pricing realizations were most negatively impacted by the demand reduction that resulted from covid-19 . pipeline utilization in the permian basin has fallen from the constrained levels experienced during the first quarter of 2020. the covid-19-induced downturn also forced widespread curtailments in natural gas production , which lowered pipeline utilization and eventually improved pricing differentials in the basin during the remainder of 2020. the completion of kinder morgan 's permian highway pipeline occurred in the fourth quarter of 2020 and provides additional takeaway capacity out of the permian basin . a portion of our natural gas production is committed to the use of this pipeline starting in january 2021. crude oil , natural gas and ngls pricing our results of operations depend upon many factors . key factors include market prices of crude oil , natural gas and ngls and our ability to market our production effectively . crude oil , natural gas and ngls prices have a high degree of volatility and our realizations can change substantially . our realized sales prices for crude oil , natural gas and ngls decreased 36 percent during 2020 as compared to 2019. the nymex average daily crude oil and nymex first-of-the-month natural gas prices decreased 31 percent and 21 percent , respectively , as compared to 2019. the decreases were primarily due to the effects of the covid-19 pandemic , geopolitical conditions and supply disruptions . 46 the following table presents weighted-average sales prices of crude oil , natural gas and ngls for the periods presented : replace_table_token_20_th * percent change is not meaningful . ( 1 ) in march 2018 , we completed the disposition of our utica shale properties . crude oil , natural gas and ngls revenues are recognized when we transfer control of crude oil , natural gas or ngls production to the purchaser . we consider the transfer of control to occur when the purchaser has the ability to direct the use of , and obtain substantially all of the remaining benefits from , the crude oil , natural gas or ngls production . we record sales revenue based on an estimate of the volumes delivered at estimated prices as determined by the applicable sales agreement . we estimate our sales volumes based on company-measured volume readings . we then adjust our crude oil , natural gas and ngls sales in subsequent periods based on the data received from our purchasers that reflects actual volumes delivered and prices received . our crude oil , natural gas and ngls sales are recorded using either the “ net-back ” or `` gross '' method of accounting , depending upon the related purchase agreement . we use the net-back method when control of the crude oil , natural gas or ngls has been transferred to the purchasers of these commodities that are providing transportation , gathering or processing services . in these situations , the purchaser pays us based on a percent of proceeds or a sales price fixed at index less specified deductions . the net-back method results in the recognition of a net sales price that is lower than the index on which the production is based because the operating costs and profit of the midstream facilities are embedded in the net price we are paid . we use the gross method of accounting when control of the crude oil , natural gas or ngls is not transferred to the purchaser and the purchaser does not provide transportation , gathering or processing services as a function of the price we receive . rather , we contract separately with midstream providers for the applicable transportation and processing on a per unit basis . under this method , we recognize revenues based on the gross selling price and recognize transportation , gathering and processing expenses . beginning in the second quarter of 2020 , covid-19 led to government restrictions on movement and economic activity , triggering a dramatic reduction in crude oil demand . this negatively impacted crude oil netback pricing realizations , which resulted in meaningful production curtailments during the second quarter of 2020. we expect our realized crude oil prices to be volatile through 2021 due to market uncertainties in crude oil demand as a result of covid-19 . 47 as discussed above , we enter into agreements for the sale and transportation , gathering and processing of our production , the terms of which can result in variances in the per unit realized prices that we receive for our crude oil , natural gas and ngls . information related to the components and classifications in the consolidated statements of operations is shown below . for crude oil , the average nymex prices shown below are based on average daily prices throughout each month and , for natural gas , the average nymex pricing is based on first-of-the-month index prices , as in each case this is the method used to sell the majority of these commodities pursuant to terms of the relevant sales agreements .
| billion in 2019. in 2020 , we generated a net loss of $ 724.3 million or , $ 7.37 per diluted share , compared to net loss of $ 56.7 million , or $ 0.89 per diluted share , in 2019. our net loss for the year ended december 31 , 2020 as compared to december 31 , 2019 was most significantly impacted by the increase in impairment of properties and equipment and the decrease in crude oil , natural gas and ngls sales , partially offset by the net commodity price risk management gain . adjusted ebitdax , a non-u.s. gaap financial measure , was $ 990.6 million and $ 882.7 million , in 2020 and 2019 , respectively . cash flows from operations were $ 870.1 million and $ 858.2 million in 2020 and 2019 , respectively , and adjusted cash flows from operations , a non-u.s. gaap financial measure , were $ 921.6 million and $ 825.4 million , respectively . adjusted free cash flow , a non-u.s. gaap financial measure , was $ 399.3 million for 2020 as compared to $ 37.7 million for 2019 . see reconciliation of non-u.s. gaap financial measures below for a more detailed discussion of these non-u.s. gaap financial measures and a reconciliation of these measures to the most comparable u.s. gaap measures . 40 src acquisition in january 2020 , we merged with src in a transaction valued at $ 1.7 billion , inclusive of src 's net debt . upon closing , we issued approximately 38.9 million shares of our common stock to src shareholders and holders of src equity awards , reflecting the issuance of 0.158 of a share of our common stock in exchange for each share of src common stock and the cancellation of outstanding src equity awards pursuant to the merger agreement . liquidity available liquidity as of december 31 , 2020 was $ 1.4 billion , which was comprised of $ 2.6 million
| 12,809 |
in june 2018 , the fasb issued asu no . 2018-07 , improvements to nonemployee share-based payment accounting , which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in asc 718 to include share-based payment transactions for acquiring goods and services from non-employees . asu no . 2018-07 is effective for annual periods beginning after december 15 , 2018 , including interim periods within those annual periods . early adoption is permitted , but entities may not adopt prior to adopting the new revenue recognition guidance in asc 606. the company is evaluating the impact this asu will have on its financial statements . in august 2018 , the fasb issued asu 2018-13 , “ changes to disclosure requirements for fair value measurements ” , which will improve the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements . the standard removes , modifies , and adds certain disclosure requirements , and is effective for fiscal years , and interim periods within those fiscal years , beginning after december 15 , 2019. the company will be evaluating the impact this standard will have on the company 's financial statements . management does not believe that any other recently issued , but not yet effective accounting pronouncements , if adopted , would have a material effect on the accompanying financial statements . 7 story_separator_special_tag style= '' font : 10pt times new roman , times , serif ; margin : 0 ; text-align : justify '' > comprehensive loss for the year ended september 30 , 2018 , we incurred a comprehensive loss of $ 1,059,868 as compared to $ 5,049,824 for the year ended september 30 , 2017 , a decrease of $ 3,989,956 resulting from the discussion above . liquidity , capital resources , and off-balance sheet arrangements liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements . we had working capital deficit of $ 888,693 and $ 67,491 of cash at september 30 , 2018 and working capital of $ 262 and $ 12,694 of cash at september 30 , 2017. cash flows for the year ended september 30 , 2018 compared to the year ended september 30 , 2017 net cash used in operating activities was $ 215,699 for the year ended september 30 , 2018 as compared to $ 147,156 for the year ended september 30 , 2017 , an increase of $ 68,543 . ● net cash used in operating activities for the year ended september 30 , 2018 primarily reflected a net loss of $ 1,058,972 and the add-back of non-cash items consisting of stock-based compensation of $ 105,000 , stock based conversion fees and non-cash penalty fees of $ 18,500 , amortization of debt discounts of $ 204,217 , accretion of debt premium of $ 37,082 , bad debt expense of $ 2,513 , loss on debt extinguishment of $ 41,481 , initial fair value of conversion option liability and loss from change in fair value of conversion option liability of $ 389,187 and , offset by a gain on sale of marketable securities of $ 838 , changes in operating assets and liabilities of $ 46,131 primarily related to an increase in accounts payable of $ 4,653 , accrued expenses of $ 29,569 and liabilities of discontinued operations of $ 9,430. during the year ended september 30 , 2018 , cash used in operating activities primarily consisted of payments of professional fees . ● net cash used in operating activities for the year ended september 30 , 2017 primarily reflected a net loss of $ 5,051,835 and the add-back of non-cash items consisting of stock-based compensation of $ 4,779,950 , amortization of software development costs and intangible asset of $ 30,617 , a non-cash asset impairment charge of $ 85,572 and a loss on sale of marketable securities of $ 1,693 , offset by changes in operating assets and liabilities of $ 6,847 primarily related to an increase in prepaid expenses of $ 4,167 offset by an increase in accounts payable of $ 18,532. during the year ended september 30 , 2017 , cash used in operating activities primarily consisted of payments of professional fees . net cash provided by investing activities was $ 2,676 for the year ended september 30 , 2018 as compared to net cash provided by investing activities of $ 10,020 for the year ended september 30 , 2017. during the year ended september 30 , 2018 , we received proceeds from the sale of marketable securities of $ 2,676. net cash provided by investing activities was $ 10,020 for the year ended september 30 , 2017. during the year ended september 30 , 2017 , we purchased marketable securities of $ 659 offset by the receipt of proceeds from the sale of marketable securities of $ 10,679. net cash provided by financing activities was $ 267,820 for the year ended september 30 , 2018 as compared to $ 115,258 for the year ended september 30 , 2017 , consisting of net proceeds from issuance of convertible debt for $ 266,750 and loan proceeds from a related party of $ 1,070 in fiscal year 2018. we received net proceeds from the sale of common stock of $ 115,258 for the year ended september 30 , 2017. cash requirements our management does not believe that our current capital resources will be adequate to continue operating our company and maintaining our business strategy for much more than 12 months . at the date hereof , we have minimal cash at hand . we require additional capital to implement our business and fund our operations . 10 since inception we have funded our operations primarily through equity and debt financings and we expect that we will continue to fund our operations through the equity and debt financing , either alone or through strategic alliances . additional funding story_separator_special_tag in june 2018 , the fasb issued asu no . 2018-07 , improvements to nonemployee share-based payment accounting , which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in asc 718 to include share-based payment transactions for acquiring goods and services from non-employees . asu no . 2018-07 is effective for annual periods beginning after december 15 , 2018 , including interim periods within those annual periods . early adoption is permitted , but entities may not adopt prior to adopting the new revenue recognition guidance in asc 606. the company is evaluating the impact this asu will have on its financial statements . in august 2018 , the fasb issued asu 2018-13 , “ changes to disclosure requirements for fair value measurements ” , which will improve the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements . the standard removes , modifies , and adds certain disclosure requirements , and is effective for fiscal years , and interim periods within those fiscal years , beginning after december 15 , 2019. the company will be evaluating the impact this standard will have on the company 's financial statements . management does not believe that any other recently issued , but not yet effective accounting pronouncements , if adopted , would have a material effect on the accompanying financial statements . 7 story_separator_special_tag style= '' font : 10pt times new roman , times , serif ; margin : 0 ; text-align : justify '' > comprehensive loss for the year ended september 30 , 2018 , we incurred a comprehensive loss of $ 1,059,868 as compared to $ 5,049,824 for the year ended september 30 , 2017 , a decrease of $ 3,989,956 resulting from the discussion above . liquidity , capital resources , and off-balance sheet arrangements liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements . we had working capital deficit of $ 888,693 and $ 67,491 of cash at september 30 , 2018 and working capital of $ 262 and $ 12,694 of cash at september 30 , 2017. cash flows for the year ended september 30 , 2018 compared to the year ended september 30 , 2017 net cash used in operating activities was $ 215,699 for the year ended september 30 , 2018 as compared to $ 147,156 for the year ended september 30 , 2017 , an increase of $ 68,543 . ● net cash used in operating activities for the year ended september 30 , 2018 primarily reflected a net loss of $ 1,058,972 and the add-back of non-cash items consisting of stock-based compensation of $ 105,000 , stock based conversion fees and non-cash penalty fees of $ 18,500 , amortization of debt discounts of $ 204,217 , accretion of debt premium of $ 37,082 , bad debt expense of $ 2,513 , loss on debt extinguishment of $ 41,481 , initial fair value of conversion option liability and loss from change in fair value of conversion option liability of $ 389,187 and , offset by a gain on sale of marketable securities of $ 838 , changes in operating assets and liabilities of $ 46,131 primarily related to an increase in accounts payable of $ 4,653 , accrued expenses of $ 29,569 and liabilities of discontinued operations of $ 9,430. during the year ended september 30 , 2018 , cash used in operating activities primarily consisted of payments of professional fees . ● net cash used in operating activities for the year ended september 30 , 2017 primarily reflected a net loss of $ 5,051,835 and the add-back of non-cash items consisting of stock-based compensation of $ 4,779,950 , amortization of software development costs and intangible asset of $ 30,617 , a non-cash asset impairment charge of $ 85,572 and a loss on sale of marketable securities of $ 1,693 , offset by changes in operating assets and liabilities of $ 6,847 primarily related to an increase in prepaid expenses of $ 4,167 offset by an increase in accounts payable of $ 18,532. during the year ended september 30 , 2017 , cash used in operating activities primarily consisted of payments of professional fees . net cash provided by investing activities was $ 2,676 for the year ended september 30 , 2018 as compared to net cash provided by investing activities of $ 10,020 for the year ended september 30 , 2017. during the year ended september 30 , 2018 , we received proceeds from the sale of marketable securities of $ 2,676. net cash provided by investing activities was $ 10,020 for the year ended september 30 , 2017. during the year ended september 30 , 2017 , we purchased marketable securities of $ 659 offset by the receipt of proceeds from the sale of marketable securities of $ 10,679. net cash provided by financing activities was $ 267,820 for the year ended september 30 , 2018 as compared to $ 115,258 for the year ended september 30 , 2017 , consisting of net proceeds from issuance of convertible debt for $ 266,750 and loan proceeds from a related party of $ 1,070 in fiscal year 2018. we received net proceeds from the sale of common stock of $ 115,258 for the year ended september 30 , 2017. cash requirements our management does not believe that our current capital resources will be adequate to continue operating our company and maintaining our business strategy for much more than 12 months . at the date hereof , we have minimal cash at hand . we require additional capital to implement our business and fund our operations . 10 since inception we have funded our operations primarily through equity and debt financings and we expect that we will continue to fund our operations through the equity and debt financing , either alone or through strategic alliances . additional funding
| ● for the year ended september 30 , 2018 there was a decrease in amortization of software development costs of $ 30,617 ( or 100 % ) arising from the impairment of these costs during the year ended september 30 , 2017. operating loss from operations from continuing operations for the year ended september 30 , 2018 , we incurred an operating loss from operations from continuing operations of $ 252,736 as compared to $ 5,046,967 for the year ended september 30 , 2017 , a decrease of $ 4,794,231. the decrease was resulting from the discussion above . 8 other expenses for the year ended september 30 , 2018 , we incurred total other expense of $ 719,052 as compared to other expense of $ 1,151 , an increase of $ 717,901. the increase in other expenses was primarily related to the recording of an initial fair value of a conversion option liability and a net loss from changes in fair value of the conversion option liability of $ 389,187 and interest expense of $ 289,363 from convertible note borrowings during the year ended september 30 , 2018 as compared to $ 0 for the year ended september 30 , 2017. discontinued operations the remaining assets and liabilities of discontinued operations are presented in the balance sheets under the caption “ assets of discontinued operations ” and “ liabilities of discontinued operations ” which relate to the operations of the online payment processing services . the carrying amounts of the major classes of these assets and liabilities as of september 30 , 2018 and 2017 are summarized as follows : as of september 30 , 2018 2017 assets : accounts receivable $ - $ 1,761 accounts receivable – related party - 980 assets of discontinued operations $ - $ 2,741 liabilities : accounts payable $ 14,286 4,856 liabilities of discontinued operations $ 14,286 $ 4,856 the following table sets forth for the years ended september 30 , 2018 and 2017 , selected financial data of the company 's discontinued operations of its online payment processing services . replace_table_token_1_th net loss for the year ended september 30 , 2018 , we incurred a net
| 12,810 |
our manager outlook is that ( i ) covid-19 related growth setbacks have meaningful reduced global and u.s. growth , ( ii ) the medical battle will take time and prolonged efforts but recent developments are encouraging , ( iii ) second half of 2021 should should see meaning pick up in growth as the economy reopens ( iv ) u.s. and global inflation are expected to be very subdued , ( v ) fiscal policy and monetary policy will remain supportive , and ( vi ) central banks are expected to keep rates low for long . we continue to operate with a defensive stance to preserve liquidity , reduce our exposure to short-term repurchase agreement financings , and reduce expenses . see item 1a . `` risk factors '' of this annual report on form 10-k additional factors that may impact our operating results . also , please see `` liquidity and capital resources '' section of this annual report on form 10-k for additional discussion surrounding the ongoing impact we expect covid-19 will have on our liquidity and capital resources . critical accounting policies the consolidated financial statements include our accounts , those of our consolidated 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 . for a review of recent accounting pronouncements that may impact our results of operations , refer note 2 - “ summary of significant accounting policies ” contained in this annual report on form 10-k. 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 ) . asc 820 `` fair value measurements and disclosures '' establishes a framework for measuring fair value and expands financial statement disclosure requirements for fair value measurements . asc 820 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 i — quoted prices in active markets for identical assets or liabilities . level ii — quoted 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 iii — prices 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 value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety . transfers between levels are determined by us at the end of the reporting period . mortgage-backed securities and other securities our mortgage-backed securities and other securities portfolio primarily consists of agency rmbs , non-agency rmbs , agency cmbs , non-agency cmbs , abs and other real estate related assets . these investments are recorded in accordance with asc 320 , “ investments - debt and equity securities , ” asc 325-40 , “ beneficial interests in securitized financial assets ” or asc 310-30 , “ loans and debt securities acquired with deteriorated credit quality. ” we have chosen to make a fair value election pursuant to asc 825 , “ financial instruments ” for our mortgage-backed securities and other securities 36 portfolio . electing the fair value option allows us to record changes in fair value in the consolidated statements of operations as a component of “ unrealized gain ( loss ) , net. ” as of january 1 , 2020 , we adopted asu 2016-13 , “ financial instruments - credit losses ( topic 326 ) : measurement of credit losses on financial instruments or cecl in the first quarter of 2020. the standard significantly changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through the income statement . the standard replaced the current `` incurred loss '' approach with an `` expected loss '' model for instruments measured at amortized cost . since we elected the fair value option for our mortgage-backed securities and other securities , we we do not apply the expected loss model instead we record changes in fair value of these investment in the consolidated statements of operations as a component of `` unrealized gain ( loss ) , net . '' if we purchase securities with evidence of credit deterioration , we will analyze to determine if the guidance in asu 2016-13 , `` financial instruments - credit losses , is applicable . residential whole loans investments in residential whole loans are recorded in accordance with asc 310-20 , `` nonrefundable fees and other costs . '' we have chosen to make the fair value election pursuant to asc 825 for our entire residential whole-loan portfolio . residential whole loans are recorded at fair value with periodic changes in fair market value being recorded in earnings as a component of `` unrealized gain ( loss ) , net . '' story_separator_special_tag all other costs incurred in connection with acquiring residential whole loans or committing to purchase these loans are charged to expense as incurred . on a quarterly basis , we evaluate the collectability of both interest and principal of each loan , if circumstances warrant , to determine whether such loan is impaired . a loan is impaired when , based on current information and events , it is probable that we will be unable to collect all amounts due according to the existing contractual terms . we do not record an allowance for credit losses under asu 2016-13 as we have elected the fair value option . residential bridge loans for the bridge loans acquired prior to october 25 , 2017 , we did not elect the fair value option pursuant to asc 825 and accordingly these loans are recorded at their principal amount outstanding , net of any premium or discount in the consolidated balance sheets . commencing with purchases subsequent to october 25 , 2017 , we decided to elect the fair value option pursuant to asc 825 to be consistent with the accounting of our other investments , which are all carried at fair value . these loans are recorded at fair value with periodic changes in fair market value being recorded in earnings as a component of `` unrealized gain ( loss ) , net '' . all other costs incurred in connection with acquiring the residential bridge loans or committing to purchase these loans are charged to expense as incurred . a loan is impaired when , based on current information and events , it is probable that we will be unable to collect all amounts due according to the existing contractual terms . we evaluate each of residential bridge loans on a quarterly basis . these loans are individually specific as they relate to the borrower , collateral type , interest rate , ltv and term as well as geographic location . we evaluate the collectability of both principal and interest of each loan . when a loan is impaired , the impairment is then measured based on fair value of the collateral , since these loans are collateral dependent . upon measurement of impairment , we record an allowance for credit losses to reduce the carrying value of the loan with a corresponding charge to net income for those loans that we did not elect the fair value option . significant judgments are required in determining impairment , including assumptions regarding the value of the loan , the value of the underlying collateral and other provisions such as guarantees . we do not record an allowance for credit losses for the residential bridge loans under asu 2016-13 that we elected the fair value option . securitized commercial loans securitized commercial loans are comprised of commercial loans of consolidated variable interest entities which were sponsored by third parties . these loans are recorded in accordance with asc 310-20 , `` nonrefundable fees and other costs . '' we have chosen to make the fair value election pursuant to asc 825. accordingly , these loans are recorded at fair value with periodic changes in fair value being recorded in earnings as a component of `` unrealized gain ( loss ) , net . '' the securitized commercial loans are typically collateralized by commercial real estate . as a result , we regularly evaluate the extent and impact of any credit migration associated with the performance and or value of the underlying collateral property as well as the financial and operating capability of the borrower on a loan by loan basis . on a quarterly basis , we evaluate the collectability of both interest and principal of each loan , if circumstances warrant , to determine whether such loan 37 is impaired . a loan is impaired when , based on current information and events , it is probable that we will be unable to collect all amounts due according to the existing contractual terms . we do not record an allowance for credit losses under asu 2016-13 as we have elected the fair value option . commercial loans investments in commercial loans , which are comprised of commercial mortgage loans and commercial mezzanine loans , are recorded in accordance with asc 310-20 , `` nonrefundable fees and other costs . '' we have chosen to make the fair value election pursuant to asc 825 for our commercial loan portfolio . accordingly , these loans are recorded at fair value with periodic changes in fair value being recorded in earnings as a component of `` unrealized gain ( loss ) , net . '' all other costs incurred in connection with acquiring the commercial loans or committing to purchase these loans are charged to expense as incurred . our loans are typically collateralized by commercial real estate . as a result , we regularly evaluate the extent and impact of any credit migration associated with the performance and or value of the underlying collateral property as well as the financial and operating capability of the borrower on a loan by loan basis . on a quarterly basis , we evaluate the collectability of both interest and principal of each loan , if circumstances warrant , to determine whether such loan is impaired . a loan is impaired when , based on current information and events , it is probable that we will be unable to collect all amounts due according to the existing contractual terms . we do not record an allowance for credit losses under asu 2016-13 because we have elected the fair value option . interest income recognition 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 . we record interest income in accordance with asc subtopic 835-30 `` imputation of interest , '' using the effective interest method .
| during the second half of 2020 , we continued to make progress towards strengthening our balance sheet , improving liquidity , shareholders equity and the earnings power of the portfolio . for the year ended december 31 , 2020 , we generated a net loss of $ 328.3 million or $ 5.72 per basic and diluted weighted common share , compared to net income of $ 70.7 million or $ 1.37 per basic and diluted weighted common share for the year ended december 31 , 2019. our results of operations , for the second half of 2020 , was positively impacted by improved valuations on our investment portfolio , specifically our residential whole loan investments . our credit sensitive portfolio continued to perform in line with our expectations . 52 the following tables set forth certain information regarding our net interest income on our investment portfolio for the years ended december 31 , 2020 and december 31 , 2019 ( dollars in thousands ) : replace_table_token_22_th replace_table_token_23_th 53 ( 1 ) average cost of funds does not include the interest expense related to our derivatives . in accordance with gaap , such costs are included in `` gain ( loss ) on derivative instruments , net '' in the consolidated statements of operations . ( 2 ) since we do not apply hedge accounting , our net interest margin is this table does not reflect the benefit / cost of our interest rate swaps . see non-gaap financial measure section for net investment income table that includes the benefit / cost from our interest rate swaps . interest income for the years ended december 31 , 2020 and december 31 , 2019 , we earned interest income on our investments of approximately $ 178.0 million and $ 217.3 million , respectively . the decrease in interest income for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 was driven by the sales of a significant portion of our investment portfolio to meet margin calls . we sold $ 2.0
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net sales decreased in north america by $ 25.2 million , or 5.5 % , to $ 435.6 million in fiscal 2020 , compared to $ 460.8 million in fiscal 2019. the decrease was primarily due to the adverse impact from the covid-19 pandemic and the adverse impact from the uaw labor strike at gm , partially offset by higher sales from the grakon acquisition . net sales in europe increased by $ 6.4 million , or 3.3 % , to $ 202.1 million in fiscal 2020 , compared to $ 195.7 million in fiscal 2019. the weaker euro decreased net sales in europe by $ 7.6 million . excluding the impact of foreign currency translation , net sales in europe increased by $ 14.0 million primarily due to higher sales volumes of sensor and switch products , partially offset by the adverse impact of the covid-19 pandemic . net sales in asia decreased by $ 3.8 million , or 4.9 % , to $ 74.4 million in fiscal 2020 , compared to $ 78.2 million in fiscal 2019. the weaker chinese renminbi decreased net sales in asia by $ 2.6 million . excluding foreign currency translation , net sales in asia decreased by $ 1.2 million , primarily due to lower sales of our sensor and transmission lead-frame assembly products and the adverse impact of the covid-19 pandemic , partially offset by the launch of touchscreen product sales to an asian automobile oem . gross profit . automotive segment gross profit decreased by $ 10.1 million , or 5.4 % , to $ 178.2 million in fiscal 2020 , compared to $ 188.3 million in fiscal 2019. gross profit margin decreased slightly to 25.0 % in fiscal 2020 , from 25.6 % in fiscal 2019. the decrease in gross profit margin was primarily due to the adverse impact from the uaw labor strike at gm , the impact of the covid-19 pandemic in our fourth fiscal quarter and product mix . gross profit was also negatively impacted by $ 3.8 million from the weaker euro and chinese renminbi . this was partially offset by higher gross profit from the grakon acquisition and the benefits realized from initiatives taken in fiscal 2019 to reduce overall costs and improve operational profitability . in fiscal 2019 , we incurred $ 2.7 million of expenses related to initiatives to reduce overall costs and improve operational profitability versus $ 0.6 million of expenses incurred in fiscal 2020 . 27 income from operations . automotive segment income from operations decreased by $ 1.9 million , or 1.5 % , to $ 124.4 million in fiscal 2020 , compared to $ 126.3 million in fiscal 2019. the decrease was primarily due to lower gross profit , partially offset by lower selling and administrative costs and the benefits of initiatives to reduce overall costs and improve operational profitability taken in fiscal 2019 . industrial segment results below is a table summarizing results for the fiscal years ended : replace_table_token_6_th net sales . industrial segment net sales increased by $ 44.6 million , or 21.6 % , to $ 251.4 million in fiscal 2020 , compared to $ 206.8 million in fiscal 2019. the acquisition of grakon increased net sales by $ 44.3 million , while the impact of foreign currency translation decreased net sales by $ 3.7 million . excluding the acquisition of grakon and foreign currency translation , net sales increased by $ 4.0 million despite the adverse impact from the covid-19 pandemic in our fourth fiscal quarter . the increase was primarily due to higher sales volumes of busbar products , partially offset by lower sales volumes of radio remote control products . gross profit . industrial segment gross profit increased by $ 26.4 million , or 38.5 % , to $ 95.0 million in fiscal 2020 , compared to $ 68.6 million in fiscal 2019. gross profit margin increased to 37.8 % in fiscal 2020 , from 33.2 % in fiscal 2019. the increase in gross profit margin was primarily due to a favorable product mix relating to our grakon and busbar businesses , partially offset by reduced radio remote control sales volumes . gross profit in fiscal 2019 also included $ 5.6 million of purchase accounting adjustments related to the acquisition of grakon . income from operations . industrial segment income from operations increased by $ 22.0 million , or 58.8 % , to $ 59.4 million in fiscal 2020 , compared to $ 37.4 million in fiscal 2019. the acquisition of grakon accounted for $ 21.0 million of the increase . 28 interface segment results below is a table summarizing results for the fiscal years ended : replace_table_token_7_th net sales . interface segment net sales increased by $ 1.1 million , or 1.9 % , to $ 58.8 million in fiscal 2020 , compared to $ 57.7 million in fiscal 2019. net sales increased primarily due to modestly higher sales volumes of appliance products and our legacy data solutions products . gross profit . interface segment gross profit increased by $ 2.2 million , or 28.2 % , to $ 10.0 million in fiscal 2020 , compared to $ 7.8 million in fiscal 2019. gross profit margin increased to 17.0 % in fiscal 2020 , from 13.5 % in fiscal 2019. the increase relates to higher sales volumes of appliance products and our legacy data solutions products . income ( loss ) from operations . interface segment income from operations increased by $ 5.9 million to income of $ 5.6 million in fiscal 2020 , compared to a loss of $ 0.3 million in fiscal 2019. the increase was due to higher gross profit , lower amortization of intangibles and lower selling and administrative expenses as a result of the benefits of initiatives to reduce overall costs and improve operational profitability taken in fiscal 2019. medical segment results below is a table summarizing results for the fiscal years ended : replace_table_token_8_th net sales . story_separator_special_tag the medical segment had $ 1.6 million of net sales in fiscal 2020 , compared to $ 1.1 million of net sales in fiscal 2019. higher net sales were due to increased sales volumes . gross profit . medical segment gross profit was a loss of $ 1.5 million in fiscal 2020 , compared to a loss of $ 2.8 million in fiscal 2019. the improvement primarily relates to lower engineering costs and wages incurred during the period and higher sales volumes . loss from operations . medical segment loss from operations decreased by $ 2.6 million to $ 6.0 million in fiscal 2020 , compared to $ 8.6 million in fiscal 2019. the decrease was due to lower selling and administrative expenses and an improvement in gross profit . selling and administrative expenses were lower due to the benefits of initiatives to reduce overall costs and improve operational profitability taken in fiscal 2019. in fiscal 2019 , we incurred $ 0.9 million of expenses related to initiatives to reduce overall costs and improve operational profitability versus $ 0.1 million of expenses incurred in fiscal 2020 . 29 f inancial condition , liquidity and capital resources our primary sources of liquidity are cash flows from operations , existing cash balances and borrowings under our senior unsecured credit agreement . the covid-19 pandemic has negatively affected the global economy , disrupted global supply chains , and created extreme volatility and disruptions to capital and credit markets in the global financial markets . we believe our liquidity position will be sufficient to fund our existing operations and current commitments for at least the next twelve months . however , in the event that economic conditions remain impacted for longer than we expect due to the covid-19 pandemic , our liquidity position could be severely impacted . our senior unsecured credit agreement provides for a $ 200.0 million revolving credit facility and a $ 250.0 million term loan . on march 23 , 2020 , we drew down $ 100.0 million under our revolving credit facility as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of the uncertainty in the global markets resulting from the covid-19 pandemic . as of may 2 , 2020 , $ 108.5 million in principal was outstanding under the revolving credit facility and we have $ 91.4 million of availability under the revolving credit facility . as of may 2 , 2020 , $ 231.2 million in principal was outstanding under the term loan . the term loan matures in september 2023 and requires quarterly principal payments of $ 3.1 million over the five-year term , with the remaining balance due upon maturity . we were in compliance with all covenants under the senior unsecured credit agreement as of may 2 , 2020. for further information , see note 10 , `` debt , '' to the consolidated financial statements included in this annual report . our senior unsecured credit agreement provides an option to increase the size of our revolving credit facility and term loan by an additional $ 200.0 million , subject to customary conditions and approval of the lenders providing the new commitments . there can be no assurance that lenders will approve additional commitments under current circumstances . as a result of the impacts of the covid-19 pandemic , we may be required to raise additional capital and our access to and cost of financing will depend on , among other things , global economic conditions , conditions in the global financing markets , the availability of sufficient amounts of financing , and our future prospects . at may 2 , 2020 , we had $ 217.3 million of cash and cash equivalents , of which $ 47.0 million was held in subsidiaries outside the u.s. cash held by these subsidiaries is used to fund operational activities and can be repatriated , primarily through the repayment of intercompany loans and the payment of dividends , without creating material additional income tax expense . cash flows cash flow is summarized below : replace_table_token_9_th operating activities net cash provided by operating activities increased by $ 38.6 million to $ 140.6 million in fiscal 2020 , compared to $ 102.0 million in fiscal 2019. the increase was primarily due to a positive net change in net income after non-cash adjustments of $ 35.9 million and a net positive change in operating assets and liabilities of $ 2.7 million . the changes in operating assets and 30 liabilities was primarily due to lower accounts receivable and prepaid expenses and other assets , offset by higher inventories and lower accounts payable and other liabilities . investing activities net cash used in investing activities of $ 44.5 million in fiscal 2020 primarily represents capital expenditures of $ 45.1 million . net cash used in investing activities of $ 470.8 million in fiscal 2019 primarily relates to the acquisition of grakon of $ 422.1 million and capital expenditures of $ 49.8 million . financing activities the decrease in net cash provided by financing activities in fiscal 2020 , compared to fiscal 2019 , was primarily due to lower net borrowings under our senior unsecured credit agreement . higher borrowings in fiscal 2019 primarily related to the funding for the grakon acquisition . contractual obligations the following table summarizes contractual obligations and commitments , as of may 2 , 2020 : replace_table_token_10_th ( 1 ) assumes the outstanding borrowings under the revolving credit facility will be repaid upon maturity of the credit agreement in september 2023 . ( 2 ) amounts represent estimated contractual interest payments on outstanding debt . interest rates in effect as of may 2 , 2020 are used for floating-rate debt . we enter into agreements with suppliers to assist us in meeting our customers ' production needs . these agreements vary as to duration and quantity commitments . historically , most have been short-term agreements , which do not provide for minimum purchases , or are requirements-based contracts .
| grakon 's results are included for the entire period in fiscal 2020 and only for seven and a half-months in fiscal 2019. results of operations we maintain our financial records on the basis of a 52- or 53-week fiscal year ending on the saturday closest to april 30. for fiscal 2020 , our accounting period included 53 weeks and ended on may 2 , 2020. for fiscal 2019 and fiscal 2018 , our accounting period included 52 weeks and ended on april 27 , 2019 and april 28 , 2018 , respectively . the following discussions of comparative results among periods should be reviewed in this context . a detailed comparison of our results of operations between fiscal 2019 and fiscal 2018 can be found in item 7 , “ management 's discussion and analysis of financial condition and results of operations ” in our fiscal 2019 annual report on form 10-k filed with the sec on june 20 , 2019 . 24 results of operations for the fiscal year ended may 2 , 2020 c ompared to the fiscal year ended april 27 , 2019. consolidated results below is a table summarizing results for the fiscal years ended : replace_table_token_4_th net sales . consolidated net sales increased by $ 23.6 million , or 2.4 % , to $ 1,023.9 million in fiscal 2020 , compared to $ 1,000.3 million in fiscal 2019. the acquisition of grakon increased net sales by $ 76.2 million , while the impact of foreign currency translation decreased net sales by $ 13.9 million . the weaker euro and chinese renminbi impacted foreign currency translation . excluding the acquisition of grakon and foreign currency translation , net sales decreased by $ 38.7 million , primarily due to the adverse impacts from the uaw labor strike at gm and the negative impact of the covid-19 pandemic on net sales during our fourth fiscal quarter . cost of products sold . consolidated cost of products sold increased by $ 6.5 million , or 0.9 % , to $ 741.0 million ( 72.4 % of sales ) in fiscal 2020 , compared to $ 734.5 million ( 73.4 % of sales ) in fiscal 2019. the acquisition of grakon increased cost of products sold by $ 46.4 million , while the impact of foreign currency translation decreased cost of products sold by $ 8.7 million . excluding the acquisition of grakon and foreign currency translation , cost of products sold decreased by
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72 comparison of the years ended december 31 , 2018 and 2017 the following table sets forth , for the periods indicated , our results of operations expressed as dollar amounts and as percentages of total revenue : replace_table_token_3_th revenues revenues for the year ended december 31 , 2018 increased 38.9 % to $ 83,937 as compared to $ 60,426 for the year ended december 31 , 2017. this increase was primarily a result of continuing growth in active accounts from improved penetration within these active accounts , as well as an increase in the number of active accounts . in the fourth quarter of 2018 , we had 712 active accounts , an increase of 20 % from 591 at the end of 2017. in addition , the company received grant revenue of $ 195 in the year ended december 31 , 2018 , as compared to grant revenue of $ 56 in the year ended december 31 , 2017 . gross profit gross profit for the year ended december 31 , 2018 increased 38.9 % to $ 71,014 as compared to $ 51,115 for the year ended december 31 , 2017. this increase was consistent with and primarily attributable to the increased revenues in 2018. gross profit margin in 2018 was unchanged at 84.6 % as compared to 84.6 % in 2017 . costs and expenses total cost and expenses increased 54.9 % to $ 91,514 for the year ended december 31 , 2018 as compared to $ 59,066 for the year ended december 31 , 2017. the increase was primarily due to variable costs associated with increased sales activity , expansion of our commercial team , expanding product development and clinical study activities , expanded surgeon education programs , and increases in compensation and general expenses associated with ongoing expansions of 73 infrastructure to support the company 's growth . as a percentage of revenues , total cost and expenses increased to 109.0 % in 2018 compared to 97.8 % in 2017 . sales and marketing expenses increased 50.4 % to $ 56,617 for the year ended december 31 , 2018 as compared to $ 37,636 for the year ended december 31 , 2017. the increase was primarily due to : ( a ) increased compensation expenses related to axogen 's direct sales force as a result of increased sales and hiring of additional personnel ; ( b ) increased travel expenses to support the commercial team 's activities ; ( c ) expansion of the company 's surgeon education program ; and ( d ) increased marketing activity . as a percentage of revenues , sales and marketing expenses were 67.5 % for the year ended december 31 , 2018 compared to 62.3 % for the year ended december 31 , 2017 . general and administrative expenses increased 57.0 % to $ 23,124 for the year ended december 31 , 2018 as compared to $ 14,731 for the year ended december 31 , 2017. the increase was primarily the result of increased expenses related to infrastructure expansion to support the company 's growth , including professional fees , salaries , and $ 4,007 of non-cash stock compensation . as a percentage of revenues , general and administrative expenses increased to 27.5 % for the year ended december 31 , 2018 compared to 24.4 % for the year ended december 31 , 2017 . research and development expenses increased 75.7 % to $ 11,773 in the year ended december 31 , 2018 as compared to $ 6,699 for the year ended december 31 , 2017. research and development costs include axogen 's product development and clinical efforts substantially focused on its biologics license application , or bla , for the avance nerve graft and the recon and ranger studies . these activities vary from quarter to quarter due to the timing of certain projects . the increase in expenses for 2018 relate to expenditures for these clinical activities , including the pivotal clinical trial to support the bla , and hiring additional personal to support clinical and product development activity as well as expenses associated with the new processing facility . it is expected that costs associated with the bla will continue to increase as we continue to invest in completing the license application . axogen continues to conduct product development efforts focused on both new peripheral nerve products and new peripheral nerve applications for our existing products . axogen pursues research grants to support research and early product development . axogen 's increased product and clinical pipeline development initiatives contributed to the increase in research and development expenses in 2018 , with grant revenue offsetting a portion of this activity . as a result , research and development expenses increased to 14.0 % in 2018 from 11.1 % in 2017 , as a percentage of revenues . other income and expenses for the year ended december 31 , 2018 , we recognized $ 1,525 of investment income from our asset management and cash investment sweep accounts that were opened during the second quarter of 2018. as a result of the prepayment in full of the term loan and revolving loan with midcap , as defined in “ term and revolving loan agreements ” below , during the second quarter of 2018 , interest expense decreased 49.2 % to $ 1,127 in 2018 as compared to $ 2,217 for the year ended december 31 , 2017 , and interest expense – deferred financing costs decreased 67.1 % to $ 81 for the years ended december 31 , 2018 as compared to $ 246 for the year ended december 31 , 2017. for the year ended december 31 , 2018 , we incurred a loss on the extinguishment of the debt of $ 2,186 for exit , prepayment fees and the amortization of the remaining balance of the deferred financing costs . story_separator_special_tag other expenses decreased 9.7 % to $ 28 for the year ended december 31 , 2018 , as compared to $ 31 for the year ended december 31 , 2017 . income taxes axogen had no income tax expenses or income tax benefit for 2018 or 2017 due to incurrence of net operating loss for the year , the benefits of which have been fully value allowed . axogen does not believe there are any additional tax expenses or benefits currently available . 74 liquidity and capital resources cash flow information as of december 31 , 2019 , the company had cash , cash equivalents , investments , and restricted cash of $ 102,510 , a decrease of $ 20,095 from $ 122,605 at december 31 , 2018 , primarily as a result of the net operating cash flow of $ 19,872 and capital outlays of $ 4,664 for the build out of the company 's axogen processing center , or apc , in vandalia , ohio . these expenditures were offset by proceeds throughout the year from stock option exercises of $ 4,002. cash disbursements in 2018 included $ 25,599 for the prepayment in full of the term loan and revolving loan with midcap , as defined in “ term and revolving loan agreements ” below , and $ 5,030 for the acquisition of the apc . axogen had working capital of approximately $ 114,141 and a current ratio of 6.5 at december 31 , 2019 , compared to working capital of $ 137,909 and a current ratio of 11.6 at december 31 , 2018. the decrease in working capital at december 31 , 2019 as compared to december 31 , 2018 , was primarily due to the use of working capital to fund operations , including increased compensation from hiring additional personnel to support the business , the payment in 2019 of the 2018 performance bonus , 2018 annual sales awards and related costs . in addition , working capital has also been utilized to commence the buildout of our apc facility . axogen 's future capital requirements depend on a number of factors including , without limitation , revenue increases consistent with its business plan , cost of products and acquisition and or development of new products . axogen could face increasing capital needs . such capital needs could be substantial depending on the extent to which axogen is unable to increase revenue . if axogen needs additional capital in the future , it may raise additional funds through public or private equity offerings , debt financings or from other sources . the sale of additional equity would result in dilution to axogen 's shareholders . there is no assurance that axogen will be able to secure funding on terms acceptable to it , or at all . the increasing need for capital could also make it more difficult to obtain funding through either equity or debt . should additional capital not become available to axogen as needed , axogen may be required to take certain action , such as slowing sales and marketing expansion , delaying regulatory approvals or reducing headcount . net cash used in operating activities axogen used $ 19,872 of cash for operating activities in 2019 , as compared to using $ 17,862 of cash for operating activities in 2018. this increase in cash used in operating activities was primarily attributed to the increase in the net loss , accounts receivable and inventory for the year ended december 31 , 2019 as compared to 2018 , partially offset by the decrease in accounts payable and accrued expenses and non-cash stock compensation during 2019 . net cash provided by/used in investing activities investing activities for 2019 provided $ 27,271 of cash as compared to using $ 98,193 during 2018. the company allowed short term investments to mature or sold short term investments to fund the operations . these inflows of cash were offset by the increase in purchases of property and equipment , primarily our facility in vandalia , ohio . net cash provided by financing activities financing activities in 2019 provided $ 4,031 of cash as compared to providing $ 109,842 of cash in 2018. the decrease was the result of the net proceeds of the may 2018 public stock offering in the prior year . the prior year also included a $ 25,599 of payments to extinguish the company 's debt , including the prepayment of the term loan and revolving loan with midcap , as defined in “ term and revolving loan agreements ” below , and related fees . proceeds from the exercise of stock options provided $ 4,002 , $ 3,884 and $ 1,434 of cash for the years ended december 31 , 2019 , 2018 and 2017 , respectively . 75 operating cash requirements on july 9 , 2019 , axogen entered into a standard form of agreement between owner and design-builder ( the “ design-build agreement ” ) with crb builders , l.l.c. , a missouri limited liability company ( “ crb ” ) , pursuant to which crb will renovate and retrofit the apc ( see footnote 14 commitment and contingencies in the notes to the condensed financial statements ) . the company anticipates spending up to approximately $ 37,737 for renovations , equipment and furniture over the next twelve months and up to $ 40,906 over the next 18 months . as previously disclosed the company previously entered into an agreement with heights union , llc , a florida limited liability company ( “ heights union ” ) , for the lease of seventy-five thousand square feet of office space . pursuant to the heights union lease , the company will use the heights union premises for general office , medical laboratory , training and meeting purposes .
| in addition , general and administrative expenses include approximately $ 2,467 of litigation expenses and certain expenses associated therewith , as a result of the ongoing 71 litigation described in legal proceedings and other litigation that was dismissed during 2019 ( the “ litigation ” ) in the period ending december 31 , 2019 as compared to $ 0 in the prior year period . as a percentage of revenues , total cost and expenses increased to 113.1 % in 2019 compared to 109.0 % in 2018 . sales and marketing expenses increased 27.1 % to $ 71,950 for the year ended december 31 , 2019 as compared to $ 56,617 for the year ended december 31 , 2018. the increase was primarily due to : ( a ) increased compensation expenses related to axogen 's direct sales force as a result of increased sales and hiring of additional personnel ; ( b ) increased travel expenses to support the commercial team 's activities ; ( c ) expansion of the company 's surgeon education program ; and ( d ) increased marketing activity . as a percentage of revenues , sales and marketing expenses were 67.4 % for the year ended december 31 , 2019 compared to 67.5 % for the year ended december 31 , 2018 . general and administrative expenses increased 35.4 % to $ 31,305 for the year ended december 31 , 2019 as compared to $ 23,124 for the year ended december 31 , 2018. the increase was primarily the result of increased expenses related to infrastructure expansion to support the company 's growth , including professional fees , salaries , and an increase of $ 1,982 of non-cash stock compensation . as mentioned above , the company also recorded $ 2,467 of legal fees associated the litigation . as a percentage of revenues , general and administrative expenses increased to 29.3 % for the year ended december 31 , 2019 compared to 27.5 % for the year ended december 31 , 2018 . research and development expenses increased 48.8 % to $ 17,514 in the year ended december 31 , 2019 as compared to $ 11,773 for the year
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because we believe that direct-to-hospital sales engender closer customer relationships , and allow for higher selling prices and gross margins , we periodically enter into transactions with our distributors to transition their sales of our medical devices towards our direct sales organization : in december 2015 , we signed a master distribution agreement with meheco yonstron pharmaceutical co. ltd. ( meheco ) , a chinese distribution and logistics company , and began selling our chinese market products to meheco in 2016. meheco then sold our products to multiple sub-distributors who then sold to chinese hospitals . this agreement expired in december 2017 , and we are currently in the process of signing distribution agreements with sub-distributors and have begun selling our products to sub-distributors in china . we repurchased $ 120,000 of our products from meheco in 2018 , which resulted in a corresponding revenue reversal . in march 2018 , we terminated our master distribution agreement with sinopharm united medical device co. , ltd. ( ucmc ) under which we sold our powered phlebectomy systems and related disposable devices for distribution in china . in april 2018 we began selling these products to our sub-distributors in china . we repurchased $ 159,000 of our products from ucmc in 2019. during 2018 , we entered into definitive agreements with several former applied medical and cardial distributors in europe and asia/pacific rim in order to terminate their distribution of our recently acquired catheter , polyester graft and valvulotome products , and we began selling direct-to-hospitals in those geographies . the termination fees totaled approximately $ 0.1 million . 38 our strategy for growing our business includes the acquisition of complementary product lines and companies , and occasionally the discontinuance or divestiture of products or activities that are no longer complementary : in november 2016 , we acquired substantially all of the assets related to the peripheral vascular allograft operations of restore flow allografts , llc for $ 12.0 million plus additional payments of up to $ 6.0 million depending upon the satisfaction of certain contingencies . in april 2018 , we sold our reddick cholangiogram catheter and reddick-saye screw product lines to specialty surgical instrumentation , inc. for $ 7.4 million . in september 2018 , we acquired the assets of the embolectomy catheter business from applied medical resources corporation for $ 14.2 million . we have initiated a project to transfer the manufacturing of the acquired devices to our burlington facility . we expect this transition to be completed in 2020. in october 2018 , we acquired the assets of cardial , a subsidiary of becton , dickinson & company , located in saint-etienne , france , for 2.0 million . cardial 's product lines include polyester vascular grafts , valvulotomes and surgical glue . in july 2019 , we entered into an agreement with uresil , llc to purchase the remaining assets of their tru-incise valve cutter business , including distribution rights in the united states , for $ 8.0 million . in october 2019 , we acquired the assets of the cardiocel and vascucel biologic patch business from admedus ltd for $ 15.5 million plus additional payments of up to $ 7.8 million depending upon the satisfaction of certain contingencies . in addition to relying upon acquisitions for growth , we also rely on internal product development efforts to bring differentiated technology and next-generation products to market : in 2017 , we launched a longer version of our anastoclip ac intended for use in neurosurgery applications . in 2018 , we expanded the indications for our anastoclip gc in the united states to include dura tissue repair . in 2019 , we launched xenosure plus aimed at surgeons who prefer using a biologic patch that is thicker and stiffer than our standard xenosure patch . in 2019 , we launched durasure , a biologic patch indicated for closing or repairing dural defects in neurosurgical procedures . in addition to our sales growth strategies , we have also executed several operational initiatives designed to consolidate and streamline manufacturing within our burlington , massachusetts facilities . we expect these plant consolidations will result in improved control over our production quality as well as reduced costs over the long-term . our most recent manufacturing transitions included in 2016 , we initiated a project to transfer the manufacturing of the procol biologic product line to our facility in burlington . this transition was completed in 2018. in 2017 , we renovated our manufacturing facility in burlington , in which many of our biologic offerings , including the xenosure patch as well as our procol biologic grafts , are produced or processed . the cost of the facility renovation was approximately $ 3.0 million . in 2018 , we acquired the embolectomy catheter business assets from applied medical resources corporation . we have initiated a project to transfer the manufacturing of the acquired devices to our burlington facility . we expect this transfer to be completed in 2020. in 2019 , we again built out our biologic manufacturing cleanroom in burlington so that we can transfer our omniflow biosynthetic graft from our north melbourne , australia facility . we expect this transfer to be completed in 2020. the cost of the buildout was approximately $ 0.8 million . 39 our execution of these business opportunities may affect the comparability of our financial results from period to period and may cause substantial fluctuations from period to period as we incur related process engineering and other charges . fluctuations in the exchange rates between the u.s. dollar and foreign currencies , primarily the euro , affect our financial results . for the year ended december 31 , 2019 , approximately 46 % of our sales took place outside the united states , largely in currencies other than the u.s. dollar . we expect foreign currencies will represent a significant percentage of our future sales . selling , marketing , and administrative costs related to these sales are also denominated in foreign currencies , thereby partially mitigating our bottom-line exposure to exchange rate fluctuations . story_separator_special_tag however , if there is an increase in the rate at which a foreign currency is exchanged for u.s. dollars , it will require more of the foreign currency to equal a specified amount of u.s. dollars than before the rate increase . in such cases we will receive less revenue in u.s. dollars than we did before the exchange rate changed . for the year ended december 31 , 2019 , we estimate that the effects of changes in foreign exchange rates decreased reported sales by approximately $ 2.3 million , as compared to rates in effect for the year ended december 31 , 2018. net sales and expense components the following is a description of the primary components of our net sales and expenses : net sales . we derive our net sales from the sale of our products and services , less discounts and returns . net sales include the shipping and handling fees paid for by our customers . most of our sales are generated by our direct sales force and are shipped and billed to hospitals or clinics throughout the world . in countries where we do not have a direct sales force , sales are primarily to distributors , who in turn sell to hospitals and clinics . in certain cases our products are held on consignment at a hospital or clinic prior to purchase ; in those instances we recognize revenue at the time the product is used in surgery rather than at shipment . cost of sales . we manufacture the majority of the products that we sell . our cost of sales consists primarily of manufacturing personnel , raw materials and components , depreciation of property and equipment , and other allocated manufacturing overhead , as well as freight expense we pay to ship products to customers . sales and marketing . our sales and marketing expense consists primarily of salaries , commissions , stock based compensation , travel and entertainment , attendance at vascular congresses , training programs , advertising and product promotions , direct mail and other marketing costs . general and administrative . general and administrative expense consists primarily of executive , finance and human resource salaries , stock based compensation , legal and accounting fees , information technology expense , intangible asset amortization expense and insurance expense . research and development . research and development expense includes costs associated with the design , development , testing , enhancement and regulatory approval of our products , principally salaries , laboratory testing and supply costs . it also includes costs associated with design and execution of clinical studies , regulatory submissions and costs to register , maintain , and defend our intellectual property , and royalty payments associated with licensed and acquired intellectual property . other income ( expense ) . other income ( expense ) primarily includes interest income and expense , foreign currency gains ( losses ) , and other miscellaneous gains ( losses ) . income tax expense . we are subject to federal and state income taxes for earnings generated in the united states , which include operating losses or profits in certain foreign jurisdictions for certain years depending on tax elections made , and foreign taxes on earnings of our wholly-owned foreign subsidiaries . our consolidated tax expense is affected by the mix of our taxable income ( loss ) in the united states and foreign subsidiaries , permanent items , discrete items , unrecognized tax benefits , and amortization of goodwill for u.s tax reporting purposes . 40 story_separator_special_tag serif ; font-size:10pt ; margin:0pt ; text-align : left ; text-indent:24.5pt ; '' > gain on divestitures and acquisitions . the 2018 gains on divestitures and acquisitions relate to the sale of our reddick cholangiogram catheter and reddick-saye screw product lines to symmetry surgical , which resulted in a gain of $ 5.9 million , and also to our purchase of the assets of cardial , from becton dickinson , which resulted in a gain of $ 1.6 million . other income ( expense ) . interest income was $ 0.7 million and $ 0.6 million , respectively for 2019 and 2018. foreign exchange losses on settlements or remeasurement of receivables and payables denominated in foreign currencies were $ 0.2 million and $ 0.4 million in 2019 and 2018 , respectively . income tax expense . we recorded a provision for taxes of $ 3.7 million on pre-tax income of $ 21.7 million in 2019 as compared to $ 5.5 million on pre-tax income of $ 28.4 million in 2018. the 2019 provision was comprised of a federal tax provision in the united states of $ 2.0 million , a state tax provision of $ 0.4 million , and a foreign tax provision of $ 1.3 million . the 2018 provision was comprised of a federal tax provision in the united states of $ 2.8 million , a state tax provision of $ 0.5 million and a foreign tax provision of $ 2.2 million . our effective tax rate differed from the u.s. statutory tax rate in 2019 principally because of stock option exercises , taxes on foreign earnings , valuation allowances , and certain permanent differences . while it is often difficult to predict the final outcome or timing of the resolution of any particular tax matter , we believe that our tax reserves reflect the probable outcome of known contingencies . we assess the likelihood that our deferred tax assets will be realized through future taxable income and record a valuation allowance to reduce gross deferred tax assets to an amount we believe is more likely than not to be realized . as of december 31 , 2019 , we have provided a valuation allowance of $ 1.4 million for deferred tax assets primarily related to australian net operating loss and capital loss carry forwards and massachusetts tax credit carry forwards that are not expected to be realized .
| we also increased sales of valvulotomes by $ 1.1 million , and our recently acquired cardiocel and vascucel products contributed sales of $ 0.9 million in the americas in 2019. these increases were partially offset by decreased sales of powered phlebectomy systems of $ 0.8 million . europe , middle east and africa net sales increased $ 4.2 million or 12 % for the year ended december 31 , 2019. the increase was primarily driven by increased sales of polyester grafts of $ 1.3 million , embolectomy catheters of $ 0.8 million , oem sales of $ 0.7 million , valvulotomes of $ 0.6 million and biosynthetic vascular grafts of $ 0.4 million . asia/pacific rim net sales increased $ 1.8 million or 27 % for the year ended december 31 , 2019. the increase was driven by increased sales of embolectomy catheters of $ 0.9 million , closure systems of $ 0.3 million , occlusion catheters of $ 0.2 million and biologic vascular patches of $ 0.2 million . these and other increases were offset in part by decreased sales of valvulotomes of $ 0.1 million . replace_table_token_5_th * not applicable gross profit . gross profit increased $ 5.9 million to $ 79.9 million for the year ended december 31 , 2019 , while gross margin decreased by 190 basis points to 68.1 % in the period . the gross margin was favorably impacted by higher average selling prices across most product lines , as well manufacturing efficiencies . these increases were more than offset , however , by an unfavorable product mix , including recently acquired products which typically have a lower gross margin prior to being integrated into our burlington manufacturing operations . foreign exchange rate changes also had an unfavorable impact . 41 replace_table_token_6_th * not a meaningful percentage . sales and marketing . for the year ended december 31 , 2019 , sales and marketing expense increased $ 3.0 million , or 11 % , to $ 30.3 million . the increase was
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our bytemobile smart capacity products combined with our citrix netscaler line of cloud networking products enhance our broader strategy of powering mobile workstyles and cloud services and allow us to offer mobile operators combined solutions that deliver a high quality user experience to mobile subscribers . our cloud platform products allow our customers to build scalable and reliable private and public cloud computing environments where customers can quickly and easily build cloud services within their existing infrastructure and provision hosted applications , desktops , services and infrastructure as a service , or iaas , from the cloud . as we enhance the feature set and interoperability of our mobility and cloud networking products , we drive increased customer interest around desktop and application virtualization and data sharing , because enterprises find leverage in deploying these technologies together for an end-to-end mobile workstyles solution . saas division our saas division is focused on developing and marketing collaboration and data products . these products are primarily marketed via the web to enterprises , medium and small businesses , prosumers and individuals . our saas segment 's collaboration products offer secure and cost-effective solutions that allow users to host and actively participate in online meetings , webinars and training sessions remotely and reduce costs associated with business travel . our data sharing product , sharefile , makes it easy for businesses of all sizes to securely store , sync and share business documents and files , both inside and outside the company . sharefile 's centralized cloud storage capability also allows users to share files across multiple devices and access them from any location . in addition , through our remote access and it support solutions , we offer products that provide users a secure , simple and cost efficient way to access their desktops remotely and provide support over the internet on-demand . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > shares of our common stock , for which the vesting period reset fully upon the closing of the transaction . during the second quarter of 2012 , we acquired all of the issued and outstanding securities of two privately-held companies for a total cash consideration of approximately $ 15.4 million , net of $ 0.2 million of cash acquired . the businesses became part of our enterprise and service provider division . transaction costs associated with the acquisitions were approximately $ 0.4 million , all of which we expensed during the year ended december 31 , 2012 and are included in general and administrative expense in the accompanying consolidated statements of income . in addition , in connection with the acquisitions , we assumed non-vested stock units which were converted into the right to receive , in the aggregate , up to 66,459 shares of our common stock , for which the vesting period reset fully upon the closing of each respective transaction . during the third quarter of 2012 , we acquired all of the issued and outstanding securities of two privately-held companies for a total cash consideration of approximately $ 5.3 million . one of the businesses became part of our enterprise and service provider division and the other became part of our saas division . transaction costs associated with the acquisitions were approximately $ 0.2 million , all of which we expensed during the year ended december 31 , 2012 and are included in general and administrative expense in the accompanying consolidated statements of income . in addition , in connection with the acquisitions , we assumed non-vested stock units which were converted into the right to receive , in the aggregate , up to 13,487 shares of our common stock , for which the vesting period reset fully upon the closing of each respective transaction . subsequent events on january 8 , 2014 , we acquired all of the issued and outstanding securities of framehawk . the framehawk solution , which optimizes the delivery of virtual desktops and applications to mobile devices , will be combined with citrix hdx technologies in the citrix xenapp and xendesktop products to deliver an unparalleled user experience over highly latent and erratic mobile network conditions . the total preliminary consideration for this transaction was approximately $ 27.9 million , net of $ 0.3 million of cash acquired , and was paid in cash . transaction costs associated with the acquisition are currently estimated at $ 0.1 million , all of which we expensed during the year ended december 31 , 2013 and are included in general and administrative expense in the accompanying consolidated statements of income . critical accounting policies and estimates our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent liabilities . we base these estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances , and these estimates form the basis for our judgments concerning the carrying values of assets and liabilities that are not readily apparent from other sources . we periodically evaluate these estimates and judgments based on available information and experience . actual results could differ from our estimates under different assumptions and conditions . if actual results significantly differ from our estimates , our financial condition and results of operations could be materially impacted . we believe that the accounting policies described below are critical to understanding our business , results of operations and financial condition because they involve more significant judgments and estimates used in the preparation of our consolidated financial statements . story_separator_special_tag an accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made , and if different estimates that could have been used , or changes in the accounting estimates that are reasonably likely to occur periodically , could materially impact our consolidated financial statements . we have discussed the development , selection and application of our critical accounting policies with the audit committee of our board of directors and our independent auditors , and our audit committee has reviewed our disclosure relating to our critical accounting policies and estimates in this “ management 's discussion and analysis of financial condition and results of operations. ” note 2 to our consolidated financial statements included in this annual report on form 10-k for the year ended december 31 , 2013 describes the significant accounting policies and methods used in the preparation of our consolidated financial statements . 34 revenue recognition we recognize revenue when it is earned and when all of the following criteria are met : persuasive evidence of the arrangement exists ; delivery has occurred or the service has been provided and we have no remaining obligations ; the fee is fixed or determinable ; and collectability is probable . we define these four criteria as follows : persuasive evidence of the arrangement exists . we primarily sell our software products via electronic or paper licenses and typically require a purchase order from the distributor , reseller or end-user ( depending on the arrangement ) who have previously negotiated a master distribution or resale agreement and an executed product license agreement from the end-user . for appliance sales , our customary practice is to require a purchase order from distributors and resellers who have previously negotiated a master packaged product distribution or resale agreement . we typically recognize revenue upon shipment for our appliance sales . for maintenance , technical support , product training and consulting services , we require a purchase order and an executed agreement . for saas , we generally require the customer or the reseller to electronically accept the terms of an online services agreement or execute a contract . delivery has occurred and we have no remaining obligations . we consider delivery of licenses under electronic licensing agreements to have occurred when the related products are shipped and the end-user has been electronically provided the software activation keys that allow the end-user to take immediate possession of the product . for hardware appliance sales , our standard delivery method is free-on-board shipping point . consequently , we consider delivery of appliances to have occurred when the products are shipped pursuant to an agreement and purchase order . for saas , delivery occurs upon providing the users with their login id and password . for product training and consulting services , we fulfill our obligation when the services are performed . for license updates and maintenance , we assume that our obligation is satisfied ratably over the respective terms of the agreements , which are typically 12 to 24 months . for saas , we assume that our obligation is satisfied ratably over the respective terms of the agreements , which are typically 12 months . the fee is fixed or determinable . in the normal course of business , we do not provide customers with the right to a refund of any portion of their license fees or extended payment terms . the fees are considered fixed or determinable upon establishment of an arrangement that contains the final terms of the sale including description , quantity and price of each product or service purchased . for saas , the fee is considered fixed or determinable if it is not subject to refund or adjustment . collectability is probable . we determine collectability on a customer-by-customer basis and generally do not require collateral . we typically sell product licenses and license updates to distributors or resellers for whom there are histories of successful collection . new customers are typically subject to a credit review process that evaluates their financial position and ultimately their ability to pay . customers are also subject to an ongoing credit review process . if we determine from the outset of an arrangement that collectability is not probable , revenue recognition is deferred until customer payment is received and the other parameters of revenue recognition described above have been achieved . management 's judgment is required in assessing the probability of collection , which is generally based on an evaluation of customer specific information , historical experience and economic market conditions . the majority of our product and license revenue consists of revenue from the sale of stand-alone software products . stand-alone software sales generally include a perpetual license to our software and are subject to the industry specific software revenue recognition guidance . in accordance with this guidance , we allocate revenue to license updates related to our stand-alone software and any other undelivered elements of the arrangement based on vsoe of fair value of each element and such amounts are deferred until the applicable delivery criteria and other revenue recognition criteria described above have been met . the balance of the revenues , net of any discounts inherent in the arrangement , is recognized at the outset of the arrangement using the residual method as the product licenses are delivered . if management can not objectively determine the fair value of each undelivered element based on vsoe of fair value , revenue recognition is deferred until all elements are delivered , all services have been performed , or until fair value can be objectively determined . we also make certain judgments to record estimated reductions to revenue for customer programs and incentive offerings including volume-based incentives , at the time sales are recorded .
| the decrease in 2013 in gross margin as a percentage of net revenue is primarily due to the increase in sales of our networking and cloud products with a hardware component and increased sales of our services , both of which have a higher cost than our software products . we currently target gross margin as a percentage of net revenue to decline slightly when comparing the first quarter of 2014 to the first quarter of 2013 , consistent with our targeted increase in sales of our hardware products and services . the decrease in operating income and diluted net income per share when comparing 2013 to 2012 was primarily due to an increase in stock-based compensation costs primarily related to our retention-focused annual stock grant to 32 key employees and our recent acquisitions and an increase in amortization of intangible assets primarily related to our recent acquisitions . also contributing to the decrease in operating income and diluted net income per share is the decrease in gross margin as a percentage of net revenue , as discussed above . 2013 acquisitions zenprise in january 2013 , we acquired all of the issued and outstanding securities of zenprise , a privately-held leader in mobile device management . zenprise became part of our enterprise and service provider division , in which citrix has integrated the zenprise offering for mobile device management into its xenmobile enterprise edition . the total consideration for this transaction was approximately $ 324.0 million , net of $ 2.9 million of cash acquired , and was paid in cash . transaction costs associated with the acquisition were approximately $ 0.6 million , of which we expensed approximately $ 0.1 million during the year ended december 31 , 2013 and are included in general and administrative expense in the accompanying consolidated statements of income . in addition , in connection with the acquisition , we assumed certain stock options , which are exercisable for 285,817 shares of our common stock , for which the vesting period reset fully upon the closing of the
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may not be more than 60 days past due ; and receipt of certain information relating to the property including an appraisal ( if the amount of the underlying loan exceeds $ 325,000 ) or other relevant data regarding value ( if the amount of the underlying loan is less than $ 325,000 ) . the bankwell credit line contains various covenants and restrictions that are typical for these kinds of credit facilities , including limiting the amount that we can borrow relative to the value of the underlying collateral , maintaining various financial ratios and limitations on the terms of loans we make to our customers . under the terms of the bankwell credit line , the amount outstanding at any one time may not exceed the lesser of ( i ) $ 15.0 million and ( ii ) our eligible notes receivable ( as defined under the bankwell credit line ) . in addition , each “ advance ” is further limited to the lesser of ( i ) 50 % -75 % , depending on the loan-to-value ratio , of the principal amount of the particular eligible note receivable being funded and ( ii ) $ 250,000. as of september 30 , 2016 , we estimate that loans having an aggregate principal amount of $ 18.5 million , representing approximately 60.5 % of scp 's mortgage receivables , satisfied all of the eligibility requirements set forth in the bankwell credit line . as of december 31 , 2016 , the total amount outstanding under the bankwell credit line was approximately $ 8.1 million leaving us with sufficient borrowing capacity to draw the entire $ 15.0 million facility if we so choose . given the nature of our business , we can not assure you that we will always be able to borrow the maximum allowed under the terms of the bankwell credit line . in addition , the bankwell credit line includes the following restrictions , limitations and prohibitions : prohibiting any liens on any of the collateral securing the bankwell credit line , which is essentially all of our assets ; prohibiting us from merging , consolidating or disposing of any asset ; prohibiting us from incurring additional indebtedness exceeding $ 100,000 in the aggregate ; prohibiting us from forming or transacting business with any subsidiary or affiliate other than to make loans to our borrowers ; prohibiting us from allowing any litigation exceeding $ 50,000 against any of our assets unless we are fully insured against such loss ; prohibiting us from declaring or paying any cash dividends exceeding our reit taxable income ; prohibiting us from purchasing any securities issued by or otherwise invest in any public or private entity ; and jeffrey villano and john villano must remain as our senior executive officers with day-to-day operational involvement . 42 loan covenants include the following : punctually pay amounts due ; pay on demand any charges customarily incurred or levied by bankwell ; pay any and all taxes , assessments or other charges assessed against us or any of our assets ; pay all insurance premiums ; maintain our principal deposit and disbursement accounts with bankwell ; perfect bankwell 's lien on the assets ; comply with all applicable laws , ordinances , rules and regulations of any governmental authority ; or change the form or nature of our structure from a reit . the loan agreement also includes the following covenants : we must maintain a fixed charge coverage ratio of at least 1.35:1.00 at the end of each fiscal quarter ; we must maintain a tangible net worth of not less than the sum of ( x ) seventy five percent ( 75 % ) of shareholders ' equity immediately following the consummation of the ipo plus ( y ) sixty percent ( 60 % ) percent of net cash proceeds from the sale of any of our equity securities following the consummation of the ipo at the end of each fiscal quarter ; and each of jeffrey villano and john villano must own not less than 500,000 shares of our issued and outstanding capital stock . the term fixed charge coverage ratio means , with respect to each fiscal year , the ratio of ( a ) ebitda ( i.e. , net income before provision for payment of interest expense , federal income taxes plus depreciation and amortization , as determined under gaap ) minus the sum of ( i ) income taxes paid in cash and ( ii ) unfinanced capital expenditures to ( b ) the sum of ( i ) interest expense accrued for such period and paid in cash at any time by the borrower , ( ii ) the current portion of long term indebtedness ( including capital leases ) paid , ( iii ) dividends paid on preferred equity , ( iv ) capitalized interest on mortgage loans and ( v ) amortization of any discount on mortgage loans . the term tangible net worth means an amount equal to the excess of ( x ) total assets over ( y ) the sum of ( i ) the total of all assets which would be classified as intangible assets under gaap and ( ii ) total liabilities as set forth on our balance sheet . corporate reorganization and reit qualification we expect that our operating expenses will 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 . as a corporation , we will incur various costs and expenses that we did not have as a limited liability company , such as director fees , directors ' and officers ' insurance and state and local franchise taxes . in addition , in lieu of paying management fees to our manager , story_separator_special_tag may not be more than 60 days past due ; and receipt of certain information relating to the property including an appraisal ( if the amount of the underlying loan exceeds $ 325,000 ) or other relevant data regarding value ( if the amount of the underlying loan is less than $ 325,000 ) . the bankwell credit line contains various covenants and restrictions that are typical for these kinds of credit facilities , including limiting the amount that we can borrow relative to the value of the underlying collateral , maintaining various financial ratios and limitations on the terms of loans we make to our customers . under the terms of the bankwell credit line , the amount outstanding at any one time may not exceed the lesser of ( i ) $ 15.0 million and ( ii ) our eligible notes receivable ( as defined under the bankwell credit line ) . in addition , each “ advance ” is further limited to the lesser of ( i ) 50 % -75 % , depending on the loan-to-value ratio , of the principal amount of the particular eligible note receivable being funded and ( ii ) $ 250,000. as of september 30 , 2016 , we estimate that loans having an aggregate principal amount of $ 18.5 million , representing approximately 60.5 % of scp 's mortgage receivables , satisfied all of the eligibility requirements set forth in the bankwell credit line . as of december 31 , 2016 , the total amount outstanding under the bankwell credit line was approximately $ 8.1 million leaving us with sufficient borrowing capacity to draw the entire $ 15.0 million facility if we so choose . given the nature of our business , we can not assure you that we will always be able to borrow the maximum allowed under the terms of the bankwell credit line . in addition , the bankwell credit line includes the following restrictions , limitations and prohibitions : prohibiting any liens on any of the collateral securing the bankwell credit line , which is essentially all of our assets ; prohibiting us from merging , consolidating or disposing of any asset ; prohibiting us from incurring additional indebtedness exceeding $ 100,000 in the aggregate ; prohibiting us from forming or transacting business with any subsidiary or affiliate other than to make loans to our borrowers ; prohibiting us from allowing any litigation exceeding $ 50,000 against any of our assets unless we are fully insured against such loss ; prohibiting us from declaring or paying any cash dividends exceeding our reit taxable income ; prohibiting us from purchasing any securities issued by or otherwise invest in any public or private entity ; and jeffrey villano and john villano must remain as our senior executive officers with day-to-day operational involvement . 42 loan covenants include the following : punctually pay amounts due ; pay on demand any charges customarily incurred or levied by bankwell ; pay any and all taxes , assessments or other charges assessed against us or any of our assets ; pay all insurance premiums ; maintain our principal deposit and disbursement accounts with bankwell ; perfect bankwell 's lien on the assets ; comply with all applicable laws , ordinances , rules and regulations of any governmental authority ; or change the form or nature of our structure from a reit . the loan agreement also includes the following covenants : we must maintain a fixed charge coverage ratio of at least 1.35:1.00 at the end of each fiscal quarter ; we must maintain a tangible net worth of not less than the sum of ( x ) seventy five percent ( 75 % ) of shareholders ' equity immediately following the consummation of the ipo plus ( y ) sixty percent ( 60 % ) percent of net cash proceeds from the sale of any of our equity securities following the consummation of the ipo at the end of each fiscal quarter ; and each of jeffrey villano and john villano must own not less than 500,000 shares of our issued and outstanding capital stock . the term fixed charge coverage ratio means , with respect to each fiscal year , the ratio of ( a ) ebitda ( i.e. , net income before provision for payment of interest expense , federal income taxes plus depreciation and amortization , as determined under gaap ) minus the sum of ( i ) income taxes paid in cash and ( ii ) unfinanced capital expenditures to ( b ) the sum of ( i ) interest expense accrued for such period and paid in cash at any time by the borrower , ( ii ) the current portion of long term indebtedness ( including capital leases ) paid , ( iii ) dividends paid on preferred equity , ( iv ) capitalized interest on mortgage loans and ( v ) amortization of any discount on mortgage loans . the term tangible net worth means an amount equal to the excess of ( x ) total assets over ( y ) the sum of ( i ) the total of all assets which would be classified as intangible assets under gaap and ( ii ) total liabilities as set forth on our balance sheet . corporate reorganization and reit qualification we expect that our operating expenses will 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 . as a corporation , we will incur various costs and expenses that we did not have as a limited liability company , such as director fees , directors ' and officers ' insurance and state and local franchise taxes . in addition , in lieu of paying management fees to our manager ,
| for 2016 , interest and amortization of deferred financing costs were approximately $ 505,000 and compensation to manager was $ 350,000. in comparison , for 2015 , the corresponding amounts were $ 222,000 and $ 210,000. the increase in interest and amortization of deferred financing costs is directly attributable to higher levels of debt in 2016. the utilization of our bankwell credit line varies from month to month . during 2016 , balances due on our line of credit ranged from $ 4.4 million to $ 8.5 million . during 2015 , balances due on our line of credit ranged from $ 500,000 to $ 6 million . the increase in compensation to manager in 2016 over 2015 is directly related to the increase in our revenue , which is directly related to the increase in the size of our loan portfolio , which , in turn , grew as a result of increases in our equity capital and debt . net income net income for 2016 was $ 3.0 million compared to $ 2.3 million for 2015 resulting from the increase in our lending activities , partially offset by the increase in operating costs and expenses . liquidity and capital resources net cash provided by operating activities for 2016 was $ 3.7 million compared to $ 2.4 million for 2015. net cash used for investing activities for 2016 was $ 6.9 million compared to $ 13.1 million for 2015. proceeds from sale of real estate owned in 2016 was approximately $ 1.1 compared to $ 422,000 in 2015. the 2016 year also included approximately $ 886,000 of cash used to acquire and improve properties that we acquired in connection with non-performing loans . we had no such expenditures in 2015. finally , in 2016 , principal disbursements for mortgages receivable were $ 21.6 million and principal collections were $ 14.9 million . in 2015 , the corresponding amounts were $ 19.4 million and $ 5.8 million , respectively . we believe that the increased rate of prepayments of outstanding loans may be a result of increasing lending activity by traditional lenders , such as banks , which could be an
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in furtherance of our strategy , we undertook a number of transactions to further strengthen our balance sheet and improve our cash flows . on december 23 , 2013 , we entered into the credit agreement . the credit agreement consists of a $ 2.025 billion term loan ( the “ term loan ” ) maturing in december 2020 and the $ 200.0 million revolving credit facility maturing in december 2018. under the revolving credit facility , up to $ 30.0 million of availability may be drawn in the form of letters of credit . upon entry into the credit agreement , we used term loan borrowings of $ 2.025 billion to repay in full all amounts outstanding under the first lien term loan and second lien term loan under our pre-existing credit agreements . as of the last day of any fiscal quarter beginning with the quarter ending december 31 , 2013 , in the event amounts are outstanding under the revolving credit facility or any letters of credit are outstanding that have not been collateralized by cash , the credit agreement requires compliance with a consolidated first lien net leverage ratio covenant . the required ratio at december 31 , 2013 and 2014 is 5.75 to 1. the ratio periodically decreases until it reaches to 4.00 to 1 on march 31 , 2018. as of december 31 , 2013 , we were in compliance with all of our covenants under the credit agreement . on december 6 , 2013 , we entered into a 5-year , $ 50.0 million revolving accounts receivable securitization facility ( the “ securitization facility ” ) with general electric capital corporation , as a lender , as swing line lender and as administrative agent ( together with any other lenders party thereto from time to time , the “ lenders ” ) . in connection with the entry into the securitization facility , pursuant to a receivables sale and servicing agreement , dated as of december 6 , 2013 ( the “ sale agreement ” ) , certain subsidiaries of the company ( collectively , the `` originators '' ) sell and or contribute their existing and future accounts receivable and related assets to a special purpose entity and wholly owned subsidiary of the company ( the “ spv ” ) . the spv may thereafter make borrowings from the lenders , which borrowings are secured by those receivables and related assets , pursuant to a receivables funding and administration agreement , dated as of december 6 , 2013 ( the “ funding agreement ” ) . 38 index to financial statements in october 2013 , we issued and sold 18,860,000 shares of our class a common stock for net proceeds of approximately $ 89.8 million , and used approximately $ 78.0 million of the net proceeds from the offering to redeem all then-outstanding shares of our series b preferred stock , including accrued and unpaid dividends thereon . in addition , in august 2013 , we redeemed all then-outstanding shares of our series a preferred stock in connection with the issuance of our series b preferred stock . at december 31 , 2013 our long-term debt consisted of $ 2.025 billion in total term loans and $ 610.0 million in 7.75 % senior notes . in addition , as of december 31 , 2013 , we had $ 25.0 million outstanding under the securitization facility . we have assessed the current and expected conditions of our business climate , our current and expected needs for funds and our current and expected sources of funds and determined , based on our financial condition as of december 31 , 2013 , that cash on hand and cash expected to be generated from operating activities will be sufficient to satisfy our anticipated financing needs for working capital , capital expenditures , interest and debt service payments , and repurchases of securities and other debt obligations through december 31 , 2014 . advertising revenue and adjusted ebitda our primary source of revenues is the sale of advertising time . our sales of advertising time are primarily affected by the demand from local , regional and national advertisers which impacts the advertising rates charged by us . advertising demand and rates are based primarily on a station 's ability to attract audiences in the demographic groups targeted by its advertisers , as measured principally by various ratings agencies on a periodic basis . we endeavor to develop strong listener loyalty and we believe that the diversification of our formats and programs helps to insulate us from the effects of changes in the musical tastes of the public with respect to any particular format as a substantial portion of our revenue comes from non-music format and proprietary content . in addition , we believe that the portfolio that we own and operate , which has increased diversity in terms of format , listener base , geography , advertiser base and revenue stream as a result of our acquisitions and the development of our strategy to focus on radio stations in larger markets and geographically strategic regional clusters , will further reduce our revenue dependence on any single demographic , region or industry . we strive to maximize revenue by managing our on-air inventory of advertising time and adjusting prices up or down based on supply and demand . the optimal number of advertisements available for sale depends on the programming format of a particular radio program . each sales vehicle has a general target level of on-air inventory available for advertising . this target level of advertising inventory may vary at different times of the day but tends to remain stable over time . we seek to broaden our base of advertisers in each of our markets by providing a wide array of audience demographic segments across each cluster of stations , thereby providing each of our potential advertisers with an effective means of reaching a targeted demographic group . story_separator_special_tag in the broadcasting industry , we sometimes utilize trade or barter agreements that exchange advertising time for goods or services such as travel or lodging , instead of for cash . trade revenue totaled $ 31.1 million , $ 27.7 million and $ 21.2 million in the years ended december 31 , 2013 , 2012 and 2011 , respectively . our advertising contracts are generally short-term . we generate most of our revenue from local and regional advertising , which is sold primarily by a station 's sales staff . local and regional advertising typically represents a majority of our net revenues . in addition to local advertising revenues , we monetize our available inventory in both national spot and network sales marketplaces using our national platform . to effectively deliver our network advertising for our customers , we distribute content and programming through third party affiliates in order to achieve a broader national audience . typically , in exchange for the right to broadcast radio network programming , third party affiliates remit a portion of their advertising time , which is then aggregated into packages focused on specific demographic groups and sold by us to our advertiser clients that want to reach the listeners who comprise those demographic groups on a national basis . revenues derived from third party affiliates in 2013 represented less than 10 % of consolidated revenues . our advertising revenues vary by quarter throughout the year . as is typical in the radio broadcasting industry , our first calendar quarter typically produces the lowest revenues of a last twelve month period , as advertising generally declines following the winter holidays . the second and fourth calendar quarters typically produce the highest revenues for the year . our operating results in any period may be affected by the incurrence of advertising and promotion expenses that typically do not have an effect on revenue generation until future periods , if at all . we continually evaluate opportunities to increase revenues through new platforms , including technology-based initiatives . adjusted ebitda is the financial metric utilized by management to analyze the cash flow generated by the company 's business . this measure isolates the amount of income generated by the company 's radio stations apart from the incurrence of non-cash and non-operating expenses . management also uses this measure to determine the contribution of the company 's radio station portfolio , including the corporate resources employed to manage the portfolio , to the funding of its other operating 39 index to financial statements expenses and to the funding of debt service and acquisitions . in addition , adjusted ebitda is a key metric for purposes of calculating and determining our compliance with certain covenants contained in our credit agreement . in deriving this measure , management excludes depreciation , amortization and stock-based compensation expense , as these do not represent cash payments for activities directly related to the operation of the radio stations . in addition , we exclude lma fees , even though such fees require a cash settlement , because they are excluded from the definition of adjusted ebitda contained in our credit agreement . we also exclude any gain or loss on any exchange of assets or stations as they do not represent a cash transaction . management also excludes any realized gain or loss on derivative instruments as they also do not represent a cash transaction , nor are they associated with radio station operations . interest expense , net of interest income , income tax ( benefit ) expense including franchise taxes , and expenses relating to acquisitions are also excluded from the calculation of adjusted ebitda as they are not directly related to the operation of radio stations . management excludes any impairment of goodwill and intangible assets as they do not require a cash outlay . management believes that adjusted ebitda , although not a measure that is calculated in accordance with gaap , nevertheless is commonly employed by the investment community as a measure for determining the market value of a radio company . management has also observed that adjusted ebitda is routinely employed to evaluate and negotiate the potential purchase price for radio broadcasting companies , and is a key metric for purposes of calculating and determining compliance with certain covenants in our credit agreement . given the relevance to the overall value of the company , management believes that investors consider the metric to be extremely useful . adjusted ebitda should not be considered in isolation or as a substitute for net income , operating income , cash flows from operating activities or any other measure for determining the company 's operating performance or liquidity that is calculated in accordance with gaap . a quantitative reconciliation of adjusted ebitda to net ( loss ) income , the most directly comparable financial measure calculated and presented in accordance with gaap , follows in this section . story_separator_special_tag style= '' line-height:120 % ; padding-top:12px ; text-indent:32px ; font-size:10pt ; '' > adjusted ebitda . as a result of the factors described above , adjusted ebitda for the year ended december 31 , 2013 decreased $ 28.0 million , or 7.8 % , to $ 330.0 million compared to $ 358.0 million for the year ended december 31 , 2012 . reconciliation of non-gaap financial measure . the following table reconciles adjusted ebitda to net income ( the most directly comparable financial measure calculated and presented in accordance with gaap ) as presented in the accompanying consolidated statements of operations ( dollars in thousands ) : replace_table_token_16_th intangible assets ( including goodwill ) , net . intangible assets , net of amortization , were $ 3,168.6 million and $ 3,056.7 million as of december 31 , 2013 and 2012 , respectively . these intangible asset balances primarily consist of broadcast licenses and goodwill .
| the increase was primarily attributable to a $ 31.3 million increase in our national content initiatives , as well as ongoing investments in our sales infrastructure , a $ 9.0 million increase in expenses attributable to the westwoodone acquisition , a $ 1.0 million increase attributable to the five stations the company acquired in the fresno market in the townsquare transaction and a $ 4.1 million increase in expenses due to the addition of the stations in the bloomington and peoria markets we acquired from townsquare in july 2012. depreciation and amortization . depreciation and amortization for the year ended december 31 , 2013 decreased $ 23.1 million , or 17.0 % , to $ 112.5 million compared to $ 135.6 million for the year ended december 31 , 2012 . this decrease was primarily due to a $ 23.0 million decrease in amortization expense on our definite lived intangible assets , resulting from increased expense in the prior year due to the accelerated amortization methodology we have applied since acquisition of these assets based on the pattern in which the underlying assets ' economic benefits are expected to be consumed . lma fees . lma fees for the year ended december 31 , 2013 increased $ 0.2 million , or 7.2 % , to $ 3.7 million compared to $ 3.5 million for the year ended december 31 , 2012 . corporate general and administrative expenses , including , stock-based compensation expense . corporate , general and administrative expenses , including stock-based compensation expense for year ended december 31 , 2013 increased $ 2.4 million to $ 59.8 million , or 4.2 % compared to $ 57.4 million for the year ended december 31 , 2012 . the increase was primarily due to a $ 7.9 million increase in expenses relating to the december 2013 refinancing and a $ 2.4 million net increase in various other corporate expenses , including acquisition costs , offset by an $ 8.0 million decrease in stock-based compensation expense . gain on exchange of assets or stations . during the year ended december 31 , 2013 we recorded a gain of $
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these upfront payments generally represent the net present value of the difference between the future revenue stream ocwen would have received under the existing rights to msrs agreements and the future revenue ocwen expects to receive under the 2017 agreements . accordingly , the new agreements provide for a larger portion of future servicing compensation to be retained by nrz . as a general matter , we intend to continue to evaluate returns on our existing msr portfolio , and we may decide to sell select portions of our portfolio or to enter into transactions with similarities to the agreements we have entered into with nrz if we believe that such actions will benefit ocwen versus holding the assets over a longer term . on december 28 , 2016 , phh entered into an agreement to sell to nrz substantially all of phh 's portfolio of msrs and related advances . the sale of the majority of msrs and advances to be transferred under this agreement ( including all of phh 's fannie mae and freddie mac msrs ) has been completed . however , the sale of the remaining msrs and related advances contemplated by the sale agreement ( representing an aggregate of $ 5.9 billion in unpaid principal balance , $ 34.0 million of msr fair value , and $ 110.0 million of servicing advances as of december 31 , 2017 ) remains subject to the approvals of multiple counterparties and other customary closing requirements . accordingly , this sale could be delayed and may not be consummated prior to the closing of the phh acquisition or at all . in connection with phh 's sale agreement with nrz , phh has also entered into a subservicing agreement with nrz , pursuant to which phh will subservice the loans sold in the sale transaction for an initial period of three years , subject to certain transfer and termination provisions . this subservicing relationship became effective upon phh 's initial delivery of msrs to nrz on june 16 , 2017. the loans serviced by phh under this subservicing agreement include 364,784 units as of december 31 , 2017 and represent a majority of phh 's subservicing income . we expect to assume this subservicing agreement upon the closing of the merger with phh , which would further increase the dependence of our business on nrz . for more information on the terms and conditions of the merger with phh , see “ item 1- business - pending acquisition of phh ” . to the extent we generate cash proceeds from any sales of assets or businesses , we will , subject to the terms of our debt and other agreements , evaluate the best use of such cash which could include working capital , investments in new assets and reductions in debt to the extent permissible . we have faced , and expect to continue to face , heightened regulatory and public scrutiny as well as stricter and more comprehensive regulation of our business . since april 20 , 2017 , the cfpb , mortgage and banking regulatory agencies from 30 states and the district of columbia and two state attorneys general have taken regulatory actions against us that alleged deficiencies in our compliance with laws and regulations relating to our servicing and lending activities . we have resolved these regulatory matters with 28 states plus the district of columbia while continuing to seek resolutions with the remaining two state regulatory agencies and the two state attorney generals . on an ongoing basis , we work diligently to assess the implications of the regulatory environment in which we operate and to meet the requirements of the current environment . we devote substantial resources to regulatory compliance and to addressing regulatory actions and engagements , while , at the same time , striving to meet the needs and expectations of our customers , clients and other stakeholders . our business , operating results and financial condition have been significantly impacted in recent periods by legal and other fees and settlement payments related to litigation and regulatory matters , including the costs of third-party monitoring firms under our regulatory settlements . to the extent we are unable to avoid , mitigate or offset similar expenses in future periods , our business , operating results and financial condition will continue to be adversely affected , even if we are successful in our ongoing efforts to optimize our cost structure and improve our financial performance . as discussed above , we are in the process of transitioning to a new servicing system . we have entered into agreements with certain subsidiaries of black knight pursuant to which we plan to transition to black knight 's loansphere msp ® 51 servicing system . the new servicing system includes loan boarding , payment processing , escrow administration , and default management , among other functions . we also plan to use certain ancillary services offered by black knight . we believe this investment will improve the way we work , help simplify internal processes , and allow our teams to provide better service to our servicing customers and clients . however , implementing a large-scale transition to a new technology product such as a new servicing system is inherently complex and involves significant operational risk . we expect to devote significant capital and human resources to implementing this transition . if our transition to msp does not go as planned , our business , financial condition and results of operations could be materially and adversely affected . because phh currently utilizes the msp servicing system for its servicing operations , if the phh transaction closes , ocwen intends to transfer the loans it services to the msp platform utilized by phh versus a separate instance of the msp servicing system as it believes such a transfer can happen sooner and with less implementation and transfer risk . story_separator_special_tag accordingly , our ability to successfully transition to phh 's instance of the msp servicing system may have a significant impact on our ability to successfully integrate the business of phh and to realize the strategic objectives and other benefits anticipated in connection with the phh acquisition . 52 story_separator_special_tag style= '' line-height:120 % ; padding-bottom:8px ; padding-top:8px ; text-align : left ; text-indent:24px ; font-size:10pt ; '' > occupancy and equipment expense declined by $ 14.2 million , or 18 % , largely because of the effect of the decline in the size of the servicing portfolio on various expenses , particularly postage and other delivery services , and the effect of consolidating facilities . technology and communications expense declined by $ 9.8 million , or 9 % , because of efforts to bring technology services in-house and the effects of a declining servicing portfolio on technology fees . professional services expense , excluding monitor expenses , was $ 0.8 million lower in 2017 due to an $ 11.3 million decline in consulting fees and other professional services offset by a $ 9.2 million increase in legal expenses . professional services expense for 2017 includes fees incurred in connection with converting nrz 's rights to msrs to fully-owned msrs and amounts paid or accrued in connection with the resolution of regulatory matters . other expenses increased by $ 16.2 million , or 49 % , due in part to a $ 6.8 million charge recognized in 2017 to write-off the carrying value of internally-developed software used in our wholesale forward lending business in connection with our decision to exit that channel and sell the furniture , fixtures and equipment located at our westborough , massachusetts facility . also , advertising costs were $ 3.5 million higher in 2017 , primarily related to our lending segment . interest expense for 2017 declined $ 49.3 million , or 12 % , as compared to the prior year primarily due to a $ 20.1 million reduction in interest related to our senior secured term loan ( sstl ) facility and a $ 19.3 million reduction in interest on match funded liabilities . in 2016 , in connection with entering into an amended and restated sstl facility , we recognized previously unamortized debt issuance costs related to the prior sstl facility as well as discount related to the new sstl facility . lower interest expense on our match funded advance financing facilities is consistent with the decline in servicing advances and the effect of the higher amortization of facility costs in 2016. the decline in interest expense is also due to a $ 6.3 million decline in interest related to financing liabilities primarily because 2016 included $ 10.5 million of additional payments to nrz , which are recognized as interest expense , to compensate it for certain increased costs associated with a 2015 downgrade of our s & p servicer rating . despite a decline in the average upb of the nrz servicing portfolio in 2017 , interest expense on the nrz financing liabilities increased to $ 236.3 million . the increase is primarily due to changes in the fair value of nrz financing liabilities due to valuation and assumption updates which increased the value of the nrz financing liabilities by $ 83.3 million and which was recognized as interest expense . this more than offset the reduction in interest expense on the nrz financing liabilities driven by declines in the value of the nrz financing liability because of the decline in the average upb of the nrz servicing portfolio due to runoff , and the $ 42.0 million reduction in fair value of the nrz financing liability recognized in connection with the transferred msrs ( including 54 $ 37.6 million recognized at the time of the initial transfer ) that was primarily driven by the characteristics of rights to msrs with a upb of $ 15.9 billion that were converted to fully-owned msrs during the year , relative to the $ 54.6 million lump sum payment received from nrz . for the rights to msrs that were converted on september 1 , 2017 , the characteristics of the underlying msrs did not correspond to the weighted average loan characteristics used to determine the lump sum payment , resulting in a decline in the fair value of the financing liability primarily due to the transferred msrs having a contractual servicing fee rate of 33.4 bps as compared to the weighted average of 47.1 bps used to develop the lump sum payment schedule . other , net for 2017 declined $ 17.9 million primarily because 2016 includes $ 14.8 million received in connection with the execution of clean-up call rights related to five small-balance commercial mortgage securitization trusts , as discussed below . although the pre-tax loss for 2017 declined by $ 62.4 million , or 30 % , to $ 144.0 million , the income tax benefit increased $ 8.5 million , or 122 % , to $ 15.5 million . this is primarily due to the income tax benefit recognized on the reversal of the liability for a portion of our uncertain tax positions upon the expiration of the statute of limitations in september 2017. the change is also due to the mix of earnings among different tax jurisdictions with different statutory tax rates , which impacts the amount of the tax benefit or expense recorded . the overall effective tax rate for 2017 was 10.8 % , compared to 3.4 % for 2016 . this rate change primarily resulted from the tax benefit recognized on the reversal of uncertain tax positions during 2017 , as compared to additional income tax expense recognized during 2016 related to uncertain tax positions , offset in part by a decrease in tax benefits resulting from our inability to carry back current losses that are being generated in the u.s. and usvi tax jurisdictions .
| the decrease in fair value loss is due to the $ 86.7 million impact of a benchmarking assumption update related to our non-agency msrs carried at fair value which was based on a recommendation from our third-party valuation expert and reflects an upward trend in market pricing on non-agency msrs similar in profile to ocwen 's portfolio . the decline in impairment for 2017 reflects the recoverability of certain advances on various privately-held government-insured loans . the increase in amortization expense primarily resulted from a $ 27.5 million benefit recognized during 2016 related to the sale of non-performing loans conveyed to hud as part of the aged delinquent portfolio loan sale ( adpls ) program while there was no corresponding benefit in 2017. the adpls program is discussed further below under segment results of operations-servicing-hud note sales . excluding msr amortization and valuation adjustments and monitor expenses , expenses for 2017 were $ 78.2 million , or 8 % , lower than the prior year . servicing and origination expense , excluding msr valuation adjustments , decreased $ 47.3 million , or 21 % , primarily due to a decrease in government-insured claim loss provisions and the recovery of $ 28.5 million of losses related to a settlement of outstanding claims that arose from indemnification obligations in connection with our acquisition of msrs and related servicing advances in 2013. government-insured claim losses in 2016 included the accelerated recognition of $ 34.8 million of expenses related to our participation in hud 's adpls and hud note sale programs , which were largely offset by a benefit in amortization expense as discussed above . government-insured claim loss provision in 2017 included $ 17.0 million in connection with re-performing government insured loans for which certain advances are no longer recoverable . compensation and benefits expense declined $ 22.3 million , or 6 % , as average headcount declined by 14 % , including a 12 % reduction in u.s.-based headcount . the decline in
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a summary of these key financial metrics for our continuing operations is as follows : for the fiscal year 2019 , as compared to the fiscal year 2018 : total revenues under asc 606 was $ 1,823.1 million for the year ended september 30 , 2019 , as compared to $ 1,842.3 million under asc 605 for the year ended september 30 , 2018 ; 21 net income from continuing operations under asc 606 for the year ended september 30 , 2019 was $ 114.3 million , compared to a net loss from continuing operations of $ 184.9 million under asc 605 the year ended september 30 , 2018 ; gross margins under asc 606 for the year ended september 30 , 2019 was 57.2 % , compared to 55.2 % under asc 605 for the year ended september 30 , 2018 ; operating margins under asc 606 for the year ended september 30 , 2019 was 7.3 % , compared to ( 6.4 ) % under asc 605 for year ended september 30 , 2018 ; and operating cash flows from continuing operations increased by $ 4.7 million to $ 397.0 million for the year ended september 30 , 2019 , compared to $ 392.3 million for the year ended september 30 , 2018 . as of september 30 , 2019 , as compared to september 30 , 2018 : total deferred revenue decreased by 8 % to $ 701.7 million , primarily as a result of the asc 606 implementation , offset in part by the continued growth of our automotive connected solutions and healthcare bundled offerings . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-style : italic ; font-weight : bold ; '' > fiscal year 2017 product and licensing revenue increased by $ 50.1 million , or 10.1 % , primarily driven by a $ 16.3 million increase in automotive , a $ 14.5 million increase in healthcare , and a $ 12.8 million increase in enterprise . automotive product and licensing revenue increased primarily due to higher royalties from existing and new customers . healthcare product and licensing revenue increased primarily due to higher revenue from diagnostics solutions due to recent acquisitions . enterprise product and licensing revenue increased primarily due to higher contact center license revenue . as a percentage of total revenue , product and licensing revenue increased from 28.6 % for fiscal year 2017 to 29.5 % for fiscal year 2018 . maintenance and support revenue maintenance and support revenue primarily consists of technical support and maintenance services . the following table shows maintenance and support revenue , in dollars , percentage change , and as a percentage of total revenues ( dollars in millions ) : replace_table_token_7_th fiscal year 2019 compared to fiscal year 2018 maintenance and support revenue on asc 606 basis for the year ended september 30 , 2019 is $ 25.5 million higher compared to revenue under asc 605 for the same period , primarily as a result of the re-allocation of contract consideration to multiple performance obligations based on standalone selling prices . under asc 605 , maintenance and support revenue decrease d by $ 8.9 million , or 3.5 % , primarily due to customers ' continued transition from licenses to cloud-based solutions in healthcare . as a percentage of total revenue , maintenance and support revenue under asc 605 decreased from 13.7 % to 13.1 % for the year ended september 30 , 2019 . fiscal year 2018 compared to fiscal year 2017 maintenance and support revenue decreased by $ 15.1 million , or 5.6 % , primarily due to a $ 18.1 million decrease in healthcare , offset in part by a $ 4.6 million increase in enterprise . the decrease in healthcare was primarily driven by the continuing customer 24 transition from product licenses to cloud-based solutions . the increase in enterprise was primarily driven by higher volume of contact center license transactions with maintenance and support . as a percentage of total revenue , maintenance and support revenue under asc 605 decreased from 15.5 % for fiscal year 2017 to 13.7 % for the fiscal year 2018. costs and expenses cost of hosting and professional services revenue cost of professional services and hosting revenue primarily consists of compensation for services personnel , outside consultants and overhead , as well as the hardware , infrastructure and communications fees that support our hosting solutions . the following table shows the cost of professional services and hosting revenue , in dollars , percentage change , and as a percentage of professional services and hosting revenue ( dollars in millions ) : replace_table_token_8_th fiscal year 2019 compared to fiscal year 2018 cost of hosting and professional services revenue under asc 606 for the year ended september 30 , 2019 is $ 2.9 million lower than the amount under asc 605 for the same period , primarily due to the upfront recognition of costs upon the asc 606 implementation as a result of change from completed contract method to the percentage of completion method . under asc 605 , cost of hosting and professional services revenue decrease d by $ 39.3 million , or 5.8 % , primarily due to lower revenue related to ehr implementation and optimization services , offset in part by higher costs related to our dragon medical cloud-based software . under asc 605 , gross margin increased by 5.8 percentage points , primarily due to lower revenue from ehr implementation and optimization services , which carries lower margins . also contributing to the margin improvement was the favorable shift in revenue mix towards higher-margin dragon medical cloud-based software from lower-margin transcription services . fiscal year 2018 compared to fiscal year 2017 the increase in cost of professional services and hosting revenue was primarily due to higher professional services costs in our healthcare segment related to ehr implementation , optimization services and higher hosting costs related to the growth of our automotive connected car services , offset in part by lower costs of medical transcription services . story_separator_special_tag gross margins increase d by 2.8 percentage points as our healthcare segment recovered from the 2017 malware incident throughout the year . also contributing to the margin improvement was a favorable shift in revenue mix towards higher margin dragon medical cloud-based software , offset in part by margin compression in our medical transcription services and the increase in ehr implementation and optimization services which carried lower margins . cost of product and licensing revenue cost of product and licensing revenue primarily consists of material and fulfillment costs , manufacturing and operations costs and third-party royalty expenses . the following table shows the cost of product and licensing revenue , in dollars , percentage change , and as a percentage of product and licensing revenue ( dollars in millions ) : replace_table_token_9_th 25 fiscal year 2019 compared to fiscal year 2018 cost of product and licensing revenue under asc 606 for the year ended september 30 , 2019 is $ 5.9 million higher than the amount under asc 605 for the same period , primarily due to the upfront recognition of third-party license royalties in connection with the upfront recognition of term license revenue . under asc 605 , cost of product and licensing revenue increase d by $ 10.6 million , or 18.7 % primarily due to higher royalty costs in healthcare . as a result , under asc 605 , gross margin decreased by 2.3 percentage points . fiscal year 2018 compared to fiscal year 2017 cost of product and licensing revenue increase d by $ 2.7 million , or 5.0 % , primarily due to higher costs related to our clinical documentation and diagnostic solutions . gross margins increase d by 0.6 percentage points , primarily due to higher margins on dragon medical software license revenue . cost of maintenance and support revenue cost of maintenance and support revenue primarily consists of compensation for product support personnel and overhead . the following table shows cost of maintenance and support revenue , in dollars , percentage change , and as a percentage of maintenance and support revenue ( dollars in millions ) : replace_table_token_10_th fiscal year 2019 compared to fiscal year 2018 cost of maintenance and support revenue under asc 606 for the year ended september 30 , 2019 is $ 0.2 million lower than the amount under asc 605 for the same period , primarily due to the timing of recognition of third-party service costs . under asc 605 , cost of maintenance and support revenue decrease d by $ 5.5 million , or 14.0 % , primarily due to customers ' continued transition from licenses to cloud-based solutions in healthcare . under asc 605 , gross margins increased by 1.7 percentage points , primarily driven by higher margin on dragon medical maintenance and support services in healthcare . fiscal year 2018 compared to fiscal year 2017 cost of maintenance and support revenue increase d by $ 2.1 million , or 5.6 % , primarily driven by higher compensation costs in healthcare . gross margins decreased by 1.7 % , primarily due to lower margin on dragon medical software maintenance and support services in healthcare . research and development expenses research and development expenses primarily consist of salaries , benefits , and overhead relating to third party engineering costs . the following table shows research and development expense , in dollars , percentage change , and as a percentage of total revenues ( dollars in millions ) : replace_table_token_11_th fiscal year 2019 compared to fiscal year 2018 r & d expense decrease d by $ 2.8 million , or 1.0 % , primarily driven by lower compensation costs due to our recent costs saving initiatives , offset in part by our continued investment in product development and new technologies to support our long-term growth . 26 fiscal year 2018 compared to fiscal year 2017 r & d expenses increased by $ 38.8 million , or 16.2 % , primarily due to higher compensation expenses as we continue to invest in product innovation and new technologies to support our long-term growth . sales and marketing expenses sales and marketing expenses include salaries and benefits , commissions , advertising , direct mail , public relations , tradeshow costs and other costs of marketing programs , travel expenses associated with our sales organization and overhead . the following table shows sales and marketing expense , in dollars , percentage change , and as a percentage of total revenues ( dollars in millions ) : replace_table_token_12_th fiscal year 2019 compared to fiscal year 2018 sales and marketing expense under asc 606 for the year ended september 30 , 2019 is $ 5.9 million lower than the amount under asc 605 for the same period , primarily due to the amortization of capitalized sales commission expenses over the period of benefit . under asc 605 , sales and marketing expense decrease d by $ 2.3 million , or 0.8 % , primarily driven by lower sales headcount as a result of ongoing portfolio review and optimization . fiscal year 2018 compared to fiscal year 2017 sales and marketing expenses decreased by $ 12.7 million , or 3.9 % , primarily driven by lower commission expenses due to recent changes in our commission plans in fiscal year 2018. general and administrative expenses general and administrative expenses primarily consist of personnel costs for administration , finance , human resources , general management , fees for external professional advisers including accountants and attorneys , and provisions for doubtful accounts . the following table shows general and administrative expense , in dollars , percentage change , and as a percentage of total revenues ( dollars in millions ) : replace_table_token_13_th fiscal year 2019 compared to fiscal year 2018 general and administrative expense decrease d by $ 50.9 million , or 22.5 % , primarily due to higher professional services costs incurred in fiscal year 2018 in connection with establishing automotive as a separate reportable segment . also contributing to the decrease was lower employee-related costs as a result of ongoing business review and other cost saving initiatives .
| under asc 605 , hosting revenue increase d by $ 79.5 million , or 10.3 % , primarily due to a $ 52.3 million increase in healthcare , a $ 29.8 million increase in enterprise segment , and a $ 19.5 million increase in our automotive segment , which was partially offset by a $ 22.1 million decrease in our other segment . healthcare hosting revenue increased primarily due to the continued growth in our dragon medical cloud-based solutions , offset in part by a decline in our medical transcription services . enterprise hosting revenue increased primarily due to the strength in our omni-channel hosting solutions . automotive hosting revenue increased primarily due to the continued market penetration of our speech recognition and infotainment platform services . other segment hosting revenue decreased due to the wind-down of devices and the sale of mobile operator services business in brazil and india in fiscal year 2019. as a percentage of total revenue , hosting revenue under asc 605 increased from 41.9 % for fiscal 2018 to 45.8 % for fiscal 2019. professional services revenue under asc 606 for the year ended september 30 , 2019 is $ 13.0 million lower compared to revenue under asc 605 for the same period , primarily due to the loss of deferred revenue upon the asc 606 implementation as a result of change from completed contract method to the percentage of completion method . under asc 605 , professional services revenue decrease d by $ 43.3 million , or 15.8 % , primarily due to a $ 58.9 million decrease in healthcare , offset in part by a $ 6.5 million increase in enterprise and a $ 9.3 million increase in automotive . healthcare professional services revenue decreased primarily due to lower revenue from the ehr implementation and optimization services . enterprise professional services revenue increased primarily due to higher contact center service revenue as a result of the timing of the services rendered . automotive professional services revenue
| 12,819 |
the following table presents the availability on the company 's unsecured revolving credit facility as of february 14 , 2020 ( amounts in thousands ) : february 14 , 2020 unsecured revolving credit facility commitment $ 2,500,000 commercial paper balance outstanding ( 1,000,000 ) unsecured revolving credit facility balance outstanding ( 10,000 ) other restricted amounts ( 100,949 ) unsecured revolving credit facility availability $ 1,389,051 dividend policy the company determines its dividends/distributions based on actual and projected financial conditions , the company 's actual and projected liquidity and operating results , the company 's projected cash needs for capital expenditures and other investment activities and such other factors as the company 's board of trustees deems relevant . the company declared a dividend/distribution for each quarter in 2019 of $ 0.5675 per share/unit , an annualized increase of 5.1 % over the amount paid in 2018. this increase is supported by the company 's strong growth in property operations and a significant reduction in its development activity resulting in a material increase in available cash flow . the company 's 2019 operating cash flow was sufficient to cover capital expenditures and regular dividends/distributions . the company expects to declare a dividend/distribution of $ 0.6025 per share/unit for the first quarter of 2020 , an annualized increase of 6.2 % over the amount paid in 2019. this increase is driven by the company 's continued strong cash flow performance , solid balance sheet and modest payout ratio . the company believes that its expected 2020 operating cash flow will be sufficient to cover capital expenditures and regular dividends/distributions . all future dividends/distributions remain subject to the discretion of the company 's board of trustees . total dividends/distributions paid in january 2020 amounted to $ 218.3 million ( excluding distributions on partially owned properties ) , which consisted of certain distributions declared during the fourth quarter ended december 31 , 2019. long-term financing and capital needs the company expects to meet its long-term liquidity requirements , such as lump sum unsecured note and mortgage debt maturities , property acquisitions and financing of development activities , through the issuance of secured and unsecured debt and equity securities , including additional op units , proceeds received from the disposition of certain properties and joint ventures and cash generated from operations after all distributions . in addition , the company has a significant number of unencumbered properties available to secure additional mortgage borrowings in the event that unsecured capital is unavailable or the cost of alternative sources of capital is too high . the value of and cash flow from these unencumbered properties are in excess of the requirements the company must maintain in order to comply with covenants under its unsecured notes and line of credit . of the $ 27.5 billion in investment in real estate on the company 's balance sheet at december 31 , 2019 , $ 23.9 billion or 86.9 % was unencumbered . however , there can be no assurances that these sources of capital will be available to the company in the future on acceptable terms or otherwise . 33 eqr issues public equity and guarantees certain debt of the operating partnership from time to time . eqr does not have any indebtedness as all debt is incurred by the operating partnership . the company 's total debt summary and debt maturity schedules as of december 31 , 2019 are as follows : debt summary as of december 31 , 2019 ( $ in thousands ) replace_table_token_17_th 34 debt maturity schedule as of december 31 , 2019 ( $ in thousands ) replace_table_token_18_th ( 1 ) represents principal outstanding on the company 's commercial paper program . ( 2 ) includes $ 20.0 million in principal outstanding on the company 's revolving credit facility . see the definitions section below for the definition of weighted average coupons and weighted average rates . see also note 9 in the notes to consolidated financial statements for additional discussion of debt at december 31 , 2019. the company 's “ consolidated debt-to-total market capitalization ratio ” as of december 31 , 2019 is presented in the following table . the company calculates the equity component of its market capitalization as the sum of ( i ) the total outstanding common shares and assumed conversion of all units at the equivalent market value of the closing price of the company 's common shares on the new york stock exchange and ( ii ) the liquidation value of all perpetual preferred shares outstanding . equity residential capital structure as of december 31 , 2019 ( amounts in thousands except for share/unit and per share amounts ) replace_table_token_19_th the operating partnership 's “ consolidated debt-to-total market capitalization ratio ” as of december 31 , 2019 is presented in the following table . the operating partnership calculates the equity component of its market capitalization as the sum of ( i ) the total outstanding units at the equivalent market value of the closing price of the company 's common shares on the new york stock exchange and ( ii ) the liquidation value of all perpetual preference units outstanding . 35 erp operating limited partnership capital structure as of december 31 , 2019 ( amounts in thousands except for unit and per unit amounts ) replace_table_token_20_th eqr and erpop currently have an active universal shelf registration statement for the issuance of equity and debt securities that automatically became effective upon filing with the sec in june 2019 and expires in june 2022. per the terms of erpop 's partnership agreement , eqr contributes the net proceeds of all equity offerings to the capital of erpop in exchange for additional op units ( on a one-for-one common share per op unit basis ) or preference units ( on a one-for-one preferred share per preference unit basis ) . the company has an at-the-market ( “ atm ” ) share offering program which allows eqr to sell common shares from time to time into the existing trading market at current market prices as well as through negotiated transactions . story_separator_special_tag in june 2019 , the company extended the program maturity to june 2022. in connection with the extension , the company may now also sell common shares under forward sale agreements . the use of a forward sale agreement would allow the company to lock in a price on the sale of common shares at the time the agreement is executed , but defer receiving the proceeds from the sale until a later date . eqr has the authority to issue 13.0 million shares but has not issued any shares under this program since september 2012. eqr may , but shall have no obligation to , sell common shares through the atm share offering program in amounts and at times to be determined by eqr . actual sales will depend on a variety of factors , including ( among others ) market conditions , the trading price of eqr 's common shares and determinations of the appropriate sources of funding for eqr . through february 14 , 2020 , eqr has cumulatively issued approximately 16.7 million common shares at an average price of $ 48.53 per share for total consideration of approximately $ 809.9 million . the company may repurchase up to 13.0 million common shares under its share repurchase program . no open market repurchases have occurred since 2008 , and no repurchases of any kind have occurred since february 2014. eqr may , but shall have no obligation to , repurchase common shares through the share repurchase program in amounts and at times to be determined by eqr . actual repurchases will depend on a variety of factors , including ( among others ) market conditions , the trading price of eqr 's common shares and other opportunities for the investment of available capital . as of february 14 , 2020 , eqr has remaining authorization to repurchase up to 13.0 million of its shares . erpop 's long-term senior debt ratings and short-term commercial paper ratings as well as eqr 's long-term preferred equity ratings , which all have a stable outlook , as of february 14 , 2020 are as follows : standard & poor ' s moody ' s fitch erpop ' s long-term senior debt rating a- a3 a erpop ' s short-term commercial paper rating a-2 p-2 f-1 eqr ' s long-term preferred equity rating bbb baa1 bbb+ see note 18 in the notes to consolidated financial statements for discussion of the events , if any , which occurred subsequent to december 31 , 2019. capitalization of fixed assets and improvements to real estate our policy with respect to capital expenditures is generally to capitalize expenditures that improve the value of the property or extend the useful life of the component asset of the property . we track improvements to real estate in three major categories and several subcategories : ▪ replacements ( inside the apartment unit ) . these include : flooring such as carpets , hardwood , vinyl or tile ; 36 appliances ; mechanical equipment such as individual furnace/air units , hot water heaters , smoke/carbon monoxide/water alarms , etc . ; furniture and fixtures such as kitchen/bath cabinets , light fixtures , ceiling fans , sinks , tubs , toilets , mirrors , countertops , etc . ; and blinds and window coverings . all replacements are depreciated over a five to ten-year estimated useful life . we expense as incurred all make-ready maintenance and turnover costs such as cleaning , interior painting of individual apartment units and the repair of any replacement item noted above . ▪ building improvements ( outside the apartment unit ) . these include : roof replacement and major repairs ; paving or major resurfacing of parking lots , curbs and sidewalks ; amenities and common areas such as pools , exterior sports and playground equipment , lobbies , clubhouses , laundry rooms , alarm and security systems and offices ; major building mechanical equipment systems ; interior and exterior structural repair and exterior painting and siding ; major landscaping and grounds improvement ; and vehicles and office and maintenance equipment . all building improvements are depreciated over a five to fifteen-year estimated useful life . we capitalize building improvements and upgrades only if the item : ( i ) exceeds $ 2,500 ( selected projects may be restricted by other thresholds ) ; ( ii ) extends the useful life of the asset ; and ( iii ) improves the value of the asset . the third major category is renovations , which primarily consists of expenditures for kitchens and baths designed to reposition the apartment units/properties for higher rental levels in their respective markets . all renovation expenditures are depreciated over a ten-year estimated useful life . for the year ended december 31 , 2019 , our actual capital expenditures to real estate included the following ( amounts in thousands except for apartment unit and per apartment unit amounts ) : capital expenditures to real estate for the year ended december 31 , 2019 replace_table_token_21_th ( 1 ) building improvements – includes roof replacement , paving , building mechanical equipment systems , exterior siding and painting , major landscaping , furniture , fixtures and equipment for amenities and common areas , vehicles and office and maintenance equipment . ( 2 ) renovation expenditures – apartment unit renovation costs ( primarily kitchens and baths ) designed to reposition these units for higher rental levels in their respective markets . amounts for 2,415 same store apartment units approximated $ 15,515 per apartment unit renovated . ( 3 ) replacements – includes appliances , mechanical equipment , fixtures and flooring ( including hardwood and carpeting ) . ( 4 ) same store properties – primarily includes all properties acquired or completed that are stabilized prior to january 1 , 2018 , less properties subsequently sold . ( 5 ) non-same store properties/other – primarily includes all properties acquired during 2018 and 2019 , plus any properties in lease-up and not stabilized as of january 1 , 2018. also includes capital expenditures for properties sold .
| funds from operations and normalized funds from operations the following is the company 's and the operating partnership 's reconciliation of net income to ffo available to common shares and units / units and normalized ffo available to common shares and units / units for each of the five years ended december 31 , 2019 : funds from operations and normalized funds from operations ( amounts in thousands ) replace_table_token_24_th ( 1 ) the national association of real estate investment trusts ( “ nareit ” ) defines funds from operations ( “ ffo ” ) ( december 2018 white paper ) as net income ( computed in accordance with accounting principles generally accepted in the united states ( “ gaap ” ) ) , excluding gains or losses from sales and impairment write-downs of depreciable real estate and land when connected to the main business of a reit , impairment write-downs of investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity and depreciation and amortization related to real estate . adjustments for partially owned consolidated and unconsolidated partnerships and joint ventures are calculated to reflect funds from operations on the same basis . 41 ( 2 ) normalized funds from operations ( “ normalized ffo ” ) begins with ffo and excludes : the impact of any expenses relating to non-operating asset impairment ; pursuit cost write-offs ; gains and losses from early debt extinguishment and preferred share redemptions ; gains and losses from non-operating assets ; and < p style= '' text-align : justify ; margin-top:6pt ; margin-bottom:0pt ; letter-spacing : -0.1pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; font-family : 'times new
| 12,820 |
until such time as we may complete development of , receive regulatory approval for , and generate product sales from pimavanserin or other products , we expect our revenues to be derived primarily from payments under our current agreements with allergan and potential additional collaborations , as well as grant funding . we have been a party to three collaboration agreements with allergan , one of which concluded in march 2013. our two ongoing collaboration agreements with allergan involve the development of product candidates in the areas of chronic pain and glaucoma . we are eligible to receive payments upon achievement of development and regulatory milestones , as well as royalties on future product sales , if any , under each of our ongoing collaboration agreements with allergan . however , we no longer receive research funding from these agreements and additional payments are dependent upon the advancement of our applicable product candidates . each of our current agreements with allergan is subject to termination upon notice by allergan . in march 2009 , we entered into a collaboration agreement with meiji seika pharma . in july 2012 , we and meiji seika pharma jointly decided to discontinue the development program that was being pursued under the collaboration , and the collaboration agreement was terminated pursuant to its terms . upon the termination of this agreement and the end of our related performance obligations , we recorded as revenue all of the remaining deferred revenue from this collaboration during the third quarter of 2012. research and development expenses our research and development expenses have consisted primarily of fees paid to external service providers , salaries , and related personnel expenses , facilities and equipment expenses , and other costs . we charge all research and development expenses to operations as incurred . our research and development activities are primarily focused on our most advanced product candidate , pimavanserin . we currently are responsible for all costs incurred in the development of pimavanserin as well as for the costs associated with our other internal programs . we are not responsible for , nor have we incurred , development expenses in our collaborative programs for chronic pain and glaucoma , which we are pursuing with allergan . we use external service providers to manufacture our product candidates and for the majority of the services performed in connection with the preclinical and clinical development of our product candidates . we have used our internal research and development resources , including our employees and discovery infrastructure , across several projects and many of our costs have not been attributable to a specific project . accordingly , we have not reported our internal research and development costs on a project basis . to the extent that external expenses are not attributable to a specific project , they are included in other programs . the following table summarizes our research and development expenses for the years ended december 31 , 2013 , 2012 , and 2011 ( in thousands ) : replace_table_token_4_th 46 while we intend to submit an nda to the fda for our lead program with pimavanserin near the end of 2014 , at this time , due to the risks inherent in completing the development activities necessary to support the nda and in regulatory and approval processes , we are unable to estimate with any certainty the costs we will incur for the continued development of pimavanserin for parkinson 's disease psychosis . due to the risks inherent in clinical development , we also are unable to estimate with certainty the costs we will incur for the development of pimavanserin for other indications or for the development of our other product candidates . due to these same factors , we are unable to determine with any certainty the anticipated completion dates for our current research and development programs . clinical development and regulatory approval timelines , probability of success , and development costs vary widely . while our current focus is primarily on advancing the development of pimavanserin , we anticipate that we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success of each product candidate , as well as an ongoing assessment of each product candidate 's commercial potential and our financial position . we can not forecast with any degree of certainty which product candidates will be subject to future collaborative or licensing arrangements , when such arrangements will be secured , if at all , and to what degree any such arrangements would affect our development plans and capital requirements . we expect our research and development expenses to increase and continue to be substantial as we pursue the development of pimavanserin , including development and regulatory activities in our phase iii parkinson 's disease psychosis program , our phase ii trial in alzheimer 's disease psychosis , and potential studies in other indications , including schizophrenia , and the development of our other product candidates . the lengthy process of completing clinical trials and supporting development activities and seeking regulatory approval for our product candidates requires the expenditure of substantial resources . any failure by us or delay in completing clinical trials , or in obtaining regulatory approvals , could cause our research and development expenses to increase and , in turn , have a material adverse effect on our results of operations . general and administrative expenses our general and administrative expenses have consisted primarily of salaries and other costs for employees serving in executive , finance , business development , and business operations functions , as well as professional fees associated with legal and accounting services , and costs associated with patents and patent applications for our intellectual property . in addition , during 2013 , we began establishing a small commercial organization that is designed to help prepare for the planned future launch of pimavanserin . story_separator_special_tag we expect our general and administrative expenses to increase in future periods to support our planned development and commercial activities for pimavanserin and other product candidates . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements . we have identified the accounting policies that we believe require application of management 's most subjective judgments , often requiring the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods . our actual results may differ substantially from these estimates under different assumptions or conditions . revenue recognition we recognize revenues in accordance with authoritative guidance established by u.s. generally accepted accounting principles , or gaap . our revenues are primarily related to our collaboration agreements , which may provide for various types of payments to us , including upfront payments , funding of research and development , milestone payments , and licensing fees . our collaboration agreements also include potential payments for product royalties ; however , we have not received any product royalties to date . we consider a variety of factors in determining the appropriate method of accounting under our collaboration agreements , including whether the various elements can be separated and accounted for 47 individually as separate units of accounting . where there are multiple deliverables identified within a collaboration agreement that are combined into a single unit of accounting , revenues are deferred and recognized over the expected period of performance . the specific methodology for the recognition of the revenue is determined on a case-by-case basis according to the facts and circumstances of the applicable agreement . upfront , non-refundable payments that do not have stand-alone value are recorded as deferred revenue once received and recognized as revenues over the expected period of performance . revenues from non-refundable license fees are recognized upon receipt of the payment if the license has stand-alone value , we do not have ongoing involvement or obligations , and we can determine the best estimate of the selling price for any undelivered items . when non-refundable license fees do not meet all of these criteria , the license revenues are recognized over the expected period of performance . non-refundable payments for research funding are generally recognized as revenues over the period the related research activities are performed . payments for reimbursement of external development costs are generally recognized as revenues using a contingency-adjusted performance model over the expected period of performance . payments received from grants are recognized as revenues as the related research and development is performed and when collectability is reasonably assured . we evaluate milestone payments on an individual basis and recognize revenues from non-refundable milestone payments when the earnings process is complete and collectability is reasonably assured . non-refundable milestone payments related to arrangements under which we have continuing performance obligations are recognized as revenues upon achievement of the associated milestone , provided that ( i ) the milestone event is substantive and its achievability was not reasonably assured at the inception of the agreement and ( ii ) the amount of the milestone payment is reasonable in relation to the effort expended or the risk associated with the milestone event . where separate milestone payments do not meet these criteria , we recognize revenue using a contingency-adjusted performance model over the expected period of performance . accrued expenses we are required to estimate accrued expenses as part of our process of preparing financial statements . examples of areas in which subjective judgments may be required include , among other things , costs associated with services provided by contract organizations for preclinical development , manufacturing of our product candidates , and clinical trials . we accrue for costs incurred as the services are being provided by monitoring the status of the trial or services provided , and the invoices received from our external service providers . in the case of clinical trials , a portion of the estimated cost normally relates to the projected cost to treat a patient in the trials , and this cost is recognized based on the number of patients enrolled in the trial . other indirect costs are generally recognized on a straight-line basis over the estimated period of the study . as actual costs become known to us , we adjust our accruals . to date , our estimates have not differed materially from the actual costs incurred . however , subsequent changes in estimates may result in a material change in our accruals , which could also materially affect our balance sheet and results of operations . stock-based compensation the fair value of each employee stock option and each employee stock purchase plan right granted is estimated on the grant date under the fair value method using the black-scholes model , which requires us to make a number of assumptions including the estimated expected life of the award and related volatility . the estimated fair values of stock options or purchase plan rights , including the effect of estimated forfeitures , are then expensed over the vesting period . results of operations story_separator_special_tag operations will increase in 2014 , relative to 2013 , in order to fund our ongoing and planned development and pre-commercial activities for pimavanserin . we expect that our cash , cash equivalents , and investment securities will be greater than $ 120 million at december 31 , 2014 , and that our cash resources will be sufficient to fund our operations at least through 2015. we will require significant additional financing in the future to fund our operations .
| this increase was primarily due to an increase of $ 4.0 million in external service costs as well as an increase in costs associated with our expanded research and development organization , including $ 1.8 million in increased personnel costs , and $ 1.5 million in increased stock-based compensation . external service costs totaled $ 17.3 million , or 65 percent of our research and development expenses , in 2013 , compared to $ 13.3 million , or 71 percent of our research and development expenses , in 2012. the increase in external service costs was largely attributable to increased development costs incurred in our phase iii program for pimavanserin . we expect our research and development expenses to increase in future periods as we continue to pursue the development of pimavanserin , including our phase iii parkinson 's disease psychosis program , our phase ii trial for alzheimer 's disease psychosis , and potential studies in other indications , including schizophrenia , as well as the development of our other product candidates . general and administrative expenses general and administrative expenses increased to $ 12.7 million in 2013 , including $ 3.5 million in stock-based compensation , from $ 7.0 million in 2012 , including $ 1.3 million in stock-based compensation . the increase in general and administrative expenses was primarily due to an increase in costs associated with our expanded administrative organization , including $ 2.3 million in increased stock-based compensation and $ 1.2 million in increased personnel expenses , as well as an increase of $ 1.6 million in external service costs . the increase in external service costs was largely attributable to increased professional fees , including initial costs related to our pre-commercial activities . we anticipate that our general and administrative expenses will increase in future periods to support our planned development and commercial activities for pimavanserin . comparison of the years ended december 31 , 2012 and 2011 revenues revenues
| 12,821 |
our objectives with these companies is to foster the development of the businesses as a part of the integrated operational platform of serving the smb market , so we may reduce the burden on these companies to enable them to grow faster than they would otherwise and as another means of supporting their development . on july 23 , 2015 , we acquired 100 % of premier which was owned 100 % by jeffrey rubin , former president of newtek . the total purchase price was approximately $ 16,483,000 , of which $ 14,011,000 was paid in cash and $ 2,472,000 was paid in newly issued restricted shares of our common stock . a total of 130,959 shares were issued on the date of acquisition which may not be sold or transferred for six months from the acquisition date . the board , including a majority of independent directors , approved the purchase . special dividend on october 1 , 2015 , we declared a one-time special dividend of approximately $ 34,055,000 payable on december 31 , 2015 to stockholders of record as of november 18 , 2015. this special dividend was declared as a result of our intention to elect ric status for tax year 2015 , as we must distribute 100 % of our accumulated earnings and profits through december 31 , 2014 in 64 order to qualify as a ric . the special dividend amount of approximately $ 34,055,000 was computed based on an earnings and profits analysis completed through december 31 , 2014. the dividend was paid in cash and shares of our common stock at the election of each stockholder . the total amount of cash distributed to all stockholders was limited to 27 % or $ 9,195,000 of the total dividend . the remainder of the dividend was paid in the form of shares of our common stock . as a result approximately 1,844,000 shares of our common shares were issued . in may 2015 , exponential of new york , llc received notice from the state of new york that the company 's request to be decertified as a capco had been granted . the state of new york acknowledged that the company had met the required level of qualified investments and satisfied all investment obligations . in june 2015 , wilshire texas partners i , llc received notice from the state of texas that the company 's request to be decertified as a capco had been granted . the state of texas acknowledged that the company had met the required level of qualified investments and satisfied all investment obligations . revenues we generate revenue in the form of interest , dividend , servicing and other fee income on debt and equity investments . our debt investments typically have a term of 10 to 25 years and bear interest at prime plus a margin . in some instances , we receive payments on our debt investments based on scheduled amortization of the outstanding balances . in addition , we receive repayments of some of our debt investments prior to their scheduled maturity date . the frequency or volume of these repayments fluctuates significantly from period to period . our portfolio activity also reflects the proceeds of sales of securities . we receive servicing income related to the guaranteed portions of sba investments which we sell into the secondary market . these recurring fees are earned daily and recorded when earned . in addition , we may generate revenue in the form of packaging , prepayment , legal and late fees . we record such fees related to loans as other income . dividends are recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected . dividend income is recorded at the time dividends are declared . distributions of earnings from a portfolio companies are evaluated to determine if the distribution is income , return of capital or realized gain . we recognize realized gains or losses on investments based on the difference between the net proceeds from the disposition and the cost basis of the investment without regard to unrealized gains or losses previously recognized . we record current period changes in fair value of investments and assets that are measured at fair value as a component of the net change in unrealized appreciation ( depreciation ) on investments or servicing assets , as appropriate , in the consolidated statements of operations . expenses our primary operating expenses are salaries and benefits , interest expense and other general and administrative fees , such as professional fees , marketing , loan related costs and rent . since we are an internally-managed bdc with no outside adviser or management company , the bdc incurs all the related costs to operate the company . loan portfolio asset quality and composition the following table sets forth distribution by business type of the company 's sba 7 ( a ) unguaranteed loan portfolio at december 31 , 2015 ( in thousands ) : replace_table_token_10_th the following table sets forth distribution by borrower 's credit score of the company 's sba 7 ( a ) unguaranteed loan portfolio at december 31 , 2015 ( in thousands ) : 65 replace_table_token_11_th the following table sets forth distribution by primary collateral type of the company 's sba 7 ( a ) unguaranteed loan portfolio at december 31 , 2015 ( in thousands ) : replace_table_token_12_th the following table sets forth distribution by days delinquent of the company 's sba 7 ( a ) unguaranteed loan portfolio at december 31 , 2015 ( in thousands ) : replace_table_token_13_th consolidated results of operations - year ended december 31 , 2015 compared to 2014 the discussion of consolidated results of operations below compare the year ended december 31 , 2015 to the period november 12 , 2014 to december 31 , 2014 ( as a bdc ) and the period ended november 11 , 2014 ( prior to the bdc conversion ) . story_separator_special_tag where applicable , we have combined the two periods ended december 31 , 2014 for comparison to the year ended december 31 , 2015 as we believe this provides the most useful comparison of our year over year results . 66 investment income investment income for the year ended december 31 , 2015 was $ 26,070,000 compared with total investment income of $ 1,976,000 for the period november 12 , 2014 to december 31 , 2014 and operating revenues of $ 131,847,000 for the period ended november 11 , 2014. as a result of the bdc conversion , there is no electronic payment processing revenue , web hosting and design revenue , servicing fee income from external portfolios , insurance commission revenue , and other income related to our payroll processing and accounts receivable financing and billing services included in the results for the year ended december 31 , 2015 . interest income substantially all interest income for the year ended december 31 , 2015 and combined periods ended december 31 , 2014 was derived from sba non-affiliate investments/loans . interest income derived from sba non-affiliate investments was $ 8,879,000 and $ 6,651,000 for the year ended december 31 , 2015 and combined periods ended december 31 , 2014 , respectively . the increase in interest income is attributable to the average outstanding performing portfolio of sba non-affiliate investments/loans increasing to $ 136,964,000 from $ 104,540,000 for the year ended december 31 , 2015 and combined periods ended december 31 , 2014 , respectively . the increase in the average outstanding performing portfolio resulted from the origination of new sba non-affiliate investments period over period . nsbf servicing portfolio and related servicing income the following table represents nsbf originated servicing portfolio and servicing income earned for the year ended december 31 , 2015 and combined periods ended december 31 , 2014 : replace_table_token_14_th ( 1 ) of this amount , the total average nsbf originated portfolio earning servicing income was $ 520,794,000 and $ 421,001,000 for the year ended december 31 , 2015 and for the combined periods ended december 31 , 2014 , respectively . servicing fee income from the nsbf originated portfolio increased by $ 938,000 for the year ended december 31 , 2015 compared to the combined periods ended december 31 , 2014 . the increase was attributable to the increase in total portfolio investments for which we earn servicing income . the portfolio increased $ 137,303,000 period over period . the increase was a direct result of increased investments in sba non-affiliate investments from 2014 to 2015. there was no servicing fee income recognized for loans serviced for third parties for the year ended december 31 , 2015 . this third party servicing revenue , which was previously included in consolidated results , is recognized and earned by one of the company 's controlled portfolio companies , sbl . total third party servicing fee income earned for the period ended november 11 , 2014 was $ 6,142,000. dividend income dividend income earned during the year ended december 31 , 2015 was $ 10,218,000 and was earned from the following portfolio companies : 67 replace_table_token_15_th no dividend income was earned during the combined periods ended december 31 , 2014 . other income other income of $ 2,040,000 for the year ended december 31 , 2015 relates primarily to legal , packaging , prepayment , and late fees earned from sba loans . other income is not comparable period over period as 2014 amounts include revenue from certain controlled portfolio companies which were consolidated subsidiaries through november 11 , 2014. adjusted net investment income we utilize adjusted net investment income as a measure of our current and future financial performance . adjusted net investment income is a non-gaap financial measure and is not intended as an alternative measure of investment income as determined in accordance with gaap . in addition , our calculation of adjusted net investment income is not necessarily comparable to similar measures as calculated by other companies that do not use the same definition or implementation guidelines . the table below reconciles net investment loss to adjusted net investment income . replace_table_token_16_th for the period ended november 11 , 2014 , the company did not operate as a bdc and therefore did not have net investment or adjusted net investment income . we believe this is a useful measure as it depicts the current income generated from our investment activities during the period . we include net realized gains on debt investments because they are recurring income related to the sale of sba guaranteed non-affiliate investments in the secondary market . expenses total expenses decreased from $ 125,341,000 to $ 32,255,000 for the combined periods ended december 31 , 2014 to the year ended december 31 , 2015 as a result of the conversion to a bdc in november 2014. electronic payment processing costs , salaries and benefits , depreciation and amortization , and other general and administrative expenses related to certain subsidiaries in 2014 are not included in 2015 results . as previously discussed , certain consolidated subsidiaries in 2014 are now reflected as investments in controlled portfolio companies and their results of operations are not included in 2015. interest expense interest expense decreased by $ 1,412,000 for the year ended december 31 , 2015 compared to the combined periods ended december 31 , 2014. the following table highlights the components of interest expense for each period : 68 replace_table_token_17_th interest expense related to securitizations increased as a result of additional securitization transactions completed in december 2014 and september 2015. in june 2014 , the company entered into a four year $ 20,000,000 credit agreement with capital one , consisting of a $ 10,000,000 term loan and a revolving line of credit of up to $ 10,000,000. the term loan was obtained to pay off the summit partners debt which carried a higher interest rate .
| the size of the portfolio sbl serviced for the fdic , and thus the revenue earned , has varied over time and depends on the level of bank failures and the needs of the fdic in managing portfolios acquired from those banks as well as the success of being able to sell such portfolios . in october 2014 , the fdic was successful in selling a significant group of loans with sbl 's assistance , which resulted in the reduction in third-party servicing portfolio as of december 31 , 2014. servicing fees received on the nsbf portfolio increased by $ 902,000 period over period and was attributable to the expansion of the nsbf portfolio in which we earn servicing income , which increased from an average of $ 314,486,000 for the twelve month period ending december 31 , 2013 to an average of $ 421,001,000 for the same period in 2014. this increase was the direct result of increased loan originations throughout 2014. third party servicing income increased by $ 2,728,000 and was attributable primarily to the increase in fdic servicing income of $ 2,806,000 partially offset by a decline in other third party servicing in the amount of $ 78,000. the average fdic serviced portfolio increased from $ 148,600,000 as of december 31 , 2013 to $ 390,618,000 as of december 31 , 2014 . 73 interest income increased by $ 1,927,000 for the year ended december 31 , 2014 as compared to the same period in 2013 as a result of the average outstanding performing portfolio of sba loans held for investment increasing from $ 72,337,000 to $ 104,540,000 for the years ended december 31 , 2013 and 2014 , respectively . other income decreased by $ 147,000 for the year ended december 31 , 2014 as compared to the same period in 2013. this decrease is mainly attributed to a decrease in nbc receivable income of $ 518,000 offset by net increases in nsbf and sbl fee related income of $ 416,000 , consulting income of $ 119,000 and net realized losses on the loan portfolio of $ 166,000. the change in the fair value loss of sba loans held for investment of $ 2,229,000 is the result of an
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gross profit/gross margin is impacted by the price at which we are able to sell our merchandise and the direct cost of goods sold and buying and occupancy costs . we review our inventory levels on an on-going basis in order to identify slow-moving merchandise and generally use markdowns to clear such merchandise . the timing and level of markdowns are driven primarily by seasonality and customer acceptance of our merchandise and have a direct effect on our gross margin . any marked down merchandise that is not sold is marked-out-of-stock . we use third-party vendors to dispose of this marked-out-of-stock merchandise . selling , general , and administrative expenses includes operating costs not included in cost of goods sold , buying and occupancy costs such as : payroll and other expenses related to operations at our corporate offices store expenses other than occupancy costs marketing expenses , including production , mailing , print , and digital advertising costs , among other things with the exception of store payroll , certain marketing expenses , and incentive compensation , selling , general , and administrative expenses generally do not vary proportionally with net sales . as a result , selling , general , and administrative expenses as a percentage of net sales are usually higher in lower volume quarters and lower in higher volume quarters . 26 fiscal year comparisons net sales replace_table_token_5_th net sales decreased by approximately $ 54.5 million , or 2 % , between 2017 and 2016 . the 53rd week contributed approximately $ 26 million to net sales . comparable sales decreased 3 % in 2017 compared to 2016 . the decrease in comparable sales resulted primarily from a decrease in transactions and in-store average dollar sales per transaction . we attribute these reductions to decreased traffic at our stores , due in part to negative trends in overall mall traffic due to the shift in customer shopping patterns , and increased markdowns due to the promotional retail landscape . this was partially offset by an increase in e-commerce sales which resulted from the aforementioned shift in customer shopping patterns , an expanded assortment online , and our omni-channel initiatives , including ship-from-store . non-comparable sales increased $ 21.1 million , driven primarily by new outlet store openings , partially offset by closed retail stores . 27 net sales decreased by approximately $ 157.6 million , or 7 % , between 2016 and 2015. comparable sales decreased 9 % in 2016 compared to 2015. the decrease in comparable sales resulted primarily from a decrease in transactions and in-store average dollar sales per transaction . we attribute these decreases to decreased traffic at our stores due in part to decreases in overall mall traffic , increased markdowns due to the promotional retail landscape , and a lack of fashion clarity in our product assortment , which offered too many choices and was overly targeted at the younger customers in our demographic in the first half of the year . this was partially offset by an increase in e-commerce sales which resulted from more targeted marketing as well as improvements to our website functionality and the online shopping experience . non-comparable sales increased $ 37.5 million , driven primarily by new outlet store openings , and were partially offset by closed retail stores . gross profit the following table shows cost of goods sold , buying and occupancy costs , gross profit in dollars , and gross margin percentage for the stated periods : replace_table_token_6_th the 140 basis point decrease in gross margin percentage , or gross profit as a percentage of net sales , in 2017 compared to 2016 was comprised of a 70 basis point decrease in merchandise margin and a 70 basis point increase in buying and occupancy costs as a percentage of net sales . the decrease in merchandise margin was driven by a highly promotional retail environment partially offset by reductions in sourcing costs as part of our cost savings initiatives . the increase in buying and occupancy costs as a percentage of sales was primarily the result of the deleveraging effect of the decrease in sales . the 360 basis point decrease in gross margin percentage , or gross profit as a percentage of net sales , in 2016 compared to 2015 was comprised of a 210 basis point decrease in merchandise margin and a 150 basis point increase in buying and occupancy costs as a percentage of net sales . the decrease in merchandise margin was driven by increased promotions , including increased markdowns on clearance items in the first half of the year . the increase in buying and occupancy costs as a percentage of sales was primarily the result of the deleveraging effect of the decrease in sales , increased rent expense , and a $ 5.1 million impairment charge related to leasehold improvements at certain underperforming stores in 2016 versus a $ 1.8 million impairment charge in 2015 . 28 selling , general , and administrative expenses the following table shows selling , general , and administrative expenses in dollars and as a percentage of net sales for the stated periods : replace_table_token_7_th the $ 2.5 million increase in selling , general , and administrative expenses in 2017 compared to 2016 was primarily the result of increased depreciation of $ 6.5 million related to new information technology systems and e-commerce technology partially offset by decreases in other operating costs , including supplies , taxes , and insurance . the $ 28.2 million decrease in selling , general , and administrative expenses in 2016 compared to 2015 was primarily the result of decreased payroll related expenses of approximately $ 34.0 million . the reduction in payroll expenses was primarily related to decreases in incentive compensation and performance-based stock compensation resulting from decreased business performance . the decreases were partially offset by $ 7.8 million in additional depreciation primarily related to new information technology systems and e-commerce technology . story_separator_special_tag restructuring costs the following table shows restructuring costs for the stated periods : year ended 2017 2016 2015 ( in thousands , except percentages ) restructuring costs $ 22,869 $ — $ — restructuring costs represent the costs incurred related to the exit of our canadian business . these costs include a $ 6.5 million write-off of the investment in express canada , $ 5.5 million in impairment charges , $ 5.5 million in lease related expense , $ 4.2 million related to the write-off of the cumulative translation loss , and approximately $ 1.2 million in professional and other fees in 2017. refer to note 14 of the unaudited consolidated financial statements for additional information regarding the exit of our canadian business . interest expense , net the following table shows interest expense in dollars for the stated periods : year ended 2017 2016 2015 ( in thousands ) interest expense , net $ 2,242 $ 13,468 $ 15,882 the $ 11.2 million decrease in interest expense in 2017 compared to 2016 was the result of the amortization of the debt discount related to the lease financing obligation associated with the amendment to our times square store lease agreement in the first quarter of 2016. the $ 2.4 million decrease in interest expense in 2016 compared to 2015 is primarily related to a loss on extinguishment of debt in connection with the redemption of our 8 3 / 4 % senior notes due 2018 ( the `` senior notes '' ) in the first quarter of 2015 , partially offset by the amortization of the debt discount related to the lease financing obligation associated with the amendment to our times square store lease agreement in the first quarter of 2016 . 29 income tax expense the following table shows income tax expense in dollars for the stated periods : year ended 2017 2016 2015 ( in thousands ) income tax expense $ 8,669 $ 33,200 $ 74,171 the effective tax rate was 30.9 % in 2017 compared to 36.6 % in 2016 . the effective tax rate for 2017 includes a net tax benefit of approximately $ 2.1 million attributable to certain discrete items , predominately related to the exit from canada , executive compensation , and the impact of the u.s. tax law change described below . on december 22 , 2017 , the tcja was enacted into law . the tcja will affect us through the reduction in the federal corporate income tax rate from 35 % to 21 % and the one-time re-measurement of our deferred taxes using this new lower tax rate . as a result of the reduction of the federal corporate income tax rate under tcja , we remeasured our net deferred tax liabilities and recorded an income tax benefit of approximately $ 3.1 million in 2017. the provisional impact of the re-measurement of the our deferred taxes under tcja was calculated considering all available information . the final impact of the tcja may differ from this provisional amount due to the issuance of additional legislative guidance and further changes in interpretations and assumptions we have made in our calculations . the accounting is expected to be complete by the time the 2017 federal corporate income tax return is filed , but not later than one year from the enactment of tcja . we anticipate our effective tax rate will be approximately 28 % in 2018 , excluding the impact of share-based compensation or other discrete items which might occur . the effective tax rate for 2016 was 36.6 % compared to 38.9 % for 2015 . the effective tax rate for 2016 includes a net tax benefit of approximately $ 2.9 million attributable to certain discrete items that occurred during the third quarter of 2016. refer to note 7 of the consolidated financial statements included elsewhere in this annual report on form 10-k for additional information regarding the tax rate . adjusted net income the following table presents adjusted operating income , adjusted net income , and adjusted diluted earnings per share , each a non-gaap financial measure , for the stated periods which eliminate certain non-core operating costs : replace_table_token_8_th * no adjustments were made to operating income for 2016 or 2015. we supplement the reporting of our financial information determined under gaap with certain non-gaap financial measures : adjusted operating income , adjusted net income , and adjusted diluted earnings per share . we believe that these non-gaap measures provide additional useful information to assist stockholders in understanding our financial results and assessing our prospects for future performance . management believes adjusted operating income , adjusted net income , and adjusted diluted earnings per share are important indicators of our business performance because they exclude items that may not be indicative of , or are unrelated to , our underlying operating results , and provide a better baseline for analyzing trends in our business . in addition , adjusted operating income is used as a performance measure to determine short-term cash incentive compensation and adjusted diluted earnings per share is used as a performance measure in our executive compensation program for purposes of determining the payout of the 30 long-term incentive awards . because non-gaap financial measures are not standardized , it may not be possible to compare these financial measures with other companies ' non-gaap financial measures having the same or similar names . these adjusted financial measures should not be considered in isolation or as a substitute for reported operating income , net income , and reported diluted earnings per share . these non-gaap financial measures reflect an additional way of viewing our operations that , when viewed with our gaap results and the below reconciliations to the corresponding gaap financial measures , provide a more complete understanding of our business . we strongly encourage investors and stockholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure .
| we expect for 2018 : open 38 factory outlet stores , 28 of which will be converted from existing retail locations ; and close 36 u.s. retail stores , 28 of which will be converted to outlet locations . e-commerce progress against our other key initiatives in 2017 , our e-commerce sales increased 23 % compared to 2016. we believe the increase was primarily driven by : the shift in customer shopping patterns towards e-commerce and mobile ; expanded sizing and assortments online ; and incremental sales from the launch of ship-from-store capabilities . e-commerce sales represented 24 % of net sales in 2017 compared to 19 % in 2016. cost savings initiatives . in 2016 , we announced cost savings opportunities of $ 44 to $ 54 million which we expect to realize through 2019. we achieved our target of $ 20 million in costs savings in 2017 and are on track to deliver the $ 44 to $ 54 million dollars of annualized cost savings by 2019. increasing brand awareness . during 2017 , we introduced a new brand architecture focusing on the individual style of our customers . in addition , we increased our content creation capabilities and expanded our relationships with fashion influencers . we also entered into a marketing agreement with the national basketball association ( `` nba '' ) . elevating our customer experience . in 2017 , we relaunched our express next loyalty program , making it easier for our customers to enroll and earn rewards . this led to significant year-over-year growth in express next sign ups . in addition , we successfully launched ship-from-store capabilities , which allows us to fulfill orders that may be out of stock at our online fulfillment distribution center . outlook we remain committed to our long-term growth strategy that includes ( 1 ) improving profitability through sales growth , margin expansion , and expense leverage , ( 2 ) providing an exceptional brand and customer experience , ( 3 ) transforming and leveraging our systems and processes ,
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among the measures considered by management are the following : volumes of oil , natural gas and ngls produced ; number of rigs on location , permits , spuds , completions and wells turned-in-line ; commodity prices ; and adjusted ebitda and adjusted ebitda ex lease bonus . 59 volumes of oil , natural gas and ngls produced in order to track and assess the performance of our assets , we monitor and analyze our production volumes from the various resource plays that comprise our portfolio of mineral and royalty interests . we also regularly compare projected volumes to actual reported volumes and investigate unexpected variances . number of rigs on location , permits , spuds , completions and wells turned-in-line in order to track and assess the performance of our assets , we monitor and analyze the number of rigs currently drilling our properties . we also constantly monitor the number of permits , spuds , completions and wells on production that are applicable to our mineral and royalty interests in an effort to evaluate near-term production growth from the various basins and resource plays that comprise our asset base . commodity prices historically , oil , natural gas and ngl prices have been volatile and may continue to be volatile in the future . during the past five years , the posted price for wti has ranged from a low of $ 26.19 per barrel in february 2016 to a high of $ 77.41 per barrel in june 2018 . the henry hub spot market price for natural gas has ranged from a low of $ 1.49 per mmbtu in march 2016 to a high of $ 6.24 per mmbtu in january 2018 . as of december 31 , 2019 , the posted price for oil was $ 61.14 per barrel and the henry hub spot market price of natural gas was $ 2.09 per mmbtu . lower prices may not only decrease our revenues , but also potentially the amount of oil , natural gas and ngls that our operators can produce economically . the prices we receive for oil , natural gas and ngls vary by geographical area . the relative prices of these products are determined by factors affecting global and regional supply and demand dynamics , such as economic and geopolitical conditions , production levels , availability of transportation , weather cycles and other factors . in addition , realized prices are influenced by product quality and proximity to consuming and refining markets . any differences between realized prices and nymex prices are referred to as differentials . all of our production is derived from properties located in the united states . oil . the substantial majority of our oil production is sold at prevailing market prices , which fluctuate in response to many factors that are outside of our control . nymex light sweet crude oil , commonly referred to as wti , is the prevailing domestic oil pricing index . the majority of our oil production is priced at the prevailing market price with the final realized price affected by both quality and location differentials . the chemical composition of crude oil plays an important role in its refining and subsequent sale as petroleum products . as a result , variations in chemical composition relative to the benchmark crude oil , usually wti , will result in price adjustments , which are often referred to as quality differentials . the characteristics that most significantly affect quality differentials include the density of the oil , as characterized by its api gravity , and the presence and concentration of impurities , such as sulfur . location differentials generally result from transportation costs based on the produced oil 's proximity to consuming and refining markets and major trading points . natural gas . the nymex price quoted at henry hub is a widely used benchmark for the pricing of natural gas in the united states . the actual volumetric prices realized from the sale of natural gas differ from the quoted nymex price as a result of quality and location differentials . quality differentials result from the heating value of natural gas measured in btus and the presence of impurities , such as hydrogen sulfide , carbon dioxide and nitrogen . natural gas containing ethane and heavier hydrocarbons has a higher btu value and will realize a higher volumetric price than natural gas that is predominantly methane , which has a lower btu value . natural gas with a higher concentration of impurities will realize a lower volumetric price due to the presence of the impurities in the natural gas when sold or the cost of treating the natural gas to meet pipeline quality specifications . natural gas , which currently has a limited global transportation system , is subject to price variances based on local supply and demand conditions and the cost to transport natural gas to end-user markets . ngls . ngl pricing is generally tied to the price of oil , but varies based on differences in liquid components and location . 60 hedging we may enter into certain derivative instruments to partially mitigate the impact of commodity price volatility on our cash flow generated from operations . from time to time , such instruments may include variable-to-fixed-price swaps , fixed-price contracts , costless collars and other contractual arrangements . the impact of these derivative instruments could affect the amount of cash flows we ultimately realize . historically , we have only entered into minimal fixed-price swap contracts . under fixed-price swap contracts , a counterparty is required to make a payment to us if the settlement price is less than the swap strike price . conversely , we are required to make a payment to the counterparty if the settlement price is greater than the swap strike price . we may employ contractual arrangements other than fixed-price swap contracts in the future to mitigate the impact of price fluctuations . if commodity prices decline in the future , our hedging contracts may partially mitigate the effect of lower prices on our future revenue . story_separator_special_tag for the year ended december 31 , 2019 , 2018 and 2017 , we recorded a loss on commodity derivative instruments , net of $ 0.6 million , a gain of $ 0.4 million and a loss of $ 0.1 million , respectively . we had no crude oil swaps and no natural gas derivative contracts in place as of december 31 , 2019 . our open oil and natural gas derivative contracts as of december 31 , 2018 are detailed in “ note 5.—derivative instruments ” to the consolidated and combined financial statements of brigham minerals as of december 31 , 2019 included elsewhere in this annual report . in addition , our revolving credit facility allows us to hedge up to 85 % of our reasonably anticipated projected production from our proved reserves of oil and natural gas , calculated separately , for up to 60 months in the future . as of december 31 , 2019 , we had no crude oil swaps and as of december 31 , 2018 , we had in place crude oil swaps through december 2019 covering 1 % of our projected crude oil production from proved reserves . we had no natural gas derivative contracts in place as of december 31 , 2019 and december 31 , 2018 . adjusted ebitda and adjusted ebitda ex lease bonus adjusted ebitda and adjusted ebitda ex lease bonus are non-gaap supplemental financial measures used by our management and by external users of our financial statements such as investors , research analysts and others to assess the financial performance of our assets and their ability to sustain dividends over the long term without regard to financing methods , capital structure or historical cost basis . we define adjusted ebitda as net income ( loss ) before depreciation , depletion and amortization , share based compensation expense , interest expense , gain or loss on sale and distribution of equity securities , gain or loss on derivative instruments , loss on extinguishment of debt , and income tax expense , less other income and gain or loss on sale of oil and gas properties . we define adjusted ebitda ex lease bonus as adjusted ebitda further adjusted to eliminate the impacts of lease bonus revenue we receive due to the unpredictability of timing and magnitude of the revenue . adjusted ebitda and adjusted ebitda ex lease bonus do not represent and should not be considered alternatives to , or more meaningful than , net income , income from operations , cash flows from operating activities or any other measure of financial performance presented in accordance with gaap as measures of our financial performance . adjusted ebitda and adjusted ebitda ex lease bonus have important limitations as analytical tools because they exclude some but not all items that affect net income , the most directly comparable gaap financial measure . our computation of adjusted ebitda and adjusted ebitda ex lease bonus may differ from computations of similarly titled measures of other companies . for further discussion , please read “ item 6.—selected financial data—non-gaap financial measures. ” sources of our revenues our revenues are primarily derived from the mineral and royalty payments we receive from our operators based on the sale of oil , natural gas and ngls produced from our properties , as well as from lease bonus payments . mineral and royalty revenues may vary significantly from period to period as a result of changes in volumes of production sold by our operators , production mix and commodity prices . lease bonus revenues vary from period to period as a result of leasing activity on our mineral interests . 61 the following table presents the breakdown of our revenues for the following periods : replace_table_token_16_th principle components of our cost structure the following is a description of the principle components of our cost structure . however , as an owner of mineral and royalty interests , we are not obligated to fund drilling and completion capital expenditures to bring a horizontal well on line , lease operating expenses to produce our oil , natural gas and ngls nor the plugging and abandonment costs at the end of a well 's economic life . all of the aforementioned costs are borne entirely by the exploration and production companies that have leased our mineral and royalty interests . gathering , transportation and marketing expenses gathering , transportation and marketing expenses include the costs to process and transport our production to applicable sales points . generally , the terms of the lease governing the development of our properties permits the operator to pass through these expenses to us by deducting a pro rata portion of such expenses from our production revenues . severance and ad valorem taxes severance taxes are paid on produced oil , natural gas or ngls based on either a percentage of revenues from production sold or the number of units of production sold at fixed rates established by federal , state or local taxing authorities . in general , the production taxes we pay correlate to changes in our oil , natural gas and ngl revenues , which is driven by our production volumes and prices received for our oil , natural gas and ngls . we are also subject to ad valorem taxes in the counties where our production is located . ad valorem taxes are generally based on the state or local government 's appraisal of the value of our oil , natural gas and ngl properties , which also trend with anticipated production , as well as oil , natural gas and ngl prices . rates , methods of calculating property values and timing of payments vary across the different counties in which we own mineral and royalty interests . depreciation , depletion and amortization depreciation , depletion and amortization ( “ dd & a ” ) is the systematic expensing of the capitalized costs incurred to acquire evaluated oil and natural gas properties .
| lease bonus revenue for the year ended december 31 , 2019 decreased by 52 % , or $ 3.9 million compared to the year ended december 31 , 2018 . the decrease was primarily attributable to a decrease in leasing activity on our interests in oklahoma , partially offset by an increase in leasing activity in texas . other revenues include payments for right-of-way and surface damages and were not a significant portion of the overall amount . operating and other expenses gathering , transportation , and marketing expenses for the year ended december 31 , 2019 increased by 26 % , or $ 1.0 million , as compared to the year ended december 31 , 2018 , which was largely driven by the increase in our production volumes , partially offset by lower gathering , transportation and marketing rates . severance and ad valorem taxes for the year ended december 31 , 2019 increased by 81 % , or $ 2.9 million , as compared to the year ended december 31 , 2018 , which was primarily due to higher severance taxes associated with oil revenue as a result of higher oil production volumes and higher oil prices , as well as higher ad valorem taxes in texas . depreciation , depletion and amortization ( dd & a ) expense for the year ended december 31 , 2019 increased by 122 % , or $ 17.0 million , compared to the year ended december 31 , 2018 , which was primarily due to an increase in depletion expense of $ 17.1 million . higher production volumes increased our depletion expense by $ 12.1 million , and a higher depletion rate increased our depletion expense by $ 5.0 million . general and administrative expense ( before share-based compensation expense ) for the year ended december 31 , 2019 increased by 79 % , or $ 5.3 million , compared to the year ended december 31 , 2018 . increases to g & a expense are a result of : ( i ) $ 0.7 million of incremental audit and tax fees , ( ii ) $ 0.7 million of additional salaries due
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impact of inflation the impact of inflation upon the company 's revenue and income/ ( loss ) from continuing operations during each of the past two fiscal years has not been material to its financial position or results of operations for those years because the company does not maintain any inventories whose costs are affected by inflation . 20 liquidity and capital resources since sg building 's inception in 2008 , sg building has generated losses from operations and the company anticipates that it will continue to generate losses from operations for the foreseeable future . as of december 31 , 2012 and 2011 , the company 's stockholders ' deficiency was approximately $ 524,000 and $ 185,000 , respectively . the company 's net loss from operations for the years ended december 31 , 2012 and 2011 was $ 1,940,424 and $ 2,059,080 , respectively . net cash used in operating activities was $ 1,268,539 and $ 1,591,506 for the years ended december 31 , 2012 and 2011 , respectively . through december 31 , 2012 , the company has incurred an accumulated deficiency since inception of $ 7,036,776. at december 31 , 2012 , the company had a cash balance of $ 868,067. since the company 's inception , it has generated revenues from sg block sales , engineering services , and project management . the company expects that through the next 10 to 16 months , the capital requirements to fund the company 's growth and to cover the operating costs of a public company will consume substantially all of the cash flows that it expects to generate from its operations , as well as from the proceeds of intended issuances of debt and equity securities . the company further believes that during this period , while the company is focusing on the growth and expansion of its business , the gross profit that it expects to generate from operations will not generate sufficient funds to cover these anticipated operating costs . accordingly , the company requires external funding to sustain operations and to follow through on the execution of its business plan . however , there can be no assurance that the company 's plans will materialize and or that the company will be successful in funding estimated cash shortfalls through additional debt or equity capital and through the cash generated by the company 's operations . given these conditions , the company 's ability to continue as a going concern is contingent upon it being able to secure an adequate amount of debt or equity capital to enable it to meet its cash requirements . in addition , the company 's ability to continue as a going concern must be considered in light of the problems , expenses and complications frequently encountered by entrants into established markets , the competitive environment in which the company operates and the current capital raising environment . since inception , the company 's operations have primarily been funded through proceeds from equity and debt financings and sales activity . although management believes that the company has access to capital resources , there are currently no commitments in place for new financing at this time , and there is no assurance that the company will be able to obtain funds on commercially acceptable terms , if at all . during the year ended december 31 , 2012 , the company raised $ 642,183 in net new funds through the issuance of common stock in conjunction with the march private placement , and also received $ 74,250 for shares of the company 's common stock . the proceeds from these issuances were used to fund the company 's operations and working capital needs . in december 2012 and january 2013 , the company received an aggregate of $ 1,350,000 through an issuance of convertible debentures . at any time after the issuance until the debentures are no longer outstanding , the debentures are convertible , in whole or in part , into shares of common stock of the company at the option of the holder , subject to certain conversion limitations set forth in the debenture . the initial conversion price for the debenture is $ 0.43 per share , subject to adjustments upon certain events , as set forth in the debenture . the company shall pay interest on the outstanding principal amount of the debenture that has not been converted , at the rate of 8 % per annum , payable quarterly on july 1 , october 1 , january 1 and april 1 , beginning on july 1 , 2013. interest is payable in cash or at the company 's option in shares of common stock , provided certain conditions are met , as described in the debenture . on each of april 1 , 2014 and july 1 , 2014 , the company is obligated to redeem $ 756,000 , ( plus accrued but unpaid interest , liquidated damages and any other amounts then owing in respect of the debenture ) ( the “ periodic redemption amount ” ) . in lieu of a cash redemption and subject to the company meeting certain equity conditions described in the debenture , the company may elect to pay the periodic redemption amount in common stock based on a conversion price equal to the lesser of ( a ) $ 0.43 per share , subject to adjustments upon certain events , and ( b ) 90 % of the average of the volume weighted average price for the 20 consecutive trading days prior to the applicable redemption date , provided that the conversion price shall be equal to at least a $ 0.01 discount to the volume weighted average price for the trading day that is immediately prior to the applicable redemption date . story_separator_special_tag upon any event of default ( as defined in the debenture ) , the outstanding principal amount of the debenture , plus liquidated damages , interest , a premium of 30 % and other amounts owing in respect thereof , shall become , at the holder 's election , immediately due and payable in cash . commencing five days after the occurrence of any event of default , the interest rate on the debenture shall accrue at an interest rate equal to the lesser of 18 % per annum or the maximum rate permitted under applicable law . the company intends to raise additional funds in 2013 through a private placement of its common stock as well as additional issuances of convertible debentures . the additional capital would be used to fund the company 's operations , including the costs that it expects to incur as a public company . the current level of cash and operating margins is not enough to cover the existing fixed and variable obligations of the company , so increased revenue performance and the addition of capital through issuances of securities are critical to the company 's success . should the company not be able to raise additional capital through a private placement or some other financing source , the company would take one or more of the following actions to conserve cash : reduction in employee headcount , reduction in base salaries to senior executives and employees , and other cost reduction measures . assuming that the company is successful in its growth plans and development efforts , the company believes that it will be able to raise additional funds through sales of its stock . there is no guarantee that the company will be able to raise such additional funds on acceptable terms , if at all . these factors , among others , raise substantial doubt about the company 's ability to continue as a going concern . the company 's financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should it be unable to continue as a going concern . off –balance sheet arrangements as of december , 2012 and 2011 , the company had no material off-balance sheet arrangements other than operating leases to which sg building is a party . in the ordinary course of business , sg building enters into agreements with third parties that include indemnification provisions which , in its judgment , are normal and customary for companies in its industry sector . these agreements are typically with consultants and certain vendors . pursuant to these agreements , sg building generally agrees to indemnify , hold harmless , and reimburse indemnified parties for losses suffered or incurred by the indemnified parties with respect to actions taken or omitted by sg building . the maximum potential amount of future payments sg building could be required to make under these indemnification provisions is unlimited . sg building has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions . as a result , the estimated fair value of liabilities relating to these provisions is minimal . accordingly , sg building has no liabilities recorded for these provisions as of december 31 , 2012 . 21 critical accounting policies and new accounting pronouncements critical accounting policies accounting estimates . the preparation of financial statements in accordance with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements . management considers an accounting estimate to be critical if it requires assumptions to be made that were uncertain at the time the estimate was made , and changes in the estimate or different estimates that could have been selected could have a material impact on our consolidated results of operations or financial condition . significant areas which require the company to make estimates include revenue recognition , stock-based compensation and allowance for doubtful accounts . share-based payments . the company adopted authoritative accounting guidance which establishes standards for share-based transactions in which we receive employee 's services in exchange for equity instruments , such as common stock . these authoritative accounting standards require that we expense the fair value of stock options and similar awards , as measured on the awards ' grant date . the company estimates the value of stock awards using internally developed valuation models . the determination of the fair value of share-based payment awards on the date of grant is affected by our stock price as determined by the valuation model and the assumptions used regarding a number of complex and subjective variables . if factors change and the company employs different assumptions in the application of the relevant accounting guidance in future periods , the compensation expense that it records may differ significantly from what it has recorded in the current period . there is a high degree of subjectivity involved when determining the fair value of our stock to estimate share-based compensation . consequently , there is a risk that the company 's estimates of the fair values of its share-based compensation awards on the grant dates may bear little resemblance to the actual values realized upon the exercise , expiration , early termination or forfeiture of those share-based payments . employee stock grants may be forfeited as worthless or otherwise result in zero value as compared to the fair values originally estimated on the grant date and reported in the company 's consolidated financial statements . alternatively , value may be realized from these instruments that are significantly in excess of the fair values originally estimated on the grant date and reported in the company 's consolidated financial statements . derivative instruments . since inception , sg building has issued warrants to purchase its common stock and convertible notes .
| increase of 2 % in engineering jobs from 14 % to 16 % and a decrease of 13 % in project management jobs from 7 % to ( 6 ) % , gross profit percentages . the gross profit percentage for block “ green steel ” jobs increased primarily due to a single job for approximately $ 1,425,000 being recognized for the year ended december 31 , 2011 , which had a gross profit percentage of 5 % . the gross profit percentage for engineering jobs increased primarily due to a single job for approximately $ 110,000 being recognized for the year ended december 31 , 2011 , which had a gross profit percentage of 10 % . the company incurred gross loss from project management revenue during the year ended december 31 , 2012 due to losses recognized on two jobs totaling approximately $ 41,000. payroll and related expense payroll and related expense for the year ended december 31 , 2012 was $ 1,357,717 compared to $ 1,084,953 for the year ended december 31 , 2011. the increase of $ 272,764 principally results from recognition of stock compensation expense for stock options granted during the year . stock compensation increased by $ 350,714 to $ 508,265 for the year ended december 31 , 2012 compared to $ 157,551 for the year ended december 31 , 2011. this increase was offset by an approximate decrease of $ 80,000 in payroll expense for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 , due to the fact that the company reduced salaries during 2012. other operating expenses other operating expense for the year ended december 31 , 2012 was $ 1,035,634 compared to $ 1,531,005 for the year ended december 31 , 2011. the decrease of $ 495,371 results primarily from a decrease of approximately $ 360,000 in marketing and business development expenses for the year ended december 31 , 2012. the company spent a significant amount less on marketing
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- non-performing assets declined to 1.78 % of total assets at december 31 , 2011 , down from peak of 2.55 % of total assets at june 30 , 2011 , and versus 1.87 % of total assets at december 31 , 2010 . 19 · non-interest income increased $ 349,000 , or 6.58 % . - trust and wealth advisory assets under management increased $ 16.0 million , or 4.64 % . - mortgage loan sales totaled $ 30.9 million , versus $ 42.7 million for 2010 . · non-interest expense increased $ 526,000 , or 3.07 % . - core efficiency ratio decreased to 68.16 % , versus 71.51 % for 2010 . · tier 1 capital ratio increased to 9.45 % at december 31 , 2011 , versus 8.39 % at december 31 , 2010 . - elected to participate in the treasury 's sblf program by issuing $ 16.0 million of preferred stock , and simultaneously repurchased the $ 8.8 million of preferred stock sold to the treasury in 2009 under the cpp . - repurchased warrants issued to the treasury in 2009 under the cpp . the following discussion and analysis of salisbury 's consolidated results of operations should be read in conjunction with the consolidated financial statements and footnotes . story_separator_special_tag provision and allowance for loan losses the provision for loan losses was $ 1,440,000 for 2011 , compared with $ 1,000,000 for 2010. net loan charge-offs were $ 1,284,000 and $ 553,000 , for the respective years . the increased provision for loan losses was necessitated by the increased net charge-offs of non-performing loans . the following table sets forth changes in the allowance for loan losses and other statistical data : replace_table_token_4_th reserve coverage at december 31 , 2011 , as measured by the ratio of allowance for loan losses to gross loans of 1.09 % , was substantially unchanged as compared with 1.10 % at december 31 , 2010. non-performing loans ( non-accrual loans and accruing loans past-due 90 days or more ) decreased $ 2.0 million to $ 8.1 million , or 2.16 % of gross loans receivable , at december 31 , 2011 , down from 2.84 % at december 31 , 2010 , while accruing loans past due 30-89 days increased $ 0.6 million to $ 2.5 million , or 0.66 % of gross loans receivable at december 31 , 2011. see “ financial condition – loan credit quality ” below for further discussion and analysis . the credit quality segments of loans receivable and the allowance for loan losses are as follows : replace_table_token_5_th the following table sets forth the allocation of the allowance for loan losses among the broad categories of the loan portfolio and the percentage of loans in each category to total loans . although the allowance has been allocated among loan categories for purposes of the table , it is important to recognize that the allowance is applicable to the entire portfolio . furthermore , charge-offs in the future may not necessarily occur in these amounts or proportions . 22 replace_table_token_6_th ( a ) percent of loans in each category to total loans . the allowance for loan losses represents management 's estimate of the probable credit losses inherent in the loan portfolio as of the reporting date . the allowance is increased by provisions charged to earnings and by recoveries of amounts previously charged off , and is reduced by loan charge-offs . loan charge-offs are recognized when management determines a loan or portion of a loan to be uncollectible . the allowance for loan losses is computed by segregating the portfolio into three components : ( 1 ) loans collectively evaluated for impairment : general loss allocation factors for non-impaired loans are segmented into pools of loans based on similar risk characteristics such as loan product , collateral type and loan-to-value , loan risk rating , historical loss experience , delinquency factors and other similar economic indicators , ( 2 ) loans individually evaluated for impairment : individual loss allocations for loans deemed to be impaired based on discounted cash flows or collateral value , and ( 3 ) unallocated : general loss allocations for other environmental factors . impaired loans and certain potential problem loans , where warranted , are individually evaluated for impairment . impairment is measured for each individual loan , or for a borrower 's aggregate loan exposure , using either the fair value of the collateral if the loan is collateral dependent or the present value of expected future cash flows discounted at the loan 's effective interest rate . an allowance is established when the collateral value or discounted cash flows of the loan is lower than the carrying value of that loan . the component of the allowance for loan losses for loans collectively evaluated for impairment is estimated by stratifying loans into segments and credit risk ratings and applying management 's general loss allocation factors . the general loss allocation factors are based on expected loss experience adjusted for historical loss experience and other qualitative factors , including levels/trends in delinquencies ; trends in volume and terms of loans ; effects of changes in risk selection and underwriting standards and other changes in lending policies , procedures and practices ; experience/ability/depth of lending management and staff ; and national and local economic trends and conditions . the qualitative factors are determined based on the various risk characteristics of each loan segment . there were no significant changes in salisbury 's policies or methodology pertaining to the general component of the allowance for loan losses during 2011. the unallocated component of the allowance is maintained to cover uncertainties that could affect management 's estimate of probable losses . it reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio . story_separator_special_tag determining the adequacy of the allowance at any given period is difficult , particularly during deteriorating or uncertain economic periods , and management must make estimates using assumptions and information that are often subjective and changing rapidly . the review of the loan portfolio is a continuing event in light of a changing economy and the dynamics of the banking and regulatory environment . should the economic climate deteriorate , borrowers could experience difficulty and the level of non-performing loans , charge-offs and delinquencies could rise and require increased provisions . in management 's judgment , salisbury remains adequately reserved both against total loans and non-performing loans at december 31 , 2011. management 's loan risk rating assignments , loss percentages and specific reserves are subjected annually to an independent credit review by an external firm . in addition , the bank is examined annually on a rotational process by one of its two primary regulatory agencies , the fdic and ctdob . as an integral part of their examination process , the fdic and ctdob review the bank 's credit risk ratings and allowance for loan losses . the bank was examined by the fdic in may 2011 and by the ctdob in april 2010 . 23 non-interest income the following table details the principal categories of non-interest income . replace_table_token_7_th non-interest income increased $ 349,000 , or 6.56 % , in 2011 versus 2010. trust and wealth advisory revenues increased $ 446,000 due to growth in managed assets , higher asset valuations and increased estate fee income . service charges and fees increased $ 84,000. income from sales of mortgage loans decreased $ 129,000 due to lower volume of residential mortgage loan sales . mortgage loans sales totaled $ 30.9 million in 2011 versus $ 42.7 million in 2010. income from mortgage loan servicing of mortgage loans decreased $ 32,000 due primarily to higher mortgage rights amortization expense and lower credit enhancement fees , offset in part by higher servicing fees and a mortgage servicing valuation impairment benefit . loans serviced for others totaled $ 114.8 million and $ 98.2 million at december 31 , 2011 and 2010 , respectively . gains on securities represent the accretion of discounts on called securities . boli cash surrender value increased $ 14,000. other income in 2010 included a $ 28,000 gain from the sale of real estate . non-interest expense the following table details the principal categories of non-interest expense . replace_table_token_8_th non-interest expense in 2011 increased $ 526,000 , or 3.1 % , versus 2010. salaries increased $ 154,000 due to changes in staffing levels and mix . employee benefits increased $ 240,000 due to higher health and dental benefits expense , caused by year-over-year premium increases and higher staff utilization , and higher 401k plan expense due to the implementation of a safe harbor plan . the increases were offset in part by lower pension plan expense . premises and equipment increased $ 231,000 due primarily to several facilities renovations , equipment replacement and the disposal of assets related to the reorganization of several bank departments to gain efficiencies . data processing decreased $ 42,000 mostly due to lower atm processing fees in 2011 resulting from vendor rebates . professional fees decreased $ 265,000 due to reduced spending on audit , consulting , legal and investment management services . expenses related to collections and oreo increased $ 399,000 . 2011 included $ 163,000 of oreo write-downs , oreo carrying costs , and collection related legal and appraisal services . fdic insurance decreased $ 139,000 as the bank benefited from the change in the assessment method . all other operating expenses decreased $ 52,000. income taxes the effective income tax rates for 2011 and 2010 were 18.77 % and 15.92 % , respectively . fluctuations in the effective tax rate result from changes in the mix of taxable and tax exempt income . salisbury 's effective tax rate was less than the 34 % federal statutory rate due to tax-exempt income , primarily from municipal bonds and bank-owned life insurance . for further information on income taxes , see note 11 of notes to consolidated financial statements . salisbury did not incur connecticut income tax in 2011 or 2010 , other than minimum state income tax , as a result of its utilization of connecticut tax legislation that permits banks to shelter certain mortgage income from the connecticut corporation business tax through the use of a special purpose entity called a pic . in 2004 salisbury availed of this legislation by forming a pic , sbt mortgage service corporation . salisbury 's income tax provision reflects the full impact of the connecticut legislation . salisbury does not expect to pay other than minimum state income tax in the foreseeable future unless there is a change in connecticut tax law . 24 comparison of the years ended december 31 , 2010 and 2009 net interest and dividend income net interest and dividend income ( presented on a tax-equivalent basis ) increased $ 205,000 in 2010 over 2009 due primarily to a $ 25.4 million , or 5.0 % , increase in average earning assets , facilitated by deposit growth , which more than offset a 14 basis point decrease in the net interest margin to 3.37 % from 3.51 % . the decrease in the net interest margin was mostly due to a 4 basis point decrease in the spread as asset yields declined more than funding rates . the net interest margin was also affected by changes in the mix of earning assets and funding liabilities , asset and liability growth , changes in market interest rates , and the impact of asset and liability re-pricing . interest income tax equivalent interest and dividend income decreased $ 1,330,000 , or 5.0 % , to $ 25.7 million in 2010. loan income increased $ 250,000 , or 1.4 % , primarily due to a $ 34.5 million , or 11.2 % , increase in average loans , the impact of which was substantially offset by lower average yields , down 53 basis points .
| net interest income can be adversely affected by changes in interest rate levels , changes in the volume of assets and liabilities that are subject to re-pricing within different future time periods , and in the level of non-performing assets . interest and dividend income tax equivalent interest and dividend income decreased $ 615,000 , or 2.4 % , to $ 25.1 million in 2011. loan income increased $ 183,000 , or 1.0 % , primarily due to a $ 24.8 million , or 7.2 % , increase in average loans , the benefit from which was substantially offset by a 32 basis point decline in average yield , due to lower market interest rates and their effect on new loan rates , loan re-pricing and loan re-financing activity in 2011. tax equivalent interest and dividend income from securities decreased $ 753,000 , or 10.7 % , in 2011 , as a result of a $ 11.6 million decrease in average securities , and a 16 basis points decline in average yield , due to lower market interest rates and their effect on new bond yields , bond re-pricing and bond calls in 2011. interest from short term funds decreased $ 45,000 in 2011 as a result of a 17 basis points decline in average yield , offset in part by a $ 4.3 million increase in average short term funds . interest expense interest expense decreased $ 1.9 million , or 25.9 % , to $ 5.6 million in 2011 as a result of decreases in deposit rates and maturities of fhlbb advances , offset in part by higher average interest bearing deposits . interest on interest bearing deposit accounts decreased $ 1,200,000 , or 27.5 % , in 2011 , as a result a 39 basis point decline in average rate , to 0.83 % , offset in part by a $ 23.7 million , or 6.6 % , increase in average interest bearing deposits . the decline in average rate was due to the decline in interest rates and a changes in product mix , as the proportion represented by time deposits
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national geographic endeavor was fully depreciated and we incurred a $ 0.8 million loss on disposal of the vessel during the fourth quarter of 2016. in december 2016 , we further expanded our travel offerings with new expeditions in cuba aboard the panorama ii , the fifth chartered vessel in our lindblad fleet . the vessel is chartered for two years and will operate on a seasonal basis from december through march . in december 2016 , the national geographic orion experienced a significant technical issue with its main engine as it was leaving the antarctic peninsula on its way back to ushuaia , argentina . the ship 's safe return to port feature was immediately enabled and the vessel returned to port one day later than its scheduled arrival date without harm to any passengers , crew or the environment . the orion cancelled a total of five voyages and is scheduled to return to regularly scheduled operations in april 2017. the majority of cancelled guests rebooked for future company voyages , however , 2016 revenue was impacted by approximately $ 1.0 million dollars and 2016 operating income by approximately $ 0.6 million . for 2017 , we currently expect the impact on revenue will be between $ 9.0 and $ 10.0 million and the impact on operating income will be between $ 2.0 and $ 3.0 million . the discussion and analysis of our financial condition and results of operations are organized as follows : ● a description of certain line items and operational and financial metrics we utilize to assist us in managing our business ; ● results and a comparable discussion of our consolidated and segment results of operations for the years ended december 31 , 2016 and 2015 and for the years ended december 31 , 2015 and 2014 ; ● a discussion of our liquidity and capital resources , including future capital and contractual commitments and potential funding sources ; and ● a review of our critical accounting policies . financial presentation description of certain line items tour revenues tour revenues consist of the following : ● guest ticket revenues recognized from the sale of guest tickets ; and ● other tour revenues from the sale of pre- or post-expedition excursions , hotel accommodations , and land-based expeditions ; air transportation to and from the ships , goods and services rendered onboard that are not included in guest ticket prices , trip insurance , and cancellation fees . 34 cost of tours cost of tours includes the following : ● direct costs associated with revenues , including cost of pre- or post-expedition excursions , hotel accommodations , and land-based expeditions , air and other transportation expenses , and cost of goods and services rendered onboard ; ● payroll costs and related expenses for shipboard and expedition personnel ; ● food costs for guests and crew , including complimentary food and beverage amenities for guests ; ● fuel costs and related costs of delivery , storage and safe disposal of waste ; and ● other tour expenses , such as land costs , port costs , repairs and maintenance , equipment expense , drydock , ship insurance , and charter hire costs . selling and marketing selling and marketing expenses include commissions and a broad range of advertising and promotional expenses . general and administrative general and administrative expenses include the cost of shoreside vessel support , reservations and other administrative functions , including salaries and related benefits , credit card commissions , professional fees and rent . operational and financial metrics we use a variety of operational and financial metrics , including non-gaap financial measures , such as adjusted ebitda , net yields , and net cruise costs , to enable us to analyze our performance and financial condition . we utilize these financial measures to manage our business on a day-to-day basis and believe that they are the most relevant measures of performance . some of these measures are commonly used in the cruise and tourism industry to evaluate performance . we believe these non-gaap measures provide expanded insight to assess revenue and cost performance , in addition to the standard gaap-based financial measures . there are no specific rules or regulations for determining non-gaap measures , and as such , they may not be comparable to measures used by other companies within the industry . the presentation of non-gaap financial information should not be considered in isolation or as a substitute for , or superior to , the financial information prepared and presented in accordance with gaap . you should read this discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and the related notes thereto also included within . adjusted ebitda is net income ( loss ) excluding depreciation and amortization , net interest expense , other income ( expense ) , income tax benefit ( expense ) , and other supplemental adjustments . other supplemental adjustments include certain non-operating items such as stock-based compensation , the national geographic fee amortization , merger-related expenses , and acquisition-related expenses . we believe adjusted ebitda , when considered along with other performance measures , is a useful measure as it reflects certain operating drivers of the business , such as sales growth , operating costs , selling and administrative expense , and other operating income and expense . we believe adjusted ebitda , when considered along with other performance measures , is a useful measure as it reflects certain drivers of the business , such as sales growth and operating costs . we believe adjusted ebitda can provide a more complete understanding of the underlying operating results and trends and an enhanced overall understanding of our financial performance and prospects for the future . while adjusted ebitda is not a recognized measure under gaap , management uses this financial measure to evaluate and forecast business performance . story_separator_special_tag adjusted ebitda is not intended to be a measure of liquidity or cash flows from operations or a measure comparable to net income as it does not take into account certain requirements , such as unearned passenger revenues , capital expenditures and related depreciation , principal and interest payments , and tax payments . our use of adjusted ebitda may not be comparable to other companies within the industry . management compensates for these limitations by using adjusted ebitda as only one of several measures for evaluating our business performance . 35 the following metrics apply to our lindblad segment : adjusted net cruise cost represents net cruise cost adjusted for non-gaap other supplemental adjustments which include certain non-operating items such as stock-based compensation , the national geographic fee amortization , merger-related expenses , and acquisition-related expenses . available guest nights is a measurement of capacity and represents double occupancy per cabin ( except single occupancy for a single capacity cabin ) multiplied by the number of cruise days for the period . we also record the number of guest nights available on our limited land programs in this definition . gross cruise cost represents the sum of cost of tours plus merger-related expenses , selling and marketing expenses , and general and administrative expenses . gross yield represents tour revenues divided by available guest nights . guest nights sold represents the number of guests carried for the period multiplied by the number of nights sailed within the period . maximum guests is a measure of capacity and represents the maximum number of guests in a period and is based on double occupancy per cabin ( except single occupancy for a single capacity cabin ) . net cruise cost represents gross cruise cost excluding commissions and certain other direct costs of guest ticket revenues and other tour revenues . net cruise cost excluding fuel represents net cruise cost excluding fuel costs . net revenue represents tour revenues less commissions and direct costs of other tour revenues . net yield represents net revenue divided by available guest nights . number of guests represents the number of guests that travel with us in a period . occupancy is calculated by dividing guest nights sold by available guest nights . voyages represent the number of ship expeditions completed during the period . foreign currency translation the u.s. dollar is the functional currency in our foreign operations and remeasurement adjustments and gains or losses resulting from foreign currency transactions are recorded as foreign exchange gains or losses in the consolidated statements of income . seasonality our tour revenues from the sale of guest tickets are mildly seasonal , historically larger in the first and third quarters . the seasonality of our operating results increases due to our vessels being taken out of service for scheduled maintenance or drydocking , which is typically during non-peak demand periods , in the second and fourth quarters . our drydock schedules are subject to cost and timing differences from year to year due to the availability of shipyards for certain work , drydock locations based on ship itineraries , operating conditions experienced especially in the polar regions , and the applicable regulations of class societies in the maritime industry , which require more extensive reviews periodically . drydocking impacts operating results by reducing tour revenues and increasing cost of tours . 36 results of operations – consolidated we reported consolidated tour revenues , cost of tours , operating expenses , operating income , and net income for the years ended december 31 , 2016 , 2015 and 2014 as shown in the following table : replace_table_token_6_th comparison of years ended december 31 , 2016 and december 31 , 2015 - consolidated tour revenues tour revenues increased $ 32.3 million , or 15 % , to $ 242.3 million in 2016 compared to $ 210.0 million in 2015. the increase was primarily a result of $ 34.5 million in added tour revenues from the acquisition of natural habitat , offset by a decrease of $ 2.2 million in other revenue . cost of tours total cost of tours increased $ 23.6 million , or 25 % , to $ 119.0 million in 2016 compared to $ 95.4 million in 2015. the increase was primarily a result of $ 22.5 million from the acquisition of natural habitat and $ 1.1 million in increased cost of tours at the lindblad segment due to increased drydock , and charter expenses , partially offset by fuel expenses . story_separator_special_tag serif '' > ● in 2015 , we recorded a small loss in foreign currency translation compared to $ 0.2 million in foreign currency translation losses in 2014. the $ 0.2 million net change was primarily related to the strengthening of the australian dollar compared to the u.s. dollar . 39 results of operations – segments selected information for our segments is below . the presentation of non-gaap financial information should not be considered in isolation or as a substitute for , or superior to , the financial information prepared and presented in accordance with gaap . replace_table_token_7_th results of operations – lindblad segment comparison of years ended december 31 , 2016 to december 31 , 2015 – lindblad segment tour revenues tour revenues decreased $ 2.2 million , or 1 % , to $ 207.8 million in 2016 compared to $ 210.0 million in 2015. the change was primarily the result of a $ 2.2 million decrease in other tour revenues . net yield amounted to $ 976 in 2016 compared to $ 971 in 2015. the increase in net yield was primarily related to increased tour prices partially offset by lower occupancy and lower other tour revenues .
| ● interest expense , net , decreased $ 0.8 million to $ 10.1 million in 2016 from $ 10.9 million in 2015. the decrease was primarily related to $ 1.6 million in capitalized interest in 2016 with no capitalized interest for 2015 and a $ 1.4 million decrease primarily from the accelerated amortization of deferred finance costs related to the repayment of our senior debt in may 2015 partially offset by $ 2.2 million in higher interest expense primarily due to higher debt levels from our restated credit facility ( see note 7 – long-term debt ) ; and ● in 2016 , we recorded a $ 0.7 million loss in foreign currency translation compared to a small loss in 2015. comparison of years ended december 31 , 2015 and december 31 , 2014 tour revenues tour revenues increased $ 11.5 million , or 6 % , to $ 210.0 million in 2015 compared to $ 198.5 million in 2014. the change was primarily the result of a $ 10.3 million increase in guest ticket revenues to $ 183.8 million in 2015 from $ 173.5 million in 2014 from additional chartered and owned vessel voyages and an increase in tour prices , offset by a slight decrease in occupancy . cost of tours total cost of tours increased $ 5.4 million , or 6 % , to $ 95.4 million in 2015 compared to $ 90.0 million in 2014. the increase was primarily due to higher charter costs , land costs and air expense related to additional voyages offered , offset by decreases in fuel and maintenance expenditures for the owned fleet . general and administrative expenses general and administrative expenses increased by $ 2.9 million , or 8 % , to $ 39.0 million in 2015 compared to $ 36.1 million in 2014. the increase was primarily due to a $ 4.6 million increase in stock options incentive compensation expense and a $ 1.3 million increase in professional fees for additional staffing changes and executive searches , offset by a $ 2.9
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since our inception in june 2008 , we have devoted substantially all of our resources to organizing and staffing our company , business planning , raising capital , acquiring and developing our proprietary chemistry technology , identifying potential product candidates and conducting pre-clinical studies of our product candidates and a clinical trial of our lead product candidate , zilucoplan . to date , we have not generated any product revenue and have financed our operations primarily through the public offering and the private placement of our securities and revenue from our collaboration with merck . as of december 31 , 2018 , we had received an aggregate of $ 375.3 million in net proceeds from the issuance of equity and debt securities and $ 20.0 million in payments in connection with our collaboration and license agreement with merck ( the `` merck agreement '' ) . as of december 31 , 2018 , our principal source of liquidity was cash and cash equivalents , which totaled $ 209.8 million . on october 31 , 2016 , we completed an initial public offering ( `` ipo '' ) , in which we issued and sold 7,049,230 shares of our common stock at a public offering price of $ 13.00 per share , resulting in net proceeds to us of $ 82.8 million after deducting $ 6.4 million of underwriting discounts and commissions and offering costs of $ 2.4 million . on november 29 , 2016 , we completed the sale of an additional 1,057,385 shares of common stock to the underwriters under the underwriters ' option in the ipo to purchase additional shares of common stock at the public offering price of $ 13.00 per share , resulting in additional net proceeds to us of $ 12.8 million after deducting underwriting discounts and commissions of $ 1.0 million . 101 in february 2018 , we completed a follow-on public offering of 9,660,000 shares of common stock , including the full exercise of the underwriters ' option to purchase an additional 1,260,000 shares , at $ 6.00 per share and received aggregate net proceeds of $ 54.1 million , after deducting $ 3.5 million of underwriting discounts and commissions and approximately $ 0.4 million of offering expenses . in may 2018 , we entered into a sales agreement ( the `` sales agreement '' ) with stifel , nicolaus & company , incorporated ( `` stifel '' ) , which permitted us to sell , from time to time , at our option , up to an aggregate of $ 50.0 million of shares of our common stock through stifel , as sales agent . in december 2018 , we terminated the sales agreement . prior to termination , we had not sold any shares pursuant to the sales agreement . in december 2018 , we completed a follow on public offering of 9,645,161 shares of common stock , including the full exercise of the underwriters ' option to purchase an additional 1,258,064 shares , at $ 15.50 per share and received aggregate net proceeds of $ 140.2 million , after deducting $ 9.0 million of underwriting discounts and commissions and approximately $ 0.3 million of offering expenses . as of december 31 , 2018 , we had an accumulated deficit of $ 188.2 million . our net losses were $ 64.9 million and $ 54.4 million for the years ended december 31 , 2018 and 2017 , respectively . we have incurred significant net operating losses in every year since our inception and expect to continue to incur increasing net operating losses and significant expenses for the foreseeable future . our net losses may fluctuate significantly from quarter to quarter and year to year . we anticipate that our expenses will increase significantly as we : continue to advance our lead program , zilucoplan , through clinical development by establishing clinical proof-of-concept activity using convenient sc administration in gmg and pnh ; continue our current research programs and development activities ; seek to identify additional research programs and additional product candidates ; initiate pre-clinical testing and clinical trials for any product candidates we identify and develop , maintain , expand and protect our intellectual property portfolio ; hire additional research , clinical and scientific personnel ; and incur additional costs associated with operating as a public company , including expanding our operational , finance and management teams . we believe that , our cash and cash equivalents as of december 31 , 2018 , will enable us to fund our operating expenses and capital expenditure requirements through the first quarter of 2021. we do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for a product candidate , which we expect will take a number of years and is subject to significant uncertainty . additionally , we believe that our available funds as of december 31 , 2018 , will be sufficient to enable us to prepare , plan , initiate and obtain top-line data for our phase 3 clinical trial of zilucoplan in gmg , and initiate our phase 3 clinical trial of zilucoplan for pnh , and advance our other pre-clinical pipeline programs . it is also possible that we will not achieve the progress that we expect with respect to zilucoplan because the actual costs and timing of clinical development activities are difficult to predict and are subject to substantial risks and delays . we will be required to obtain further funding through public or private equity offerings , debt financings , collaborations and licensing arrangements or other sources . adequate additional financing may not be available to us on acceptable terms , or at all . our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy . story_separator_special_tag 102 financial overview revenue we have derived all of our revenue to date from the merck agreement , which we entered into in april 2013. under the merck agreement , we collaborated with merck and used our proprietary drug discovery technology platform to identify orally available cyclic peptides for non-complement targets nominated by merck and provided specific research and development services . at the signing , merck paid us an upfront , non-refundable , license fee payment of $ 4.5 million . in addition , during the research term , which ended in april 2016 , merck reimbursed us for research and development services provided by us in accordance with a pre-specified number of our full-time equivalent employees ( `` ftes '' ) working under the merck agreement . at the conclusion of the research term , merck elected to continue the development of a non-complement cardiovascular program target with a large market opportunity , for which we had received $ 6.0 million in pre-clinical milestone payments as of december 31 , 2018. we are also entitled to receive future aggregate milestone payments of up to $ 59.0 million and low-to-mid single digit percentage royalties on any future sales for this program target . for additional information about the merck agreement , see item 8 , `` financial statements and supplementary data '' within this annual report on form 10-k. to date , we have not generated any revenue from product sales and do not expect to do so in the near future . we expect that our revenue will be less than our expenses for the foreseeable future and that we will experience increasing losses as we continue our development of , and seek regulatory approvals for , our product candidates and begin to commercialize any approved products . our ability to generate revenue for each product candidate for which we receive regulatory approval will depend on numerous factors , including competition , commercial manufacturing capability and market acceptance of our products . research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including development of our proprietary chemistry technology platform , and our pre-clinical and clinical candidates , which include : employee-related expenses , including salaries , benefits , and stock-based compensation expense ; expenses incurred under agreements with contract research organizations ( `` cros '' ) , contract manufacturing organizations ( `` cmos '' ) , and independent contractors that conduct research and development , pre-clinical and clinical activities on our behalf ; costs of purchasing lab supplies and non-capital equipment used in our pre-clinical activities and in manufacturing pre-clinical study and clinical trial materials ; consulting , licensing and professional fees related to research and development activities ; and facility costs , depreciation , and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance , and other supplies . we expense research and development costs as incurred . we recognize costs for certain development activities , such as pre-clinical studies and clinical trials , based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors such as patient enrollment or clinical site activations for services received and efforts expended . research and development activities are central to our business model . we expect research and development costs to increase significantly for the foreseeable future as our current development programs progress and new programs are added . 103 the following table sets forth our research and development expenses related to our product candidates : replace_table_token_5_th the expenses allocated to our product candidates in the table above relate to cro and cmo costs associated with our pre-clinical studies and clinical trials . we do not allocate compensation , benefits and other employee-related expenses , costs related to facilities , depreciation , share-based compensation , research and development support services , laboratory supplies and certain other costs directly to programs . historically , we had not provided program costs because we have not tracked or recorded our research and development expenses on a program-by-program basis . beginning in the first quarter of 2017 , we began to allocate costs related to our third-party vendors directly to programs . because of the numerous risks and uncertainties associated with product development , we can not determine with certainty the duration and completion costs of the current or future pre-clinical studies and clinical trials or if , when , or to what extent we will generate revenues from the commercialization and sale of our product candidates . we may never succeed in achieving regulatory approval for our product candidates . the duration , costs , and timing of pre-clinical studies and clinical trials and development of our product candidates will depend on a variety of factors , including : successful completion of pre-clinical studies and investigational new drug-enabling studies ; successful enrollment in , and completion of , clinical trials ; receipt of marketing approvals from applicable regulatory authorities ; establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers ; obtaining and maintaining patent and trade secret protection and non-patent exclusivity ; launching commercial sales of the product , if and when approved , whether alone or in collaboration with others ; acceptance of the product , if and when approved , by patients , the medical community and third-party payors ; effectively competing with other therapies and treatment options ; a continued acceptable safety profile following approval ; enforcing and defending intellectual property and proprietary rights and claims ; and achieving desirable medicinal properties for the intended indications . a change in the outcome of any of these factors could mean a significant change in the costs and timing associated with the development of our current and future pre-clinical and clinical product candidates .
| general and administrative expenses general and administrative expenses increased by $ 4.7 million to $ 14.5 million for the year ended december 31 , 2018 , from $ 9.8 million for the year ended december 31 , 2017. this was primarily attributable to $ 1.7 million increase in compensation , benefits and other employee-related expenses due to 2018 salary increases and higher average headcount to support our increased activities ; a $ 1.1 million 109 increase in non-cash stock-based compensation , primarily relating to our annual grants awarded in february 2018 ; a $ 1.1 million increase in consulting and professional fees primarily related to pre-commercialization activities ; a $ 0.2 million increase in legal and audit costs ; and a $ 0.6 million net increase in insurance , taxes and other expenses . other income ( expense ) , net other income ( expense ) , net increased by approximately $ 0.8 million to $ 1.4 million in other income , net during the year ended december 31 , 2018 , from $ 0.6 million in other expense , net for the year ended december 31 , 2017. this increase was due primarily to an $ 0.8 million increase in interest income . net loss net loss increased by approximately $ 10.5 million to $ 64.9 million for the year ended december 31 , 2018 , from $ 54.4 million for the year ended december 31 , 2017. the increase in net loss was primarily due to the increases in research and development and general and administrative expenses discussed above , partially offset by the increases in collaboration revenue and interest income discussed above . liquidity and capital resources overview we have funded our operations from inception through december 31 , 2018 primarily through the public offering and the private placement of our securities and revenue from our collaboration with merck . as of december 31 , 2018 , we had received an aggregate of $ 375.3 million in net proceeds from the issuance of equity and debt securities and $ 20.0 million in payments in connection with our collaboration and license agreement with merck . as of december 31 , 2018 , we had cash and cash equivalents of $ 209.8 million . on october 31 , 2016 , we completed our ipo , in which we issued and sold 7,049,230 shares of common stock at a public offering price of $ 13.00 per share , resulting in net proceeds to us of $ 82.8 million after deducting $ 6.4 million of underwriting discounts
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28 · operating net earnings increased 59.9 % , or $ 18.0 million for the fiscal year ended december 31 , 2019 , totaling $ 48.0 million as compared to $ 30.0 million for the fiscal year ended december 31 , 2018. operating net earnings for fiscal year 2019 excludes merger-related costs of $ 4.9 million , net of tax , and income in the form of financial assistance grant from the u. s. department of treasury of $ 0.7 million , net of tax . operating net earnings for fiscal year 2018 excludes merger-related costs of $ 10.6 million , net of tax , income in the form of financial assistance grant from the u. s. department of treasury of $ 1.6 million , net of tax , and income from the sale of securities of $ 0.3 million , net of tax . operating net earnings increased 59.9 % to $ 48.0 million for the fiscal year ended december 31 , 2019 as compared to fiscal year ended december 31 , 2018. at december 31 , 2019 , the company had approximately $ 3.942 billion in total assets , an increase of $ 937.9 million compared to $ 3.004 billion at december 31 , 2018. loans , net of the allowance for loan losses , increased to $ 2.597 billion at december 31 , 2019 from $ 2.055 billion at december 31 , 2018. deposits increased to $ 3.077 billion at december 31 , 2019 from $ 2.457 billion at december 31 , 2018. stockholders ' equity increased to $ 543.7 million at december 31 , 2019 from $ 363.3 million at december 31 , 2018. the addition of florida parish bank and first florida bank during 2019 contributed , at acquisition , $ 884.8 million , $ 492.0 million and $ 686.4 million in assets , loans , and deposits , respectively . the first reported net income of $ 51.1 million , $ 26.9 million and $ 12.6 million for the years ended december 31 , 2019 , 2018 , and 2017 , respectively . for the years ended december 31 , 2019 , 2018 and 2017 , the company reported consolidated net income available to common stockholders of $ 43.7 million , $ 21.2 million and $ 10.6 million , respectively . the following discussion should be read in conjunction with the “ selected consolidated financial data ” and the company 's consolidated financial statements and the notes thereto and the other financial data included elsewhere . story_separator_special_tag the fte average yield on all earning assets increased 36 basis points to 4.63 % compared to 4.27 % at december 31 , 2017. rates paid on average interest-bearing liabilities increased to 0.88 % for the year 2018 compared to 0.55 % for the year 2017. average loans comprised 77.0 % of average earnings assets for the year 2018 compared to 74.1 % for the year 2017. average balances , income and expenses , and rates . the following tables depict , for the periods indicated , certain information related to the average balance sheet and average yields on assets and average costs of liabilities . such yields are derived by dividing income or expense by the average balance of the corresponding assets or liabilities . average balances have been derived from daily averages . average balances , income and expenses , and rates replace_table_token_5_th ( 1 ) all loans and deposits were made to borrowers or received from depositors in the united states . includes nonaccrual loans of $ 38,835 , $ 25,073 , and $ 5,674 for the years ended december 31 , 2019 , 2018 , and 2017 , respectively . loans include held for sale loans . ( 2 ) includes loan fees of $ 4,322 , $ 3,603 , and $ 1,333 for the years ended december 31 , 2019 , 2018 , and 2017 , respectively . ( 3 ) includes excess balance account-mississippi national banker 's bank and federal reserve – new orleans . ( 4 ) fully tax equivalent yield assuming a 25.3 % tax rate . 31 analysis of changes in net interest income . the following table presents the consolidated dollar amount of changes in interest income and interest expense attributable to changes in volume and to changes in rate . the combined effect in both volume and rate which can not be separately identified has been allocated proportionately to the change due to volume and due to rate . analysis of changes in consolidated net interest income replace_table_token_6_th ( 1 ) fully tax equivalent yield assuming a 25.3 % tax rate . interest sensitivity . the company monitors and manages the pricing and maturity of its assets and liabilities in order to diminish the potential adverse impact that changes in interest rates could have on its net interest income . a monitoring technique employed by the company is the measurement of the company 's interest sensitivity `` gap , '' which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given period of time . the company also performs asset/liability modeling to assess the impact varying interest rates and balance sheet mix assumptions will have on net interest income . interest rate sensitivity can be managed by repricing assets or liabilities , selling securities available-for-sale , replacing an asset or liability at maturity , or adjusting the interest rate during the life of an asset or liability . managing the amount of assets and liabilities repricing in the same time interval helps to hedge the risk and minimize the impact on net interest income of rising or falling interest rates . the company evaluates interest sensitivity risk and then formulates guidelines regarding asset generation and repricing , funding sources and pricing , and off-balance sheet commitments in order to decrease interest rate sensitivity risk . 32 the following tables illustrate the company 's consolidated interest rate sensitivity and consolidated cumulative gap position by maturity at december 31 , 2019 , 2018 , and 2017 ( $ in thousands ) . story_separator_special_tag replace_table_token_7_th replace_table_token_8_th 33 replace_table_token_9_th ( 1 ) now and savings accounts are subject to immediate withdrawal and repricing . these deposits do not tend to immediately react to changes in interest rates and the company believes these deposits are fairly stable . therefore , these deposits are included in the repricing period that management believes most closely matches the periods in which they are likely to reprice rather than the period in which the funds can be withdrawn contractually . ( 2 ) securities include mortgage backed and other installment paying obligations based upon stated maturity dates . ( 3 ) does not include subordinated debentures of $ 80,678 , $ 80,521 , $ 10,310 for the years ended december 31 , 2019 , 2018 , and 2017 , respectively . the company generally would benefit from increasing market rates of interest when it has an asset-sensitive gap and generally from decreasing market rates of interest when it is liability sensitive . the company currently is asset sensitive within the one-year time frame . however , the company 's gap analysis is not a precise indicator of its interest sensitivity position . the analysis presents only a static view of the timing of maturities and repricing opportunities , without taking into consideration that changes in interest rates do not affect all assets and liabilities equally . for example , rates paid on a substantial portion of core deposits may change contractually within a relatively short time frame , but those rates are viewed by management as significantly less interest-sensitive than market-based rates such as those paid on non-core deposits . accordingly , management believes a liability sensitive-position within one year would not be as indicative of the company 's true interest sensitivity as it would be for an organization which depends to a greater extent on purchased funds to support earning assets . net interest income is also affected by other significant factors , including changes in the volume and mix of earning assets and interest-bearing liabilities . the following tables depict , for the periods indicated , certain information related to interest rate sensitivity in net interest income and market value of equity . december 31 , 2019 replace_table_token_10_th 34 december 31 , 2018 replace_table_token_11_th december 31 , 2017 replace_table_token_12_th provision and allowance for loan losses the company has developed policies and procedures for evaluating the overall quality of its credit portfolio and the timely identification of potential problem loans . management 's judgment as to the adequacy of the allowance for loan losses is based upon a number of assumptions about future events which it believes to be reasonable , but which may not prove to be accurate . thus , there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that additional increases in the loan loss allowance will not be required . the company 's allowance consists of two parts . the first part is determined in accordance with authoritative guidance issued by the fasb regarding the allowance . the company 's determination of this part of the allowance is based upon quantitative and qualitative factors . the company uses a loan loss history based upon the prior ten years to determine the appropriate allowance . historical loss factors are calculated and allocated to loans by loan type . these historical loss factors are applied to the loans by loan type to determine an indicated allowance . the loss factors of peer groups are considered in the determination of the allowance and are used to assist in the establishment of a long-term loss history for areas in which this data is unavailable and incorporated into the qualitative factors to be considered . the historical loss factors may also be modified based upon other qualitative factors including but not limited to local and national economic conditions , trends of delinquent and problem loans , changes in lending policies and underwriting standards , concentrations , and management 's knowledge of the loan portfolio . these factors require judgment on the part of management and are based upon state and national economic reports received from various institutions and agencies including the federal reserve bank , united states bureau of economic analysis , bureau of labor statistics , meetings with the company 's loan officers and loan committees , and data and guidance received or obtained from the company 's regulatory authorities . the second part of the allowance is determined in accordance with guidance issued by the fasb regarding impaired loans . impaired loans are determined based upon ongoing review by senior management in the areas of credit administration and portfolio management . impaired loans are loans for which the bank does not expect to receive all contractually obligated repayment by the due date . a specific allowance is assigned to each loan determined to be impaired based upon the value of the loan 's underlying collateral . appraisals are used by management to determine the value of the collateral . 35 the sum of the two parts constitutes management 's best estimate of an appropriate allowance for loan losses . when the estimated allowance is determined , it is presented to the company 's alll committee and audit committee of the board for review and approval on a quarterly basis . our allowance for loan loss model 's quantitative methodology is focused on establishing a loss probability using the bank 's historical default and net charge off data . the quantitative portion of the loss estimation model also includes specific impairments individually reserved for credits that the bank determines the ultimate repayment source will be liquidation of the subject collateral . the other qualitative component used in calculating a loss estimate takes into account other factors such as local and national economic factors , portfolio composition and collateral concentrations , asset quality , lending personnel knowledge and experience , as well as loan policy guidelines and their effect on underwriting standards .
| non-interest expense was $ 88.6 million at december 31 , 2019 , an increase of $ 12.3 million in year-over-year comparison , of which $ 4.3 million is related to the operations of southwest , sunshine , fmb , fpb and ffb . the remaining increase of $ 8.0 million in expenses are related to increases in salaries and employee benefits of $ 3.7 million and increases in other expenses of $ 4.3 million . the company reported consolidated net income available to common stockholders of $ 21.2 million for the year ended december 31 , 2018 , compared to a consolidated net income of $ 10.6 million for the year ended december 31 , 2017. the increase in income was attributable to an increase in net interest income of $ 25.7 million or 43.5 % , an increase in non-interest income of $ 6.2 million , or 43.2 % , which was offset by an increase in non-interest expenses of $ 20.9 million or 37.6 % . the increase in net interest income was primarily due to interest income earned on a higher volume of loans as well as increased interest rates . purchase accounting adjustments accounted for only $ 2.1 million of the increase . non-interest increased as a result of increases in service charges on deposit accounts of $ 2.2 million and interchange fee income of $ 1.5 million on the increased deposit base related to the acquisitions , as well as the receipt of the financial assistance and bank enterprise awards in the amount of $ 2.1 million . the increase in non-interest expense can be attributed to increases in salaries and benefits of $ 5.9 million related to the acquisitions of southwest , sunshine , and fmb , along with increased acquisition charges of $ 7.1 million . increases in occupancy , amortization of core deposit intangibles and other non-interest expense for the year-to-date period of 2018 were also attributable to the acquisitions . see note c – business combinations in the accompanying notes to the consolidated financial statements included elsewhere in this report for more information on how the company accounts for business combinations . consolidated net
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as of december 31 , 2016 , we had 662 full-time equivalent employees . for the year ended december 31 , 2016 , the employee cash compensation and benefits represented approximately 16 % of revenue . factors affecting our results of operations business acquisitions since our formation , we have consummated a number of transactions accounted for as business combinations which were executed as part of our strategy of expanding through acquisitions . these acquisitions , which are in addition to our periodic purchases of customer contracts , have allowed us to increase the scale at which we operate which in turn affords us the ability to increase our operating leverage , extend our network , and broaden our customer base.the accompanying consolidated financial statements include the operations of the acquired entities from their respective acquisition dates . the acquisitions noted below are collectively defined as `` acquisitions '' for purposes of explaining our results of operations . telnes in february 2016 , we completed the acquisition of telnes broadband ( `` telnes '' ) . we paid $ 15.5 million in cash and issued 178,202 unregistered shares of our common stock valued at $ 2.0 million . one source in october 2015 , we completed the acquisition of one source networks inc. ( `` one source '' ) . we paid $ 169.3 million in cash and issued 185,946 unregistered shares of our common stock valued at $ 2.3 million . we also issued 289,055 unregistered shares of our common stock to certain one source employees as compensation for continuous employment valued at $ 3.6 million . megapath in april 2015 , we acquired megapath corporation ( `` megapath '' ) . we paid $ 141.4 million in cash ( exclusive of the assumption of $ 3.4 million in capital leases ) , and issued 610,843 unregistered shares of our common stock valued at $ 7.5 million . unsi in october 2014 , we acquired united networks services , inc. ( `` unsi '' ) . we paid $ 32.5 million in cash and issued 231,539 of unregistered shares of our common stock valued at $ 2.9 million . asset purchases periodically we acquire customer contracts that we account for as an asset purchase and record a corresponding intangible asset that is amortized over its assumed useful life . during 2016 we acquired two portfolios of customer contracts for an aggregate purchase price of $ 41.3 million , of which $ 20 million was paid in 2016 at the respective closing dates . the remaining $ 21.3 million will be paid in 2017. we did not have any material asset purchases in 2015 or 2014 , respectively . 20 indebtedness the following summarizes our long-term debt at december 31 , 2016 and 2015 ( amounts in thousands ) : replace_table_token_4_th october 2015 credit agreement in october 2015 , we entered into a credit agreement ( the “ october 2015 credit agreement ” ) that provided for a $ 400.0 million term loan facility and a $ 50.0 million revolving line of credit facility ( which includes a $ 15.0 million letter of credit facility and a $ 10.0 million swingline facility ) . the term loan facility was issued at a discount of $ 8.0 million . the maturity date of the term loan facility is october 22 , 2022 , and the maturity date of the revolving line of credit is october 22 , 2020. on may 3 , 2016 , we entered into an incremental term loan agreement that increased outstanding term loans by $ 30.0 million , the proceeds of which were used to repay the then outstanding revolving loans . on june 28 , 2016 , we entered into amendment no . 1 ( the `` repricing amendment '' ) to the october 2015 credit agreement . the repricing amendment , among other things , reduced the applicable rate for term loans to libor plus 4.75 % ( subject to a libor floor of 1.00 % ) and reduced the applicable rate for revolving loans to libor plus 4.25 % ( with no libor floor ) . as of december 31 , 2016 , we had drawn $ 20.0 million under the revolving line of credit and had $ 29.5 million of available borrowing capacity . approximately $ 0.5 million of the revolving line of credit was utilized for outstanding letters of credit relating to our real estate lease obligations . our obligations under the october 2015 credit agreement are guaranteed by certain of our subsidiaries and secured by substantially all of our tangible and intangible assets . we were in compliance with all financial covenants under the october 2015 credit agreement as of december 31 , 2016. the effective interest rate on outstanding debt at december 31 , 2016 and 2015 was 5.76 % and 6.24 % respectively . 7.875 % senior unsecured notes on december 22 , 2016 , in connection with the pending acquisitions of hibernia networks , we completed a private offering of $ 300 million aggregate principal amount of 7.875 % senior unsecured notes due in 2024 ( the `` notes '' ) . the proceeds of the private offering were deposited into escrow , where the funds remained until all the escrow release conditions were satisfied , most notably the closing of the acquisition of hibernia networks on january 9 , 2017. had the acquisition agreement been terminated , the funds in escrow would have been released and returned to the investors of the notes , including accrued and unpaid interest up to the date of release . we have recognized the proceeds from the private offering as restricted cash and cash equivalents in our consolidated financial statements . in connection with the offering , we incurred debt issuance costs of $ 9.7 million of which $ 0.5 million was incurred in 2016 and the remainder was incurred in 2017. the deferred costs associated with the notes will begin amortizing in the first quarter of 2017 . story_separator_special_tag 21 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > for the year ended december 31 , 2014 to $ 369.3 million for the year ended december 31 , 2015. the increase was primarily due to the acquisitions completed in 2015 . 23 on a constant currency basis using the average exchange rates in effect during the year ended december 31 , 2014 , revenue would have been higher by $ 11.8 million for the year ended december 31 , 2015. cost of telecommunications services provided cost of telecommunications services provided increased by $ 76.4 million , or 59.6 % , from $ 128.1 million for the year ended december 31 , 2014 to $ 204.5 million for the year ended december 31 , 2015. consistent with our increase in revenue , the increase in cost of telecommunications services provided was principally driven by the acquisitions . on a constant currency basis using the average exchange rates in effect during the year ended december 31 , 2014 , cost of telecommunications services provided would have been higher by $ 4.4 million for the year ended december 31 , 2015. operating expenses selling , general and administrative expenses . sg & a expenses increased by $ 56.1 million , or 123.0 % from $ 45.6 million for the year ended december 31 , 2014 to $ 101.7 million for the year ended december 31 , 2015. cash compensation expense increased by $ 30.1 million , or 102.0 % , from $ 29.6 million for the year ended december 31 , 2014 to $ 59.7 million for the year ended december 31 , 2015 , due primarily to the acquisitions . non-cash compensation expense increased by $ 5.5 million , or 225.7 % , from $ 2.4 million for the year ended december 31 , 2014 to $ 7.9 million for the year ended december 31 , 2015 , driven by the recognition of share-based compensation for performance awards where the performance criteria have been met and an overall increase in the quantity of employee equity awards . other sg & a expense increased $ 14.4 million , or 105.7 % , from $ 13.6 million for the year ended december 31 , 2014 to $ 28.0 million for the year ended december 31 , 2015. transaction and integration was $ 6.1 million for the year ended december 31 , 2015. there were no transition and integration costs incurred in 2014. severance , restructuring and other exit costs . restructuring costs increased by $ 3.2 million , or 34.4 % from $ 9.4 million for the year ended december 31 , 2014 to $ 12.7 million for year ended december 31 , 2015. the $ 12.7 million in 2015 is comprised of exit costs associated with the acquisition of one source and megapath , and the $ 9.4 million in 2014 is comprised of $ 6.1 million of exit costs associated with the acquisition of unsi and $ 3.3 million in litigation settlement . depreciation and amortization . amortization of intangible assets increased $ 12.2 million , or 88.4 % , from $ 13.8 million for the year ended december 31 , 2014 to $ 26.0 million for the year ended december 31 , 2015 , due to the addition of definite-lived intangible assets from the acquisitions . similarly , depreciation expense increased $ 9.6 million , or 86.5 % , from $ 11.1 million for the year ended december 31 , 2014 to $ 20.7 million for the year ended december 31 , 2015 , primarily due to the addition of property and equipment from the acquisitions . other expense . other expense decreased by $ 1.7 million , or 8.2 % , from $ 20.2 million for the year ended december 31 , 2014 to $ 18.5 million for the year ended december 31 , 2015. for the year ended december 31 , 2014 , we recorded $ 6.9 million of expense associated with the change in fair value of the warrant liability that was extinguished in the third quarter of 2014. this was offset by increased interest expense of $ 5.5 million for the year ended december 31 , 2015 , attributed to increased debt for the acquisitions during 2015. using constant currency , when compared to 2014 , operating expense for year ended december 31 , 2015 , would have been $ 1.6 million higher than reported . selling , general and administrative expenses are the only operating expenses that would have been impacted by the change in exchange rates . non-gaap financial measures in addition to financial measures prepared in accordance with accounting principles generally accepted in the united states ( “ gaap ” ) , from time to time we may use or publicly disclose certain `` non-gaap financial measures '' in the course of our financial presentations , earnings releases , earnings conference calls , and otherwise . for these purposes , the sec defines a `` non-gaap financial measure '' as a numerical measure of historical or future financial performance , financial positions , or cash flows that ( i ) exclude amounts , or is subject to adjustments that effectively exclude amounts , included in the most directly comparable measure calculated and presented in accordance with gaap in financial statements , and ( ii ) include amounts , or is subject to adjustments that effectively include amounts , that are excluded from the most directly comparable measure so calculated and presented . non-gaap financial measures are provided as additional information to investors to provide an alternative method for assessing our financial condition and operating results . we believe that these non-gaap measures , when taken together with our gaap financial measures , allow us and our investors to better evaluate our performance and profitability . these measures are not in accordance with , or a substitute for , gaap , and may be different from or inconsistent with non-gaap financial 24 measures used by other companies .
| million for the year ended december 31 , 2016 . operating expenses selling , general and administrative expenses . sg & a expenses increased by $ 41.5 million , or 40.8 % , from $ 101.7 million for the year ended december 31 , 2015 to $ 143.2 million for the year ended december 31 , 2016. cash compensation expense increased $ 23.4 million or 39.2 % from $ 59.7 million for the year ended december 31 , 2015 to $ 83.1 million for the year ended december 31 , 2016 , primarily due to the acquisitions . non-cash compensation expense increased by $ 7.9 million , or 100.3 % , from $ 7.9 million for the year ended december 31 , 2015 to $ 15.8 million for the year ended december 31 , 2016 driven by ( i ) the recognition of share-based compensation for performance awards where the performance criteria have been met , ( ii ) certain shares issued to former employees of one source which were accounted for as compensation , and ( iii ) an overall increase in quantity of employee equity awards . transaction and integration costs decreased by $ 1.3 million , or 21.4 % from $ 6.1 million for the year ended december 31 , 2015 to $ 4.8 million for the year ended december 31 , 2016. other sg & a expense increased $ 11.5 million , or 41.0 % , from $ 28.0 million for the year ended december 31 , 2015 to $ 39.5 million for the year ended december 31 , 2016 , primarily as a result of the acquisitions . severance , restructuring and other exit costs . restructuring costs decreased by $ 11.8 million , or 93.1 % , from $ 12.7 million for the year ended december 31 , 2015 to $ 0.9 million for year ended december 31 , 2016. the decrease was due to the fact that we closed two large acquisitions in 2015 ( one source and megapath ) , compared
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the company anticipates that it will further expand the property and consolidate portions of its northeast operations into its new property in multiple phases between 2015 and 2017. it expects to incur further costs with the consolidation but also expects the efficiency savings to be significant . it has not yet estimated either the one-time costs or efficiency gains in a potential consolidation of operations . the company 's strategy includes further organic growth and growth through strategic acquisitions . story_separator_special_tag interest expense net of interest income decreased to approximately $ 108,000 for the year ended december 31 , 2014 from net interest expense of approximately $ 205,000 in 2013. the decrease in interest expense is primarily due to a lower average debt balance as a result of the company 's repayment of term loans in conjunction with the execution of a new revolving credit facility in the fourth quarter of 2013. income taxes the company recorded income tax expense as a percentage of income before income tax expense , of 35.8 % and 34.4 % for the years ended december 31 , 2014 and 2013 , respectively . the increase in the effective tax rate for the year ended december 31 , 2014 is primarily attributable to permanent differences measured against lower pre-tax income as well as additional reserves of approximately $ 150,000 for uncertain tax positions . the company has deferred tax assets on its books associated with net operating losses generated in previous years . the company has considered both positive and negative available evidence in its determination that the deferred tax assets are more likely than not to be realized , and has not recorded a tax valuation allowance at december 31 , 2014. the company will continue to assess whether the deferred tax assets will be realizable and , when appropriate , will record a valuation allowance against these assets . the amount of the net deferred tax asset considered realizable , however , could be reduced in the near term if estimates of future taxable income during the carry-forward period are reduced . 2013 compared to 2012 sales net sales increased 6.3 % to $ 139.2 million for the year ended december 31 , 2013 , from net sales of $ 131.0 million in 2012 ( including sales from packaging alternatives corporation ( pac ) , which the company acquired in 2012 ) . the increase in net sales was primarily due to an additional $ 10.3 million in sales from pacwhich were primarily to the medical marketas well as a 21.3 % increase in sales of our molded fiber packaging product due to increased demand for environmentally friendly packaging solutions . excluding sales at pac , net sales decreased 1.5 % largely due to a 28 % decline in sales to the aerospace and defense market due to government cuts in defense spending . gross profit gross profit as a percentage of sales ( gross margin ) increased 0.2 % to 29.5 % for the year ended december 31 , 2013 , from 29.3 % in 2012. as a percentage of sales , material and direct labor collectively decreased by 0.6 % in 2013 , due primarily to an improved book of business . this decrease was partially offset by an increase 19 in overhead as a percentage of sales of 0.4 % due largely to increased depreciation expense associated with new machinery . selling , general and administrative expenses selling , general , and administrative expenses ( sg & a ) increased 9.0 % to $ 23.6 million for the year ended december 31 , 2013 , from $ 21.7 million in 2012. the increase in sg & a for the year ended december 31 , 2013 , is primarily due to increased sg & a at pac . excluding pac , sg & a declined approximately $ 100,000 , or 0.5 % from 2012 , primarily due to a reduction in incentive compensation of approximately $ 700,000 partially offset by an increase in professional fees of approximately $ 390,000 due to higher audit and compliance fees as well as increased expenses associated with the implementation of erp software and an increase in net selling expenses of approximately $ 300,000 due largely to the investment in additional sales resources . as a percentage of sales , sg & a increased slightly to 17.0 % for the year ended december 31 , 2013 , from 16.5 % for the same period in 2012. the slight increase in sg & a as a percentage of sales is primarily due to relatively fixed sg & a expenses measured against lower organic sales . interest expense interest expense net of interest income increased to approximately $ 205,000 for the year ended december 31 , 2013 , from net interest expense of approximately $ 90,000 in 2012. the increase in interest expense is primarily attributable to increased debt levels during the year associated with financing molded fiber equipment . income taxes the company recorded income tax expense as a percentage of income before income tax expense , of 34.4 % and 34.3 % for the years ended december 31 , 2013 and 2012 , respectively . the slight increase in the effective tax rate for the year ended december 31 , 2013 , is primarily attributable to higher anticipated state taxes . the company has deferred tax assets on its books associated with net operating losses generated in previous years . story_separator_special_tag the company has considered both positive and negative available evidence in its determination that the deferred tax assets are more likely than not to be realized , and has not recorded a tax valuation allowance at december 31 , 2013. the company will continue to assess whether the deferred tax assets will be realizable and , when appropriate , will record a valuation allowance against these assets . the amount of the net deferred tax asset considered realizable , however , could be reduced in the near term , if estimates of future taxable income during the carry-forward period are reduced . liquidity and capital resources the company generally funds its operating expenses , capital requirements , and growth plan through internally generated cash and bank credit facilities . cash flows net cash provided by operations for the year ended december 31 , 2014 , was approximately $ 11.2 million and was primarily a result of net income generated of approximately $ 7.5 million and an increase in accounts payable of approximately $ 2.3 million due to the timing of vendor payments in the ordinary course of business . these cash inflows were partially offset by an increase in inventory of approximately $ 1.8 million due to the timing of raw materials purchases and customer shipments and a decrease in accrued expenses of approximately $ 2.2 million due to reduced payroll related accruals and reduced customer deposits . net cash used in investing activities during the year ended december 31 , 2014 , was approximately $ 13.3 million and was primarily the result of additions of manufacturing machinery and equipment , including a new molded fiber line in texas and the purchase of commercial real estate in texas . net cash used in financing activities was approximately $ 1.1 million for the year ended december 31 , 2014 , representing cash used to service term debt of approximately $ 1.0 million , to pay a contingent note payable related to the pac acquisition of approximately $ 800,000 and to pay statutory withholding for stock options exercised and restricted stock units vested of approximately $ 831,000 , partially offset by excess tax benefits 20 on share-based compensation of approximately $ 1.2 million , and net proceeds received upon stock option exercises of approximately $ 336,000. outstanding and available debt the company maintains an unsecured $ 40 million revolving credit facility with bank of america , n.a . the credit facility calls for interest of libor plus a margin that ranges from 1.0 % to 1.5 % or , at the discretion of the company , the bank 's prime rate less a margin that ranges from 0.25 % to zero . in both cases the applicable margin is dependent upon company performance . under the credit facility , the company is subject to a minimum fixed-charge coverage financial covenant as well as a maximum total funded debt to ebitda financial covenant . the company 's $ 40 million credit facility matures on november 30 , 2018. as of december 31 , 2014 , the company had no borrowings outstanding under the credit facility and the company was in compliance with all covenants under the credit facility . in 2012 , the company financed the purchase of two molded fiber machines through five-year term loans that mature in september 2017. the annual interest rate is fixed at 1.83 % and the loans are secured by the related molded fiber machines . as of december 31 , 2014 , the outstanding balance of the term loan facility was approximately $ 2.9 million . future liquidity the company requires cash to pay its operating expenses , purchase capital equipment , and to service its contractual obligations . the company 's principal sources of funds are its operations and its revolving credit facility . the company generated cash of approximately $ 11.2 million in operations during the year ended december 31 , 2014 , and can not guarantee that its operations will generate cash in future periods . the company 's longer-term liquidity is contingent upon future operating performance . in january 2015 , the company acquired a 137,000 square foot commercial building on 27 acres in newburyport , massachusetts for approximately $ 6.8 million . the company anticipates that it will further expand the property and consolidate portions of its northeast operations into its new property in multiple phases between 2015 and 2017. it expects to incur further costs with the consolidation but also expects the efficiency savings to be significant . it has not yet estimated either the one-time costs or efficiency gains in a potential consolidation of operations . throughout fiscal 2015 , the company plans to continue to add capacity to enhance operating efficiencies in its manufacturing plants . the company may consider additional acquisitions of companies , technologies , or products that are complementary to its business . the company believes that its existing resources , including its revolving credit facility , together with cash expected to be generated from operations and funds expected to be available to it through any necessary equipment financings and additional bank borrowings , will be sufficient to fund its cash flow requirements , including capital asset acquisitions , through the next twelve months . commitments and contractual obligations the following table summarizes the company 's contractual obligations at december 31 , 2014 ( in thousands ) : replace_table_token_6_th the company requires cash to pay its operating expenses , purchase capital equipment , and to service the obligations listed above . the company 's principal sources of funds are its operations and its revolving credit 21 facility . although the company generated cash from operations in the year ended december 31 , 2014 , it can not guarantee that its operations will generate cash in future periods .
| the increase in overhead was primarily due to increased employee health care costs of approximately $ 600,000 due to a higher than typical frequency of large claims , increased compensation and benefits of approximately $ 450,000 due to normal inflationary increases as well as higher overtime incurred as a result of the plant moves , increased plant and equipment maintenance costs of approximately $ 290,000 due to the various plant moves and higher depreciation of approximately $ 220,000 due largely to new molded fiber equipment . selling , general and administrative expenses selling , general , and administrative expenses ( sg & a ) increased 1.0 % to $ 23.8 million for the year ended december 31 , 2014 from $ 23.6 million in 2013. the increase in sg & a for the year ended december 31 , 2014 , is primarily due to higher depreciation costs of $ 160,000 , largely associated with the company 's new enterprise resource planning ( erp ) software system , increased bad debt expense of approximately $ 140,000 due largely to a one-time write-off and increased employee health care costs of approximately $ 184,000 due largely to a higher than typical frequency of large claims , partially offset by lower sales commissions of approximately $ 100,000 due to soft sales compared to the company 's budgeted sales , lower advertising costs incurred of approximately $ 70,000 and lower intangibles amortization of approximately $ 85,000. restructuring costs on january 7 , 2014 , the company committed to move forward with a plan to cease operations at its glendale heights , illinois plant and consolidate operations into its grand rapids , michigan , facility . the company 's decision was in response to a pending significant increase in lease cost , declining sales at the illinois facility , and significant anticipated savings as a result of the consolidation . the consolidation into the michigan facility is complete and the actual costs incurred are included in the table below . on july 16 , 2014 , the company committed to move forward with a plan to cease operations at its costa mesa , california , plant and consolidate operations into its
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any increase or decrease in the valuation allowance would result in additional or lower income tax expense in such period and could have a significant impact on that period 's earnings . net income ( loss ) attributable to unisys corporation common shareholders for 2016 was a loss of $ 47.7 million , or a loss of $ 0.95 per diluted common share , compared with a loss of $ 109.9 million , or $ 2.20 per diluted common share , in 2015 and income of $ 44.0 million , or $ 0.89 per diluted common share , in 2014 . segment results the company has two business segments : services and technology . revenue classifications within the services segment are as follows : cloud and infrastructure services . this represents revenue from helping clients apply cloud and as-a-service delivery models to capitalize on business opportunities , make their end users more productive , and manage and secure their it infrastructure and operations more economically . 20 application services . this represents revenue from helping clients transform their business processes by providing advanced solutions for select industries , developing and managing new leading-edge applications , offering advanced data analytics and modernizing existing enterprise applications . business process outsourcing ( bpo ) services . this represents revenue from the management of critical processes and functions for clients in target industries , helping them improve performance and reduce costs . the accounting policies of each business segment are the same as those followed by the company as a whole . intersegment sales and transfers are priced as if the sales or transfers were to third parties . accordingly , the technology segment recognizes intersegment revenue and manufacturing profit on software and hardware shipments to customers under services contracts . the services segment , in turn , recognizes customer revenue and marketing profits on such shipments of company software and hardware to customers . the services segment also includes the sale of software and hardware products sourced from third parties that are sold to customers through the company 's services channels . in the company 's consolidated statements of income , the manufacturing costs of products sourced from the technology segment and sold to services customers are reported in cost of revenue for services . also included in the technology segment 's sales and operating profit are sales of software and hardware sold to the services segment for internal use in services engagements . the amount of such profit included in operating income of the technology segment for the years ended december 31 , 2016 , 2015 and 2014 was $ 0.7 million , $ 9.2 million and $ 17.0 million , respectively . the profit on these transactions is eliminated in corporate . the company evaluates business segment performance based on operating income exclusive of pension income or expense , restructuring charges and unusual and nonrecurring items , which are included in corporate . all other corporate and centrally incurred costs are allocated to the business segments based principally on revenue , employees , square footage or usage . see note 15 , `` segment information , '' of the notes to consolidated financial statements . information by business segment for 2016 , 2015 and 2014 is presented below : replace_table_token_4_th gross profit percent and operating income percent are as a percent of total revenue . 21 customer revenue by classes of similar products or services , by segment , for 2016 , 2015 and 2014 is presented below : replace_table_token_5_th in the services segment , customer revenue was $ 2.4 billion in 2016 , $ 2.6 billion in 2015 and $ 2.8 billion in 2014 . foreign currency fluctuations had a 2 -percentage-point negative impact on revenue in 2016 compared with 2015 . revenue from cloud & infrastructure services was $ 1.4 billion in 2016 down 10.6 % compared with 2015 , and 2015 was down 11.2 % from 2014 . foreign currency fluctuations had a 1 -percentage-point negative impact on cloud & infrastructure services revenue in the current period compared with the year-ago period . application services revenue decreased 1.1 % for 2016 compared with 2015 , and 2015 was up 6.0 % compared with 2014 . foreign currency fluctuations had a 3 -percentage-point negative impact on application services revenue in the current period compared with the year-ago period . business processing outsourcing services revenue decreased 13.1 % in 2016 compared with 2015 , and was down 14.3 % in 2015 compared with 2014 . foreign currency fluctuations had an 8 -percentage-point negative impact on business processing outsourcing services revenue in the current period compared with the year-ago period . services gross profit percent was 16.2 % in 2016 compared with 15.8 % in 2015 and 17.4 % in 2014 . the increase in gross profit percent from 2015 to 2016 principally reflects the company 's ongoing efforts to enhance efficiency in the services business . services operating income percent was 1.9 % in 2016 compared with 2.3 % in 2015 and 3.4 % in 2014 . operating profit margin in 2016 was impacted by an increase in selling , general and administrative expenses related to ongoing investments in improving the company 's capabilities . in the technology segment , customer revenue increased 1.2 % to $ 414.4 million in 2016 compared with $ 409.5 million in 2015 . revenue in 2015 decreased 28.2 % compared with 2014 . the increase in technology customer revenue is due to higher sales of the company 's proprietary enterprise software and servers in 2016 . foreign currency translation had a 1 -percentage-point negative impact on technology revenue in 2016 compared with 2015 . technology gross profit was 59.9 % in 2016 compared with 55.3 % in both 2015 and 2014 . technology operating income percent was 37.0 % in 2016 compared with 24.8 % in 2015 and 21.9 % in 2014 . story_separator_special_tag the increase in gross profit and operating income percentage in 2016 compared with 2015 principally reflects increased sales of the company 's proprietary enterprise software and servers in the current period coupled with savings due to cost reduction actions . new accounting pronouncements see note 5 , `` recent accounting pronouncements and accounting changes , '' of the notes to consolidated financial statements for a full description of recent accounting pronouncements , including the expected dates of adoption and estimated effects on the company 's consolidated financial statements . financial condition the company 's principal sources of liquidity are cash on hand , cash from operations and its revolving credit facility , discussed below . the company and certain international subsidiaries have access to uncommitted lines of credit from various banks . the company believes that it will have adequate sources of liquidity to meet its expected 2017 cash requirements . cash and cash equivalents at december 31 , 2016 were $ 370.6 million compared with $ 365.2 million at december 31 , 2015 . as of december 31 , 2016 , $ 262.3 million of cash and cash equivalents were held by the company 's foreign subsidiaries and branches operating outside of the u.s. in the future , if these funds are needed for the company 's operations in the u.s. , it is expected the company would be required to pay taxes on only a limited portion of this balance . see note 7 , `` income taxes , '' of the notes to consolidated financial statements regarding the company 's intention to indefinitely reinvest earnings of foreign subsidiaries . during 2016 , cash provided by operations was $ 218.2 million compared with cash provided by operations of $ 1.2 million in 2015 . the current period was positively impacted by a lower net loss , improved working capital and a decrease in contributions to the company 's defined benefit pension plans . during 2016 , the company contributed cash of $ 132.5 million to such plans 22 compared with $ 148.3 million during 2015 . this was partially offset by a $ 15.5 million increase in cash used for cost reduction actions . cash used for investing activities in 2016 was $ 182.2 million compared with cash usage of $ 177.9 million in 2015 . net purchases of investments in 2016 were $ 34.1 million compared with net proceeds of $ 25.4 million in 2015 . proceeds from investments and purchases of investments represent derivative financial instruments used to manage the company 's currency exposure to market risks from changes in foreign currency exchange rates . in addition , capital additions of properties were $ 32.5 million in 2016 compared with $ 49.6 million in 2015 , capital additions of outsourcing assets were $ 51.3 million in 2016 compared with $ 102.0 million in 2015 and the investment in marketable software was $ 63.3 million in 2016 compared with $ 62.1 million in 2015 . the decrease in capital additions of properties and outsourcing assets were reflective of the company 's shift to a more asset-lite business model . cash used for financing activities during 2016 was $ 16.7 million compared with cash provided by financing activities of $ 90.6 million in 2015 . during 2016 , the company issued $ 213.5 million of its 5.50 % convertible senior notes . in connection with the issuance of the notes , the company paid $ $ 27.3 million to enter into privately negotiated capped call transactions with the initial purchasers and or affiliates of the initial purchasers . the company also retired $ 115.0 million of its 6.25 % senior notes and paid down $ 65.8 million of short-term borrowings related to its revolving credit facility in 2016 . see note 9 , `` debt , '' of the notes to consolidated financial statements . included in 2015 were proceeds from the issuance of long-term debt of $ 31.8 million and net proceeds of short-term borrowings of $ 65.8 million under the company 's revolving credit agreement . at december 31 , 2016 , total debt was $ 300.0 million compared with $ 310.5 million at december 31 , 2015 . the decrease was principally caused by the repurchase of $ 115.0 million of its 6.25 % senior notes and repayment of borrowings under its revolving credit facility partially offset by the issuance of $ 213.5 million of its 5.50 % convertible senior notes . the company has a secured revolving credit facility , expiring in june 2018 , that provides for loans and letters of credit up to an aggregate amount of $ 150.0 million ( with a limit on letters of credit of $ 100.0 million ) . at december 31 , 2016 , the company had no borrowings and $ 11.3 million of letters of credit outstanding under this facility . borrowing limits under the facility are based upon the amount of eligible u.s. accounts receivable . at december 31 , 2016 , availability under the facility was $ 102.5 million net of letters of credit issued . borrowings under the facility bear interest based on short-term rates . the credit agreement contains customary representations and warranties , including that there has been no material adverse change in the company 's business , properties , operations or financial condition . the company is required to maintain a minimum fixed charge coverage ratio if the availability under the credit facility falls below the greater of 12.5 % of the lenders ' commitments under the facility and $ 18.75 million . the credit agreement allows the company to pay dividends on its capital stock in an amount up to $ 22.5 million per year unless the company is in default and to , among other things , repurchase its equity , prepay other debt , incur other debt or liens , dispose of assets and make acquisitions , loans and investments , provided the company complies with certain requirements and limitations set forth in the agreement .
| the 2015 charges were recorded in the following statement of income classifications : cost of revenue - services , $ 52.3 million ; cost of revenue - technology , $ 0.3 million ; selling , general and administrative expenses , $ 53.5 million ; and research and development expenses , $ 12.4 million . revenue for 2016 was $ 2.82 billion compared with $ 3.02 billion for 2015 , a decrease of 6 % . foreign currency fluctuations had a 2 -percentage-point negative impact on revenue in the current year compared with the year-ago period . services revenue decreased 8 % and technology revenue increased 1 % in 2016 compared with 2015 . foreign currency fluctuations had a 2 -percentage-point negative impact on services revenue and a 1 -percentage-point negative impact on technology revenue in the current year compared with the year-ago period . revenue for 2015 was $ 3.02 billion compared with 2014 revenue of $ 3.36 billion , a decrease of 10 % . foreign currency had an 8 -percentage-point negative impact on revenue in 2015 compared with 2014 . services revenue in 2015 decreased by 6 % compared with 2014 . technology revenue in 2015 decreased by 28 % compared with 2014 . revenue from international operations in 2016 , 2015 and 2014 was $ 1.51 billion , $ 1.56 billion and $ 1.98 billion , respectively . foreign currency had a 4 -percentage-point negative impact on international revenue in 2016 compared with 2015 , and a 12 -percentage-point negative impact on international revenue in 2015 compared with 2014 . revenue from u.s. operations was $ 1.31 billion in 2016 , $ 1.45 billion in 2015 and $ 1.38 billion in 2014 . gross profit as a percent of total revenue , or gross profit percent , was 19.8 % in 2016 , 17.9 % in 2015 and 23.2 % in 2014 . the increase in 2016 from 2015 was principally due to higher sales of the company 's proprietary enterprise software and servers in the current year , lower pension expense of $ 17.3 million , and lower cost reduction charges of $ 10.2 million .
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inland marine transportation equipment utilization declined to the high 80 % range at the end of 2016 , occasionally declining to the low-to-mid 80 % range during the year , from the 90 % to 95 % range at the beginning of 2016 and throughout 2015. coastal tank barge utilization levels also declined throughout 2016 , from the high 80 % to low 90 % range in the first quarter to the low 80 % level in the fourth quarter . coastal utilization levels were generally in the 90 % to 95 % range throughout the majority of 2015 . 36 during the first nine months of 2016 and all of 2015 , approximately 80 % of the inland marine transportation revenues were under term contracts and 20 % were spot contract revenues . during the 2016 fourth quarter , approximately 75 % of inland marine transportation revenues were under term contracts and 25 % were spot contract revenues . these allocations provide the operations with a more predictable revenue stream . inland time charters , which insulate the company from revenue fluctuations caused by weather and navigational delays and temporary market declines , represented 52 % of the inland revenues under term contracts during 2016 compared with 55 % during 2015. rates on inland term contracts renewed in 2016 decreased in the 5 % to 9 % average range compared with term contracts renewed in 2015. spot contract rates , which include the cost of fuel , were relatively flat in the 2016 first quarter when compared with the 2015 fourth quarter and at or below term contract pricing during the balance of 2016. effective january 1 , 2016 , annual escalators for labor and the producer price index on a number of inland multi-year contracts resulted in rate increases on those contracts of approximately 1.5 % , excluding fuel . during 2016 and the 2015 third and fourth quarters , approximately 80 % of the coastal marine transportation revenues were under term contracts and 20 % were spot contract revenues . during the 2015 first and second quarters , approximately 85 % of the coastal marine transportation revenues were under term contracts and 15 % were spot contract revenues . the decrease in term contract revenues in 2016 and the 2015 third and fourth quarters reflected the continued trend of non-renewal of certain term contracts which put increased equipment in the spot contract market , leading to increased idle time . however , the coastal revenues reflected the new 185,000 barrel atb placed in service in the 2015 fourth quarter under a long-term contract . the second new 185,000 barrel atb was placed in service in june 2016 , also under a long-term contract . coastal time charters , which insulate the company from revenue fluctuations caused by weather and navigational delays and temporary market declines , represented approximately 85 % of the coastal revenues under term contracts in 2016 as compared to 90 % in 2015. rates on coastal term contracts renewed in 2016 were essentially flat when compared with term contracts renewed in 2015. spot contract rates remained above term contract rates during the 2016 first quarter , fluctuated around term contract rates during the 2016 second quarter and fell below term contract rates during the 2016 third and fourth quarters . the 2016 marine transportation operating margin was 17.5 % compared with 22.5 % for 2015. the results primarily reflected lower inland marine transportation term and spot contract pricing , lower coastal spot contract pricing , lower inland and coastal equipment utilization levels , an increase in the number of coastal vessels operating in the spot market which led to increased idle time and voyage costs , higher depreciation expense and the 2016 first quarter severance charge of $ 3,792,000 , partially offset by savings from a reduction in force in early 2016 and during 2015 , and a reduction in the average number of inland towboats operated . diesel engine services during 2016 , the diesel engine services segment generated 17 % of the company 's revenues , of which 61 % was generated from overhauls and service , 38 % from direct parts sales and 1 % from manufacturing . the results of the diesel engine services segment are largely influenced by the economic cycles of the marine and power generation markets and the land-based oilfield service and oil and gas operator and producer markets . diesel engine services revenues for 2016 decreased 38 % and operating income decreased 83 % compared with 2015. the lower revenues in 2016 compared to 2015 were primarily attributable to the lack of demand for the manufacture of pressure pumping units and other oilfield service equipment and for the sale and distribution of engines , transmissions and parts due to the impact of the decline in the price of crude oil and decreased drilling activity in north american shale formations . during the 2016 third and fourth quarters , with the increase in the price of crude oil and resulting increase in drilling activity , the segment saw an increase in activity for the remanufacturing and servicing of pressure pumping units . the marine diesel engine services market was impacted by continued weakness in the gulf of mexico oilfield services market . in addition , customers continued to defer major maintenance projects in many regions of the marine diesel engine services market largely due to the weaker liquid and dry cargo barge markets and , to a lesser extent , the general economy . the power generation market was stable , benefiting from major generator set upgrades and parts sales for both domestic and international power generation customers . the diesel engine services results for 2016 and 2015 included $ 1,436,000 and $ 1,813,000 , respectively , of severance charges in response to the reduced activity in both the marine and land-based markets . story_separator_special_tag 37 the diesel engine services operating margin for 2016 was 1.1 % compared with 3.9 % for 2015. the operating margin for 2016 reflected continued weakness in the land-based market , the gulf of mexico marine oilfield services market and customer deferrals of major maintenance projects throughout the marine diesel engine services market . cash flow and capital expenditures the company continued to generate favorable operating cash flow during 2016 with net cash provided by operating activities of $ 414,038,000 compared with $ 521,305,000 of net cash provided by operating activities for 2015. the 21 % decrease was primarily from a $ 85,166,000 decrease in net earnings , a net decrease of $ 12,452,000 in cash flows from changes in operating assets and liabilities , a $ 11,459,000 decrease in the provision for deferred income taxes and a $ 2,257,000 decrease in the amortization of major maintenance costs , partially offset by a $ 8,677,000 increase in depreciation and amortization expense . in addition , during the 2016 and 2015 , the company generated cash of $ 321,000 and $ 3,712,000 , respectively , of proceeds from the exercise of stock options and $ 18,617,000 and $ 24,429,000 , respectively , of proceeds from the disposition of assets . for 2016 , cash generated and borrowings under the company 's revolving credit facility were used for capital expenditures of $ 231,066,000 , including $ 10,676,000 for inland tank barge and towboat construction , $ 14,884,000 in final costs for the construction of two 185,000 barrel coastal atbs , one placed in service in late 2015 and the second in june 2016 , $ 74,689,000 for progress payments on the construction of two 155,000 barrel coastal atbs , one placed in service in november 2016 and the second scheduled to be placed in service in the summer of 2017 , $ 10,098,000 for progress payments on the construction of two 4900 horsepower coastal tugboats , $ 6,593,000 for progress payments on the construction of a 35,000 barrel coastal petrochemical tank barge placed in service in december 2016 , $ 18,000 for progress payments on six 5000 horsepower coastal atb tugboats , $ 114,108,000 primarily for upgrading existing marine equipment , and marine transportation and diesel engine services facilities , and $ 137,072,000 for acquisitions of businesses and marine equipment . cash generated and borrowings under the company 's revolving credit facility in 2016 were also used for the repurchase of 35,000 shares of the company 's common stock for $ 1,827,000 and the acquisitions of noncontrolling interests for $ 8,438,000. the company 's debt-to-capitalization ratio decreased to 23.1 % at december 31 , 2016 from 25.4 % at december 31 , 2015. the decrease was primarily due to a decrease of $ 52,047,000 in outstanding debt and the increase in total equity from net earnings attributable to kirby for 2016 of $ 141,406,000 and the amortization of unearned equity compensation , partially offset by the acquisitions of noncontrolling interests of $ 8,460,000 and treasury stock purchases of $ 1,827,000. as of december 31 , 2016 , the company had $ 225,986,000 outstanding under its revolving credit facility and $ 500,000,000 of senior notes outstanding . during 2016 , the company took delivery of five new inland tank barges with a total capacity of approximately 141,000 barrels , acquired 27 inland tank barges from seacor with a total capacity of approximately 807,000 barrels , transferred one tank barge into the inland fleet from the coastal fleet with a capacity of 31,000 barrels , added one leased inland tank barge with a capacity of 11,000 barrels , returned six leased inland tank barges and retired 50 inland tank barges , reducing its capacity by approximately 1,038,000 barrels . the net result was a reduction of 22 inland tank barges and approximately 48,000 barrels of capacity during 2016. the company projects that capital expenditures for 2017 will be in the $ 165,000,000 to $ 185,000,000 range . the 2017 construction program will consist of two inland tank barges with a total capacity of 57,000 barrels , one inland towboat , progress payments on the construction of a 155,000 barrel coastal atb scheduled to be placed in service in the summer of 2017 , progress payments on the construction of two 4900 horsepower coastal tugboats and six 5000 horsepower coastal atb tugboats and final costs on the construction of a 35,000 barrel coastal petrochemical tank barge placed in service in december 2016. based on current commitments , steel prices and projected delivery schedules , the company 's 2017 payments on new inland tank barges and the towboat will be approximately $ 3,000,000 , 2017 progress payments on the construction of the 155,000 barrel coastal atb will be approximately $ 7,000,000 , 2017 progress payments on the construction of the two 4900 horsepower coastal tugboats will be approximately $ 16,000,000 , progress payments on the six 5000 horsepower coastal atb tugboats will be approximately $ 27,000,000 and final costs on the construction of the 35,000 barrel coastal petrochemical tank barge will be approximately $ 2,000,000. the balance of approximately $ 110,000,000 to $ 130,000,000 is primarily capital upgrades and improvements to existing marine equipment , and marine transportation and diesel engine services facilities . 38 outlook reduced crude oil volumes to be moved by tank barge due to additional pipelines , coupled with the large number of tank barges built during the last several years , many of which were for the movement of crude oil and natural gas condensate , has resulted in excess industry-wide tank barge capacity and lower equipment utilization for both the inland and coastal marine transportation markets . this extra capacity has placed inland and coastal tank barge rates under some pressure .
| the company transports petrochemicals , black oil , refined petroleum products and agricultural chemicals by tank barge . as of december 31 , 2016 , the company operated 876 inland tank barges , including 34 leased barges , with a total capacity of 17.9 million barrels . this compares with 898 inland tank barges operated as of december 31 , 2015 , including 31 leased barges , with a total capacity of 17.9 million barrels . the company operated an average of 234 inland towboats during 2016 , of which an average of 73 were chartered , compared with 248 during 2015 , of which an average of 84 were chartered . the company 's coastal tank barge fleet as of december 31 , 2016 consisted of 69 tank barges , including seven of which were leased , with 6.2 million barrels of capacity , and 75 tugboats , eight of which were chartered . this compares with 70 coastal tank barges operated as of december 31 , 2015 , eight of which were leased , with 6.0 million barrels of capacity , and 73 coastal tugboats , six of which were chartered . as of december 31 , 2016 and 2015 , the company operated six offshore dry-bulk cargo barge and tugboat units engaged in the offshore transportation of dry-bulk cargoes . the company also owns a shifting operation and fleeting facility for dry cargo barges and tank barges on the houston ship channel , as well as a two-thirds interest in osprey , which transports project cargoes and cargo containers by barge . 42 the following table sets forth the company 's marine transportation segment 's revenues , costs and expenses , operating income and operating margins for the three years ended december 31 , 2016 ( dollars in thousands ) : replace_table_token_8_th the following table shows the marine transportation markets serviced by the company , the marine transportation revenue distribution for 2016 , products moved and the drivers of the demand for the products the company transports : markets serviced 2016 revenue distribution products moved drivers petrochemicals 49 % benzene , styrene , methanol , acrylonitrile , xylene ,
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during this period oil production in north america 's unconventional shale reservoirs increased , as did oil production from other non-opec countries , resulting in an oversupply of crude oil in the world market . market prices for a barrel of west texas intermediate crude oil declined from over $ 100 in july 2014 to approximately $ 26 in february 2016 , and have recovered to approximately $ 55 today . with this decline in oil prices , oil and gas exploration and production companies experienced a significant reduction in cash flows , which resulted in sharp reductions in their capital spending budgets for oil and gas exploration-focused activities , including seismic data acquisition activities . our oil and gas markets segment is now seeing significant demand for the rental of our marine wireless nodal products ; however , the demand for new land-based seismic equipment in recent fiscal years has remained restrained due to capital limitations affecting many of our customers , along with their excess levels of underutilized equipment . as a result , revenue from the sale and rental of our land-based traditional and wireless 18 products has remained low due to reduced investment in exploration-focused seismic acti vities . we expect these challenging industry conditions will improve somewhat in fiscal year 2020 , however , we expect revenue from our traditional and land-based wireless products to remain below historical norms . in light of current market conditions , the inventory balances in our oil and gas markets business segment at september 30 , 2019 continued to exceed levels we consider appropriate for the current level of product demand . while we are aggressively working to reduce these legacy inventory balances , we are also adding new inventories for new wireless product developments and for other product demand in our adjacent markets segment . during periods of excessive inventory levels , our policy has been , and will continue to be , to record obsolescence expense as we experience reduced product demand and as our inventories continue to age . if difficult market conditions continue for the products in our oil and gas markets segment , we expect to record additional inventory obsolescence expense in fiscal year 2020 and beyond until product demand and or resulting inventory turnover return to acceptable levels . in december 2017 , we initiated a program to reduce operating costs in light of expected and continuing low levels of oil and gas product demand . the program produced approximately $ 6 million of annualized cash savings . the majority of these future cost reductions were realized through the reduction of over 60 employees from our houston area workforce . in connection with the workforce reductions , we incurred $ 0.7 million of termination costs in our first quarter of fiscal year 2018. the termination costs were recorded to both cost of revenue and operating expenses in the consolidated statement of operations . there are no outstanding liabilities related to this program as of september 30 , 2019. fiscal year 2019 compared to fiscal year 2018 consolidated revenue for fiscal year 2019 increased $ 20.1 million , or 26.5 % , from fiscal year 2018. the increase in revenue primarily resulted from increased rental revenue in our oil and gas markets segment from our obx marine nodal products . consolidated gross profit for fiscal year 2019 was $ 31.4 million , compared to $ 11.0 million for fiscal year 2018. the increase in gross profit primarily resulted from a significant increase in wireless product rental revenue caused by the high utilization of our expanding obx rental fleet and a decline in unutilized factory costs due to higher manufacturing productivity from production of obx nodes . while factory utilization has recently increased due to demand for the rental of our obx marine nodal products , we expect our consolidated gross margins from the sale of our oil and gas markets products to remain below historic norms until demand increases significantly for our land-based traditional and wireless seismic products . consolidated operating expenses for fiscal year 2019 were $ 37.4 million , an increase of $ 5.7 million , or 18.1 % , from fiscal year 2018. the increase in operating expenses was primarily due to incremental operating costs associated with our recent acquisitions of the quantum and optoseis ® businesses . for fiscal year 2019 , operating expenses increased $ 7.1 million due to acquisition-related operating costs , inclusive of intangible asset amortization expenses of $ 1.5 million . these acquisition-related increases in operating expenses were partially offset by a $ 2.1 million net non-cash reduction in the estimated fair value of contingent earn-out consideration related to our quantum and optoseis ® acquisitions . the balance of the increased operating expenses relates to personnel wage increases and other general expense increases related to our business operations . in august 2019 , we sold our real property located at 7334-7340 n. gessner road in houston , texas for a cash sales price of $ 8.3 million . we recognized a gain of $ 7.0 million from the sale of this property in the fourth quarter of fiscal year 2019. the buyer had previously occupied the property as a tenant under a long-term lease . consolidated other income for fiscal year 2019 increased $ 0.3 million from fiscal year 2018 , or 30.2 % from fiscal year 2018. this increase was primarily due to ( i ) an increase in interest charged to a customer for the late payment of our invoices and ( ii ) a decrease in foreign currency hedge financing fees . these increases in other income were partially offset by a decrease in foreign exchange gains . consolidated income tax expense for fiscal year 2019 was $ 2.4 million compared to a tax benefit of $ 0.6 million for fiscal year 2018. the income tax expense in fiscal year 2019 primarily reflects foreign withholding tax assessed on our rental income . the income tax benefit for fiscal year 2018 primarily reflects a $ 0.7 million refund resulting from the filing of an amended u.s. story_separator_special_tag tax return . we are currently unable to record any tax benefits from the tax losses we incur in the u.s. and canada due to the uncertainty surrounding our ability to utilize such losses in the future to offset taxable income . 19 story_separator_special_tag industry . opec and other crude oil producing/exporting nations appear united in their efforts to maintain equilibrium between current worldwide crude oil supply and demand . if worldwide crude oil supplies and associated prices stabilize , these factors and developing trends bode well for the oil and gas industry and we expect to participate in any resurgence in demand for new seismic equipment that may be forthcoming . while we are seeing some signs of increased seismic activity in certain areas around the world , the need for new seismic equipment remains restrained due to capital limitations affecting many of our customers along with excessive on-hand quantities of under-utilized seismic equipment . we expect product sales of our oil and gas markets products , and in particular our legacy land-based traditional and wireless products , to remain low until exploration-focused seismic activities increase , which we believe will eventually result from the ongoing depletion of existing reservoirs prompting the need to find new sources of oil and gas . we expect these challenging industry conditions facing our land-based traditional and legacy wireless products will continue in fiscal year 2020. our trade accounts receivable at september 30 , 2019 include $ 8.5 million due from an international seismic marine customer that , as of september 30 , 2019 rented a significant amount of our marine nodal equipment . we experienced cash collection difficulties with this customer throughout fiscal year 2019 due to the customer 's inability to generate enough cash flow to pay its obligations to us in a timely manner . in november 2019 , we accepted from the customer a plan to bring our current and future unpaid invoices to a satisfactory status . this plan contemplates completion during our second fiscal quarter ending march 31 , 2020 , and is premised upon the customer 's ( i ) projections of free cash flows from an existing contract with a third-party and ( ii ) potential access to capital transactions and or future borrowing availability from its bank . while we have significant concerns about the ultimate collection of this customer 's accounts receivable , we have not , and do not currently intend to , provide any significant bad debt 21 reserves toward this customer 's outstanding accounts receivable balance unless and until it becomes probable ( in our judgement ) that the customer can not ( i ) generate free cash flows from its existing contract and ( ii ) complete capital tr ansactions and or borrow from its bank . our available cash and cash equivalents totaled $ 18.9 million at september 30 , 2019 , which included $ 7.0 million of cash and cash equivalents held by our foreign subsidiaries and branch offices . the tax cuts and jobs act signed into law on december 22 , 2017 , creates new taxes on certain foreign earnings and also requires companies to pay a one-time transition tax on undistributed earnings of their foreign subsidiaries which were previously tax deferred . we have determined that we are not required to pay any transition tax on the undistributed earnings of our foreign subsidiaries since we had no accumulated earnings on a consolidated basis . our credit agreement allows for borrowings of up to $ 30.0 million with such amounts available for borrowing determined by a borrowing base . in november 2018 , we extended the maturity of the credit agreement from april 2019 to april 2020. in march 2019 , we entered into an amendment to the credit agreement that altered the unencumbered liquid assets covenant to ( i ) reduce the minimum threshold from $ 10 million to $ 5 million and ( ii ) include unencumbered liquid assets held outside the united states . the amendment also added another financial covenant that requires us to maintain a tangible net worth of not less than $ 140 million . additionally , pursuant to the amendment , our principal place of business and the related real estate , located at 7007 pinemont drive , houston , texas was added as collateral securing our obligations under the credit agreement . in november 2019 , we further amended the credit agreement to ( i ) extend the maturity date from april 2020 to april 2022 , ( ii ) increase the unencumbered liquid assets covenant threshold from $ 5 million to $ 10 million effective in the first quarter of fiscal year 2021 , ( iii ) to increase the tangible net worth requirement from $ 140 million to $ 145 million in the first quarter of fiscal year 2021 and ( iv ) remove the requirement that we obtain the consent of frost bank prior to paying dividends or repurchasing stock so long as we are in compliance with the covenants of the credit agreement . at september 30 , 2019 , we had no outstanding borrowings under the credit agreement and our borrowing availability under the credit facility was $ 27.0 million . at september 30 , 2019 , we were in compliance with all covenants under the credit agreement . we currently do not anticipate the need to borrow under the credit agreement ; however , we can make no assurance that we will not do so . in august 2019 , we sold our real property located at 7334 n. gessner in houston , texas for $ 8.3 million . we recognized a $ 7.0 million gain on the disposal of the property in the fourth quarter of fiscal year 2019. the buyer occupied the property as a tenant under a long-term lease . the property was not strategic to our ongoing operations .
| adjacent markets fiscal year 2019 compared to fiscal year 2018 revenue revenue from our adjacent markets products for fiscal year 2019 increased $ 0.2 million , or 0.7 % , from the prior fiscal year . the components of this increase included the following : industrial product revenue and services – revenue from our industrial products decreased $ 28,000 , or 0.2 % from the prior fiscal year . the decrease in revenue primarily attributable to lower demand for our water meter products . these decreases were partially offset by increased demand for our industrial sensor products . imaging product revenue – revenue from our imaging products increased $ 0.3 million , or 2.2 % , from the prior fiscal year . the increase was primarily due to higher demand for our equipment and film products . we consider this small change in revenue to be normal and not indicative of any particular trend in product demand . operating income the operating income from our adjacent markets products for fiscal year 2019 increased $ 0.9 million or 16.6 % , from the prior fiscal year . the increase in operating income resulted from efficiencies gained in our manufacturing efforts and lower operating personnel costs . emerging markets fiscal year 2019 compared to fiscal year 2018 revenue on july 27 , 2018 , we entered the border and perimeter security market through our acquisition of quantum . in connection with the quantum acquisition , we established the emerging markets business segment , which currently includes only quantum . revenue from our emerging markets products for fiscal year 2019 decreased $ 0.1 million , or 44.4 % , from the prior fiscal year . the 20 decrease in revenue prima rily resulted from the completion of contracts that existed when quantum was acquired . quantum did not receive any significant border and perimeter security contracts during fiscal year 2019. operating loss our operating loss from our emerging markets products for fiscal year 2019 increased $ 1.6 million , or 221.2 % from
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some of these non-covering payors are reevaluating coverage given the latest data , but there can be no assurance they will reach positive coverage decisions . our sales force we market and sell ifuse primarily through a direct sales force and a small number of third-party distributors . our target customer base includes approximately 7,500 surgeons who perform spine and or pelvic surgery , including orthopedic spine surgeons , neurosurgeons , general orthopedic surgeons , and orthopedic trauma surgeons . our direct sales organization in the united states was comprised of seven sales regions as of december 31 , 2018. each region is comprised of a number of territory sales managers who act as the primary customer contact . our territory sales managers have extensive training and experience selling medical devices for spine problems and pain management , generally focusing on emerging technologies and markets . for large and or high volume territories , we also employ territory associate representatives who cover cases . as of december 31 , 2018 , our territory sales managers were led by seven regional sales directors who reported to our vice president of u.s. sales . the vice president of u.s. sales reports to our chief commercial officer . as of december 31 , 2018 , our u.s. sales force consisted of 45 sales representatives directly employed by us , and 30 third-party distributors . in addition to general sales and marketing training , we provide our sales organization with comprehensive , hands-on cadaveric and dry-lab training sessions focusing on the clinical benefits of our products and how to use them . we believe our robust training and professional development programs have been an important component of our success to date and will help support our anticipated future growth . we expect to continue to increase the size of our sales organization in order to increase sales and market penetration and to provide the significant , ongoing level of customer support required by our sales and marketing strategy . as of december 31 , 2018 , we had 28 employees working in our european operations , and have established operations in italy ( 2010 ) , germany ( 2014 ) , and the united kingdom ( 2015 ) . as of december 31 , 2018 , our international sales force consisted of 14 sales representatives directly employed by us and 23 exclusive third-party distributors , which together had sales in 33 countries through december 31 , 2018. we anticipate continuing to build our operations in the major european countries while establishing distributor arrangements in smaller ones . we intend to follow a similar model in europe to the one established in the united states , working with internationally recognized healthcare professional experts as we expand our training and reimbursement activities . as of december 31 , 2018 , beyond europe and the united states , surgeons had performed the first ifuse procedures in australia , cayman islands , hong kong , israel , japan , kuwait , new zealand , saudi arabia , taiwan and turkey . we have in the past and expect in the future to enter into different compensation arrangements with our sales professionals , which may include minimum guaranteed commissions . this has impacted our compensation expenses in the past and we expect it will in the future . components of results of operations revenue we derive substantially all our revenue from sales of ifuse . revenue from sales of ifuse fluctuate based on volume of cases ( procedures performed ) , discounts , mix of international and u.s. sales , and the number of implants used for a particular patient . similar to other orthopedic companies , our revenue can also fluctuate from quarter to quarter due to a variety of factors , including reimbursement , sales force changes , physician activities , and seasonality . our revenue from international sales may also be significantly impacted by fluctuations in foreign currency exchange rates between the u.s. dollar ( our reporting currency ) and the local currency . cost of goods sold , gross profit , and gross margin we utilize third-party manufacturers for production of the ifuse implants and instrument sets . cost of goods sold consists primarily of costs of the components of ifuse implants and instruments , scrap and inventory obsolescence , and distribution-related expenses such as logistics and shipping costs . we anticipate that our cost of goods sold will increase in absolute dollars as case levels increase . our gross profit has been and will continue to be affected by a variety of factors , including the cost to have our products manufactured , pricing pressure from increasing competition , and the factors described above impacting our revenue . our gross margins are typically higher on products we sell directly as compared to products we sell through third-party distributors . as a result , changes in the mix of direct versus distributor sales can directly influence our gross margins . 74 in accordance with the patient protection and affordable care act , effective january 1 , 2013 , we began to incur an excise tax on sales of medical devices in the united states . effective december 2015 , the act was amended to include a provision to suspend the tax on medical devices through 2017. in january 2018 , the suspension on the tax on medical devices was further extended through 2019. operating expenses our operating expenses consist of sales and marketing , research and development , and general and administrative expenses . personnel costs are the most significant component of operating expenses and consist of salaries , sales commissions and other cash and stock-based compensation related expenses . we expect operating expenses to increase in absolute dollars as we continue to invest and grow our business , but we anticipate that it will decrease as a percentage of revenue over time . in september 2017 , we implemented cost-saving measures , which reduced our operational expenses though headcount reductions , reduced project spending , and more targeted marketing and surgeon training activities . story_separator_special_tag sales and marketing expenses sales and marketing expenses primarily consist of salaries , stock-based compensation expense , and other compensation related costs , for personnel employed in sales , marketing , medical affairs , and professional education departments . in addition , our sales and marketing expenses include commissions and bonuses , generally based on a percentage of sales , to our sales managers and directors , direct sales representatives and third-party distributors . we expect our sales and marketing expenses to increase in absolute dollars with the continued commercialization of our current and future products and continued investment in our global sales organization , including broadening our relationships with third-party distributors , expanding exclusivity commitments among them and increasing the number of our direct sales representatives , especially with increased reimbursement and adoption in the united states . our sales and marketing expenses may fluctuate from period to period due to the seasonality of our business and as we continue to add direct sales representatives in new territories . research and development expenses our research and development expenses primarily consist of engineering , product development , clinical and regulatory expenses ( including clinical study expenses ) , and consulting services , outside prototyping services , outside research activities , materials , depreciation , and other costs associated with development of our products . research and development expenses also include related personnel and consultants ' compensation and stock-based compensation expense . we expense research and development costs as they are incurred . we expect research and development expense to increase in absolute dollars as we develop new products , add research and development personnel , and undergo clinical activities , including more clinical studies to gain additional regulatory clearances and wider surgeon adoption . general and administrative expenses general and administrative expenses primarily consist of compensation , stock-based compensation expense , and other costs for finance , accounting , legal , compliance , reimbursement , and administrative matters . we expect our general and administrative expenses to increase in absolute dollars to support the growth of our business . we also expect to incur additional general and administrative expenses as a result of operating as a public company , including but not limited to : expenses related to compliance with the rules and regulations of the securities and exchange commission and those of the nasdaq global market on which our securities are traded ; additional insurance expenses ; investor relations activities ; and other administrative and professional services . while we expect the general and administrative expenses to increase in absolute dollars , we anticipate that it will decrease as a percentage of revenue over time . interest expense interest expense is related to borrowings and includes the amortization of debt discounts derived from the issuance of warrants . other income ( expense ) , net other income ( expense ) , net consists primarily of the changes in fair value of our preferred stock warrant liability and net gain ( loss ) on foreign currency transactions . in connection with our initial public offering , or ipo , our preferred stock warrant liability was reclassed to equity as a result of the preferred stock warrants being converted to common stock warrants . 75 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 97.1 million . since inception , we have financed our operations through our initial public offering , private placements of preferred stock , debt financing arrangements , and the sale of our products . as of december 31 , 2018 , we had $ 39.0 million principal amount of outstanding debt , net of debt discounts . as of december 31 , 2018 , we had an accumulated deficit of $ 157.2 million . during the years ended december 31 , 2018 and 2017 , we incurred a net loss of $ 17.5 million and $ 23.0 million , respectively , and expect to incur additional losses in the future . we have not achieved positive cash flow from operations to date . the debt covenants associated with our current debt agreement required us to maintain a minimum cash balance of $ 5.0 million and achieve certain revenue targets , which we were in compliance with as of december 31 , 2018. beginning with the three months ended march 31 , 2019 , we are required to meet either revenue or earnings targets . if we do not comply with these covenants , the debt will immediately become due . 78 based upon our current operating plan , we believe that our existing cash , cash equivalents and short-term investments will enable us to fund our operating expenses and capital expenditure requirements through at least the next 12 months . we continue to face challenges and uncertainties and , as a result , our available capital resources may be consumed more rapidly than currently expected due to : ( a ) decreases in sales of our products and the uncertainty of future revenues from new products ; ( b ) changes we may make to the business that affect ongoing operating expenses ; ( c ) changes we may make in our business strategy ; ( d ) regulatory developments affecting our existing products ; ( e ) changes we may make in our research and development spending plans ; and ( f ) other items affecting our forecasted level of expenditures and use of cash resources . if we need to raise additional capital to fund our operations , funding may not be available to us on acceptable terms , or at all . if we are unable to obtain adequate financing when needed , we may have to delay , reduce the scope of or suspend one or more of our sales and marketing efforts , research and development activities , or other operations . we may seek to raise any necessary additional capital through a combination of public or private equity offerings , debt financings , and collaborations or licensing arrangements .
| gross profit increased $ 7.7 million , or 18 % , to $ 50.5 million for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 due to higher revenue and lower cost of goods sold , resulting in an increase in gross margin to 91 % compared to 89 % for the respective periods . operating expenses replace_table_token_6_th 77 sales and marketing expenses . sales and marketing expenses increased $ 2.9 million , or 7 % , for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 . the increase was primarily due to an increase of $ 1.2 million in salaries and other employee incentive expense and related costs as a result of improved company performance during the period , $ 0.7 million in additional general operational costs , $ 0.5 million in travel expense as a result of an increase in field sales personnel , $ 0.6 million in increased commissions ( net of lower minimum guaranteed commissions ) , and $ 0.2 million in distributor commissions due to higher revenues . these increases were partially offset by a decrease of $ 0.4 million in general marketing expenses . research and development expenses . research and development expenses decreased $ 0.1 million , or 2 % , for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 . the decrease was primarily due to a reduction of $ 0.3 million in salaries and related expenditures from lower headcount and $ 0.2 million in clinical trial expense as the insite and sifi studies mature . these reductions were partially offset by an increase in prototype materials and supplies for new product development of $ 0.4 million . general and administrative expenses . general and administrative expenses decreased $ 0.4 million , or 3 % , for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 . the decrease was primarily due to $ 1.3 million of offering costs written off in september 2017 from delays in the
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as homes close , we compare the home construction budget to actual recorded costs to date to estimate the additional costs to be incurred from our subcontractors related to the home . we record a liability and a corresponding charge to cost of sales for the amount we estimate will ultimately be paid related to that home . we monitor the accuracy of such estimates by comparing actual costs incurred in subsequent months to the estimate . although actual costs to complete a home in the future could differ from our estimates , our method has historically produced consistently accurate estimates of actual costs to complete closed homes . inventory is recorded at cost , unless events and circumstances indicate that the carrying value of the land is impaired , at which point the inventory is written down to fair value as required by financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 360-10 , property , plant and equipment ( “ asc 360 ” ) . the company assesses inventory for recoverability on a quarterly basis if events or changes in local or national economic conditions indicate that the carrying amount of an asset may not be recoverable . in conducting our quarterly review for indicators of impairment on a community level , we evaluate , among other things , margins on sales contracts in backlog , the margins on homes that have been delivered , expected changes in margins with regard to future home sales over the life of the community , expected changes in margins with regard to future land sales , the value of the land itself as well as any results from third-party appraisals . from the review of all of these factors , we identify communities whose carrying values may exceed their estimated undiscounted future cash flows and run a test for recoverability . for those communities whose carrying values exceed the estimated undiscounted future cash flows and which are deemed to be impaired , the impairment recognized is measured by the amount by which the carrying amount of the communities exceeds the estimated fair value . due to the fact that the company 's cash flow models and estimates of fair values are based upon management estimates and assumptions , unexpected changes in market conditions and or changes in management 's intentions with respect to the inventory may lead the company to incur additional impairment charges in the future . because each inventory asset is unique , there are numerous inputs and assumptions used in our valuation techniques , including estimated average selling price , construction and development costs , absorption pace ( reflecting any product mix change strategies implemented or to be implemented ) , selling strategies , alternative land uses ( including disposition of all or a portion of the land owned ) , or discount rates , which could materially impact future cash flow and fair value estimates . as of december 31 , 2016 , our projections generally assume a gradual improvement in market conditions . if communities are not recoverable based on estimated future undiscounted cash flows , the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets . the fair value of a community is estimated by discounting management 's cash flow projections using an appropriate risk-adjusted interest rate . as of december 31 , 2016 , we utilized discount rates ranging from 13 % to 16 % in our valuations . the discount rate used in determining each asset 's estimated fair value reflects the inherent risks associated with the related estimated cash flow stream , as well as current risk-free rates available in the market and estimated market risk premiums . our quarterly assessments reflect management 's best estimates . due to the inherent uncertainties in management 's estimates and uncertainties related to our operations and our industry as a whole as further discussed in “ item 1a . risk factors ” in part i of this annual report on form 10-k , we are unable to determine at this time if and to what extent continuing future impairments will occur . additionally , due to the volume of possible outcomes that can be generated from changes in the various model inputs for each community , we do not believe it is possible to create a sensitivity analysis that can provide meaningful information for the users of our financial statements . land option or purchase agreements . in accordance with asc 810-10 , consolidation ( “ asc 810 ” ) , we analyze our land option or purchase agreements to determine whether the corresponding land seller is a variable interest entity ( “ vie ” ) and , if so , whether we are the primary beneficiary ( using an analysis similar to that described in note 1 of our consolidated financial statements within the description of our significant accounting policy for vies ) . although we do not have legal title to the optioned land , 24 asc 810 requires a company to consolidate a vie if the company is determined to be the primary beneficiary . in cases where we are the primary beneficiary , even though we do not have title to such land , we are required to consolidate these purchase/option agreements and reflect such assets and liabilities as consolidated inventory not owned on our consolidated balance sheets . at both december 31 , 2016 and 2015 , we have concluded that we were not the primary beneficiary of any vies from which we are purchasing under land option or purchase agreements . please refer to note 1 of our consolidated financial statements and the “ off-balance sheet arrangements ” section below for additional information related to our off-balance-sheet arrangements . warranty reserves . we record warranty reserves to cover our exposure to the costs for materials and labor not expected to be covered by our subcontractors to the extent they relate to warranty-type claims . story_separator_special_tag warranty reserves are established by charging cost of sales and crediting a warranty reserve for each home delivered . the warranty reserves for the company 's home builder 's limited warranty ( “ hblw ” ) are established as a percentage of average sales price and adjusted based on historical payment patterns determined , generally , by geographic area and recent trends . factors that are given consideration in determining the hblw reserves include : ( 1 ) the historical range of amounts paid per average sales price on a home ; ( 2 ) type and mix of amenity packages added to the home ; ( 3 ) any warranty expenditures not considered to be normal and recurring ; ( 4 ) timing of payments ; ( 5 ) improvements in quality of construction expected to impact future warranty expenditures ; and ( 6 ) conditions that may affect certain projects and require a different percentage of average sales price for those specific projects . changes in estimates for warranties occur due to changes in the historical payment experience and differences between the actual payment pattern experienced during the period and the historical payment pattern used in our evaluation of the warranty reserve balance at the end of each quarter . actual future warranty costs could differ from our current estimated amount . our warranty reserves for our 30-year ( offered on all homes sold after april 25 , 1998 and on or before december 1 , 2015 in all of our markets except our texas markets ) , 15-year ( offered on all homes sold after december 1 , 2015 in all of our markets except our texas markets ) or 10-year ( offered on all homes sold in our texas markets ) transferable structural warranty programs are established on a per-unit basis . while the structural warranty reserve is recorded as each house is delivered , the sufficiency of the structural warranty per unit charge and total reserve is reevaluated on an annual basis , with the assistance of an actuary , using our own historical data and trends , as well as industry-wide historical data and trends , and other project specific factors . the reserves are also evaluated quarterly and adjusted if we encounter activity that is not consistent with the historical experience used in the annual analysis . these reserves are subject to variability due to uncertainties regarding structural defect claims for products we build , the markets in which we build , claim settlement history , insurance and legal interpretations , among other factors . while we believe that our warranty reserves are sufficient to cover our projected costs , there can be no assurances that historical data and trends will accurately predict our actual warranty costs . the increase in warranty reserves from 2015 to 2016 is related to stucco-related repairs in certain of our florida communities . please refer to note 1 and note 8 of our consolidated financial statements for additional information related to our warranty reserves . self-insurance reserves . self-insurance reserves are made for estimated liabilities associated with employee health care , workers ' compensation , and general liability insurance . the reserves related to employee health care and workers ' compensation are based on historical experience and open case reserves . our workers ' compensation claims and our general liability claims are insured by a third party , except for workers compensation claims made in the state of ohio where the company is self-insured . the company records a reserve for general liability claims falling below the company 's deductible . the reserve estimate is based on an actuarial evaluation of our past history of general liability claims , other industry specific factors and specific event analysis . because of the high degree of judgment required in determining these estimated accrual amounts , actual future costs could differ from our current estimated amounts . please refer to note 1 of our consolidated financial statements for additional information related to our self-insurance reserves . stock-based compensation . we measure and recognize compensation expense associated with our grant of equity-based awards in accordance with asc 718 , compensation-stock compensation ( “ asc 718 ” ) , which generally requires that companies measure and recognize stock-based compensation expense in an amount equal to the fair value of share-based awards granted under compensation arrangements over the related vesting period . as discussed further in notes 1 and 2 of our consolidated financial statements , we have granted share-based awards to certain of our employees and directors in the form of stock options , director stock units and performance share units ( “ psu 's ” ) . determining the fair value of share-based awards requires judgment to identify the appropriate valuation model and develop the assumptions . the grant date fair value for stock option awards and psu 's with a market condition ( as defined in asc 718 ) is estimated using the black-scholes option pricing model and the monte carlo simulation methodology , respectively . the grant date fair value for the director stock units and psu 's with a performance condition ( as defined in asc 718 ) is based upon the closing price of our common shares on the date of grant . we recognize stock-based compensation expense for our stock option awards and psu 's with a market condition over the requisite service period of the award while stock-based compensation expense for our director stock units , which vest immediately , is fully recognized in the period of the award . for the portion of the psu 's 25 awarded subject to the satisfaction of a performance condition , we recognize compensation expense on a straight-line basis over the performance period based on the probable outcome of the related performance condition . if satisfaction of the performance condition is not probable , compensation expense recognition is deferred until probability is attained and a cumulative stock-based compensation expense adjustment is recorded and recognized ratably over the remaining service period .
| income before income taxes for 2016 was unfavorably impacted by a $ 19.4 million charge for known and estimated future stucco-related repair costs in certain of our florida communities ( as more fully discussed below and in note 8 ) , asset impairment charges of $ 4.0 million , and a $ 2.6 million reduction in land sale profit in 2016 ( $ 4.1 million ) compared to 2015 ( $ 6.7 million ) . income before income taxes for 2015 was unfavorably impacted by a $ 7.8 million charge for early extinguishment of debt and asset impairment charges of $ 3.6 million . excluding stucco-related charges for 2016 , the debt extinguishment charge for 2015 , and impairment charges and land sale profits in both periods , adjusted income before income taxes increased 21 % from $ 91.7 million in 2015 to $ 111.1 million in 2016 . the calculations of adjusted income before income taxes and adjusted housing gross margin ( referred to below ) , which we believe provide a clearer measure of the ongoing performance of our business , are described and reconciled to income before income taxes and housing gross margin , the financial measures that are calculated using our gaap results , below under “ non-gaap financial measures. ” summary of company financial results in 2016 in 2016 , we achieved net income to common shareholders of $ 51.7 million , or $ 1.84 per diluted share . this compares to net income to common shareholders of $ 46.9 million , or $ 1.68 per diluted share in 2015 . net income in each period included $ 4.9 million in dividend payments made to holders of our series a preferred shares . in 2016 , we recorded total revenue of $ 1.69 billion , of which $ 1.61 billion was from homes delivered , $ 38.8 million was from land sales , and $ 42.0 million was from our financial services operations . revenue from homes delivered
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the cfda has enhanced its approval criteria and processes , resulting in additional supplemental materials and trials , higher cost , and longer approval time for certain applications across all the pharmaceutical products including all of our product types . we commenced leading formulation screening , new technology exploration , technical criteria improvement activities in 2013. we expect this new model will improve our exploration channels for the pipeline products . the following is a list of the current status of some of our pipeline products : ● antibiotic combination - we completed the phase i clinical trials of our novel cephalosporin-based combination antibiotic . we are currently in phase ii of the clinical trial , due to the higher regulatory requests for clinical works . ● rosuvastatin - rosuvastatin is a generic form of crestor , a drug for the treatment of high blood cholesterol levels . clinical trials for this generic drug were completed in the fourth quarter of 2010 and we have submitted an application for production approval , and are performing supplemental trials of related materials pursuant to the new criteria . ● heart disease drug - we developed an oral solution for the treatment of coronary heart disease in our new product pipeline . this product comes with a patented traditional chinese medicine ( tcm ) formula and is currently approaching the end point of phase iii clinical trials . we have completed the upgrading of our existing tablets and capsules production line in our old facility and received new gmp certificate in january 2015. and we have begun reforming and upgrading our existing dry powder injectables production line , cephalosporin production line , and granules production line in 2015 to meet the new gmp standards . market trends the year of 2014 was a year of adjustments , challenges and opportunities for the pharmaceutical industry in china . with the demographic dividend ( due to the fact that the working-age population accounts for a relatively large proportion of the total population and the dependency ratio is relatively low , the favorable population conditions for economic development with high savings , high investment and high growth is created ) gradually receded , the pharmaceutical industry is facing many challenges : external pressures from health care expenditure and drug price controls , internal fierce competition among pharmaceutical companies , and the growth pressure within the pharmaceutical companies . southern medicine economic institute data promulgated by cfda indicates that in 2014 the pharmaceutical industry output growth is expected to be only about 13 % , far below over the 20 % growth in the past . 46 it is noteworthy that in 2014 there were certain state policy changes , such as the intention to release the control over drug prices , the restriction release on internet drug sales , and the promotion on market-oriented reform of health care , which invigorated the traditional chinese medicine industry . the logic behind these policies was to allow the market to play a decisive role in the allocation of resources , so as to improve operational efficiency and solve the problem of the inaccessibility of medicine and medical care which was experienced by a lot of people . the development of the pharmaceutical industry seems to fit the characteristics of the new normal chinese economy : growth enters into the shift period , from high-speed growth to the medium-speed growth and the development of the industry relies on reformation , restructuring and innovation . currently , the health insurance fund spending accounts for more than 30 % of total health expenditure , which is one of the main forces driving the development of the pharmaceutical industry in recent years . however , faced with huge health care expenses , the health insurance fund shortfall problem needs to be addressed urgently . medicare cost control has been the focus of the market . from the current situation , it will become a trend . the national development and reform commission issued `` promote drug price reform program ( draft ) '' on november 25 , 2014 , which intends to control medical costs through medicare spending and bidding , form drug prices by market competition , and abolish the maximum retail price restriction of drugs from january 1 , 2015. some analysts believe that , when this reform program is implemented , the weight of medicare rights will be enhanced and the bargaining power of medical institutions and other relevant parties will also be improved . consequently , our whole industry will face even more severe price pressure . china 's pharmaceutical industrial output growth continued to slow down from the second half of 2013. in addition , the industry growth in 2014 experienced significant decline compared to the previous years due to certain medicare cost controls , and the upgrading requirements under the new gmp standards . the company believes that this trend will continue . southern medicine economic institute promulgated by cfda predicts by 2015 china 's pharmaceutical industry output growth of 15 % , sales growth of 13 % , and profit growth of 11 % . concerning the terminal market , china 's pharmaceutical terminal market is expected to reach rmb 1.2457 trillion in 2014 , up 13.4 % ; 2015 pharmaceutical terminal market will reach rmb 1.407 trillion , an increase of 12.9 % . 47 results of operations for the fiscal year ended december 31 , 2014 china provides a unique opportunity to its pharmaceutical industry ; however , real challenges remain , from temporary production suspension due to certain compulsory new gmp upgrading requirements and rising pricing pressure , to extended regulatory review time for new medical production applications . each of these challenges impacted our performance negatively in 2014 , causing us to experience a significant decrease in our financial results . net loss for the year ended december 31 , 2014 was $ 26.0 million , compared to net loss of $ 20.0 million for the year ended december 31 , 2013.our story_separator_special_tag net loss for the year ended december 31 , 2014 was mainly due to a significant decrease in revenue and an increase in bad debt expense . revenue revenue decreased by 24 % to $ 24.9 million for the year ended december 31 , 2014 , as compared to $ 32.8 million for the year ended december 31 , 2013. this decrease primarily resulted from decreases in sales of our cns cerebral & cardio vascular products and our anti-viro/infectious & respiratory products . set forth below are our revenues by product category in millions usd for the years ended december 31 , 2014 and 2013 : replace_table_token_4_th the most significant revenue decrease in terms of dollar amount was in our “ cns cerebral & cardio vascular ” product category , which generated $ 4.4 million in sales revenue in 2014 compared to $ 7.2 million a year ago , a decrease of $ 2.8 million . this decrease was mainly due to having injectables as the main product in this category . the suspension of the two injectables product lines during 2014 negatively impacted our sales performance . sales of the “ anti-viro/infection & respiratory ” category decreased by $ 1.8 million to $ 16.4 million in 2014 compared to $ 18.2 million in 2013 , which was mainly due to the decrease in sales of andrographolide and clarithromycin , primarily affected by market demand volatility . our “ digestive diseases ” category generated $ 1.3 million of sales in 2014 , compared to $ 2.9 million in the previous year , a decrease of $ 1.6 million . our “ other ” product category sales fell to $ 2.8 million from $ 4.5 million , a decrease of $ 1.7 million . 48 for year ended december 31 , 2014 , revenue breakdown by product category showed some changes . sales of the “ anti-viro & respiratory ” products category represented 66 % of total sales in the year ended on december 31 , 2014 , compared to 55 % in 2013. the “ cns , cerebral & cardio vascular ” category represented 18 % of total revenue in 2014 and 22 % in 2013. the “ digestive diseases ” category represented 5 % of total revenue in 2014 compared to 9 % in 2013. the “ other ” category represented 11 % and 14 % of revenues in 2014and 2013 , respectively . cost of revenue for the year ended december 31 , 2014 , our cost of revenue was $ 17.2 million , or 69 % of total revenue , which represented a decrease of $ 6.2 million from $ 23.4 million , or 71 % of total revenue , in 2013. the decrease in cost of revenue during 2014 was approximately proportional to the revenue decrease . inventory obsolescence we have had decreases in the sales estimates between the time when raw materials were purchased and the time when the sales performance is realized for certain products . we have also assessed the fair value of our raw material . as a result , we determined that certain inventory was slow moving or obsolete . based on the developed estimates as of december 31 , 2014 and 2013 , we recognized an additional inventory obsolescence expense of $ 2.3 million and $ 9.9 million for the years ended december 31 , 2014 and 2013 , respectively . gross profit ( loss ) and gross ( loss ) margin gross profit for the year ended december 31 , 2014 was $ 5.5 million , compared to gross loss of $ 0.5 million in 2013. our gross profit margin in 2014 was 22.0 % compared to gross loss margin of ( 1.5 ) % in 2013. without the effect of inventory obsolescence , management estimates that our gross profit would have been approximately 30.9 % in 2014 and 28.7 % in 2013. the healthcare reform instituted by the chinese government since 2009 contains pricing controls , which have resulted in margin compression in most pharmaceutical products on the market today , especially in the generic space where many of our products are sold . going forward , we expect to see continued pricing pressures on most products , while new products could help support overall gross margin once they are launched . selling expenses our selling expenses for the year ended december 31 , 2014 and 2013 were both $ 3.3 million . selling expenses accounted for 13.4 % of the total revenue in 2014 compared to 10 % in 2013. due to many adjustments in our selling processes under healthcare reform policies , despite the decrease in sales , we still need additional personnel and expenses to support the sales and collection of accounts receivable . 49 story_separator_special_tag : 8pt '' > 51 loss from operations our operating loss for the year ended december 31 , 2014 was $ 25.3 million , compared to operating loss of $ 18.6 million in 2013. the main reasons for the increase in loss were lower revenue and higher bad debt expenses in 2014. net interest expense net interest expense for the year ended december 31 , 2014 was $ 785,804 , compared to $ 340,239 in 2013 , an increase of $ 437,108. the increase is primarily due to the additional interest incurred in conjunction with the construction loan facility as discussed in note 10 to the consolidated financial statements . income tax expense for the years ended december 31 , 2014 and 2013 , our income tax rate was 15 % . income tax expense was $ 0.8 million and $ 1.1 million for the years ended december 31 , 2014 and 2013 , respectively .
| as a result , the company recognized additional bad debt expense of approximately $ 0.53 million for the year ended december 31 , 2014. during 2013 , management negotiated settlement offers with certain customers with approximately $ 8.0 million in accounts receivable balances that were greater than one ( 1 ) year past due . the offers to these customers were comprised of discounts ranging from 15 % to 30 % of the total past due balance in exchange for payment in full by december 31 , 2013. as a result , the company was able to collect cash of approximately $ 5.85 million , and recognized additional bad debt expenses for the negotiated discounts of approximately $ 2.1 million for the year ended december 31 , 2013. in general , our normal credit or payment terms extended to customers are 90 days . this has not changed in recent years . due to the peculiarity of the chinese pharmaceutical market environment , deferred payments to pharmaceutical companies by state-owned hospitals and local medicine distributors are a normal phenomenon . our customers are primarily pharmaceutical distributors who sell our products to mostly government-backed hospitals . therefore , the ages of our receivables from our customers tend to be long . although these customers typically pay after the due date of the receivables , since the majority of hospitals in china are backed by the governments , management believes that the deferred payments from state-owned hospitals are relatively secured . 50 the amount of accounts receivable that were past due ( or the amount of accounts receivable that were more than 90 days old ) was $ 23.6 million and $ 40.1 million as of december 31 , 2014 and 2013 , respectively . the following table illustrates our accounts receivable aging distribution in terms of percentage of total accounts receivable as of december 31 , 2014 and 2013 : replace_table_token_5_th our bad debt allowance estimate is currently the sum of 3.5 % of accounts receivable that
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we believe that our focus on recruiting and retaining top lotus expertise positions our team to offer leading-edge lotus notes / domino subject matter knowledge to our customers . gbs consultants have an average of over 12 years ' experience each in lotus notes/domino and its related products and are routinely asked to present at ibm lotus events including lotusphere ( connect ) , an annual conference hosted by ibm lotus software . as a premier ibm business partner , gbs is one of the few partners that can sell and support licenses for all five ibm software brands : lotus , websphere , rational , tivoli , and db2 . market trends as it departments face continuous budget reductions and constant pressure for higher performance and efficiency , cios are focusing on modern technologies to support their need for increased scalability , flexibility and lower costs . gbs has identified this demand as a strategic growth opportunity for the company and has placed a significant focus on expanding its modernizing/migrating technology . gbs lotus application modernization and migration gbs lotus application modernization and migration activities are focused on the ibm lotus / domino applications market and the offering spans from expert services and accelerator technologies to modernized , web enabled ( also named “ cloud ” or “ cloud computing ” ) and migrated lotus applications ; and thus ultimately take the lotus applications from legacy to the future . the foundation of the modernizing/migrating suite software offering is gbs 's significant r & d investment in a set of methodologies and key technology accelerators to automate the conversion of traditional notes based client-server applications , into the ibm xpages framework which enables domino applications to be run and accessed via the lotus client , a web browser or on a mobile device . the patent-pending software that underpins modernizing/migrating was developed by gbs with assistance and guidance from ibm corporation 's software group to ensure alignment with future releases of the ibm lotus / domino and xpages technology . revenue model gbs generates its revenue from the sale of internally created software , third-party developed software and the delivery of related services , including it systems planning , administration , support , hosting , implementation and integration . strategy and focus areas based on current market demands for modern , cloud-based and mobile-device capable business applications , we have acquired and developed a set of unique technologies that help organizations reduce the time , cost , resources and risks associated with modernizing or migrating their existing applications . 28 we generate revenue from subscription and usage fees and related services , including support and strategic consulting services . the subscription period is typically based on a yearly or multi-year contract with our customers . another sector of our strategic portfolio is a suite of tools and methodologies we have developed to rapidly convert lotus notes applications into web and modern mobile applications . this portfolio includes a set of powerful analysis tools known as insights that identify all of the lotus notes applications within an organization and provide metrics about the uses and users of those applications . because of the nature of lotus notes and domino , the applications within a customer environment tend to be highly distributed and number in the thousands . for many organizations , this fact alone makes it extremely difficult to plan for projects that involve modernizing these applications for use in a browser and on mobile devices or migrating them to another platform . our technologies help them to dramatically reduce the cost , risk , time and resources associated with these highly complex projects . we generate revenue with our analysis tools by charging a fee for the use of our technology and for the associated cost of the services to produce a report and set of recommendations for the customer . additional revenues come from consulting services that result from helping our customers to implement those recommendations . for use of our conversion tools , referred to as modernizing/migrating , we charge a flat fee for the conversion and additional hourly rates to perform additional supporting development or testing as needed . we also believe there is significant revenue opportunity in licensing these tools to a network of global partners who also have existing presence and expertise in the lotus notes and domino market . we have established partner agreements for the use of the analysis and conversion tools with partners in several countries and directly with ibm . story_separator_special_tag times , serif ; margin : 0pt 0 ; text-indent : 1pt '' > n retirement benefit obligation increased from $ 150,632 at december 31 , 2011 to $ 165,876 at december 31 , 2012. n other liabilities decreased from $ 2,273,737 at december 31 , 2011 to $ nil at december 31 , 2012. as a result of a reclassification of long term to short term liabilities due on the purchase of permessa corporation . within the non-current liabilities , an amount of $ 2,270,000 has been converted into equity of the corresponding subsidiary in february , 2012. in adherence to regulation s-x rule 3a-02 this transaction and the resulting reduction of the liabilities will be presented in the company 's financials as per june 30 , 2012. n liabilities held for sale were increased from $ nil at december 31 , 2011 to $ 159,898 at december 31 , 2012. revenues the company generates revenue from product licenses , maintenance , third-party products , services and other revenue . for the fiscal year ended december 31 , 2012 , total revenue decreased $ 2,537,308 from $ 28,273,092 at december 31 , 2011 to $ 25,735,784 at december 31 , 2012. the decline mainly resulted from a $ 1,944,833 decrease in service revenues , as a result of the sale of idc , combined with a net decrease of $ 592,475 in product and other revenues . the company operates across 4 primary regions united states , germany , united kingdom , and other . story_separator_special_tag for the fiscal year ended december 31 , 2012 revenue across all regions decreased as presented in detail in the company 's notes to the annual consolidated financial statements . cost of goods sold for the fiscal year ended december 31 , 2012 , our cost of goods sold decreased to $ 14,615,074 from $ 15,898,182. cost of goods sold consists of cost for services , cost for third-party products and cost for software licenses . within cost of goods sold the associated costs within the product division of revenue increased $ 62,481 , from $ 5,575,747 at december 31 , 2011 , to $ 5,638,228 at december , 31 2012. the associated costs within the services division of revenue decreased $ 1,345,589 , from $ 10,322,435 at december 31 , 2011 , to $ 8,975,846 at december 31 , 2012. the gross profit margin remains with 43 % ( 2012 ) and 44 % ( 2011 ) on the same level . operating expenses for the fiscal year ended december 31 , 2012 , our operating expenses decreased to $ 19,565,495 from $ 22,513,690 for the fiscal year ended december 31 , 2011. operating expenses consist of selling expenses , administrative expenses and general expenses . for the fiscal year ended december 31 , 2012 , our selling expenses decreased to $ 12,102,534 from $ 15,426,600 for the fiscal year ended december 31 , 2011. selling expenses consist of costs for the sales , marketing and service units and decreased primarily due to the sale and consolidation of subsidiary companies . for the fiscal year ended december 31 , 2012 , our administrative expenses decreased to $ 5,962,875 from $ 6,160,961 for the fiscal year ended december 31 , 2011. administrative expenses consist of costs for the management and administration units and decreased primarily due to the sale and consolidation of subsidiary companies . for the fiscal year ended december 31 , 2012 , our general expenses increased to $ 1,500,086 from $ 926,129 for the fiscal year ended december 31 , 2011 . 31 other income ( expense ) for the fiscal year ended december 31 , 2012 , other expense of $ 1,531,793 compared to other expense of $ 16,267,197 for the fiscal year ended december 31 , 2011. bad debts changes in this category increased for the write off of receivables primarily in our entities no longer functioning due to obsolete technology . income from a settlement received in the previous fiscal year also was a contributing factor to the change . income taxes ( expense ) as a result of the change in the majority ownership of group business software in 2011 and based on the current legal situation , management has determined it is more likely than not that the tax losses carried forward for the fiscal year ended december 31 , 2011 will not be available as a deduction to determine taxable income . therefore , the deferred tax assets from the losses carried forward for group business software ag in an amount of $ 3,691,000 were written off in the fiscal year ended december 31 , 2011 and included in income tax expense . for the fiscal year ended december 31 , 2012 a statutory tax range from 23 % to 34 % has been applied resulting in an expected income tax recovery of $ 7,986,000. reduced by price allocations from consolidation of $ 2,798,000 , permanent differences of $ 533,000 and other items as mentioned in note 27. the total amount of income tax expense has been $ 1,054,734. liquidity & capital resources at december 31 , 2012 , we had $ 1,154,602 in cash and cash equivalents , compared to $ 3,250,821 at december 31 , 2011. at december 31 , 2012 , our accumulated stockholders ' deficit was $ 18,974,582 compared to $ 12,147,666 at december 31 , 2011. in principal , the company 's cash flow depends on the timely and successful market entry of its strategic offerings . the dependency accounts for revenue generated from direct customers engagements , as well as for revenue generated through the partner channel network . especially for strategic offerings for paradigm shifting technologies , the management 's budget plan is based on a series of assumptions regarding market acceptance , readiness and pricing . while management 's assumptions are based on market research and customer surveys , assumptions bear the risk of being incorrect and may result in a delay in customer projects and consequently a delay or a reduction in the related strategic offering invoicing . in case these delays have an impact on the company 's liquidity and therefore its ability to support its operations with the necessary cash flow , the company depends on its ability to generate cash flow from other resources , such as debt financing from related or independent resources or as equity financing from existing shareholders or through the stock market . during the entire fiscal year 2012 and for the first five months of 2013 , the company was in constant contact with internal and external sources for financing . these sources provided the necessary funds to support the working capital needs of the company ; mainly to finance the company 's strategic offering . there can be no assurances , however , that the company will be able to obtain additional funds from these or any other sources or that such funds will be sufficient to permit the company to implement its intended business strategy . in the event , the company is not able to generate additional funds , management will postpone any strategic investment until the financing will be sufficient . however , management believes as a result of the assets purchased to date , in accordance with the above-mentioned statement , the company will be able to provide sufficient cash flow to support its standard operations for the next 12 months . to date , we have funded our operations from private financings and operations .
| n assets held for sale were increased from $ 24,107 at december 31 , 2011 to $ 384,862 at december 31 , 2012. total non-current assets at december 31 , 2012 , our total non-current assets were $ 50,358,300 , compared to $ 58,720,403 at december 31 , 2011. total non-current assets consist of : property ( plant and equipment ) , financial assets , investments in related company , deferred tax assets , goodwill , software and other assets . n property ( plant and equipment ) decreased from $ 1,604,994 at december 31 , 2011 to $ 332,839 at december 31 , 2012 due primarily to the sale of idc global , inc. and their heavy concentration of fixed assets . 29 n financial assets decreased from $ 548,909 at december 31 , 2011 to $ 428,422 at december 31 , 2012 , which includes long term loans of $ 427,232 and the non-current portion of the aforementioned sale of gedys intraware gmbh on february 28 , 2010. n deferred tax assets decreased from $ 2,748,800 at december 31 , 2011 to $ 1,132,103 at december 31 , 2012 and consisted of deferred tax assets derived from financial assets and losses carried forward . n goodwill decreased from $ 39,221,603 at december 31 , 2011 to $ 34,254,881 at december 31 , 2012 and consisted of the goodwill associated with nine business entities . during the year ended december 31 , 2012 , the company sold sd holdings , ltd. and dissolved pavone ltd. , the effect of which was to reduce the goodwill associated with these subsidiaries . the reduction in goodwill attributed to group business software ag ( “ group ” ) resulted when the company purchased additional shares of group as disclosed in note 2 of the company 's financial statements . n software decreased from $ 14,258,610 at december 31 , 2011 to $ 12,207,031 at december 31 , 2012 and consists of capitalized development costs , product rights and licenses . our capitalized software includes our expert business developments of $ 3,779,418 , legacy business improvements/developments of $
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the sale or potential spin-off of this business segment would significantly reduce our revenues since they account for approximately 92 % of our total revenues , however , such a divesture or spin-off of would also significantly reduce operating expenses and eliminate substantially all of our trade debt . the sale of or spin-off of this segment would allow inpixon to solely focus on the indoor positioning analytics business for which we have historically recognized lower revenues , but which we believe has greater growth potential and substantially better gross margins than the infrastructure segment . the spin-off would be beneficial to inpixon usa and its wholly-owned subsidiary inpixon federal as well because it could focus is resources on its core business and without the burden of the inpixon entity it could reach profitability sooner . recent events debenture-related transactions on april 19 , 2017 , inpixon entered into an exchange agreement ( the “ first exchange agreement ” ) with the holders ( the “ debenture holder ” ) in connection with an interest payment due on may 9 , 2017 , pursuant to the company 's 8 % original issue discount senior secured convertible debenture in the principal amount of $ 5,700,000 ( the “ debenture ” ) . the debenture was issued on august 9 , 2016 pursuant to that certain securities purchase agreement dated as of that same date ( the “ securities purchase agreement ” ) , by and between the company and the debenture holder . in accordance with the first exchange agreement , solely in respect of the interest payment in the amount of $ 343,267 due on may 9 , 2017 , under the debenture , the company and the debenture holder agreed that $ 315,700 of such interest payment will be made in in the form of 3,667 shares of the company 's common stock issued at an interest conversion rate equal to $ 86.10 per share ( the “ interest shares ” ) . the interest shares were issued on april 20 , 2017. in addition , the debenture holder also waived the equity condition ( as defined in the debenture ) in connection with the issuance of the interest shares . on june 28 , 2017 , the company redeemed an aggregate amount of approximately $ 2,850,000 in principal and accrued interest due under the debenture . on december 11 , 2017 , the company and the then debenture holders , with a current aggregate principal amount of $ 2,763,545.25 , entered into an amendment agreement ( the “ amendment agreement ” ) to modify the terms of the securities purchase agreement to , among other things , ( i ) extend the maturity date of the debentures from august 9 , 2018 to january 2 , 2019 ( the “ maturity date ” ) ; ( ii ) suspend all payments of interest and other amounts scheduled to be made on the debentures after december 11 , 2017 ; ( iii ) reduce the conversion price of the debentures to a fixed price of $ 7.20 ( the “ conversion price ” ) ; ( iv ) terminate any security interests pursuant to that certain security agreement entered into in connection in addition , one of the debenture holders agreed that to the extent it has not exercised those outstanding warrants originally issued to it by the company on june 30 , 2017 ( the “ june 2017 warrants ” ) in full , on or prior to december 31 , 2017 , such debenture holder 's right to exercise such june 2017 warrants or any other rights granted pursuant to such june 2017 warrants would be terminated and the june 2017 warrants would be cancelled on the books and records of the company . the such warrants were not exercised and were therefore cancelled . on december 29 , 2017 , the company entered into a second amendment agreement ( the “ second amendment agreement ” ) to modify the terms of the securities purchase agreement and the debentures to amend the conversion price then in effect to a price equal to up to a discount of 30 % of the closing price of the company 's common stock as reported by the nasdaq stock market as of the date immediately prior to each applicable conversion date , with a floor of $ 3.00. the issuance of the shares of common stock in connection with the amendment agreement and second amendment agreement were approved by the company 's stockholders on december 8 , 2017 in accordance with nasdaq listing rule 5635 ( d ) . 44 on january 5 , 2018 , in order to facilitate the completion of the january 2018 offering , the holder of the debentures agreed to amend the debenture to prevent any conversions until the authorized share amendment was filed , to reserve and keep available out of its authorized and unissued shares of common stock , not less than 150 % of the aggregate number of shares of the company 's common stock for issuance upon conversion of the debenture and payment of interest on the debenture ; and to provide for an event of default ( as defined in the debenture ) . if ( the authorized share amendment was not effected or a sufficient number of shares of common stock for issuance upon conversion of the outstanding principal plus accrued or unpaid interest underlying the debentures was not effected on or prior to february 15 , 2018. as of february 9 , 2018 , the company had issued a total of 275,259 shares of common stock to the holder of the debenture and the debentures had been converted in full . story_separator_special_tag june 2017 capital raise on june 30 , 2017 , the company completed the previously announced registered underwritten public offering ( the “ june 2017 offering ” ) of an aggregate of ( i ) 61,649 class a units ( the “ class a units ” ) , with each class a unit consisting of one share of common stock and one warrant to purchase one share of common stock at an exercise price of $ 39.375 per share ( “ exercise price ” ) and ( ii ) 4,060 class b units ( the “ class b units ” ) , with each class b unit consisting of one share of series 2 preferred stock and one warrant to purchase the number of shares of common stock equal to the number of shares of common stock underlying the series 2 preferred stock at the exercise price . the warrants issued in the offering contained a price protection provision pursuant to which the exercise price would be reduced in the event the company issued additional securities at a price per share that was less than the exercise price , provided however , the adjustment would not be less than $ 15.00. the net proceeds to the company from the transactions , after deducting the placement agent 's fees and expenses but before paying the company 's estimated offering expenses , and excluding the proceeds , if any , from the exercise of the warrants was approximately $ 5,711,850. immediately after completion of the june 2017 offering , the company redeemed outstanding indebtedness in the amount of approximately $ 5,512,000. in connection with the june 2017 offering , the company entered into that certain waiver and consent agreement , dated june 28 , 2017 , ( the “ waiver and consent agreement ” ) with those purchasers ( the “ december 2016 purchasers ” ) signatory to that certain securities purchase agreement , dated as of december 12 , 2016 ( the “ december 2016 spa ” ) . pursuant to the terms of the waiver and consent agreement , the december 2016 purchasers agreed to waive ( the “ waiver ” ) the variable rate transaction prohibition contained in the december 2016 spa , which , if not waived , prohibits the adjustment to the exercise price set forth in the warrants issued in the june 2017 offering . in consideration of the waiver , the warrants held by the december 2016 purchasers issued in accordance with the december 2016 spa ( the “ december 2016 warrants ” ) were amended to equal the exercise price of the warrants issued in the june 2017 offering and to provide for an adjustment to the exercise price to the extent shares of common stock are issued or sold for a consideration per share that is less than the exercise price then in effect ; provided , that the exercise price will not be less than $ 15.00 per share . as of september 30 , 2017 all series 2 preferred stock had been converted to shares of common stock . series 2 preferred stock on august 14 , 2017 , the company entered into an exchange right agreement ( the “ second exchange agreement ” ) with the holder of our then outstanding series 2 preferred stock , pursuant to which the company granted the debenture holder the right to exchange 1,850 shares of the company 's series 2 convertible preferred stock ( the “ preferred shares ” ) owned by the debenture holder for up to an aggregate of 186,869 shares ( the “ exchange shares ” ) of the company 's common stock . pursuant to the second exchange agreement , for so long as the preferred shares remain outstanding , each outstanding preferred share was exchangeable for the number of exchange shares equal to the quotient obtained by dividing $ 1,000 by $ 0.33. as of the date of this prospectus supplement , all of the exchange shares have been issued . the exchange shares were issued in accordance with the exemption from registration provided by section 3 ( a ) ( 9 ) of the securities act . agreement with warrant holders on august 9 , 2017 , the company entered into a warrant exercise agreement ( the “ warrant exercise agreement ” ) with certain participants in the offering representing a majority of the then outstanding warrants ( defined below ) ( collectively , the “ warrant holders ” and each , a “ warrant holder ” ) pursuant to which the warrant holders agreed to exercise , for up to an aggregate of 36,524 shares of common stock , the warrants ( the “ warrants ” ) issued pursuant to that certain warrant agency agreement , dated as of june 30 , 2017 ( the “ warrant agency agreement ” ) , by and between the company and corporate stock transfer , as warrant agent ( the “ warrant agent ” ) , provided that the company agreed to : ( a ) amend the warrant agency agreement to reduce the exercise price of the warrants from $ 39.75 per share to $ 9.00 per share in accordance with the terms and conditions of amendment no . 1 to the warrant agency agreement , dated august 9 , 2017 between the company and the warrant agent ( “ warrant agreement amendment ” ) , with the consent of aegis capital corp. and the registered holders of a majority of the outstanding warrants ; and 45 ( b ) issue additional five-year warrants to the warrant holders , for the number of shares of common stock equal to the number of exercised shares purchased by such warrant holder ( the “ additional warrant shares ” ) , at an exercise price of $ 16.50 per share ( the “ additional warrant ” ) for warrants to purchase up to an aggregate of 36,524 shares of common stock .
| the gross profit margin for the year ended december 31 , 2017 was 24 % compared to 28 % for the year ended december 31 , 2016. this decrease in margin is a result of lower margin infrastructure sales from the integrio acquisition . indoor positioning analytics gross margins for the year ended december 31 , 2017 and 2016 were 67 % and 69 % , respectively . gross margins for the infrastructure segment for the year ended december 31 , 2017 and 2016 were 20 % and 24 % , respectively . operating expenses operating expenses for the year ended december 31 , 2017 were $ 40.3 million and $ 38.7 million for the comparable period ended december 31 , 2016. this increase of $ 1.6 million includes a $ 1 million increase in goodwill impairment over the prior year , $ 680,000 increase in amortization of intangibles due to the integrio intangibles and increases in other operating expenses primarily due to the integrio acquisition offset by lower compensation costs . loss from operations loss from operations for the year ended december 31 , 2017 was $ 29.5 million as compared to $ 23.7 million for the comparable period in the prior year . this increase of $ 5.8 million was primarily attributable to a decrease in gross profit of approximately $ 4.2 million and an increase in operating expenses of approximately $ 1.6 million as described above . other income/expense other income/expense consisted primarily of interest expense , extinguishment loss , change in the fair value of derivative liabilities and gain on the settlement of obligations . interest expenses for the years ended december 31 , 2017 and 2016 were $ 3.8 million and $ 1.7 million , respectively . the increase of approximately $ 2.1 million was primarily attributable to interest attributable to the august 2016 senior convertible debenture and a higher revolving line of credit balance . for the year ended december 31 , 2017 , other income/expense included a $ 1.5 million non-cash extinguishment loss for the value of the common shares issued as repayment for the debenture . for the year ended december 31 ,
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market cycles are difficult to predict and , because they are generally characterized by sequential periods of growth or declines in orders and net revenues during each cycle , year over year comparisons of operating results may not always be as meaningful as comparisons of periods at similar points in either up or down cycles . these periods of heightened or reduced demand can shift depending on various factors impacting both our customers and the markets that they serve . in addition , during both downward and upward cycles in the semi market , in any given quarter , the trend in both our orders and net revenues can be erratic . this can occur , for example , when orders are canceled or currently scheduled delivery dates are accelerated or postponed by a significant customer or when customer forecasts and general business conditions fluctuate during a quarter . third party market share statistics are not available for the products we manufacture and sell into the semi market ; therefore , comparisons of period over period changes in our market share are not easily determined . as a result , it is difficult to ascertain if semi market volatility in any period is the result of macro-economic or customer-specific factors impacting semi market demand , or if we have gained or lost market share to a competitor during the period . while approximately half of our orders and net revenues are derived from the semi market , and our operating results generally follow the overall trend in the semi market , in any given period we may experience anomalies that cause the trend in our net revenues to deviate from the overall trend in the semi market . we believe that these anomalies may be driven by a variety of factors within the semi market , including , for example , changing product requirements , longer periods between new product offerings by oems and changes in customer buying patterns . in addition , in recent periods , we have seen instances when demand within the semi market is not consistent for each of our operating segments or for any given product within a particular operating segment . this inconsistency in demand can be driven by a number of factors but , in most cases , we have found that the primary reason is unique customer-specific changes in demand for certain products driven by the needs of their customers or markets served . recently this has become more pronounced for our sales into the wafer processing sector within the broader semiconductor market due to the limited market penetration we have into this sector and the variability of orders we have experienced from the few customers we support . these shifts in market practices and customer-specific needs have had , and may continue to have , varying levels of impact on our operating results and are difficult to quantify or predict from period to period . management has taken , and will continue to take , such actions it deems appropriate to adjust our strategies , products and operations to counter such shifts in market practices as they become evident . -23- as previously mentioned , as part of our ongoing strategy to grow our business , we continue to diversify our served markets to address the thermal test and thermal process requirements of several markets outside the semi market . these include the automotive , defense/aerospace , industrial , medical , telecommunications and other markets , which we refer to as multimarket . we believe that these markets are usually less cyclical than the semi market . while market share statistics exist for some of these markets , due to the nature of our highly specialized product offerings in these markets , we do not expect broad market penetration in many of these markets and therefore do not anticipate developing meaningful market shares in most of these markets . in addition , because of our limited market share , our multimarket orders and net revenues in any given period do not necessarily reflect the overall trends in the markets within multimarket . consequently , we are continuing to evaluate buying patterns and opportunities for growth in multimarket that may affect our performance . the level of our multimarket orders and net revenues has varied in the past , and we expect will vary significantly in the future , as we work to build our presence in multimarket and establish new markets for our products . restructuring and other charges on september 21 , 2020 , we notified employees in our fremont , california facility of a plan to consolidate all manufacturing for our ems segment into our manufacturing operation located in mt . laurel , new jersey . the consolidation was substantially completed during the fourth quarter of 2020 and resulted in the termination of certain employees at the fremont location . prior to the consolidation , our interface products were manufactured in the fremont facility , and our manipulator and docking hardware products were manufactured in the mt . laurel facility . the consolidation was undertaken to better serve customers through streamlined operations and reduce the fixed annual operating costs for the ems segment . a small engineering and sales office will be maintained in northern california . the costs related to these actions are included in restructuring and other charges on our consolidated statement of operations and are discussed in more detail in note 3 to our consolidated financial statements . the ems facility consolidation resulted in the termination of certain employees at the fremont location , including all of our interface product line assembly staff who were located at that facility . as a result of transitioning our interface manufacturing operations to new jersey , we have hired new production staff for this product line in our mt . laurel facility . these new employees are being trained to assemble our products which may impact customer shipments and quality of our interface products over the next several months . story_separator_special_tag in addition , we have recently experienced difficulty in hiring personnel at the costs projected in our forecasts . this has resulted in the need to increase the labor rates offered for certain positions . if we can not find savings in other areas or increase the price for which we sell our products in an amount sufficient to cover these additional labor costs , we may experience reduced margins in future periods . see “ risks related to our business operations ” in item 1a “ risk factors ” of this report . during the third quarter of 2020 , we made changes in our executive management team and , in connection with these actions , we reduced our administrative footprint in our mansfield , massachusetts facility and reestablished our corporate headquarters in our mt . laurel , new jersey office . the costs related to these actions are included in restructuring and other charges on our consolidated statement of operations and are discussed in more detail in note 3 to our consolidated financial statements . orders and backlog the following table sets forth , for the periods indicated , a breakdown of the orders received by operating segment and market ( in thousands ) . replace_table_token_4_th total consolidated orders for the year ended december 31 , 2020 were $ 59.7 million compared to $ 52.8 million in 2019 , an increase of $ 6.9 million , or 13 % . the increase reflects higher levels of demand experienced by both of our segments from customers within the semi market . as discussed below under “ covid-19 pandemic , ” the semi market , from which approximately half of our net revenues are derived , entered a cyclical downturn in the beginning of 2019. we believe the arrival of covid-19 lengthened and deepened the level of decline in demand experienced during this downturn . during the fourth quarter of 2020 , we saw a significant increase in our orders from the semi market which we believe indicates that we have entered the next cyclical upturn . -24- multimarket orders in each of the years ended december 31 , 2020 and 2019 were $ 27.4 million . for the year ended december 31 , 2020 , this represented 46 % of our consolidated orders compared to 52 % for the prior year . increases in demand from customers in the automotive and defense/aerospace markets were offset by decreases from customers in the industrial and telecommunications markets . the level of our multimarket orders has varied in the past , and we expect it will vary significantly in the future as we build our presence in these markets and establish new markets for our products . at december 31 , 2020 , our backlog of unfilled orders for all products was approximately $ 11.5 million compared with approximately $ 5.5 million at december 31 , 2019. the significant increase in our backlog primarily reflects the aforementioned increase in demand during the fourth quarter of 2020. our backlog includes customer orders that we have accepted , substantially all of which we expect to deliver in 2021. while backlog is calculated on the basis of firm purchase orders , a customer may cancel an order or accelerate or postpone currently scheduled delivery dates . our backlog may be affected by the tendency of customers to rely on short lead times available from suppliers , including us , in periods of depressed demand . in periods of increased demand , there is a tendency towards longer lead times that has the effect of increasing backlog . as a result , our backlog at a particular date is not necessarily indicative of sales for any future period . net revenues the following table sets forth , for the periods indicated , a breakdown of the net revenues by operating segment and market ( in thousands ) . replace_table_token_5_th total consolidated net revenues for the year ended december 31 , 2020 were $ 53.8 million compared to $ 60.7 million in 2019 , a decrease of $ 6.8 million or 11 % as compared to 2019. the decrease in net revenues primarily reflects the aforementioned downturn in demand in the semi market which began in 2019. as previously mentioned , we saw a significant increase in order levels in the fourth quarter of 2020 , which we believe indicates that the downturn in the semi market has come to an end . as a result , we expect revenue levels in the first quarter of 2021 will increase significantly from the level in the fourth quarter . multimarket net revenues for the year ended december 31 , 2020 were $ 27.0 million , or 50 % of total consolidated net revenues , compared to $ 29.7 million , or 49 % of total consolidated net revenues in 2019. our net revenues from multimarket for the year ended december 31 , 2020 declined $ 2.8 million or 9 % from the prior period . the decline primarily reflects reductions experienced from customers in the industrial market . we believe this is a result , in part , of the impact of covid-19 on demand for our induction heating products and their related service . the level of our multimarket net revenues has varied in the past , and we expect it will vary significantly in the future as we build our presence in these markets and establish new markets for our products . -25- covid-19 pandemic our net revenues from all of the markets we serve were significantly affected by covid-19 during the first half of 2020. the impact of covid-19 on our net revenues from the semi market was intensified during the first half of the year because our business operations were also being negatively affected by a global downturn in the semi market at that time .
| to a lesser extent , there was also a reduction in the use of temporary labor and lower salary and benefits expense for our thermal segment , reflecting the reduced business levels in 2020 and savings from headcount reductions which occurred early in the second quarter of 2020 in response to the slowdown in business . these decreases were partially offset by an increase in facility costs reflecting higher rent for our facility in fremont , california , which took effect at the beginning of 2020 , as well as the cost for additional space in our office in mansfield , massachusetts for our corporate headquarters which we first occupied during the fourth quarter of 2019. as previously discussed in the overview , we closed our manufacturing operations in fremont , california during the fourth quarter of 2020. this will result in reduced facility costs in future periods as a result of the reduction in our footprint . costs incurred in 2020 related to this action are included in restructuring and other charges in our statement of operations and are discussed in more detail below and in note 3 to our consolidated financial statements . -26- selling expense . selling expense was $ 7.5 million for the year ended december 31 , 2020 compared to $ 8.5 million in 2019 , a decrease of $ 938,000 or 11 % . the decrease primarily reflects lower levels of travel and trade show related costs for both our segments as a result of covid-19 . to a lesser extent , there was also a reduction in warranty expense in our thermal segment , reflecting improved warranty claims experience and a reduction in revenues under warranty . engineering and product development expense . engineering and product development expense was $ 5.1 million for the year ended december 31 , 2020 compared to $ 5.0 million in 2019 , an increase of $ 106,000 , or 2 % . increases in salary and
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the foregoing statement regarding the company 's expected gross margin percentage in the first quarter of 2017 is forward-looking and could differ from actual results . the company 's future gross margins can be impacted by multiple factors including , but not limited to , those set forth in part i , item 1a of this form 10-k under the heading “ risk factors ” and those described in this paragraph . in general , the company believes gross margins will remain under downward pressure due to a variety of factors , including continued industry wide global product pricing pressures , increased competition , compressed product life cycles , product transitions , potential increases in the cost of components , and potential strengthening of the u.s. dollar , as well as potential increases in the costs of outside manufacturing services and a potential shift in the company 's sales mix towards products with lower gross margins . in response to competitive pressures , the company expects it will continue to take product pricing actions , which would adversely affect gross margins . gross margins could also be affected by the company 's ability to manage product quality and warranty costs effectively and to stimulate demand for certain of its products . due to the company 's significant international operations , its financial condition and operating results , including gross margins , could be significantly affected by fluctuations in exchange rates . operating expenses operating expenses for 2016 , 2015 and 2014 are as follows ( dollars in millions ) : replace_table_token_15_th research and development the year-over-year growth in r & d expense in 2016 and 2015 was driven primarily by an increase in headcount and related expenses , and material costs to support expanded r & d activities . the company continues to believe that focused investments in r & d are critical to its future growth and competitive position in the marketplace , and to the development of new and updated products that are central to the company 's core business strategy . selling , general and administrative the decrease in selling , general and administrative expense in 2016 compared to 2015 was due primarily to lower discretionary expenditures and advertising costs , partially offset by an increase in headcount and related expenses . the year-over-year growth in selling , general and administrative expense in 2015 was primarily due to increased headcount and related expenses , and higher spending on marketing and advertising . other income/ ( expense ) , net other income/ ( expense ) , net for 2016 , 2015 and 2014 are as follows ( dollars in millions ) : replace_table_token_16_th the year-over-year increase in other income/ ( expense ) , net during 2016 and 2015 was due primarily to higher interest income , partially offset by higher interest expense on debt and higher expenses associated with foreign exchange activity . the weighted-average interest rate earned by the company on its cash , cash equivalents and marketable securities was 1.73 % , 1.49 % and 1.11 % in 2016 , 2015 and 2014 , respectively . apple inc. | 2016 form 10-k | 27 provision for income taxes provision for income taxes and effective tax rates for 2016 , 2015 and 2014 are as follows ( dollars in millions ) : replace_table_token_17_th the company 's effective tax rates for 2016 , 2015 and 2014 differ from the statutory federal income tax rate of 35 % due primarily to certain undistributed foreign earnings , a substantial portion of which was generated by subsidiaries organized in ireland , for which no u.s. taxes are provided when such earnings are intended to be indefinitely reinvested outside the u.s. the lower effective tax rate in 2016 compared to 2015 was due primarily to greater r & d tax credits . the higher effective tax rate during 2015 compared to 2014 was due primarily to higher foreign taxes . as of september 24 , 2016 , the company had deferred tax assets arising from deductible temporary differences , tax losses and tax credits of $ 4.1 billion and deferred tax liabilities of $ 26.0 billion . management believes it is more likely than not that forecasted income , including income that may be generated as a result of certain tax planning strategies , together with future reversals of existing taxable temporary differences , will be sufficient to fully recover the deferred tax assets . the company will continue to evaluate the realizability of deferred tax assets quarterly by assessing the need for and the amount of a valuation allowance . during the fourth quarter of 2016 , the company reached a partial settlement with the irs on its examination of the years 2010 through 2012. in connection with this settlement , the company recognized a tax benefit in the fourth quarter of 2016 that was not significant to its consolidated financial statements . all years prior to 2013 are closed , except for the years 2010 through 2012 relating to r & d tax credits . in addition , the company is subject to audits by state , local and foreign tax authorities . in major states and major foreign jurisdictions , the years subsequent to 2003 generally remain open and could be subject to examination by the taxing authorities . management believes that adequate provisions have been made for any adjustments that may result from tax examinations . however , the outcome of tax audits can not be predicted with certainty . if any issues addressed in the company 's tax audits are resolved in a manner not consistent with management 's expectations , the company could be required to adjust its provision for income taxes in the period such resolution occurs . on august 30 , 2016 , the european commission announced its decision that ireland granted state aid to the company by providing tax opinions in 1991 and 2007 concerning the tax allocation of profits of the irish branches of two subsidiaries of the company ( the `` state aid decision '' ) . story_separator_special_tag the state aid decision orders ireland to calculate and recover additional taxes from the company for the period june 2003 through september 2014. irish legislative changes , effective as of the beginning of 2015 , eliminated the application of the tax opinions from that date forward . the company believes the state aid decision to be without merit and intends to appeal to the general court of the court of justice of the european union . ireland has also announced its intention to appeal the state aid decision . while the european commission announced a recovery amount of up to 13 billion , plus interest , the actual amount of additional taxes subject to recovery is to be calculated by ireland in accordance with the european commission 's guidance . once the recovery amount is computed by ireland , the company anticipates funding it , including interest , out of foreign cash into escrow , pending conclusion of all appeals . the company believes that any incremental irish corporate income taxes potentially due would be creditable against u.s. taxes . recent accounting pronouncements income taxes in october 2016 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update ( “ asu ” ) 2016-16 , income taxes ( topic 740 ) : intra-entity transfer of assets other than inventory ( `` asu 2016-16 '' ) , which requires the recognition of the income tax consequences of an intra-entity transfer of an asset , other than inventory , when the transfer occurs . asu 2016-06 will be effective for the company in its first quarter of 2019. the company is currently evaluating the impact of adopting asu 2016-16 on its consolidated financial statements . stock compensation in march 2016 , the fasb issued asu no . 2016-09 , compensation – stock compensation ( topic 718 ) : improvements to employee share-based payment accounting ( “ asu 2016-09 ” ) , which simplified certain aspects of the accounting for share-based payment transactions , including income taxes , classification of awards and classification on the statement of cash flows . asu 2016-09 will be effective for the company beginning in its first quarter of 2018. the company is currently evaluating the impact of adopting asu 2016-09 on its consolidated financial statements . apple inc. | 2016 form 10-k | 28 leases in february 2016 , the fasb issued asu no . 2016-02 , leases ( topic 842 ) ( “ asu 2016-02 ” ) , which modified lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as operating leases under previous accounting standards and disclosing key information about leasing arrangements . asu 2016-02 will be effective for the company beginning in its first quarter of 2020 , and early adoption is permitted . the company is currently evaluating the timing of its adoption and the impact of adopting asu 2016-02 on its consolidated financial statements . financial instruments in january 2016 , the fasb issued asu no . 2016-01 , financial instruments – overall ( subtopic 825-10 ) : recognition and measurement of financial assets and financial liabilities ( “ asu 2016-01 ” ) , which updates certain aspects of recognition , measurement , presentation and disclosure of financial instruments . asu 2016-01 will be effective for the company beginning in its first quarter of 2019. the company does not believe the adoption of asu 2016-01 will have a material impact on its consolidated financial statements . in june 2016 , the fasb issued asu no . 2016-13 , financial instruments – credit losses ( topic 326 ) : measurement of credit losses on financial instruments ( “ asu 2016-13 ” ) , which modifies the measurement of expected credit losses of certain financial instruments . asu 2016-13 will be effective for the company beginning in its first quarter of 2021 and early adoption is permitted . the company does not believe the adoption of asu 2016-13 will have a material impact on its consolidated financial statements . revenue recognition in may 2014 , the fasb issued asu no . 2014-09 , revenue from contracts with customers ( topic 606 ) ( “ asu 2014-09 ” ) , which amends the existing accounting standards for revenue recognition . asu 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers . asu 2014-09 will be effective for the company beginning in its first quarter of 2019 , and early adoption is permitted . subsequently , the fasb has issued the following standards related to asu 2014-09 : asu no . 2016-08 , revenue from contracts with customers ( topic 606 ) : principal versus agent considerations ( “ asu 2016-08 ” ) ; asu no . 2016-10 , revenue from contracts with customers ( topic 606 ) : identifying performance obligations and licensing ( “ asu 2016-10 ” ) ; and asu no . 2016-12 , revenue from contracts with customers ( topic 606 ) : narrow-scope improvements and practical expedients ( “ asu 2016-12 ” ) . the company must adopt asu 2016-08 , asu 2016-10 and asu 2016-12 with asu 2014-09 ( collectively , the “ new revenue standards ” ) . the new revenue standards may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption . the company currently expects to adopt the new revenue standards in its first quarter of 2018 utilizing the full retrospective transition method . the company does not expect adoption of the new revenue standards to have a material impact on its consolidated financial statements .
| in april 2015 , the company announced a significant increase to its capital return program by raising the expected total size of the program to $ 200 billion through march 2017. this included increasing its share repurchase authorization to $ 140 billion and raising its quarterly dividend to $ 0.52 per share beginning in may 2015. during 2015 , the company spent $ 36.0 billion to repurchase shares of its common stock and paid dividends and dividend equivalents of $ 11.6 billion . additionally , the company issued $ 14.5 billion of u.s. dollar-denominated , 4.8 billion of euro-denominated , sfr1.3 billion of swiss franc-denominated , £1.3 billion of british pound-denominated , a $ 2.3 billion of australian dollar-denominated and ¥250.0 billion of japanese yen-denominated term debt during 2015. apple inc. | 2016 form 10-k | 22 sales data the following table shows net sales by operating segment and net sales and unit sales by product during 2016 , 2015 and 2014 ( dollars in millions and units in thousands ) : replace_table_token_4_th ( 1 ) includes deferrals and amortization of related software upgrade rights and non-software services . ( 2 ) includes revenue from internet services , applecare ® , apple pay , licensing and other services . ( 3 ) includes sales of apple tv , apple watch , beats ® products , ipod and apple-branded and third-party accessories . apple inc. | 2016 form 10-k | 23 product performance iphone the following table presents iphone net sales and unit sales information for 2016 , 2015 and 2014 ( dollars in millions and units in thousands ) : replace_table_token_5_th iphone net sales and unit sales decreased during 2016 compared to 2015. the company believes the sales decline is due primarily to a lower rate of iphone upgrades during 2016 compared to 2015 and challenging macroeconomic conditions in a number of major markets in 2016. average selling prices ( “ asps ” ) for iphone were lower year-over-year during 2016 due primarily to a different mix of iphones ,
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our agreement with psivida provides us with a worldwide exclusive license to develop and sell iluvien , which consists of a tiny polyimide tube with a permeable membrane cap on one end and an impermeable silicone cap on the other end that is filled with fac in a polyvinyl alcohol matrix for delivery to the back of the eye for the treatment and prevention of eye diseases in humans ( other than uveitis ) . this agreement also provides us with a worldwide non-exclusive license to develop and sell psivida 's proprietary delivery device to deliver other corticosteroids to the back of the eye for the treatment and prevention of eye diseases in humans ( other than uveitis ) or to treat dme by delivering a compound to the back of the eye through a direct delivery method through an incision required for a 25-gauge or larger needle . we do not have the right to develop and sell psivida 's proprietary delivery device in connection with indications for diseases outside of the eye or for the treatment of uveitis . further , our agreement with psivida permits psivida to grant to any other party the right to use its intellectual property ( i ) to treat dme through an incision smaller than that required for a 25-gauge needle , unless using a corticosteroid delivered to the back of the eye , ( ii ) to deliver any compound outside the back of the eye unless it is to treat dme through an incision required for a 25-gauge or larger needle , or ( iii ) to deliver non-corticosteroids to the back of the eye , unless it is to treat dme through an incision required for a 25-gauge or larger needle . the agreement provides that after commercialization of iluvien , psivida will be entitled to 20 % of the net profits , as defined in the amended and restated agreement . in connection with this arrangement we are entitled to recover 20 % of commercialization costs of iluvien , as defined in the agreement , incurred prior to product profitability out of psivida 's share of net profits . as of december 31 , 2015 and 2014 , psivida owed us $ 21.6 million and $ 13.0 million , respectively , in commercialization costs . due to the uncertainty of future profits from iluvien , we have fully reserved these amounts in the accompanying consolidated financial statements . as a result of the food and drug administration ' s ( fda ) approval of iluvien in september 2014 , we paid psivida a milestone payment of $ 25.0 million ( the psivida milestone payment ) in october 2014. our credit facility 2013 loan agreement in may 2013 , alimera sciences limited ( limited ) , our subsidiary , entered into a loan and security agreement ( 2013 loan agreement ) with silicon valley bank ( svb ) to provide limited with additional working capital for general corporate purposes . under the 2013 loan agreement , svb made a term loan ( 2013 term loan ) in the principal amount of $ 5.0 million to limited and agreed to provide up to an additional $ 15.0 million to limited under a working capital line of credit ( 2013 line of credit ) . no advances were made at closing under the 2013 line of credit and no amounts were outstanding as of december 31 , 2013. as a result of entering into the 2013 loan agreement , in may 2013 , we repaid all amounts owed to lenders under our previous term loan and we recognized a loss on early extinguishment of debt of $ 153,000 associated with the remaining unamortized deferred financing costs , unamortized discount , the final interest payment , the prepayment penalty and a lender fee . in april 2014 , the 2013 term loan was repaid and the 2013 line of credit was terminated in connection with the 2014 loan agreement described below . upon repayment of the 2013 term loan in april 2014 , limited paid svb an outstanding loan balance prepayment penalty of $ 133,000 , and an early termination fee of $ 113,000 in connection with the termination of the 2013 line of credit in april 2014. in addition , in accordance with the financial accounting standards board ( fasb ) accounting standards codification ( asc ) 470-50-40-17 , the company expensed the facility fee and incremental value of the warrants associated with the 2013 term loan as part of the loss on early extinguishment . 2014 loan agreement , 2015 loan amendment and 2016 loan amendment in april 2014 , limited entered into a loan and security agreement ( 2014 loan agreement ) with hercules , which limited and hercules later amended in november 2015 ( the 2015 loan amendment and , together with the 2014 loan agreement , the term loan agreement ) . under the 2014 loan agreement , hercules made an advance in the initial principal amount of $ 10.0 million to limited at closing to provide limited with additional working capital for general corporate purposes and to repay the 2013 term loan . hercules made an additional advance of $ 25.0 million to limited in september 2014 following the approval of iluvien by the fda to fund the psivida milestone payment . the term loan provided for interest only payments through november 2015. the 2015 loan amendment extended the interest only payments through may 2017. interest on the term loan accrues at a floating per annum rate equal to the greater of ( i ) 10.90 % , or ( ii ) the sum of ( a ) 7.65 % , plus ( b ) the prime rate . beginning in june 2017 , limited will make eleven equal monthly payments of principal and interest based upon a 30-month amortization schedule followed by a final payment of all remaining outstanding principal and interest in may 2018 . story_separator_special_tag 47 in connection with the initial advance under the term loan , limited paid to hercules a facility charge of $ 262,500 and incurred legal and other fees of approximately $ 383,000. limited incurred $ 375,000 in additional fees in connection with the second advance . if limited repays the term loan , as amended , prior to maturity , it will pay hercules a prepayment penalty of 1.25 % of the total principal amount repaid . in connection with the 2015 loan amendment , limited paid to hercules an amendment fee of $ 262,500 and agreed to make an additional payment of $ 1,050,000 equal to 3 % of the term loan at the time of the final payment in may 2018 ( end of term payment ) . we also agreed to customary affirmative and negative covenants and events of default in connection with these arrangements , including revenue requirements and minimum cash balances . the occurrence of an event of default could result in the acceleration of limited 's obligations under the term loan agreement and an increase to the applicable interest rate , and would permit hercules to exercise remedies with respect to the collateral under the term loan agreement . in connection with the amendment , limited agreed to covenants regarding certain revenue thresholds and liquidity . as of december 31 , 2015 , we , on a consolidated basis with our subsidiaries , were in compliance with the covenants of the term loan agreement . in january 2016 , we did not meet the revenue threshold covenant . as a result , on march 14 , 2016 , limited entered into a second amendment to the term loan agreement ( the 2016 loan amendment ) with hercules , which waived the covenant violation and amended certain terms of the term loan agreement . the 2016 loan amendment amends the revenue covenant to a rolling three month calculation to first be measured for the three months ending may 31 , 2016 and increases the liquidity covenant . the amended liquidity covenant requires us to keep at least $ 25.0 million in liquidity , with a minimum of $ 17.5 million in cash . additionally , in any month in which we have $ 25.0 million in cash , the revenue requirement will be waived . upon execution of the 2016 loan amendment , limited paid hercules an amendment fee of $ 350,000 and agreed to increase the end of term payment to $ 1,400,000 from $ 1,050,000 , which is payable on the date that the term loan agreement is paid in full . our current financial forecast for 2016 projects that we must obtain alternative or additional financing or it is probable that we will not be able to comply with the liquidity covenant . while hercules may waive financial covenant requirements in the future , there can be no certainty that this will be the case . we are currently pursuing alternatives with various lenders and have an at-the-market offering in place under which we can sell up to approximately $ 34.2 million of our common stock , however , the avoidance of noncompliance with the liquidity covenant can not be assured . if we do not maintain compliance with any of its covenants , hercules could demand immediate repayment in full of the $ 35.0 million note payable and the end of term payment . as a result , the full amount of the related long-term note payable and the end of term payment have been classified as current liabilities in the accompanying balance sheet at december 31 , 2015. regardless of the noncompliance with financial covenants , we have made every scheduled payment required under the terms of the term loan agreement . limited 's obligations to hercules are secured by a first priority security interest in substantially all of limited 's assets , excluding intellectual property . hercules does , however , maintain a negative pledge on limited 's intellectual property requiring hercules ' consent prior to the sale of such intellectual property . we and certain of our subsidiaries are guarantors of the obligations of limited to hercules under the term loan agreement pursuant to separate guaranty agreements between hercules and each of limited and such subsidiaries ( guaranties ) . pursuant to the guaranties , we and these subsidiaries granted hercules a first priority security interest in substantially all of their respective assets excluding intellectual property . in connection with limited entering into the 2014 loan agreement , we entered into a warrant agreement with hercules to purchase up to 285,016 shares of our common stock at an exercise price of $ 6.14 per share . sixty percent of the warrants were exercisable at the closing in april 2014 and the remaining forty percent became exercisable upon the funding of the additional $ 25.0 million to limited in september 2014. further , we agreed to amend the warrant agreement in connection with the 2015 loan amendment to increase the number of shares issuable upon exercise to 660,377 and decrease the exercise price to $ 2.65 per share . we recorded the incremental fair value of these warrants as a discount of $ 1.3 million which is being amortized to interest expense using the effective interest method . the weighted average interest rates of our notes payable approximate the rate at which we could obtain alternative financing ; therefore , the carrying amount of the notes approximated their fair value at december 31 , 2015 and 2014 , respectively . financial operations overview we began generating revenue from iluvien in the second quarter of 2013 , but do not expect positive cash flow from operations until late 2017 , if at all . in addition to generating revenue from product sales , we intend to seek to generate revenue from other sources such as upfront fees , milestone payments in connection with collaborative or strategic relationships , and royalties resulting from the licensing of iluvien or any future product candidates and other intellectual property .
| depreciation and amortization increased by approximately $ 520,000 , or 371 % , to approximately $ 660,000 for the year ended december 31 , 2014 , compared to approximately $ 140,000 for the year ended december 31 , 2013. the increase was primarily attributable to amortization of $ 510,000 associated with an intangible asset which was capitalized in connection with a required payment to psivida upon fda approval of iluvien in september 2014 . 55 international segment replace_table_token_5_th year ended december 31 , 2015 compared to the year ended december 31 , 2014 net revenue . net revenue decreased by approximately $ 1.1 million , or 13 % , to approximately $ 7.3 million for the year ended december 31 , 2015 , compared to approximately $ 8.4 million for the year ended december 31 , 2014. the decrease was primarily attributable to decreases in the value of the british pound sterling and the euro which impacted reported revenue by $ 1.2 million offset by incremental sales associated with the commercial launch of iluvien in portugal in 2015. cost of goods sold , excluding depreciation and amortization . cost of goods sold , excluding depreciation and amortization decreased by approximately $ 430,000 , or 31 % , to approximately $ 970,000 for the year ended december 31 , 2015 , compared to approximately $ 1.4 million for the year ended december 31 , 2014. the decrease was primarily attributable to decreases in charges for expiring inventory . in 2015 , we recognized approximately $ 450,000 in invetory reserves as a result of pricing delays in france as compared to $ 860,000 recorded in 2014 primarily as a result of lower than expected sales in germany . research , development and medical affairs expenses . research , development and medical affairs expenses decreased by approximately $ 1.3 million , or 20 % , to approximately $ 5.1 million for the year ended december 31 , 2015 , compared to approximately $ 6.4 million for the year ended december 31 , 2014. the decrease was primarily attributable to a reduction of allocated costs of approximately $ 2.6 million associated with u.s. based research
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our construction offerings for general contractors , construction managers and escos include the following : competitive lump sum bidding ( including plan and specification bidding with select qualified competitors ) ; design/assist services , for which we typically contract on a negotiated basis to maintain a project budget , and occasionally are contracted on a lump sum basis ; integrated project delivery , for which we contract on a negotiated basis to collaborate with a team to establish a target budget and execute on a project within the target budget ; design/build , which services are provided on either a negotiated basis or through competitive bidding ; and performance contracting , for which we assess a building owner 's facilities and offer a proposal to reduce energy and operating costs , and when successful , we often perform ongoing maintenance of the building systems . our specialty contracting is provided through either our special projects division or our major projects group . special projects typically range in value from $ 5,000 to $ 1.0 million . major projects typically range in value from $ 1.0 million to $ 100.0 million . actual contracts may be below or above these stated ranges depending upon the actual project requirements . we possess the abilities to provide design services in-house through our design center located in orlando , florida . we sell the majority of our services by leading with our engineered solutions , which we believe are highly valued by our select customer base and drive higher margin outcomes . 26 comparison of select financial data : replace_table_token_2_th jobs act we are an “ emerging growth company ” ( “ egc ” ) pursuant to the jobs act . the jobs act contains provisions that , among other things , reduce certain reporting requirements for qualifying companies . under the jobs act , we will remain an egc until the earliest of : december 31 , 2019 ( the last day of the fiscal year following the fifth anniversary of our initial public offering of common equity securities ) ; the last day of the fiscal year in which we have annual gross revenue of $ 1.0 billion or more ; the date on which we have , during the previous three-year period , issued more than $ 1.0 billion in non-convertible debt ; and the date on which we are deemed to be a “ large accelerated filer , ” which will occur at such time as the company has an aggregate worldwide market value of common equity securities held by non-affiliates of $ 700.0 million or more as of the last business day of our most recently completed second fiscal quarter . pursuant to section 107 ( b ) of the jobs act , as an egc we elected to delay adoption of accounting pronouncements newly issued or revised after april 5 , 2012 applicable to public companies until such pronouncements are made applicable to private companies . as a result , our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies . highlights and trends industry forecast industry forecasting by dodge data and analytics , fmi and the aia anticipate continued growth in all of our sectors in the near and midterm . as noted in fmi 's third quarter 2016 construction outlook report our top four sectors healthcare , education , sports & amusement , and transportation are projected to experience strong growth through 2020. combining the expansion of the market opportunities , our competitive differentiation and the growth strategies we are employing , we believe we will continue to realize steady sales and improve margin opportunities . trends that could affect the company 's business are discussed in “ risk factors-risks related to our business and industry ” in item 1a . 27 2016 highlights on july 20 , 2016 , we completed the business combination in which we acquired lhllc and changed our name to limbach holdings , inc. on november 16 , 2016 , our common stock began trading on the nasdaq capital market under the symbol “ lmb. ” see note 4 – business combination in the notes to consolidated financial statements . concurrent with the closing of the business combination , on july 20 , 2016 , the company 's wholly owned subsidiary , limbach facility services llc ( “ borrower ” ) , and the company 's other wholly owned subsidiaries , limbach holdings llc , limbach company llc , limbach company lp , harper limbach llc and harper limbach construction llc ( collectively the “ guarantors ” , and together with borrower , the “ loan parties ” ) , entered into a credit agreement with fifth third bank , as administrative agent and as a lender , the other institutions party thereto as lenders and the other loan parties party thereto , providing for a $ 25.0 million revolving credit facility , of which $ 21.6 million was available to be drawn as of december 31 , 2016 , and a $ 24.0 million term loan facility ( the “ credit agreement ” ) , of which $ 22.5 million was drawn at december 31 , 2016. the credit agreement also provides that up to $ 5.0 million may be drawn against the $ 25.0 million revolving credit facility for the issuance of letters of credit . as of december 31 , 2016 , the company had one letter of credit outstanding for $ 3.4 million . the term loan and revolving credit facility will mature on july 20 , 2021. borrowings and letters of credit issued under the credit agreement are guaranteed by the guarantors and are collateralized by substantially all of the loan parties ' respective assets . story_separator_special_tag the credit agreement includes restrictions on , among other things and subject to certain exceptions , the loan parties ' ability to incur additional indebtedness , pay dividends or make other distributions , redeem or purchase capital stock , make investments and loans and enter into certain transactions , including selling assets , engaging in mergers or acquisitions and entering into transactions with affiliates . also on july 20 , 2016 , the loan parties entered into a loan agreement with alcentra capital corporation ( “ alcentra ” ) , as agent and as a lender , providing for a $ 13.0 million term loan , evidenced by an unsecured note subordinate to the credit agreement ( the “ subordinated loan agreement ” ) . the loan was set to mature on july 20 , 2022 , and bore interest at a rate of 16.0 % , of which 13.0 % was cash interest with the option to pay the additional 3.0 % interest in cash or allow it to accrue into the note balance , as payment in kind . on december 21 , 2016 , the company repaid all amounts outstanding under the subordinated loan agreement in full settlement thereof , including deferred interest and prepayment penalties , totaling $ 15.3 million , with the proceeds of the company 's public offering of 1,405,500 shares of its common stock at a price of $ 13.50 per share . the loss on the extinguishment of the subordinated loan recorded by the company was $ 2.2 million , which is reflected separately as a financial statement line item in the consolidated statement of operations for the successor period from july 20 , 2016 through december 31 , 2016. key components of consolidated statements of operations revenue we generate revenue principally from fixed-price construction contracts to deliver hvac , plumbing , and electrical construction services to our customers . the duration of our contracts generally range from six months to two years . revenue from fixed price contracts are recognized on the percentage-of-completion method , measured by the relationship of total cost incurred to total estimated contract costs ( cost-to-cost method ) . revenue from time and materials contracts is recognized as services are performed . we believe that our extensive experience in hvac , plumbing , and electrical projects , and our internal cost review procedures during the bidding process , enable us to reasonably estimate costs and mitigate the risk of cost overruns on fixed price contracts . we generally invoice customers on a monthly basis , based on a schedule of values that breaks down the contract amount into discrete billing items . costs and estimated earnings in excess of billings on uncompleted contracts are recorded as an asset until billable under the contract terms . billings in excess of costs and estimated earnings on uncompleted contracts are recorded as a liability until the related revenue is recognizable . cost of revenue cost of revenue primarily consists of the labor , equipment , material , subcontract , and other job costs in connection with fulfilling the terms of our contracts . labor costs consist of wages plus taxes , fringe benefits , and insurance . equipment costs consist of the ownership and operating costs of company-owned assets , in addition to outside-rented equipment . if applicable , job costs include estimated contract losses to be incurred in future periods . due to the varied nature of our services , and the risks associated therewith , contract costs as a percentage of contract revenue have historically fluctuated and we expect this fluctuation to continue in future periods . selling , general and administrative expenses selling , general and administrative expenses consist primarily of personnel costs for our administrative , estimating , human resources , safety , information technology , legal , finance and accounting employees and executives . also included are non-personnel costs , such as travel-related expenses , legal and other professional fees and other corporate expenses . we expect to incur incremental costs associated with supporting the growth of our business and to meet the increased compliance requirements associated with our transition to and operation as a public company . those costs include increases in our accounting , human resources , information technology and legal personnel , additional consulting , legal and audit fees , insurance costs , board of directors ' compensation and the costs of ultimately achieving and maintaining compliance with section 404 of the sarbanes-oxley act . 28 depreciation and amortization depreciation and amortization expenses are periodic non-cash charges that consist of depreciation of fixed assets , including leasehold improvements and equipment , and amortization of various intangible assets primarily including leasehold interests , customer relationships – service , construction and service backlogs and definite-lived assets . impairment of long-lived assets limbach reviews long-lived assets such as leasehold improvements , equipment and intangibles on an asset-by-asset basis for impairment whenever events or circumstances indicate the value of the assets may not be recoverable and records an impairment charge if appropriate . other income ( expense ) , net other income ( expense ) , net consists primarily of interest expense incurred in connection with our debt , along with interest , and miscellaneous income . interest expense interest expense consists primarily of interest expense on outstanding debt . deferred financing costs are recorded at cost and amortized using the effective interest method . transaction-related costs direct transaction-related costs consist of costs incurred in connection with the business combination . these costs , totaling $ 0.1 million for july 20 , 2016 through december 31 , 2016 ( successor ) , are reflected in selling , general and administrative expenses in the respective consolidated statement of operations .
| 34 the following table reflects our available funding capacity as of december 31 , 2016 : replace_table_token_5_th our cash flows are primarily impacted from period to period by fluctuations in working capital . factors such as our contract mix , commercial terms , days sales outstanding ( “ dso ” ) and delays in the start of projects may impact our working capital . in line with industry practice , we accumulate costs during a given month then bill those costs in the current month for many of our contracts . while labor costs associated with these contracts are paid weekly and salary costs associated with the contracts are paid bi-weekly , certain subcontractor costs are generally not paid until we receive payment from our customers ( contractual “ pay-if-paid ” terms ) . we have not historically experienced a large volume of write-offs related to our receivables and our unbilled revenue on contracts in progress . we regularly assess our receivables and costs in excess of billings for collectability and provide allowances for doubtful accounts where appropriate . we believe that our reserves for doubtful accounts are appropriate as of december 31 , 2016 , but adverse changes in the economic environment may impact certain of our customers ' ability to access capital and compensate us for our services , as well as impact project activity for the foreseeable future . the following table represents our summarized working capital information : replace_table_token_6_th * current ratio is calculated by dividing current assets by current liabilities . the following table presents summary cash flow information for the periods indicated : replace_table_token_7_th 35 cash flows provided by operating activities cash flows provided by operating activities were $ 3.1 million for july 20 , 2016 through december 31 , 2016 ( successor ) and $ 1.6 million for january 1 , 2016 through july 19 , 2016 ( predecessor ) as compared to $ 0.6 million for january 1 , 2015 through december 31 , 2015 ( predecessor ) . for combined calendar year 2016 , operating activities provided $ 4.8
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actual events or results may differ materially from those indicated or anticipated , as discussed in the section entitled “ forward looking statements. ” the following discussion of our financial condition and results of operations should also be read in conjunction with our financial statements and notes to financial statements contained in item 8 of this report . 12 financial position we believe that our consolidated balance sheet indicates a s table financial position . during the 2017 fiscal year , we decreased our total liabilities by $ 1,378,000 , a 14.1 % decrease compared to our total liabilities at the end of the 2016 fiscal year . we were able to decrease these liabilities even while sustaining operating losses . we expect our access to capital will continue to provide future cash for equipment investments , acquisitions , or debt pay down . during the 2017 fiscal year , our working capital decreased approximately $ 1,182,000 , primarily as a result of the adoption of asu 2015-17 , “ income taxes ( topic 740 ) ” , which simplified the presentation of deferred income taxes , and required all deferred income taxes to be classified as noncurrent . this was somewhat mitigated by the increase in our accounts receivable balance from 2016 to 2017 as a result of higher shipments in our fourth quarter year over year . other factors impacting our working capital were our planned reduction in inventories and the reclassification of debt , as we were able to refinance our term debt under more favorable terms during 2017 , and a larger portion is now due in future years . we have approximately $ 2,537,000 available on our line of credit as of november 30 , 2017. critical accounting policies our significant accounting policies are described in note 1 to our consolidated financial statements contained in item 8 of this report , which were prepared in accordance with g enerally accepted accounting principles ( “ gaap ” ) . critical accounting policies are those that we believe are both important to the portrayal of our financial condition and results and require our most difficult , subjective or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . we believe that the following discussion represents the most critical accounting policies and estimates used in the preparation of our consolidated financial statements , although it is not inclusive . inventories inventories are stated at the lower of cost or net realizable value , and cost is determined using the standard costing method . management monitors the carrying value of inventories using inventory control and review processes that include , but are not limited to , sales forecast review , inventory status reports , and inventory reduction programs . we record inventory write downs to net realizable value based on expected usage information for raw materials and historical selling trends for finished goods . if the assumptions made by management do not occur , we may need to record additional write downs . revenue recognition revenue is recognized when risk of ownership and title pass to the buyer , generally upon the shipment of the product . all sales are made to authorized dealers whose application for dealer status has been approved and who have been informed of general sales policies . any changes in our terms are documented in the most recently published price lists . pricing is fixed and determinable according to our published equipment and parts price lists . title to all equipment and parts sold shall pass to the buyer upon delivery to the carrier and is not subject to a customer acceptance provision . proof of the passing of title is documented by the signing of the delivery receipt by a representative of the carrier . post shipment obligations are limited to any claim with respect to the condition of the equipment or parts . a provision for warranty expenses , based on sales volume , is included in the financial statements . our returns policy allows for new and saleable parts to be returned , subject to inspection and a restocking charge , which is included in net sales . whole goods are not returnable . shipping costs charged to customers are included in net sales . freight costs incurred are included in cost of goods sold . customer deposits consist of advance payments from customers , in the form of cash , for revenue to be recognized in the following year . in certain circumstances , upon the customer 's written request , we may recognize revenue when production is complete and the good is ready for shipment . at the buyer 's request , we will bill the buyer upon completing all performance obligations , but before shipment . the buyer dictates that we ship the goods per their direction from our manufacturing facility , as is customary with this type of agreement , in order to minimize shipping costs . the written agreement with the customer specifies that the goods will be delivered on a schedule to be determined by the customer , with a final specified delivery date , and that we will segregate the goods from our inventory , such that they are not available to fill other orders . this agreement also specifies that the buyer is required to purchase all goods manufactured under this agreement . title of the goods will pass to the buyer when the goods are complete and ready for shipment , per the customer agreement . story_separator_special_tag at the transfer of title , all risks of ownership have passed to the buyer , and the buyer agrees to maintain insurance on the manufactured items that have not yet been shipped . we have operated using bill and hold agreements with certain customers for many years , with consistent satisfactory results for both buyer and seller . the credit terms on this agreement are consistent with the credit terms on all other sales . all risks of loss are shouldered by the buyer , and there are no exceptions to the buyer 's commitment to accept and pay for these manufactured goods . revenues recognized at the completion of production in the 2017 and 2016 fiscal years were approximately $ 184,000 and $ 424,000 , respectively . 13 our modular buildings segment is in the construction industry and , as such , accounts for long-term contracts on the percentage-of-completion method . revenue and gross profit are recognized as work is performed based on the relationship between actual costs incurred and total estimated costs at completion . contract losses are recognized when current estimates of total contract revenue and contract cost indicate a loss . estimated contract costs include any and all costs appropriately allocable to the contract . the provision for these contract losses will be the excess of estimated contract costs over estimated contract revenues . costs and profit in excess of amounts billed are classified as current assets and billings in excess of cost and profit are cl assified as current liabilities . story_separator_special_tag style= '' margin : 0pt ; text-align : justify ; font-family : times new roman , times , serif ; font-size : 10pt ; '' > during the third quarter of the 2016 fiscal year , we made the decision to exit the pressure vessels industry and are currently working to liquidate the assets . our pressurized vessels segment 's net sales for the 2017 fiscal year were $ 0 compared to $ 1,598,000 for the 2016 fiscal year . we continued to incur expenses during 2017 due to holding the facility in dubuque , iowa . in january 2018 , we accepted an offer on the remaining assets for $ 1,500,000. we anticipate closing on the disposition of these assets in the second quarter of fiscal 2018. based on this offer , we have recorded an impairment to our assets of $ 289,000 in the 2017 fiscal year . our pretax loss in 2017 was $ ( 401,000 ) compared to $ ( 617,000 ) in 2016 , a decrease of $ 216,000 , or 35.0 % . trends and uncertainties we are subject to a number of trends and uncertainties that may affect our short-term or long-term liquidity , sales revenues , and operations . similar to other farm equipment manufacturers , we are affected by items unique to the farm industry , including fluctuations in farm income resulting from the change in commodity prices , crop damage caused by weather and insects , government farm programs , interest rate fluctuations , and other unpredictable variables . other uncertainties include our oem customers and the decisions they make regarding their current supply chain structure , inventory levels , and overall business conditions . management believes that our business is dependent on the farming industry for the bulk of our sales revenues . as such , our business tends to reap the benefits of increases in farm net income , as farmers tend to purchase equipment in lucrative times and forgo purchases in less profitable years . direct government payments are declining and costs of agricultural production are increasing ; therefore , we anticipate that further increases in the value of production will benefit our business , while any future decreases in the value of production will decrease farm net income and may harm our financial results . as with other farm equipment manufacturers , we depend on our network of dealers to influence customers ' decisions , and dealer influence is often more persuasive than a manufacturer 's reputation or the price of the product . seasonality sales of our agricultural products are seasonal ; however , we have tried to decrease the impact of this seasonality through the development of beet harvesting machinery coupled with private labeled products , as the peak periods for these different products occur at different times . we believe that our tool sales are not seasonal . our modular building sales are somewhat seasonal , and we believe that this is due to the budgeting and funding cycles of the universities that commonly purchase our modular buildings . we believe that this cycle can be offset by building backlogs of inventory and by increasing sales to other public and private sectors . liquidity and capital resources our main source of funds during the 2017 fiscal year was cash generated by operating activities , which was primarily due to inventory reductions , and amounts available under our revolving line of credit . we used $ 514,000 of cash to update facilities and equipment . 15 on september 28 , 2017 , w e entered into a new credit facility with bank midwest , which superseded and replaced in its entirety our previous credit facility with u.s. bank national association ( “ u.s . bank ” ) . the bank midwest credit facility consists of a $ 5,000,000 revolving line of credit , pursuant to which we had borrowed $ 2,462,530 as of november 30 , 2017 , with $ 2,537,470 remaining available , and two term loans , which had outstanding principal balances of $ 2,595,000 , and $ 600,000 as of november 30 , 2017. proceeds of the new line of credit and two term loans were used to refinance all of the indebtedness outstanding under the u.s. bank credit facility in the amount of approximately $ 6,562,030 , which consisted of $ 6,528,223 in unpaid principal and approximately $ 33,807 in accrued and
| consolidated net loss for the 2017 fiscal year was $ ( 1,369,000 ) for continuing operations compared to net loss of $ ( 426,000 ) in the 2016 fiscal year for continuing operations , an increase in loss of $ 943,000. this increased loss is primarily a result of inefficiencies in the production of new products in our agricultural products segment , coupled with soft demand that resulted in lower net sales in our agricultural products and modular buildings segments . net loss from our discontinued pressurized vessels segment was $ ( 268,000 ) in the 2017 fiscal year compared to $ ( 395,000 ) in the 2016 fiscal year . our effective tax rate for continuing operations for the 2017 and 2016 fiscal years was 23.6 % and 18.5 % , respectively . agricultural products . our agricultural products segment 's sales revenue for the 2017 fiscal year was $ 15,407,000 compared to $ 15,756,000 during the 2016 fiscal year , a decrease of $ 349,000 , or 2.2 % . while we did n't experience significant decreases in demand for agricultural products as compared to 2016 , the mix of products sold in 2017 was very different from 2016. a large portion of these sales were for products introduced in 2017 , which currently have lower margins and negatively impacted our production efficiency . also during 2017 , in order to improve cash flow we made the decision to sell certain excess whole goods at reduced margins . gross profit for the 2017 fiscal year was 18.1 % compared to 24.2 % for the 2016 fiscal year . the continued depressed sales levels in our agricultural products segment is not unlike all other companies that serve this market , both large and small . we do not believe that the sales levels in the 2017 fiscal year represent a loss of market share , but rather lower demand in the overall market place for agricultural equipment . we anticipate the decreased market demand to continue through the 2018 fiscal year . our agricultural products segment 's operating expenses for the 2017 fiscal year were $ 4,173,000 compared to $
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prior period segment operating results have been restated to conform to the current period presentation . the information below provides the operating results for each reportable operating segment and corporate and other activities for the years ended december 31 , 2016 , 2015 , and 2014 ( dollars in millions ) . ( a ) revenue includes intersegment revenue earned by lss as a result of servicing loans for agm . ( b ) total revenue includes `` net interest income after provision for loan losses '' and `` total other income '' from the company 's segment statements of income , excluding the impact from changes in fair values of derivatives and foreign currency transaction adjustments . net income excludes changes in fair values of derivatives and foreign currency transaction adjustments , net of tax . for information regarding the exclusion of the impact from changes in fair values of derivatives and foreign currency transaction adjustments , see `` gaap net income and non-gaap net income , excluding adjustments '' above . ( c ) computed as income before income taxes divided by total revenue . the company 's current outlook for 2017-2019 operating results is that the company believes that net income for those years will be at decreased levels compared to 2016 , due to the continued amortization of the company 's ffelp loan portfolio and anticipated 36 increases in interest rates . the company currently believes that in the short-term it will most likely not be able to invest the excess cash generated from the ffelp loan portfolio into assets that immediately generate the rates of return historically realized from that portfolio . in addition , the company currently anticipates allo 's operating results will be dilutive to the company 's consolidated earnings over the next several years as it continues to build its network in lincoln , nebraska , due to large upfront capital expenditures and associated depreciation and upfront customer acquisition costs . a summary of the results and financial highlights for each reportable operating segment and a summary of the company 's liquidity and capital resources follows . see `` results of operations '' for each reportable operating segment and `` liquidity and capital resources '' under this item 7 for additional detail . loan systems and servicing as of december 31 , 2016 , the company was servicing $ 194.8 billion in ffelp , private , and government owned student loans , as compared with $ 176.4 billion and $ 161.6 billion of loans as of december 31 , 2015 and 2014 , respectively . the year over year increase was due to an increase in government and private loan servicing volume . revenue decreased in 2016 compared to 2015 and 2015 compared to 2014 due primarily to the loss of two guaranty servicing and collection clients . the company 's guaranty servicing and collection revenue was earned from two guaranty clients , and a significant amount of such revenue came from one of those clients . the contract with this client expired on october 31 , 2015. the other guaranty servicing and collection client exited the ffelp guaranty business at the end of their contract term on june 30 , 2016. after this customer 's exit from the ffelp guaranty business effective june 30 , 2016 , the company has no remaining guaranty revenue . ffelp guaranty servicing and ffelp guaranty collection revenue recognized by the company from these clients for the years ended december 31 , 2016 , 2015 , and 2014 , was $ 9.6 million , $ 56.9 million , and $ 66.7 million , respectively . the decrease in revenue was partially offset by an increase in government and private servicing revenue . revenue from the government servicing contract increased to $ 151.7 million in 2016 compared to $ 133.2 million and $ 124.4 million in 2015 and 2014 , respectively . the increase in 2016 compared to 2015 was due to a shift in the portfolio of loans serviced to a greater portion of loans in higher paying repayment statuses , an increase in billable applications for tpd borrowers due to a new change request matching eligible borrowers to the social security administration database , and the transfer of borrowers from a not-for-profit servicer who exited the loan servicing business in august 2016. the increase in 2015 compared to 2014 was due to an increase in the number of borrowers serviced under the government servicing contract . in april 2016 , the department 's office of federal student aid released information regarding a new contract procurement process for the department to acquire a single servicing system platform with multiple customer service providers to manage all student loans owned by the department . the contract solicitation process is divided into two phases . on may 6 , 2016 , the company and great lakes submitted a joint response to phase i as part of a newly created joint venture to respond to the contract solicitation process and to provide services under the new contract in the event that the department selects it to be awarded with the contract . the joint venture will operate as a new legal entity called greatnet . the company and great lakes each own 50 percent of the ownership interests of greatnet . in addition to the company , great lakes is also one of four tivas that currently has a student loan servicing contract with the department to provide servicing for loans owned by the department . greatnet was one of three entities selected to respond to phase ii of the procurement selection process . on january 6 , 2017 , greatnet submitted its phase ii response to the department and is currently awaiting announcement from the new administration on the next steps in the procurement process . tuition payment processing and campus commerce revenue increased in 2016 and 2015 , compared to 2015 and 2014 , respectively , due to increases in the number of managed tuition payment plans , campus commerce customer transaction volume , and new school customers . story_separator_special_tag in addition , the company purchased renweb on june 3 , 2014 , which contributed revenue of $ 8.8 million , $ 19.9 million , and $ 23.2 million in 2014 , 2015 , and 2016 , respectively . 37 communications on december 31 , 2015 , the company purchased the majority of the ownership interests of allo for total cash consideration of $ 46.25 million . on january 1 , 2016 , the company sold a 1.0 percent ownership interest in allo to a non-related third-party for $ 0.5 million . the remaining 7.5 percent of the ownership interests of allo is owned by members of allo management , who have the opportunity to earn an additional 11.5 percent ( up to 19 percent ) of the total ownership interests based on the financial performance of allo . the allo assets acquired and liabilities assumed were recorded by the company at their respective estimated fair values at the date of acquisition , and such assets and liabilities were included in the company 's balance sheet as of december 31 , 2015. however , allo had no impact on the consolidated statement of income for 2015. on january 1 , 2016 , the company began to reflect the operations of allo in the consolidated statements of income . for the year ended december 31 , 2016 , the operating segment recorded a net loss of $ 5.9 million . the company anticipates this operating segment will be dilutive to consolidated earnings over the next several years as it continues to build its network in lincoln , nebraska , due to large upfront capital expenditures and associated depreciation and upfront customer acquisition costs . the company anticipates total network capital expenditures of approximately $ 80 million in 2017 ; however , such amount could change based on customer demand for allo 's services . for the year ended december 31 , 2016 , allo 's capital expenditures were $ 38.8 million . asset generation and management during the year ended december 31 , 2016 compared to the same period in 2015 , the average balance of the company 's student loan portfolio decreased $ 1.8 billion , to $ 26.9 billion , due primarily to the amortization of the portfolio , and limited portfolio acquisitions from third parties . the company acquired $ 356.1 million of ffelp and private education student loans during 2016 , compared to $ 4.0 billion in 2015 and $ 6.1 billion in 2014. core student loan spread decreased to 1.28 % for 2016 , compared to 1.43 % for 2015. this decrease was a result of decreases in variable student loan spread and fixed rate floor income . variable student loan spread decreased due to a widening in the basis between the asset and debt indices in which the company earns interest on its loans and funds such loans . fixed rate floor income decreased due to an increase in interest rates . due to historically low interest rates , the company continues to earn significant fixed rate floor income . during 2016 , 2015 , and 2014 , the company earned $ 152.3 million , $ 184.7 million , and $ 179.9 million , respectively , of fixed rate floor income ( net of $ 17.6 million , $ 23.0 million , and $ 24.4 million of derivative settlements , respectively , used to hedge such loans ) . in the third quarter of 2016 , the company revised its policy to correct for an error in its method of applying the interest method used to amortize premiums and accrete discounts on its student loan portfolio . previously , the company amortized premiums and accreted discounts by including in its prepayment assumption forecasted payments in excess of contractually required payments as well as forecasted defaults . the company has determined that only payments in excess of contractually required payments should be included in the prepayment assumption . under the company 's revised policy , as of september 30 , 2016 , the constant prepayment rate used by the company to amortize/accrete student loan premiums/discounts was decreased . during the third quarter of 2016 , the company recorded an adjustment to reflect the net impact on prior periods for the correction of this error that resulted in an $ 8.2 million reduction to the company 's net loan discount balance and a corresponding pre-tax increase to interest income ( $ 5.1 million after tax ) . the company concluded this error had an immaterial impact on 2016 results as well as the results for prior periods . during the fourth quarter of 2016 , the company redeemed certain debt securities prior to their legal maturity and recognized $ 7.4 million , or $ 4.6 million after tax , in interest expense to write off the remaining debt discount associated with these bonds . 38 corporate and other activities whitetail rock capital management , llc , the company 's sec-registered investment advisory subsidiary , recognized investment advisory revenue of $ 6.1 million , $ 4.3 million , and $ 17.7 million for 2016 , 2015 , and 2014 , respectively . these amounts include performance fees earned from the sale of managed securities or managed securities being called prior to the full contractual maturity . due to improvements in the capital markets , the opportunities to earn performance fees on the sale of student loan asset-backed securities were more limited in 2016 and 2015 as compared to 2014. on february 1 , 2016 , the company sold 100 percent of the membership interests in sparkroom llc , which includes the majority of the company 's inquiry management products and services within nelnet enrollment services . the company retained the digital marketing and content solution products and services under the brand name peterson 's within the nelnet enrollment services business , which include test preparation study guides , school directories and databases , career exploration guides , on-line courses , scholarship search and selection data , career planning information and guides , and on-line information about colleges and universities .
| replace_table_token_9_th ( a ) on february 1 , 2016 , the company sold 100 percent of the membership interests in sparkroom llc , which includes the majority of the company 's inquiry management products and services within nelnet enrollment services . after the sale of sparkroom llc , the company no longer earns inquiry management revenue . 41 the following table summarizes the components of `` other income . '' replace_table_token_10_th ( a ) the decrease in revenue in 2016 compared to 2015 and 2014 was due to the loss of rights to a certain publication . ( b ) the company provides investment advisory services under various arrangements and earns annual fees of 25 basis points on the outstanding balance of investments and up to 50 percent of the gains from the sale of securities or securities being called prior to the full contractual maturity for which it provides advisory services . due to improvements in the capital markets , the opportunities to earn performance fees on the sale of student loan asset-backed securities were more limited in 2016 and 2015 as compared to 2014. as of december 31 , 2016 , the outstanding balance of investments subject to these arrangements was $ 907.0 million . ( c ) during 2014 , the company recognized income related to the modification of certain servicing agreements in which the company 's loan repurchase obligation was reduced . ( d ) the operating results for the year ended december 31 , 2016 include a gain of approximately $ 3.0 million related to the company 's sale of sparkroom , llc in february 2016. in addition , during 2016 the company recognized net gains of $ 5.1 million related to the sale of various real estate , venture capital , and other investments . 42 loan systems and servicing operating segment – results of operations student loan servicing volumes ( dollars in millions ) replace_table_token_11_th 43 summary and comparison of operating results replace_table_token_12_th 44 loan systems and servicing revenue replace_table_token_13_th 45 tuition payment processing and campus commerce operating segment – results of operations this segment of the company 's business is subject to seasonal fluctuations which correspond , or are related to , the
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rmr continues to manage our australian assets pursuant to an existing management agreement , which is scheduled to terminate on december 31 , 2015. under the termination agreement , in lieu of the business management fees and the business management incentive fee , we have agreed to pay rmr $ 1.2 million per month for transition services from october 1 , 2014 to february 28 , 2015. the payment of the transition fee also covers continued management and other services for the australian assets through february 28 , 2015. if we require such services beyond february 28 , 2015 , we have agreed to pay manager $ 0.1 million per month until the australia management agreement is terminated . the $ 3.6 million incurred pursuant to the termination agreement for the year ended december 31 , 2014 , is included in general and administrative expenses in our consolidated financial statements . effective october 1 , 2014 , we engaged cbre to conduct our day-to-day property management services for our u.s. properties . we pay cbre a property-by-property management services fee and may engage cbre from time-to-time to perform project management services , such as coordinating and overseeing the completion of tenant improvements and other capital projects at the properties . we also paid cbre a $ 600,000 transition services fee , which is included in general and administrative expenses in our consolidated financial statements , for the transition services provided by cbre . we will reimburse cbre for certain expenses incurred in the performance of its duties , including personnel costs and equipment costs . on july 9 , 2014 , we sold our entire stake of 22,000,000 common shares of sir resulting in aggregate proceeds to us of approximately $ 704.8 million in cash . sir was our 100 % owned subsidiary until march 12 , 2012 , on which date sir completed an initial public offering and became our consolidated but not wholly-owned subsidiary . following a subsequent offering of sir shares to the public on july 2 , 2013 , our investment in sir was reduced below 50 % . consequently , effective july 2 , 2013 through july 9 , 2014 , we no longer consolidated our investment in sir but instead accounted for such investment under the equity method . as of july 9 , 2014 , we no longer have any interest in sir , resulting in a reduction in equity investments on our balance sheet . on march 31 , 2014 , we owned 12.5 % of affiliates insurance company , or aic , an insurance company then owned in equal proportion by us , rmr , and six other companies to which rmr provides management services . on march 25 , 2014 , as a result of the removal of all of our former trustees , we underwent a change in control , as defined in the shareholders ' agreement among us , the other shareholders of aic , and aic . as a result of this change in control and in accordance with the terms of the shareholders ' agreement , the other shareholders of aic , on may 9 , 2014 , exercised their right to purchase the 20,000 shares of aic that we owned . we received $ 5.8 million in aggregate proceeds from this sale and no longer hold any interest in aic . since the internalization of management , we have focused on deleveraging our balance sheet . from may 23 , 2014 to december 31 , 2014 , we prepaid $ 292.5 million of mortgage debt using cash on hand , repaid the $ 235.0 million balance on our revolving credit facility , prepaid at par $ 158.4 million of our unsecured senior notes and prepaid $ 100.0 million of our term loan , reducing our term loan borrowings to $ 400.0 million . 52 on january 29 , 2015 , we entered into a new credit agreement , pursuant to which the lenders agreed to provide ( i ) a $ 750.0 million unsecured revolving credit facility , ( ii ) a $ 200.0 million 5-year term loan facility and ( iii ) a $ 200.0 million 7-year term loan facility . the new credit agreement , which replaces our prior credit agreement and our prior term loan agreement , reduces the interest rate and extends the term of our revolving credit facility and term loan borrowings . the revolving credit facility has a scheduled maturity date of january 28 , 2019 , with two six-month extension options subject to certain conditions and the payment of an extension fee . the 5-year term loan and the 7-year term loan have scheduled maturity dates of january 28 , 2020 and january 28 , 2022 , respectively , and have been fully funded . we used the proceeds from the new term loans to repay all amounts outstanding and due under the previous term loan agreement . we do not currently have any amounts outstanding under the revolving credit facility . property operations occupancy data for 2014 and 2013 is as follows ( square feet in thousands ) : replace_table_token_10_th ( 1 ) excludes properties classified in discontinued operations . ( 2 ) based on properties owned continuously since january 1 , 2013 and excludes properties classified in discontinued operations . ( 3 ) the change in total square feet from december 31 , 2013 to 2014 is a result of remeasuring certain spaces . ( 4 ) percent leased includes ( i ) space being fitted out for occupancy pursuant to existing leases and ( ii ) space which is leased but is not occupied or is being offered for sublease by tenants . the weighted average lease term based on square feet for leases entered into during the year ended december 31 , 2014 was 6.8 years . story_separator_special_tag commitments for tenant improvements , leasing commissions , tenant concessions , including free rent and tenant reimbursements , for leases entered into during the year ended december 31 , 2014 totaled $ 88.6 million , or $ 18.48 per square foot on average ( approximately $ 2.72 per square foot per year of the lease term ) . 53 as of december 31 , 2014 , approximately 11.1 % of our leased square feet and 11.3 % of our annualized rental revenue , determined as set forth below , are included in leases scheduled to expire through december 31 , 2015 . renewed and new leases and rental rates at which available space may be relet in the future will depend on prevailing market conditions at the times these leases are negotiated . lease expirations by year , as of december 31 , 2014 , are as follows ( square feet and dollars in thousands ) : replace_table_token_11_th ( 1 ) square feet is pursuant to existing leases as of december 31 , 2014 , and includes ( i ) space being fitted out for occupancy and ( ii ) space which is leased but is not occupied or is being offered for sublease by tenants . ( 2 ) annualized rental revenue is annualized contractual rents from our tenants pursuant to existing leases as of december 31 , 2014 , plus straight line rent adjustments and estimated recurring expense reimbursements ; includes some triple net lease rents and excludes lease value amortization . 54 a principal source of funds for our operations is rents from tenants at our properties . rents are generally received from our tenants monthly in advance , except from our government tenants , who usually pay rents monthly in arrears . as of december 31 , 2014 , tenants responsible for 1 % or more of our total annualized rental revenue were as follows ( square feet in thousands ) : replace_table_token_12_th ( 1 ) square feet is pursuant to existing leases as of december 31 , 2014 , and includes ( i ) space being fitted out for occupancy and ( ii ) space which is leased but is not occupied or is being offered for sublease by tenants . ( 2 ) annualized rental revenue is annualized contractual rents from our tenants pursuant to existing leases as of december 31 , 2014 , plus straight line rent adjustments and estimated recurring expense reimbursements ; includes some triple net lease rents and excludes lease value amortization . investment and disposition activities on june 27 , 2014 , we sold one cbd property ( two buildings ) and 13 suburban properties ( 41 buildings ) with a combined 2,784,098 square feet for an aggregate sales price of $ 215.9 million , excluding mortgage debt repayments and closing costs . these properties were part of our former trustees ' business plan to reposition our portfolio . as of december 31 , 2014 , all of the properties that were part of our former trustees ' business plan to reposition our portfolio , except for the properties noted above that were reclassified to held and used in operations in 2014 , have been sold . for more information regarding these transactions , see note 4 to the notes to consolidated financial statements in part iv , item 15 of this annual report on form 10-k. financing activities mortgage debt . on march 11 , 2014 , we prepaid $ 12.0 million of 4.95 % mortgage debt . on june 27 , 2014 , we repaid $ 11.2 million of 6.14 % mortgage debt and $ 8.5 million of 5.78 % mortgage debt in connection with the sale of the related properties and recognized a loss on early extinguishment of debt of $ 3.3 million from prepayment premiums and the write off of unamortized discounts and deferred financing fees . on august 1 , 2014 , we prepaid at par $ 265.0 million of 5.68 % mortgage debt at 600 west chicago avenue and recognized a net gain on early extinguishment of debt of $ 6.7 million from the write-off of unamortized premiums and deferred financing fees . on october 31 , 2014 we rep aid at par the $ 7.8 million of 5.99 % mortgage debt encumbering 6200 glenn carlson drive . 55 unsecured debt . on july 18 , 2014 , we repaid the $ 235.0 million balance on our revolving credit facility , on september 15 , 2014 , we prepaid at par $ 33.4 million of our 6.40 % unsecured senior notes due 2015 , and on november 17 , 2014 we repaid at par $ 125.0 million of our 7.50 % unsecured senior notes due 2019. on december 5 , 2014 , we repaid $ 100.0 million of our unsecured term loan . for more information regarding our financing sources and activities , please see the section captioned `` management 's discussion and analysis of financial condition and results of operations—liquidity and capital resources—our investment and financing liquidity and resources '' in part ii , item 7 of this annual report on form 10-k. 56 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > operating expenses . the decrease in operating expenses during the 2014 period totaling $ 22.1 million reflects a decrease in operating expenses totaling $ 17.2 million primarily related to the deconsolidation of sir discussed above , and a decrease in operating expenses at our comparable cbd properties totaling $ 4.7 million and a decrease in operating expenses at our comparable suburban properties totaling $ 0.2 million . the decrease in operating expenses at our cbd properties primarily reflects decreases in real estate tax assessments and reduced rates in certain markets , partially offset by increases in utility expenses and snow removal costs related to the more severe winter season during the 2014 period , compared to the 2013 period . general and administrative expense .
| this measure should be considered in conjunction with net income , net income attributable to equity commonwealth , net income attributable to equity commonwealth common shareholders , operating income and cash flow from operating activities as presented in our condensed consolidated statements of operations , condensed consolidated statements of comprehensive income ( loss ) and condensed consolidated statements of cash flows . other reits and real estate companies may calculate noi differently than we do . we refer to the 156 properties ( 262 buildings ) we owned continuously from january 1 , 2013 to december 31 , 2014 , as comparable properties . we refer to the properties owned by sir as other properties . our condensed consolidated statements of operations for the years ended december 31 , 2014 and 2013 include the operating results of 156 properties for the entire periods , as we owned these properties as of january 1 , 2013. our condensed consolidated statement of operations for the year ended december 31 , 2013 also includes the operating results of properties owned by sir when sir was our consolidated subsidiary , which was until july 2 , 2013. rental income . rental income decreased $ 71.6 million in the 2014 period , compared to the 2013 period , due to a decrease of $ 77.0 million primarily related to the deconsolidation of sir discussed above , and a decrease at our comparable cbd properties totaling $ 1.5 million , partially offset by an increase at our comparable suburban properties totaling $ 7.0 million . the increase in comparable property rental income from our suburban segment primarily reflects approximately $ 8.5 million received from the settlement of litigation with a former tenant at one of our suburban properties . the decrease in comparable property rental income from our cbd segment primarily reflects a decrease in non-cash straight line rent adjustments , partially offset by an increase in parking income and early termination revenue . rental income includes non-cash straight line rent adjustments totaling $ 12.5 million in
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no such penalties have been assessed under our current arrangement , which began in 2012. we also sell to our legacy partner merchandise that is stocked in retail locations we manage pursuant to a separate supplier agreement , and provide centralized laboratory services for the finished eyeglasses for our legacy partner 's customers in stores that we manage . we lease space from walmart within or adjacent to each of the locations we manage and use this space for vision care services provided by independent optometrists or optometrists employed by us or by independent professional corporations or similar entities . during the fiscal year 2020 , sales associated with this arrangement represented 8.3 % of consolidated net revenue . this exposes us to concentration of customer risk . our consolidated results also include the following activity recorded in our corporate/other category : our e-commerce platform of 15 dedicated websites managed by ac lens . our e-commerce business consists of six proprietary branded websites , including aclens.com , discountglasses.com and discountcontactlenses.com , and nine th ird-party websites with established retailers , such as walmart , sam 's club and giant eagle as well as mid-sized vision insurance providers . ac lens handles site management , customer relationship management and order fulfillment and also sells a wide variety of contact lenses , eyeglasses and eye care accessories . ac lens also distributes contact lenses wholesale to walmart and sam 's club . we incur costs at a higher percentage of sales than other product categories . ac lens sales associated with walmart and sam 's club contact lenses distribution arrangements represen ted 7.4 % of c onsolidated net revenue . managed care business conducted by firstsight , our wholly-owned subsidiary that is licensed as a single-service health plan under california law , which arranges for the provision of optometric services at the offices next to certain walmart stores throughout california , and also issues individual vision plans in connection with our america 's best operations in california . unallocated corporate overhead expenses , which are a component of selling , general and administrative expenses and are comprised of various home office expenses such as payroll , occupancy costs and consulting and professional fees . corporate overhead expenses also include field services for our five retail brands . reportable segment information is presented on the same basis as our consolidated financial statements , except reportable segment sales which are presented on a cash basis , including point of sales for managed care payors and excluding the effects of unearned and deferred revenue , consistent with what our chief operating decision maker ( “ codm ” ) regularly reviews . reconciliations of segment results to consolidated results include financial information necessary to adjust reportable segment revenues to a consolidated basis in accordance with accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) , specifically the change in unearned and deferred revenues during the period . there are no revenue transactions between reportable segments , and there are no other items in the reconciliations other than the effects of unearned and deferred revenue . see note 16 . “ segment reporting ” in our consolidated financial statements included in part ii . item 8. of this form 10-k. deferred revenue represents the timing difference of when we collect the cash from the customer and when services related to product protection plans and eye care club memberships are performed . increases or decreases in deferred revenue during the reporting period represent cash collections in excess of or below the recognition of previous deferrals . unearned revenue represents the timing difference of when we collect cash from the customer and delivery/customer acceptance , and includes sales of prescription eyewear during approximately the last seven to 10 days of the reporting period . 45 trends and other factors affecting our business various trends and other factors will affect or have affected our operating results , including : impact of covid-19 the covid-19 pandemic and related federal , state and local governmental and healthcare authority guidelines continue to impact our business results and cause business disruption in the u.s. and globally . to date , the covid-19 pandemic and related healthcare authority actions have directly and indirectly impacted our operations , including the temporary closure of our stores to the public between march and june 2020 , consumer behavior , comparable store sales , our associates and optometrists and the overall market . while we experienced stronger comparable store sales growth in the third and fourth qua rters of 2020 , the comparable store sales growth figure for the fiscal year 2020 reflect the effects of store closures and the pandemic . the covid-19 pandemic has resulted in , and may continue to result in , state , city or local quarantines , labor stoppages and shortages , changes in consumer purchasing patterns , mandatory or voluntary shut-downs of retail locations , severe market volatility , liquidity disruptions , and overall economic instability , which , in many cases , have had , and could continue to have , material adverse impacts on our business , financial condition and results of operations . the scope and nature of these impacts continue to evolve on a daily basis , including with a resurgence in covid-19 cases during the latter portion of this fiscal year . since the onset of the covid-19 pandemic , we have focused on ensuring the health and safety of our associates and customers , securing liquidity , reducing expenses and deferring discretionary capital expenditures . in response to the pandemic , we temporarily closed all of our stores to the public across the u.s. on march 19 , 2020 and successfully re-opened all stores with enhanced safety and cleaning protocols by june 8 , 2020. we also suspended all non-essential travel for our associates and have implemented a remote work policy for certain corporate associates . story_separator_special_tag the decrease in revenue from our temporary store closures was not offset by proportional decreases in expense , as we continued to incur store occupancy costs even while stores were temporarily closed , costs directly related to adapting the company 's operations to the covid-19 pandemic such as personal protective equipment and other supplies needed to operate our stores safely and certain other costs such as compensation , a tangible appreciation bonus paid to our customer-facing doctors and associates , and other administrative expenses , resulting in a negative effect on profitability . since the beginning of the pandemic , we have also implemented capital spending and expense reduction initiatives , including a temporary pause in new store openings between march and june 2020 , reduced near term marketing , a temporary reduction in compensation across the organization until the second quarter of 2020 , and worked with a base of vendors and landlords to extend payment terms and modify existing contracts . on march 17 , 2020 , as a precautionary measure to preserve financial flexibility during the covid-19 pandemic , we borrowed the remaining $ 146.3 million in available funds under our $ 300.0 million revolving credit facility ( the “ revolving credit facility ” ) . on may 12 , 2020 , we completed the issuance of $ 402.5 million principal amount of 2.50 % convertible senior notes due on may 15 , 2025 ( the “ 2025 notes ” ) and used the net proceeds to repay the full amount outstanding under our revolving credit facility and part of our outstanding borrowings under our term loan . we also entered into an amendment ( the “ credit agreement amendment ” ) to our amended and restated credit agreement , dated as of july 18 , 2019 ( the “ credit agreement ” ) to suspend certain financial maintenance covenants until testing at the end of the second fiscal quarter of 2021 , allowing us to focus on the prudent management of the business . we also recorded income totaling $ 11.0 million as a result of the employee retention credits made available under the cares act for u.s. associates during fiscal year 2020 ; recognizing $ 6.2 million as a reduction to costs of services and plans , $ 0.4 million as a reduction to costs of products and $ 4.4 million as a reduction to sg & a during fiscal year 2020. we continue to monitor the evolving situation as there remain many uncertainties regarding the pandemic and its resurgence through new variants , including its anticipated duration , related healthcare authority guidelines and efficacy of vaccination initiatives , impacts on our domestic labs and our outsourced third party optical laboratories in china and mexico , and potential disruptions of product deliveries . to date , we have been able to meet customer demand with operations at our laboratories . we source merchandise from suppliers located in china and a significant amount of domestically-purchased merchandise is manufactured in china . we have partnered with our suppliers and third party laboratories to mitigate any potential significant delays in delivery of merchandise . our e-commerce business remained open to serve our customers during the unprecedented period of temporary store closures . we could experience further material impacts as a result of covid-19 , including , but not limited to , charges from additional asset impairment , deferred tax valuation allowances and further changes in the effectiveness of our hedging instruments . we will continue to evaluate additional measures that we may elect to take as a response to the pandemic , including , where appropriate , future action to reduce store hours and patient appointments or temporarily close stores . there can be no assurance whether or when any such measures will be adopted . 46 it is possible that our preparations for the events listed above are not adequate to mitigate their impact , and that these events could further adversely affect our business and results of operations . for a discussion of significant risks that have the potential to cause our actual results to differ materially from our expectations , refer to “ item 1a . risk factors. ” new store openings we expect that new stores will be a key driver of growth in our net revenue and operating profit in the future . our results of operations have been and will continue to be materially affected by the timing and number of new store openings . as stores mature , profitability typically increases significantly . the performance of new stores is dependent upon factors such as the time of year of a particular opening , the amount of store pre-opening costs , labor and occupancy costs in the specified market , level of participation in managed care plans , and location , including whether they are in new or existing markets . we typically incur higher than normal associate costs at the time of a new store opening associated with set-up and other opening costs , including training and development of our store associates . the multi-year maturation process of our stores is influenced by customer purchasing behavior in our industry . consumers return for eye exams every 20 months on average and a considerable majority of our customers are repeat buyers . our planned store expansion will place increased demands on our operational , managerial , administrative and other resources . managing our growth effectively will require us to continue to enhance our store management systems , financial and management controls and information technology . we will also be required to hire , train and retain optometric professionals , store management and store personnel , which , together with increased marketing costs , may affect our operating margins . the impact of the covid-19 pandemic on our multi-year maturation process of our stores , customer purchasing behaviors and patterns remain uncertain and affects and relevant risk exposures may be exacerbated by the immediate and ongoing threat of the covid-19 pandemic .
| results of operations the following table summarizes key components of our results of operations for the periods indicated , both in dollars and as a percentage of our net revenue . in thousands , except earnings per share , percentage and store data fiscal year 2020 fiscal year 2019 fiscal year 2018 revenue : net product sales $ 1,418,283 $ 1,426,136 $ 1,269,612 net sales of services and plans 293,477 298,195 267,242 total net revenue 1,711,760 1,724,331 1,536,854 costs applicable to revenue ( exclusive of depreciation and amortization ) : products 551,783 574,351 511,406 services and plans 234,841 232,168 202,165 total costs applicable to revenue 786,624 806,519 713,571 operating expenses : selling , general and administrative expenses 720,590 744,488 687,476 depreciation and amortization 91,585 87,244 74,339 asset impairment 22,004 8,894 17,630 litigation settlement 4,395 — — other expense ( income ) , net ( 445 ) 3,611 1,487 total operating expenses 838,129 844,237 780,932 income from operations 87,007 73,575 42,351 interest expense , net 48,171 33,300 37,283 debt issuance costs 156 — 200 loss on extinguishment of debt — 9,786 — earnings before income taxes 38,680 30,489 < td colspan= '' 2 '' style= '' background-color : # ffffff ; border-top:1pt solid # 000000 ; padding:2px 0
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( 40,487 ) underwriting income ( 2 ) $ 31,222 $ — $ 31,222 $ 28,227 $ — $ 28,227 $ 34,304 $ ( 680 ) $ 34,984 loss ratio 60.2 % — % — 58.9 % — % — 53.0 % 25.8 % — expense ratio 25.1 % — % — 25.1 % — % — 21.3 % 70.2 % — combined ratio 85.3 % — % — 84.0 % — % — 74.3 % 96.0 % — adjusted loss ratio ( 3 ) — — 60.2 % — — 58.9 % — — 50.0 % adjusted expense ratio ( 3 ) — — 25.1 % — — 25.1 % — — 26.8 % adjusted combined ratio ( 3 ) — — 85.3 % — — 84.0 % — — 76.8 % ( 1 ) the ratio of net written premiums to gross written premiums . ( 2 ) underwriting income is a non-gaap financial measure . see `` — reconciliation of non-gaap financial measures '' for a reconciliation of net income in accordance with gaap to underwriting income . ( 3 ) our adjusted loss ratio , adjusted expense ratio and adjusted combined ratio are non-gaap financial measures . we define our adjusted loss ratio , adjusted expense ratio and adjusted combined ratio as each of our loss ratio , expense ratio and combined ratio , respectively , excluding the effects of the mlqs . we use these adjusted ratios as an internal performance measure in the management of our operations because we believe they give our management and other users of our financial information useful insight into our results of operations and our underlying business performance . our adjusted loss ratio , adjusted expense ratio and adjusted combined ratio should not be viewed as substitutes for our loss ratio , expense ratio and combined ratio , respectively , which are presented in accordance with gaap . our results of operations may be difficult to compare historically in light of the impact of the mlqs on our results of operations . during the year in which the mlqs was employed , management internally evaluated our financial performance both including and excluding the effects of the mlqs . 40 components of our results of operations gross written premiums gross written premiums are the amounts received or to be received for insurance policies written or assumed by us during a specific period of time without reduction for policy acquisition costs , reinsurance costs or other deductions . the volume of our gross written premiums in any given period is generally influenced by : new business submissions ; binding of new business submissions into policies ; renewals of existing policies ; and average size and premium rate of bound policies . we earn insurance premiums on a pro rata basis over the term of the policy . our insurance policies generally have a term of one year . net earned premiums represent the earned portion of our gross written premiums , less that portion of our gross written premiums that is ceded to third-party reinsurers under our reinsurance agreements . ceded written premiums ceded written premiums are the amount of gross written premiums ceded to reinsurers . we enter into reinsurance contracts to limit our exposure to potential large losses as well as to provide additional capacity for growth . ceded written premiums are earned over the reinsurance contract period in proportion to the period of risk covered . the volume of our ceded written premiums is impacted by the level of our gross written premiums and any decision we make to increase or decrease retention levels . net investment income net investment income is an important component of our results of operations . we earn investment income on our portfolio of cash and invested assets . our cash and invested assets are primarily comprised of fixed-maturity securities , and may also include cash and cash equivalents , equity securities and short-term investments . the principal factors that influence net investment income are the size of our investment portfolio and the yield on that portfolio . as measured by amortized cost ( which excludes changes in fair value , such as changes in interest rates ) , the size of our investment portfolio is mainly a function of our invested equity capital along with premiums we receive from our insureds less payments on policyholder claims . net investment gains ( losses ) net investment gains ( losses ) are a function of the difference between the amount received by us on the sale of a security and the security 's recorded value , the unrealized gains and losses on our equity portfolio , as well as any `` other-than-temporary '' impairments recognized in earnings . losses and loss adjustment expenses losses and loss adjustment expenses are a function of the amount and type of insurance contracts we write and the loss experience associated with the underlying coverage . in general , our losses and loss adjustment expenses are affected by : frequency of claims associated with the particular types of insurance contracts that we write ; trends in the average size of losses incurred on a particular type of business ; mix of business written by us ; changes in the legal or regulatory environment related to the business we write ; trends in legal defense costs ; wage inflation ; and inflation in medical costs . 41 losses and loss adjustment expenses are based on an actuarial analysis of the estimated losses , including losses incurred during the period and changes in estimates from prior periods . losses and loss adjustment expenses may be paid out over a period of years . underwriting , acquisition and insurance expenses underwriting , acquisition and insurance expenses include policy acquisition costs and other underwriting expenses . policy acquisition costs are principally comprised of the commissions we pay our brokers , net of ceding commissions we receive on business ceded under certain reinsurance contracts . policy acquisition costs that are directly related to the successful acquisition of those policies are deferred . story_separator_special_tag the amortization of such policy acquisition costs is charged to expense in proportion to premium earned over the policy life . other underwriting expenses represent the general and administrative expenses of our insurance business including employment costs , telecommunication and technology costs , the costs of our lease , and legal and auditing fees . the ceding percentage under the mlqs was 15 % in 2016 until it was terminated and commuted effective october 1 , 2016. income tax expense currently all of our income tax expense relates to federal income taxes . kinsale insurance is generally not subject to income taxes in the states in which it operates ; however , our non-insurance subsidiaries are subject to state income taxes . the amount of income tax expense or benefit recorded in future periods will depend on the jurisdictions in which we operate and the tax laws and regulations in effect . among other things , the tax cuts and jobs act of 2017 ( `` tcja '' ) enacted on december 22 , 2017 lowers the federal corporate tax rate from 35 % to 21 % starting january 1 , 2018. our income tax expense for periods beginning in 2018 were based on the federal corporate income tax rate stipulated in the tcja , and as a result , our 2018 annual effective tax rate was significantly lower than our prior-year effective tax rate . key metrics we discuss certain key metrics , described below , which provide useful information about our business and the operational factors underlying our financial performance . underwriting income is a non-gaap financial measure . we define underwriting income as pre-tax income , excluding net investment income , net investment gains and losses , and other income and expenses . see `` —reconciliation of non-gaap financial measures '' for a reconciliation of net income in accordance with gaap to underwriting income . loss ratio , expressed as a percentage , is the ratio of losses and loss adjustment expenses to net earned premiums , net of the effects of reinsurance . expense ratio , expressed as a percentage , is the ratio of underwriting , acquisition and insurance expenses to net earned premiums . combined ratio is the sum of the loss ratio and the expense ratio . a combined ratio under 100 % generally indicates an underwriting profit . a combined ratio over 100 % generally indicates an underwriting loss . adjusted loss ratio is a non-gaap financial measure . we define adjusted loss ratio as the loss ratio , excluding the effects of the mlqs . for additional detail on the impact of the mlqs on our results of operations , see `` —factors affecting our results of operations — the mlqs . '' adjusted expense ratio is a non-gaap financial measure . we define adjusted expense ratio as the expense ratio , excluding the effects of the mlqs . for additional detail on the impact of the mlqs on our results of operations , see `` —factors affecting our results of operations — the mlqs . '' adjusted combined ratio is a non-gaap financial measure . we define adjusted combined ratio as the loss ratio , excluding the effects of the mlqs . for additional detail on the impact of the mlqs on our results of operations , see `` —factors affecting our results of operations — the mlqs . '' return on equity is net income expressed as a percentage of average beginning and ending stockholders ' equity during the period . our overall financial goal is to produce a return on equity in the mid-teens over the long-term . 42 operating return on equity is net operating earnings , a non-gaap financial measure , expressed as a percentage of average beginning and ending stockholders ' equity during the period . see `` —reconciliation of non-gaap financial measures '' for a reconciliation of net income in accordance with gaap to operating income . net retention ratio is the ratio of net written premiums to gross written premiums . gross investment return is investment income from fixed-maturity and equity securities , before any deductions for fees and expenses , expressed as a percentage of average beginning and ending balances of those investments during the period . results of operations year ended december 31 , 2018 compared to year ended december 31 , 2017 the following table summarizes our results of operations for the years ended december 31 , 2018 and 2017 : replace_table_token_14_th nm - percentage change not meaningful ( 1 ) underwriting income is a non-gaap financial measure . see `` —reconciliation of non-gaap financial measures '' for a reconciliation of net income in accordance with gaap to underwriting income . ( 2 ) operating return on equity is net operating earnings , a non-gaap financial measure , expressed as a percentage of average beginning and ending stockholders ' equity during the period . see `` —reconciliation of non-gaap financial measures '' for a reconciliation of net income in accordance with gaap to operating income . 43 net income was $ 33.8 million for the year ended december 31 , 2018 compared to $ 24.9 million for the year ended december 31 , 2017 , an increase of $ 8.9 million , or 35.7 % . the increase in net income in 2018 over 2017 was due to a number of factors , including growth in the business , lower net catastrophe losses and a lower effective tax rate , largely resulting from the tcja . these factors were offset in part by lower net favorable development of loss reserves related to prior accident years . our underwriting income was $ 31.2 million for the year ended december 31 , 2018 , compared to $ 28.2 million for the year ended december 31 , 2017 , an increase of $ 3.0 million , or 10.6 % . the corresponding combined ratio was 85.3 % for the year ended december 31 , 2018 compared to 84.0 % for the year ended december 31 , 2017 .
| income tax expense our effective tax rate for the year ended december 31 , 2018 was approximately 16.5 % compared to 35.4 % for the year ended december 31 , 2017. the decrease in the effective tax rate was principally due to the tcja , which lowered the federal corporate tax rate from 35 % to 21 % starting january 1 , 2018. in the fourth quarter of 2017 , as a result of the tcja enactment , we re-measured our deferred tax balances to reflect the lower rate as required by applicable accounting standards . the re-measurement resulted in an increase to our tax expense of $ 1.9 million for the year ended december 31 , 2017. in addition , the effective tax rates for the year ended december 31 , 2018 and 2017 reflected tax benefits from stock options exercised and the recognition of tax benefits related to tax-exempt interest income from municipal bonds . return on equity our return on equity was 13.5 % for the year ended december 31 , 2018 compared to 11.1 % for the year ended december 31 , 2017. operating return on equity was 15.4 % for the full year of 2018 , an increase from 11.9 % for the full year of 2017 . the increase in the operating return on equity was due to a number of factors , including growth in the business year over year and the lower income tax rate resulting from the tcja . return on equity for the year ended december 31 , 2018 was negatively impacted by unrealized losses on equity securities , net of taxes , recorded in accordance with the new accounting standard adopted in the beginning of 2018 . 47 year ended december 31 , 2017 compared to year ended december 31 , 2016 the following table summarizes our results of operations for the years ended december 31 , 2017 and 2016 : replace_table_token_18_th ( 1 ) underwriting income is a non-gaap
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on february 28 , 2019 , we entered into an agreement to sell 7.63 acres of land at our nashville facility for proceeds , less closing costs , of $ 267,000. the sale closed in the first quarter of 2019 and resulted in a gain of $ 139,000 , which we have reported as gain on sale of land in our consolidated statement of earnings and comprehensive income . during september 2018 , we entered into negotiations to sell the last remaining parcel of land we owned near st. louis . the sale resulted in a loss of $ 99,000 , which we reported as loss on sale of land in our consolidated statement of earnings and comprehensive income . the sale closed in the first quarter of 2019 with proceeds , less closing costs , of $ 531,000. we promoted six racing events in 2020 and 2019 ( five national series events and one regional series event ) , all of which were sanctioned by nascar and held at our dover international speedway facility . due to the effects of the pandemic , the six 2020 races were all held on one weekend in august without fans in attendance . we have not promoted a major motorsports event at our nashville superspeedway since 2011. on june 3 , 2020 , we announced that we would be moving one of our nascar cup series events historically held at dover international speedway to nashville superspeedway beginning in 2021. we entered into a four-year sanction agreement with nascar to promote a nascar cup series event in nashville for the 2021 through 2024 racing seasons and a one-year sanction agreement to promote a nascar cup series event in dover for the 2021 season . broadcasting revenues continue to be a significant long-term revenue source for our business . management believes this long-term contracted revenue helps stabilize our financial strength , earnings and cash flows . also , nascar ratings can impact attendance at our events and sponsorship opportunities . a substantial portion of our profits in recent years has resulted from television revenues received from nascar under its agreements with various television networks , which is expected to continue for the foreseeable future . our share of these television broadcast revenues and purse and sanction fees are fixed under our nascar sanction agreements through the year 2021 for our dover facility and through 2024 for our nashville facility . we are obligated to conduct events in the manner stipulated under the terms and conditions of these sanction agreements . 16 nascar is operating under a ten-year , multi-platform agreement with fox sports media group ( “ fox ” ) for the broadcasting and digital rights to 16 nascar cup series races , 14 xfinity series races and the entire gander rv & outdoors truck series ( along with practice and qualifying ) from 2015 through 2024. the agreement includes “ tv everywhere ” rights that allow live-streaming of all fox races , before and after race coverage , in-progress and finished race highlights , and replays of fox-televised races to a fox sports-affiliated website which began in 2013. the agreement also allows the re-telecasting of races on a fox network and via video-on-demand for 24 hours and other ancillary programming , including a nightly nascar news and information show and weekend at-track shows . nascar and fox deportes , the number one us latino sports network , have teamed up to provide our sport 's most expansive spanish-language broadcast offering ever with coverage of 15 nascar cup series races which started in 2013. nascar also operates under a ten-year comprehensive agreement with nbc sports group granting nbcuniversal ( `` nbc '' ) exclusive rights to 20 nascar cup series races , 19 nascar xfinity series events , select nascar regional & touring series events and other live content which began in 2015. further , nbc has been granted spanish-language rights , certain video-on-demand rights and exclusive 'tv everywhere ' rights for its nascar cup series and nascar xfinity series events . looking forward , our 2021 sanction agreements with nascar contain an increase of approximately 3.9 percent in media rights fees for each sanctioned event conducted , and provide a specific percentage of media rights fees to be paid to competitors . the sanction agreements also provide for an increase in sanction fees and non-media rights related prize and point fund monies ( to be paid to competitors ) of approximately 4.6 percent . we hosted the firefly music festival ( “ firefly ” ) on our property in dover , delaware for eight consecutive years and it was scheduled to return on june 18-21 , 2020. due to the covid-19 pandemic , the 2020 event was cancelled . the inaugural three day festival with 40 musical acts was held in july 2012 and the 2019 event was held in june 2019 with approximately 120 musical acts . the promoter of the firefly event is goldenvoice , a company of aeg presents , llc , a subsidiary of anschutz entertainment group , inc. aeg presents is one of the world 's largest presenters of live music and entertainment events . our amended agreement grants them two 5-year options to extend our facility rental agreement through 2032 in exchange for a rental commitment to secure our property . in addition to the facility rental fee , we also receive a percentage of the concession sales we manage at the events . there has been no decision yet regarding whether firefly will be held in 2021. if firefly is not held in 2021 , due to government-imposed restrictions related to the covid-19 pandemic or other reasons , our business will be adversely affected . we expect that our net cash flows from operating activities and funds available from our credit facility will be sufficient to provide for our working capital needs , capital spending requirements , stock repurchases , as well as any cash dividends story_separator_special_tag on february 28 , 2019 , we entered into an agreement to sell 7.63 acres of land at our nashville facility for proceeds , less closing costs , of $ 267,000. the sale closed in the first quarter of 2019 and resulted in a gain of $ 139,000 , which we have reported as gain on sale of land in our consolidated statement of earnings and comprehensive income . during september 2018 , we entered into negotiations to sell the last remaining parcel of land we owned near st. louis . the sale resulted in a loss of $ 99,000 , which we reported as loss on sale of land in our consolidated statement of earnings and comprehensive income . the sale closed in the first quarter of 2019 with proceeds , less closing costs , of $ 531,000. we promoted six racing events in 2020 and 2019 ( five national series events and one regional series event ) , all of which were sanctioned by nascar and held at our dover international speedway facility . due to the effects of the pandemic , the six 2020 races were all held on one weekend in august without fans in attendance . we have not promoted a major motorsports event at our nashville superspeedway since 2011. on june 3 , 2020 , we announced that we would be moving one of our nascar cup series events historically held at dover international speedway to nashville superspeedway beginning in 2021. we entered into a four-year sanction agreement with nascar to promote a nascar cup series event in nashville for the 2021 through 2024 racing seasons and a one-year sanction agreement to promote a nascar cup series event in dover for the 2021 season . broadcasting revenues continue to be a significant long-term revenue source for our business . management believes this long-term contracted revenue helps stabilize our financial strength , earnings and cash flows . also , nascar ratings can impact attendance at our events and sponsorship opportunities . a substantial portion of our profits in recent years has resulted from television revenues received from nascar under its agreements with various television networks , which is expected to continue for the foreseeable future . our share of these television broadcast revenues and purse and sanction fees are fixed under our nascar sanction agreements through the year 2021 for our dover facility and through 2024 for our nashville facility . we are obligated to conduct events in the manner stipulated under the terms and conditions of these sanction agreements . 16 nascar is operating under a ten-year , multi-platform agreement with fox sports media group ( “ fox ” ) for the broadcasting and digital rights to 16 nascar cup series races , 14 xfinity series races and the entire gander rv & outdoors truck series ( along with practice and qualifying ) from 2015 through 2024. the agreement includes “ tv everywhere ” rights that allow live-streaming of all fox races , before and after race coverage , in-progress and finished race highlights , and replays of fox-televised races to a fox sports-affiliated website which began in 2013. the agreement also allows the re-telecasting of races on a fox network and via video-on-demand for 24 hours and other ancillary programming , including a nightly nascar news and information show and weekend at-track shows . nascar and fox deportes , the number one us latino sports network , have teamed up to provide our sport 's most expansive spanish-language broadcast offering ever with coverage of 15 nascar cup series races which started in 2013. nascar also operates under a ten-year comprehensive agreement with nbc sports group granting nbcuniversal ( `` nbc '' ) exclusive rights to 20 nascar cup series races , 19 nascar xfinity series events , select nascar regional & touring series events and other live content which began in 2015. further , nbc has been granted spanish-language rights , certain video-on-demand rights and exclusive 'tv everywhere ' rights for its nascar cup series and nascar xfinity series events . looking forward , our 2021 sanction agreements with nascar contain an increase of approximately 3.9 percent in media rights fees for each sanctioned event conducted , and provide a specific percentage of media rights fees to be paid to competitors . the sanction agreements also provide for an increase in sanction fees and non-media rights related prize and point fund monies ( to be paid to competitors ) of approximately 4.6 percent . we hosted the firefly music festival ( “ firefly ” ) on our property in dover , delaware for eight consecutive years and it was scheduled to return on june 18-21 , 2020. due to the covid-19 pandemic , the 2020 event was cancelled . the inaugural three day festival with 40 musical acts was held in july 2012 and the 2019 event was held in june 2019 with approximately 120 musical acts . the promoter of the firefly event is goldenvoice , a company of aeg presents , llc , a subsidiary of anschutz entertainment group , inc. aeg presents is one of the world 's largest presenters of live music and entertainment events . our amended agreement grants them two 5-year options to extend our facility rental agreement through 2032 in exchange for a rental commitment to secure our property . in addition to the facility rental fee , we also receive a percentage of the concession sales we manage at the events . there has been no decision yet regarding whether firefly will be held in 2021. if firefly is not held in 2021 , due to government-imposed restrictions related to the covid-19 pandemic or other reasons , our business will be adversely affected . we expect that our net cash flows from operating activities and funds available from our credit facility will be sufficient to provide for our working capital needs , capital spending requirements , stock repurchases , as well as any cash dividends
| we recorded $ 1,172,000 of accelerated depreciation expense on these assets in 2019. costs to remove long-lived assets in 2020 and 2019 related to the removal and disposal of grandstand seating at our dover facility . gain on sale of land in 2020 relates to the sale of approximately 97 acres of land at our nashville facility . gain on sale of land in 2019 relates to the sale of approximately 141 acres of land at our nashville facility . net interest expense was $ 35,000 in 2020 compared to net interest income of $ 22,000 in 2019 and resulted from lower interest income from lower rates on invested cash in 2020. benefit for contingent obligation was $ 171,000 in 2020 compared to a provision of $ 1,005,000 in 2019. the benefit in 2020 was primarily from projected sales tax collections as a result of our four-year sanction agreement with nascar for nashville superspeedway . the 2019 provision was primarily the result of lower estimated property taxes and a decrease in the discount rate . other income was $ 182,000 in 2020 compared with $ 269,000 in 2019 and primarily represents gains on equity investments and pension benefits in both periods . earnings before income taxes were $ 7,420,000 in 2020 compared to $ 7,286,000 in 2019. excluding the gain on sale of land and costs to remove long-lived assets in both years , and the accelerated depreciation in 2019 , our adjusted earnings before income taxes were $ 2,918,000 in 2020 compared to $ 5,303,000 in 2019. replace_table_token_0_th our effective income tax rate was a 0.8 % benefit in 2020 compared to a 24.5 % expense in 2019. the 2020 tax benefit was impacted by the reversal of $ 1,916,000 of the valuation allowance for tennessee state income tax assets as a result of the reopening of the nashville superspeedway and the land purchase
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our table products are designed to enhance the table games section of the casino floor ( commonly known as “ the pit ” ) . over the past 10 years , there has been a trend of introducing side bets on blackjack tables to increase the game 's overall hold . our table products segment offers a full suite of side bets and specialty table games that capitalize on this trend , and we believe that this segment will serve as an important growth engine for our company , including by generating further cross-selling opportunities with our egm offerings . as of december 31 , 2018 , we had placed 3,162 table products domestically and internationally and based on the number of products placed , we believe we are presently a leading supplier of table products to the gaming industry . our table products segment focuses on high margin recurring revenue generated by leases . nearly all of the revenue we generate in this segment is recurring . we have acquired several proprietary table games and side-bets and developed others in-house . as one of the newer areas of our table products business , our equipment offerings are ancillary to table games , such as card shufflers and table signage , and provide casino operators a greater variety of choice in the marketplace . this product segment includes our highly-anticipated single-card shuffler , dex s , as well as our baccarat signage solution and roulette readerboard . we believe this area of the business holds many opportunities for growth , as the technology currently installed in the signage and readerboard areas are in a replacement cycle . after acquiring intellectual property around progressive bonusing systems , our table products segment has taken the base systems and heavily expanded on it to now offer customers a bonusing solution for casino operators . we believe progressive bonusing on table products is a growing trend with substantial growth opportunities . we continue to develop and expand our core system to offer new and exciting bonusing and progressive products for the marketplace . interactive our business-to-consumer ( “ b2c ” ) social casino games include online versions of our popular egm titles and are accessible to players worldwide on multiple mobile platforms , which we believe establishes brand recognition and cross-selling opportunities . our b2c social casino games operate on a free-to-play model , whereby game players may collect virtual currency or other virtual consumable goods ( collectively referred to as “ virtual goods ” or “ virtual currency ” ) free of charge , through the passage of time or through targeted marketing promotions . additionally , players have the ability to send free “ gifts ” of virtual goods to their friends through interactions with certain social platforms . if a game player wishes to obtain virtual goods above and beyond the level of free virtual goods available to that player , the player may purchase additional virtual goods . once obtained , virtual currency ( either free or purchased ) can not be redeemed for cash nor exchanged for anything other than game play . we design our portfolio of b2c games to appeal to the interests of the broad group of people who like to play casino-themed social and mobile games . currently , our b2c social casino games consist of our mobile app , lucky play casino . the app contains numerous ags game titles available for consumers to play for fun or with chips they purchase in the app . some of our most popular social casino games include content that is also popular in land-based casinos such as fire wolf , gold dragon red dragon , legend of the white buffalo , royal reels , colossal diamonds , so hot , monkey in the bank , and many more . our b2c games leverage the global connectivity and distribution of facebook , as well as mobile platforms such as the apple app store for apple devices and the google play store for android devices , which provides a platform to offer our games as well payment processing . we have recently expanded into the business-to-business ( “ b2b ” ) space , whereby we enable our land-based casino customers to brand the social gaming product with their own casino name and brand identity through our social white-label casino ( “ wlc ” ) solution . this turnkey , free-to-play mobile casino app solution blends the casino 's brand with ags ' player-favorite games to strengthen a casino 's relationship with players , provide monetization opportunities while players are off property , reach new players , and incentivize players return to the casino . to date , five customers are using our social wlc solution . with the acquisition of gameiom technologies limited ( formerly known as “ gameiom ” , and currently known as “ ags igaming ” ) in the current year , we now offer a b2b platform for content aggregation used by rmg and sports-betting partners . our acquired b2b platform aggregates content from game suppliers and offers on-line casino operators the convenience to reduce 39 the number of integrations that are needed to supply the on-line casino . by integrating with us , on-line casino operators have access to a significant amount of content from several game suppliers . ags igaming operates in regulated , legal on-line gaming jurisdictions such as the uk and parts of europe . other segment information customers and marketing . we market our products to casinos and other legal gaming establishments around the world with our domestic and international sales force and several domestic and international distributors and or representatives . we believe the quality and breadth of our customer base is a strong testament to the effectiveness and performance of our product offerings , technological innovation , and customer service . our customer base includes leading casino operators in leading established gaming markets such as the united states , canada , and latin america . story_separator_special_tag our customers include , among others , caesars entertainment , mgm resorts international , poarch band of creek indians , and the chickasaw nation . our products and the locations in which we may sell them are subject to the licensing and product approval requirements of various national , state , provincial , and tribal jurisdictional agencies that regulate gaming around the world . see “ regulation and licensing ” section below . we lease and sell our products , with an emphasis on leasing versus selling . we service the products we lease and offer service packages to customers who purchase products from us . product supply . we obtain most of the parts for our products from outside suppliers , including both off-the-shelf items as well as components manufactured to our specifications . we also manufacture parts in-house that are used for product assembly and for servicing existing products . we generally perform warehousing , quality control , final assembly and shipping from our facilities in las vegas , atlanta , mexico city and oklahoma city , although small inventories are maintained and repairs are performed by our field service employees . we believe that our sources of supply for components and raw materials are adequate and that alternative sources of materials are available . key drivers of our business our revenues are impacted by the following key factors : the amount of money spent by consumers on our domestic revenue share installed base ; the amount of the daily fee and selling price of our participation electronic gaming machines ; our revenue share percentage with customers ; the capital budgets of our customers ; the level of replacement of existing electronic gaming machines in existing casinos ; expansion of existing casinos ; development of new casinos ; opening of new gaming jurisdictions both in the united states and internationally ; our ability to obtain and maintain gaming licenses in various jurisdictions ; the relative competitiveness and popularity of our electronic gaming machines compared to competitive products offered in the same facilities ; and general macro-economic factors , including levels of and changes to consumer disposable income and personal consumption spending . our expenses are impacted by the following key factors : fluctuations in the cost of labor relating to productivity ; overtime and training ; fluctuations in the price of components for gaming equipment ; fluctuations in energy prices ; changes in the cost of obtaining and maintaining gaming licenses ; and fluctuations in the level of maintenance expense required on gaming equipment . 40 variations in our selling , general and administrative expenses , or sg & a , and research and development , or r & d are primarily due to changes in employment and salaries and related fringe benefits . 41 acquisitions and divestitures we have made several strategic acquisitions over the past three years . ags igaming during the quarter ended june 30 , 2018 , the company acquired all of the equity of gameiom , a licensed gaming aggregator and content provider for real-money gaming ( “ rmg ” ) and sports betting partners . the total consideration for this acquisition was $ 5.0 million , which included cash paid of $ 4.5 million and $ 0.5 million of deferred consideration that is payable within 18 months of the acquisition date . the consideration was preliminarily allocated primarily to goodwill that is not tax deductible for $ 3.7 million and intangible assets of $ 2.1 million . rocket gaming systems on december 6 , 2017 , we acquired an installed base of approximately 1,500 networked class ii slot machines , together with related intellectual property , which were operated by rocket gaming systems ( “ rocket ” ) for $ 56.9 million . the acquired class ii slot machines are located across the united states , with significant presence in key markets such as california , oklahoma , montana , washington and texas . the class ii portfolio from rocket includes wide-area progressive and standalone video and spinning-reel games and platforms , including galaxy , northstar and the player-favorite gold series , a suite of games that feature a $ 1 million-plus progressive prize and is the longest-standing million dollar wide-area progressive on tribal casino floors . in bet gaming in august 2017 , we acquired five dynamic , new games from new jersey-based in bet gaming ( “ in bet ” ) , including super 4 , blackjack match progressive , jackpot blackjack , royal 9 , and jackpot baccarat . at the acquisition date , these games had approximately 500 installs worldwide and the acquisition represents our largest table game investment to date . each of these games features a simple , rewarding side bet that extends the winning experience in interactive ways and further engages players . the acquisition of in bet strategically combined in bet 's innovative table game side bet technology with our expertise in table game progressive technology to deliver players and operators unmatched gaming play . the acquisition was accounted for as an acquisition of a business and the assets acquired and liabilities assumed were measured based on our estimates of their fair values at the acquisition date . we attribute the goodwill acquired to our ability to commercialize the products over our distribution and sales network , opportunities for synergies , and other strategic benefits . the total consideration for this acquisition was $ 9.6 million , which included an estimated $ 2.6 million of contingent consideration that is payable upon the achievement of certain targets and periodically based on a percentage of product revenue earned on the purchased table games . the consideration was allocated primarily to tax deductible goodwill for $ 3.2 million and intangible assets of $ 5.5 million , which will be amortized over a weighted average period of approximately 9 years .
| during the year ended december 31 , 2018 , revenues increased due to the contribution of 1,500 egms acquired from rocket in december 2017 as described in item 15 . “ exhibits and financial statement schedules. ” note 2 to our condensed consolidated financial statements . the increase is also attributable to the continued success of our icon cabinet and the popularity of our orion portrait cabinet 49 and the placement of over 500 domestic class ii units in casino expansions and newly opened casinos offset by the strategic removal of approximately 500 egms in the third quarter at one casino as well as the sale of previously leased egms . additionally , we had an increase of $ 1.25 , or 4.9 % in our domestic egm revenue per day driven by our new product offerings , recently entered jurisdictions and through the optimization of our installed base by installing our newer and more competitive game content on our egms . in addition , the increase is due to the increase of 624 international egm units , which is attributable to our gaining market share in under serviced markets within mexico . equipment sales the increase in equipment sales is due to the sale of 4,387 units in the year ended december 31 , 2018 , compared to 2,565 units in the prior year period . the increase in the number of units sold is primarily attributable to the success of our premium orion portrait cabinet and our growth in the class iii market as well as the continued success of our icon cabinet . the increase was also attributable to a $ 2,031 , or 12.4 % increase in the average sales price compared to the prior year period . the increase in the average sales price is due the higher sales price of our premium orion portrait cabinet compared to other cabinets . egm adjusted ebitda egm adjusted ebitda includes the revenues and operating expenses from the egm segment adjusted for depreciation , amortization , write-downs and
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program-specific costs include : direct third-party costs ( as well as third-party pass thru costs from roivant sciences , inc. , or rsi , and roivant sciences gmbh , or rsg ) , which include expenses incurred under agreements with contract research organizations , or cros , and contract manufacturing organizations , or cmos , the cost of consultants who assist with the development of our product candidates on a program-specific basis , investigator grants , sponsored research , manufacturing costs in connection with producing materials for use in conducting nonclinical studies and clinical trials , and other third-party expenses directly attributable to the development of our product candidates . unallocated costs include : employee-related expenses , such as salaries , share-based compensation , benefits and travel expenses for r & d personnel ; costs allocated to us for activities performed by rsi and rsg under the services agreements and share-based compensation expense allocated to us from rsl ; depreciation expenses for assets used in r & d activities ; and other expenses , which include the costs of consultants who assist with r & d activities not specific to a program . r & d expenses also include in-process r & d expense related to our acquisition of the rights to our product candidates from takeda . r & d activities will continue to be central to our business model . we expect our r & d expenses to increase significantly in the future as we conduct our phase 3 clinical programs for relugolix and a phase 2a study for mvt-602 , prepare to seek regulatory approval for our product candidates , expand our employee base and increase personnel-related expenses . product candidates in later stages of clinical development , such as relugolix , 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 . in addition , we expect our share-based compensation expense to increase as we continue to increase our number of r & d employees . the duration , costs and timing of clinical trials of relugolix , mvt-602 and any other product candidates will depend on a variety of factors that include , but are not limited to : the number of trials required for approval ; the per patient trial costs ; the number of patients who participate in the trials ; the number of sites included in the trials ; the countries in which the trials are conducted ; the length of time required to recruit and enroll eligible patients ; the number of patients who fail to meet the study 's inclusion and exclusion criteria ; the number of study drugs that patients receive ; the drop-out or discontinuation rates of patients ; the potential additional safety monitoring or other studies requested by regulatory agencies ; the duration of patient follow-up ; the timing and receipt of regulatory approvals ; 68 the costs of clinical trial material ; and the efficacy and safety profile of the product candidate . in addition , the probability of success for relugolix , mvt-602 and any other product candidates will depend on numerous factors , including competition , manufacturing capability and commercial viability . as a result , we are unable to determine the duration and completion costs of our programs or when and to what extent we will generate revenue from commercialization and sale of any of our product candidates . our r & d activities may be subject to change from time to time as we evaluate our priorities and available resources . general and administrative expenses general and administrative , or g & a , expenses consist primarily of employee-related expenses , such as salaries , share-based compensation expense , benefits and travel expenses , legal and accounting fees , general overhead expenses , costs billed to us under the services agreements , share-based compensation expense allocated to us by rsl , and consulting services relating to our formation and corporate matters . we anticipate that our g & a expenses will continue to increase in the future to support our ongoing r & d activities and increased costs of operating as a public company . these increases will likely include costs related to the hiring of additional personnel and fees to outside consultants , lawyers , and accountants , among other expenses . additionally , we anticipate increased costs associated with operating as a public company , including expenses related to maintaining compliance with new york stock exchange , or nyse , rules and united states securities and exchange commission , or sec , requirements , insurance and investor relations costs . in addition , if relugolix or mvt-602 obtains regulatory approval for marketing , we expect that we would incur expenses associated with building medical affairs , sales and marketing teams and commercialization activities . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > , including unallocated personnel expenses and third-party pass thru costs associated with the preparation of our clinical and other research programs , clinical manufacturing costs of $ 5.6 million , cro costs of $ 4.7 million , and share-based compensation expense of $ 3.9 million , $ 2.2 million of which was allocated to us by rsl , and personnel expenses of $ 2.4 million . we did not incur any r & d expenses for the period from february 2 , 2016 ( date of inception ) to march 31 , 2016 . general and administrative expenses g & a expenses were $ 24.2 million for the year ended march 31 , 2018 , and consisted primarily of personnel-related and general overhead expenses of $ 9.9 million , share-based compensation expense of $ 7.9 million , including $ 0.7 million allocated to us by rsl , legal and professional fees of $ 2.9 million , and costs of $ 3.5 million billed to us under the services agreements , including personnel expenses , overhead allocations and third-party pass thru costs . story_separator_special_tag g & a expenses were $ 12.4 million for the year ended march 31 , 2017 , and consisted primarily of share-based compensation expense of $ 4.8 million , including $ 2.7 million of which was allocated to us by rsl , legal and professional fees of $ 3.1 million , other personnel-related and general overhead expenses of $ 2.8 million , and costs of $ 1.7 million billed to us under the services agreements , including personnel expenses , overhead allocations and third-party pass thru costs . g & a expenses were $ 1.7 million for the period from february 2 , 2016 ( date of inception ) to march 31 , 2016 , and consisted primarily of share-based compensation expense of $ 1.0 million , all of which was allocated to us by rsl , and legal and professional fees of $ 0.2 million , costs of $ 0.4 million billed to us under the services agreements , including personnel expenses , overhead allocations and third-party pass thru costs . the remainder consisted primarily of other personnel-related and general overhead expenses of $ 0.1 million . 70 changes in the fair value of the takeda warrant liability the change in the fair value of the takeda warrant liability was recorded as zero for the year ended march 31 , 2018 , as the fair value of the takeda warrant liability was eliminated in connection with its expiration on april 30 , 2017. the change in the fair value of the takeda warrant liability was recorded as $ 27.5 million of expense for the year ended march 31 , 2017 , as the fair value of the takeda warrant liability decreased to $ 0.1 million at march 31 , 2017 from $ 5.4 million at april 29 , 2016 , the date of issuance of the warrant to takeda , primarily due to $ 32.8 million related to the fair value of the warrant exercised during the year ended march 31 , 2017 , primarily as a result of the issuance of an additional 1,977,269 common shares to takeda , pursuant to the automatic exercise of the warrant , based upon the sale and issuance of 14,500,000 common shares to investors in the ipo , partially offset by changes in the assumptions regarding probabilities of successful financing events used to estimate the fair value of the liability . interest expense interest expense was $ 2.0 million for the year ended march 31 , 2018 , consisting of interest expense related to the novaquest securities purchase agreement and hercules loan agreement as well as the associated non-cash amortization of debt discount and issuance costs . there was no interest expense for the year ended march 31 , 2017 and the period from february 2 , 2016 ( date of inception ) to march 31 , 2016 . liquidity and capital resources sources of liquidity we have funded our operations primarily from the issuance and sale of our common shares and from the financing commitments available to us from novaquest and hercules . prior to our ipo , our operations were funded primarily by rsl . in november 2016 , we completed our ipo in which we sold 14,500,000 common shares at a price of $ 15.00 per common share . the net proceeds to us were approximately $ 200.0 million , after deducting $ 15.2 million in underwriting discounts and commissions and $ 2.3 million in offering costs payable by us . in october 2017 , we and our subsidiaries entered into the novaquest securities purchase agreement , the novaquest equity purchase agreement , and the hercules loan agreement pursuant to which we obtained financing commitments of up to $ 140.0 million . as of march 31 , 2018 , a total of $ 92.0 million remained available to us under the novaquest securities purchase agreement and the novaquest equity purchase agreement and the $ 40.0 million financing commitment under the hercules loan agreement was fully drawn . on april 2 , 2018 , we entered into the purchase agreement with rsl , pursuant to which we agreed to issue and sell to rsl 1,110,015 of our common shares at a purchase price of $ 20.27 per common share in the private placement . in april 2018 , we received gross proceeds of $ 22.5 million from rsl at the closing of the private placement . on april 2 , 2018 , we entered into the sales agreement with cowen to sell our common shares having an aggregate offering price up to $ 100.0 million from time to time through an “ at-the-market ” equity offering program under which cowen acts as our agent . in the first quarter of fiscal year 2018 , we issued and sold 2,767,129 of our common shares under the sales agreement . the common shares were sold at a weighted-average-price of $ 21.47 per common share for aggregate net proceeds to us of approximately $ 57.6 million , after deducting commissions . as of march 31 , 2018 , we had $ 108.6 million of cash and $ 92.0 million of financing commitments available to us from novaquest . in the first quarter of fiscal year 2018 , we raised net proceeds of approximately $ 80.1 million , after deducting commissions , from the issuance and sale of our common shares in the equity offerings described above . capital requirements for the years ended march 31 , 2018 and 2017 and for the period from february 2 , 2016 ( date of inception ) to march 31 , 2016 , we had net losses of $ 143.3 million , $ 83.4 million , and $ 1.7 million , respectively . we expect to continue to incur significant and increasing operating losses and negative cash flows over the next several years as we continue to develop relugolix and mvt-602 . we have not generated any revenue to date and do not expect to generate product revenue unless and until we successfully complete development and obtain regulatory approval for relugolix , mvt-602 or any future product candidate .
| $ ( 143,255 ) $ ( 83,440 ) $ ( 1,657 ) 69 research and development expenses for the years ended march 31 , 2018 and 2017 , our r & d expenses consisted of the following ( in thousands ) : replace_table_token_1_th r & d expenses were $ 116.8 million for the year ended march 31 , 2018 , and consisted primarily of cro , clinical drug supply and other study-related costs of $ 94.4 million , personnel expenses of $ 12.2 million , share-based compensation expense of $ 3.7 million , $ 0.3 million of which was allocated to us by rsl , and costs billed to us under the services agreements of $ 4.2 million , including unallocated personnel expenses and third-party pass thru costs associated with our ongoing clinical and other research programs . r & d expenses were $ 43.5 million for the year ended march 31 , 2017 , and consisted primarily of in-process r & d expenses of $ 13.1 million , which were related to our acquisition of the rights to our product candidates from takeda and consisted of $ 7.7 million for the estimated fair value of the 5,077,001 common shares issued to takeda and $ 5.4 million for the estimated fair value of the warrant liability . the remainder consisted primarily of costs billed to us under the services agreements of $ 7.4 million < font
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cost of service revenue cost of service revenue includes : ( i ) allocation of compensation of our sales personnel , and other reimbursable costs , for the marketing of certain products at the direction of its beneficial owner , and ( ii ) reimbursable costs and services provided to our licensees in connection with their clinical , regulatory , and commercial activities within their territories . selling , general and administrative selling , general and administrative expenses primarily consist of compensation ( including stock-based compensation ) and benefits for our sales force and personnel that support our sales and marketing operations , and our general operations such as information technology , executive management , financial accounting , and human resources . it also includes costs attributable to marketing our products to our customers and prospective customers , patent and legal fees , financial statement audit fees , insurance coverage fees , bad debt expense , personnel recruiting fees , and other professional services . research and development our research and development activities primarily relate to the clinical development and testing of new drugs , and conducting studies in order to gain regulatory approval for the commercialization of our drug products . these expenses consist of compensation ( including stock-based compensation ) and benefits for research and development and clinical and regulatory personnel , materials and supplies , consultants , and regulatory and clinical payments related to studies . in addition , we include within research and development expense , technology transfer costs and manufacture qualification costs– prior to fda approval of the product , its formulation , and or its manufacturing sites . 52 critical accounting policies and estimates the preparation and presentation of financial statements in conformity with generally accepted accounting principles in the united states of america , or gaap , requires management to establish policies and make estimates and assumptions that affect ( i ) the amounts of assets and liabilities as of the date presented on the accompanying consolidated balance sheets and ( ii ) the amounts of revenue and expenses for each year presented in the accompanying consolidated statements of operations . our management believes its estimates and assumptions are supportable , reasonable , and consistently applied . nonetheless , estimates are inherently uncertain . as a result , our financial position and operating results could materially differ from the amounts reported within the accompanying consolidated financial statements if management 's estimates require prospective adjustment . our critical accounting policies and estimates arise in conjunction with the following accounts : revenue recognition inventories – lower of cost or net realizable value fair value of acquired assets and assumed liabilities goodwill and intangible assets – impairment evaluations income taxes stock-based compensation litigation accruals revenue recognition impact of the adoption of the new revenue recognition standard : asu no . 2014-09 , revenue from contracts with customers ( “ topic 606 ” ) , became effective for us on january 1 , 2018. our disclosure within the below sections reflects our updated accounting policies that are affected by this new standard . we applied the “ modified retrospective ” transition method for open contracts for the implementation of topic 606 ; this resulted in the recognition of an aggregate $ 4.7 million , net of tax , decrease to our january 1 , 2018 “ accumulated deficit ” on our accompanying consolidated balance sheets for the cumulative impact of applying this new standard . we made no adjustments to our previously-reported total revenues , as those periods continue to be presented in accordance with our historical accounting practices under topic 605 , revenue recognition ( “ topic 605 ” ) . see notes 4 , 5 , and 20 to the accompanying consolidated financial statements , for additional disclosures in accordance with topic 606. required elements of our revenue recognition : revenue from our ( a ) product sales , ( b ) out-license arrangements , and ( c ) service arrangements is recognized under topic 606 in a manner that reasonably reflects the delivery of our goods and or services to customers in return for expected consideration and includes the following elements : ( 1 ) we ensure that we have an executed contract ( s ) with our customer that we believe is legally enforceable ; ( 2 ) we identify the “ performance obligations ” in the respective contract ; ( 3 ) we determine the “ transaction price ” for each performance obligation in the respective contract ; ( 4 ) we allocate the transaction price to each performance obligation ; and ( 5 ) we recognize revenue only when we satisfy each performance obligation . these five elements , as applied to each of our revenue categories , are summarized below : ( a ) product sales : we sell our products to pharmaceutical wholesalers/distributors ( i.e. , our customers ) , except for our u.s. sales of zevalin , and limited sales of evomela , in which case the end-user ( i.e. , clinic or hospital ) is our customer . our wholesalers/distributors in turn sell our products directly to clinics , hospitals , and private oncology-based practices . revenue from our product sales is recognized as physical delivery of product occurs ( when our customer obtains control of the product ) , in return for agreed-upon consideration . our gross product sales ( i.e. , delivered units multiplied by the contractual price per unit ) are reduced by our corresponding gross-to-net ( “ gtn ” ) estimates using the “ expected value ” method , resulting in our reported “ product sales , net ” in the accompanying consolidated statements of operations , reflecting the amount we ultimately expect to realize in net cash proceeds , taking into account our current period gross sales and related cash receipts , and the subsequent cash disbursements on these sales that we estimate for the various gtn categories discussed below . story_separator_special_tag these estimates are based upon information received from external sources ( such as written or oral information obtained from our customers with respect to their period- 53 end inventory levels and sales to end-users during the period ) , in combination with management 's informed judgments . due to the inherent uncertainty of these estimates , the actual amount incurred ( of some , or all ) of product returns , government chargebacks , prompt pay discounts , commercial rebates , medicaid rebates , and distribution , data , and gpo administrative fees may be materially above or below the amount estimated , then requiring prospective adjustments to our reported net product sales . these gtn estimate categories are each discussed below : product returns allowances : our fusilev , marqibo , and beleodaq customers are contractually permitted to return purchased products beginning at its expiration date and within six months thereafter . our evomela customers are permitted to return purchased product beginning at six months prior to its expiration date , and within 12 months thereafter ( as well as for overstock inventory , as determined by end-users ) . zevalin and folotyn returns for expiry are not contractually permitted . returns outside of this aforementioned criteria are not customarily allowed . we estimate expected product returns for our allowance based on our historical return rates . returned product is typically destroyed , since substantially all returns are due to expiry and can not be resold . government chargebacks : our products are subject to pricing limits under certain federal government programs ( e.g. , medicare and 340b drug pricing program ) . qualifying entities ( i.e. , end-users ) purchase products from our customers at their qualifying discounted price . the chargeback amount we incur represents the difference between our contractual sales price to our customer , and the end-user 's applicable discounted purchase price under the government program . there may be significant lag time between our reported net product sales and our receipt of the corresponding government chargeback claims from our customers . prompt pay discounts : discounts for prompt payment are estimated at the time of sale , based on our eligible customers ' prompt payment history and the contractual discount percentage . commercial rebates : commercial rebates are based on ( i ) our estimates of end-user purchases through a group purchasing organization ( “ gpo ” ) , ( ii ) the corresponding contractual rebate percentage tier we expect each gpo to achieve , and ( iii ) our estimates of the impact of any prospective rebate program changes made by us . medicaid rebates : our products are subject to state government-managed medicaid programs , whereby rebates are issued to participating state governments . these rebates arise when a patient treated with our product is covered under medicaid , resulting in a discounted price for our product under the applicable medicaid program . our medicaid rebate accrual calculations require us to project the magnitude of our sales , by state , that will be subject to these rebates . there is a significant time lag in us receiving rebate notices from each state ( generally several months or longer after our sale is recognized ) . our estimates are based on our historical claim levels by state , as supplemented by management 's judgment . distribution , data , and gpo administrative fees : distribution , data , and gpo administrative fees are paid to authorized wholesalers/distributors of our products ( except for u.s. sales of zevalin ) for various commercial services including : contract administration , inventory management , delivery of end-user sales data , and product returns processing . these fees are based on a contractually-determined percentage of our applicable sales . ( b ) license fees : our out-license arrangements allow licensees to market our product ( s ) in certain territories for a specific term ( representing the out-license of “ functional intellectual property ” ) . these arrangements may include one or more of the following forms of consideration : ( i ) upfront license fees , ( ii ) sales royalties , ( iii ) sales milestone-achievement fees , and ( iv ) regulatory milestone-achievement fees . we recognize revenue for each based on the contractual terms that establish our right to collect payment once the performance obligation is achieved , as follows : ( 1 ) upfront license fees : we determine whether upfront license fees are earned at the time of contract execution ( i.e. , when rights transfer to the customer ) or over the actual ( or implied ) contractual period of the out-license . as part of this determination , we evaluate whether we have any other requirements to provide substantive services that are inseparable from the performance obligation of the license transfer . our customers ' “ distinct ” rights to licensed “ functional intellectual property ” at the time of contract execution results in concurrent revenue recognition of all upfront license fees ( assuming that there are no other performance obligations at contract execution that are inseparable from this license transfer ) . ( 2 ) royalties : under the “ sales-or-usage-based royalty exception ” we recognize revenue in the same period that our licensees complete product sales in their territory for which we are contractually entitled to a percentage-based royalty receipt . 54 ( 3 ) sales milestones : under the “ sales-or-usage-based royalty exception ” we recognize revenue in full within the period that our licensees achieve annual or aggregate product sales levels in their territories for which we are contractually entitled to a specified lump-sum receipt . ( 4 ) regulatory milestones : under the terms of the respective out-license , regulatory achievements may either be our responsibility , or that of our licensee . when our licensee is responsible for the achievement of the regulatory milestone , we recognize revenue in full ( for the contractual amount due from our licensee ) in the period that the approval occurs ( i.e.
| fusilev revenue decreased $ 4.9 million as a result of both the decrease in the number of units sold and our average net sales price per unit , due to the competitive generic levo-leucovorin products , beginning in 2015 ( see note 3 ( f ) ) to our accompanying consolidated financial statements ) . as noted above , effective december 2018 , fusilev has been discontinued and we are no longer selling this product . we have since transitioned to marketing khapzory for identical indications as fusilev . khapzory revenue of $ 0.9 million in the current year is due to its commercial launch during the fourth quarter of 2018. license fees and service revenue . our license fees and service revenue in 2018 decreased by $ 7.3 million primarily due to the following : ( i ) $ 4.7 million of non-recurring service revenue from our expired co-promotion arrangement with eagle pharmaceuticals , inc. ( `` eagle '' ) in 2017 ( see note 14 to our accompanying consolidated financial statements ) ; and ( ii ) $ 4 million decrease in folotyn royalties , primarily related to the non-recurrence of $ 5 million of regulatory and commercial milestone achievements of our licensee within japan in 2017 ( see note 17 ( b ) ( vii ) to our accompanying consolidated financial statements ) . this decrease was partially offset by ( i ) $ 1 million milestone associated with our licensee 's november 2018 canadian approval of folotyn ( see note 17 ( b ) ( xv ) ) , and ( ii ) $ 0.8 million increase of zevalin license fees within the asia 58 territory . see note 5 to our accompanying consolidated financial statements for a tabular comparative summary , by source , of these license fees and service revenue amounts . operating expenses replace_table_token_9_th cost of sales . cost of sales decreased $ 16.1 million in 2018 , primarily due to our product sales decrease , as well as the sales mix in each year . cost of service revenue . cost of service revenue substantially relates to our allocated commercial and marketing expenses ( from “ selling , general , and
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based in saskatoon , saskatchewan , canada , standard machine employs approximately 125 associates and serves a wide variety of industrial sectors including mining , oil and gas , and pulp and paper . in 2012 , standard machine reported sales of approximately $ 31 million . the results for standard machine are reported in the process industries segment . on april 11 , 2013 , the company completed the acquisition of substantially all of the assets of smith services , inc. ( smith services ) , an electric motor repair specialist , for approximately $ 13.2 million . based in princeton , west virginia and employing approximately 140 associates , smith services had 2012 sales of approximately $ 17 million . the results for smith services are reported in the process industries segment . on march 11 , 2013 , the company completed the acquisition of interlube systems ltd. ( interlube ) , which makes and markets automated lubrication delivery systems and related components to end-market sectors , including commercial vehicles , construction , mining , and heavy and general industries , for approximately $ 14.5 million , including cash acquired of approximately $ 0.3 million , that was subject to a post-closing indebtedness adjustment . based in plymouth , united kingdom , interlube employs about 90 associates and had 2012 sales of approximately $ 13 million . the results of interlube are reported in the mobile industries segment . 21 story_separator_special_tag style= '' font-family : arial ; font-size:10pt ; color : # 000000 ; text-decoration : none ; '' > 2012 primarily due to lower invested cash balances . 24 other ( expense ) income : replace_table_token_14_th the cdsoa provides for distribution of monies collected by u.s. customs from antidumping cases to qualifying domestic producers where the domestic producers have continued to invest in their technology , equipment and people . in 2013 , the company reported expenses in connection with cdsoa of $ 2.8 million . in 2012 , the company reported cdsoa receipts , net of expense , of $ 108 million . refer to note 20 - continued dumping and subsidy offset act in the notes to the consolidated financial statements for additional information . in november 2013 , the company finalized the sale of its former manufacturing facility in sao paulo , resulting in a $ 5.4 million gain . the company is recognizing the gain on the sale of this facility on the installment method . the company expects to recognize an additional gain of approximately $ 25 million in 2014 related to this transaction . income tax expense : replace_table_token_15_th the effective tax rate on pretax income for 2013 was unfavorable relative to the u.s. federal statutory rate primarily due to u.s. taxation of foreign income including u.s. taxation on cash repatriation , losses at certain foreign subsidiaries where no tax benefit could be recorded , u.s. non-deductible items , including certain separation costs , and u.s. state and local taxes . these factors were partially offset by discrete u.s. tax benefits , including certain settlements related to tax audits , u.s. foreign tax credits , earnings in certain foreign jurisdictions where the effective tax rate is less than 35 % , the u.s. manufacturing deduction and the u.s research tax credit . the effective tax rate for 2012 was unfavorable relative to the u.s. federal statutory rate primarily due to losses at certain foreign subsidiaries where no tax benefit could be recorded , u.s. state and local taxes and u.s. taxation of foreign income . these factors were partially offset by earnings in certain foreign jurisdictions where the effective tax rate is less than 35 % , u.s. foreign tax credits , the u.s. manufacturing deduction and certain discrete u.s. tax benefits . the change in the effective tax rate in 2013 compared to 2012 was primarily due to u.s. taxation of foreign income , including u.s. taxation on cash repatriation , losses at certain foreign subsidiaries where no tax benefit could be recorded and higher u.s. state and local taxes , partially offset by u.s. foreign tax credits , higher u.s. manufacturing deduction and the net effect of other discrete items . 25 business 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 15 - 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 made in 2013 and 2012 and currency exchange rates . the effects of acquisitions and currency exchange rates 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 . during the fourth quarter of 2012 , the company completed the acquisition of substantially all of the assets of wazee companies , llc ( wazee ) . during the first quarter of 2013 , the company completed the acquisition of interlube . results for interlube are reported in the mobile industries segment . during the second quarter of 2013 , the company completed the acquisition of standard machine , as well as substantially all of the assets of smith services . results for standard machine , smith services and wazee are reported in the process industries segment . mobile industries segment : replace_table_token_16_th the mobile industries segment 's net sales , excluding the impact of acquisitions and currency-rate changes , decreased 12.9 % in 2013 compared to 2012 , primarily due to lower volume of approximately $ 220 million , partially offset by favorable pricing of approximately $ 5 million . the lower volume was driven by a 20 % decrease in off-highway , primarily in mining and agriculture sectors . story_separator_special_tag in addition , heavy truck declined 18 % and light vehicle declined 14 % primarily due to planned program exits . ebit decreased in 2013 compared to 2012 , primarily due to the impact of lower volume of approximately $ 80 million and higher manufacturing costs of approximately $ 20 million , partially offset by lower restructuring charges of approximately $ 15 million , lower material costs of approximately $ 15 million , lower selling , general and administrative expenses of approximately $ 15 million , favorable pricing of approximately $ 5 million and a gain on the sale at the company 's former manufacturing facility in sao paulo of approximately $ 5 million . restructuring charges related to the closure of the manufacturing facility in st. thomas were lower in 2013 compared to 2012. sales for the mobile industries segment are expected to decrease by 3 % to 8 % in 2014 compared to 2013 . the expected decrease is primarily due to a decrease in lower light-vehicle volume of approximately 30 % , driven by planned program exits , partially offset by an increase in off-highway volume of approximately 5 % and an increase in rail volume of approximately 5 % . ebit for the mobile industries segment is expected to remain approximately the same in 2014 compared to 2013 as a result of the recognition of an additional gain related to the company 's former manufacturing facility in sao paulo offset by the impact of lower volume . 26 process industries segment : replace_table_token_17_th the process industries segment 's net sales , excluding the impact of acquisitions and currency-rate changes , decreased 12.5 % for 2013 compared to 2012 , primarily due to decreases in volume of approximately $ 185 million , partially offset by favorable pricing of approximately $ 15 million . ebit in 2013 decreased compared to 2012 primarily due to the impact of lower volume of approximately $ 90 million and higher manufacturing costs of approximately $ 15 million , partially offset by favorable pricing of approximately $ 15 million and lower selling , general and administrative expenses of approximately $ 10 million . sales for the process industries segment are expected to increase 7 % to 12 % in 2014 compared to 2013 as a result of increased demand across most industrial end-market sectors . ebit for the process industries segment is expected to increase in 2014 compared to 2013 due to increased volume . aerospace segment : replace_table_token_18_th the aerospace segment 's net sales , excluding the impact of currency-rate changes , decreased 5.2 % for 2013 compared to 2012 . the decrease was due to lower volume of approximately $ 20 million , partially offset by favorable pricing of approximately $ 2 million . the decrease in volume was driven by a decrease in the critical motion market sector of approximately 15 % and the defense market sector of approximately 4 % . ebit decreased in 2013 compared to 2012 , primarily due to higher manufacturing costs of approximately $ 15 million and the impact of lower volume of approximately $ 7 million , partially offset by lower selling , general and administrative expenses of approximately $ 5 million and favorable pricing of approximately $ 2 million . sales for the aerospace segment are expected to increase by approximately 5 % to 10 % in 2014 compared to 2013 , due to increased demand in both the defense and critical motion market sectors . ebit for the aerospace segment is expected to increase in 2014 compared to 2013 as a result of higher volume and lower manufacturing expenses . 27 steel segment : replace_table_token_19_th the steel segment 's net sales for 2013 , excluding the impact of currency-rate changes , decreased 20.2 % compared to 2012 . the decrease was primarily due to lower volume of approximately $ 230 million and lower surcharges of approximately $ 115 million . the lower volume was led by decreases in industrial demand of approximately 35 % and oil and gas demand of approximately 30 % , partially offset by an increase in mobile demand of approximately 10 % . surcharges decreased to $ 300 million in 2013 from approximately $ 415 million in 2012 . approximately 60 % of the decrease in surcharges was a result of lower volume . the remaining portion was a result of lower market prices for certain input raw materials , especially scrap steel , nickel and molybdenum . surcharges are a pricing mechanism that the company uses to recover scrap steel , energy and certain alloy costs , which are derived from published monthly indices . replace_table_token_20_th the decrease in the average selling price was primarily the result of lower volume and surcharges . the steel segment 's ebit decreased $ 111.6 million in 2013 compared to 2012 , primarily due to lower surcharges of approximately $ 115 million , the impact of lower volume of approximately $ 95 million , unfavorable mix of approximately $ 50 million and higher lifo expense of approximately $ 17 million , partially offset by lower raw material costs of approximately $ 150 million and lower logistics and manufacturing costs of approximately $ 15 million . in 2013 , the steel segment recognized an increase in its lifo reserve of lifo expense of $ 1.1 million , compared to a decrease in its lifo reserve of $ 15.6 million in 2012 . the change in lifo was due to lower inventory levels and the mix of inventory . raw material costs consumed in the manufacturing process , including scrap steel , alloys and energy , decreased 14 % in 2013 compared to the prior year to an average cost of $ 463 per ton . sales for the steel segment are expected to increase 12 % to 17 % in 2014 compared to 2013 , primarily due to higher volume and higher surcharges . the company expects higher volume to be driven by increases in oil and gas and industrial demand of over 20 % each , with mobile demand remaining relatively flat .
| the company 's earnings are expected to be higher in 2014 compared to 2013 , primarily due to higher demand and the impact from cost-reduction initiatives , with all four segments expected to achieve double-digit operating margins . from a liquidity standpoint , the company expects to generate cash from operations of approximately $ 560 million in 2014 , an increase of $ 128 million or 30 % over 2013 , as the company anticipates higher net income and lower pension contributions . pension contributions are expected to be approximately $ 20 million in 2014 , compared to $ 120.7 million in 2013. the company expects to decrease capital expenditures to approximately $ 310 million in 2014 , compared to $ 325.8 million in 2013 . 22 the statements of income sales by segment : replace_table_token_8_th net sales for 2013 decreased $ 645.8 million , or 12.9 % , compared to 2012 , primarily due to lower volume of approximately $ 625 million across all segments . in addition , the decrease in sales reflects lower surcharges of approximately $ 115 million and the impact of foreign currency exchange of approximately $ 10 million , partially offset by the impact of acquisitions of approximately $ 85 million and favorable pricing of approximately $ 20 million . gross profit : replace_table_token_9_th gross profit decreased in 2013 compared to 2012 , primarily due to the impact of lower sales volume of approximately $ 275 million , unfavorable sales mix of approximately $ 50 million and higher manufacturing costs of approximately $ 35 million , partially offset by lower raw material costs ( net of surcharges ) of approximately $ 55 million , the impact of acquisitions of approximately $ 20 million and favorable pricing of approximately $ 20 million . selling , general and administrative expenses : replace_table_token_10_th the decrease in selling , general and administrative expenses of $ 17.3 million in 2013 compared to 2012 was primarily due to lower expenses related to incentive compensation plans of approximately $ 30 million , partially offset by the full-year impact of acquisitions of approximately $ 15 million . 23 impairment and restructuring charges : replace_table_token_11_th impairment and
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% and 21.7 % of net sales from fiscal year 2013 and the prior twelve-month period , respectively . this decline was driven from a tougher retail environment with pressures on pricing as well as higher input costs . additionally , there was $ 0.9 million in strategic initiative-related expenses impacting gross margins . our gross margins may not be comparable to other companies because some companies include costs related to their distribution network in cost of goods sold and we exclude them from gross profit and include them in selling , general and administrative expenses . fiscal year 2014 selling , general and administrative expenses were $ 86.3 million , or 19.0 % of sales , compared to $ 90.0 million and $ 95.7 million , or 18.3 % and 19.8 % of sales , in fiscal year 2013 and the prior twelve-month prior period , respectively . the decrease in selling , general and administrative expenses is primarily due to a decrease in variable selling costs and a decline in performance-based compensation expense resulting from decreased earnings in fiscal year 2014 compared to the prior fiscal year and the prior twelve-month period . we recorded $ 2.2 million of severance-related expenses associated with our strategic initiatives during the fourth quarter of fiscal year 2014. in addition , fiscal year 2013 included $ 1.2 million of costs associated with a previously disclosed internal investigation conducted by our audit committee related to fiscal year 2012. other expense increased to $ 1.1 million in fiscal year 2014 from $ 0.7 million and $ 0.4 million in fiscal year 2013 and the prior twelve months , respectively . this increase was due to impairment charges related to our strategic initiatives and change in contingent consideration . fiscal year 2014 operating loss , adjusted for the $ 4.0 million in costs related to the strategic initiatives , was $ 2.4 million of operating income , or 0.5 % of sales , compared to $ 13.9 million and $ 8.6 million operating income , or 2.8 % and 1.8 % of sales , in fiscal year 2013 and the prior twelve-month period , respectively . without this adjustment , fiscal year 2014 operating loss was $ 1.7 million , or 0.4 % of sales , compared to $ 8.6 million in operating income , or 1.8 % of sales , in the prior year period . operating income of $ 3.4 million in the basics segment was offset by a $ 5.1 million loss in the branded segment . the decline in operating income was driven by lower sales in the junkfood and soffe businesses offset by higher salt life sales . interest expense for fiscal year 2014 was $ 5.8 million , an increase of $ 1.8 million from fiscal year 2013 and the prior year twelve-month period . the increase is due primarily to the increased debt related to the salt life acquisition and the honduran manufacturing expansion . our fiscal year 2014 effective income tax rate was 87.1 % compared to an effective tax rate of 7.3 % and 32.5 % in the prior fiscal year and the prior twelve months , respectively . we benefit from having income in foreign jurisdictions that are either exempt from income taxes or have tax rates lower than the united states . net income for fiscal year 2014 , adjusted for the $ 4.0 million pre-tax impact of strategic initiatives , was $ 1.5 million , or $ 0.19 per diluted share , compared with net income in the prior fiscal year and prior twelve-month period of $ 9.2 million and $ 6.2 million , or $ 1.12 and $ 0.74 per diluted share , respectively . without adjustment for the impact of our strategic initiatives , our net loss for the year was $ 1.0 million , or $ 0.12 per diluted share . the foregoing discussion of our results of operations includes references to certain non-gaap financial measures , including adjusted net income and adjusted diluted eps . below is a reconciliation of each non-gaap financial measure for the periods presented in the foregoing discussion to the most directly comparable gaap financial measure . non-gaap financial measures should not be considered in isolation or as a substitute for comparable gaap financial measures . the non-gaap financial measures we have presented have limitations in that they do not reflect all of the amounts associated with the results of operations as determined in accordance with gaap , and these non-gaap financial measures should only be used to evaluate the results of operations in conjunction with the corresponding gaap financial measures . we believe that the non-gaap financial measures presented provide meaningful supplemental information regarding the operating results primarily because they exclude certain non-cash charges or items that we do not believe are reflective of ongoing operating results . we believe that these non-gaap financial measures also facilitate the comparison by management and investors of results between periods and among peer companies . however , those companies may calculate similar non-gaap financial measures differently , limiting their usefulness as comparative measures . 19 the table below reconciles net income and diluted earnings per share to the adjusted net income and adjusted diluted earnings per share ( in thousands , except per share amounts ) : replace_table_token_3_th three-month transition period ended september 28 , 2013 , versus three months ended september 29 , 2012 net sales for the three-month transition period ended september 28 , 2013 , were $ 122.6 million , a decrease of 6 % compared to the prior year quarter net sales of $ 130.1 million . net earnings were $ 568 thousand , or $ 0.07 per diluted share , compared with $ 3.6 million or $ 0.41 per diluted share , in the prior year quarter . sales within the branded segment were $ 60.2 million , down 5.2 % compared with $ 63.5 million for the prior year 's first quarter . story_separator_special_tag the primary reason for the decrease was a 28 % decline in soffe sales , which was somewhat offset by strong revenue growth in other brands . junkfood , art gun , and salt life all had double digit sales growth , with art gun sales more than doubling . salt life revenue growth exceeded our expectations , with sales up 44 % over the prior year september quarter . net sales in our basics segment were down 6.4 % to $ 62.3 million , compared with $ 66.6 million in the prior year period . sales of undecorated tees started out strong in july 2013 , but weakened in august and september as retail traffic and an earlier than expected build-up of inventories in the retail sector resulted in price discounting to drive volumes and lower than expected sales of undecorated tees as the period progressed . our private label sales also slowed as our customers shifted their callouts to balance inventory from the lower sales at retail . sg & a expenses were $ 26.6 million , or 21.7 % of sales , for the transition period , compared to $ 25.9 million , or 19.9 % of sales , for the prior year september quarter . this increase in sg & a was primarily due to expenses associated with the salt life acquisition , higher than normal bad debt expense and the recording of a contingent liability associated with legal matters in california . our effective income tax rate for the three months ended september 28 , 2013 , was 219.1 % , compared to an effective tax benefit of 25.1 % for the prior year september quarter . we have a three-month tax year associated with the transition period . we benefit from having income in foreign jurisdictions that are either exempt from income taxes or have tax rates lower than the united states . the transition period benefited as overall operating profits were lower than normal , which lowered our u.s. taxable income while maintaining profits in the offshore taxable and tax-free jurisdictions . liquidity and capital resources credit facility and other financial obligations delta apparel , soffe , junkfood , salt life ( f/k/a to the game , llc ) and art gun are borrowers under the may 27 , 2011 , fourth amended and restated loan and security agreement with the financial institutions named therein as lenders , wells fargo bank , national association , as administrative agent , bank of america , n.a. , as syndication agent , wells fargo capital finance , llc , as sole lead arranger , and wells fargo capital finance , llc and merrill lynch , pierce , fenner & smith incorporated , as joint bookrunners . pursuant to the amended loan agreement , the line of credit under our u.s. revolving credit facility is $ 145 million ( subject to borrowing base limitations ) , and matures on may 27 , 2017. provided that no event of default exists , we have the option to increase the maximum credit available under the facility to $ 200 million ( subject to borrowing base limitations ) , conditioned upon the administrative agent 's ability to secure additional commitments and customary closing conditions . at october 3 , 2015 , we had $ 79.6 million outstanding under our u.s. revolving credit facility at an average interest rate of 2.7 % , and had the ability to borrow an additional $ 31.9 million . for further information regarding our u.s. asset-based secured credit facility , refer to note 9 - long-term debt to the consolidated financial statements , which information is incorporated herein by reference . 20 in conjunction with the salt life acquisition , we issued two promissory notes in the aggregate principal amount of $ 22.0 million , which included a one-time installment of $ 9.0 million that was due and paid as required on september 30 , 2014 , and quarterly installments commencing on march 31 , 2015 , with the final installment due on june 30 , 2019. the promissory notes are zero-interest notes and state that interest will be imputed as required under section 1274 of the internal revenue code . we have imputed interest at 1.92 % and 3.62 % on the promissory notes that mature on june 30 , 2016 , and june 30 , 2019 , respectively . at october 3 , 2015 , the discounted value of the promissory notes was $ 10.8 million . refer to note 9 - long term debt to the consolidated financial statements for further information on these promissory notes . we have loan agreements with banco ficohsa , a honduran bank . this credit facility is secured by a first-priority lien on the assets of our honduran operations and the loans are not guaranteed by our u.s. entities . as of october 3 , 2015 , we had a total of $ 11.9 million outstanding on these loans . for further information regarding our honduran loans , refer to note 9 - long-term debt to the consolidated financial statements , which information is incorporated herein by reference . our primary cash needs are for working capital and capital expenditures , as well as to fund share repurchases under our stock repurchase program . in addition , in the future we may use cash to pay dividends . derivative instruments from time to time we may use derivative instruments to manage our exposure to interest rates . these financial instruments are not used for trading or speculation purposes . when we enter into a derivative instrument , we determine whether hedge accounting can be applied . where hedge accounting can be applied , a hedge relationship is designated as either a fair value hedge or cash flow hedge . the hedge is documented at inception , detailing the particular risk objective and strategy considered for undertaking the hedge .
| salt life continued its sales growth , up nearly 8 % for the year , driven from its new product lines and expanded distribution . salt life sales growth was lower than its historical growth rates due to disruptions in shipping from moving the distribution center to fayetteville , north carolina . junkfood 17 sales were up approximately 2 % versus the prior year , driven from double-digit sales growth in boutiques and specialty retailers , partially offset by weaker sales through department stores . the salt life and junkfood sales growth was offset by sales declines in our other branded business units . operating income for the segment increased year-over-year to $ 6.4 million . this increase was primarily due to the sale of the game business generating a $ 5.6 million pre-tax gain , including associated indirect expenses . additionally , gross margin expansion , coupled with a decline in general and administrative expenses , has improved operating results . basics segment net sales in our basics segment were $ 282.5 million in fiscal year 2015 , a 6.2 % increase from $ 265.9 million in the prior year period due to increases in the private label programs in delta activewear along with new customers across our basics segment . gross margins as a percent of sales increased by 110 basis points to 11.7 % of sales , compared to 10.6 % of sales for the prior fiscal year due to lower product costs . operating income increased by $ 6.3 million , to 3.4 % of sales , compared to $ 3.4 million , or 1.3 % of sales , for the same period last year due to higher margins along with decreased fixed compensation . quarterly financial data for information regarding quarterly financial data , refer to note 17 - quarterly financial information ( unaudited ) to the consolidated financial statements , which information is incorporated herein by reference . fiscal year 2015 versus fiscal year 2014 net sales for fiscal year 2015 grew 2.5 % compared with the prior year after adjusting for the sale of the game business in march 2015. our direct-to-consumer
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these ocean trials were conducted at a site approximately 33 nautical miles from invergordon , off scotland 's northeast coast . during the ocean trials , our 150kw- rated powerbuoy produced power in excess of our expectations of performance . our utility scale pb150 structure and mooring system achieved independent certification from lloyd 's register . this certification from lloyd 's register confirms that the pb150 design complies with the requirements of lloyd 's 1999 rules and regulations for the classification of floating offshore installations at fixed locations . at april 30 , 2012 , our total negotiated backlog was $ 6.8 million compared with $ 8.9 million at april 30 , 2011. the decrease in backlog is a result of revenue recognized during the period offset by new orders during fiscal 2012 , of $ 3.9 million and changes in foreign currency of $ 0.3 million . new orders during 2012 included a $ 3.2 million grant from the european union related to our waveport project to enhance the efficiency of our powerbuoy . we anticipate that a majority of our backlog will be recognized as revenue over the next 12 months . most of our backlog at april 30 , 2012 and 2011 consisted of cost-sharing contracts as described in the financial operations overview section of this management 's discussion and analysis . our backlog includes both funded amounts , which are unfilled firm orders for our products and services for which funding has been both authorized and appropriated by the customer ( congress , in the case of us government agencies ) and unfunded amounts , which are unfilled firm orders from the us department of energy ( doe ) for which funding has not been appropriated . if any of our contracts were to be terminated , our backlog would be reduced by the expected value of the remaining terms of such contracts . funded backlog was $ 4.8 million and $ 6.9 million at april 30 , 2012 and 2011 , respectively . 32 our fiscal year ends on april 30. for fiscal 2012 , we generated revenues of $ 5.7 million and incurred a net loss attributable to ocean power technologies , inc. of $ 15.1 million , and for fiscal 2011 , we generated revenues of $ 6.7 million and incurred a net loss attributable to ocean power technologies , inc. of $ 20.4 million . as of april 30 , 2012 , our accumulated deficit was $ 126.0 million . we have not been profitable since inception , and we do not know whether or when we will become profitable because of the significant uncertainties with respect to our ability to successfully commercialize our powerbuoy systems in the emerging renewable energy market . the marine energy industry , including wave , tidal and ocean current energy technologies , is expected to benefit from various legislative initiatives that have been undertaken or are planned by state and federal agencies . for example , in 2008 , the us enacted the energy improvement and extension act of 2008 , which enables owners of wave power projects in the us to receive federal tax credits , thereby improving the long-term economics of wave power as a renewable energy source . the act expands the definition of qualifying facilities for the production tax credit ( ptc ) to include those that generate power from marine renewables ( including wave and tidal sources ) . as a result , the ptc is now available for electricity produced and generated after october 3 , 2008 from marine renewable energy facilities with a `` nameplate capacity '' of at least 150kw that are placed in service anytime between october 3 , 2008 and december 31 , 2013. the credit rate for marine renewables is $ 0.01 per kilowatt hour , and the duration of the credit will be ten years after the facility is placed in service . the ptc legislation may expire in 2013. further , the us federal and state governments may increase their investments in the renewable energy sector under various economic stimulus measures . the american recovery and reinvestment act of 2009 provided significant grants , tax incentives and policy initiatives to stimulate investment and innovation in the `` cleantech '' sector . at times , the doe has also issued requests for proposal to be funded under programs it has established to further investment in marine energy technologies . we have devoted additional resources to develop proposals seeking government funding to support existing projects and technology enhancements . consequently , while our selling , general and administrative costs related to such efforts may continue to increase over the next year , we believe that these governmental initiatives may result in additional revenues for us over the next several years . given the uncertainties surrounding the scope and size of the government programs , there can be no assurances as to whether we will be successful in obtaining significant additional government funding or as to the terms and conditions of any such funding . the recent global economic uncertainty , particularly the macroeconomic pressures in certain european countries , may have a negative effect on our business , financial condition and results of operations because the utility companies with which we contract or propose to contract may decrease their investment in new power generation equipment in response to the uncertainty . however , the various legislative initiatives described above may diminish the effect of any decrease in such capital expenditures by these utility companies insofar as they may relate to renewable energy generation equipment . as discussed above , the timing , scope and size of these new government programs for renewable energy is uncertain , and there can be no assurances that we or our customers will be successful in obtaining any additional government funding . story_separator_special_tag in addition , we do not believe the recent global economic uncertainty will have a material negative impact on our sources of supply , as our products incorporate what are substantially non-custom , standard parts found in many regions of the world . according to the international energy agency , $ 3.4 trillion is expected to be spent for new renewable energy generation equipment in the period from 2007 to 2030. this equates to annual global expenditures of approximately $ 150 billion . we plan to take advantage of these global drivers of demand for renewable energy , as we continue to refine and expand our proprietary technology . 33 financial operations overview the following describes certain line items in our statement of operations and some of the factors that affect our operating results . revenues generally , we recognize revenue using the percentage-of-completion method based on the ratio of costs incurred to total estimated costs at completion . in certain circumstances , revenue under contracts that have specified milestones or other performance criteria may be recognized only when our customer acknowledges that such criteria have been satisfied . in addition , recognition of revenue ( and the related costs ) may be deferred for fixed-price contracts until contract completion if we are unable to reasonably estimate the total costs of the project prior to completion . because we have a small number of contracts , revisions to the percentage-of-completion determination or delays in meeting performance criteria or in completing projects may have a significant effect on our revenue for the periods involved . upon anticipating a loss on a contract , we recognize the full amount of the anticipated loss in the current period . generally our contracts are either cost plus or fixed price contracts . under cost plus contracts , we bill the customer for actual expenses incurred plus an agreed-upon fee . revenue is typically recorded using the percentage-of-completion method based on the maximum awarded contract amount . in certain cases , we may choose to incur costs in excess of the maximum awarded contract amounts resulting in a loss on the contract . currently , we have two types of fixed price contracts , firm fixed price and cost-sharing . under firm fixed price contracts , we receive an agreed-upon amount for providing products and services that are specified in the contract . revenue is typically recorded using the percentage-of-completion method based on the contract amount . depending on whether actual costs are more or less than the agreed-upon amount , there is a profit or loss on the project . under cost-sharing contracts , the fixed amount agreed upon with the customer is only intended to fund a portion of the costs on a specific project . we fund the remainder of the costs as part of our product development efforts . revenue is typically recorded using the percentage-of-completion method based on the amount agreed upon with the customer . an amount corresponding to the revenue is recorded in cost of revenues resulting in gross profit on these contracts of zero . our share of the costs is recorded as product development expense . most of our projects in fiscal year 2012 were under cost-sharing contracts . the following table provides information regarding the breakdown of our revenues by customer for fiscal years 2012 and 2011 : replace_table_token_3_th the revenue decrease for fiscal 2012 reflected significant decreases in revenue from the us navy attributable to the leap program and the dwads project in addition to revenues related to our 150kw powerbuoy project off the cost of oregon . the revenue decrease was partially offset by an increase in revenue from the european union related to our waveport project off the coast of spain and revenues related to our pb500 powerbuoy development project . during fiscal 2011 , we reduced revenue by approximately $ 0.2 million due to a change in estimated revenue to be recognized in connection with the 2006 spain construction agreement , and there was no corresponding reduction in cost of revenues . overall , the us navy has been our largest customer since fiscal 2002. the doe was our largest customer in fiscal 2012 and also a significant customer in fiscal 2011. combined , these two customers accounted for 61 % of our revenues in fiscal 2012 and 80 % of our revenues in fiscal 2011. we anticipate that , if our commercialization efforts are successful , the relative contribution of these customers to our revenue may decline in the future . 34 we currently focus our sales and marketing efforts on north america , the west coast of europe , australia and the east coast of japan . the following table shows the percentage of our revenues by geographical location of our customers for fiscal years 2012 and 2011 : replace_table_token_4_th cost of revenues our cost of revenues consists primarily of incurred material , labor and manufacturing overhead expenses , such as engineering expense , equipment depreciation and maintenance and facility related expenses , and includes the cost of powerbuoy parts and services supplied by third-party suppliers . cost of revenues also includes powerbuoy system delivery and deployment expenses and may include anticipated losses at completion on some contracts . we operated at a gross profit of $ 0.1 million and $ 0.4 million in fiscal 2012 and 2011 , respectively . most of our revenue recorded in fiscal 2012 was generated from cost-sharing contracts , which result in zero gross profit . our ability to generate a gross profit will depend on the nature of future contracts , our success at increasing sales of our powerbuoy systems and on our ability to manage costs incurred on fixed price commercial contracts . during fiscal 2011 , we reduced revenue by approximately $ 0.2 million due to a change in estimated revenue to be recognized in connection with the 2006 spain construction agreement , and there was no corresponding reduction in cost of revenues .
| cost of revenues cost of revenues decreased by $ 0.6 million , or 9 % , to $ 5.7 million in fiscal 2012 , as compared to $ 6.3 million in fiscal 2011. this decrease in the cost of revenues reflected the decreased activity related to our 150kw powerbuoy project off the coast of oregon as well as our dwads , leap , and hawaii projects with the us navy . this was partially offset by the increased activity on our pb500 powerbuoy development project and waveport project off the coast of spain . 37 we operated at a gross profit of $ 0.1 million in fiscal 2012 and a gross profit of $ 0.4 million in fiscal 2011. most of our projects in fiscal 2012 and 2011 were under cost-sharing contracts . under cost-sharing contracts , we receive a fixed amount agreed upon with the customer that is only intended to fund a portion of the costs on a specific project . we fund the remainder of the costs as part of our product development efforts . revenue is typically recorded using the percentage-of-completion method applied to the contractual amount agreed upon with the customer . an equal amount corresponding to the revenue is recorded in cost of revenues resulting in gross profit on these contracts of zero . our share of the costs is considered to be product development expense . our ability to generate a gross profit will depend on the nature of future contracts , our success at increasing sales of our powerbuoy systems and on our ability to manage costs incurred on our fixed price contracts . during fiscal 2011 , revenue was reduced by $ 0.2 million due to a change in estimate of revenue to be recognized in connection with our 2006 spain construction agreement . there was no corresponding reduction in cost of revenue . this resulted in a $ 0.2 million gross loss being recognized on the 2006 spain project during fiscal 2011. product development costs product development costs decreased by $ 5.0 million , or 37 % , to $ 8.3 million in fiscal 2012 , as compared to $ 13.3 million in fiscal 2011. product development costs were attributable primarily to our efforts to increase the power output and
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the estimated fair values of our securities are primarily affected by changes in interest rates , credit quality , and market liquidity . management is responsible for determining the estimated fair value of the securities in our portfolio . in determining estimated fair values , each quarter management utilizes the services of an independent third-party service , recognized as a specialist in pricing securities . the independent pricing service utilizes market prices of same or similar securities whenever such prices are available . prices involving distressed sellers are not utilized in determining fair value , if identifiable . where necessary , the independent third-party pricing service estimates fair value using models employing techniques such as discounted cash flow analyses . the assumptions used in these models typically include assumptions for interest rates , credit losses , and prepayments , utilizing observable market data , where available . where the market price of the same or similar securities is not available , the valuation becomes more subjective and involves a high degree of judgment . in addition , we compare securities prices to a second independent pricing service that is utilized as part of our asset liability risk management process and analyze significant anomalies in pricing including significant fluctuations , or lack thereof , in relation to other securities . at december 31 , 2017 , and for each quarter end in 2017 , all securities were priced by an independent third-party pricing service , and management made no adjustment to the prices received . determining that a decline in a security 's estimated fair value is other-than-temporary is inherently subjective , and becomes increasing difficult as it relates to mortgage-backed securities that are not guaranteed by the u.s. government , or a u.s. government sponsored enterprise ( e.g. , fannie mae and freddie mac ) . in performing our evaluation of securities in an unrealized loss position , we consider , among other things , the severity and duration of time that the security has been in an unrealized loss position and the credit quality of the issuer . as it relates to private label mortgage-backed securities not guaranteed by the u.s. government , fannie mae , or freddie mac , we perform a review of the key underlying loan collateral risk characteristics including , among other things , origination dates , interest rate levels , composition of variable and fixed rates , reset dates ( including related pricing indices ) , current loan to original collateral values , locations of collateral , delinquency status of loans , and current credit support . in addition , for securities experiencing declines in estimated fair values of over 10 % , as compared to its amortized cost , management also reviews published historical and expected prepayment speeds , underlying loan collateral default rates , and related historical and expected losses on the disposal of the underlying collateral on defaulted loans . this evaluation is subjective as it requires estimates of future events , many of which are difficult to predict . actual results could be significantly different than our estimates and could have a material effect on our financial results . deferred income taxes . we use the asset and liability method of accounting for income taxes . 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 bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . if it is determined that it is more likely than not that the deferred tax assets will not be realized , a valuation allowance is established . we consider the determination of this valuation allowance to be a critical accounting policy because of the need to exercise significant judgment in evaluating the amount and timing of recognition of deferred tax liabilities and assets , including projections of future taxable income . these judgments and estimates are reviewed quarterly as regulatory and business factors change . a valuation allowance for deferred tax assets may be required if the amounts of taxes recoverable through loss carry backs decline , or if we project lower levels of future taxable income . such a valuation allowance would be established and any subsequent changes to such allowance would require an adjustment to income tax expense that could adversely affect our operating results . 51 stock based compensation . we recognize the cost of director and employee services received in exchange for awards of equity instruments based on the grant-date fair value . we estimate the per share fair value of options on the date of grant using the black-scholes option pricing model using assumptions for the expected dividend yield , expected stock price volatility , risk-free interest rate and expected option term . these assumptions are based on our judgments regarding future option exercise experience and market conditions . these assumptions are subjective in nature , involve uncertainties , and , therefore , can not be determined with precision . the black-scholes option pricing model also contains certain inherent limitations when applied to options that are not traded on public markets . the per share fair value of options is highly sensitive to changes in assumptions . in general , the per share fair value of options will move in the same direction as changes in the expected stock price volatility , risk-free interest rate and expected option term , and in the opposite direction of changes in the expected dividend yield . the use of different assumptions or different option pricing models could result in materially different per share fair values of options . comparison of financial condition at december 31 , 2017 and 2016 total assets increase d $ 141.3 million , or 3.7 % , to $ story_separator_special_tag the estimated fair values of our securities are primarily affected by changes in interest rates , credit quality , and market liquidity . management is responsible for determining the estimated fair value of the securities in our portfolio . in determining estimated fair values , each quarter management utilizes the services of an independent third-party service , recognized as a specialist in pricing securities . the independent pricing service utilizes market prices of same or similar securities whenever such prices are available . prices involving distressed sellers are not utilized in determining fair value , if identifiable . where necessary , the independent third-party pricing service estimates fair value using models employing techniques such as discounted cash flow analyses . the assumptions used in these models typically include assumptions for interest rates , credit losses , and prepayments , utilizing observable market data , where available . where the market price of the same or similar securities is not available , the valuation becomes more subjective and involves a high degree of judgment . in addition , we compare securities prices to a second independent pricing service that is utilized as part of our asset liability risk management process and analyze significant anomalies in pricing including significant fluctuations , or lack thereof , in relation to other securities . at december 31 , 2017 , and for each quarter end in 2017 , all securities were priced by an independent third-party pricing service , and management made no adjustment to the prices received . determining that a decline in a security 's estimated fair value is other-than-temporary is inherently subjective , and becomes increasing difficult as it relates to mortgage-backed securities that are not guaranteed by the u.s. government , or a u.s. government sponsored enterprise ( e.g. , fannie mae and freddie mac ) . in performing our evaluation of securities in an unrealized loss position , we consider , among other things , the severity and duration of time that the security has been in an unrealized loss position and the credit quality of the issuer . as it relates to private label mortgage-backed securities not guaranteed by the u.s. government , fannie mae , or freddie mac , we perform a review of the key underlying loan collateral risk characteristics including , among other things , origination dates , interest rate levels , composition of variable and fixed rates , reset dates ( including related pricing indices ) , current loan to original collateral values , locations of collateral , delinquency status of loans , and current credit support . in addition , for securities experiencing declines in estimated fair values of over 10 % , as compared to its amortized cost , management also reviews published historical and expected prepayment speeds , underlying loan collateral default rates , and related historical and expected losses on the disposal of the underlying collateral on defaulted loans . this evaluation is subjective as it requires estimates of future events , many of which are difficult to predict . actual results could be significantly different than our estimates and could have a material effect on our financial results . deferred income taxes . we use the asset and liability method of accounting for income taxes . 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 bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . if it is determined that it is more likely than not that the deferred tax assets will not be realized , a valuation allowance is established . we consider the determination of this valuation allowance to be a critical accounting policy because of the need to exercise significant judgment in evaluating the amount and timing of recognition of deferred tax liabilities and assets , including projections of future taxable income . these judgments and estimates are reviewed quarterly as regulatory and business factors change . a valuation allowance for deferred tax assets may be required if the amounts of taxes recoverable through loss carry backs decline , or if we project lower levels of future taxable income . such a valuation allowance would be established and any subsequent changes to such allowance would require an adjustment to income tax expense that could adversely affect our operating results . 51 stock based compensation . we recognize the cost of director and employee services received in exchange for awards of equity instruments based on the grant-date fair value . we estimate the per share fair value of options on the date of grant using the black-scholes option pricing model using assumptions for the expected dividend yield , expected stock price volatility , risk-free interest rate and expected option term . these assumptions are based on our judgments regarding future option exercise experience and market conditions . these assumptions are subjective in nature , involve uncertainties , and , therefore , can not be determined with precision . the black-scholes option pricing model also contains certain inherent limitations when applied to options that are not traded on public markets . the per share fair value of options is highly sensitive to changes in assumptions . in general , the per share fair value of options will move in the same direction as changes in the expected stock price volatility , risk-free interest rate and expected option term , and in the opposite direction of changes in the expected dividend yield . the use of different assumptions or different option pricing models could result in materially different per share fair values of options . comparison of financial condition at december 31 , 2017 and 2016 total assets increase d $ 141.3 million , or 3.7 % , to $
| the following table sets forth the total amounts of delinquencies for accruing loans that were 30 to 89 days past due by type and by amount at the dates indicated ( in thousands ) : 59 replace_table_token_34_th the increase in delinquent loans was primarily attributable to one multifamily real estate loan with a balance of $ 1.5 million that was 31 days delinquent at december 31 , 2017 , and became current subsequent to year end . included in non-accruing loans are loans subject to restructuring agreements totaling $ 251,000 and $ 1.8 million at december 31 , 2017 , and december 31 , 2016 , respectively . at december 31 , 2017 , the one non-accruing tdr was not performing in accordance with its restructured terms and consisted of one one-to-four family residential loan which was over 90 days delinquent and collateralized by real estate with a recent appraised value of $ 629,000. at december 31 , 2016 , $ 1.4 million , or 76.4 % , of the $ 1.8 million non-accruing tdrs were not performing in accordance with their restructured terms . the company also holds loans subject to restructuring agreements that are on accrual status , which totaled $ 18.0 million and $ 20.6 million at december 31 , 2017 , and december 31 , 2016 , respectively . at december 31 , 2017 , and december 31 , 2016 , all of the accruing tdr loans were performing in accordance with their restructured terms . generally , the types of concessions that we make to troubled borrowers include both temporary and permanent reductions to interest rates , extensions of payment terms , and , to a lesser extent , forgiveness of principal and interest . the table below sets forth the amounts and categories of the tdrs as of december 31 , 2017 , and december 31 , 2016 ( in thousands ) : replace_table_token_35_th allowance for loan losses . the allowance for loan losses to non-performing loans increased from 333.23 % at december 31 , 2016 to 472.63 % at december 31 , 2017 . this increase was primarily attributable to a decrease in non-performing loans of $ 1.8 million , from $ 7.4 million at december 31 , 2016 to $ 5.5 million at december 31 , 2017 . the company utilizes external appraisals for its impairment analysis . generally , non-performing loans are charged down to the appraised value of collateral
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despite gmv 's divergence from net transaction revenues during the year , we still believe the metric provides a useful measure of overall volume of closed transactions that flow through the platform in a given period . the increase in marketplace net transaction revenues in 2018 compared to 2017 was primarily due to an increase in marketplace gmv and a favorable impact from foreign currency movements relative to the u.s. dollar . marketplace transaction take rate was higher in 2018 compared to 2017 , primarily due to growth in promoted listing fees , which along with final value fees are calculated as a percentage of an items sale price , and a decrease in seller incentives , partially offset by a decrease in revenues from final value fees attributable to pricing and category mix . stubhub net transaction revenues the following table presents stubhub net transaction revenues and supplemental operating data ( in millions , except percentages ) : replace_table_token_10_th 41 stubhub net transaction revenues in 2019 compared to 2018 decreased slightly primarily driven by lower gmv from concerts and theater , partially offset by an increase in sporting events and a slightly higher take rate . the slight increase in stubhub transaction take rate in 2019 compared to 2018 was primarily due to pricing changes partially offset by event mix . the increase in stubhub net transaction revenues in 2018 compared to 2017 was primarily due to an increase in stubhub gmv . the increase in stubhub gmv in 2018 compared to 2017 was primarily driven by concerts and sporting events . the increase in stubhub transaction take rate in 2018 compared to 2017 was primarily due to pricing changes on the platform . marketing services and other revenues the following table presents ms & o revenues ( in millions , except percentages ) : replace_table_token_11_th * * not meaningful marketplace ms & o revenues the decrease in marketplace ms & o revenues during 2019 compared to 2018 was primarily due to a decrease in advertising revenues that was driven by our ongoing shift to promoted listing fees , which are recognized in net transaction revenues and lower revenues resulting from the sale of brands4friends . these decreases were partially offset by increases in first-party inventory program in korea in 2019 compared to 2018. the increase in marketplace ms & o revenues in 2018 compared to 2017 was primarily driven by an increase in revenues attributable to our first-party inventory program in korea and revenue sharing arrangements , particularly shipping , partially offset by a decrease in advertising revenues that was driven by our ongoing shift to promoted listing fees , which are recognized in net transaction revenues . classifieds ms & o revenues the increases in classifieds ms & o revenues in 2019 compared to 2018 and in 2018 compared to 2017 was primarily driven by increased revenue from our classifieds horizontal and vertical motors platforms primarily in germany . stubhub ms & o revenues the increase in stubhub ms & o revenues in 2019 compared to 2018 primarily related to growth in revenues from first-party inventory sales from sporting events . the change in stubhub ms & o revenue in 2018 compared to 2017 was relatively flat . 42 cost of net revenues cost of net revenues primarily consists of costs associated with customer support , site operations , costs of goods sold and payment processing . significant components of these costs include employee compensation , contractor costs , facilities costs , depreciation of equipment and amortization expense , first party inventory costs , bank transaction fees , and credit card interchange and assessment fees . the following table presents cost of net revenues ( in millions , except percentages ) : replace_table_token_12_th the increase in cost of net revenues in 2019 compared to 2018 and 2018 compared to 2017 was primarily due to an increase in site operation and payment processing costs as we increased our investments in our business , and an increase in costs of goods sold driven by our first-party inventory program in korea . cost of net revenues , net of immaterial hedging activities , was favorably impacted by $ 56 million attributable to foreign currency movements relative to the u.s. dollar in 2019 compared to 2018. cost of net revenues was unfavorably impacted by $ 34 million attributable to foreign currency movements relative to the u.s. dollar in 2018. there was no hedging activity within cost of net revenues in 2018. operating expenses the following table presents operating expenses ( in millions , except percentages ) : replace_table_token_13_th foreign currency movements relative to the u.s. dollar had a favorable impact of $ 118 million on operating expenses in 2019 compared to 2018. operating expenses were unfavorably impacted by $ 68 million attributable to foreign currency movements relative to the u.s. dollar in 2018 compared to 2017. there was no hedging activity within operating expenses in 2019 and 2018 . 43 sales and marketing sales and marketing expenses primarily consist of advertising and marketing program costs ( both online and offline ) , employee compensation , certain user coupons and rewards , contractor costs , facilities costs and depreciation on equipment . online marketing expenses represent traffic acquisition costs in various channels such as paid search , affiliates marketing and display advertising . offline advertising primarily includes brand campaigns and buyer/seller communications . the decrease in sales and marketing expense in 2019 compared to 2018 was primarily due to a favorable impact from foreign currency movements relative to the u.s. dollar and decreases in offline advertising spend and employee-related costs . these costs were partially offset by online marketing spend and user coupons and rewards largely driven by our japan platform acquired in the second quarter of 2018 . the increase in sales and marketing expense in 2018 compared to 2017 was primarily due to an increase in user coupons and rewards and traffic acquisition costs . product development product development expenses primarily consist of employee compensation , contractor costs , facilities costs and depreciation on equipment . story_separator_special_tag product development expenses are net of required capitalization of major platform and other product development efforts , including the development and maintenance of our technology platform . our top technology priorities include payment intermediation capabilities and improved seller tools and buyer experiences built on a foundation of structured data . capitalized internal use and platform development costs were $ 137 million and $ 147 million in 2019 and 2018 , respectively , and are primarily reflected as a cost of net revenues when amortized in future periods . the decrease in product development expenses in 2019 compared to 2018 was primarily due to decreases in employee-related costs , foreign currency movement relative to the u.s. dollar and depreciation on equipment . the increase in product development expenses in 2018 compared to 2017 was primarily due to an increase in employee-related costs , partially offset by a decrease in depreciation on equipment . general and administrative general and administrative expenses primarily consist of employee compensation , contractor costs , facilities costs , depreciation of equipment , employer payroll taxes on stock-based compensation , legal expenses , restructuring , insurance premiums and professional fees . our legal expenses , including those related to various ongoing legal proceedings , may fluctuate substantially from period to period . the increase in general and administrative expenses in 2019 compared to 2018 was primarily due to severance costs incurred in 2019 related to our ceo transition . the increase in general and administrative expenses in 2018 compared to 2017 was primarily due to restructuring costs related to our global workforce reduction and an increase in employee-related costs . for additional details related to the restructuring , refer to “ note 18 – restructuring ” to the consolidated financial statements included in this report . provision for transaction losses provision for transaction losses primarily consists of transaction loss expense associated with our buyer protection programs , fraud and bad debt expense associated with our accounts receivable balance . we expect our provision for transaction losses to fluctuate depending on many factors , including changes to our protection programs and the impact of regulatory changes . the increase in provision for transaction losses in 2019 compared to 2018 was primarily due to an increase in bad debt expense . the increase in provision for transaction losses in 2018 compared to 2017 was not significant . 44 income from operations the following table presents income from operations ( in millions , except percentages ) : replace_table_token_14_th the increase in income from operations in 2019 compared 2018 was primarily due to an increase in income from our marketplace segment . income from our stubhub and classifieds segments was not a significant contributor to the increase in total income from operations in 2019 compared to 2018. the decrease in income from operations in 2018 compared to 2017 was primarily due to global workforce reduction and an increase in employee related costs , partially offset by an increase in income from our marketplace and classifieds segments . interest and other , net interest and other , net primarily consists of interest earned on cash , cash equivalents and investments , as well as foreign exchange transaction gains and losses , gains and losses due to changes in fair value of the warrant received from adyen , our portion of operating results from investments accounted for under the equity method of accounting , investment gain/loss on acquisitions or disposals and interest expense , consisting of interest charges on any amounts borrowed and commitment fees on unborrowed amounts under our credit agreement and interest expense on our outstanding debt securities and commercial paper , if any . the following table presents interest and other , net ( in millions , except percentages ) : replace_table_token_15_th the decrease in interest and other , net in 2019 compared to 2018 was primarily attributable to the gain recognized on the sale of our investment in flipkart of $ 313 million and the relinquishment of our existing equity method investment in giosis of $ 266 million that did not occur in 2019 , the loss recorded upon the divestiture of brands4friends of $ 52 million partially offset by the gain recognized due to the change in fair value of the adyen warrant of $ 133 million that occurred in 2019. the increase in interest and other , net in 2018 compared to 2017 was primarily attributable to the $ 313 million gain recognized on the sale of our investment in flipkart and $ 266 million gain recognized upon relinquishment of our existing equity method investment in giosis and $ 104 million gain recognized due to the change in fair value of the warrant . 45 income tax provision the following table presents provision for income taxes ( in millions , except percentages ) : replace_table_token_16_th the increase in our effective tax rate in 2019 compared to 2018 was primarily due to a reduction in 2018 to the provisional tax amounts recorded in 2017 related to the tax cuts and jobs act and the gain recognized from the relinquishment of our existing equity method investment in giosis that was not subject to u.s. federal income tax on a current basis that did not recur in 2019 , and certain expenses in 2019 including a negotiated reduction in the tax basis of the intangible assets in our classifieds platforms . these impacts were partially offset in 2019 by the effective settlements of audits , reduction in the u.s. deferred tax liability for minimum tax on foreign earnings , related to the above reduction in tax basis of intangible assets , and a benefit due to the enacted new york state legislation regarding the taxability of foreign earnings . the decrease in our effective tax rate in 2018 compared to 2017 was primarily due to the $ 3.1 billion provisional tax charge related to the tax cuts and jobs act ( the “ act ” or “ u.s .
| the following table sets forth , for the periods presented , our total net revenues and the sequential quarterly movements of these net revenues ( in millions , except percentages ) : replace_table_token_5_th net revenues by geography revenues are attributed to u.s. and international geographies primarily based upon the country in which the seller , platform that displays advertising , other service provider or customer , as the case may be , is located . the following table presents net revenues by geography for the periods presented ( in millions , except percentages ) : replace_table_token_6_th net revenues included $ 81 million of hedging gains and $ 8 million and $ 28 million of hedging losses during the years ended december 31 , 2019 , 2018 and 2017 , respectively . the hedging activity in net revenues specifically relates to hedges of net transaction revenues generated by our marketplace segment . foreign currency movements relative to the u.s. dollar had an unfavorable impact of $ 211 million , a favorable impact of $ 174 million and unfavorable impact of $ 39 million on net revenues for the years december 31 , 2019 , 2018 and 2017 , respectively . the effect of foreign currency exchange rate movements in 2019 compared to 2018 was primarily attributable to the strengthening of the u.s. dollar against the euro , british pound and korean won . the effect of foreign currency exchange rate movements in 2018 compared to 2017 was primarily attributable to the weakening of the u.s. dollar against the euro , british pound and korean won . 39 net revenues by type and segment we generate two types of net revenues : net transaction revenues primarily include final value fees , feature fees , including fees to promote listings , and listing fees from sellers on our marketplace platforms and final value fees from sellers and buyers on our stubhub platforms . our net transaction revenues also include store subscription and other fees often from large enterprise sellers . our net
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we wish to caution readers that all forward-looking statements are necessarily speculative and not to place undue reliance on forward-looking statements , which speak only as of the date made , and to advise readers that actual results could vary due to a variety of risks and uncertainties . critical accounting policies and estimates use of estimates – we have made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare our financial statements included in item 8 of this annual report on form 10-k in accordance with generally accepted accounting principles in the united states . these estimates have a significant impact on our valuation and reserve accounts relating to the allowance for sales returns and allowances , doubtful accounts , inventory reserves and deferred income taxes . actual results could differ from these estimates . revenue recognition – we recognize revenue when we have evidence of an arrangement , a determinable fee , and when collection is considered to be probable and products are delivered . this occurs upon shipment of the merchandise , which is when legal transfer of title occurs . reserves for sales allowances and customer returns are established based upon historical experience and our estimates of future returns . sales returns for the years ended december 31 , 2016 and 2015 aggregated $ 84,000 and $ 96,000 , respectively . the allowance for sales returns and allowances and doubtful accounts at december 31 , 2016 and 2015 aggregated $ 49,000 and $ 47,000 , respectively . we review the actual sales returns and bad debts for our customers and establish an estimate of future returns and an allowance for doubtful accounts . inventory - inventory , consisting principally of products held for resale , is recorded at the lower of cost ( determined using the first in-first out method ) or estimated market value . we had inventory balances in the amount of $ 5,055,000 and $ 9,015,000 at december 31 , 2016 and 2015 , respectively , which is presented net of valuation allowances of $ 8,537,000 and $ 5,674,000 at december 31 , 2016 and 2015 , respectively . we evaluate inventories to identify excess , high-cost , slow-moving or other factors rendering inventories as unmarketable at normal profit margins . due to the large number of transactions and the complexity of managing and maintaining a large inventory of product offerings , estimates are made regarding adjustments to the cost of inventories . if our assumptions about future demand change , or market conditions are less favorable than those projected , additional write-downs of inventories may be required . in any case , actual amounts could be different from those estimated . regulations - our worldwide operations are subject to local laws and regulations . as such , of particular interest is the european union ( “ eu ” ) directive relating to the restriction of certain hazardous substance ( “ rohs ” ) . on july 1 , 2006 , this directive restricted the distribution of products within the eu containing certain substances , including lead . at the present time , much of our inventory contains substances prohibited by the rohs directive . further , many of our suppliers are not yet supplying rohs compliant products . the legislation is effective and some of our inventory has become obsolete . management has estimated the impact of the legislation and have written down or reserved for related inventories based on amounts expected to be realized given all available current information . actual amounts realized from the ultimate disposition of related inventories could be different from those estimated . deferred taxes – we review the nature of each component of our deferred income taxes for reasonableness . if determined that it is more likely than not that we will not realize all or part of our net deferred tax assets in the future , we record a valuation allowance against the deferred tax assets , which allowance will be charged to income tax expense in the period of such determination . we also consider the scheduled reversal of deferred tax liabilities , tax planning strategies and future taxable income in assessing if deferred tax assets could be realized . we also consider the weight of both positive and negative evidence in determining whether a valuation allowance is needed . however , due to the continued net losses , we have fully reserved a $ 4,585,000 and $ 3,365,000 allowance against our net deferred tax assets at december 31 , 2016 and 2015 , respectively . 8 overview we are primarily focused on supplying odm products for our oem customer 's multi-year turn-key projects . we also distribute discrete semiconductors , commodity integrated circuits ( ics ) , optoelectronic devices and passive components to other electronic distributors , cems and oems , who incorporate them in their products . our core strategy has shifted to primarily focus on higher margin odm projects that require custom products designed for specific applications to oem customers , and away from actively marketing our superstore strategy of maintaining a vast quantity of electronic components to fill customer orders immediately from available stock held in inventory . as a result , we expect our components inventory will be more passively marketed and distributed online for clearance through our internet sales portal , however at potentially lower rates due to the pricing pressures normally attributed with online shopping . in 2016 , we recorded a $ 3,640,000 increase to our inventory reserves , compared to a $ 600,000 increase in 2015. we believe this significant increase was a reasonable estimate to allow for the potential obsolescence and lower valuation of our vast inventory of electronic component products as a result of the shift in our marketing focus . in accordance with generally accepted accounting principles , we have classified inventory as a current asset in story_separator_special_tag we wish to caution readers that all forward-looking statements are necessarily speculative and not to place undue reliance on forward-looking statements , which speak only as of the date made , and to advise readers that actual results could vary due to a variety of risks and uncertainties . critical accounting policies and estimates use of estimates – we have made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare our financial statements included in item 8 of this annual report on form 10-k in accordance with generally accepted accounting principles in the united states . these estimates have a significant impact on our valuation and reserve accounts relating to the allowance for sales returns and allowances , doubtful accounts , inventory reserves and deferred income taxes . actual results could differ from these estimates . revenue recognition – we recognize revenue when we have evidence of an arrangement , a determinable fee , and when collection is considered to be probable and products are delivered . this occurs upon shipment of the merchandise , which is when legal transfer of title occurs . reserves for sales allowances and customer returns are established based upon historical experience and our estimates of future returns . sales returns for the years ended december 31 , 2016 and 2015 aggregated $ 84,000 and $ 96,000 , respectively . the allowance for sales returns and allowances and doubtful accounts at december 31 , 2016 and 2015 aggregated $ 49,000 and $ 47,000 , respectively . we review the actual sales returns and bad debts for our customers and establish an estimate of future returns and an allowance for doubtful accounts . inventory - inventory , consisting principally of products held for resale , is recorded at the lower of cost ( determined using the first in-first out method ) or estimated market value . we had inventory balances in the amount of $ 5,055,000 and $ 9,015,000 at december 31 , 2016 and 2015 , respectively , which is presented net of valuation allowances of $ 8,537,000 and $ 5,674,000 at december 31 , 2016 and 2015 , respectively . we evaluate inventories to identify excess , high-cost , slow-moving or other factors rendering inventories as unmarketable at normal profit margins . due to the large number of transactions and the complexity of managing and maintaining a large inventory of product offerings , estimates are made regarding adjustments to the cost of inventories . if our assumptions about future demand change , or market conditions are less favorable than those projected , additional write-downs of inventories may be required . in any case , actual amounts could be different from those estimated . regulations - our worldwide operations are subject to local laws and regulations . as such , of particular interest is the european union ( “ eu ” ) directive relating to the restriction of certain hazardous substance ( “ rohs ” ) . on july 1 , 2006 , this directive restricted the distribution of products within the eu containing certain substances , including lead . at the present time , much of our inventory contains substances prohibited by the rohs directive . further , many of our suppliers are not yet supplying rohs compliant products . the legislation is effective and some of our inventory has become obsolete . management has estimated the impact of the legislation and have written down or reserved for related inventories based on amounts expected to be realized given all available current information . actual amounts realized from the ultimate disposition of related inventories could be different from those estimated . deferred taxes – we review the nature of each component of our deferred income taxes for reasonableness . if determined that it is more likely than not that we will not realize all or part of our net deferred tax assets in the future , we record a valuation allowance against the deferred tax assets , which allowance will be charged to income tax expense in the period of such determination . we also consider the scheduled reversal of deferred tax liabilities , tax planning strategies and future taxable income in assessing if deferred tax assets could be realized . we also consider the weight of both positive and negative evidence in determining whether a valuation allowance is needed . however , due to the continued net losses , we have fully reserved a $ 4,585,000 and $ 3,365,000 allowance against our net deferred tax assets at december 31 , 2016 and 2015 , respectively . 8 overview we are primarily focused on supplying odm products for our oem customer 's multi-year turn-key projects . we also distribute discrete semiconductors , commodity integrated circuits ( ics ) , optoelectronic devices and passive components to other electronic distributors , cems and oems , who incorporate them in their products . our core strategy has shifted to primarily focus on higher margin odm projects that require custom products designed for specific applications to oem customers , and away from actively marketing our superstore strategy of maintaining a vast quantity of electronic components to fill customer orders immediately from available stock held in inventory . as a result , we expect our components inventory will be more passively marketed and distributed online for clearance through our internet sales portal , however at potentially lower rates due to the pricing pressures normally attributed with online shopping . in 2016 , we recorded a $ 3,640,000 increase to our inventory reserves , compared to a $ 600,000 increase in 2015. we believe this significant increase was a reasonable estimate to allow for the potential obsolescence and lower valuation of our vast inventory of electronic component products as a result of the shift in our marketing focus . in accordance with generally accepted accounting principles , we have classified inventory as a current asset in
| the increase in our net losses was primarily due to the significant increase in our inventory reserves in 2016 to $ 3,640,000 as compared to $ 600,000 in 2015 . 9 liquidity and capital resources we historically have satisfied our liquidity requirements through cash generated from operations , short-term commercial loans , subordinated promissory notes and issuance of equity securities . a summary of our cash flows resulting from our operating , investing and financing activities for the years ended december 31 , 2016 and 2015 were as follows : replace_table_token_1_th cash provided by operating activities increased to $ 1,247,000 during 2016 , as compared to $ 274,000 in the prior year . the increase in cash was primarily due to inventory levels increasing by $ 320,000 during 2016. cash used in investing activities decreased to $ 4,000 during 2016 , as compared to $ 37,000 in the prior year . cash used in financing activities was $ 914,000 during 2016 , as compared to $ 16,000 in the prior year . we believe that funds generated from operations , existing cash balances and short-term loans , are likely to be sufficient to finance our working capital and capital expenditure requirements for the foreseeable future . if these funds are not sufficient , we may secure new sources of asset-based lending on accounts receivables or issue debt or equity securities . otherwise , we may need to liquidate assets to generate the necessary working capital . inventory is included and classified as a current asset . as of december 31 , 2016 , inventory represented approximately 53 % of current assets and 36 % of total assets . however , it is likely to take over one year for the inventory to turn and therefore is likely not saleable within a one-year time frame . hence , inventory would not be as readily marketable or liquid as other items included in current assets , such as cash . off-balance sheet arrangements we had no material off-balance sheet arrangements that have , or are likely to have , a current or future material effect on our
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the expected cash flows are estimated based on factors which include loan grades established in northfield bank 's ongoing credit review program , likelihood of default based on observations of specific loans during the credit review process as well as applicable industry data , loss severity based on updated evaluation of cash flows from available collateral , and the contractual terms of the underlying loan agreement . actual cash flows could differ from those expected , and others provided with the same information could draw different reasonable conclusions and calculate different expected cash flows . deferred income taxes . we use the asset and liability method of accounting for income taxes . 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 bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . if it is determined that it is more likely than not that the deferred tax assets will not be realized , a valuation allowance is established . we consider the determination of this valuation allowance to be a critical accounting policy because of the need to exercise significant judgment in evaluating the amount and timing of recognition of deferred tax liabilities and assets , including projections of future taxable income . these judgments and estimates are reviewed quarterly as regulatory and business factors change . a valuation allowance for deferred tax assets may be required if the amounts of taxes recoverable through loss carry backs decline , or if we project lower levels of future taxable income . such a valuation allowance would be established and any subsequent changes to such allowance would require an adjustment to income tax expense that could adversely affect our operating results . 57 implementation of new accounting standard for accounting for allowance for loan losses asu no . 2016-13. in june 2016 , the fasb issued asu no . 2016-13 , “ financial instruments - credit losses ( topic 326 ) : “ measurement of credit losses on financial instruments ” ( “ asu 2016-13 ” ) . this guidance was subsequently amended by asu no . 2019-04 , “ codification improvements to topic 326 , financial instruments-credit losses , topic 815 , derivatives and hedging , and topic 825 , financial instruments ” ; asu no . 2019-05 , “ financial instruments-credit losses ( topic 326 ) : targeted transition relief ” ; and asu no . 2019-11 , “ codification improvements to topic 326 , financial instruments-credit losses ” . asu no . 2016-13 and its subsequent updates are collectively known as “ cecl ” . cecl replaces the current incurred loss impairment model that recognizes losses when a probable threshold is met with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased . for available-for-sale debt securities where fair value is less than cost , credit-related impairment would be recognized in an allowance for credit losses and adjusted in each subsequent period for changes in credit risk . cecl also expands the disclosure requirements regarding an entity 's assumptions , models , and methods for estimating the allowance for credit losses . asu 2016-13 and its related amendments were initially effective for financial statements for fiscal years and interim periods beginning after december 15 , 2019. the company elected to defer the adoption of the cecl methodology permitted by the recently enacted cares act , signed into law on march 27 , 2020 , which provided financial institutions with the option to defer adoption of asu 2016-13 until the earlier of the end of the pandemic or december 31 , 2020. this relief was further extended by the consolidations appropriations act enacted on december 27 , 2020 , to the earlier of the first day of an entity 's fiscal year after the date the national emergency terminates or january 1 , 2022. the company adopted asu 2016-13 and its related amendments on january 1 , 2021 , using a modified retrospective approach . our implementation process included : assessment and documentation of governance and reporting processes and related internal controls ; model development , documentation and validation ; and the incorporation of qualitative adjustments for model limitations , among other things . we contracted with a third-party vendor to assist us in the application of asu 2016-13. asu 2016-13 lists several credit loss methods that are acceptable such as a discounted cash flow method , loss-rate method and probability of default/loss given default ( “ pd/lgd ” ) method . the company will utilize the pd/lgd methodology to estimate its allowance for loan losses . our cecl model includes the following major items : a historical loss period , which represents a full economic credit cycle utilizing internal loss experience , as well as peer historical loss data ; a reasonable and supportable forecast period of two years , based on management 's current review of macroeconomic factors and the reliability of extended economic forecasts based on forecast data from moody 's ; a reversion period ( after the reasonable and supportable forecast period ) using a straight-line approach ; expected prepayment rates based on our historical experience ; and incorporation of qualitative factors not captured within the modeled results . management is currently finalizing calculations of the cecl results as of year-end . based on several analyses performed , as well as an implementation analysis utilizing existing exposures and forecasts of macroeconomic conditions at december 31 , 2020 , we currently expect the adoption of asu 2016-13 will result in an increase to our allowance for loan losses of approximately 10 % to 15 % , excluding any reclassification related to pci loans . this increase will be reflected as a cumulative-effect adjustment that decreases beginning retained earnings , net of income taxes . story_separator_special_tag the expected increase in the allowance for credit losses is a result of changing from an incurred loss model , which encompasses allowances for current known and inherent losses within the portfolio , to a cecl model , which encompasses allowances for losses expected to be incurred over the life of the portfolio . furthermore , asu 2016-13 necessitates that the company establish an allowance for expected credit losses for certain debt securities and other financial assets ; however , the company does not expect to record any allowances on debt securities available-for sale . future amounts of provision expense related to our allowance for loan losses will depend on the size and composition of our loan portfolio , future economic conditions and borrowers ' payment performance . future amounts of provision related our debt securities will depend on the composition of our securities portfolio and current market conditions . the adoption of asu 2016-13 is not expected to have a material impact on our regulatory capital ratios . 58 other new accounting standards issued but not yet effective asu no . 2020-04. on march 12 , 2020 , fasb issued asu no . 2020-04 , “ reference rate reform ( `` asc 848 '' ) : facilitation of the effects of reference rate reform on financial reporting ” , which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform . the asu provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships , subject to meeting certain criteria , that reference the london inter-bank offered rate ( “ libor ” ) or another reference rate expected to be discontinued . it is intended to help stakeholders during the global market-wide reference rate transition period . the guidance is effective for all entities as of march 12 , 2020 through december 31 , 2022. the company is implementing a transition plan to identify and modify its loans and other financial instruments that are either directly or indirectly influenced by libor . the company is in the process of evaluating asu no . 2020-04 and its impact on the company 's transition away from libor for its loan and other financial instruments , with no material expected impact on the company 's consolidated financial statements . asu no . 2019-12. in december 2019 , the fasb issued asu no . 2019-12 , “ income taxes ( topic 740 ) : simplifying the accounting for income taxes. ” asu no . 2019-12 simplifies accounting for income taxes by removing specific technical exceptions in asc 740 related to the incremental approach for intra-period tax allocation , the methodology for calculating income taxes in an interim period and the recognition for deferred tax liabilities for outside basis differences . asu no . 2019-12 also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill . the amendments in this update are effective for fiscal years , and interim periods within those fiscal years , beginning after december 15 , 2020. asu no . 2019-12 is not expected to have a material impact on the company 's consolidated financial statements . asu no . 2018-14 . in august 2018 , the fasb issued asu no . 2018-14 , “ disclosure framework - changes to the disclosure requirements for defined benefit plans. ” this asu makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension and or other postretirement benefit plans . asu no . 2018-14 is effective for fiscal years ending after december 15 , 2020 ; early adoption is permitted . as asu no . 2018-14 only revises disclosure requirements , it will not have an impact on the company 's consolidated financial statements . 59 comparison of financial condition at december 31 , 2020 and 2019 total assets increased $ 459.2 million , or 9.1 % , to $ 5.51 billion at december 31 , 2020 , from $ 5.06 billion at december 31 , 2019. the increase was primarily due to increases in total loans ( held-for-investment , net , and held-for-sale ) of $ 406.0 million , or 11.8 % , available-for sale debt securities of $ 126.5 million , or 11.1 % , and bank owned life insurance of $ 8.5 million . partially offsetting these increases were decreases in cash and cash equivalents of $ 60.3 million , or 40.8 % , and fhlbny stock of $ 10.9 million , or 27.6 % , and an increase in the allowance for loan losses of $ 8.9 million , or 31.0 % . the company 's available-for-sale debt securities portfolio increased by $ 126.5 million , or 11.1 % , to $ 1.26 billion at december 31 , 2020 , from $ 1.14 billion at december 31 , 2019. the increase was primarily attributable to $ 126.9 million of securities acquired from victory , partially offset by paydowns , maturities , calls , and sales . at december 31 , 2020 , $ 1.17 billion of the portfolio consisted of residential mortgage-backed securities issued or guaranteed by fannie mae , freddie mac , or ginnie mae . in addition , the company held $ 88.4 million in corporate bonds , all of which were considered investment grade at december 31 , 2020 , $ 3.2 million in u.s. government agency securities , $ 123,000 in municipal bonds , and $ 798,000 in other debt securities . the effective duration of the securities portfolio at december 31 , 2020 was 1.05 years . loans held-for-investment , net , increased $ 386.2 million to $ 3.82 billion at december 31 , 2020 , from $ 3.44 billion at december 31 , 2019 , primarily due to an increase in originated loans held-for-investment of $ 351.9 million , and $ 180.4 million of loans acquired from the victory acquisition , partially offset by paydowns and transfers to loans held-for-sale . originated loans held-for-investment , net , totaled $ 3.34
| net income for the year ended december 31 , 2018 benefited from excess tax benefits of $ 2.7 million , or $ 0.06 per diluted share , related to the exercise or vesting of equity awards . our assets increased by $ 459.2 million , or 9.1 % , to $ 5.51 billion at december 31 , 2020 , from $ 5.06 billion at december 31 , 2019 , primarily as a result of the victory acquisition , which added $ 402.8 million to total assets . loans ( held-for-investment , net , and held-for-sale ) increased by $ 406.0 million , or 11.8 % , available-for sale debt securities increased by $ 126.5 million , or 11.1 % , and bank owned life insurance increased by $ 8.5 million , or 5.5 % . partially offsetting these increases were decreases in cash and cash equivalents of $ 60.3 million , or 40.8 % , and fhlbny stock of $ 10.9 million , or 27.6 % , and an increase in the allowance for loan losses of $ 8.9 million , or 31.0 % . the increase in assets was funded by a $ 668.3 million , or 19.6 % , increase in deposits to $ 4.08 billion at december 31 , 2020 , from $ 3.41 billion at december 31 , 2019. borrowings decreased $ 265.2 million , or 30.9 % , to $ 591.8 million at december 31 , 2020 , from $ 857.0 million . our stockholders ' equity increased by $ 58.1 million , or 8.4 % , to $ 754.0 million at december 31 , 2020 , from $ 695.9 million at december 31 , 2019. the increase was primarily attributable to common stock issued in conjunction with the victory acquisition , which resulted in a $ 41.2 million increase in equity . additionally , there was an $ 8.5 million increase in accumulated other comprehensive income associated with unrealized gains on our debt securities available-for-sale portfolio , net income of $ 37.0 million for the year ended december 31 , 2020 , and a $ 3.2 million increase in equity award
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in addition to our core strategy to seek regulatory approval and commercialize our oral dose forms in focal onset seizures and our iv dose form in status epilepticus , we have initiated and fully enrolled two exploratory phase 2 studies in pediatric orphan indications where we believe there is a sound mechanistic rationale for therapeutic benefit and the potential for efficient clinical pathways to commercialization . to that end , we are conducting exploratory signal-finding studies in both fragile x syndrome and pcdh19 pediatric epilepsy . 62 our operations to date have consisted primarily of organizing and staffing our company , developing ganaxolone , including conducting preclinical testing and clinical trials , and raising capital . we have funded our operations primarily through sales of equity and debt securities . from inception through december 31 , 201 5 , we have received net proceeds of $ 138 . 9 million from the issuance of preferred stock , common stock and convertible notes payable . at december 31 , 201 5 , we had cash , cash equivalents and investments of $ 57 .7 million . in connection with our initial public offering , which closed during the third quarter of 2014 , we received net proceeds of $ 41.2 million from the sale of 5,758,000 shares of our common stock . during the fourth quarter of 2015 , we sold a total of 5,056,003 shares of common stock resulting in aggregate net proceeds of $ 28 . 1 million . we have no products currently available for sale and substantially all of our revenue to date has been derived from research grants . we have incurred operating losses since inception , have not generated any product sales revenue and have not achieved profitable operations . we incurred a net loss of $ 24 . 9 million for the year ended december 31 , 201 5 . our accumulated deficit as of december 31 , 201 5 was $ 9 7 . 2 million , and we expect to continue to incur substantial losses in future periods . we anticipate that our operating expenses will increase substantially as we continue to advance our clinical-stage product candidate , ganaxolone . we anticipate that our expenses will increase substantially as we : · make preparations for and initiate our second phase 3 clinical trial of ganaxolone for adjunctive treatment of adult patients with drug-resistant focal onset epileptic seizures ; · bring ganaxolone iv into clinic and commence pharmacokinetic and safety studies in healthy volunteers followed by clinical studies in patients ; · conduct clinical proof-of-concept clinical trials in targeted pediatric rare disease indications , which may includ e pcdh19 -pe , fxs and other seizure and non-seizure indications ; · continue the research , development and scale-up manufacturing capabilities to commercialize products and dose forms for which we may obtain regulatory approval ; · maintain , expand and protect our global intellectual property portfolio ; · hire additional clinical , manufacturing , commercial and scientific personnel ; and · add operational , financial and management information systems and personnel , including personnel to support our drug development and potential future commercialization efforts . we believe that our cash , cash equivalents and investments as of december 31 , 201 5 will enable us to fund our operating expenses and capital expenditure requirements into the second half of 201 7 . however , we will need to secure additional funding in the future , from one or more equity or debt financings , collaborations , or other sources , in order to carry out all of our planned research and development activities with respect to ganaxolone . financial overview research and development expenses our research and development expenses consist primarily of costs incurred for the development of ganaxolone , which include : employee-related expenses , including salaries , benefits , travel and stock-based compensation expense ; expenses incurred under agreements with clinical research organizations ( cros ) and investigative sites that conduct our clinical trials and preclinical studies ; the cost of acquiring , developing and manufacturing clinical trial materials ; 63 facilities , depreciation and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and other supplies ; and costs associated with preclinical activities and regulatory operations . we expense research and development costs when we incur them . we record costs for some development activities , such as clinical trials , based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment , clinical site activations or information our vendors provide to us . we will incur substantial costs beyond our present and planned clinical trials in order to file an nda and supplemental new drug applications ( sndas ) for ganaxolone for various clinical indications , and in each case , the nature , design , size and cost of further studies and trials will depend in large part on the outcome of preceding studies and trials and discussions with regulators . it is difficult to determine with certainty the costs and duration of our current or future clinical trials and preclinical studies , or if , when or to what extent we will generate revenue from the commercialization and sale of ganaxolone if we obtain regulatory approval . we may never succeed in achieving regulatory approval for ganaxolone . the duration , costs and timing of clinical trials and development of ganaxolone will depend on a variety of factors , including the uncertainties of future clinical trials and preclinical studies , uncertainties in clinical trial enrollment rate and significant and changing government regulation . in addition , the probability of success for ganaxolone will depend on numerous factors , including competition , manufacturing capability and commercial viability . story_separator_special_tag see “ risk factors. ” our commercial success depends upon attaining significant market acceptance of ganaxolone , if approved , among physicians , patients , healthcare payer s and the medical community . we will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of ganaxolone , as well as an assessment of ganaxolone 's commercial potential . general and administrative expenses general and administrative expenses consist principally of salaries and related costs for executive and other administrative personnel and consultants , including stock-based compensation and travel expenses . other general and administrative expenses include professional fees for legal , patent review , consulting and accounting services . general and administrative expenses are expensed when incurred . we expect that our general and administrative expenses will increase in the future as a result of employee hiring and our scaling operations commensurate with supporting more advanced clinical trials and in preparation for commercial infrastructure . these increases will likely include increased costs for insurance , hiring of additional personnel , outside consultants , legal counsel and accountants , among other expenses . change in fair value of warrant liability our previously outstanding warrants to purchase preferred stock were classified as warrant liability and recorded at fair value . this warrant liability was subject to re-measurement at each balance sheet date and we recognized any change in fair value in our statements of operations as a change in fair value of the derivative liability . these warrants expired upon our initial public offering and , as a result , the fair value of the warrants was reduced to zero during the third quarter of 2014. interest income interest income consists principally of interest income earned on cash and cash equivalent and investment balances . interest expense interest expense is attributable to interest expense associated with our credit facility entered into in april 2014 , and amended . 64 cumulative preferred stock dividends cumulative preferred stock dividends represented dividends payable upon a liquidation or deemed liquidation in connection with our series b and c convertible preferred stock . e ffective upon the closing of our initial public offering , all outstanding shares of preferred stock converted into common stock during the third quarter of 2014. story_separator_special_tag foreseeable future . we expect our cash expenditures to increase in the near term as we fund our planned clinical trials for ganaxolone . we believe that our cash , cash equivalents and investments as of december 31 , 201 5 , will enable us to fund our operating expenses and capital expenditure requirements into the second half of 201 7 . however , we will need to raise substantial additional financing in the future to fund our operations . in order to meet these additional cash requirements , we may seek to sell additional equity or convertible debt securities that may result in dilution to our stockholders . if we raise additional funds through the issuance of convertible debt securities , these securities could have rights senior to those of our common stock and could contain covenants that restrict our operations . there can be no assurance that we will be able to obtain additional equity or debt financing on terms acceptable to us , if at all . our failure to obtain sufficient funds on acceptable terms when needed could have a negative impact on our business , results of operations , and financial condition . our future capital requirements will depend on many factors , including : · the results of our preclinical studies and clinical trials ; · the development , formulation and commercialization activities related to ganaxolone ; · the scope , progress , results and costs of researching and developing ganaxolone or any other future product candidates , and conducting preclinical studies and clinical trials ; · the timing of , and the costs involved in , obtaining regulatory approvals for ganaxolone or any other future product candidates ; · the cost of commercialization activities if ganaxolone or any other future product candidates are approved for sale , including marketing , sales and distribution costs ; · the cost of manufacturing ganaxolone or any other future product candidates in preclinical studies , clinical trials and , if approved , in commercial sale ; · our ability to establish and maintain strategic collaborations , licensing or other arrangements and the financial terms of such agreements ; · any product liability , infringement or other lawsuits related to our products ; · the expenses needed to attract and retain skilled personnel ; · the costs associated with being a public company ; · the costs involved in preparing , filing , prosecuting , maintaining , defending and enforcing patent claims , including litigation costs and the outcome of such litigation ; and · the timing , receipt and amount of sales of , or royalties on , future approved products , if any . please see “ risk factors ” for additional risks associated with our substantial capital requirements . 67 significant contractual obligations and commitments the following summarizes our significant contractual obligations as of december 31 , 201 5 ( in thousands ) : replace_table_token_5_th ( 1 ) represents commitments for future minimum lease payments . ( 2 ) represents principal and interest payment obligations that will become due in connection with our outstanding loan facility and credit arrangement with a third-party vendor , after consideration of the extension of interest-only payments in january 2016 . ( 3 ) represents commitments under an agreement with a third-party vendor for clinical manufacturing supplies . off-balance sheet arrangements we do not have any off-balance sheet arrangements , as defined by applicable sec regulations .
| upon conversion of all outstanding convertible preferred stock in connection with our initial public offering during the third quarter of 2014 , all cumulative preferred stock dividends were canceled . liquidity and capital resources since inception , we have incurred net losses and negative cash flows from our operations . we incurred net losses of $ 24 . 9 million and $ 10.8 million for the years ended december 31 , 201 5 and 201 4 , respectively . our cash used in operating activities was $ 20.1 million for the year ended december 31 , 201 5 compared to $ 8.6 million for the same period a year ago . historically , we have financed our operations principally through the sale of common stock , preferred stock and debt . from inception through december 31 , 201 5 , we have received net proceeds of $ 138 . 9 million from the issuance of preferred stock , common stock and notes payable . at december 31 , 201 5 , we had cash , cash equivalents and investments of $ 57.7 million . during the fourth quarter of 201 5 , we completed a secondary public offering in which we sold a total of 5 , 056,003 shares of common stock , resulting in a ggregate net proceeds , after underwriting discounts and commissions and other offering expenses , of approximately $ 28 . 1 million . credit facility in april 2014 , we borrowed $ 2.0 million pursuant to a loan and security agreement ( lsa ) we entered into 65 with a financial institution . pursuant to the terms of the lsa , we made monthly interest-only payments for outstanding borrowings at an interest rate equal to the greater of ( a ) prime plus 2.25 % or ( b ) 5.5 % until the lsa was amended in december 2014. in december 2014 , we entered into a first amendment to loan and security agreement , and in february 2015 and october 2015 we entered into a second and third amendment to loan and security
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if we were required under gaap to write down the carrying value of any of our properties due to impairment , or if as a result of an early lease termination we were required to remove or dispose of material amounts of tenant improvements that are not reusable to another tenant , our financial condition and results of operations could be negatively affected . leasing activity and rental rates the amount of net rental income generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space , newly developed or redeveloped properties and space available from unscheduled lease terminations . the amount of rental income we generate also depends on our ability to maintain or increase rental rates in our submarkets . negative trends in one or more of these factors could adversely affect our rental income in future periods . equity method investment valuation our equity method investments , primarily our investment in unconsolidated real estate ventures , may be adversely affected by changes in the real estate markets in which they operate . we report our equity method investments on the balance sheet at cost . as required under accounting rules , we periodically evaluate and assess our equity method investments for other than temporary impairment . we generally use a combination of comparable market sales and independent broker quotes in valuing our equity method investments . however , such sales and quoted data and other market information can vary , even for the same properties . to the extent that the real estate markets deteriorate or we are unable to lease our development projects , it could result in a decline in the fair value of our equity method investments that are other-than-temporary and , we may realize losses that never materialize or we may fail to recognize losses in the appropriate period . rapidly changing conditions in the real estate markets in which we operate increase the complexity of valuing our equity method investments and our judgments and methodologies materially impact the valuation of the investments as reported in our financial statements . development and redevelopment programs historically , a significant portion of our growth has come from our development and redevelopment efforts . we have a proactive planning process by which we continually evaluate the size , timing , costs and scope of our development and redevelopment programs and , as necessary , scale activity to reflect the economic conditions and the real estate fundamentals that exist in our strategic submarkets . we are currently proceeding on certain development and redevelopment projects , and we take a cautious and selective approach when determining if a certain development or redevelopment project will benefit our portfolio . in addition , we may be unable to lease committed development or redevelopment properties at underwritten rental rates or within projected timeframes or complete development or redevelopment properties on schedule or within budgeted amounts , which could adversely affect our financial condition , results of operations and cash flow . financial and operating performance our financial and operating performance is dependent upon the demand for office , industrial and other commercial space in our markets , our leasing results , our acquisition , disposition and development activity , our financing activity , our cash requirements and economic and market conditions , including prevailing interest rates . adverse changes in economic conditions could result in a reduction of the availability of financing and potentially in higher borrowing costs . vacancy rates may increase , and rental rates may decline , through 2014 and possibly beyond as the current economic climate may negatively impacts tenants . overall economic conditions , including but not limited to high unemployment and deteriorating financial and credit markets , could have a dampening effect on the fundamentals of our business , including increases in past due accounts , tenant defaults , lower occupancy and reduced effective rents . these conditions would negatively affect our future net income and cash flows and could have a material adverse effect on our financial condition . we believe that the quality of our assets and our strong balance sheet will enable us to raise debt capital , if necessary , in various forms and from different sources , including traditional term or secured loans from banks , pension funds and life insurance companies . however , there can be no assurance that we will be able to borrow funds on terms that are economically attractive or at all . 43 we continued to seek revenue growth in fiscal year 2014 by increasing occupancy and rental rates . occupancy in our core portfolio at december 31 , 2014 was 91.4 % , compared to 89.5 % at december 31 , 2013 . the table below summarizes selected operating and leasing statistics of our wholly owned operating properties for the year ended december 31 , 2014 : year ended year ended december 31 , 2014 december 31 , 2013 leasing activity : total net rentable square feet owned ( 1 ) 23,285,890 23,973,578 occupancy percentage ( end of period ) 91.4 % 89.5 % average occupancy percentage 89.2 % 88.0 % new leases and expansions commenced ( square feet ) 2,015,711 1,753,986 leases renewed ( square feet ) 1,707,178 1,589,504 net absorption ( square feet ) ( 2 ) 503,612 289,271 percentage change in rental rates per square feet ( 3 ) new and expansion rental rates 2.5 % 7.1 % renewal rental rates 11.8 % 8.6 % combined rental rates 8.5 % 8.1 % capital costs committed ( 4 ) leasing commissions ( per square feet ) $ 7.50 $ 3.38 tenant improvements ( per square feet ) $ 17.34 $ 8.60 weighted average lease term 8.2 5.9 total capital per square foot per lease year $ 2.74 $ 2.06 ( 1 ) for each period , includes all properties in the core portfolio ( i.e . not under development or redevelopment ) , including properties that were sold during these periods . story_separator_special_tag ( 2 ) includes leasing related to completed developments and redevelopments , as well as sold properties . ( 3 ) rental rates include base rent plus reimbursement for operating expenses and real estate taxes . ( 4 ) calculated on an average basis . in seeking to increase revenue through our operating , financing and investment activities , we also seek to minimize operating risks , including ( i ) tenant rollover risk , ( ii ) tenant credit risk and ( iii ) development risk . tenant rollover risk : we are subject to the risk that tenant leases , upon expiration , will not be renewed , that space may not be relet , or that the terms of renewal or reletting ( including the cost of renovations ) may be less favorable to us than the current lease terms . leases that accounted for approximately 5.2 % of our aggregate final annualized base rents as of december 31 , 2014 ( representing approximately 7.2 % of the net rentable square feet of the properties ) are scheduled to expire without penalty in 2015 . we maintain an active dialogue with our tenants in an effort to maximize lease renewals . in our core portfolio the retention rate for the twelve month period ended december 31 , 2014 is 71.4 % compared to a retention rate of 68.3 % for the twelve month period ended december 31 , 2013 . rental rates on leases expiring during 2014 did not deviate significantly from market renewal rates in the regions in which we operate . if we are unable to renew leases or relet space under expiring leases , at anticipated rental rates , or if tenants terminate their leases early , our cash flow would be adversely impacted . tenant credit risk : in the event of a tenant default , we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment . our management regularly evaluates our accounts receivable reserve policy in light of our tenant base and general and local economic conditions . our accounts receivable allowance was $ 15.3 million or 9.1 % of total receivables ( including accrued rent receivable ) as of december 31 , 2014 compared to $ 16.2 million or 10.3 % of total receivables ( including accrued rent receivable ) as of december 31 , 2013 . 44 if economic conditions persist or deteriorate further , we may experience increases in past due accounts , defaults , lower occupancy and reduced effective rents . this condition would negatively affect our future net income and cash flows and could have a material adverse effect on our financial condition . development risk : fmc tower at cira centre south on october 31 , 2013 , we determined to proceed with development of the fmc tower at cira centre south ( the `` fmc tower '' ) ( formerly the cira walnut tower ) , designed as a trophy class , mixed-use office tower at 30th and walnut streets in philadelphia , pennsylvania , a 49 -story mixed-use office tower on a site ground leased from the university of pennsylvania . we currently expect the fmc tower to be ready for initial occupancy during the second quarter of 2016 and to include approximately 635,000 square feet of office space , 230,000 square feet of residential space consisting of 268 market rate rental apartment units , and 4,000 square feet of retail space , with an additional floor containing a full range of amenities . we have reduced development risk by pre-leasing an aggregate of 60 % of the office square feet of the fmc tower . the anchor tenant for approximately 280,000 square feet of office space is fmc corporation , a diversified chemical company serving agricultural , consumer and industrial markets globally . the lease with fmc corporation has an initial term of sixteen ( 16 ) years from initial occupancy . in addition , we also pre-leased approximately 100,000 square feet of office space to the university of pennsylvania under a 20-year lease . we anticipate the project cost to total $ 385.0 million , of which $ 47.6 million has been funded through december 31 , 2014 . we intend to fund remaining development costs through a combination of potential sources , including existing cash balances , availability under our unsecured line of credit , capital raised through one or more joint venture formations , proceeds from asset sales or equity and debt financing . the costs to complete the project will be funded over the construction period , which commenced in the second quarter of 2014 and is scheduled to conclude during the second quarter of 2016. we may joint venture or pre-sell the residential component of the fmc tower . pursuant to this objective , we have executed a property management agreement with a residential development and operating company that contemplates either outcome . our ground lease with the university of pennsylvania has a term through july 2097 , with a variable rent that would provide the university of pennsylvania with a percentage of the cash flow or proceeds of specified capital events subject to receipt of a priority return on the operating partnership 's investment . encino trace on february 19 , 2014 , we acquired 54.1 acres of undeveloped land known as encino trace in austin , texas known as encino trace for $ 14.0 million , inclusive of land value of $ 9.3 million or $ 29.00 per buildable square foot . the land is fully entitled with a site plan and building permits in place allowing for the development of two 4 -story office buildings containing approximately 320,000 rentable square feet . we commenced development of one of the buildings , which will contain 160,000 square feet , on the encino trace land during the first quarter 2014 , and as of december 31 , 2014 , the building was 75 % pre-leased to an anchor tenant .
| ( b ) results include : one development , two redevelopments and one re-entitlement property ( c ) represents certain revenues and expenses at the corporate level as well as various intercompany costs that are eliminated in consolidation and third-party management fees . this also includes seven properties that were contributed to an unconsolidated real estate venture in which we have a 50 % ownership interest . ( d ) pertains to properties that are part of our core portfolio ( i.e . not under development , redevelopment , or re-entitlement ) . total revenue cash rents from the total portfolio increased by $ 25.0 million from 2012 to 2013 , primarily attributable to : $ 14.9 million increase in rental income at our same store portfolio which is a result of 190 basis points increase in occupancy and a 100 basis point increase in cash rental rates from 2012 to 2013 ; an increase of $ 8.0 million at our development properties related to the acquisition of 1900 market street during the fourth quarter of 2012 and a portion of 660 germantown pike which was placed into service subsequent to the fourth quarter of 2012 ; and an increase of $ 2.8 million related to the acquisition of one and two commerce square during december of 2013 and six tower bridge during the second quarter of 2013. this increase is offset by a decrease of $ 0.7 million as a result of contributing our austin portfolio to a joint venture during the fourth quarter of 2013. straight-line rents decreased by $ 2.2 million from 2012 to 2013 , as a result of the following : a decrease of $ 3.0 million at our same store portfolio as a result of free rent turning to cash rent subsequent to the fourth quarter of 2012 and $ 1.3 million related to the contribution of our austin portfolio into a joint venture during the fourth quarter of 2013. this decrease was offset
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direct-to-consumer anthropologie offers a direct-to-consumer catalog that markets select merchandise , most of which is also available in our anthropologie stores . during fiscal 2011 , we circulated approximately 17.6 million catalogs . we plan to increase circulation to approximately 23.2 million catalogs during fiscal 2012. our anthropologie european customers are offered a direct-to-consumer catalog that markets selected merchandise , most of which is also offered at our anthropologie stores located in europe . the catalog was launched in september 2010 and we circulated approximately 126,000 catalogs in europe during fiscal 2011. we plan to circulate approximately 595,000 catalogs in europe during fiscal 2012. we anticipate the number of catalogs circulated to grow consistent with the anticipated demand from our european anthropologie customers . anthropologie operates a web site that accepts orders directly from customers . the web site captures the spirit of the store by offering a similar yet broader array of apparel , accessories , household and gift merchandise as found in the stores . 26 anthropologie also operates a web site that targets our european customers . the web site was launched in march 2010. the web site captures the spirit of our european stores by offering a similar yet broader selection of merchandise as found in our stores . fulfillment is provided from a third-party distribution center located in the united kingdom . during the second quarter of fiscal 2012 , we anticipate opening our own distribution center in rushden , england . urban outfitters offers a direct-to-consumer catalog offering selected merchandise , much of which is also available in our urban outfitters stores . during fiscal 2011 , we circulated approximately 14.2 million urban outfitters catalogs . we plan to increase circulation to approximately 15.4 million catalogs during fiscal 2012. our urban outfitters european customers are offered a direct-to-consumer catalog that markets selected merchandise , most of which is also offered at our urban outfitters stores located in europe . the catalog was launched in november 2010 and we circulated approximately 200,000 catalogs in europe during fiscal 2011. we plan to circulate approximately 800,000 catalogs in europe during fiscal 2012. we anticipate the number of catalogs circulated to grow consistent with the anticipated demand from our european urban outfitters customers . urban outfitters operates a web site that accepts orders directly from customers . the web site captures the spirit of the store by offering a similar yet broader selection of merchandise as found in the stores . urban outfitters also operates three web sites targeting our european customers . the web sites capture the spirit of our european stores by offering a similar yet broader selection of merchandise as found in our stores . fulfillment is provided from a third-party distribution center located in the united kingdom . during the second quarter of fiscal 2012 , we anticipate opening our own distribution center in rushden , england . free people offers a direct-to-consumer catalog offering select merchandise most of which is also available in our free people stores . during fiscal 2011 , free people circulated approximately 7.6 million catalogs . we plan to expand catalog circulation to approximately 8.8 million catalogs during fiscal 2012. free people operates a web site that accepts orders directly from customers . the web site exposes consumers to the product assortment found at free people retail stores as well as all of the free people wholesale offerings . terrain operates a web site that accepts orders directly from customers . the web site was launched in september 2009. the web site exposes consumers to a portion of the product assortment found at the terrain retail store . leifsdottir operates a web site that accepts orders directly from consumers . the web site was launched in september 2009. the web site exposes consumers to all product offerings from the leifsdottir concept . bhldn launched its website on february 14 , 2011. the website accepts orders directly from customers and exposes consumers to all product offerings from the bhldn concept . a retail store is planned to open during fiscal 2012 . 27 increases in our catalog circulation are driven by our evaluation of the response rate to each individual catalog . based upon that evaluation , we adjust the frequency and circulation of our catalog portfolio as needed . in addition , we evaluate the buying pattern of our direct-to-consumer customers to determine which customers respond to our catalog mailings . we also utilize the services of list rental companies to identify potential customers that will receive future catalogs . we believe that our web sites increase the reputation and recognition of our brands with our target customers and help support the strength of our stores ' operations . we plan on increasing our spending on investments in web marketing during fiscal 2012 for all of our brands . these increases will be based on our daily evaluation of the customer 's response rate to our marketing investments . direct-to-consumer sales for all brands combined were approximately 19.1 % of consolidated net sales for fiscal 2011. wholesale operations the free people wholesale division designs , develops and markets young women 's contemporary casual apparel . during fiscal 2011 , free people 's range of tops , bottoms , sweaters and dresses were sold worldwide through approximately 1,400 better department and specialty stores , including bloomingdale 's , nordstrom , lord & taylor , belk , and our own free people stores . free people wholesale sales accounted for approximately 4.9 % of consolidated net sales for fiscal 2011. the leifsdottir wholesale division was established in fiscal 2009. leifsdottir wholesale designs , develops and markets sophisticated women 's contemporary apparel including dresses , tops and bottoms , as well as shoes and accessories . leifsdottir is sold through luxury department stores including bloomingdale 's , nordstrom , neiman marcus and bergdorf goodman , select specialty stores and our own anthropologie stores . story_separator_special_tag leifsdottir wholesale sales accounted for less than 1 % of total consolidated net sales for fiscal 2011. critical accounting policies and estimates our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states . these generally accepted accounting principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period . our senior management has reviewed the critical accounting policies and estimates with our audit committee . our significant accounting policies are described in note 2 of our consolidated financial statements , summary of significant accounting policies. we believe that the following discussion addresses our critical accounting policies , which are those that are most important to the portrayal of our financial condition and results of operations and require management 's most difficult , subjective and complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . if actual results were to differ significantly from estimates made , the reported results could be materially affected . we are not currently aware of any reasonably likely events or circumstances that would cause our actual results to be materially different from our estimates . 28 revenue recognition revenue is recognized at the point-of-sale for retail store sales or when merchandise is shipped to customers for wholesale and direct-to-consumer sales , net of estimated customer returns . revenue is recognized at the completion of a job or service for landscape sales . revenue is presented on a net basis and does not include any tax assessed by a governmental or municipal authority . payment for merchandise at our stores and through our direct-to-consumer channel is tendered by cash , check , credit card , debit card or gift card . therefore , our need to collect outstanding accounts receivable for our retail and direct-to-consumer channel is negligible and mainly results from returned checks or unauthorized credit card transactions . we maintain an allowance for doubtful accounts for our wholesale and landscape service accounts receivable , which management reviews on a regular basis and believes is sufficient to cover potential credit losses and billing adjustments . deposits for custom orders are recorded as a liability and recognized as a sale upon delivery of the merchandise to the customer . these custom orders , typically for upholstered furniture , are not material . deposits for landscape services are recorded as a liability and recognized as a sale upon completion of service . landscape services and related deposits are not material . we account for a gift card transaction by recording a liability at the time the gift card is issued to the customer in exchange for consideration from the customer . a liability is established and remains on our books until the card is redeemed by the customer , at which time we record the redemption of the card for merchandise as a sale , or when we determine the likelihood of redemption is remote . we determine the probability of the gift cards being redeemed to be remote based on historical redemption patterns . revenues attributable to gift card liabilities relieved after the likelihood of redemption becomes remote are included in sales and are not material . our gift cards do not expire . sales return reserve we record a reserve for estimated product returns where the sale has occurred during the period reported , but the return is likely to occur subsequent to the period reported and may otherwise be considered in-transit . the reserve for estimated in-transit product returns is based on our most recent historical return trends . if the actual return rate or experience is materially higher than our estimate , additional sales returns would be recorded in the future . as of january 31 , 2011 and 2010 , reserves for estimated sales returns in-transit totaled $ 11.4 million and $ 9.9 million , representing 3.0 % and 2.9 % of total liabilities , respectively . marketable securities our marketable securities may be classified as either held-to-maturity or available-for-sale . held-to-maturity securities represent those securities that are held at amortized cost and that we have both the intent and the belief that it is not likely that we will be required to sell the security prior to its maturity and recovery of full amortized cost . interest on these securities , as well as amortization of discounts and premiums , is included in interest income . available-for-sale securities represent securities that do not meet the classification of held-to-maturity , are not actively traded and are carried at fair value , which approximates amortized cost . unrealized gains and losses on these securities are excluded from earnings and are reported as a separate component of shareholders ' equity until realized . other than temporary impairment losses related to credit losses are considered to be realized losses . when available-for-sale securities are sold , the cost of the securities is specifically identified and is used to determine the realized gain or loss . securities classified as current have maturity dates of 29 less than one year from the balance sheet date . securities classified as non-current have maturity dates greater than one year from the balance sheet date . available for sale securities such as ars that fail at auction and do not liquidate under normal course are classified as non-current assets . successful auctions would be classified as current assets . all of our marketable securities as of january 31 , 2011 and 2010 were classified as available-for-sale . inventories we value our inventories , which consist primarily of general consumer merchandise held for sale , at the lower of cost or market . cost is determined on the first-in , first-out method and includes the cost of merchandise and import related costs , including freight , import taxes and agent commissions .
| direct-to-consumer net sales in fiscal year 2011 increased over the prior year primarily due to increased traffic to our web sites combined with an increase in average order value , which more than offset a decrease in conversion rate . catalog circulation across all brands increased by 2.8 million , or 7.7 % . thus far during the first quarter of fiscal 2012 , comparable retail segment net sales are low single-digit negative . the increase in free people wholesale net sales was driven by increases in transactions and average unit sale prices . leifsdottir 's wholesale net sales increase was a result of an increase in the number of transactions that more than offset a decrease in average unit sale prices . gross profit rates in fiscal 2011 increased to 41.2 % of net sales , or $ 937 million , from 40.6 % of net sales , or $ 786 million , in fiscal 2010. this increase was primarily due to improved merchandise margins and leveraging of store occupancy expense driven by positive comparable store sales . total company inventory increased 23.3 % to $ 230 million from $ 186 million in the prior year . the increase is primarily related to the acquisition of inventory to stock new stores and our direct-to-consumer channel growth . comparable retail segment inventory ( which includes our direct-to-consumer channel ) grew 9.7 % , while comparable store inventories increased 4.4 % . selling , general and administrative expenses , as a percentage of net sales for fiscal 2011 , decreased to 23.0 % of net sales versus 23.1 % of net sales for fiscal 2010. the decrease in percentage was primarily due to leveraging of direct store fixed and controllable costs driven by the positive retail segment comparable sales . in fiscal 2011 , selling , general and administrative expenses increased by $ 75 million , to $ 522 million , from $ 447 million in the prior fiscal year . the dollar increase versus the prior year is primarily related to the operating expenses of
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as a result of goodwill impairments recognized in fiscal 2017 , we no longer have a naked credit , which resulted in a tax benefit of $ 0.9 million . we recognized tax expense of $ 1.9 million and $ 0.6 million related to discontinued operations in fiscal 2017 and 2016 , respectively . the increase in tax expense in fiscal 2017 was primarily due to the gain recognized on the sale of tekna seal . liquidity and capital resources as of june 30 , 2017 , we had cash and cash equivalents of $ 0.6 million . cash held in financial institutions outside the united states totaled $ 0.6 million and $ 1.6 million as of june 30 , 2017 and 2016 , respectively . our hungarian subsidiary , where these funds are held , is taxed in a similar manner to our domestic subsidiaries . thus , we would not incur a material tax obligation should we decide to repatriate these funds . under our senior abl credit facility with citizens bank , n.a. , we will not maintain any cash on hand in our domestic bank accounts by design . instead , we maintain a $ 25.0 million asset-based revolver loan , which includes an automatic cash sweep feature that identifies any cash available in our bank accounts at the end of a banking business day and then applies that cash to reduce our outstanding revolver loan balance . the automatic cash sweep feature serves to decrease our daily interest expense . disbursements are paid daily from cash being made available under our revolver loan based on a borrowing base calculation . we anticipate our cash on hand and cash flows from operations will be sufficient to finance our operations for the next twelve months . in order to provide additional liquidity in the future and to help support our strategic goals , we have a $ 25.0 million senior secured revolving loan . as of june 30 , 2017 , $ 10.1 million of borrowings were outstanding under the senior secured revolving loan . any additional borrowings under the senior secured revolving loan are subject to compliance with the terms of our senior abl credit facility . 31 operating activities cash provided by operating activities decreased $ 3.6 million to $ 2.9 million for fiscal 2017 as compared to $ 6.5 million in fiscal 2016 , primarily due to the following : · decline in earnings of $ 8.0 million , which includes a pre-tax gain of $ 5.5 million recognized on the sale of subsidiaries , partially offset by goodwill impairment charges of $ 3.3 million and a decrease in deferred income taxes of $ 1.0 million , which related to the reduction of our deferred tax liability due to the goodwill impairments recognized in the current year ; and · increase in cash provided from changes in working capital items of $ 6.2 million , primarily due to a decrease in accounts receivable of $ 2.6 million , due in part to lower sales in the fourth quarter of fiscal 2017 and better collection efforts ; and lower inventory of $ 1.1 million as the company reduced inventory due to increased reserves for excess and obsolete and write-offs of inventory deemed to be scrap totaling approximately $ 3.1 million . investing activities cash provided by investing activities increased $ 6.5 million to $ 3.9 million for fiscal 2017 as compared to net cash used in investing activities of $ 2.6 million in fiscal 2016 , primarily due to the following : · proceeds received from the sale of our subsidiary of $ 10.5 million ; and · partially offset by cash used to purchase property and equipment of $ 6.6 million . a portion of our capital expenditures were for tools built for internal ownership . some of these tools were technically complex and were not either functionally or economically viable , which resulted in their write-off during the fourth quarter of fiscal 2017 totaling approximately $ 1.1 million . financing activities cash used in financing activities increased $ 4.9 million to $ 9.9 million for fiscal 2017 as compared to $ 5.0 million in fiscal 2016 , primarily due to the following : · higher net principal payments on our long-term debt primarily due to cash received of $ 10.5 million from the sale of our subsidiary , partially offset by borrowings ; · purchase of the non-controlling membership interest in flomet and payments for the non-controlling interest in connection with the sale of tekna seal totaling $ 0.7 million ; and · receipt of $ 0.1 million from the issuance of stock through our employee stock purchase plan . debt and credit arrangements for a discussion of our long-term debt , see note 8 , debt , of the accompanying notes to consolidated financial statements in part ii , item 8. the descriptions of the senior abl credit facility and the subordinated loan agreement ( together , our “ credit facilities ” ) do not purport to be complete and are subject to , and are qualified in their entirety by , the full text of the respective documents . financial ratio covenants the terms and conditions of the credit facilities require us to comply with a number of financial and other covenants , such as maintaining debt service coverage and leverage ratios in certain situations and maintaining insurance coverage . these covenants may limit our flexibility in our operations , and breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness even if we had satisfied our payment obligations . if we were to default on the credit agreements or other debt instruments , our financial condition would be adversely affected . story_separator_special_tag non-compliance by us with any of the covenants would constitute events of default under both of the credit facilities pursuant to cross-default provisions and could result in acceleration of payment obligations for all outstanding principal 32 and interest for loans made under both of the credit facilities , unless such defaults were waived or subject to forbearance by the respective creditors . senior abl credit facility financial ratios . our senior abl credit facility contains a financial ratio covenant , summarized as follows : fixed charge coverage ratio . we may not permit the fixed charge coverage ratio , as of the last day of any period of four consecutive fiscal quarters to be less than the greater of ( i ) the ratio set forth in the table below and ( ii ) the maximum fixed charge coverage ratio or equivalent ratio permitted under the subordinated loan agreement . the fixed charge coverage ratio is defined as the ratio of ( a ) consolidated ebitda minus the unfinanced portion of capital expenditures , excluding certain tooling investments , minus expense for taxes paid in cash ; to ( b ) fixed charges , all calculated on a consolidated basis in accordance with gaap . replace_table_token_3_th the summary calculation of our senior abl credit facility fixed charge coverage ratio as of june 30 , 2017 is as follows : ( in thousands , except ratio ) amount consolidated ebitda $ 8,138 less unfinanced portion of capital expenditures ( 1,543 ) less expense for taxes paid in cash ( 18 ) coverage amount ( a ) $ 6,577 fixed charges ( b ) $ 6,204 fixed charge coverage ratio ( a : b ) 1.06:1.00 subordinated loan agreement financial ratios . our subordinated loan agreement contains the following financial ratio covenants , summarized as follows : minimum fixed charge coverage ratio . we may not permit the minimum fixed charge coverage ratio , as of the last day of any fiscal quarter ending during any period set forth in the table below , to be less than the ratio set forth opposite such period in the table below . the fixed charge coverage ratio is defined as the ratio of ( a ) consolidated ebitda minus the unfinanced portion of capital expenditures , excluding tooling , minus expense for taxes paid in cash ( other than certain federal and state taxes excluded under the mclarty second amendment ) ; to ( b ) fixed charges , all calculated on a consolidated basis in accordance with gaap . replace_table_token_4_th 33 the summary calculation of our subordinated loan agreement fixed charge coverage ratio as of june 30 , 2017 is as follows : ( in thousands , except ratio ) amount consolidated ebitda $ 16,461 less unfinanced portion of capital expenditures ( 2,991 ) less expense for taxes paid in cash ( 18 ) coverage amount ( a ) $ 13,452 fixed charges ( b ) $ 6,204 fixed charge coverage ratio ( a : b ) 2.17:1.00 maximum total leverage ratio . we may not have a total leverage ratio , as of the last day of any fiscal quarter ending during any period set forth in the table below , to exceed the ratio set forth opposite such period in the table below . the total leverage ratio means the ratio of ( a ) our funded indebtedness as of such date , to ( b ) consolidated ebitda for the test period ended as of such date . replace_table_token_5_th the summary calculations of our subordinated loan agreement total leverage ratio as of june 30 , 2017 is as follows : ( in thousands , except ratio ) amount funded indebtedness ( a ) $ 48,922 consolidated ebitda ( b ) $ 16,461 maximum total leverage ratio ( a : b ) 2.97:1.00 compliance with financial ratio covenants as of june 30 , 2017 , we were in compliance with our debt covenants under our senior credit facility and subordinated loan agreement . gaap to non-gaap reconciliation fixed charges and consolidated ebitda used in our debt covenant calculations are non-gaap financial measures . we have provided this non-gaap financial information to aid in better understanding of our financial ratios as used in our debt covenant calculation . the methodology used is defined in our debt agreements . non-gaap financial measures are not in accordance with , or an alternative for , gaap . the non-gaap financial measures are not meant to be considered in isolation or as a substitute for comparable gaap financial measures , and should be read only in conjunction with our consolidated financial statements prepared in accordance with gaap . fixed charges consist of interest payments , principal payments on our debt , and capital lease payments for the prior four quarters . consolidated ebitda used in our debt covenant calculations is based on the sum of the prior four quarter actual amounts . 34 the reconciliation of gaap net income to consolidated ebitda under our senior abl credit facility is as follows ( in thousands ) : replace_table_token_6_th ( 1 ) transaction related expenses relate to legal fees incurred to amend certain debt agreements , loss on extinguishment of debt and charges related to the sale of our non-core subsidiaries . ( 2 ) other non-recurring expenses primarily relates to costs incurred to relocate our plastic injection molding operations . ( 3 ) other non-recurring income or gains relates to the gain on termination of an operating lease . ( 4 ) consolidated ebitda excludes interest expense , net and income taxes because these items are associated with our capitalization and tax structures . consolidated ebitda excludes depreciation and amortization expense because these non-cash expenses reflect the impact of prior capital expenditure decisions which may not be indicative of future capital expenditure requirements . share-based compensation , transaction related costs , restructuring and severance expenses , non-recurring gains , and pro-forma ebitda adjustment to exclude discontinued subsidiaries are adjustments made in accordance with our bank debt covenants .
| 28 results of operations for the fiscal year ended june 30 , 2017 compared to the fiscal year ended june 30 , 2016 the following tables present information about our reportable segments for the respective periods : replace_table_token_2_th sales the change in sales by reportable segment was as follows : · precision components group sales during fiscal year 2017 increased by $ 6.5 million , or 9.5 % , due to higher mim sales of $ 7.2 million partially offset by lower plastic and tooling sales at atc of $ 0.7 million . mim sales increased primarily as a result of higher sales to customers in most of the industries we serve . · stamping group sales during fiscal year 2017 decreased by $ 1.3 million , or 6.0 % , primarily due to fewer new customer product launches , and $ 0.4 million related to a wind-generated power disruption , which was insured . · 3dmt sales during fiscal year 2017 increased by $ 0.9 million , or 52.4 % , primarily due to higher sales to aerospace and defense customers . · the company sold its wireless business effective march 31 , 2017. gross profit and gross margin gross profit is affected by a number of factors including product mix , cost of labor and raw materials , unit volumes , pricing , competition , new products and services as a result of acquisitions and new customer programs , and capacity utilization . in the case of acquisitions and new customer programs , profitability normally lags revenue growth due to product start-up costs , lower manufacturing volumes in the start-up phase , operational inefficiencies , and under-absorbed overhead . gross margin can improve over time if manufacturing volumes increase , as our utilization rates and overhead absorption improves . as a result of these various factors , our gross margin varies from period to period . the change in gross profit and gross margin by reportable segment was as follows : · precision components group gross profit during fiscal year 2017 decreased $ 5.7 million ,
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exposure to international business risks ( including as a result of the impact of brexit and any policy changes resulting from the new u.s. administration ) as we continue to increase our international operations ; ( xiv ) inability to raise capital at all or on not unfavorable terms in the future ; and ( xv ) downward pressure on our share price and dilutive effect of future sales or issuances of equity securities ( including in connection with future acquisitions ) ; and ( xvi ) potential changes in ratings or outlooks of rating agencies on our outstanding debt securities . other factors that may affect forward-looking statements include , but are not limited to : ( i ) the future performance , financial and otherwise , of the company ; ( ii ) the ability of the company to bring new products and services to market and to increase sales ; ( iii ) the strength of the company 's product development pipeline ; ( iv ) failure to secure and protect patents , 34 trademarks and other proprietary rights ; ( v ) infringement of third-party proprietary rights triggering indemnification obligations and resulting in significant expenses or restrictions on our ability to provide our products or services ; ( vi ) failure to comply with privacy laws and regulations that are extensive , open to various interpretations and complex to implement ; ( vii ) the company 's growth and profitability prospects ; ( viii ) the estimated size and growth prospects of the eim market ; ( ix ) the company 's competitive position in the eim market and its ability to take advantage of future opportunities in this market ; ( x ) the benefits of the company 's products and services to be realized by customers ; ( xi ) the demand for the company 's products and services and the extent of deployment of the company 's products and services in the eim marketplace ; ( xii ) the company 's financial condition and capital requirements ; ( xiii ) system or network failures or information security breaches in connection with the company 's offerings ; and ( xiv ) failure to attract and retain key personnel to develop and effectively manage the company 's business . readers should carefully review part i , item 1a `` risk factors '' and other documents we file from time to time with the securities and exchange commission ( sec ) and other securities regulators . a number of factors may materially affect our business , financial condition , operating results and prospects . these factors include but are not limited to those set forth in part i , item 1a `` risk factors '' and elsewhere in this annual report on form 10-k. any one of these factors , and other factors that we are unaware of , or currently deem immaterial , may cause our actual results to differ materially from recent results or from our anticipated future results . the following md & a is intended to help readers understand our results of operations and financial condition , and is provided as a supplement to , and should be read in conjunction with , our consolidated financial statements and the accompanying notes to our consolidated financial statements under part ii , item 8 of this annual report on form 10-k . all dollar and percentage comparisons made herein under the sections titled `` fiscal 2017 compared to fiscal 2016 '' refer to the twelve months ended june 30 , 2017 ( fiscal 2017 ) compared with the twelve months ended june 30 , 2016 ( fiscal 2016 ) . all dollar and percentage comparisons made herein under the sections titled `` fiscal 2016 compared to fiscal 2015 '' refer to fiscal 2016 compared with the twelve months ended june 30 , 2015 ( fiscal 2015 ) . where we say “ we ” , “ us ” , “ our ” , “ opentext ” or “ the company ” , we mean open text corporation or open text corporation and its subsidiaries , as applicable . executive overview we operate in the enterprise information management ( eim ) market . we develop enterprise software for digital transformation . opentext 's comprehensive platform and suite of software products and services provide secure and scalable solutions for global companies . our software assists organizations with finding , utilizing , and sharing business information from any device in ways that are intuitive , efficient and productive . we also help ensure that information remains secure and private , as demanded in today 's highly regulated climate . in addition , we provide solutions that facilitate the exchange of information and transactions between supply chain participants , such as manufacturers , retailers , distributors and financial institutions . these are central to a company 's ability to collaborate effectively with its partners . our focus is to help customers automate processes . the algorithms embedded in our software aim to enable customers to unlock massive amounts of data and gain better insight into their business , which ultimately can lead to better decision making . we offer software through traditional on-premise solutions , cloud solutions or a combination of both on-premise and cloud solutions ( hybrid ) . we are agnostic as to which delivery method a customer prefers . we believe giving customers choice and flexibility will help us to strive to obtain long-term customer value . our initial public offering was on the nasdaq in 1996 and we were subsequently listed on the toronto stock exchange ( tsx ) in 1998. we are a multinational company and as of june 30 , 2017 , employed approximately 10,900 people worldwide . our ticker symbol on both the nasdaq and the tsx is `` otex '' . story_separator_special_tag ip reorganization in july 2016 , we implemented a reorganization of our subsidiaries worldwide with the view to continuing to enhance operational and administrative efficiencies through further consolidated ownership , management , and development of our intellectual property ( ip ) in canada , continuing to reduce the number of entities in our group and working towards our objective of having a single operating legal entity in each jurisdiction . we believe our reorganization also reduces our exposure to global political and tax uncertainties , particularly in europe . we believe that further consolidating our ip in canada will continue to ensure appropriate legal protections for our consolidated ip , simplify legal , accounting and tax compliance , and improve our global cash management . a significant tax benefit of $ 876.1 million associated with the recognition of a net deferred tax asset ensuing from the reorganization was recognized in the first quarter of fiscal 2017. this had a significant impact on our gaap-based net income and earnings per share , as illustrated in our fiscal year end results presented below . 35 share split on december 21 , 2016 , we announced that our board of directors ( the board ) approved a two-for-one share split of our outstanding common shares . the two-for-one share split , which became effective on january 24 , 2017 , was implemented by way of a share sub-division whereby shareholders of record on the record date received one additional common share for each common share held . as a result of the two-for-one share split , all current and historical period per share data , number of common shares outstanding and share-based compensation awards are presented on a post share split basis . fiscal 2017 summary : during fiscal 2017 we saw the following activity : total revenue was $ 2,291.1 million , up 25.6 % compared to the prior fiscal year ; up 27.0 % after factoring the impact of $ 26.4 million of foreign exchange rate changes . total annual recurring revenue , which we define as the sum of cloud services and subscriptions revenue and customer support revenue , was $ 1,686.6 million , up 25.2 % compared to the prior fiscal year ; up 26.6 % after factoring the impact of $ 18.7 million of foreign exchange rate changes . cloud services and subscriptions revenue was $ 705.5 million , up 17.4 % compared to the prior fiscal year ; up 18.4 % after factoring the impact of $ 6.3 million of foreign exchange rate changes . license revenue was $ 369.1 million , up 30.1 % compared to the prior fiscal year ; up 31.4 % after factoring the impact of $ 3.6 million of foreign exchange rate changes . gaap-based eps , diluted , was $ 4.01 compared to $ 1.17 in the prior fiscal year . non-gaap-based eps , diluted , was $ 2.02 compared to $ 1.77 in the prior fiscal year . gaap-based gross margin was 66.7 % compared to 68.5 % in the prior fiscal year . gaap-based operating margin was 15.4 % compared to 20.2 % in the prior fiscal year . non-gaap-based operating margin was 31.8 % compared to 33.8 % in the prior fiscal year . adjusted ebitda was $ 792.5 million compared to $ 671.7 million in the prior fiscal year . operating cash flow was $ 439.3 million down 16.4 % from the prior fiscal year . cash and cash equivalents was $ 443.4 million as of june 30 , 2017 , compared to $ 1,283.8 million as of june 30 , 2016 . see `` use of non-gaap financial measures '' below for definitions and reconciliations of gaap-based measures to non-gaap-based measures . see `` acquisitions '' below for the impact of acquisitions on the period-to-period comparability of results . acquisitions our competitive position in the marketplace requires us to maintain a complex and evolving array of technologies , products , services and capabilities . in light of the continually evolving marketplace in which we operate , on an ongoing basis we regularly evaluate acquisition opportunities within the eim market and at any time may be in various stages of discussions with respect to such opportunities . acquisition of the enterprise content division of dell-emc on january 23 , 2017 , we completed our previously announced acquisition of certain assets and liabilities of the enterprise content division of emc corporation , a massachusetts corporation , and certain of its subsidiaries , collectively referred to as dell-emc ( ecd business ) for approximately $ 1.62 billion . ecd business offers opentext a suite of leading enterprise content management solutions with deep industry focus , including the documentum tm , infoarchive tm , and leap tm product families . we believe this acquisition complements and extends our eim portfolio . the results of operations of ecd business have been consolidated with those of opentext beginning january 23 , 2017. acquisition of certain customer communication management software assets from hp inc. on july 31 , 2016 , we acquired certain customer communication management software and services assets and liabilities from hp inc. ( ccm business ) for approximately $ 315.0 million . we believe this acquisition complements our current software portfolio , and allows us to better serve our customers by offering a wider set of customer communications management capabilities . the results of operations of this acquisition have been consolidated with those of opentext beginning july 31 , 2016 . 36 acquisition of recommind , inc. o n july 20 , 2016 , we acquired recommind , inc. ( recommind ) , a leading provider of ediscovery and information analytics , for approximately $ 170.1 million . we believe this acquisition complements our eim solutions , and through ediscovery and analytics , provides increased visibility into structured and unstructured data .
| cost of license revenues increased by $ 3.3 million during fiscal 2017 as compared to the prior fiscal year as a result of an increase in third party technology costs relating to a broad range of products that we have inherited from our recent acquisitions . overall , the gross margin percentage on license revenues remained relatively stable . 44 fiscal 2016 compared to fiscal 2015 license revenues decreased by $ 10.6 million during fiscal 2016 as compared to the prior fiscal year , inclusive of the negative impact of foreign exchange of approximately $ 15.1 million . geographically , the overall decrease was attributable to a decrease in asia pacific of $ 6.2 million , a decrease in americas of $ 3.6 million , and a decrease in emea of $ 0.7 million . the number of license deals greater than $ 0.5 million that closed during fiscal 2016 was 78 deals , of which 34 deals were greater than $ 1.0 million and is inclusive of a patent infringement settlement , compared to 78 deals in fiscal 2015 , of which 30 deals were greater than $ 1.0 million . license revenue , as a proportion of our total revenues , remained stable at approximately 16 % . cost of license revenues decreased by $ 2.6 million fiscal 2016 as compared to the prior fiscal year , primarily as a result of lower third party technology costs . overall , the gross margin percentage on license revenues remained stable at approximately 96 % . 2 ) cloud services and subscriptions : cloud services and subscription revenues consist of ( i ) software as a service offerings ( ii ) managed service arrangements and ( iii ) subscription revenues relating to on premise offerings . these offerings allow our customers to make use of opentext software , services and content over internet enabled networks supported by opentext data centers . these web applications allow customers to transmit a variety of content between various mediums and to securely manage enterprise information without the commitment of investing in related hardware infrastructure . revenues are generated on several transactional usage-based models , are typically billed monthly in arrears , and can therefore
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the assumed liabilities at closing are projected to include approximately $ 450 to $ 550 million in customer deposits of hrbb and balances on prepaid cards , including hrbb 's emerald cards , gift cards and incentive cards . the amount is subject to change 33 based on such factors as the timing of the closing . substantially all of the assets transferred to the bank will consist of cash equal to the face amount of deposits and other liabilities transferred to the bank at closing . the bank will also acquire a de-minimis amount of non-cash assets at zero cost . the consummation of the transaction contemplated by the agreement is subject to regulatory approvals and waivers and other customary closing conditions . upon regulatory approval of the agreement and concurrent with closing of the transactions contemplated by the agreement , the bank also intends to enter into a program management agreement with emerald financial services , llc , a subsidiary of h & r block , inc. , under which the bank will provide h & r block-branded financial services products through h & r block 's retail and online channels . these products will include emerald prepaid mastercard® , refund transfers , and emerald advance® lines of credit . critical accounting policies the following discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements and the notes thereto , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements . on an ongoing basis , we evaluate our estimates and assumptions based upon historical experience and various factors and circumstances . we believe that our estimates and assumptions are reasonable under the circumstances . however , actual results may differ significantly from these estimates and assumptions that could have a material effect on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods . securities . currently , we classify securities as either trading , available-for-sale or held-to-maturity . trading securities are those securities for which we have elected fair value accounting . trading securities are recorded at fair value with changes in fair value recorded in earnings each period . securities available-for-sale are reported at estimated fair value , with unrealized gains and losses , net of the related tax effects , excluded from operations and reported as a separate component of accumulated other comprehensive income or loss . the fair values of securities traded in active markets are obtained from market quotes . if quoted prices in active markets are not available , we determine the fair values by utilizing industry-standard tools to calculate the net present value of the expected cash flows available to the securities from the underlying mortgage assets . to determine the performance of the underlying mortgage loan pools , we consider where appropriate borrower prepayments , defaults , and loss severities based on a number of macroeconomic factors , including housing price changes , unemployment rates , interest rates and borrower attributes such as credit score and loan documentation at the time of origination . we input for each security our projections of monthly default rates , loss severity rates and voluntary prepayment rates for the underlying mortgages for the remaining life of the security to determine the expected cash flows . the projections of default rates are derived by the company from the historic default rate observed in the pool of loans collateralizing the security , increased by ( or decreased by ) the forecasted increase or decrease in the national unemployment rate . the projections of loss severity rates are derived by the company from the historic loss severity rate observed in the pool of loans , increased by ( or decreased by ) the forecasted decrease or increase in the national home price appreciation ( hpa ) index . to determine the discount rates used to compute the present value of the expected cash flows for these non-agency rmbs securities , we separate the securities by the borrower characteristics in the underlying pool . for example , non-agency rmbs “ prime ” securities generally have borrowers with higher fico scores and better documentation of income . “ alt-a ” securities generally have borrowers with lower fico and less documentation of income . “ pay-option arms ” are alt-a securities with borrowers that tend to pay the least amount of principal ( or increase their loan balance through negative amortization ) . separate discount rates are calculated for prime , alt-a and pay-option arm non-agency rmbs securities using market-participant assumptions for risk , capital and return on equity . securities that management has the positive intent and ability to hold to maturity are classified as held-to-maturity and recorded at amortized cost . amortization of purchase premiums and accretion of discounts on securities are recorded as yield adjustments on such securities using the effective interest method . the specific identification method is used for purposes of determining cost in computing realized gains and losses on investment securities sold . at each reporting date , we monitor our available-for-sale and held-to-maturity securities for other-than-temporary impairment . the company measures its debt securities in an unrealized loss position at the end of the reporting period for other-than-temporary impairment by comparing the present value of the cash flows currently expected to be collected from the security with its amortized cost basis . if the calculated present value is lower than the amortized cost , the difference is the credit component of an other-than-temporary impairment of its debt securities . story_separator_special_tag the excess of the present value over the fair value of the security ( if any ) is the noncredit component of the impairment , only if the company does not intend to sell the security and will not be required to sell the security before recovery of its amortized cost basis . the credit component of the other-than-temporary-impairment is recorded as a loss in earnings and the noncredit component is recorded as a charge to other comprehensive income , net of the related income tax benefit . 34 for non-agency rmbs we determine the cash flow expected to be collected and calculate the present value for purposes of testing for other-than-temporary impairment , by utilizing the same industry-standard tool and the same cash flows as those calculated for fair values ( discussed above ) . we compute cash flows based upon the underlying mortgage loan pools and our estimates of prepayments , defaults , and loss severities . we input our projections for the underlying mortgages for the remaining life of the security to determine the expected cash flows . the discount rates used to compute the present value of the expected cash flows for purposes of testing for the credit component of the other-than-temporary impairment are different from those used to calculate fair value and are either the implicit rate calculated in each of our securities at acquisition or the last accounting yield ( asc topic 325-40-35 ) . we calculate the implicit rate at acquisition based on the contractual terms of the security , considering scheduled payments ( and minimum payments in the case of pay-option arms ) without prepayment assumptions . we use this discount rate in the industry-standard model to calculate the present value of the cash flows for purposes of measuring the credit component of an other-than-temporary impairment of our debt securities . allowance for loan losses . the allowance for loan losses is maintained at a level estimated to provide for probable incurred losses in the loan portfolio . management determines the adequacy of the allowance based on reviews of individual loans and pools of loans , recent loss experience , current economic conditions , the risk characteristics of the various categories of loans and other pertinent factors . this evaluation is inherently subjective and requires estimates that are susceptible to significant revision as more information becomes available . the allowance is increased by the provision for loan losses , which is reduced by charge-offs and recoveries of loans previously charged-off . allocations of the allowance may be made for specific loans but the entire allowance is available for any loan that , in management 's judgment , may be uncollectible or impaired . the allowance for loan loss includes specific and general reserves . specific reserves are provided for impaired loans . all other impaired loans are written down through charge-offs to their realizable value and no specific or general reserve is provided . a loan is measured for impairment generally two different ways . if the loan is primarily dependent upon the borrowers ability to make payments , then impairment is calculated by comparing the present value of the expected future payments discounted at the effective loan rate to the carrying value of the loan . if the loan is collateral dependent , the net proceeds from the sale of the collateral is compared to the carrying value of the loan . if the calculated amount is less than the carrying value of the loan , the loan has impairment . a general reserve is included in the allowance for loan loss and is determined by adding the results of a quantitative and a qualitative analysis to all other loans not measured for impairment at the reporting date . the quantitative analysis determines the bank 's actual annual historic charge-off rates and applies the average historic rates to the outstanding loan balances in each loan class . the qualitative analysis considers one or more of the following factors : changes in lending policies and procedures , changes in economic conditions , changes in the content of the portfolio , changes in lending management , changes in the volume of delinquency rates , changes to the scope of the loan review system , changes in the underlying collateral of the loans , changes in credit concentrations and any changes in the requirements to the credit loss calculations . a loss rate is estimated and applied to those loans affected by the qualitative factors . the following portfolio segments have been identified : single family secured mortgage , home equity secured mortgage , single family warehouse and other , multifamily secured mortgage , commercial real estate mortgage , recreational vehicles and auto secured , factoring , c & i and other . use of non-gaap financial measures in addition to the results presented in accordance with gaap , this report includes non-gaap financial measures such as core earnings . core earnings exclude realized and unrealized gains and losses associated with our securities portfolios , net of tax . excluding these gains and losses provides investors with an understanding of our bank 's core lending and mortgage banking business performance . non-gaap financial measures have inherent limitations , are not required to be uniformly applied and are not audited . readers should be aware of these limitations and should be cautious as to their use of such measures . although we believe the non-gaap financial measures disclosed in this report enhance investors ' understanding of our business and performance , these non-gaap measures should not be consider in isolation , or as a substitute for gaap basis financial measures .
| information is provided with respect to ( i ) effects on interest income and interest expense attributable to changes in volume ( changes in volume multiplied by prior rate ) ; ( ii ) effects on interest income and interest expense attributable to changes in rate ( changes in rate multiplied by prior volume ) ; and ( iii ) changes in rate/volume ( change in rate multiplied by change in volume ) : replace_table_token_17_th interest income . interest income for the fiscal year ended june 30 , 2014 totaled $ 172.9 million , an increase of $ 37.2 million , or 27.4 % , compared to $ 135.7 million in interest income for the fiscal year ended june 30 , 2013 primarily due to growth of interest-earning assets . average interest-earning assets for the fiscal year ended june 30 , 2014 increased by $ 787.0 million compared to the fiscal year ended june 30 , 2013 due to the origination of loans for investment , which increased $ 1,243.4 million during the year ended june 30 , 2014 compared to 2013 . for the fiscal year ended june 30 , 2014 , the growth in average balances contributed additional interest income of $ 37.6 million , which was offset by the decrease in average rate which resulted in a net $ 0.4 million decrease in interest income . the average yield earned on our interest-earning assets decreased to 4.98 % for the fiscal year ended june 30 , 2014 , down from 5.05 % for the same period in 2013 . during fiscal 2014 , our new portfolio loans were added at market rates , which were below the average of our portfolio . interest expense . interest expense totaled $ 35.8 million for the fiscal year ended june 30 , 2014 , an increase of $ 1.8 million , compared to $ 34.0 million in interest expense during the fiscal year ended june 30 , 2013 . average interest-bearing liabilities for the fiscal year ended june 30 , 2014 increased $ 618.4 million compared to the same period in 2013 , due to increased demand and savings accounts and
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on october 7 , 2004 , the puct denied all of tnmp 's motions for rehearing except for an issue related to a june 2004 texas supreme court ruling that addressed recovery of carrying charges on recoverable stranded costs back to january 1 , 2002 , the date that competition began in texas . the hearing was held in december 2004. in accordance with the june 2004 texas supreme court ruling , and consistent with the application in the true-up case of another utility , tnmp expects to recover $ 41.7 million of carrying charges on stranded costs for the period january 1 , 2002 through july 21 , 2004. accordingly , tnmp recorded $ 27.2 million of carrying charges for the period january 1 , 2002 through july 21 , 2004 , in the fourth quarter of 2004. in accordance with provisions within sfas 92 regulated enterprises accounting for phase-in plans , tnmp was limited in its recognition for income statement purposes to only the debt related portion of the carrying charges . tnmp was prohibited from income statement recognition of $ 14.5 million associated with the equity portion of the carrying charges until the receipt of those amounts from customers . a final order in the true-up proceeding is expected to be issued in the second quarter of 2005. critical accounting policies the accounting policies that tnp employed in the preparation of the consolidated financial statements are discussed in note 1. tnp is required to use estimates in order to prepare the consolidated financial statements in accordance with accounting principles generally accepted in the united states of america . those estimates include accruals for estimated revenues for electricity delivered from the latest billing date to the end of the accounting period and estimated purchased power and power delivery expenses incurred but not billed at the end of the accounting period . the use of these estimates is customary in the electric utility industry . estimated revenues , purchased power and power delivery expenses are adjusted to the actual amounts billed or incurred in the following month . in addition , purchased power expenses are subject to adjustment due to revisions that ercot may make to the metered load of first choice during ercot 's settlement process . these adjustments may occur several months after the actual usage and the amounts of these adjustments can be significant . tnp also employs certain critical accounting policies that require use of judgments and assumptions that are subject to uncertainty . the amounts reported in the consolidated financial statements that are related to those critical accounting policies could be different if either different judgments were made or different assumptions were used . those critical accounting policies are discussed below . carrying charges on stranded costs . as discussed above , tnmp expects to recover an estimated $ 41.7 million of carrying charges on stranded costs for the period january 1 , 2002 through july 21 , 2004. tnmp recorded $ 27.2 million of carrying charges for the period january 1 , 2002 through july 21 , 2004 , in the fourth quarter of 2004. tnmp 's estimate of allowable carrying charges is based on the supreme court ruling , and the puct 's application of that ruling in a previous true up case of another utility . a final order in tnmp 's true-up proceeding is expected to be issued in the second quarter of 2005. action taken by the puct could affect the ultimate recovery of accrued carrying costs . goodwill and intangible assets . tnp has goodwill related to the st corp. merger that had a carrying value of $ 270.3 million as of december 31 , 2004. as discussed in note 11 , tnp has apportioned the carrying value of the goodwill between its regulated transmission and distribution segment and first choice . as of december 31 , 2004 , tnp had assigned approximately $ 178.7 million of goodwill to the regulated transmission and distribution segment and approximately $ 91.6 million to first choice . statement of financial accounting standards ( sfas ) no . 142 , goodwill and other intangible assets ( sfas 142 ) requires tnp to test goodwill for impairment at least annually and more frequently when indicators of impairment exist . tnp performed its annual goodwill impairment test as of december 31 , 2004 , and concluded that the fair value of the goodwill related to the st corp. merger exceeded its carrying value . to determine the fair value of the goodwill , tnp utilized the pnm resources proposed acquisition price discussed in note 2. accounting for derivatives normal purchases and sales . in the normal course of business , tnmp and first choice enter into commodity contracts , which include swing components for additional purchases or sales of electricity , in order to meet customer requirements . in most circumstances , such contracts would be defined as derivatives under sfas 133 , accounting for derivative instruments and hedging activities. however , the financial accounting standards board ( fasb ) has defined criteria by which option-type and forward contracts for electricity could qualify for the normal purchase and sales exception -16- provided by sfas 133 , as amended by sfas 149 , amendments of statement 133 on derivative instruments and hedging activities. based on the fasb 's guidance , the management of tnmp and first choice has determined that their respective contracts for electricity qualify for the normal purchases and sales exception . accordingly , tnmp and first choice do not account for their respective electricity contracts as derivatives . if tnmp and first choice were required to account for their respective electricity contracts as derivatives , the fair values of the contracts would be recorded on the balance sheet as assets or liabilities . changes in the fair values of the contracts would be recognized in earnings . story_separator_special_tag results of operations 2004 compared with 2003 overall results for the year ended december 31 , 2004 , tnp had a loss applicable to common stock of $ 75.6 million compared with a loss applicable to common stock of $ 40.3 million for the year ended december 31 , 2003. the changes in tnp 's earnings for 2004 compared with 2003 are attributable to the factors listed below ( in millions ) : earnings increase ( decrease ) 2004 v. 2003 change in first choice net income ( loss ) $ 43.8 change in tnmp net income ( loss ) ( 76.5 ) change in tnp preferred stock dividends ( 3.3 ) all other and intercompany eliminations 0.7 tnp consolidated earnings decrease $ ( 35.3 ) first choice results for the year ended december 31 , 2004 , first choice had a net income of $ 30.5 million , compared with a loss of $ 13.3 million for the year ended december 31 , 2003. the changes in first choice 's earnings for 2004 compared with 2003 are attributable to the factors listed below ( in millions ) : earnings increase ( decrease ) 2004 v. 2003 changes in gross profit $ 61.9 other operating and maintenance 6.4 all other ( including income tax effects on the items above ) ( 24.5 ) change in first choice net income ( loss ) $ 43.8 first choice gross profit the following table summarizes the components of first choice gross profit ( in thousands ) . replace_table_token_5_th -17- transmission and distribution costs are included in the other operating and maintenance line of tnp 's consolidated income statement . the clawback accrual is shown on the income statement as accrual for payment to tnmp . the following table summarizes the components of the change in first choice 's gross profit for 2004 compared with 2003 ( in thousands ) . increase ( decrease ) 2004 v. 2003 price variances decreased purchased power expenses attributable to lower prices $ 34,410 increase in competitive rates 23,248 increase in price-to-beat rates , primarily fuel factor increases 10,254 quantity variances decreased purchased power expenses attributable to lower sales 129,841 decreased sales to competitive customers , net of transmission and distribution charges ( 89,912 ) decreased sales to price-to-beat customers , net of transmission and distribution charges ( 42,452 ) all other ( 3,499 ) gross profit increase $ 61,890 gross profit for the year ended december 31 , 2004 , increased $ 61.9 million compared with the corresponding 2003 period . the increase resulted primarily from the decreased purchase power expense and increases to both competitive and price-to-beat rates . revenues from price-to-beat customers , net of transmission and distribution charges , decreased $ 32.2 million for the year ended december 31 , 2004 , compared with the year ended december 31 , 2003. the decrease was caused by milder weather conditions in 2004 compared to 2003 , and a decrease in the number of price to beat customers . the decrease was partially offset by the increase of price-to-beat rates . revenues from competitive customers , net of transmission and distribution charges , decreased $ 66.7 million for the year ended december 31 , 2004 , compared with the year ended december 31 , 2003. decreased sales resulting from milder weather in 2004 compared to 2003 , and the net decrease in customers were primarily responsible for the decrease in revenue . the decrease in sales was partially offset by increases in rates of $ 23.2 million . during 2004 , first choice charged competitive customers higher rates to offset increasing natural gas prices . retail electric providers such as first choice include a transmission and distribution charge in the prices they charge their customers for electric service . the transmission and distribution charge is regulated by the puct and is designed to allow the utility that provides transmission and distribution services within a specific service area , referred to as the transmission and distribution service provider , to recover its cost of service . for the year ended december 31 , 2004 , first choice incurred transmission and distribution costs related to sales to price-to-beat and competitive customers of $ 161.4 million , compared with $ 207.0 million for the year ended december 31 , 2003. purchased power and fuel expenses decreased $ 163.7 million for the year ended december 31 , 2004 , compared with the amount incurred in the same period in 2003. decreases in sales accounted for $ 129.8 million , and decreases in the cost of fuel were responsible for $ 34.4 million of the decrease . as energy prices began to increase , first choice responded by seeking increases in the price-to-beat fuel factor and by purchasing natural gas hedges to mitigate the risk of increasing natural gas prices . the current purchase power agreement with constellation allows first choice the ability to purchase natural gas at fixed prices , thereby locking in the cost of its energy supply . other factors affecting the change in gross profit included in all other are ; ( 1 ) a reduction to gross profit of $ 5.6 million recorded in 2004 at first choice for transmission and distribution charges paid by first choice in excess of amounts billed to first choice customers . the difference primarily resulted from impaired data flows within the ercot market in 2002 and 2003 , and as a result , first choice and other retail electric providers had difficulty determining when to transfer ownership of customers that had switched from one retail electric provider to another . this resulted in delays in customer billings . puct rules , which restrict back-billing for consumption prior to 6 months , prevented first choice from billing some of those customers . first choice and the other market participants have been working to correct the impaired data flows and have made considerable -18- progress .
| increase ( decrease ) 2003 v. 2002 price variances changes in price-to-beat rates , primarily fuel factor increases $ 57,392 changes in competitive rates 41,668 increased purchased power expenses attributable to higher prices ( 140,634 ) quantity variances increased sales to competitive customers , net of transmission and distribution charges 67,917 increased purchased power expenses attributable to higher competitive customer sales ( 78,761 ) decreased sales to price-to-beat customers , net of transmission and distribution charges ( 26,207 ) decreased purchased power expenses attributable to lower price-to-beat sales 11,468 charges associated with ercot settlement of purchased power expense 4,204 clawback 9,524 all other 3,951 gross profit decrease $ ( 49,478 ) gross profit for the year ended december 31 , 2003 , decreased $ 49.5 million compared with the corresponding 2002 period . the decrease resulted primarily from higher purchased power expenses , partially offset by higher revenues from both price-to-beat and competitive customers . for the year ended december 31 , 2003 , revenues , net of transmission and distribution charges , from price-to-beat customers increased $ 31.2 million compared with the year ended december 31 , 2002. the increase resulted from increases in the price-to-beat fuel factor during 2003 , partially offset by losses of price-to-beat customers during 2003 in response to price increases , and milder than normal weather in the third quarter of 2003. revenues from competitive customers , net of transmission and distribution charges , increased $ 109.6 million for the year ended december 31 , 2003 , compared with the year ended december 31 , 2002. changes in rates accounted for $ 41.7 million of the increase . during 2003 , first choice charged competitive customers higher rates to offset increasing natural gas prices . the remaining $ 67.9 million increase reflects higher sales resulting from first choice 's acquisition of customers in the competitive market . retail electric providers such as first choice include a transmission and distribution charge in the prices they charge their customers for electric service . the transmission and distribution charge is regulated by the puct and is designed to allow the utility that provides transmission and distribution services within a specific
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the presentation of non-gaap financial information should not be considered in isolation or as a substitute for , or superior to , the financial information prepared and presented in accordance with gaap . you should read this discussion and analysis of our results of operations and financial condition together with the consolidated financial statements and the related notes thereto also included in item 8 of this annual report on form 10-k. adjusted ebitda is net income ( loss ) excluding depreciation and amortization , net interest expense , other income ( expense ) , income tax ( expense ) benefit , ( gain ) loss on foreign currency , ( gain ) loss on transfer of assets , reorganization costs , and other supplemental adjustments . other supplemental adjustments include certain non-operating items such as stock-based compensation , executive severance costs , the national geographic fee amortization , debt refinancing costs , acquisition-related expenses and other non-recurring charges . we believe adjusted ebitda , when considered along with other performance measures , is a useful measure as it reflects certain operating drivers of the business , such as sales growth , operating costs , selling and administrative expense , and other operating income and expense . we believe adjusted ebitda helps provide a more complete understanding of the underlying operating results and trends and an enhanced overall understanding of our financial performance and prospects for the future . adjusted ebitda is not intended to be a measure of liquidity or cash flows from operations or a measure comparable to net income as it does not take into account certain requirements , such as unearned passenger revenues , capital expenditures and related depreciation , principal and interest payments , and tax payments . our use of adjusted ebitda may not be comparable to other companies within the industry . 31 the following metrics apply to our lindblad segment : adjusted net cruise cost represents net cruise cost adjusted for non-gaap other supplemental adjustments which include certain non-operating items such as stock-based compensation , the national geographic fee amortization and acquisition-related expenses . available guest nights is a measurement of capacity and represents double occupancy per cabin ( except single occupancy for a single capacity cabin ) multiplied by the number of cruise days for the period . we also record the number of guest nights available on our limited land programs in this definition . gross cruise cost represents the sum of cost of tours plus selling and marketing expenses , and general and administrative expenses . gross yield represents tour revenues less insurance proceeds divided by available guest nights . guest nights sold represents the number of guests carried for the period multiplied by the number of nights sailed within the period . maximum guests is a measure of capacity and represents the maximum number of guests in a period and is based on double occupancy per cabin ( except single occupancy for a single capacity cabin ) . net cruise cost represents gross cruise cost excluding commissions and certain other direct costs of guest ticket revenues and other tour revenues . net cruise cost excluding fuel represents net cruise cost excluding fuel costs . net revenue represents tour revenues less commissions and direct costs of other tour revenues . net yield represents net revenue divided by available guest nights . number of guests represents the number of guests that travel with us in a period . occupancy is calculated by dividing guest nights sold by available guest nights . voyages represent the number of ship expeditions completed during the period . foreign currency translation the u.s. dollar is the functional currency in our foreign operations and re-measurement adjustments and gains or losses resulting from foreign currency transactions are recorded as foreign exchange gains or losses in the consolidated statements of operations . seasonality lindblad tour revenues from the sale of guest tickets are mildly seasonal , historically larger in the first and third quarters . the seasonality of our operating results increases due to our vessels being taken out of service for scheduled maintenance or drydocking , which is typically during non-peak demand periods , in the second and fourth quarters . our drydock schedules are subject to cost and timing differences from year-to-year due to the availability of shipyards for certain work , drydock locations based on ship itineraries , operating conditions experienced especially in the polar regions , and the applicable regulations of class societies in the maritime industry , which require more extensive reviews periodically . drydocking impacts operating results by reducing tour revenues and increasing cost of tours . natural habitat is a seasonal business , with the majority of its tour revenue earned in the third and fourth quarters from its summer season departures and polar bear tours . 32 results of operations – consolidated we reported consolidated tour revenues , cost of tours , operating expenses , operating income and net income for the years ended december 31 , 2019 , 2018 and 2017 as shown in the following table : replace_table_token_5_th comparison of years ended december 31 , 201 9 and december 31 , 201 8 - consolidated tour revenues tour revenues for the year ended december 31 , 2019 increased $ 33.4 million , or 11 % , to $ 343.1 million compared to $ 309.7 million for the year ended december 31 , 2018. at the lindblad segment , tour revenues increased by $ 26.1 million driven primarily by an increase in available guest nights during 2019 due to the addition of the national geographic venture to our fleet in the fourth quarter of 2018. at the natural habitat segment , tour revenues increased $ 7.3 million over the prior year period primarily due to additional departures , increased travelers and itinerary changes that drove higher average pricing . story_separator_special_tag cost of tours total cost of tours for the year ended december 31 , 2019 increased $ 12.9 million , or 8 % , to $ 166.6 million compared to $ 153.7 million for the year ended december 31 , 2018. at the lindblad segment , cost of tours increased $ 10.5 million primarily due to incremental costs related to the national geographic venture and higher charter costs , partially offset by lower drydock expense . at the natural habitat segment , cost of tours increased $ 2.4 million due to additional departures . general and administrative expenses general and administrative expenses for the year ended december 31 , 2019 decreased $ 0.2 million to $ 62.7 million compared to $ 62.9 million for the year ended december 31 , 2018. at the lindblad segment , general and administrative expenses decreased $ 2.3 million from the prior year primarily as a result of lower value-added tax ( “ vat ” ) expense , a decrease in stock-based compensation expense and the absence of debt refinancing costs incurred in 2018 , partially offset by costs incurred related to the warrant exchange , higher personnel costs and increased credit card fees associated with higher bookings . at the natural habitat segment , general and administrative expenses increased $ 2.1 million primarily due to increased personnel costs . selling and marketing expenses selling and marketing expenses increased $ 7.8 million , or 17 % , to $ 54.8 million for the year ended december 31 , 2019 compared to $ 47.0 million for the year ended december 31 , 2018 , primarily due to a $ 6.6 million increase at the lindblad segment driven by higher advertising spend , costs related to implementation of our new reservation and customer relationship management systems and increased commission expense associated with the higher tour revenues . at the natural habitat segment , selling and marketing expenses increased $ 1.2 million primarily driven by an increase in advertising expenditures and commission expense . 33 depreciation and amortization expenses depreciation and amortization expenses increased $ 5.0 million , or 24 % , to $ 25.8 million for the year ended december 31 , 2019 compared to $ 20.8 million for the year ended december 31 , 2018 , primarily related to a full year of depreciation on the national geographic venture . other ( expense ) income other expenses were $ 12.3 million for the year ended december 31 , 2019 , compared to $ 13.2 million for the year ended december 31 , 2018. the $ 0.9 million decrease was primarily due to the following factors : ● in 2019 , we recorded an $ 0.1 million gain in foreign currency translation compared to a loss of $ 2.2 million in 2018 due to the strengthening of the u.s. dollar primarily in relation to the canadian dollar , south african rand and the euro in the same period a year ago . ● interest expense , net , increased $ 1.5 million to $ 12.3 million in 2019 from $ 10.8 million in 2018 due to borrowings and the commitment fees under our senior secured credit agreements and related foreign exchange hedge expenses , partially offset by lower interest rates on our term loan facility and higher capitalized interest for the national geographic endurance and the national geographic resolution . comparison of years ended december 31 , 2018 and december 31 , 2017 - consolidated tour revenues tour revenues for the year ended december 31 , 2018 increased $ 43.2 million , or 16 % , to $ 309.7 million compared to $ 266.5 million for the year ended december 31 , 2017. at the lindblad segment , tour revenues increased by $ 29.5 million driven by higher guest ticket revenue . at the natural habitat segment , tour revenues increased $ 13.7 million over the prior year period primarily due to additional departures and an increase in pricing . cost of tours total cost of tours for the year ended december 31 , 2018 increased $ 18.2 million , or 13 % , to $ 153.7 million compared to $ 135.5 million for the year ended december 31 , 2017. at the lindblad segment , cost of tours increased $ 9.8 million primarily due to costs related to the national geographic quest and the national geographic venture , the impact of cancelled voyages in the first quarter of 2017 and higher fuel costs . at the natural habitat segment , cost of tours increased $ 8.4 million due to additional departures . story_separator_special_tag 7.5pt ; text-align : justify ; text-indent:36pt ; '' > the following table outlines the reconciliation to net income and calculation of consolidated adjusted ebitda . the presentation of non-gaap financial information should not be considered in isolation or as a substitute for , or superior to , the financial information prepared and presented in accordance with gaap . 36 reconciliation of net income to adjusted ebitda consolidated replace_table_token_7_th ( a ) consists of expenses related to emergency search and rescue assistance and other non-recurring charges for 2019 and executive severance costs for 2018 and 2017. the following tables outline the reconciliation for each segment from operating income to adjusted ebitda : reconciliation of operating income to adjusted ebitda lindblad segment replace_table_token_8_th ( a ) consists of expenses related to emergency search and rescue assistance and other non-recurring charges for 2019 and executive severance costs for 2018 and 2017. natural habitat segment replace_table_token_9_th 37 guest metrics lindblad segment the following tables set forth our guest metrics for the lindblad segment . please refer to our description of certain line items above for the specific definition by line item and segment . the presentation of non-gaap financial information should not be considered in isolation or as a substitute for , or superior to , the financial information prepared and presented in accordance with gaap . replace_table_token_10_th replace_table_token_11_th _ ( a ) insurance proceeds received related to the national geographic orion voyage cancellations from the first quarter 2017 .
| other ( expense ) income other expenses were $ 13.2 million for the year ended december 31 , 2018 compared to $ 8.3 million for the year ended december 31 , 2017. the $ 4.9 million change was primarily due to the following factors : ● in 2018 , we recorded a $ 2.2 million loss in foreign currency translation compared to a gain of $ 1.1 million in 2017 due to the weakening of the u.s. dollar primarily in relation to the canadian dollar . ● interest expense , net , increased $ 1.1 million to $ 10.8 million in 2018 from $ 9.7 million in 2017 due to additional borrowings under our first lien term loan facility and the commitment fees for our new senior secured credit agreement , partially offset by higher capitalized interest for the national geographic endurance and the national geographic venture . ● 2017 included a $ 0.5 million gain on sale related to the sale of the national geographic endeavour . 34 results of operations – segments selected information for our segments is below . the presentation of non-gaap financial information should not be considered in isolation or as a substitute for , or superior to , the financial information prepared and presented in accordance with gaap . replace_table_token_6_th results of operations – lindblad segment comparison of years ended december 31 , 201 9 to december 31 , 201 8 tour revenues tour revenues for the year ended december 31 , 2019 increased $ 26.1 million , or 11 % , to $ 272.4 million compared to $ 246.3 million for the year ended december 31 , 2018. the increase was driven by higher guest ticket revenue primarily from an increase in available guest nights due to the addition to our fleet of the national geographic venture in the fourth quarter of 2018 . additionally , net yield for the year ended december 31 , 2019 increased to $ 1,050 compared to $ 1,044 for the year ended december 31 , 2018 , primarily driven by price increases and changes in itineraries . occupancy of 91 % was in line with a year ago as increased demand filled the additional capacity from the
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we are actively pursuing the international development and licensing of triferic in targeted foreign markets . in the first quarter of 2016 , we entered into a licensing agreement with wanbang biopharmaceutical for the rights to commercialize our triferic and calcitriol products for esrd patients in the people 's republic of china . under the terms of the wanbang agreement , we received an upfront payment of $ 4 million , which we are recognizing over the term of the agreement . we may also receive milestone payments of up to an additional $ 35 million over the life of the agreement in regulatory and revenue milestone payments plus ongoing earnings on product sales . we believe that china will ultimately become a significant market for the company due to its large and growing dialysis population with a hemodialysis market projected by some industry participants to become the largest in the world over the next several years . it is a market that we also expect will provide an ideal opportunity for our other triferic therapeutic indications . in the third quarter of 2016 , we entered into an exclusive license and manufacturing supply with aram medical for the sale of triferic and calcitriol in the kingdom of saudi arabia and a number of other countries in the middle east for an initial term of 10 years . in consideration for the exclusive rights , aram medical will pay us a licensing fee and a royalty on product sales , and has committed to annual minimum purchase quantities . aram medical will also assume responsibility for all clinical and regulatory expenses for the countries covered by its agreement . commercial sales activity will commence following regulatory approval . rockwell retains manufacturing responsibilities for both triferic and calcitriol . under our distribution agreement with baxter , baxter holds the exclusive distribution rights for of our dialysis concentrates in the united states and certain foreign markets . the distribution agreement does not include our drug products . rockwell receives a pre-defined gross profit margin on its concentrate products sold pursuant to the distribution agreement , which adjusts each year over the term of the agreement and is subject to an annual true-up . the distribution agreement requires baxter to achieve certain minimum purchase requirements to maintain its exclusivity under the agreement . in october 2016 , we notified baxter that they did not meet these minimum purchase requirements . baxter disputed our assertion of a breach of the minimum purchase requirements and baxter did not subsequently cure the deficiency in the prescribed period . the dispute regarding whether baxter maintains exclusive distribution rights and the various other allegations of breach under the distribution agreement by rockwell and by baxter are the subject of a pending arbitration proceeding described under “ item 3 – legal proceedings. ” for a more detailed description of the distribution agreement , see “ item 1—business—distribution agreement with baxter. ” story_separator_special_tag 12pt ; text-indent:36pt ; font-family : times new roman , times , serif ; font-size : 10pt ; '' > as a result of our distribution agreement with baxter , all domestic customer contracts for concentrate products that permitted assignment to baxter without consent have been assigned to baxter throughout 2015. baxter subsequently began to invoice those customers following assignment . our 2015 sales largely reflect the lower distributor prices paid by baxter , such that our sales are lower on those accounts billed by baxter than they were historically . our 2015 sales were favorably impacted by the recognition of deferred license revenue under the distribution agreement of $ 2.1 million in 2015 compared to $ 0.5 million in 2014. gross profit our gross profit was $ 8.9 million in 2015 , an increase of $ 0.4 million or 4.6 % compared to 2014. gross profit margins were 16.1 % in 2015 compared to 15.8 % in 2014. gross profit was favorably impacted by recognition of deferred license revenue under the distribution agreement of $ 2.1 million in 2015 compared to $ 0.5 million in 2014. gross profit was negatively impacted by lower sales on those accounts billed by baxter following assumption of billing by baxter . selling , general and administrative expenses selling , general and administrative expenses were $ 19.0 million in 2015 compared to $ 18.3 million in 2014. the increase of $ 0.7 million was primarily due to an increase in marketing expenses related to triferic of $ 1.0 million . total compensation including direct pay and equity compensation decreased $ 0.4 million . research and development we incurred product development and research costs related to the commercial development , patent approval and regulatory approval of new products , primarily triferic , aggregating approximately $ 5.0 million and $ 7.8 million in 2015 and 2014 , respectively . costs incurred in 2014 were mostly related to triferic and primarily for regulatory approval of triferic while spending in 2015 included costs related to peritoneal dialysis , an orphan indication for triferic , pediatric indications of triferic , additional presentations of triferic and other testing and development costs . interest income , net our net interest income was $ 0.7 million compared to a net interest expense of $ 3.8 million in 2014. the $ 4.5 million net increase in net interest income over interest expense was due to the repayment of all of our outstanding loan balance in the fourth quarter of 2014. we did not have any long term debt or loans outstanding as of december 31 , 2015 or december 31 , 2014. income tax expense we have substantial tax loss carryforwards from our losses in earlier years . we have not recorded a federal income tax benefit from either our prior losses or our current year losses because we might not realize the carryforward benefit of the remaining losses . critical accounting estimates and judgments our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the united states of america . story_separator_special_tag these accounting principles require us to make estimates , judgments and assumptions that affect the reported amounts of revenues , expenses , assets , liabilities , and contingencies . all significant estimates , judgments and assumptions are developed based on the best information available to us at the time made and are regularly reviewed and updated when necessary . actual results will generally differ from these estimates . changes in estimates are reflected in our financial statements in the period of change based upon on‑going actual experience , trends , or subsequent realization depending on the nature and predictability of the estimates and contingencies . 32 interim changes in estimates are generally applied prospectively within annual periods . certain accounting estimates , including those concerning revenue recognition , allowance for doubtful accounts , inventory reserves , share based compensation , impairments of long‑lived assets , and accounting for income taxes , are considered to be critical in evaluating and understanding our financial results because they involve inherently uncertain matters and their application requires the most difficult and complex judgments and estimates . these are described below . for further information on our accounting policies , see note 2 to our consolidated financial statements . revenue recognition our policy is to recognize revenue consistent with authoritative guidance for revenue recognition including the provisions of the financial accounting standards board accounting standards codification . we recognize revenue when all of the following criteria are met : ( i ) persuasive evidence of an arrangement exists , ( ii ) delivery ( or passage of title ) has occurred or services have been rendered , ( iii ) the seller 's price to the buyer is fixed or determinable , and ( iv ) collectability is reasonably assured . consistent with these guidelines we recognize revenue at the time we transfer title to our products to our customers which generally occurs when our products are delivered to our customer 's location consistent with our terms of sale . we recognize revenue for international shipments when title has transferred consistent with standard terms of sale . we apply judgment as we analyze each element of our contractual agreements to determine appropriate revenue recognition . the terms of our contractual agreements may include milestone payments if specified research and development objectives are achieved , non-refundable licensing fees , milestone payments on sales or royalties from product sales . when entering into an arrangement , we first determine whether the arrangement includes multiple deliverables and is subject to the accounting guidance in asc subtopic 605-25 , multiple-element arrangements . if we determine that an arrangement includes multiple elements , we determine whether the arrangement should be divided into separate units of accounting and how the arrangement consideration should be measured and allocated among the separate units of accounting . an element qualifies as a separate unit of accounting when the delivered element has standalone value to the customer . our arrangements do not include a general right of return relative to delivered elements . any delivered elements that do not qualify as separate units of accounting are combined with other undelivered elements within the arrangement as a single unit of accounting . if the arrangement constitutes a single combined unit of accounting , we determine the revenue recognition method for the combined unit of accounting and recognize the revenue either on a straight-line basis or on a modified proportional performance method over the period from inception through the date the last deliverable within the single unit of accounting is delivered . non-refundable upfront license fees are recorded as deferred revenue and recognized into revenue over the estimated period of our substantive performance obligations . if we do not have substantive performance obligations , we recognize non-refundable upfront fees into revenue through the date the deliverable is satisfied . analyzing the arrangement to identify deliverables requires the use of judgment and each deliverable may be an obligation to deliver services , a right or license to use an asset , or another performance obligation . in arrangements that include license rights and other non-contingent deliverables , such as participation in a steering committee , these deliverables do not have standalone value because the non-contingent deliverables are dependent on the license rights . that is , the non-contingent deliverables would not have value without the license rights , and only we can perform the related services . upfront license rights and non-contingent deliverables , such as participation in a steering committee , do not have standalone value as they are not sold separately and they can not be resold . in addition , when non-contingent deliverables are sold with upfront license rights , the license rights do not represent the culmination of a separate earnings process . as such , we account for the license and the non-contingent deliverables as a single combined unit of accounting . in such instances , the license revenue in the form of non-refundable upfront payments is deferred and recognized over the applicable relationship period . for milestone payments based on sales and for royalties based on sales , we recognize revenue in the quarter that the information related to the sales becomes available and collectability is reasonably assured . 33 we generally recognize licensing fees over the term of the related license agreement . we received an upfront payment of $ 4 million pursuant to our license agreement with wanbang biopharmaceutical co. , ltd. in february 2016. we also executed a license agreement covering saudi arabia and a number of other countries in the middle east . deferred license revenue for our license agreements is being recognized over the term of the license agreements . the initial payment of $ 20 million received pursuant to our distribution agreement with baxter in october 2014 has been accounted for as deferred license revenue . deferred license revenue is being recognized based on the proportion of product shipments to baxter in each period to total expected sales volume for the term of the agreement .
| selling , general and administrative expenses selling , general and administrative expenses were $ 21.1 million in 2016 compared to $ 19.1 million in 2015 an increase of $ 2.0 million . the increase was primarily due to an increase in non-cash equity compensation charges of $ 1.5 million related to equity grants in prior years as no equity compensation plan grants were made to directors and officers in 2016 other than a grant to a new director . other significant cost increases included increased legal fees of $ 0.7 million related to litigation expenses and increased marketing costs related to triferic of $ 0.2 million . the increase was partially offset by the moratorium on medical device taxes for 2016 and 2017 , resulting in a decrease of $ 0.4 million in 2016 compared to 2015. research and development we incurred product development and research costs related to the commercial development , patent approval and regulatory approval of new products , primarily triferic , aggregating approximately $ 5.8 million and $ 5.0 million in 2016 and 2015 , respectively . costs incurred in 2016 and 2015 were largely related to testing of triferic and included pharmacokinetic testing of triferic for use in other indications , pediatric indications of triferic , peritoneal dialysis , an orphan indication for triferic , additional presentations of triferic as well as other testing and development costs . interest income , net our net interest income was $ 0.8 million compared to net interest income of $ 0.7 million in 2015. income tax expense we recognized approximately $ 0.4 million in income tax expense in 2016 compared to no income tax expense in 2015. our income tax expense pertained to foreign income taxes paid related to license payments received under the wanbang agreement . the amount of foreign income tax paid can be credited against future united states tax liabilities and carried forward to offset future
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or any actions taken in accordance with the provisions of the trust agreement , or any such other agreement or ( ii ) reckless disregard on the part of such indemnified party of its obligations and duties under the trust agreement , or any such other agreement . the sponsor and its members , managers , directors , officers , employees , agents and affiliates shall be indemnified from the trust and held harmless against any loss , liability or expense ( including the reasonable fees and expenses of counsel ) arising out of or in connection with any services the custodian may , directly or indirectly , separately offer or provide to any beneficial owner . such indemnities shall include payment from the trust of the reasonable costs and expenses incurred by such indemnified party in investigating or defending itself against any such loss , liability or expense or any claim therefor , provided that such indemnified party shall repay to the trust the amount of any such reasonable costs and expenses paid by the trust to the extent it may be ultimately determined that such indemnified party was not entitled to be indemnified under the trust agreement because clause ( i ) or clause ( ii ) of this paragraph applied . in addition , the trustee or the sponsor may , in its sole discretion , undertake any action that it may deem necessary or desirable in respect of the trust agreement and in such event , the reasonable legal expenses and costs and other disbursements of any such actions shall be expenses and costs of the trust and the trustee or the sponsor , as the case may be , shall be entitled to reimbursement by the trust . the trust 's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the trust that have not yet occurred . f- 14 story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) should be read in conjunction with the financial statements and notes to the financial statements contained in this annual report . additionally , this md & a contains various “ forward-looking statements ” within the meaning of section 27a of the securities act and section 21e of the exchange act , and within the private securities litigation reform act of 1995 , as amended , which relate to future events or future performance . for a discussion of the forward-looking statements contained herein , please refer to the cautionary note regarding forward-looking statements contained in this annual report , which is incorporated by reference herein . introduction the trust issues shares that represent units of fractional undivided beneficial interest in the trust . the trust 's investment objective is for the shares to reflect the performance of the price of gold less the expenses of the trust 's operations . the trust is not actively managed . the trust 's fiscal year-end is december 31. investing in the shares does not insulate the investor from risks , including price volatility . the following table illustrates the movement in the nav of the shares against the corresponding gold price ( per 1/100 of an oz . of gold ) since inception : source : bloomberg , lbma gold price pm usd versus aaau nav index , august 15 , 2018 – december 31 , 2020 41 the divergence of the nav per share from the gold price over time reflects the cumulative effect of the trust expenses that arise if an investment had been held since inception . critical accounting policy in preparing financial statements in conformity with gaap , management makes 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 , as well as the reported amount of revenue and expenses reported during the period . actual results could differ from these estimates . the following is a summary of significant accounting policies followed by the trust . please refer to note 2 to the financial statements included elsewhere in this annual report for further discussion of our accounting policies . valuation of gold and computation of net asset value the trustee determines the net asset value of the trust on each day that the nyse arca is open for regular trading , as promptly as practical after 4:00 p.m. new york city time . the net asset value of the trust is the aggregate value of gold and other assets , if any , of the trust ( other than any amounts credited to the trust 's reserve account , if any ) including cash , if any , less liabilities of the trust , which include estimated accrued but unpaid fees , expenses and other liabilities . in determining the trust 's net asset value , the trustee values the gold held by the trust based on the lbma gold price pm . the lbma gold price pm is set at 3:00 p.m. london time via an auction independently operated and administered by ice benchmark administration ( “ iba ” ) . the price is set in u.s. dollars per fine troy ounce ( “ fine ounce ” ) . if no lbma gold price pm or lbma gold price am is available for the day , the trustee values the trust 's gold based on the most recently announced lbma gold price pm or lbma gold price am . if the sponsor determines that such price is inappropriate to use , it must identify an alternate basis for evaluation to be employed by the trustee . the sponsor may instruct the trustee to use a different price which is reasonably available to the trustee at no cost to the trustee that the sponsor determines to represent fairly the commercial value of the trust 's gold story_separator_special_tag or any actions taken in accordance with the provisions of the trust agreement , or any such other agreement or ( ii ) reckless disregard on the part of such indemnified party of its obligations and duties under the trust agreement , or any such other agreement . the sponsor and its members , managers , directors , officers , employees , agents and affiliates shall be indemnified from the trust and held harmless against any loss , liability or expense ( including the reasonable fees and expenses of counsel ) arising out of or in connection with any services the custodian may , directly or indirectly , separately offer or provide to any beneficial owner . such indemnities shall include payment from the trust of the reasonable costs and expenses incurred by such indemnified party in investigating or defending itself against any such loss , liability or expense or any claim therefor , provided that such indemnified party shall repay to the trust the amount of any such reasonable costs and expenses paid by the trust to the extent it may be ultimately determined that such indemnified party was not entitled to be indemnified under the trust agreement because clause ( i ) or clause ( ii ) of this paragraph applied . in addition , the trustee or the sponsor may , in its sole discretion , undertake any action that it may deem necessary or desirable in respect of the trust agreement and in such event , the reasonable legal expenses and costs and other disbursements of any such actions shall be expenses and costs of the trust and the trustee or the sponsor , as the case may be , shall be entitled to reimbursement by the trust . the trust 's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the trust that have not yet occurred . f- 14 story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) should be read in conjunction with the financial statements and notes to the financial statements contained in this annual report . additionally , this md & a contains various “ forward-looking statements ” within the meaning of section 27a of the securities act and section 21e of the exchange act , and within the private securities litigation reform act of 1995 , as amended , which relate to future events or future performance . for a discussion of the forward-looking statements contained herein , please refer to the cautionary note regarding forward-looking statements contained in this annual report , which is incorporated by reference herein . introduction the trust issues shares that represent units of fractional undivided beneficial interest in the trust . the trust 's investment objective is for the shares to reflect the performance of the price of gold less the expenses of the trust 's operations . the trust is not actively managed . the trust 's fiscal year-end is december 31. investing in the shares does not insulate the investor from risks , including price volatility . the following table illustrates the movement in the nav of the shares against the corresponding gold price ( per 1/100 of an oz . of gold ) since inception : source : bloomberg , lbma gold price pm usd versus aaau nav index , august 15 , 2018 – december 31 , 2020 41 the divergence of the nav per share from the gold price over time reflects the cumulative effect of the trust expenses that arise if an investment had been held since inception . critical accounting policy in preparing financial statements in conformity with gaap , management makes 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 , as well as the reported amount of revenue and expenses reported during the period . actual results could differ from these estimates . the following is a summary of significant accounting policies followed by the trust . please refer to note 2 to the financial statements included elsewhere in this annual report for further discussion of our accounting policies . valuation of gold and computation of net asset value the trustee determines the net asset value of the trust on each day that the nyse arca is open for regular trading , as promptly as practical after 4:00 p.m. new york city time . the net asset value of the trust is the aggregate value of gold and other assets , if any , of the trust ( other than any amounts credited to the trust 's reserve account , if any ) including cash , if any , less liabilities of the trust , which include estimated accrued but unpaid fees , expenses and other liabilities . in determining the trust 's net asset value , the trustee values the gold held by the trust based on the lbma gold price pm . the lbma gold price pm is set at 3:00 p.m. london time via an auction independently operated and administered by ice benchmark administration ( “ iba ” ) . the price is set in u.s. dollars per fine troy ounce ( “ fine ounce ” ) . if no lbma gold price pm or lbma gold price am is available for the day , the trustee values the trust 's gold based on the most recently announced lbma gold price pm or lbma gold price am . if the sponsor determines that such price is inappropriate to use , it must identify an alternate basis for evaluation to be employed by the trustee . the sponsor may instruct the trustee to use a different price which is reasonably available to the trustee at no cost to the trustee that the sponsor determines to represent fairly the commercial value of the trust 's gold
| the change in net assets from operations for the year-ended december 31 , 2020 was $ 57,798,267 , which was due to ( i ) the custodial sponsor fee of $ ( 657,532 ) and ( ii ) a net realized and unrealized gain of $ 58,455,799 from operations , which in turn resulted from a net realized loss on gold transferred to pay expenses of $ 28,292 , a net realized gain from gold bullion distributed of $ 5,905,756 , and a net change in unrealized appreciation/depreciation on investments in gold bullion of $ 52,578,335. other than the sponsor and custodial sponsor fee , the trust had no expenses during the year ended december 31 , 2020. the change in net assets from operations for the year-ended december 31 , 2019 was $ 22,359,328 , which was due to ( i ) the custodial sponsor fee of $ ( 240,942 ) and ( ii ) a net realized and unrealized gain of $ 22,600,270 from operations , which in turn resulted from a net realized loss on gold transferred to pay expenses of $ 1,885 and a net change in unrealized appreciation/depreciation on investments in gold bullion of $ 22,602,155. other than the custodial sponsor fee , the trust had no expenses during the year ended december 31 , 2019. liquidity and capital resources the trust is not aware of any trends , demands , commitments , events or uncertainties that are reasonably likely to result in material changes to its liquidity needs . in exchange for the sponsor fee , the sponsor has agreed to assume and be responsible for the payment of most of the expenses incurred by the trust , up to a maximum amount equal to the greater of $ 500,000 per annum and the amount that is equal to 0.15 % of the average total value of the gold held by the trust , as determined by the trustee on each business day , plus the value of all other assets of the trust ( other than any amount credited to the trust 's reserve account ) , including cash , if any . as such , the only ordinary expense of the trust during the period covered by this report was the sponsor fee . the sponsor fee accrues daily based on the prior business day 's nav and is payable in cash from the trust property or the sale of gold in accordance with the trust agreement . the trustee will , when directed by the sponsor , and , in the absence of such direction may , in its discretion , sell gold in such quantity and at such times as may be necessary to permit payment in cash of
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we intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the private securities litigation reform act of 1995 , and are including this statement for purposes of complying with those safe-harbor provisions . forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements . our ability to predict results or the actual effect of future plans or strategies is inherently uncertain . factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include , but are not limited to : changes in economic conditions , legislative/regulatory changes , availability of capital , interest rates , competition , and generally accepted accounting principles . these risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements . we undertake no obligation to update or revise publicly any forward-looking statements , whether as a result of new information , future events or otherwise . further information concerning our business , including additional factors that could materially affect our financial results , is included herein and in our other filings with the sec . 14 covid-19 the full extent of the impact of the covid-19 pandemic on our business , operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict at the present time . in an effort to contain covid-19 or slow its spread , governments around the world have enacted various measures , including orders to close all businesses not deemed “ essential , ” isolate residents to their homes or places of residence , and practice social distancing when engaging in essential activities . we anticipate that these actions and the global health crisis caused by covid-19 will negatively impact business activity across the globe . the movie industry in general has changed dramatically as a result of the pandemic restrictions . while movie theaters struggle to stay alive , online streaming programming has increased . we have endeavored to stay with the trend for streaming services to remain competitive . we have experienced the negative impact in our results of operations and in our financial condition for the year ended august , 2020 , especially with respect to the movie distribution end of our business . these impacts concern delays in delivering our movies and ip because of health restrictions imposed on certain public events that concern our business , including , among other things , theaters , indoor and outdoor performances , filming restrictions , music festivals , concerts and other such events , some of these restrictions include pandemic government mandated shutdowns and others restrictions on capacity gathered at these events , with some jurisdictions imposing fines or revocation of business licensing , and other restrictions . as a result of these factors , our revenue was reduced from march to may of this fiscal year . with immediate closures , the resultant industry and business specific delays have negatively affected our company . we plan to focus on the video streaming and other web based applications and expand our business into those areas that we believe we situate the company for continued and increased revenues . as the pandemic is forecasted to worsen in the united states and other areas around the globe , we believe that the demand for our ip , online products and services offerings increases . while we can not guarantee that the negative effects of the pandemic will not interfere with our ability to generate revenues , we intend to strengthen our position in this dynamic market and position the company to best suit its shareholders . specific to our company operations , during the pandemic period , we have enacted precautionary measures to protect the health and safety of our employees and partners . these measures include closing our office , having employees work from home , and eliminating all travel . while having employees work from home may have a negative impact on efficiency and may result in negligible increases in costs , it does have an impact on our ability to execute on our agreements to deliver our core products . 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 , local or foreign authorities , or that we determine are in the best interests of our employees , customers , partners and stockholders . it is not clear what the potential effects any such alterations or modifications may have on our business , including the effects on our customers , partners , or vendors , or on our financial results . results of operations for the years ended august 31 , 2020 and 2019 story_separator_special_tag $ 167,726 and development of integible assets of $ 99,584 , offset by the sale of the copyright and all other rights in a film named “ gong fu nv pai ” copyright and the mobile application ( amoney ) assets to an unrelated party . financing activities provided $ 1,106,641 in cash for the year ended august 31 , 2020 , as compared with $ 3,400,000 for the year ended august 31 , 2019. our positive operating cash flow for both periods was mainly proceeds from the sale of our common stock with 2020 adding proceeds from the issuance of convertible notes and warrants . in 2019 and 2020 , we have issued several convertible promissory notes to accredited investors . these notes contain terms that allow for discounted conversions from the company 's stock price , with most at a 40 % discount . these notes also contain strict terms for compliance and penalty provisions that could cost us more than the principal and accrued interest . they also have most story_separator_special_tag we intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the private securities litigation reform act of 1995 , and are including this statement for purposes of complying with those safe-harbor provisions . forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements . our ability to predict results or the actual effect of future plans or strategies is inherently uncertain . factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include , but are not limited to : changes in economic conditions , legislative/regulatory changes , availability of capital , interest rates , competition , and generally accepted accounting principles . these risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements . we undertake no obligation to update or revise publicly any forward-looking statements , whether as a result of new information , future events or otherwise . further information concerning our business , including additional factors that could materially affect our financial results , is included herein and in our other filings with the sec . 14 covid-19 the full extent of the impact of the covid-19 pandemic on our business , operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict at the present time . in an effort to contain covid-19 or slow its spread , governments around the world have enacted various measures , including orders to close all businesses not deemed “ essential , ” isolate residents to their homes or places of residence , and practice social distancing when engaging in essential activities . we anticipate that these actions and the global health crisis caused by covid-19 will negatively impact business activity across the globe . the movie industry in general has changed dramatically as a result of the pandemic restrictions . while movie theaters struggle to stay alive , online streaming programming has increased . we have endeavored to stay with the trend for streaming services to remain competitive . we have experienced the negative impact in our results of operations and in our financial condition for the year ended august , 2020 , especially with respect to the movie distribution end of our business . these impacts concern delays in delivering our movies and ip because of health restrictions imposed on certain public events that concern our business , including , among other things , theaters , indoor and outdoor performances , filming restrictions , music festivals , concerts and other such events , some of these restrictions include pandemic government mandated shutdowns and others restrictions on capacity gathered at these events , with some jurisdictions imposing fines or revocation of business licensing , and other restrictions . as a result of these factors , our revenue was reduced from march to may of this fiscal year . with immediate closures , the resultant industry and business specific delays have negatively affected our company . we plan to focus on the video streaming and other web based applications and expand our business into those areas that we believe we situate the company for continued and increased revenues . as the pandemic is forecasted to worsen in the united states and other areas around the globe , we believe that the demand for our ip , online products and services offerings increases . while we can not guarantee that the negative effects of the pandemic will not interfere with our ability to generate revenues , we intend to strengthen our position in this dynamic market and position the company to best suit its shareholders . specific to our company operations , during the pandemic period , we have enacted precautionary measures to protect the health and safety of our employees and partners . these measures include closing our office , having employees work from home , and eliminating all travel . while having employees work from home may have a negative impact on efficiency and may result in negligible increases in costs , it does have an impact on our ability to execute on our agreements to deliver our core products . 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 , local or foreign authorities , or that we determine are in the best interests of our employees , customers , partners and stockholders . it is not clear what the potential effects any such alterations or modifications may have on our business , including the effects on our customers , partners , or vendors , or on our financial results . results of operations for the years ended august 31 , 2020 and 2019 story_separator_special_tag $ 167,726 and development of integible assets of $ 99,584 , offset by the sale of the copyright and all other rights in a film named “ gong fu nv pai ” copyright and the mobile application ( amoney ) assets to an unrelated party . financing activities provided $ 1,106,641 in cash for the year ended august 31 , 2020 , as compared with $ 3,400,000 for the year ended august 31 , 2019. our positive operating cash flow for both periods was mainly proceeds from the sale of our common stock with 2020 adding proceeds from the issuance of convertible notes and warrants . in 2019 and 2020 , we have issued several convertible promissory notes to accredited investors . these notes contain terms that allow for discounted conversions from the company 's stock price , with most at a 40 % discount . these notes also contain strict terms for compliance and penalty provisions that could cost us more than the principal and accrued interest . they also have most
| we had a gross profit margin of 60 % for the year ended august 31 , 2020 , roughly the same from 59 % over the year ended august 31 , 2019. the reason for the slight increase in our gross profit margin in 2020 over 2019 is attributable to revenue from the wechat official account for the fan dou he pai performance matching platform that started generating revenue in february , 2019. operating expenses operating expenses increased to $ 1,640,094 for the year ended august 31 , 2020 from $ 702,088 for the year ended august 31 , 2019. our operating expenses for year ended august 31 , 2020 consisted of general and administrative expenses of $ 1,346,525 , research and development expenses of $ 108,800 , and related party salary and wages of $ 184,768. in contrast , our operating expenses for the year ended august 31 , 2019 consisted of general and administrative expenses of $ 525,109 and related party salary and wages of $ 176,979. we experienced an increase in general and administrative expenses in 2020 over 2019 , mainly as a result of increased rent , salaries , valuation fees , consulting fees , issuance expense for convertible notes , travel and entertainment , and depreciation expense , etc . the increase in research and development expense was due to $ 108,800 long-term prepayment expensed as research and development expense in q3 , fy2020 , because the ai bian quan qiu ” platform did not generate any revenue during the covid-19 period in q2 ( after january 23 , 2020 ) and q3 , fy2020 and the company impaired 80 % of the “ ai bian quan qiu ” platform intangible asset value in q2 2020. we anticipate our operating expenses will increase as we undertake our plan of operations , including increased costs associated with marketing , personnel , and other general and administrative expenses , along with increased professional fees associated with sec and covid compliance as our
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the company intends to use the net proceeds in connection with the consummation of the previously announced pending merger with equity one , inc. , including ( i ) to repay approximately $ 285.0 million in aggregate principal amount of debt of equity one , and any related interest , fees and expenses and ( ii ) to pay transaction expenses related to the pending merger with equity one . in the event that the merger agreement is not consummated , we will be required to redeem these notes then outstanding at a redemption price equal to 101 % of the principal amount to be redeemed plus accrued and unpaid interest , if any . $ 300.0 million of 4.4 % notes due february 1 , 2047 , which priced at 99.110 % . the company used a portion of the net proceeds to redeem all of the outstanding shares of its 6.625 % series 6 preferred shares on february 16 , 2017 and intends to use the balance to fund investment activities and for general corporate purposes . leasing activity and significant tenants we believe our high-quality , grocery anchored shopping centers located in densely populated , desirable infill trade areas create attractive spaces for retail tenants . improvements in the economy , combined with historically low levels of new supply and robust tenant demand , allow us to focus on merchandising of our centers to ensure the right mix of operators and unique retailers , which draws more retail customers to our centers . pro-rata occupancy for the purpose of the following disclosures of occupancy and leasing activity , `` anchor space '' is considered space greater than or equal to 10,000 sf and `` shop space '' is less than 10,000 sf . the following table summarizes pro-rata occupancy rates of our combined consolidated and unconsolidated shopping center portfolio : replace_table_token_19_th ( 1 ) excludes properties in development . the decline in anchor percent leased is due , in part , to the bankruptcy of sports authority and its rejection of two leases at our shopping centers . see additional discussion below about bankruptcies . 42 pro-rata leasing activity the following table summarizes leasing activity , including regency 's pro-rata share of activity within the portfolio of our co-investment partnerships : replace_table_token_20_th replace_table_token_21_th ( 1 ) number of leasing transactions reported at 100 % ; all other statistics reported at pro-rata share . ( 2 ) totals for base rent , tenant improvements , and leasing commissions reflect the weighted average psf . total average base rent signed on our shop space leases of $ 30.95 increased in 2016 compared to 2015 and exceeds the average annual base rent of all shop space leases due to expire during the next twelve months of $ 28.39 psf by 9 % . significant tenants and concentrations of risk we seek to reduce our operating and leasing risks through geographic diversification and by avoiding dependence on any single property , market , or tenant . the following table summarizes our four most significant tenants , based on their percentage of annualized base rent , each of which is a grocery tenant : replace_table_token_22_th ( 1 ) includes stores owned by grocery anchors that are attached to our centers . ( 2 ) includes regency 's pro-rata share of unconsolidated properties and excludes those owned by anchors . 43 bankruptcies and credit concerns our management team devotes significant time to researching and monitoring consumer preferences , customer shopping behaviors , alternative retail methods accessible via the internet , and demographics in order to anticipate the challenges and opportunities impacting the retail industry . we closely monitor the operating performance and rent collections of the tenants in our shopping centers , but also those retailers experiencing significant changes to their business models as a result of reduced customer traffic in their stores and increased competition from internet sales . retailers who are unable to withstand these and other business pressures , such as operating and financing their business , may approach us to modify their lease agreement or file bankruptcy . although base rent is supported by long-term lease contracts , tenants who file bankruptcy generally have the legal right to reject any or all of their leases and close related stores . in the event that a tenant with a significant number of leases in our shopping centers files bankruptcy and cancels its leases , we could experience a significant reduction in our revenues . currently , no tenant represents more than 5 % of our annual base rent on a pro-rata basis . also , as a result of our research and findings , we may reduce new leasing , suspend leasing , or curtail the allowance for the construction of leasehold improvements within a certain retail category or to a specific retailer in order to reduce our risk from bankruptcies and store closings . during march 2016 , sports authority filed for chapter 11 bankruptcy protection , at which time we had three leases in our portfolio . one of those leases has been assumed by another retailer and the remaining two have been rejected and the stores closed . those two rejected leases represented $ 2.1 million , or 0.4 % , of total annualized base rent on a pro-rata basis ; however , we have since executed leases to re-tenant these spaces . during 2016 , sears holdings announced that it planned to accelerate the closing of a number of stores . sears continues to report significant declines in operating revenues and performance , and its ability to continue operating stores in our shopping centers is uncertain . we have five sears or kmart leases in our portfolio , which currently represent $ 3.1 million , or 0.6 % , of total annualized base rent on a pro-rata basis . none of the announced store closures , as of this filing , are within our shopping centers . however , we are currently working to opportunistically re-tenant the spaces as the lease terms permit . story_separator_special_tag 44 story_separator_special_tag style= '' line-height:120 % ; text-align : center ; font-size:14pt ; '' > comparison of the years ended december 31 , 2015 and 2014 : our total revenues increased as summarized in the following table : replace_table_token_28_th minimum rent increased as follows : $ 5.0 million increase from new acquisitions of operating properties ; $ 9.8 million increase from rent commencing at development properties ; and $ 15.7 million increase at same properties , with $ 6.7 million relating to redevelopment properties , and $ 9.0 million relating to higher rental rates and rent paying occupancy growth ; reduced by $ 6.0 million from the sale of operating properties . recoveries from tenants represent reimbursements to us for tenants ' pro-rata share of the operating , maintenance , and real estate tax expenses that we incur to operate our shopping centers . recoveries from tenants increased as follows : $ 1.2 million increase from new acquisitions of operating properties ; $ 1.5 million increase from rent commencing at development properties ; and , $ 5.9 million increase from same properties associated with rent paying occupancy improvements and higher recoverable costs ; reduced by $ 890,000 from the sale of operating properties . other income , which consists of incidental income earned at our centers , decreased primarily as a result of a lower level of settlement and lease termination income earned in 2015 . 48 we earn fees , at market-based rates , for asset management , property management , leasing , acquisition , and financing services that we provided to our co-investment partnerships and third parties as follows : replace_table_token_29_th asset and property management fees increased due to higher property values and revenues in our co-investment partnerships . leasing commissions and other fees increased during 2015 due to the higher average rents on leasing transactions . changes in our operating expenses are summarized in the following table : replace_table_token_30_th depreciation and amortization decreased as follows : $ 2.9 million decrease from the sale of operating properties ; $ 1.9 million increase primarily from operations beginning at development properties and the acquisition of operating properties . operating and maintenance costs increased as follows : $ 1.6 million increase from operations commencing at development properties ; $ 2.1 million increase from new acquisitions of operating properties ; $ 2.9 million increase at same properties attributable to an increase in recoverable costs ; reduced by $ 1.4 million from the sale of operating properties . general and administrative expenses increased as follows : $ 3.9 million of higher compensation costs primarily related to executive management changes during 2015 ; $ 2.3 million of lower development overhead capitalization based on fewer new development and redevelopment projects started in 2015 ; reduced by $ 1.1 million from the decrease in the value of participant obligations within the deferred compensation plan . real estate taxes increased as follows : $ 690,000 increase from new acquisitions of operating properties ; $ 510,000 increase from development properties where capitalization ceased as tenant spaces became available for occupancy ; and , $ 2.0 million increase at same properties from increased tax assessments ; 49 reduced by approximately $ 360,000 from the sale of operating properties . the following table presents the components of other expense ( income ) : replace_table_token_31_th the $ 6.9 million decrease in interest expense , net is mainly due to lower interest rates from refinancing our long-term debt during 2014 and 2015 and lower outstanding balances on notes payable . we had no impairment losses during 2015. however , during the year ended december 31 , 2014 , we recognized a $ 1.1 million loss on the disposal of one operating property and one land parcel and a $ 175,000 impairment on two parcels of land held . during november 2015 , we incurred an $ 8.2 million charge from a make-whole premium on our $ 100.0 million early redemption of the $ 400.0 million outstanding 5.875 % senior unsecured notes that are due in 2017. net investment income decreased $ 8.8 million , largely driven by an $ 8.1 million gain realized on the sale of available-for-sale securities in 2014 and a $ 1.1 million decrease in the fair value of plan assets in the non-qualified deferred compensation plan during 2015 , which is consistent with the change in plan liabilities included in general and administrative expenses above . during the year ended december 31 , 2014 , we acquired the remaining 50 % interest and gained control of a previously unconsolidated investment in a real estate partnership that owns a single operating property . as the operating property constitutes a business , acquisition of control was accounted for as a step acquisition , and the net assets acquired were recognized at fair value . the gain of $ 18.3 million was recognized as the difference between the fair value and carrying value of the company 's previously held equity interest , using an income approach to measure fair value . 50 our equity in income of investments in real estate partnerships increased ( decreased ) as follows : replace_table_token_32_th the $ 8.8 million net decrease is largely attributed to : grir : $ 4.4 million increase driven by : $ 1.3 million increase in base rent from occupancy and rental rate growth , $ 1.8 million decrease in depreciation due to higher depreciation expense in 2014 relating to redevelopment activity , reduced interest expense approximately $ 800,000 by paying off or refinancing property debt at better rates in 2014 and 2015. columbia i : $ 1.8 million decrease from impairment loss upon the sale of one operating property during 2015 ; columbia ii : $ 424,000 increase due to impairment losses recognized upon the sale of two properties during 2014 ; and other investments in real estate partnerships : $ 11.4 million decrease within our other investment partnerships driven by the $ 10.9 million gains on the sale of two land parcels and two operating properties during 2014. the following represents the remaining components that comprise net income attributable to the common stockholders and unit
| changes in our operating expenses are summarized in the following table : replace_table_token_24_th depreciation and amortization costs increased as follows : $ 4.8 million increase as we began depreciating costs at development properties where tenant spaces were completed and became available for occupancy ; 45 $ 8.8 million increase from new acquisitions of operating properties ; and $ 5.8 million increase at same properties , attributable to recent capital improvements and redevelopments ; reduced by $ 3.9 million from the sale of operating properties and other corporate asset disposals . operating and maintenance costs increased as follows : $ 2.6 million increase from operations commencing at development properties ; $ 6.2 million increase from new acquisitions of operating properties ; and $ 4.8 million increase at same properties primarily attributable to recoverable costs ; reduced by $ 1.6 million from the sale of operating properties . real estate taxes increased as follows : $ 1.6 million increase from development properties where capitalization ceased as tenant spaces became available for occupancy ; $ 2.8 million increase from new acquisitions of operating properties ; and $ 1.4 million increase at same properties from increased tax assessments ; reduced by $ 1.3 million from sold properties . other operating expenses increased $ 6.2 million primarily due to costs incurred from 2016 acquisition activities , including costs associated with the announced pending merger of equity one , inc. the following table presents the components of other expense ( income ) : replace_table_token_25_th the $ 11.9 million decrease in total interest expense is due to : $ 17.2 million decrease in interest on notes payable due to lower interest rates from refinancing and deleveraging activities during 2016 and the early redemption of our $ 300 million notes in august 2016 ; offset by $ 2.1 million increase in interest on unsecured credit facilities related to higher average balances on our line and a $ 100 million increase on our term loan during 2016 ; and $ 3.3 million increase due to lower interest capitalization on our development and redevelopment projects based on the status and cumulative spend on the projects in process . during 2016 , we recognized $ 4.2 million of impairment losses on two operating properties and two land parcels . one of the operating properties and both land parcels have since been sold . we did not recognize any impairments during 2015 .
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to date , cdw uk is not seeing significant changes in the buying behavior of its customers even with the uncertainty related to the timing and terms of brexit . technology trends drive customer purchase behaviors and we are seeing continuing evolution in the market . innovation influences customer purchases across all of our customer end-markets . key trends in technology include increasing adoption of cloud-based solutions for certain key workloads , including backup and recovery , collaboration and security , as well as adoption of hyper-converged appliances to deliver greater flexibility and efficiency . in addition , hybrid it solutions are being adopted , along with software being embedded into solutions . key business metrics we monitor 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 income before income taxes , non-gaap net income , net income per common share , non-gaap net income per diluted share , ebitda , adjusted ebitda , adjusted ebitda margin , free cash flow , return on working 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 . 30 in this form 10-k , we discuss non-gaap income before income taxes , non-gaap net income , non-gaap net income per diluted share , ebitda , adjusted ebitda and adjusted ebitda margin , which are non-gaap financial measures . we believe these measures provide analysts , investors and management with helpful information regarding the underlying operating performance of our business , as they remove the impact of items that management believes are not reflective of underlying operating performance . management uses these measures to evaluate period-over-period performance as management believes they provide a more comparable measure of the underlying business . additionally , adjusted ebitda is a measure in the credit agreement governing our senior secured term loan facility ( “ term loan ” ) , which is used to evaluate our ability to make certain investments , incur additional debt , and make restricted payments , such as dividends and share repurchases , as well as whether we are required to make additional principal prepayments on the term loan beyond the quarterly amortization payments . for further details regarding the term loan , see long-term debt and financing arrangements within management 's discussion and analysis of financial condition and results of operations and note 10 ( long-term debt ) to the accompanying consolidated financial statements . for the definitions of non-gaap income before income taxes , non-gaap net income and adjusted ebitda and reconciliations to net income , see “ results of operations ” . the results of certain key business metrics are as follows : replace_table_token_8_th ( 1 ) defined as total debt minus cash and cash equivalents . ( 2 ) cash conversion cycle is defined as days of sales outstanding in accounts receivable and certain receivables due from vendors plus days of supply in merchandise inventory minus days of purchases outstanding in accounts payable and accounts payable-inventory financing , based on a rolling three-month average . 31 story_separator_special_tag 9.3 % in 2017 , down from 9.6 % in 2016 . 33 income from operations income from operations by segment , in dollars and as a percentage of net sales , and the year-over-year percentage change was as follows : replace_table_token_11_th * not meaningful ( 1 ) segment income from operations includes the segment 's direct operating income , allocations for certain headquarters ' costs , allocations for income and expenses from logistics services , certain inventory adjustments and volume rebates and cooperative advertising from vendors . ( 2 ) amounts have been recast for 2016 to present small business as its own operating and reportable segment . ( 3 ) includes the financial results for our other operating segments , cdw canada and cdw uk , which do not meet the reportable segment quantitative thresholds . ( 4 ) includes headquarters ' function costs that are not allocated to the segments . income from operations was $ 866 million in 2017 , an increase of $ 47 million , or 5.7 % , compared to $ 819 million in 2016 . although income from operations increased , total operating margin percentage decreased 20 basis points to 5.7 % in 2017 , from 5.9 % in 2016 . the decrease was primarily due to gross profit margin compression from higher hardware sales and an ongoing competitive marketplace . also contributing to lower operating margin percentage was the reinstatement of prior year unclaimed property balances in 2017 and the non-recurrence of the settlement payments received from the dynamic random access memory class action lawsuits in 2016. partially offsetting these decreases were lower sales payroll , consistent with our variable compensation cost structure , lower senior management incentive compensation and a decline in intangible asset amortization expense as a percentage of net sales . corporate segment income from operations was $ 487 million in 2017 , an increase of $ 33 million , or 7.4 % , compared to $ 454 million in 2016 . corporate segment operating margin remained flat at 7.7 % for 2017 and 2016 . although income from operations increased , primarily due to an increase in sales volume , corporate segment operating margin percentage remained flat . story_separator_special_tag the flat operating margin percentage reflects higher hardware sales and an ongoing competitive marketplace , which were fully offset by lower sales payroll expenses . small business segment income from operations was $ 74 million in 2017 , an increase of $ 5 million , or 8.0 % , compared to $ 69 million in 2016 . income from operations increased due to an increase in sales volume , while operating margin remained flat at 6.0 % for 2017 and 2016 . the flat operating margin percentage reflects higher hardware sales and an ongoing competitive marketplace , which were fully offset by lower sales payroll expenses . public segment income from operations was $ 374 million in 2017 , an increase of $ 6 million , or 1.6 % , compared to $ 368 million in 2016 . public segment operating margin decreased 40 basis points to 6.2 % in 2017 , from 6.6 % in 2016 . this decrease in operating margin percentage was primarily driven by higher hardware sales , which were partially offset by lower sales payroll expenses . other income from operations was $ 58 million in 2017 , an increase of $ 14 million , or 32.8 % , compared to $ 44 million in 2016 . other income from operations increased primarily due to higher sales volumes and gross profit as we continue to take share in the local markets . other operating margin percentage increased 50 basis points to 3.7 % in 2017 , from 3.2 % in 2016 . this increase was primarily driven by a decline in intangible asset amortization expense as a percentage of net sales . 34 interest expense , net net interest expense in 2017 was $ 151 million , an increase of $ 4 million , compared to $ 147 million in 2016 . this increase was primarily driven by mark-to-market gains recognized on our interest rate cap agreements in 2016 , with no comparable activity in 2017 due to the election of hedge accounting in february 2017 and by a rising interest rate environment which resulted in higher interest expense on the term loan . this was partially offset by a reduced coupon rate due to the refinancing activity that occurred during 2017. net loss on extinguishments of long-term debt for information regarding our debt , see note 10 ( long-term debt ) to the accompanying consolidated financial statements . during 2017 , we recorded a net loss on extinguishments of long-term debt of $ 57 million compared to $ 2 million in 2016 . net loss on extinguishments of long-term debt are as follows : replace_table_token_12_th ( 1 ) we repaid all of the remaining aggregate principal amount outstanding . the loss recognized represents the difference between the aggregate principal amount and the net carrying amount of the purchased debt , adjusted for the remaining unamortized deferred financing costs and premium . income tax expense on december 22 , 2017 , the tax cuts and jobs act was enacted into law . the tax cuts and jobs act changes several aspects of us federal tax law including : reducing the us corporate income tax rate from 35 % to 21 % beginning on january 1 , 2018 ; establishing a territorial tax system , which includes a one-time tax on the deemed mandatory repatriation of our international operations ' unremitted earnings which have not been subject to us tax ; imposing a minimum us tax on foreign earnings ; providing for the immediate expensing of certain qualified property ; and changing the tax treatment of performance based executive compensation and certain employee fringe benefits . gaap requires the income tax effects of the tax cuts and jobs act to be accounted for in the period of enactment . the sec issued staff accounting bulletin 118 allowing for provisional amounts to be recorded during a measurement period not to exceed one year . we recorded provisional amounts for the impact of revaluing deferred tax assets and liabilities , the deemed mandatory repatriation tax of our international operations ' unremitted earnings and the state income tax effects from the change in federal tax law . we continue to analyze the income tax effects of the tax cuts and jobs act , as well as monitor guidance from the internal revenue service and the us treasury department . any additional income tax effects of the tax cuts and jobs act are expected to be recorded within the measurement period . income tax expense was $ 137 million in 2017 , compared to $ 248 million in 2016 . the effective income tax rate , expressed by calculating income tax expense as a percentage of income before income taxes , was 20.8 % and 36.9 % for 2017 and 2016 , respectively . we expect to have an effective tax rate of between 24 % and 25 % in 2018. the 2018 effective tax rate may change due to various factors including : adjustments we make to the estimates of the impact of the tax cuts and jobs act that were recorded as of december 31 , 2017 , as well as additional guidance that the internal revenue service , us treasury department and state taxing authorities may issue , changes in the estimated excess tax benefits due to the changes in the market value of our common stock and changes in the number of awards vesting and changes in state tax laws . 35 for 2017 , the effective tax rate differed from the us federal statutory rate primarily due to a one-time benefit of $ 96 million to reflect the revaluation of deferred tax assets and liabilities , excess tax benefits on equity compensation and lower corporate tax rates on our international income , partially offset by state income taxes and a one-time charge of $ 20 million for the mandatory repatriation tax .
| we also saw ongoing customer focus on designing it securely , which led to strong sales growth across our entire security portfolio and the adoption of more efficient architectures , which drove strong growth in hyper-converged infrastructure and solutions delivered via the cloud , as well as the continuing trend of greater integration of software into solutions . corporate segment net sales in 2017 increased $ 457 million , or 7.8 % , compared to 2016 , as customer confidence improved throughout the year . growth was primarily driven by customer refresh of client devices and networking . small business segment net sales in 2017 increased by $ 106 million , or 9.3 % , compared to 2016 . sales growth was primarily driven by customer refresh of client devices and video . public segment net sales in 2017 increased $ 448 million , or 8.0 % , compared to 2016 . the growth was primarily driven by government and education customers . net sales to federal government customers reflected a focus on spending existing budgets on planned projects and ongoing successful alignment with strategic programs , as well as success meeting the department of defense mandated move to new client devices with stronger security features . strong net sales to our state and local government customers was driven by a continued focus on public safety and the on-going success executing against recently added contracts . net sales to our higher education customers were driven by networking and software as we continued to see the benefit from “ connected campus ” strategies to ensure network infrastructures can handle multiple devices used by students , faculty and visitors across the entire campus . k-12 growth was driven by success in delivering collaborative learning environments and networking . net sales to healthcare customers decreased 2.9 % , reflecting continued customer uncertainty related to reimbursements and funding . net sales in other for 2017 increased $ 198 million , or 14.5 % , compared to 2016 . other is comprised of results from our canadian and uk operations . both operations had strong growth in local currency as we continued to take share in the local
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our failure to raise capital as and when needed could have a material adverse effect on our business , results of operations , financial condition and cash flows and future prospects . 60 story_separator_special_tag development expenses to continue to increase as our clinical trials progress . it is difficult to determine with certainty the duration and completion costs of our clinical trials of aqx-1125 and any of our future product candidates we may advance , or if , when or to what extent we will generate revenue from the commercialization and sale of any of our product candidates that obtain regulatory approval . we may never succeed in achieving regulatory approval for any of our product candidates . the duration , costs and timing of clinical trials and development of our product candidates will depend on a variety of factors , including the uncertainties of future clinical trials and preclinical studies , uncertainties in clinical trial enrollment rate and significant and changing government regulation . in addition , the probability of success for each product candidate will depend on numerous factors , including competition , manufacturing capability and commercial viability . a change in the outcome of any of these variables with respect to the development of a product candidate could 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 , or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time with respect to the development of that product candidate . we will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate , as well as an assessment of each product candidate 's commercial potential . general and administrative expenses general and administrative expenses consist primarily of salaries and related costs for executive and other administrative personnel , including stock-based compensation and travel expenses . other general and administrative expenses include facility-related costs , gain or loss on disposal of equipment , communication expenses and professional fees for legal , patent review , consulting and accounting services . for the year ended december 31 , 2014 , general and administrative expenses of $ 4.3 million were higher compared to $ 1.8 million for the year ended december 31 , 2013. the increase is the result of additional costs associated with being a public company as we completed our ipo in march 2014. this included , among other expenses , increased costs for insurance , costs related to the hiring of additional personnel and outside consultants and increased travel . general and administrative expenses for the year ended december 31 , 2013 of $ 1.8 million were slightly higher than the $ 1.6 million incurred for the year ended december 31 , 2012 due to increase in personnel costs . 62 bank charges and financing costs bank charges and financing costs consist of bank loan interest , warrant discount amortization and normal course bank charges . for the year ended december 31 , 2014 , our bank charges and financing costs were $ 0.5 million . this compared to less than $ 0.1 million for the year ended december 31 , 2013. the increase was due to early repayment of the term loan with silicon valley bank , or svb , entered into in october 2013 and repaid in march 2014 resulting in early repayment penalty and fees of $ 0.1 million and accretion of warrant discount and deferred costs of $ 0.3 million . bank charges and financing costs for the year ended december 31 , 2013 were higher compared to the small amount incurred for the year ended december 31 , 2012 due to interest expense on the term loan with svb entered into in october 2013. change in fair value of derivative liabilities our derivative liabilities comprised our convertible preferred stock warrants and redemption options . derivative liabilities are re-measured at each balance sheet date with the corresponding change recorded within change in fair value of derivative liabilities . in march 2014 , in connection with our ipo , we converted all our preferred stock to common stock in accordance to the terms of our preferred stock and extinguished derivative liabilities related to our preferred stock . as a result , the change in fair value for the year ended december 31 , 2014 of $ 0.9 million was primarily due to the extinguishment of the liabilities associated with our preferred stock described above . this compared to $ 1.0 million for the year ended december 31 , 2013 when the change in fair value was associated with our preferred stock derivative liabilities and preferred stock warrant derivative liabilities . we did not have any derivative liabilities in 2012. amortization and extinguishment of remaining discount on preferred stock amortization and extinguishment of discount on preferred stock for the year ended december 31 , 2014 was $ 1.9 million compared to $ 0.4 million for the year ended december 31 , 2013. the increase was due to the conversion of all our preferred stock to common stock in march 2014 , resulting in the extinguishment of all remaining discount on our preferred stock . amortization on preferred stock was higher for the year ended december 31 , 2013 compared to less than $ 0.1 million for the year ended december 31 , 2012 due to additional amortization resulting from the issuance of series c preferred stock in march 2013. other income ( expenses ) other income ( expenses ) includes primarily interest income and foreign exchange gains/losses . story_separator_special_tag for the year ended december 31 , 2014 , we had other expenses of $ 0.3 million , compared to other income of $ 0.1 million for the year ended december 31 , 2013. the expenses in 2014 were primarily the results of foreign exchange losses on our euro and canadian dollar holdings as both the euro and the canadian dollar declined significantly during 2014. other income for the year ended december 31 , 2013 were higher than other income of $ 0.1 million for the year ended december 31 , 2012 as a result of gain on sale of equipment during 2013. liquidity and capital resources from inception through december 31 , 2014 , we have received gross proceeds of $ 111.5 million from the issuance of common and preferred stock . since our inception , we have incurred net losses and negative cash flows from our operations . our operating activities used $ 17.8 million , $ 7.9 million and $ 7.2 million of cash flows during the years ended december 31 , 2014 , 2013 and 2012 , respectively . as of december 31 , 2014 , we had an accumulated deficit of $ 89.4 million , working capital of $ 34.1 million and cash , cash equivalents , short and long-term investments of $ 41.1 million . 63 cash flows the following table summarizes our cash flows for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_8_th net cash used in operating activities the increase in cash used in operating activities for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 was driven by an increase in clinical development expenses as a result of the two large phase 2 clinical trials , the leadership and flagship trials , which were actively enrolling during 2014. the increase in cash used in operating activities for the year ended december 31 , 2013 compared to the year ended december 31 , 2012 was due to the initiation of the leadership and flagship clinical trials during the second half of 2013 whereas during 2012 we were only engaged in early stage lead compound identification and screening activities . net cash ( used in ) provided by investing activities cash used in investing activities for the year ended december 31 , 2014 consisted primarily of the purchase and sale of short and long-term investments as we invested the proceeds from our ipo into liquid , high quality securities in accordance to our treasury policy which focuses on the preservation of principal and maintenance of liquidity . during the year ended december 31 , 2013 , the net cash used in investing activities was primarily related to purchase of short-term guaranteed investment certificates , net of proceeds from the sale of lab equipment . during the year ended december 31 , 2012 , net cash used in investing activities involved purchase of fixed assets . net cash ( used in ) provided by financing activities for the year ended december 31 , 2014 , net cash provided by financing activities was the result of the $ 53.1 million in proceeds from our ipo , offset by $ 5.3 million of offering costs and the repayment of a bank loan with svb bank for $ 2.6 million . for the year ended december 31 , 2013 , net cash provided by financing activities was the result of $ 18.0 million in proceeds from the issuance of series c convertible preferred stock , offset by $ 0.6 million in share issue costs , and a $ 2.5 million loan from svb bank , offset by $ 0.1 million in loan costs . there was no financing activity in 2012. operating and capital expenditure requirements we have not achieved profitability since our inception and we expect to continue to incur net losses for the foreseeable future . we expect our cash expenditures to increase in the near term as we fund our phase 2 clinical trials of aqx-1125 , as well as our continuing preclinical activities . we believe that our existing capital resources will be sufficient to fund our operations for at least the next 12 months . however , we anticipate that we will need to raise substantial financing in the future to fund our operations . in order to meet these additional cash requirements , we may seek to sell additional equity or convertible debt securities that may result in dilution to our stockholders . if we raise additional funds through the issuance of convertible debt securities , these securities could have rights senior to those of our common stock and could contain covenants that restrict our operations . there can be no assurance that we will be able to obtain additional equity or debt financing on terms acceptable to us , if at all . our failure to obtain sufficient funds on acceptable terms when needed could have a negative impact on our business , results of operations , financial condition and cash flows and future prospects . our future capital requirements will depend on many factors , including : the timing , receipt and amount of sales of , or royalties on , future approved products , if any ; the timing to completion and the results of our phase 2 clinical trials ; the number and characteristics of any future product candidates we develop or may acquire ; the scope , progress , results and costs of researching and developing our product candidates or any future product candidates , and conducting preclinical studies and clinical trials ; the timing of , and the costs involved in , obtaining regulatory approvals for aqx-1125 or any future product candidates ; the cost of manufacturing aqx-1125 and our future product candidates and any products that may achieve regulatory approval ; 64 the cost of commercialization activities if aqx-1125 or any future product candidates are approved for sale , including marketing , sales and distribution costs ; our ability to establish and maintain strategic collaborations , licensing or other arrangements
| our main clinical activities are described as follows : leadership trial in july 2013 , we began dosing patients in a phase 2 clinical trial of aqx-1125 for the treatment of bps/ic . bps/ic is a chronic inflammatory bladder disease characterized by bladder pain and increased urinary urgency and or frequency . our clinical trial , known as the leadership trial , is a double-blind , placebo-controlled , phase 2 clinical trial investigating the ability of aqx-1125 to reduce pain and urinary symptoms in approximately 70 female patients with bps/ic . the primary objective of this trial is to measure the difference in the change from baseline in the mean daily bladder pain score based on an 11-point numeric rating scale ( nrs ) at six weeks recorded by ediary . the trial is being conducted at community and academic sites in canada and the united states . we have now completed enrolment for the leadership trial . with 69 patients randomized to date and a higher completion rate than forecast for the trial , we have met our enrolment objectives . top-line data is expected near mid-year 2015. flagship trial in december 2013 , we began dosing patients in a phase 2 clinical trial of aqx-1125 for the treatment of exacerbations of copd . copd is a lung disease frequently associated with cigarette smoking and air pollution and is characterized by progressive loss of lung function and chronic inflammation of the airways . our clinical trial , known as the flagship trial , is a multinational , double-blind , placebo-controlled , phase 2 clinical trial investigating the ability of aqx-1125 to reduce the effects of exacerbations in 400 unstable patients with moderate to severe copd who have experienced a recent exacerbation and at least two other exacerbations in the prior 18 months . the primary endpoint is the change in the severity , duration and reoccurrence of exacerbations in patients treated with aqx-1125 versus placebo , as measured by exact-pro , a patient-reported outcome tool that measures symptoms .
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this reduces the number of team members in our offices to those uniquely needed for essential on-site services , such as network operations support staff , and allows for “ social distancing ” as directed by the centers for disease control ( `` cdc '' ) . the pandemic has delayed some government procurement processes and is expected to impact our ability to complete certain implementations , negatively impacting our revenue . it could also negatively impact the timing of client payments to us . we continue to monitor these trends in order to respond to the ever-changing impact of covid-19 on our clients and tyler 's operations . for the twelve months ended december 31 , 2020 , the impact of the covid-19 pandemic resulted in lower revenues from software licenses , software services , appraisal services , and other revenues . lower software licenses compared to prior periods are attributed to slower sales cycles as government procurement processes are delayed and contract signings have been pushed to future periods . software services and appraisal services revenue declines are attributed to delays in implementations caused by travel restrictions and shelter-in-place orders in effect during the period . other revenues were lower compared to prior periods primarily as a result of the cancellation of our 2020 connect user conference . lower revenues compared to prior periods were offset by cost savings attributed to lower spend on travel , user conferences and trade show expenses , health claims and other employee-related expenses . if and as travel restrictions are relaxed , we expect software services and appraisal services revenues to increase as the limited number of our clients who require that all or a portion of their services be delivered onsite will be able to receive those services . also , we are adapting by changing the way we do business , encouraging web and video conferencing , conducting virtual sales demonstrations and delivering professional services remotely , which result in increases in staff utilization rates and billable time . recurring revenues from subscriptions and maintenance comprised 73.3 % of our total consolidated revenue for the twelve months ended december 31 , 2020 , and include transaction-based revenue streams such as e-filing and online payments . as of december 31 , 2020 , we had $ 758.5 million in cash and investments and no outstanding borrowings under our credit facility . we also have substantial additional liquidity available through our undrawn $ 400 million credit facility , which can be expanded through an accordion feature . during the second quarter of 2020 , we completed our annual assessment of goodwill which did not result in an impairment charge . since our assessment in the second quarter of 2020 , we have recorded no impairment to goodwill as no triggering events or changes in circumstances occurred as of period-end . no impairments of other assets were recorded as of the balance sheet date as no triggering events or changes in circumstances indicating a potential impairment have occurred as of period-end to require such an impairment ; however , due to significant uncertainty surrounding the pandemic and market conditions , management 's judgment regarding this could change in the future . security incident on september 29 , 2020 , we filed a current report on form 8-k reporting a security incident ( the `` incident '' ) involving ransomware disrupting access to some of our internal it systems and telephone systems . there is no evidence that the environments where we host client applications were affected , and our hosting services to those clients were not interrupted . there is also no evidence of malicious activity on client networks associated with the incident . we contained the incident and recovered from it , resuming normal operations with our clients . we will continue to deploy supplemental remediation efforts as necessary . as part of our immediate response to the incident , we ( 1 ) shut down points of access to external systems and began investigating and remediating the problem ; ( 2 ) engaged outside it security and forensics experts to conduct a detailed review and help securely restore affected systems ; ( 3 ) implemented targeted monitoring systems to supplement the systems we already had in place ; and ( 4 ) notified law enforcement . we are have cooperated with their investigation throughout . we promptly notified our clients of the incident and provided timely updates to our clients through direct communications and updates to our website . 23 although we believe we have contained and recovered from the incident , and that we have taken and will continue to take appropriate remediation steps , we are subject to risk and uncertainties as a result of the incident . we believe we are in the final phases of our investigation , but there can be no assurance as to what the ongoing impact of the incident will be , if any . the incident caused an interruption in parts of our business . we estimate that as a result of the incident , revenue ( primarily software services ) for the year ended december 31 , 2020 was reduced by approximately $ 1.5 million ; however , insurance reimbursements pertaining to lost revenue represent a contingent gain and any recovery of these revenues will be recorded when received . we incurred $ 4.2 million in costs associated with the incident as of december 31 , 2020. as of december 31 , 2020 , we have recorded $ 1.1 million of accrued insurance recoveries and received $ 2.4 million of insurance recoveries related to the incident . the recorded costs consisted primarily of payments to third-party service providers and consultants , including legal fees , and enhancements to our cybersecurity measures . it is expected that we will continue to incur costs related to our response , remediation , and investigatory efforts relating to the incident . we maintain cybersecurity insurance coverage in an amount that we believe is adequate . story_separator_special_tag recent adoption of new accounting pronouncements in june 2016 , the fasb issued asu 2016-13 , financial instruments - credit losses , ( “ asu 2016-13 ” ) . asu 2016-13 changes the impairment model for most financial assets and certain other instruments , including trade and other receivables , available for-sale debt securities , held-to-maturity debt securities and loans , and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of an allowance for losses . this update is effective for fiscal years beginning after december 15 , 2019 , including interim periods within those fiscal years . early adoption is permitted for a fiscal year beginning after december 15 , 2018 , including interim periods within that fiscal year . entities apply the standard 's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted . as of january 1 , 2020 , we adopted the new standard with no material impact of credit losses to our trade and other receivables , held-to-maturity debt securities and retained earnings included in our consolidated financial statements . o n january 26 , 2017 , the fasb issued asu no . 2017-04 , simplifying the test for goodwill impairment . the new standard eliminates step 2 from the goodwill impairment test . an entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit 's fair value . this standard is effective for public business entities in fiscal years beginning after december 15 , 2019 , and the standard was adopted and applied prospectively by the company as of january 1 , 2020 , but it did not have a significant impact on the company 's financial statements and disclosures . recent accounting guidance not yet adopted in december 2019 , the fasb issued asu 2019-12 , simplifying the accounting for income taxes , ( `` asu 2019-12 '' ) which simplifies the accounting for income taxes , eliminates certain exceptions within asc 740 , income taxes , and clarifies certain aspects of the current guidance to promote consistency among reporting entities . the new standard is effective for fiscal years beginning after december 15 , 2020. most amendments within the standard are required to be applied on a prospective basis , while certain amendments must be applied on a retrospective or modified retrospective basis . we do not expect adoption of this standard to have a material effect on our consolidated financial statements . outlook the local government software market continues to be active , and our backlog at december 31 , 2020 reached $ 1.59 billion , a 9.4 % increase from the prior year . we expect to continue to achieve solid growth in revenue and earnings . with our strong financial position and cash flow , we plan to continue to make significant investments in product development to better position us to continue to expand our addressable market and strengthen our competitive position in the public sector software market over the long term . critical accounting policies and estimates our discussion and analysis of financial condition and results of operations is based upon our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states ( “ gaap ” ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities at the date of the financial statements , the reported amounts of revenues , cost of revenues and expenses during the reporting period , and related disclosure of contingencies . the notes to the financial statements included as part of this annual report describe our significant accounting policies used in the preparation of the financial statements . significant items subject to such estimates and assumptions include the application of the progress toward completion methods of revenue recognition , estimated standalone selling price ( `` ssp '' ) for distinct performance obligations , the carrying amount and estimated useful lives of intangible assets , determination of share-based compensation expense and valuation allowance for receivables . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . 24 we believe the following critical accounting policies require significant judgments and estimates used in the preparation of our financial statements . revenue recognition . we earn revenue from software licenses , royalties , subscription-based services , software services , post-contract customer support ( “ pcs ” or “ maintenance ” ) , hardware , and appraisal services . revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services . we determine revenue recognition through the following steps : identification of the contract , or contracts , with a customer 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 recognition of revenue when , or as , we satisfy a performance obligation most of our software arrangements with customers contain multiple performance obligations that range from software licenses , installation , training , and consulting to software modification and customization to meet specific customer needs ( services ) , hosting , and pcs . for these contracts , we account for individual performance obligations separately when they are distinct . we evaluate whether separate performance obligations can be distinct or should be accounted for as one performance obligation .
| property appraisal outsourcing services include : the physical inspection of commercial and residential properties ; data collection and processing ; computer analysis for property valuation ; preparation of tax rolls ; community education ; and arbitration between taxpayers and the assessing jurisdiction . 21 as of january 1 , 2020 , the land and vital records management business unit , which was previously reported in the es segment , was moved to the a & t segment to reflect changes in the way in which management makes operating decisions , allocates resources , and manages the growth and profitability of the company . prior year amounts for the es and a & t segments have been adjusted to reflect the segment change . see note 14 - `` segment and related information '' in the notes to the consolidated financial statements for additional information . for the twelve months ended december 31 , 2020 , total revenues increased 2.8 % compared to the prior year . excluding the impact of acquisitions , total revenues increased 1.4 % compared to prior year . revenues from acquisitions contributed 1.4 % of growth for the twelve months ended december 31 , 2020. subscriptions revenue grew 18.3 % for the twelve months ended december 31 , 2020 , due to a gradual shift toward cloud-based , software as a service business , as well as continued strong growth in our transaction-based revenues from online payments and e-filing revenues from courts . excluding the impact of recent acquisitions , subscriptions revenue increased 17.2 % for the twelve months ended december 31 , 2020. our backlog at december 31 , 2020 was $ 1.59 billion , a 9.4 % increase from last year . we monitor and analyze several key performance indicators in order to manage our business and evaluate our financial and operating performance . these indicators include the following : revenues – we derive our revenues from five primary sources : sale of software licenses and royalties ; subscription-based arrangements ; software services ; maintenance ; and appraisal services . subscriptions and maintenance are considered recurring revenue sources and comprised approximately 73.3 % of our revenue in 2020. the number
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furthermore , we expect that our general and administrative costs will increase as we grow and operate as a public company . as a result , we will need to generate significant revenue if we are to achieve profitability , and we may never be able to do so . we believe that our cash and cash equivalents and available-for-sale investments at december 31 , 2015 will be sufficient to fund our operating expenses and capital expenditure requirements into the fourth quarter of 2017 , thus allowing us to obtain results from our first phase 3 clinical trial of vonapanitase in radiocephalic avfs , to enroll patients in our second phase 3 trial of vonapanitase in radiocephalic avfs and to fund our chemistry , manufacturing and controls , or cmc , activities . 138 we do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for vonapanitase , which we expect will take a number of years and is subject to significant uncertainty . we have no manufacturing facilities and all of our manufacturing activities are contracted out to third parties . additionally , we currently use third-party clinical research organizations , or cros , to carry out our clinical development activities and we do not yet have a sales organization . if we obtain regulatory approval for vonapanitase , we expect to incur significant commercialization expenses related to product sales , marketing , manufacturing and distribution . accordingly , we may seek to further fund our operations through public or private equity or debt financings or other sources , including strategic collaborations . we may , however , be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all . our failure to raise additional capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop vonapanitase or any additional product candidates , if developed . financial overview revenue to date , our revenue has been derived from revenue related to the expiration of any rights and obligations under the 2009 agreement with a major pharmaceutical entity and from government grants . in the third quarter of 2014 we recognized $ 2.9 million of revenue related to the expiration in august 2014 of any rights and obligations related to the 2009 agreement . research and development expenses research and development expenses consist primarily of costs incurred for the development of vonapanitase , which include : · employee-related expenses , including salaries , benefits , travel and stock-based compensation expense ; · expenses incurred under agreements with cros and investigative sites that will conduct our clinical trials ; · t he cost of acquiring , developing and manufacturing clinical trial materials ; · costs associated with regulatory operations ; and · facilities , depreciation and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and other supplies . 139 we expense research and development costs to operations as incurred . 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 . we can not determine with certainty the duration and completion costs of the current or future clinical trials or if , when , or to what extent we will generate revenues from the commercialization and sale of vonapanitase . we may never succeed in achieving regulatory approval for vonapanitase . the duration , costs and timing of clinical trials and development of vonapanitase will depend on a variety of factors , which include : · the scope , rate of progress and expense of our ongoing as well as any additional clinical trials and other research and development activities ; · uncertainties in clinical trial enrollment rate ; · future clinical trial results ; · significant and changing government regulation ; and · the timing and receipt of any regulatory approvals . a change in any of these factors could mean a significant change in the costs and timing associated with the development of vonapanitase . 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 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 on the completion of clinical development . we expect our research and development expenses to increase for the foreseeable future as we continue the development of vonapanitase . our current development activities and future plans include the following : · we commenced our first phase 3 clinical trial of vonapanitase for patients undergoing creation of a radiocephalic avf in the third quarter of 2014 , completed patient enrollment in october 2015 and expect to release top-line data in december 2016. we enrolled the first patient in our second phase 3 trial in august 2015 and expect to complete enrollment in the first quarter of 2017. if the results from the first phase 3 trial are sufficiently compelling , we intend to meet with the fda to discuss the possibility of submitting a bla , supported by the single phase 3 trial and may decide to submit a bla to the fda prior to completing the second phase 3 trial ; 140 · we may , based on additional data including the data from our phase 3 clinical trials and if sufficient funds become available , choose to conduct a clinical trial of vonapanitase in europe ; · we may , based on additional data including the data from our phase 3 clinical trials and if sufficient funds become available , study the effects of vonapanitase versus placebo on brachiocephalic avfs and in patients undergoing placement story_separator_special_tag of an arteriovenous graft , or avg ; and · we expect to continue to manufacture clinical trial materials in support of our clinical trials and to also perform process validation activities in anticipation of a potential bla filing . general and administrative expenses general and administrative expenses consist principally of salaries and related costs for personnel , including stock-based compensation and travel expenses , in executive and other administrative functions . other general and administrative expenses also include professional fees for legal , patent review , consulting and accounting services as well as facility related costs . we anticipate increased expenses related to audit , legal , regulatory and tax-related services associated with maintaining compliance with our nasdaq listing and sec requirements , director and officer liability insurance premiums and investor relations costs associated with being a public company . additionally , if and when we believe a regulatory approval of vonapanitase appears likely , we anticipate that we will increase our salary and personnel costs and other expenses as a result of our preparation for commercial operations . investment income investment income consists of interest income earned on our cash , cash equivalents and marketable securities . interest expense interest expense consists of interest incurred on debt instruments , amortized deferred financing costs and amortized debt discount . the debt discount primarily consists of the fair value of the bifurcated features embedded in the convertible notes issued in september 2013 and converted in may 2014 . 141 other ( expense ) income , net other ( expense ) income , net consists of the gain realized by the sale of fixed assets , changes in the fair value of the derivative liability associated with the convertible notes , changes in the fair value of the investors ' rights and obligations issued in connection with the series d redeemable convertible preferred stock , non-cash gains and losses from currency exchange rate fluctuations on transactions or balances denominated in a foreign currency and realized and unrealized gains and losses on the forward foreign currency contracts we entered into in the second quarter of 2015 to purchase swiss francs to reduce our foreign currency exposure through 2016. this foreign currency exposure is the result of a contract with the manufacturer of our active pharmaceutical ingredient ( “ api ” ) which requires us to make payments in swiss francs . the derivative liability associated with the convertible notes was extinguished upon the conversion of the notes into series d redeemable convertible preferred stock in may 2014. the series d investors ' rights and obligations were either exercised or extinguished upon the completion of our ipo in october 2014. accretion of preferred stock subsequent to the may 2014 series d redeemable convertible preferred stock financing , our shares of preferred stock were redeemable beginning in 2019 at their original issuance price plus any declared or accrued but unpaid dividends upon written election of the preferred stockholders in accordance with the terms of our certificate of incorporation . accretion of preferred stock reflects the accretion of issuance costs and cumulative dividends on our preferred stock based on their respective redemption values . on october 27 , 2014 , we closed our ipo and all shares of preferred stock were converted into 8,651,805 shares of our common stock . no accretion of preferred stock has been recorded after this date as no shares of preferred stock were outstanding after such date . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial position and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america , or gaap . the preparation of financial statements in conformity with gaap requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . on an ongoing basis , we evaluate estimates , which include estimates related to clinical trial accruals , stock-based compensation expense , embedded derivatives and reported amounts of revenues and expenses during the reported period . we base our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances . actual results may differ materially from those estimates or assumptions . 142 while our significant accounting policies are described in more detail in the notes to our consolidated financial statements and related notes appearing elsewhere in this annual report , we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements . accrued research and development expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued expenses . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed for us and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost . the majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met . we make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time . we routinely confirm the accuracy of our estimates with the service providers and make adjustments if necessary . examples of estimated accrued research and development expenses include fees paid to cros in connection with clinical trials and vendors related to manufacturing , development and distribution of clinical supplies . we base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple cros that conduct and manage clinical trials on our behalf .
| during the year ended december 31 , 2015 , investment income increased by $ 0.1 million due to the increase in interest income earned on our higher cash , cash equivalents and marketable securities balances during the year ended december 31 , 2015 as compared to the year ended december 31 , 2014. interest expense . during the year ended december 31 , 2015 , interest expense was $ 0.9 million lower as compared to the year ended december 31 , 2014 due to the decrease of $ 0.9 million in interest expense related to our convertible notes which were extinguished in may 2014. other ( expense ) income , net . during the year ended december 31 , 2015 , other ( expense ) income , net changed by $ 5.7 million as compared to the year ended december 31 , 2014 primarily due to a decrease of $ 5.0 million in income related to the change in fair market value of the series d preferred stock investor rights obligation in 2014 and an increase of $ 0.7 million expense related to the change in the fair value associated with the forward foreign currency contracts we entered into in second quarter of 2015 and the swiss francs denominated currency we held as of the period end . 147 comparison of the years ended december 31 , 2014 and 2013 replace_table_token_17_th revenue . revenue increased by $ 2.9 million for the year ended december 31 , 2014 from the year ended december 31 , 2013. this increase was due to the recognition of $ 2.9 million of deferred revenue related to the expiration in august 2014 of any rights and obligations under the aforementioned 2009 agreement with a major pharmaceutical entity . research and development expenses . the following table identifies research and development expenses on both an external and internal basis for the years ended december 31 , 2014 and 2013 : replace_table_token_18_th during the year ended december 31 , 2014 , our total research
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through our websites , we sell tickets to our own events as well as tickets for our ticketing clients and provide event information . revenue related to ticketing service charges for our events where we control ticketing is deferred and recognized as the event occurs . to judge the health of our ticketing segment , we primarily review the number of tickets sold through our ticketing operations , average convenience charges and order processing fees , the number of client tickets renewed or added and the average royalty rate paid to clients who use our ticketing services . in addition , we review the number of visits to our websites , the overall number of customers in our database and the revenue related to the sale of other products on our websites . for business that is conducted in foreign markets , we also compare the operating results from our foreign operations to prior periods on a constant currency basis . artist nation the artist nation segment primarily provides management services to music artists in exchange for a commission on the earnings of these artists . our artist nation segment also sells merchandise associated with music artists at live performances , to retailers and directly to consumers via the internet and provides other services to artists . revenue earned from our artist nation segment is impacted to a large degree by the touring schedules of the artists we represent . generally , we experience higher revenue during the second and third quarters as the period from may through september tends to be a popular time for touring events . to judge the health of our artist nation segment , we primarily review the average annual earnings of each artist represented and the percentage of top artists on tour or with planned album releases as these activities tend to drive higher revenue . for business that is conducted in foreign markets , we compare the operating results from our foreign operations to prior periods on a constant currency basis . sponsorship & advertising our sponsorship & advertising segment employs a sales force that creates and maintains relationships with sponsors through a combination of strategic , international , national and local opportunities that allow businesses to reach customers through our concert , venue , artist relationship and ticketing assets , including advertising on our websites . we work with our corporate clients to help create marketing programs that drive their business goals and connects their brands directly with fans and artists . to judge the health of our sponsorship & advertising segment , we primarily review the average revenue per sponsor , the total revenue generated through sponsorship arrangements , percentage of expected revenue under contract and the online revenue received from sponsors advertising on our websites . see further discussion of our segments in item 1. businessour business . 43 story_separator_special_tag other income of $ 4.2 million for the year ended december 31 , 2010 includes the impact of changes in foreign exchange rates of $ 2.8 million in 2010. income taxes our 2012 effective tax rate of ( 22 ) % represented a net tax expense of $ 29.7 million on losses from continuing operations before tax of $ 132.2 million compared to our 2011 effective tax rate of 27 % which represented a net tax benefit of $ 26.2 million on losses from continuing operations before tax of $ 96.6 million for the years ended december 31 , 2012 and 2011 , respectively . in 2012 , income tax expense includes $ 19.5 million related to statutory expense for foreign entities , $ 3.9 million current tax expense for state and local income taxes , $ 4.0 million deferred state income tax primarily related to blended state rate changes and other tax expense of approximately $ 2.3 million . the net increase in 2012 tax expense as compared to 2011 is principally driven by the 2011 valuation allowance release of $ 39.5 million related to the 2011 federal tax consolidation of front line with the company 's other domestic operations . our effective tax rate for 2011 was 27 % as compared to an effective tax rate of ( 8 ) % for 2010. the higher net tax benefit in 2011 as compared to 2010 is principally driven by higher tax benefits recognized in 2011 related to the 2011 federal tax consolidation of front line with the company 's other domestic operations . discontinued operations for the year ended december 31 , 2010 , we reported $ 4.2 million of additional expense related to the 2009 sale of our u.k. theatrical business as a loss on disposal . net income attributable to noncontrolling interests net income attributable to noncontrolling interests decreased $ 11.3 million during the year ended december 31 , 2012 as compared to the prior year primarily due to reduced operating results of various artist management businesses resulting from an impairment of a client/vendor relationship intangible . net income attributable to noncontrolling interests decreased $ 7.7 million during the year ended december 31 , 2011 as compared to the prior year primarily due to reduced operating results for various entities , primarily internationally , along with the 2011 acquisitions of the remaining interests in front line and vector partially offset by our acquisition of ln ontario concerts . 47 concerts results of operations our concerts segment operating results were , and discussions of significant variances are , as follows : replace_table_token_12_th * percentages are not meaningful . * * aoi is a non-gaap financial disclosure and is discussed in more detail and reconciled to operating income ( loss ) below . year ended 2012 compared to year ended 2011 concerts revenue increased $ 364.2 million , or 10 % , during the year ended december 31 , 2012 as compared to the prior year partially resulting from strategic priorities to grow owned and or operated amphitheater and european festival profitability , expand our portfolio of electronic dance music and other new festivals and expand into new geographic markets . story_separator_special_tag excluding the decrease of $ 80.2 million related to the impact of changes in foreign exchange rates , revenue increased $ 444.4 million , or 13 % , partially due to incremental revenue of $ 95.0 million resulting from acquisitions , primarily from the april 2012 acquisition of coppel and the may 2012 acquisition of cream . in addition , revenue increased due to current activity from global tours , more shows and higher per show attendance at our north america owned and or operated amphitheaters , third-party stadiums and theaters and clubs and increased festival activity resulting from new events and higher attendance . concerts direct operating expenses increased $ 328.5 million , or 11 % , during the year ended december 31 , 2012 as compared to the prior year . excluding the decrease of $ 70.1 million related to the impact of changes in foreign exchange rates , direct operating expenses increased $ 398.6 million , or 14 % , partially due to incremental direct operating expenses of $ 91.7 million from acquisitions as noted above . in addition , we incurred higher global touring costs and higher expenses associated with the increased number of events and festival activity noted above . we also incurred $ 6.9 million higher advertising costs in 2012 for future events than we did in the prior year . concerts selling , general and administrative expenses increased $ 34.1 million , or 6 % , during the year ended december 31 , 2012 as compared to the prior year . excluding the decrease of $ 9.5 million related to the impact of changes in foreign exchange rates , selling , general and administrative expenses increased $ 43.6 million , or 8 % , resulting primarily from incremental costs of $ 6.9 million from the acquisitions noted above and $ 12.4 million from expansion of our business in asia and the opening of new venues , such as ziggo dome in the netherlands . we also had higher legal defense costs from various cases and increased compensation costs related to improved performance and annual inflationary increases . concerts depreciation and amortization increased $ 13.1 million , or 10 % , during the year ended december 31 , 2012 as compared to the prior year . excluding the decrease of $ 1.1 million related to the impact of changes in foreign exchange rates , depreciation and amortization increased $ 14.2 million , or 11 % , primarily due to higher amortization associated with the impairment of intangible assets for revenue-generating contracts and additional definite-lived intangible amortization expense associated with recent acquisitions . concerts acquisition expenses increased $ 3.1 million during the year ended december 31 , 2012 as compared to the prior year primarily due to costs associated with the acquisitions noted above partially offset by 2011 reductions in the fair value of acquisition-related contingent consideration . 48 the increased operating loss for concerts was primarily driven by higher costs incurred in 2012 for future events , increased compensation costs and higher amortization partially offset by the timing of global tours and the improved results of our owned and or operated amphitheaters . year ended 2011 compared to year ended 2010 concerts revenue increased $ 67.8 million , or 2 % , during the year ended december 31 , 2011 as compared to the prior year . excluding the increase of $ 99.4 million related to the impact of changes in foreign exchange rates , revenue decreased $ 31.6 million , or 1 % , primarily due to a decrease in events and attendance from our planned show reduction in amphitheaters and reduced global touring activity partially offset by increased shows and attendance in arenas and stadiums . concerts direct operating expenses increased $ 36.1 million , or 1 % , during the year ended december 31 , 2011 as compared to the prior year . excluding the increase of $ 87.1 million related to the impact of changes in foreign exchange rates , direct operating expenses decreased $ 51.0 million , or 2 % , primarily due to fewer amphitheater events and reduced global touring activity as noted above and the impairment of certain artist advances in 2010 partially offset by higher expenses associated with increased arena and stadium activity noted above and costs associated with investments in new festivals launched in 2011. concerts selling , general and administrative expenses increased $ 10.8 million , or 2 % , during the year ended december 21 , 2011 as compared to the prior year driven by an increase of $ 9.3 million related to the impact of changes in foreign exchange rates . concerts depreciation and amortization decreased $ 6.7 million , or 5 % , during the year ended december 31 , 2011 as compared to the prior year . excluding the increase of $ 1.2 million related to the impact of changes in foreign exchange rates , depreciation and amortization decreased $ 7.9 million , or 6 % , primarily due to an impairment charge of $ 31.2 million recorded in 2010 related to a club and a contract intangible compared to an impairment charge in 2011 of $ 24.1 million for two amphitheaters , a music theater , a club and contract intangibles . concerts gain on sale of operating assets was $ 0.9 million for the year ended december 31 , 2011 as compared to $ 4.8 million for the prior year . the 2010 gain was driven by a $ 4.3 million gain on the sale of a music theater in sweden and the final settlement received for the 2009 sale of a music theater in london . the decreased operating loss for concerts was primarily related to improved arena and stadium results and reduced artist costs partially offset by investments in new festivals and reduced results in certain other festivals . ticketing results of operations our ticketing segment operating results were , and discussions of significant variances are , as follows : replace_table_token_13_th * percentages are not meaningful .
| the overall increase in revenue was primarily due to increases in our concerts and ticketing segments of $ 364.2 million and $ 54.7 million , respectively . excluding the decreases of approximately $ 100.4 million related to the impact of changes in foreign exchange rates , revenue increased $ 535.4 million , or 10 % . our revenue increased $ 320.3 million , or 6 % , during the year ended december 31 , 2011 as compared to the prior year . the overall increase in revenue was primarily due to increases in our concerts , ticketing , artist nation and sponsorship & advertising segments of $ 67.8 million , $ 194.6 million , $ 31.0 million and $ 30.6 million , respectively . the overall increase included incremental revenue of $ 77.3 million resulting from the timing of the merger . excluding the increases of approximately $ 132.9 million related to the impact of changes in foreign exchange rates , revenue increased $ 187.4 million , or 4 % . more detailed explanations of the changes for the years ended 2012 and 2011 are included in the applicable segment discussions contained herein . direct operating expenses our direct operating expenses increased $ 361.8 million , or 10 % during the year ended december 31 , 2012 as compared to the prior year . the overall increase in direct operating expenses was primarily due to increases in our concerts and ticketing segments of $ 328.5 million and $ 32.7 million , respectively . excluding the decreases of approximately $ 77.4 million related to the impact of changes in foreign exchange rates , direct operating expenses increased $ 439.2 million , or 12 % . our direct operating expenses increased $ 131.2 million , or 4 % , during the year ended december 31 , 2011 as compared to the prior year . the overall increase in direct operating expenses was primarily due to increases in our concerts , ticketing and artist nation segments of $ 36.1 million , $ 69.6 million and $ 27.9
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matters affecting comparability there were 256 sales days in the full year 2020 versus 255 sales days in the full years 2019 and 2018. the company completed two divestitures and commenced one liquidation in 2020. the company 's operating results have included the results of each business until its respective divestiture or liquidation date . in addition , starting in mid-february 2020 , the company began experiencing elevated levels of covid-19 pandemic-related product sales ( e.g. , personal protective equipment ( ppe ) and safety products ) due to higher customer demand in response to the covid-19 pandemic , while non-pandemic sales have decreased . the incremental demand came primarily from customers on the front-lines of the pandemic , including government , healthcare and other essential businesses , while the demand from non-essential and disrupted industries decreased over the same period due to business activity slowdown or temporary shutdowns . grainger experienced adverse gross margin impacts from sales of lower-margin covid-19 pandemic-related products to the company 's largest , lowest margin customers . 25 results of operations the following table is included as an aid to understanding changes in grainger 's consolidated statements of earnings ( in millions of dollars ) : replace_table_token_6_th 2020 compared to 2019 grainger 's net sales of $ 11,797 million for the year ended december 31 , 2020 increased $ 311 million , or 2.7 % , compared to the same period in 2019. on a daily basis , net sales increased 2.3 % . the increase in net sales was primarily driven by volume/mix , partially offset by price/mix and the impact of business divestitures . during the year ended december 31 , 2020 , the company experienced strong pandemic-related sales volume primarily in the u.s. to large government and healthcare customers . see note 3 to the financial statements for information related to disaggregated revenue . this pandemic-related elevated volume was partially offset by volume declines of non-pandemic related products across most industries . also , sales in the canada business and other international high-touch businesses are down compared to 2019 due to covid-19 business slowdowns . overall , business activity still trails pre-pandemic levels as some customers remain disrupted by covid-19 . see note 15 to the financial statements and refer to the segment analysis below for further details . gross profit of $ 4,238 million for the year ended december 31 , 2020 decreased $ 159 million , or 4 % compared with the same period in 2019. the gross profit margin of 35.9 % decreased 2.4 percentage points when compared to the same period in 2019. this decrease was primarily driven by lower margins from covid-19 pandemic-related products sales in the u.s. and business unit mix impact from higher growth in the lower margin endless assortment businesses . see segment analysis below for further details related to segment gross profit . 26 the following tables ( in millions of dollars ) reconcile reported sg & a , operating earnings and net earnings attributable to w.w. grainger , inc. determined in accordance with generally accepted accounting principles ( gaap ) in the united states of america to adjusted sg & a , operating earnings and net earnings attributable to w.w. grainger , inc. , which are all considered non-gaap measures . the company believes that these non-gaap measures provide meaningful information to assist shareholders in understanding financial results and assessing prospects for future performance as they provide a better baseline for analyzing the ongoing performance of its businesses by excluding items that may not be indicative of core operating results . because non-gaap financial measures are not standardized , it may not be possible to compare these measures with other companies ' non-gaap measures having the same or similar names . these non-gaap measures should not be considered in isolation or as a substitute for reported results . these non-gaap measures reflect an additional way of viewing aspects of operations that , when viewed with gaap results , provide a more complete understanding of the business . twelve months ended december 31 , 2020 2019 % sg & a reported $ 3,219 $ 3,135 3 % restructuring , net ( u.s. ) 6 5 restructuring , net ( canada ) 12 — restructuring , net ( other businesses ) 9 2 restructuring ( unallocated ) — ( 1 ) impairment charges ( other businesses ) 177 120 fabory divestiture ( other businesses ) ( 7 ) — fabory divestiture ( unallocated ) 116 — grainger china divestiture ( unallocated ) ( 5 ) — total restructuring , net , impairment charges and business divestitures 308 126 sg & a adjusted $ 2,911 $ 3,009 ( 3 ) % 2020 2019 % operating earnings reported $ 1,019 $ 1,262 ( 19 ) % total restructuring , net , impairment charges and business divestitures 308 126 operating earnings adjusted $ 1,327 $ 1,388 ( 4 ) % 2020 2019 % net earnings attributable to w.w. grainger , inc. reported $ 695 $ 849 ( 18 ) % total restructuring , net , impairment charges , business divestitures and tax ( 1 ) 182 109 net earnings attributable to w.w. grainger , inc. adjusted $ 877 $ 958 ( 8 ) % ( 1 ) the tax impact of adjustments and non-cash impairments are calculated based on the income tax rate in each applicable jurisdiction , subject to deductibility and the company 's ability to realize the associated tax benefits . sg & a of $ 3,219 million for the year ended december 31 , 2020 increased $ 84 million , or 3 % compared to $ 3,135 million in the same period in 2019. during the first quarter of 2020 , the company recorded a $ 177 million write-down of goodwill , intangibles and long-lived assets from the fabory business and during the second quarter of 2020 , the company recorded a $ 109 million pretax loss from the sale of the fabory business which was the largest contributor to the decline in reported operating earnings . story_separator_special_tag excluding restructuring , net , impairment charges and business divestitures in both periods as noted in the table above , sg & a decreased $ 98 million or 3 % . 27 operating earnings of $ 1,019 million in 2020 decreased $ 243 million , or 19 % compared to $ 1,262 million in the same period in 2019. excluding restructuring , net , impairment charges and business divestitures in both periods as noted in the table above , operating earnings decreased $ 61 million , or 4 % , driven by lower gross profit dollars partially offset by lower sg & a . other expense , net of $ 72 million for the year ended december 31 , 2020 , increased $ 19 million , or 35 % compared to the same period in 2019. the increase was primarily from the costs related to an increase in indebtedness during the year . income taxes of $ 192 million for the year ended december 31 , 2020 decreased $ 122 million , or 39 % compared to $ 314 million for the same period in 2019. this decrease was primarily driven by lower taxable operating earnings for the year , tax losses from the company 's investment in fabory due to the impairment and internal reorganization of the company 's holdings in fabory in the first quarter of 2020 and tax impacts of the fabory divestiture . grainger 's effective tax rates were 20.3 % and 26.0 % for the twelve months ended december 31 , 2020 and 2019 , respectively , and this decrease is primarily due to the fabory tax impacts . net earnings attributable to w.w. grainger , inc. for the year ended december 31 , 2020 decreased $ 154 million , or 18 % to $ 695 million from $ 849 million in the same period in 2019. excluding restructuring , net , impairment charges and business divestitures and income taxes from both periods as noted in the table above , net earnings decreased $ 81 million , or 8 % . the decrease in net earnings primarily resulted from lower gross profit dollars partially offset by lower sg & a . diluted earnings per share was $ 12.82 for the year ended december 31 , 2020 and decreased 16 % compared to $ 15.32 for the same period in 2019 , due to lower net earnings . excluding restructuring , net , impairment charges and business divestitures and income taxes from both periods as noted in the table above , diluted earnings per share would have been $ 16.18 compared to $ 17.29 in 2019 , an decrease of 6 % . 2019 compared to 2018 for the full year 2018 to 2019 comparative discussion , see item 7 : management 's discussion and analysis of financial condition and results of operations - story_separator_special_tag style= '' color : # 000000 ; font-family : 'arial ' , sans-serif ; font-size:10pt ; font-style : italic ; font-weight:400 ; line-height:120 % '' > segment analysis - 2019 compared to 2018 in grainger 's annual report on form 10-k for the fiscal year ended december 31 , 2019. financial condition grainger believes that , assuming its operations are not significantly impacted by the covid-19 pandemic for a prolonged period , its current level of cash and cash equivalents , marketable securities and availability under its revolving credit facilities will be sufficient to meet its liquidity needs . grainger expects to continue to invest in its business and return excess cash to shareholders through cash dividends and share repurchases , which it plans to fund through total available liquidity and cash flows generated from operations . grainger also maintains access to capital markets and may issue debt or equity securities from time to time , which may provide an additional source of liquidity . for the full year 2018 discussion , see item 7 : management 's discussion and analysis of financial condition and results of operations - financial condition in grainger 's annual report on form 10-k for the fiscal year ended december 31 , 2019. cash and cash equivalents at december 31 , 2020 and 2019 , grainger had cash and cash equivalents of $ 585 million and $ 360 million , respectively . this increase in cash is primarily due to cash flows from operations , delayed capital investments and temporarily reduced share repurchase program . approximately 54 % and 69 % of cash and cash equivalents were outside the u.s. as of december 31 , 2020 and 2019 , respectively . grainger has no material limits or restrictions on its ability to use these foreign liquid assets . cash flows 2020 compared to 2019 net cash provided by operating activities was $ 1,123 million and $ 1,042 million for the years ended december 31 , 2020 and 2019 , respectively . the increase in cash provided by operating activities is primarily the result of lower net payments related to employee variable compensation and benefits paid under annual incentive plans and lower tax payments , partially offset by investments in working capital . net cash used in investing activities was $ 179 million and $ 202 million for the years ended december 31 , 2020 and 2019 , respectively . this decrease in net cash used in investing activities was primarily driven by lower additions to property , buildings and equipment and intangibles . 30 net cash used in financing activities was $ 726 million and $ 1,023 million in the years ended december 31 , 2020 and 2019 , respectively . the decrease in net cash used in financing activities was primarily driven by increased borrowings of long term debt and lower treasury stock repurchases . working capital internally generated funds are the primary source of working capital and growth initiatives including capital expenditures . grainger 's working capital is not impacted by significant seasonality trends throughout the year . working capital consists of current assets ( less non-operating cash ) and current liabilities ( less short-term debt , current maturities of long-term debt and lease liabilities ) .
| sg & a for the year ended december 31 , 2020 decreased 2 % compared to the same period in 2019 , which is primarily driven by reduced travel and depreciation expenses partially offset by incremental operating costs to support the u.s. business response to the covid-19 pandemic and related activities . operating earnings of $ 1,299 million decreased $ 92 million , or 7 % from $ 1,391 million in the same period of 2019. this decrease was driven primarily by lower gross profit dollars . canada net sales were $ 476 million for the year ended december 31 , 2020 , a decrease of $ 53 million , or 9.9 % when compared with $ 529 million for 2019. on a daily basis , net sales decreased 10.3 % and consisted of the following : percent decrease volume ( including product mix ) ( 8.4 ) % price and customer mix ( 1.0 ) foreign exchange ( 0.9 ) total ( 10.3 ) % for the year ended december 31 , 2020 , volume decreased by 8.4 percentage points compared to the same period in 2019 primarily due to market declines partially offset by covid-19 pandemic-related product sales . during the first half of 2020 , global oil prices declined sharply as a result of market forces . more than a fifth of sales for the canada business are derived from the oil industry or ancillary segments . this current low oil price environment could further reduce demand for the business , which is already negatively impacted by the covid-19 pandemic . gross profit margin decreased 2.9 percentage points in 2020 compared to the same period in 2019 primarily due to negative price cost spread and covid-19 pandemic-related mix impact . sg & a decreased $ 13 million , or 7 % in 2020 compared to the same period in 2019. excluding restructuring , net in both periods as noted in the table above , sg & a would have decreased $ 25 million , or 14 % compared to the prior period . this decrease was primarily due to lower variable costs from lower sales and cost management actions to improve sg & a leverage .
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strength ratings of our insurance subsidiaries and the adverse effect such action may have on the premium writings , policy retention , profitability of our insurance subsidiaries and liquidity ; · significant credit , accounting , fraud , corporate governance or other issues that may adversely affect the value of certain investments in our portfolios , as well as counterparties to which we are exposed to credit risk , requiring that we realize losses on investments ; · inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others ; · interruption in telecommunication , information technology or other operational systems or failure to safeguard the confidentiality or privacy of sensitive data on such systems ; · the effect of acquisitions and divestitures , restructurings , product withdrawals and other unusual items ; · the adequacy and collectibility of reinsurance that we have purchased ; · acts of terrorism , a pandemic , war or other man-made and natural catastrophes that may adversely affect our businesses and the cost and availability of reinsurance ; · competitive conditions , including pricing pressures , new product offerings and the emergence of new competitors , that may affect the level of premiums and fees that our subsidiaries can charge for their products ; · the unknown effect on our subsidiaries ' businesses resulting from changes in the demographics of their client base , as aging baby-boomers move from the asset-accumulation stage to the asset-distribution stage of life ; and · loss of key management , financial planners or wholesalers . the risks included here are not exhaustive . other sections of this report , quarterly reports on form 10-q , current reports on form 8-k and other documents filed with the securities and exchange commission ( “ sec ” ) include additional factors that could affect our businesses and financial performance , including “ part i – item 1a . risk factors ” and “ item 7a . quantitative and qualitative disclosures about market risk , ” which are incorporated herein by reference . moreover , we operate in a rapidly changing and competitive environment . new risk factors emerge from time to time , and it is not possible for management to predict all such risk factors . further , it is not possible to assess the effect of all risk factors on our businesses or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those contained in any forward-looking statements . given these risks and uncertainties , investors should not place undue reliance on forward-looking statements as a prediction of actual results . in addition , we disclaim any obligation to update any forward-looking statements to reflect events or circumstances that occur after the date of this report . introduction executive summary we are a holding company that operates multiple insurance and retirement businesses through subsidiary companies . through our business segments , we sell a wide range of wealth protection , accumulation and retirement income products and solutions . these products include fixed and indexed annuities , variable annuities , universal life insurance ( “ ul ” ) , variable universal life insurance ( “ vul ” ) , linked-benefit universal life , indexed ul , term life insurance , employer-sponsored retirement plans and services , and group life , disability and dental . we provide products and services and report results through our annuities , retirement plan services , life insurance and group protection segments . we also have other operations . these segments and other operations are described in “ part i – item 1. business ” above . for information on how we derive our revenues , see the discussion in results of operations by segment below . current market conditions although improvements in certain market conditions have occurred during 2013 , the following factors are weighing on and threatening continued economic recovery and financial stability : · modest global and domestic growth : § slowly improving u.s. unemployment rate ; and § signs of slowing u.s. housing market recovery ; 34 · tapering of u nconventional accommodative monetary policy ; and · inflation remaining below the federal reserve target of 2 % . the federal reserve 's forecast for 2014 , as reported in december of 2013 , leaves its broader projections for economic growth and inflation little changed . in the face of these econ omic challenges , we are focus ed on building our businesses through these challenging markets by continuing to reprice products , expand distribution into new and existing key accounts and channels and target market segments that have high growth potential while maintaining a disciplined approach to managing our expenses . significant operational matters earnings from account values the annuities and retirement plan services segments are the most sensitive to the equity markets , as well as , to a lesser extent , our life insurance segment . we discuss the earnings effect of the equity markets on account values and the related asset-ba sed earnings below in “ item 7a . quantitative and qualitative disclosures about market risk – equity market risk – effect of equity market sensitivity. ” account values increased $ 29.1 billion during 2013 driven primarily by an increase in equity markets and positive net flows . variable annuity hedge program performance we offer variable annuity products with living benefit guarantees . as described below in “ critical accounting policies and estimates – derivatives – guaranteed living benefits , ” we use derivative instruments to hedge our exposure to the risks and earnings volatility that result from the guaranteed living benefit ( “ glb ” ) embedded derivatives in certain of our variable annuity products . story_separator_special_tag the change in fair value of these instruments tends to move in the opposite direction of the change in embedded derivative reserves . these results are excluded from the annuities and retirement plan services segments ' operating revenues and income from operations . see “ realized gain ( loss ) and benefit ratio unlocking – variable annuity net derivatives results ” below for information on our methodology for calculating the non-performance risk ( “ npr ” ) , which affects the discount rate used in the calculation of the glb embedded derivative reserves . we also offer variable products with death benefit guarantees . as described below in “ critical accounting policies and estimates – future contract benefits and other contract holder obligations – guaranteed death benefits , ” we use derivative instruments to attempt to hedge the income statement effect in the opposite direction of the guaranteed death benefit ( “ gdb ” ) benefit ratio unlocking for movements in equity markets . these results are excluded from income ( loss ) from operations . the costs of derivative instruments that we use to hedge these variable annuity products may increase as a result of the low interest rate environment . products we completed our pivot to higher return life i nsurance products in the low interest rate en vironment by shifting our focus toward products , such as vul , indexed ul , flexible premium moneyguard ® and term insurance . these pivot products comprised 62 % of our total life sales in 2013 , as compared to 47 % in 2012. we also remain focused on shifting our production to more non-guaranteed products and increasing our margins related to mortality and morbidity . interest rate ri sk because the profitability of our business depends in part on interest rate spreads , interest rate fluctuations could negatively affect our profitability . changes in interest rates may reduce both our profitability from spread businesses and our return on invested capital . thus , low interest rates negatively impact margins while rapidly rising interest rates can result in increased surrenders . gradually rising interest rates are likely to be beneficial to our profitability . some of our products , principally our fixed annuities , ul and vul , have interest rate guarantees that expose us to the risk that changes in interest rates or prolonged low interest rates will reduce our spread , or the difference between the interest that we are required to credit to contracts and the yields that we are able to earn on our general account investments supporting our obligations under the contracts . although we have been proactive in our investment strategies , product designs , crediting rate strategies and overall asset-liability practices to mitigate the risk of unfavorable consequences in this type of environment , declines in our spread , or instances where the returns on our general account investments are not enough to support the interest rate guarantees on these products , could have an adverse effect on some of our businesses or results of operations . w e have provided disclosures around the effects of sustained low interest rates in “ part i – item 1a . risk factors – changes in interest rates and sustained low interest rates may cause interest rate spreads to decrease and changes in interest rates may also result in increased contract withdrawals ” and “ effect of interest rate sensitivity ” and “ interest rate risk on fixed insurance businesses – falling rates ” in “ item 7a . quantitative an d qualitative disclosures about market risk – interest rate risk . ” 35 improvement of return on equity one of our highest priorities continues to be increasing our return on equity ( “ roe ” ) . growth in roe will be driven by a number of items including : · earnings mix shift to businesses with higher returns ; · sales of products that have higher returns than the products already in force ; and · capital management actions consisting of redeployment of excess capital ( including returning capital to common stockholders ) and further generation of excess capital . strategic investments we continue to make strategic investments in our businesses to grow revenues , further spur productivity and improve our efficiency and service to our customers . these efforts include investments in technology and system upgrades , new products for the voluntary market and expanded distribution focus . industry trends we continue to be influenced by a variety of trends that affect the industry . financial environment the level of long-term interest rates and the shape of the yield curve can have a negative effect on the demand for and the profitability of spread-based products such as fixed annuities and ul . a flat or inverted yield curve and low long-term interest rates will be a concern if new money rates on corporate bonds are lower than our overall life insurer investment portfolio yields . equity market performance can also affect the profitability of life insur ers , as product demand and fee income from variable annuities and fee income from pension products tied to separate account balances often reflect equity market performance . a steady economy is important as it provides for continuing demand for insurance and investment-type products . insurance premium growth , with respect to group life and disability products , for example , is closely tied to employers ' total payroll growth . additionally , the potential market for these products is expanded by new business creation . demographics in the coming decade , a key driver shaping the actions of the insurance industry will be the escalation of income protection and wealth accumulation goals and needs of the retiring baby-boomers .
| these analyses required us to make judgments about new business revenues , earnings projections , capital market assumptions and discount rates . the key assumptions used in the analyses to determine the implied fair value of goodwill for life insurance and group protection included : · new business for 10 years ; · expense synergies assumption that would be expected to be realized in a market-participant transaction similar to prior market observable transactions and our prior experience ; and 41 · interest rates used to discount new business cash flows ; we considered discount rates ranging from 9 % to 11 % for life insurance and 8.5 % to 9.5 % for group protection based on the weighted average cost of capital adjusted for the risk factors associated with the operations . based upon our step 2 analysis for life insurance and group protection , we determined that there was no impairment . outlook factors that can influence the value of goodwill include the capital markets , competitive landscape , regulatory environment , consumer confidence and any items that can directly or indirectly affect new business future cash flows . for example , unfavorable changes to assumptions as compared to our october 1 , 2013 , analysis or factors that could result in impairment include , but are not limited to , the following : · lower expectations for future sales levels or future sales profitability ; · higher discount rates on new business assumptions ; · weakened expectations for the ability to execute future reinsurance transactions for life insurance business over the long-term or expectations for significant increases in the associated costs ; · legislative , regulatory or tax changes that affect the cost of , or demand for , our subsidiaries ' products , the required amount of reserves and or surplus , or otherwise affect our ability to conduct business , including changes to statutory reserve requirements or changes to risk-based capital ( “ rbc ” ) requirements ; and · valuations of mergers or acquisitions of companies or blocks of business that would provide
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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 consultant level there are fixed and variable components of compensation . individuals are largely rewarded for their performance based on a system that directly ties a significant 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 a 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 consultants and accrue variable compensation accordingly . the amount of variable compensation that is accrued for each consultant is based on a tiered payout model and adjusted for overall company performance . 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 . the mix of individual consultants who generate the revenue can significantly affect the total amount of compensation expense recorded , which directly impacts operating margins . 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 our consultants ' and management cash bonuses are deferred and paid over a three-year vesting period . 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 our 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 employee benefits and other non-current liabilities in the consolidated balance sheets . 2013 overview consolidated net revenue of $ 462.0 million increased 4.1 % or $ 18.2 million in 2013 , compared to 2012. culture shaping and executive search in the americas contributed $ 24.8 million and $ 2.3 million , respectively to the increase in net revenue . net revenue decreased $ 8.9 million in executive search and leadership consulting - europe and remained consistent year over year in executive search and leadership consulting - asia pacific . 20 consultant productivity measured by net executive search and leadership consulting revenue per consultant was $ 1.4 million for the year ended december 31 , 2013 , compared to $ 1.3 million for the year ended december 31 , 2012. average revenue per executive search was $ 113,400 for the year ended december 31 , 2013 compared to $ 113,700 for the year ended december 31 , 2012. operating income as a percentage of net revenue was 3.4 % in 2013 compared to 4.4 % in 2012. the operating income was driven by an increase in net revenue of $ 18.2 million and a decrease in restructuring charges of $ 0.8 million , offset by increases in general and administrative expenses of $ 13.1 million , including $ 5.4 million of intangible asset amortization and $ 2.1 million of accretion expense associated with the acquisition of senn delaney , and salaries and employee benefits expense of $ 10.0 million salaries and employee benefits expense as a percentage of net revenue was 69.7 % in 2012 and 69.2 % in 2013. general and administrative expense as a percentage of net revenue was 25.6 % in 2012 and 27.5 % in 2013. we ended the year with a combined cash and cash equivalents balance of $ 181.6 million , an increase of $ 64.0 million compared to $ 117.6 million at december 31 , 2012. the increase is primarily due to a borrowing of $ 40 million in january of 2013 to compensate for the cash payments in the fourth quarter of 2012 of $ 60 million related to the acquisition of senn delaney . we pay the majority of bonuses in the first quarter following the year in which they were earned . employee bonuses are accrued throughout the year and are based on the company 's performance and the performance of the individual employee . we expect to pay approximately $ 85 million in bonuses related to 2013 performance in march and april 2014. in february 2014 , we paid approximately $ 10 million in cash bonuses deferred in prior years . 2014 outlook we are currently forecasting 2014 first quarter net revenue of between $ 110 million and $ 120 million . our 2014 first quarter guidance is based upon , among other things , management 's assumptions for the anticipated volume of new executive search confirmations and leadership consulting and culture shaping projects , the current backlog , consultant productivity , consultant retention , the seasonality of our business and no change in future currency rates . our 2014 first quarter guidance is subject to a number of risks and uncertainties , including those disclosed under risk factors and management 's discussion and analysis of financial condition and results of operations included in this form 10-k ( see item 1a . risk factors ) . as such , actual results could vary from these projections . 21 story_separator_special_tag arrangements , partially offset by $ 0.3 million of adjustments to premise-related costs . operating income . our consolidated operating income was $ 15.6 million in 2013 compared to $ 19.6 million in 2012. for segment purposes , restructuring charges are not included in operating income by segment . we believe that analyzing trends in operating income excluding restructuring charges more appropriately reflects our core operations . story_separator_special_tag 25 executive search and leadership consulting americas the americas reported operating income of $ 69.6 million in 2013 , an increase of $ 8.0 million compared to $ 61.6 million in 2012. the increase in operating income is due to an increase in net revenue of $ 2.3 million and a decrease in salaries and employee benefits expense of $ 7.4 million partially offset by an increase in general and administrative expense of $ 1.7 million . the increase in revenue was due to increases in the financial services , global technology & services and healthcare & life sciences practices , partially offset by decreases in the consumer markets , educational & social enterprises and industrial search practices and leadership consulting . the number of consultants was 126 as of december 31 , 2013 , compared to 154 as of december 31 , 2012. the decrease in salaries and employee benefits expense is due to a $ 14.9 million decrease in fixed compensation , partially offset by an increase in performance-related compensation of $ 7.4 million . fixed compensation declined due to decreases in salaries , payroll taxes and employee benefits of $ 8.0 million due primarily to lower headcount , a decrease in sign-on and minimum guarantee expense of $ 5.2 million and a decrease in retention related awards of $ 1.9 million . the increase in performance based compensation is due primarily to consultant and company performance . europe europe reported an operating loss of $ 7.1 million in 2013 , a decrease of $ 10.2 million compared to operating income of $ 3.0 million 2012. the decrease in operating income is due primarily to a decrease in net revenue of $ 8.9 million and increases in general and administrative expense of $ 1.2 million and salaries and employee benefits expense of $ 0.1 million . the decrease in net revenue was across all search practices , except healthcare & life sciences and in leadership consulting . the number of consultants was 83 as of december 31 , 2013 compared to 93 as of december 31 , 2012. the increase in general and administrative expense was due primarily to $ 0.8 million of travel costs and $ 0.3 million of bad debt expense . asia pacific asia pacific reported operating income of $ 5.5 million in 2013 , an increase of $ 1.7 million compared to operating income of $ 3.8 million in 2012. the increase is due to a decrease of $ 2.5 million in salaries and employee benefits , partially offset by an increase in general and administrative expenses of $ 0.9 million . the increase in net revenue was less than $ 0.1 million . net revenue increased in the industrial search practice and leadership consulting , but was partially offset by declines in all other search practices . the number of executive search and leadership consulting consultants was 84 as of december 31 , 2013 and december 31 , 2012. the decrease in salaries and employee benefits expense reflects a $ 5.6 million decrease in fixed compensation due primarily to a $ 3.9 million decline in base salaries , payroll taxes and other fixed employee benefits and a $ 1.7 million decline in sign-on and minimum guarantee expense . the decrease in fixed compensation was partially offset by an increase of $ 3.1 million in performance-related compensation primarily due to consultant and company performance . culture shaping culture shaping reported net revenue of $ 24.8 million and an operating loss of $ 4.3 million for the year ended december 31 , 2013. fixed salaries and employee benefits were $ 14.0 million , including $ 2.3 million of retention awards . discretionary compensation was $ 2.6 million . general and administrative expense was $ 12.5 million including $ 5.4 million of intangible amortization expense and $ 2.1 million of accretion expense associated with earnout payments . 26 global operations support global operations support expenses were $ 48.1 million in 2013 , an increase of $ 0.2 million compared to $ 47.9 million in 2012. salaries and employee benefits expense increased $ 3.3 million , partially offset by a decline in general and administrative expense of $ 3.2 million . salaries and employee benefits expense in 2013 includes $ 3.0 million of expense related to a separation agreement with the company 's former chief executive officer . fixed compensation decreased $ 0.6 million due to a decrease in severance unrelated to the former chief executive officer of $ 1.4 million partially offset by increases in base salaries , payroll taxes and other fixed employee benefits of $ 0.7 million . discretionary compensation increased $ 0.9 million due to higher net revenue and company performance . general and administrative expense decreased due to declines in professional fees of $ 2.0 million , senn delaney acquisition costs of $ 1.4 million and $ 0.3 million of expenses associated with our global partner meeting in 2012 , partially offset by a $ 0.5 million increase in our system related costs . net non-operating income ( expense ) . net non-operating expense was $ 2.2 million in 2013 compared to net non-operating income of $ 0.6 million in 2012. net interest expense in 2013 was $ 0.2 million , compared to net interest income of $ 1.1 million in 2012. interest expense associated with our 2013 borrowings was $ 0.9 million in 2013 offset by $ 0.7 million of interest income . net other non-operating expense was $ 2.0 million in 2013 compared to $ 0.5 million in 2012. net other non-operating expense primarily consists of exchange gains and losses on balance sheet amounts , which are denominated in currencies other than the functional currency and are not considered permanent in nature . income taxes . see note 19 , income taxes . 2012 compared to 2011 total revenue .
| culture shaping net revenue was $ 24.8 million in 2013. the number of confirmed executive searches decreased less than one percent compared to 2012. the number of executive search and leadership consulting consultants was 293 as of december 31 , 2013 compared to 342 as of december 31 , 2012. productivity , as measured by annualized net executive search and leadership consulting revenue per average consultant was $ 1.4 million for the year ended december 31 , 2013 compared to $ 1.3 million for the year ended december 31 , 2012 , and average revenue per executive search was $ 113,400 for the year ended december 31 , 2013 compared to $ 113,700 for the year ended december 31 , 2012. net revenue in the americas segment was $ 256.7 million in 2013 , an increase of $ 2.3 million , or 0.9 % from $ 254.4 million in 2012. the impact of exchange rate fluctuations in canada and latin america resulted in less than one percentage point of the increase in 2013. net revenue in the europe segment was $ 90.1 million in 2013 , 24 a decrease of $ 8.9 million , or 9.0 % from $ 99.0 million in 2012. the impact of exchange rate fluctuations resulted in less than one percentage points of the decrease in 2013. net revenue in the asia pacific segment was $ 90.4 million in 2013 and 2012. the negative impact of exchange rate fluctuations was $ 3.8 million ( approximately 4 percentage points ) in 2013. salaries and employee benefits . consolidated salaries and employee benefits expense increased $ 10.0 million or 3.2 % to $ 319.5 million in 2013 from $ 309.5 million in 2012. salaries and employee benefits in 2013 includes $ 16.6 million of senn delaney salaries and benefit costs and $ 3.0 million of expense related to a separation agreement with the company 's former chief executive officer . excluding these costs , fixed salaries and employee benefits expense decreased $ 21.3 million . this decrease was due to a $ 12.5 million reduction in salaries , payroll taxes and other employee benefits primarily due to lower headcount , $ 6.5 million due to lower sign-on and minimum guarantee expense and $ 2.7 million lower amortization of retention related bonus payments , partially offset by an increase in severance of $ 0.5 million . these decreases were offset by an increase in discretionary compensation of $ 11.7
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